PART VIII- Pledge (Articles 2085-2123) Essentially, petitioner claims that the tractor in question was validly pledged
to him by private respondents son Mike Abella to answer for the latters monetary
I. Provisions Common to Pledge ad Mortgage
SECOND DIVISION
[G.R. No. 120528. January 29, 2001]
ATTY. DIONISIO CALIBO, JR., petitioner, vs. COURT OF APPEALS and DR.
PABLO U. ABELLA, respondents.
DECISION
QUISUMBING, J.:
Before us is the petition for review on certiorari by petitioner Dionisio Calibo,
Jr., assailing the decision of the Court of Appeals in CA-G.R. CV No. 39705, which
affirmed the decision of the Regional Trial Court of Cebu, Branch 11, declaring
private respondent as the lawful possessor of a tractor subject of a replevin suit and
ordering petitioner to pay private respondent actual damages and attorneys fees.
The facts of the case, as summarized by respondent court, are undisputed.
on January 25, 1979, plaintiff-appellee [herein petitioner] Pablo U. Abella purchased
an MF 210 agricultural tractor with Serial No. 00105 and Engine No. P126M00199
(Exhibit A; Record, p.5) which he used in his farm in Dagohoy, Bohol.
Sometime in October or November 1985, Pablo Abellas son, Mike Abella rented for
residential purposes the house of defendant-appellant Dionisio R. Calibo, Jr., in
Tagbilaran City.
In October 1986, Pablo Abella pulled out his aforementioned tractor from his farm
in Dagohoy, Bohol, and left it in the safekeeping of his son, Mike Abella, in
Tagbilaran City. Mike kept the tractor in the garage of the house he was leasing
from Calibo.
Since he started renting Calibos house, Mike had been religiously paying the
monthly rentals therefor, but beginning November of 1986, he stopped doing
so. The following month, Calibo learned that Mike had never paid the charges for
electric and water consumption in the leased premises which the latter was duty-
bound to shoulder. Thus, Calibo confronted Mike about his rental arrears and the
unpaid electric and water bills. During this confrontation, Mike informed Calibo that
he (Mike) would be staying in the leased property only until the end of December
1986. Mike also assured Calibo that he would be settling his account with the latter,
offering the tractor as security. Mike even asked Calibo to help him find a buyer for
the tractor so he could sooner pay his outstanding obligation.
In January 1987 when a new tenant moved into the house formerly leased to Mike,
Calibo had the tractor moved to the garage of his fathers house, also in Tagbilaran
City.
Apprehensive over Mikes unsettled account, Calibo visited him in his Cebu City
address in January, February and March, 1987 and tried to collect payment. On all
three occasions, Calibo was unable to talk to Mike as the latter was reportedly out
of town. On his third trip to Cebu City, Calibo left word with the occupants of the
Abella residence thereat that there was a prospective buyer for the tractor.The
following week, Mike saw Calibo in Tagbilaran City to inquire about the possible
tractor buyer. The sale, however, did not push through as the buyer did not come
back anymore. When again confronted with his outstanding obligation, Mike
reassured Calibo that the tractor would stand as a guarantee for its payment. That
was the last time Calibo saw or heard from Mike.
After a long while, or on November 22, 1988, Mikes father, Pablo Abella, came to
Tagbilaran City to claim and take possession of the tractor. Calibo, however,
informed Pablo that Mike left the tractor with him as security for the payment of
Mikes obligation to him. Pablo offered to write Mike a check for P2,000.00 in
payment of Mikes unpaid lease rentals, in addition to issuing postdated checks to
cover the unpaid electric and water bills the correctness of which Pablo said he still
had to verify with Mike. Calibo told Pablo that he would accept the P2,000.00-check
only if the latter would execute a promissory note in his favor to cover the amount
of the unpaid electric and water bills. Pablo was not amenable to this proposal. The
two of them having failed to come to an agreement, Pablo left and went back to
Cebu City, unsuccessful in his attempt to take possession of the tractor. [1]
On November 25, 1988, private respondent instituted an action for replevin,
claiming ownership of the tractor and seeking to recover possession thereof from
petitioner. As adverted to above, the trial court ruled in favor of private respondent;
so did the Court of Appeals when petitioner appealed.
The Court of Appeals sustained the ruling of the trial court that Mike Abella
could not have validly pledged the subject tractor to petitioner since he was not the
owner thereof, nor was he authorized by its owner to pledge the
tractor. Respondent court also rejected petitioners contention that, if not a pledge,
then a deposit was created. The Court of Appeals said that under the Civil Code, the
primary purpose of a deposit is only safekeeping and not, as in this case, securing
payment of a debt.
The Court of Appeals reduced the amount of actual damages payable to
private respondent, deducting therefrom the cost of transporting the tractor from
Tagbilaran, Bohol, to Cebu City.
Hence, this petition.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
obligations to petitioner. In the alternative, petitioner asserts that the tractor was
left with him, in the concept of an innkeeper, on deposit and that he may validly
hold on thereto until Mike Abella pays his obligations.
Petitioner maintains that even if Mike Abella were not the owner of the
tractor, a principal-agent relationship may be implied between Mike Abella and
private respondent. He contends that the latter failed to repudiate the alleged
agency, knowing that his son is acting on his behalf without authority when he
pledged the tractor to petitioner. Petitioner argues that, under Article 1911 of the
Civil Code, private respondent is bound by the pledge, even if it were beyond the
authority of his son to pledge the tractor, since he allowed his son to act as though
he had full powers.
On the other hand, private respondent asserts that respondent court had
correctly ruled on the matter.
In a contract of pledge, the creditor is given the right to retain his debtors
movable property in his possession, or in that of a third person to whom it has been
delivered, until the debt is paid. For the contract to be valid, it is necessary that: (1)
the pledge is constituted to secure the fulfillment of a principal obligation; (2) the
pledgor be the absolute owner of the thing pledged; and (3) the person constituting
the pledge has the free disposal of his property, and in the absence thereof, that he
be legally authorized for the purpose.[2]
As found by the trial court and affirmed by respondent court, the pledgor in
this case, Mike Abella, was not the absolute owner of the tractor that was allegedly
pledged to petitioner. The tractor was owned by his father, private respondent, who
left the equipment with him for safekeeping. Clearly, the second requisite for a valid
pledge, that the pledgor be the absolute owner of the property, is absent in this
case. Hence, there is no valid pledge.
He who is not the owner or proprietor of the property pledged or mortgaged to
guarantee the fulfillment of a principal obligation, cannot legally constitute such a
guaranty as may validly bind the property in favor of his creditor, and the pledgee
or mortgagee in such a case acquires no right whatsoever in the property pledged
or mortgaged.[3]
There also does not appear to be any agency in this case. We agree with the
Court of Appeals that:
As indicated in Article 1869, for an agency relationship to be deemed as implied, the
principal must know that another person is acting on his behalf without
authority. Here, appellee categorically stated that the only purpose for his leaving
the subject tractor in the care and custody of Mike Abella was for safekeeping, and
definitely not for him to pledge or alienate the same. If it were true that Mike
pledged appellees tractor to appellant, then Mike was acting not only without
appellees authority but without the latters knowledge as well.
Article 1911, on the other hand, mandates that the principal is solidarily liable with
the agent if the former allowed the latter to act as though he had full powers. Again,
in view of appellees lack of knowledge of Mikes pledging the tractor without any
authority from him, it stands to reason that the former could not have allowed the
latter to pledge the tractor as if he had full powers to do so. [4]
There is likewise no valid deposit in this case. In a contract of deposit, a
person receives an object belonging to another with the obligation of safely
keeping it and of returning the same.[5] Petitioner himself states that he received the
tractor not to safely keep it but as a form of security for the payment of Mike
Abellas obligations. There is no deposit where the principal purpose for receiving
the object is not safekeeping.[6]
Consequently, petitioner had no right to refuse delivery of the tractor to its
lawful owner. On the other hand, private respondent, as owner, had every right to
seek to repossess the tractor, including the institution of the instant action for
replevin.
We do not here pass upon the other assignment of errors made by petitioner
concerning alleged irregularities in the raffle and disposition of the case at the trial
court. A petition for review on certiorari is not the proper vehicle for such
allegations.
WHEREFORE, the instant petition is DENIED for lack of merit, and the
decision of the Court of Appeals in CA-G.R. CV No. 39705 is AFFIRMED. Costs
against petitioner.
SO ORDERED.
THIRD DIVISION
DEVELOPMENT BANK OF G.R. No. 143772
THE PHILIPPINES,
Petitioner,
Present:
PANGANIBAN, J., Chairman,
- v e r s u s - CORONA,
CARPIO MORALES and
Page 1 of 152
PRUDENTIAL BANK,
Respondent. November 22, 2005
x--------------------------x
DECISION
CORONA, J.:
Development Bank of the Philippines (DBP) assails in this petition for
review on certiorari under Rule 45 of the Rules of Court the December 14, 1999
decision[1] and the June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No.
45783. The challenged decision dismissed DBPs appeal and affirmed the February
12, 1991 decision of the Regional Trial Court of Makati, Branch 137 in Civil Case No.
88-931 in toto, while the impugned resolution denied DBPs motion for
reconsideration for being pro forma.
In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of
credit with respondent Prudential Bank for US$498,000. This was in connection with
its importation of 5,000 spindles for spinning machinery with drawing frame,
simplex fly frame, ring spinning frame and various accessories, spare parts and tool
gauge. These were released to Litex under covering trust receipts it executed in
favor of Prudential Bank. Litex installed and used the items in its textile mill located
in Montalban, Rizal.
On October 10, 1980, DBP granted a foreign currency loan in the
amount of US$4,807,551 to Litex. To secure the loan, Litex executed real estate and
chattel mortgages on its plant site in Montalban, Rizal, including the buildings and
other improvements, machineries and equipments there. Among the machineries
and equipments mortgaged in favor of DBP were the articles covered by the trust
receipts.
Sometime in June 1982, Prudential Bank learned about DBPs plan for the
overall rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank notified DBP
of its claim over the various items covered by the trust receipts which had been
installed and used by Litex in the textile mill. Prudential Bank informed DBP that it
was the absolute and juridical owner of the said items and they were thus not part
of the mortgaged assets that could be legally ceded to DBP.
For the failure of Litex to pay its obligation, DBP extra-judicially
foreclosed on the real estate and chattel mortgages, including the articles claimed
by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP acquired
the foreclosed properties as the highest bidder.
Subsequently, DBP caused to be published in the September 2, 1984
issue of the Times Journal an invitation to bid in the public sale to be held on
September 10, 1984. It called on interested parties to submit bids for the sale of the
textile mill formerly owned by Litex, the land on which it was built, as well as the
machineries and equipments therein. Learning of the intended public auction,
Prudential Bank wrote a letter dated September 6, 1984 to DBP reasserting its claim
over the items covered by trust receipts in its name and advising DBP not to include
them in the auction. It also demanded the turn-over of the articles or alternatively,
the payment of their value.
An exchange of correspondences ensued between Prudential Bank and
DBP. In reply to Prudential Banks September 6, 1984 letter, DBP requested
documents to enable it to evaluate Prudential Banks claim. On September 28, 1994,
Prudential Bank provided DBP the requested documents. Two months later,
Prudential Bank followed up the status of its claim. In a letter dated December 3,
1984, DBP informed Prudential Bank that its claim had been referred to DBPs legal
department and instructed Prudential Bank to get in touch with its chief legal
counsel. There being no concrete action on DBPs part, Prudential Bank, in a letter
dated July 30, 1985, made a final demand on DBP for the turn-over of the contested
articles or the payment of their value. Without the knowledge of Prudential Bank,
however, DBP sold the Litex textile mill, as well as the machineries and equipments
therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987.
Since its demands remained unheeded, Prudential Bank filed a
complaint for a sum of money with damages against DBP with the Regional Trial
Court of Makati, Branch 137, on May 24, 1988. The complaint was docketed as Civil
Case No. 88-931.
On February 12, 1991, the trial court decided [2] in favor of Prudential
Bank. Applying the provisions of PD 115, otherwise known as the Trust Receipts Law,
it ruled:
When PRUDENTIAL BANK released possession of
the subject properties, over which it holds absolute title to
LITEX upon the latters execution of the trust receipts, the
latter was bound to hold said properties in trust for the
former, and (a) to sell or otherwise dispose of the same and
to turn over to PRUDENTIAL BANK the amount still owing; or
(b) to return the goods if unsold. Since LITEX was allowed to
sell the properties being claimed by PRUDENTIAL BANK, all
the more was it authorized to mortgage the same, provided
of course LITEX turns over to PRUDENTIAL BANK all amounts
owing. When DBP, well aware of the status of the properties,
acquired the same in the public auction, it was bound by the
terms of the trust receipts of which LITEX was the entrustee.
Simply stated, DBP held no better right than LITEX, and is
thus bound to turn over whatever amount was due
PRUDENTIAL BANK. Being a trustee ex maleficio of
PRUDENTIAL BANK, DBP is necessarily liable therefor. In fact,
CRED TRANS Pledge, Mortgage Antichresis Fulltext
DBP may well be considered as an agent of LITEX when the
former sold the properties being claimed by PRUDENTIAL
BANK, with the corresponding responsibility to turn over the
proceeds of the same to PRUDENTIAL BANK. [3] (Citations
omitted)
The dispositive portion of the decision read:
WHEREFORE, judgment is hereby rendered
ordering defendant DEVELOPMENT BANK OF THE
PHILIPPINES to pay plaintiff PRUDENTIAL BANK:
a) P3,261,834.00, as actual damages, with interest
thereon computed from 10 August 1985 until the
entire amount shall have been fully paid;
b) P50,000.00 as exemplary damages; and
c) 10% of the total amount due as and for attorneys
fees.
SO ORDERED.
Aggrieved, DBP filed an appeal with the Court of Appeals. However, the
appellate court dismissed the appeal and affirmed the decision of the trial court in
toto. It applied the provisions of PD 115 and held that ownership over the contested
articles belonged to Prudential Bank as entrustor, not to Litex. Consequently, even if
Litex mortgaged the items to DBP and the latter foreclosed on such mortgage, DBP
was duty-bound to turn over the proceeds to Prudential Bank, being the party that
advanced the payment for them.
On DBPs argument that the disputed articles were not proper objects of
a trust receipt agreement, the Court of Appeals ruled that the items were part of the
trust agreement entered into by and between Prudential Bank and Litex. Since the
agreement was not contrary to law, morals, public policy, customs and good order,
it was binding on the parties.
Moreover, the appellate court found that DBP was not a mortgagee in
good faith. It also upheld the finding of the trial court that DBP was a trustee ex
maleficio of Prudential Bank over the articles covered by the trust receipts.
DBP filed a motion for reconsideration but the appellate court denied it
for being pro forma. Hence, this petition.
Trust receipt transactions are governed by the provisions of PD 115
which defines such a transaction as follows:
Section 4. What constitutes a trust receipt transaction. A trust
receipt transaction, within the meaning of this Decree, is any
transaction by and between a person referred to in this
Decree as the entruster, and another person referred to in
this Decree as entrustee, whereby the entruster, who owns
or holds absolute title or security interests over certain
specified goods, documents or instruments, releases the
same to the possession of the entrustee upon the latters
execution and delivery to the entruster of a signed
document called a trust receipt wherein the entrustee binds
himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise
dispose of the goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof
to the extent of the amount owing to the entruster or as
appears in the trust receipt or the goods, documents or
instruments themselves if they are unsold or not otherwise
disposed of, in accordance with the terms and conditions
specified in the trust receipt, or for other purposes
substantially equivalent to any of the following:
1. In the case of goods or documents, (a) to sell
the goods or procure their sale; or (b) to
manufacture or process the goods with the
purpose of ultimate sale: Provided, That, in the
case of goods delivered under trust receipt for
the purpose of manufacturing or processing
before its ultimate sale, the entruster shall retain
its title over the goods whether in its original or
processed form until the entrustee has complied
fully with his obligation under the trust receipt;
or (c) to load, unload, ship or tranship or
otherwise deal with them in a manner
preliminary or necessary to their sale; or
2. In the case of instruments, (a) to sell or
procure their sale or exchange; or (b) to deliver
them to a principal; or (c) to effect the
consummation of some transactions involving
delivery to a depository or register; or (d) to
effect their presentation, collection or renewal.
xxxxxxxxx
In a trust receipt transaction, the goods are released by the entruster
(who owns or holds absolute title or security interests over the said goods) to the
entrustee on the latters execution and delivery to the entruster of a trust receipt.
The trust receipt evidences the absolute title or security interest of the entruster
Page 2 of 152
over the goods. As a consequence of the release of the goods and the execution of
the trust receipt, a two-fold obligation is imposed on the entrustee, namely: (1) to
hold the designated goods, documents or instruments in trust for the purpose of
selling or otherwise disposing of them and (2) to turn over to the entruster either
the proceeds thereof to the extent of the amount owing to the entruster or as
appears in the trust receipt, or the goods, documents or instruments themselves if
they are unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt. In the case of goods, they may also be
released for other purposes substantially equivalent to (a) their sale or the
procurement of their sale; or (b) their manufacture or processing with the purpose
of ultimate sale, in which case the entruster retains his title over the said goods
whether in their original or processed form until the entrustee has complied fully
with his obligation under the trust receipt; or (c) the loading, unloading, shipment or
transshipment or otherwise dealing with them in a manner preliminary or necessary
to their sale.[4] Thus, in a trust receipt transaction, the release of the goods to the
entrustee, on his execution of a trust receipt, is essentially for the purpose of their
sale or is necessarily connected with their ultimate or subsequent sale.
Here, Litex was not engaged in the business of selling spinning
machinery, its accessories and spare parts but in manufacturing and producing
textile and various kinds of fabric. The articles were not released to Litex to be sold.
Nor was the transfer of possession intended to be a preliminary step for the said
goods to be ultimately or subsequently sold. Instead, the contemporaneous and
subsequent acts of both Litex and Prudential Bank showed that the imported
articles were released to Litex to be installed in its textile mill and used in its
business. DBP itself was aware of this. To support its assertion that the contested
articles were excluded from goods that could be covered by a trust receipt, it
contended:
First. That the chattels in controversy were
procured by DBPs mortgagor Lirag Textile Mills (LITEX) for
the exclusive use of its textile mills. They
were notprocured -
(a) to sell or otherwise procure their sale;
(b) to manufacture or process the goods with the
Purpose of ultimate sale.[5] (emphasis supplied)
Hence, the transactions between Litex and Prudential Bank were
allegedly not trust receipt transactions within the meaning of PD 115. It follows that,
contrary to the decisions of the trial court and the appellate court, the transactions
were not governed by the Trust Receipts Law.
We disagree.
The various agreements between Prudential Bank and Litex commonly denominated
as trust receipts were valid. As the Court of Appeals correctly ruled, their provisions
did not contravene the law, morals, good customs, public order or public policy.
The agreements uniformly provided:
Received, upon the Trust hereinafter mentioned
from the PRUDENTIAL BANK (hereinafter referred to as
BANK) the following goods and merchandise, the property
of said BANK specified in the bill of lading as follows:
Amount of Bill Description of Marks & Nos. Vessel
Security
and in consideration thereof, I/We hereby agree to hold
said goods in trust for the BANK and as its property with
liberty to sell the same for its account but without authority
to make any other disposition whatsoever of the said goods
or any part thereof (or the proceeds thereof) either by way
of conditional sale, pledge, or otherwise.
xxxxxxxxx [6]
(Emphasis supplied)
The articles were owned by Prudential Bank and they were only held by
Litex in trust. While it was allowed to sell the items, Litex had no authority to dispose
of them or any part thereof or their proceeds through conditional sale, pledge or
any other means.
Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage,
it is essential that the pledgor or mortgagor should be the absolute owner of the
thing pledged or mortgaged. Article 2085 (3) further mandates that the person
constituting the pledge or mortgage must have the free disposal of his property,
and in the absence thereof, that he be legally authorized for the purpose.
Litex had neither absolute ownership, free disposal nor the authority to freely
dispose of the articles. Litex could not have subjected them to a chattel mortgage.
Their inclusion in the mortgage was void[7] and had no legal effect.[8] There being no
valid mortgage, there could also be no valid foreclosure or valid auction sale. [9] Thus,
DBP could not be considered either as a mortgagee or as a purchaser in good
faith.[10]
No one can transfer a right to another greater than what he himself has. [11] Nemo
dat quod non habet. Hence, Litex could not transfer a right that it did not have over
CRED TRANS Pledge, Mortgage Antichresis Fulltext
the disputed items. Corollarily, DBP could not acquire a right greater than what its
predecessor-in-interest had. The spring cannot rise higher than its source. [12] DBP
merely stepped into the shoes of Litex as trustee of the imported articles with an
obligation to pay their value or to return them on Prudential Banks demand. By its
failure to pay or return them despite Prudential Banks repeated demands and by
selling them to Lyon without Prudential Banks knowledge and conformity, DBP
became a trustee ex maleficio.
On the matter of actual damages adjudged by the trial court and affirmed by the
Court of Appeals, DBP wants this Court to review the evidence presented during the
trial and to reverse the factual findings of the trial court. This Court is, however, not
a trier of facts and it is not its function to analyze or weigh evidence anew. [13] The
rule is that factual findings of the trial court, when adopted and confirmed by the
CA, are binding and conclusive on this Court and generally will not be reviewed on
appeal.[14] While there are recognized exceptions to this rule, none of the
established exceptions finds application here.
With regard to the imposition of exemplary damages, the appellate
court agreed with the trial court that the requirements for the award thereof had
been sufficiently established. Prudential Banks entitlement to compensatory
damages was likewise amply proven. It was also shown that DBP was aware of
Prudential Banks claim as early as July, 1982. However, it ignored the latters
demand, included the disputed articles in the mortgage foreclosure and caused
their sale in a public auction held on April 19, 1983 where it was declared as the
highest bidder. Thereafter, in the series of communications between them, DBP
gave Prudential Bank the false impression that its claim was still being evaluated.
Without acting on Prudential Banks plea, DBP included the contested articles among
the properties it sold to Lyon in June, 1987. The trial court found that this chain of
events showed DBPs fraudulent attempt to prevent Prudential Bank from asserting
its rights. It smacked of bad faith, if not deceit. Thus, the award of exemplary
damages was in order. Due to the award of exemplary damages, the grant of
attorneys fees was proper.[15]
DBPs assertion that both the trial and appellate courts failed to address
the issue of prescription is of no moment. Its claim that, under Article 1146 (1) of the
Civil Code, Prudential Banks cause of action had prescribed as it should be reckoned
from October 10, 1980, the day the mortgage was registered, is not correct. The
written extra-judicial demand by the creditor interrupted the prescription of
action.[16] Hence, the four-year prescriptive period which DBP insists should be
counted from the registration of the mortgage was interrupted when Prudential
Bank wrote the extra-judicial demands for the turn over of the articles or their value.
In particular, the last demand letter sent by Prudential Bank was dated July 30, 1988
and this was received by DBP the following day. Thus, contrary to DBPs claim,
Prudential Banks right to enforce its action had not yet prescribed when it filed the
complaint on May 24, 1988.
WHEREFORE, the petition is hereby DENIED. The December 14, 1999
decision and June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No.
45783 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.
SECOND DIVISION
[G.R. No. 131679. February 1, 2000]
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST
COMPANY, petitioners, vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and
COURT OF APPEALS, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision[1] of the Court of Appeals in
C.A. GR CV No. 42315 and the order dated December 9, 1997 denying petitioners
motion for reconsideration.
The following facts are not in dispute.
Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company
(FEBTC) are banking institutions duly organized and existing under Philippine laws.
On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the
amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land
situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No.
300809 registered in his name. As Guansing defaulted in the payment of his loan,
CDB foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the
mortgaged property was sold to CDB as the highest bidder. Guansing failed to
redeem, and on March 2, 1987, CDB consolidated title to the property in its name.
TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No.
355588 was issued in the name of CDB.
On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named
Remedios Gatpandan, offered to purchase the property from CDB. The written Offer
to Purchase, signed by Lim and Gatpandan, states in part:
Page 3 of 152
 We hereby offer to purchase your property at #63 Calavite
and Retiro Sts., La Loma, Quezon City for P300,000.00 under the
following terms and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of
illegal occupants or tenants. Scjuris
Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB
P30,000.00 as Option Money, for which she was issued Official Receipt No. 3160,
dated June 17, 1988, by CDB. However, after some time following up the sale, Lim
discovered that the subject property was originally registered in the name of
Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No. 91148.
Rodolfo succeeded in having the property registered in his name under TCT No.
300809, the same title he mortgaged to CDB and from which the latters title (TCT
No. 355588) was derived. It appears, however, that the father, Perfecto, instituted
Civil Case No. Q-39732 in the Regional Trial Court, Branch 83, Quezon City, for the
cancellation of his sons title. On March 23, 1984, the trial court rendered a
decision[2] restoring Perfectos previous title (TCT No. 91148) and cancelling TCT No.
300809 on the ground that the latter was fraudulently secured by Rodolfo. This
decision has since become final and executory.
Aggrieved by what she considered a serious misrepresentation by CDB and its
mother-company, FEBTC, on their ability to sell the subject property, Lim, joined by
her husband, filed on August 29, 1989 an action for specific performance and
damages against petitioners in the Regional Trial Court, Branch 96, Quezon City,
where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the complaint
was amended by impleading the Register of Deeds of Quezon City as an additional
defendant.
On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It
ruled that: (1) there was a perfected contract of sale between Lim and CDB, contrary
to the latters contention that the written offer to purchase and the payment of
P30,000.00 were merely pre-conditions to the sale and still subject to the approval
of FEBTC; (2) performance by CDB of its obligation under the perfected contract of
sale had become impossible on account of the 1984 decision in Civil Case No. Q-
39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and
FEBTC were not exempt from liability despite the impossibility of performance,
because they could not credibly disclaim knowledge of the cancellation of Rodolfo
Guansings title without admitting their failure to discharge their duties to the public
as reputable banking institutions; and (4) CDB and FEBTC are liable for damages for
the prejudice caused against the Lims.[3] Based on the foregoing findings, the trial
court ordered CDB and FEBTC to pay private respondents, jointly and severally, the
amount of P30,000.00 plus interest at the legal rate computed from June 17, 1988
until full payment. It also ordered petitioners to pay private respondents, jointly and
severally, the amounts of P250,000.00 as moral damages, P50,000.00 as exemplary
damages, P30,000.00 as attorneys fees, and the costs of the suit. [4]
Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997,
affirmed in toto the decision of the Regional Trial Court. Petitioners moved for
reconsideration, but their motion was denied by the appellate court on December 9,
1997. Hence, this petition. Petitioners contend that - Jjlex
1. The Honorable Court of Appeals erred when it held that
petitioners CDB and FEBTC were aware of the decision dated
March 23, 1984 of the Regional Trial Court of Quezon City in
Civil Case No. Q-39732.
2. The Honorable Court of Appeals erred in ordering
petitioners to pay interest on the deposit of THIRTY
THOUSAND PESOS (P30,000.00) by applying Article 2209 of
the New Civil Code.
3. The Honorable Court of Appeals erred in ordering
petitioners to pay moral damages, exemplary damages,
attorneys fees and costs of suit.
I.
At the outset, it is necessary to determine the legal relation, if any, of the parties.
Petitioners deny that a contract of sale was ever perfected between them and
private respondent Lolita Chan Lim. They contend that Lims letter-offer clearly states
that the sum of P30,000.00 was given as option money, not as earnest
money.[5] They thus conclude that the contract between CDB and Lim was merely an
option contract, not a contract of sale.
The contention has no merit. Contracts are not defined by the parties thereto but by
principles of law.[6] In determining the nature of a contract, the courts are not bound
by the name or title given to it by the contracting parties. [7] In the case at bar, the
sum of P30,000.00, although denominated in the offer to purchase as "option
money," is actually in the nature of earnest money or down payment when
CRED TRANS Pledge, Mortgage Antichresis Fulltext
considered with the other terms of the offer. In Carceler v. Court of Appeals,[8] we
explained the nature of an option contract, viz. -
An option contract is a preparatory contract in which one
party grants to the other, for a fixed period and under
specified conditions, the power to decide, whether or not to
enter into a principal contract, it binds the party who has
given the option not to enter into the principal contract with
any other person during the period designated, and within
that period, to enter into such contract with the one to
whom the option was granted, if the latter should decide to
use the option. It is a separate agreement distinct from the
contract to which the parties may enter upon the
consummation of the option. Newmiso
An option contract is therefore a contract separate from and preparatory to a
contract of sale which, if perfected, does not result in the perfection or
consummation of the sale. Only when the option is exercised may a sale be
perfected.
In this case, however, after the payment of the 10% option money, the Offer to
Purchase provides for the payment only of the balance of the purchase price,
implying that the "option money" forms part of the purchase price. This is precisely
the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then
that the parties in this case actually entered into a contract of sale, partially
consummated as to the payment of the price. Moreover, the following findings of
the trial court based on the testimony of the witnesses establish that CDB accepted
Lims offer to purchase:
It is further to be noted that CDB and FEBTC already considered
plaintiffs offer as good and no longer subject to a final approval. In his
testimony for the defendants on February 13, 1992, FEBTCs Leomar
Guzman stated that he was then in the Acquired Assets Department of
FEBTC wherein plaintiffs offer to purchase was endorsed thereto by
Myoresco Abadilla, CDBs senior vice-president, with a recommendation
that the necessary petition for writ of possession be filed in the proper
court; that the recommendation was in accord with one of the
conditions of the offer, i.e., the clearing of the property of illegal
occupants or tenants (tsn, p. 12); that, in compliance with the request, a
petition for writ of possession was thereafter filed on July 22, 1988 (Exhs.
1 and 1-A); that the offer met the requirements of the banks; and that
no rejection of the offer was thereafter relayed to the plaintiffs (p. 17);
which was not a normal procedure, and neither did the banks return the
amount of P30,000.00 to the plaintiffs.[9]
Given CDBs acceptance of Lims offer to purchase, it appears that a contract of sale
was perfected and, indeed, partially executed because of the partial payment of the
purchase price. There is, however, a serious legal obstacle to such sale, rendering it
impossible for CDB to perform its obligation as seller to deliver and transfer
ownership of the property. Acctmis
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what
one does not have. In applying this precept to a contract of sale, a distinction must
be kept in mind between the "perfection" and "consummation" stages of the
contract.
A contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. [10] It is, therefore, not
required that, at the perfection stage, the seller be the owner of the thing sold or
even that such subject matter of the sale exists at that point in time. [11] Thus, under
Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that
time, was not his, but later acquires title thereto, such title passes by operation of
law to the buyer or grantee. This is the same principle behind the sale of "future
goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of
delivery or consummation stage of the sale, it is required that the seller be the
owner of the thing sold. Otherwise, he will not be able to comply with his obligation
to transfer ownership to the buyer. It is at the consummation stage where the
principle of nemo dat quod non habet applies.
In Dignos v. Court of Appeals,[12] the subject contract of sale was held void as the
sellers of the subject land were no longer the owners of the same because of a prior
sale.[13] Again, in Nool v. Court of Appeals,[14] we ruled that a contract of repurchase,
in which the seller does not have any title to the property sold, is invalid:
We cannot sustain petitioners view. Article 1370 of the Civil Code is
applicable only to valid and enforceable contracts. The Regional Trial
Court and the Court of Appeals ruled that the principal contract of sale
contained in Exhibit C and the auxiliary contract of repurchase in Exhibit
D are both void. This conclusion of the two lower courts appears to find
support in Dignos v. Court of Appeals, where the Court held:
"Be that as it may, it is evident that when petitioners
sold said land to the Cabigas spouses, they were no
longer owners of the same and the sale is null and
void."
Page 4 of 152
 In the present case, it is clear that the sellers no longer had any title to
the parcels of land at the time of sale. Since Exhibit D, the alleged
contract of repurchase, was dependent on the validity of Exhibit C, it is
itself void. A void contract cannot give rise to a valid one. Verily, Article
1422 of the Civil Code provides that (a) contract which is the direct
result of a previous illegal contract, is also void and inexistent."
We should however add that Dignos did not cite its basis for ruling
that a "sale is null and void" where the sellers "were no longer the
owners" of the property. Such a situation (where the sellers were no
longer owners) does not appear to be one of the void contracts
enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code
itself recognizes a sale where the goods are to be acquired x x x by the
seller after the perfection of the contract of sale, clearly implying that a
sale is possible even if the seller was not the owner at the time of sale,
provided he acquires title to the property later on. Misact
In the present case, however, it is likewise clear that the sellers can no
longer deliver the object of the sale to the buyers, as the buyers
themselves have already acquired title and delivery thereof from the
rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative and may thus fall, by analogy, under item No. 5 of Article
1409 of the Civil Code: Those which contemplate an impossible service.
Article 1459 of the Civil Code provides that "the vendor must have a
right to transfer the ownership thereof [subject of the sale] at the time
it is delivered." Here, delivery of ownership is no longer possible. It has
become impossible.[15]
In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo
Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to
the said property. To be sure, CDB never acquired a valid title to the property
because the foreclosure sale, by virtue of which the property had been awarded to
CDB as highest bidder, is likewise void since the mortgagor was not the owner of
the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with
Art. 1458 of the Civil Code, under which the mortgagor in default, the forced seller,
becomes obliged to transfer the ownership of the thing sold to the highest bidder
who, in turn, is obliged to pay therefor the bid price in money or its equivalent.
Being a sale, the rule that the seller must be the owner of the thing sold also applies
in a foreclosure sale. This is the reason Art. 2085[16] of the Civil Code, in providing for
the essential requisites of the contract of mortgage and pledge, requires, among
other things, that the mortgagor or pledgor be the absolute owner of the thing
pledged or mortgaged, in anticipation of a possible foreclosure sale should the
mortgagor default in the payment of the loan.
There is, however, a situation where, despite the fact that the mortgagor is not the
owner of the mortgaged property, his title being fraudulent, the mortgage contract
and any foreclosure sale arising therefrom are given effect by reason of public
policy. This is the doctrine of "the mortgagee in good faith" 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.[17] The public interest in upholding the indefeasibility of a certificate of title, as
evidence of the lawful ownership of the land or of any encumbrance thereon,
protects a buyer or mortgagee who, in good faith, relied upon what appears on the
face of the certificate of title. Sdjad
This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not
required to make a detailed investigation of the history of the title of the property
given as security before accepting a mortgage.
We are not convinced, however, that under the circumstances of this case, CDB can
be considered a mortgagee in good faith. While petitioners are not expected to
conduct an exhaustive investigation on the history of the mortgagors title, they
cannot be excused from the duty of exercising the due diligence required of
banking institutions. In Tomas v. Tomas,[18] we noted that it is standard practice for
banks, before approving a loan, to send representatives to the premises of the land
offered as collateral and to investigate who are the real owners thereof, noting that
banks are expected to exercise more care and prudence than private individuals in
their dealings, even those involving registered lands, for their business is affected
with public interest. We held thus:
We, indeed, find more weight and vigor in a doctrine which recognizes
a better right for the innocent original registered owner who obtained
his certificate of title through perfectly legal and regular proceedings,
than one who obtains his certificate from a totally void one, as to
prevail over judicial pronouncements to the effect that one dealing
with a registered land, such as a purchaser, is under no obligation to
look beyond the certificate of title of the vendor, for in the latter case,
good faith has yet to be established by the vendee or transferee, being
the most essential condition, coupled with valuable consideration, to
entitle him to respect for his newly acquired title even as against the
holder of an earlier and perfectly valid title. There might be
circumstances apparent on the face of the certificate of title which
could excite suspicion as to prompt inquiry, such as when the transfer
is not by virtue of a voluntary act of the original registered owner, as in
the instant case, where it was by means of a self-executed deed of
extra-judicial settlement, a fact which should be noted on the face of
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Eusebia Tomas certificate of title. Failing to make such inquiry would
hardly be consistent with any pretense of good faith, which the
appellant bank invokes to claim the right to be protected as a
mortgagee, and for the reversal of the judgment rendered against it by
the lower court.[19]
In this case, there is no evidence that CDB observed its duty of diligence in
ascertaining the validity of Rodolfo Guansings title. It appears that Rodolfo
Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of
the Estate With Waiver where he made it appear that he and Perfecto Guansing
were the only surviving heirs entitled to the property, and that Perfecto had waived
all his rights thereto. This self-executed deed should have placed CDB on guard
against any possible defect in or question as to the mortgagors title. Moreover, the
alleged ocular inspection report[20] by CDBs representative was never formally
offered in evidence. Indeed, petitioners admit that they are aware that the subject
land was being occupied by persons other than Rodolfo Guansing and that said
persons, who are the heirs of Perfecto Guansing, contest the title of
Rodolfo.[21] Sppedsc
II.
The sale by CDB to Lim being void, the question now arises as to who, if any, among
the parties was at fault for the nullity of the contract. Both the trial court and the
appellate court found petitioners guilty of fraud, because on June 16, 1988, when
Lim was asked by CDB to pay the 10% option money, CDB already knew that it was
no longer the owner of the said property, its title having been
cancelled.[22] Petitioners contend that: (1) such finding of the appellate court is
founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was a
party in the case where the mortgagors title was cancelled; (3) CDB is not privy to
any problem among the Guansings; and (4) the final decision cancelling the
mortgagors title was not annotated in the latters title.
As a rule, only questions of law may be raised in a petition for review, except in
circumstances where questions of fact may be properly raised. [23] Here, while
petitioners raise these factual issues, they have not sufficiently shown that the
instant case falls under any of the exceptions to the above rule. We are thus bound
by the findings of fact of the appellate court. In any case, we are convinced of
petitioners negligence in approving the mortgage application of Rodolfo Guansing.
III.
We now come to the civil effects of the void contract of sale between the parties.
Article 1412(2) of the Civil Code provides:
If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
....
(2).......When only one of the contracting parties is at
fault, he cannot recover what he has given by reason
of the contract, or ask for the fulfillment of what has
been promised him. The other, who is not at fault,
may demand the return of what he has given without
any obligation to comply with his promise.
Private respondents are thus entitled to recover the P30,000.00 option money paid
by them. Moreover, since the filing of the action for damages against petitioners
amounted to a demand by respondents for the return of their money, interest
thereon at the legal rate should be computed from August 29, 1989, the date of
filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners accepted the
payment. This is in accord with our ruling in Castillo v. Abalayan[24] that in case of a
void sale, the seller has no right whatsoever to keep the money paid by virtue
thereof and should refund it, with interest at the legal rate, computed from the date
of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that
the non-guilty party "may demand the return of what he has given" clearly implies
that without such prior demand, the obligation to return what was given does not
become legally demandable. Sccalr
Considering CDBs negligence, we sustain the award of moral damages on the basis
of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of
Appeals[25] that moral damages may be recovered even if a banks negligence is not
attended with malice and bad faith. We find, however, that the sum of P250,000.00
awarded by the trial court is excessive. Moral damages are only intended to alleviate
the moral suffering undergone by private respondents, not to enrich them at the
expense of the petitioners.[26] Accordingly, the award of moral damages must be
reduced to P50,000.00.
Likewise, the award of P50,000.00 as exemplary damages, although justified under
Art. 2232 of the Civil Code, is excessive and should be reduced to P30,000.00. The
award of P30,000.00 attorneys fees based on Art. 2208, pars. 1, 2, 5 and 11 of the
Civil Code should similarly be reduced to P20,000.00.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
MODIFICATION as to the award of damages as above stated.
Page 5 of 152
SO ORDERED.
SECOND DIVISION
[G.R. No. 128669. October 4, 2002]
MAMERTA VDA. DE JAYME, and her children and/or heirs of the late
GRACIANO JAYME, namely: WILFREDO, MARCIAL, MANUEL,
ANTONIO, all surnamed JAYME; the heirs of DOMINADOR JAYME,
namely: SUPREMA (surviving spouse) and his children, namely:
ARMANDO, NICANOR, ZENAIDA, CATHERINE, ROSALINE, DORIS,
VICKY and MARILYN, all surnamed JAYME; and the heirs of the late
NILIE JAYME SANCHEZ, namely, INOCENCIO SANCHEZ (surviving
spouse) and her children: ELSA, CONCEPCION, CLEOFE, ALEJANDRO,
EFREN and MACRINA, all surnamed SANCHEZ; and FLORA JAYME
RAVANES, assisted by her husband, CESAR RAVANES, petitioners,
vs. HON. COURT OF APPEALS, SIXTEENTH DIVISION, CEBU
ASIANCARS INC., GEORGE NERI, CONNIE NERI, WILLIAM LEONG
KOC LEE, EDUARD JAMES LEE, ROBERTO UY KIM, AND CHARLES UY
KIM;[1] METROPOLITAN BANK AND TRUST COMPANY, RENE
NATIVIDAD AND/OR JOHN DOE in substitution of MAXIMO PEREZ,
sued in his capacity as City Sheriff of Mandaue City, respondents.
DECISION
QUISUMBING, J.:
This petition assails the decision[2] dated September 19, 1996, of the Court of
Appeals in CA-G.R. CV No. 46496 and its resolution[3] dated February 21, 1997,
denying the motion for reconsideration. Said decision had affirmed that of the
Regional Trial Court of Cebu City, Branch 15, in Civil Case No. CEB-21369 for
Annulment of Contract and Damages with Prayer for the Issuance of Preliminary
Injunction. [4]
The following facts are borne by the records:
The spouses Graciano and Mamerta Jayme are the registered owners of Lot
2700, situated in the Municipality of Mandaue (now Mandaue City), Cebu, consisting
of 2,568 sq.m. and covered by Transfer Certificate of Title No. 8290.
On January 8, 1973, they entered into a Contract of Lease[5] with George Neri,
president of Airland Motors Corporation (now Cebu Asiancars Inc.), covering one-
half of Lot 2700. The lease was for twenty (20) years.
The terms and conditions of the lease contract [6] stipulated that Cebu
Asiancars Inc. (hereafter, Asiancars) may use the leased premises as a collateral to
secure payment of a loan which Asiancars may obtain from any bank, provided that
the proceeds of the loan shall be used solely for the construction of a
building which, upon the termination of the lease or the voluntary
surrender of the leased premises before the expiration of the contract, shall
automatically become the property of the Jayme spouses (the lessors).
A Special Power of Attorney[7] dated January 26, 1974, was executed in favor
of respondent George Neri, who used the lot to secure a loan of P300,000 from the
General Bank and Trust Company. The loan was fully paid on August 14, 1977.[8]
In October 1977, Asiancars obtained a loan of P6,000,000 from the
Metropolitan Bank and Trust Company (MBTC). The entire Lot 2700 was offered as
one of several properties given as collateral for the loan. As mortgagors, the
spouses signed a Deed of Real Estate Mortgage[9] dated November 21, 1977 in favor
of MBTC. It stated that the deed was to secure the payment of a loan obtained by
Asiancars from the bank.
To assure the Jayme spouses, Neri and the other officers of Asiancars, namely
Benny Liongben Lee, William Leong Koc Lee, Connie U. Neri, Edward James Lee,
Roberto Uykim and Charles P. Uykim, executed an undertaking [10] dated November
7, 1977. In it they promised, in their personal capacities and/or in representation of
Cebu Asiancars, Inc., to compensate Mr. & Mrs. Graciano Jayme for any and all or
whatever damage they may sustain or suffer by virtue and arising out of the
mortgage to MBTC of the aforestated parcel of land. [11] In addition, Neri wrote a
letter dated September 1, 1981 [12] addressed to Mamerta Jayme acknowledging her
confidence and help extended to him, his family and Asiancars. He promised to pay
their indebtedness to MBTC before the loan was due.
Meeting financial difficulties and incurring an outstanding balance on the
loan, Asiancars conveyed ownership of the building on the leased premises to
MBTC, by way of dacion en pago.[13] The building was valued at P980,000 and the
amount was applied as partial payment for the loan. There still remained a balance
of P2,942,449.66, which Asiancars failed to pay.
Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction
was held on February 4, 1981. MBTC was the highest bidder for P1,067,344.35. A
certificate of sale was issued and was registered with the Register of Deeds on
February 23, 1981.
Meanwhile, Graciano Jayme died, survived by his widow Mamerta and their
children. As a result of the foreclosure, Gracianos heirs filed a civil complaint, [14] in
January of 1982, for Annulment of Contract with Damages with Prayer for Issuance
of Preliminary Injunction, against respondent Asiancars, its officers and
incorporators and MBTC. Later, in 1999, Mamerta Jayme also passed away.
Petitioners claim that Neri and Asiancars did not tell them that the
indebtedness secured by the mortgage was for P6,000,000 and that the security was
the whole of Lot 2700. Petitioners allege that the deed presented to the Jayme
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spouses was in blank, without explanation on the stipulations contained therein,
except that its conditions were identical to those of the stipulations when they
mortgaged half the lots area previously with General Bank. Petitioners also alleged
that the Jayme spouses were illiterate and only knew how to sign their names. That
because they did not know how to read nor write, and had given their full trust and
confidence to George Neri, the spouses were deceived into signing the Deed of Real
Estate Mortgage. Their intention as well as consent was only to be bound as
guarantors.
Respondents deny that any fraud was employed, nor was there a scheme to
make the spouses sign as mortgagors instead of guarantors. They aver that the
spouses were fully advised and compensated for the use of their property as
collateral with MBTC; that they voluntarily signed the deed of mortgage upon the
request of George Neri, whom they previously trusted and who fulfilled his promise
to pay the loan to General Bank and who obtained the release of the same property
by faithfully paying his indebtedness with General Bank.
After trial, the RTC rendered a decision, disposing as follows:
WHEREFORE, in view of the foregoing evidences, arguments and considerations, this
Court hereby renders judgment as follows:
1. Declaring the Real Estate Mortgage executed by the Jaymes in favor
of Metrobank as valid and binding;
2. Declaring the Undertaking executed by George Neri, Benny
Leongben Lee already deceased, William Leong Koc, Connie U.
Neri, Edward James Lee, Roberto Uykim, and Charles P. Uykim on
November 7, 1977 to be valid and binding as well upon the
signatories thereof;
3. Allowing the Jaymes to redeem the mortgaged property, Lot 2700
covered by TCT 8290 of the Register of Deeds of Mandaue City
for the amount of P2,942,448.66 plus interest at the rate of 6%
per annum within ninety (90) days from date of finality of this
judgment until paid. However, if the plaintiffs fail to redeem said
property, then let a Certificate of Sale/definite Deed of Sale be
issued in favor of Metropolitan Bank and Trust Co. covering said
Lot 2700;
4. Holding the defendants George Neri, William Leong Koc, Connie U.
Neri, Edward James Lee, Roberto Uykim, and Charles
Uykim jointly liable on their Undertaking dated November 7,
1977 as they are hereby required to reimburse the Jaymes the
amount that the Jaymes will pay to Metropolitan Bank and Trust
Co. for the redemption;
5. Requiring the defendants George Neri, William Leong Koc, Connie
U. Neri, Edward James Lee, Roberto Uykim and Charles Uykim to
pay jointly attorneys fees to the Jaymes in the amount of
P50,000.00;
6. Requiring the defendants George Neri, William Leong Koc, Connie
U. Neri, Edwards James Lee, Roberto Uykim and Charles Uykim to
pay jointly the cost of this suit.
SO ORDERED.[15]
Petitioners and respondent MBTC elevated the case to the Court of Appeals,
which affirmed the ruling of the RTC, with modifications stated in this wise:
1. Declaring valid and binding the Real Estate Mortgage executed by
plaintiffs in favor of defendant MBTC;
2. Declaring valid the foreclosure of the mortgage and the foreclosure
sale;
3. Declaring that the period to redeem Lot 2700 had expired on
February 23, 1982 without plaintiffs redeeming it;
4. Ordering the Sheriff of Mandaue City to issue a definite Deed of
Sale covering Lot 2700 in favor of defendant MBTC;
5. Declaring valid and binding the dacion en pago executed by
defendant Asiancars in favor of defendant MBTC;
6. Declaring defendant MBTC as owner of the building on Lot 2700;
7. Ordering defendant MBTC to pay to plaintiffs the amount of
P92,083.33 for the use of the land from December 18, 1981 to
February 23, 1982, with six percent (6%) interest per annum until
paid;
8. Ordering defendant Asiancars, Neris, Uykims, Lee and Koc to pay
jointly and severally the plaintiffs the (a) actual value of the lot in
the amount of P3,852,000.00; (b) P400,000.00 moral damages; (c)
P150,000.00 exemplary damages and P100,000.00 attorneys fee,
all with six percent (6%) interest per annum until fully paid;
9. Cost against defendants Asiancars, Neris, Uykims, Lee and Koc.
SO ORDERED.[16]
Petitioners filed a motion for reconsideration, which the CA denied. Hence,
this petition which assigns the following errors:
Page 6 of 152
 I Third persons who are not parties to the principal obligation may secure the latter
THAT WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO EXCESS OF
JURISDICTION, THE LOWER COURT GROSSLY AND SERIOUSLY ERRED IN
DECLARING VALID AND BINDING THE REAL ESTATE MORTGAGE EXECUTED BY THE
PLAINTIFFS IN FAVOR OF THE MBTC, FOR SAID DECLARATION IS ILLEGAL AND NOT
WELL-FOUNDED IN LAW BECAUSE IT ULTIMATELY VIOLATED ARTS. 2058, 2076
AND 2077, CIVIL CODE OF THE PHILIPPINES, SINCE THE REAL ESTATE MORTGAGE,
EXH. G, IS NOT LEGALLY A REAL ESTATE MORTGAGE, BUT RATHER A DEED OF
GUARANTY, CONSIDERING THAT THE PLAINTIFF MAMERTA VDA. DE JAYME AND
HER HUSBAND GRACIANO JAYME, NOW DECEASED, SIGNED INNOCENTLY THE
SAID DOCUMENT AS GUARANTORS/ACCOMODATORS ONLY AND DEFINITELY
NOT AS DEBTORS/MORTGAGORS;
II
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED IN
DECLARING THE PERIOD TO REDEEM LOT NO. 2700 HAD EXPIRED ON FEBRUARY
23, 1982, WITHOUT THE PLAINTIFFS REDEEMING IT FOR SUCH DECLARATION IS
NOT WELL-FOUNDED IN LAW AND IN FACT;
III
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED IN
DECLARING VALID AND BINDING THE DACION EN PAGO EXECUTED BY
DEFENDANT CEBU ASIAN- CARS IN FAVOR OF DEFENDANT MBTC, FOR SAID
DECLARATION IS ILLEGAL AND IS CLEARLY FOUNDED ON WANTON BAD FAITH
COMMITTED BY BOTH PARTIES, IN VIOLATION OF ART. 1312, CIVIL CODE OF THE
PHILIPPINES AND SEC. 10, ART. III, CONSTITUTION OF THE PHILIPPINES;
IV
GRANTING ARGUENDO THAT THE DACION EN PAGO IS VALID, STILL THE LOWER
COURT COMMITTED GRAVE ABUSE OF DISCRETION, BY NOT DECLARING THAT THE
P574,690.00 INDEBTEDNESS, INCLUDING INTEREST AND ADDITIONAL CHARGES OF
CEBU ASIANCARS WAS COMPLETELY EXTINGUISHED OR PAID OFF, BY WAY OF
DACION EN PAGO PURSUANT TO ARTS. 1255, 2076 AND 2077 OF THE CIVIL CODE
OF THE PHILIPPINES.
V
THAT THE LOWER COURT COMMITTED GRAVE ABUSE OF DISCRETION,
AMOUNTING TO EXCESS OF JURISDICTION, IN DECLARING VALID AND BINDING
THE MORTGAGE AND THE CORRESPONDING FORECLOSURE, FOR SAID
DECLARATION IS ILLEGAL, IN VIOLATION OF ARTS. 1231 (5), 1245 AND 1255, CIVIL
CODE AND BY THE INDUBITABLE EVIDENCE OF ALL THE PARTIES TESTIMONIAL
AND DOCUMENTARY, TO THE EFFECT THAT THE SIX (6) MILLION INDEBTEDNESS
OF CEBU ASIANCARS WAS OVERPAID, THUS MBTC ALSO VIOLATED ARTS. 2142,
CIVIL CODE OF THE PHILIPPINES;
VI
THAT WITH GRAVE ABUSE OF DISCRETION, THE LOWER COURT ERRED BY
VIOLATING EXH. C, THE CONTRACT OF LEASE, WHICH IS THE LAW BETWEEN THE
PARTIES, AND INSTEAD, DELIBERATELY DECLARED VALID AND BINDING THE
MORTGAGE EXH. G, AND THE FORECLOSURE OF MORTGAGE, AND IN NOT
ORDERING MBTC TO VACATE THE PREMISES UPON THE TERMINATION OF THE
CONTRACT OF LEASE ON JANUARY 9, 1993 PURSUANT TO EXH. C, AND LIKEWISE
PAY RENTAL THEREAFTER, FOR ITS USE AT P96,300.00 MONTHLY UNTIL MBTC
ACTUALLY VACATES THE PREMISES.[17]
On March 13, 2002, the Court set a hearing on this petition, and parties were
given thirty days for simultaneous submission of their respective
memoranda. Petitioners additionally submitted reply/rejoinder and respondent
MBTC also submitted its rejoinder sur-rejoinder.
Two main issues are for our resolution. First, whether or not the REM should
be annulled on the ground of vitiated consent; and second, whether or not
the dacion en pago by Asiancars in favor of MBTC is valid and binding despite the
stipulation in the lease contract that ownership of the building will vest on the
Jaymes at the termination of the lease.
The facts show that the spouses affixed their signature on the Deed of Real
Estate Mortgage, in the presence of two instrumental witnesses, and duly notarized
by Atty. Rodolfo Y. Cabrera. As a notarized document, it has in its favor the
presumption of regularity, and to overcome this presumption, there must be
evidence that is clear, convincing and more than merely preponderant that there
was irregularity in its execution; otherwise, the document should be upheld. [18]
The Deed of Real Estate Mortgage entered into by the Jayme spouses
partake of a Third Party Mortgage under Art. 2085 (3) of the Civil Code which reads:
The following requisites are essential to the contracts of pledge and mortgage: xxx
(3) That the persons constituting the pledge or mortgage have the free disposal of
their property, and in the absence thereof, that they be legally authorized for the
purpose.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
by pledging or mortgaging their own property.
In the case of Lustan vs. CA, et al.,[19] this Court recognized the abovecited
provision and held that so long as valid consent was given, the fact that the loans
were solely for the benefit of (the debtor) would not invalidate the mortgage with
respect to petitioners property. In consenting thereto even granting that petitioner
may not be assuming personal liability for the debt, her property shall nevertheless
secure and respond for the performance of the principal obligation.
Clearly, the law recognizes instances when persons not directly parties to a
loan agreement may give as security their own properties for the principal
transaction. In this case, the spouses should not be allowed to disclaim the validity
of a transaction they voluntarily and knowingly entered into for the simple reason
that such transaction turned out prejudicial to them later on.
Both the trial and appellate courts found that no fraud attended the
execution of the deed of mortgage. This is a factual finding that binds this
Court. Further, the records clearly show that the spouses Jayme agreed to use their
property as collateral for Neris loan because Neri had their full trust and confidence.
Mamerta herself testified that she and her husband were assured by Neris promise
that he would take full responsibility for whatever happens to the property of the
spouses and that he would comply with his obligations to the bank. [20]
The spouses were assisted by their own lawyer, Atty. Cirilo Sanchez, in all
their transactions, including the ones with Asiancars and MBTC. Atty. Sanchez even
signed as an instrumental witness to a Special Power of Attorney executed by the
spouses in favor of Neri, authorizing the latter to mortgage the same property to
MBTC. Although the said SPA was eventually not used because MBTC required that
the spouses themselves execute the REM, still, the fact remains that the spouses
were already set on allowing the mortgage. In addition, we note that Nelia Sanchez,
the daughter of the spouses and one of the petitioners herein, admitted that their
parents consulted her and her siblings before their parents executed the Deed. [21]
With the assistance of a lawyer and consultation with their literate children,
the spouses though illiterate could not feign ignorance of the stipulations in the
deed. Patently, theirs was not a vitiated consent. It could not now be justifiably
asserted by petitioners that the Jayme spouses only intended to be bound as
guarantors and not as mortgagors.
In this jurisdiction, when the property of a third person which has been
expressly mortgaged to guarantee an obligation to which the said person is a
stranger, said property is directly and jointly liable for the fulfillment thereof, in the
same manner as the mortgaged property of the debtor himself. [22]
In the case at bar, when Asiancars failed to pay its obligations with MBTC, the
properties given as security (one of them being the land owned by the Jaymes)
became subject to foreclosure. When several things are given to secure the same
debt in its entirety, all of them are liable for the debt, and the creditor does not have
to divide his action by distributing the debt among the various things pledged or
mortgaged. Even when only a part of the debt remains unpaid, all the things are
liable for such balance.[23]
At the time of the foreclosure, Asiancars had a remaining balance of
P2,010,633.28. Thus, MBTC had every right to effect the extrajudicial foreclosure of
the mortgaged properties to satisfy its claim.
The appellate court found that the spouses lost their right to redeem their
property. Under Section 78 of the General Banking Act then in force, [24] the
mortgagor or debtor whose real property has been foreclosed and sold at public
auction, has the right to redeem the property within one year from the sale of the
real estate as a result of the foreclosure. The reckoning date in the case of a
registered land is from the date of registration of the certificate of sale. [25] If no
redemption is timely made, the buyer in a foreclosure sale becomes the absolute
owner of the property purchased.[26] In this case, the certificate of sale was
registered on February 23, 1981, giving petitioners until February 23, 1982 to
redeem the property. This they failed to do, hence, ownership of the property
already vested in the purchaser, private respondent MBTC.
Much as we sympathize with petitioners plight, we are unable to find merit in
their plea for the annulment of the deed of sale covering Lot 2700 as a result of
foreclosure of mortgage. Petitioners failed to show the required quantum of
evidence that they were fraudulently made to sign as mortgagors. As early as Vales
v. Villa, 35 Phil. 769 (1916), this Court has sounded a note of warning to litigants:
The law furnishes no protection to the inferior simply because he is inferior any
more than it protects the strong because he is strong. The law furnishes protection
to both alike to one no more or less than the other. It makes no distinction between
the wise and the foolish, the great and the small, the strong and the weak. The
foolish may lose all they have to the wise; but that does not mean that the law will
give it back to them again. Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise investments, relieve him
from one-sided contracts, or annul the effects of foolish acts. [27]
Petitioners however, are not without recourse for the loss of their
property. Although they cannot go after respondent MBTC, they have in their favor
the undertaking executed by George Neri and other members of his family. The
undertaking also bound respondent Asiancars, as well as its officers who were
signatories to the aforesaid Undertaking, to reimburse petitioners for the damages
they suffered by reason of the mortgage.
The alienation of the building by Asiancars in favor of MBTC for the partial
satisfaction of its indebtedness is, in our view, also valid. The ownership of the
Page 7 of 152
building had been effectively in the name of the lessee-mortgagor (Asiancars),
though with the provision that said ownership be transferred to the Jaymes upon
termination of the lease or the voluntary surrender of the premises. The lease was
constituted on January 8, 1973 and was to expire 20 years thereafter, or on January
8, 1993. The alienation via dacion en pago was made by Asiancars to MBTC on
December 18, 1980, during the subsistence of the lease. At this point, the
mortgagor, Asiancars, could validly exercise rights of ownership, including the right
to alienate it, as it did to MBTC.
Dacion en pago is the delivery and transmission of ownership of a thing by
the debtor to the creditor as an accepted equivalent of the performance of the
obligation.[28] It is a special mode of payment where the debtor offers another thing
to the creditor who accepts it as equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature of sale, that is the creditor is
really buying the thing or property of the debtor, payment for which is to be
charged against the debtors debt. As such, the essential elements of a contract of
sale, namely, consent, object certain, and cause or consideration must be present. In
its modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of sale,
while the debt is considered as the purchase price. In any case, common consent is
an essential prerequisite, be it sale or novation, to have the effect of totally
extinguishing the debt or obligation.[29]
We also find that the Court of Appeals did not err in considering MBTC as a
purchaser in good faith. MBTC had no knowledge of the stipulation in the lease
contract. Although the same lease was registered and duly annotated on the
certificate of title of Lot 2700, MBTC was charged with constructive knowledge only
of the fact of lease of the land and not of the specific provision stipulating transfer
of ownership of the building to the Jaymes upon termination of the lease. There was
no annotation on the title of any encumbrance. [30] While the alienation was in
violation of the stipulation in the lease contract between the Jaymes and Asiancars,
MBTCs own rights could not be prejudiced by Asiancars actions unbeknownst to
MBTC. Thus, the transfer of the building in favor of MBTC was properly held valid
and binding by respondent Court of Appeals.
One point, however, has to be cleared. The appellate court ordered MBTC to
pay rentals to petitioners at the rate of P25.00 monthly per square meter. For the
Asiancars building stood on the lot owned by the petitioners, until the time MBTC
also consolidated its ownership over the lot. Rentals would have to be paid starting
on December 18, 1980, when the buildings ownership was transferred to MBTC,
until February 23, 1982, when MBTC finally consolidated its ownership over Lot
2700. Hence, we agree that there was error in the computation of rentals by the
CA.[31] From December 18, 1980 until February 23, 1982, is a period of 1 year, 2
months and 5 days. Thus, MBTC should pay to petitioners rentals for the use of the
occupied lot,[32] consisting of 1,700 sq. m. at the monthly rate of P25.00 per sq. m.
for that period, in the total amount of P602,083.33, with six (6) percent interest per
annum until fully paid.
Finally, we are in agreement that bad faith attended Asiancars transfer of the
building to MBTC. Asiancars was well aware of its covenant with the Jaymes that the
buildings ownership was to be transferred to the Jaymes upon termination of the
lease. Indeed, petitioners suffered mental anxiety and nervous shock upon learning
that the ownership of the building standing on their property had already been
transferred to MBTC. The apparent disregard of petitioners right by Asiancars and
other private respondents provides enough basis for an award of moral as well as
exemplary damages [33] by the appellate court.
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED
with the MODIFICATION that private respondent MBTC is ordered to pay
petitioners rentals in the total amount of P602,083.33, with six (6) percent interest
per annum until fully paid. In all other respects, the assailed decision and resolution
of the Court of Appeals are AFFIRMED.
SO ORDERED.
FIRST DIVISION
G.R. No. L-49940 September 25, 1986
GEMMA R. HECHANOVA, accompanied by her husband, NICANOR
HECHANOVA, JR., and PRESCILLA R. MASA, accompanied by her husband,
FRANCISCO MASA, petitioners,
vs.
HON. MIDPANTAO L. ADIL, Presiding Judge, Branch II, Court of First Instance
of Iloilo, THE PROVINCIAL SHERIFF OF ILOILO, and PIO
SERVANDO, respondents.
YAP, J.:
Petitioners seek the annulment of various orders issued by the respondent Presiding
Judge of Branch II, Court of First Instance of Iloilo, in Civil Case No. 12312
entitled "Pio Servando versus Jose Y. Servando et al." A temporary restraining order
was issued by this Court on May 9, 1979, staying until further orders the execution
of the decision rendered by the respondent Judge in said case.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
The case under review is for the annulment of a deed of sale dated March 11, 1978,
executed by defendant Jose Y. Servando in favor of his co-defendants, the
petitioners herein, covering three parcels of land situated in Iloilo City. Claiming that
the said parcels of land were mortgaged to him in 1970 by the vendor, who is his
cousin, to secure a loan of P20,000.00, the plaintiff Pio Servando impugned the
validity of the sale as being fraudulent, and prayed that it be declared null and void
and the transfer certificates of title issued to the vendees be cancelled, or
alternatively, if the sale is not annulled, to order the defendant Jose Servando to pay
the amount of P20,000.00, plus interests, and to order defendants to pay damages.
Attached to the complaint was a copy of the private document evidencing the
alleged mortgage (Annex A), which is quoted hereunder:
August 20, 1970
This is to certify that I, Jose Yusay Servando, the sole owner of three
parcel of land under Tax Declaration No. 28905, 44123 and 31591 at Lot
No. 1, 1863-Portion of 1863 & 1860 situated at Sto. Nino St., Arevalo,
Compania St. & Compania St., Interior Molo, respectively, have this date
mortgaged the said property to my cousin Pio Servando, in the amount
of TWENTY THOUSAND PESOS (P20,000.00), redeemable for a period
not exceeding ten (10) years, the mortgage amount bearing an interest
of 10% per annum.
I further certify that in case I fail to redeem the said properties within the
period stated above, my cousin Pio Servando, shall become the sole
owner thereof.
(SGD.) JOSE YUSAY SERVANDO
WITNESSES:
(Sgd) Ernesto G. Jeruta
(Sgd) Francisco B. Villanueva
The defendants moved to dismiss the complaint on the grounds that it did not state
a cause of action, the alleged mortgage being invalid and unenforceable since it was
a mere private document and was not recorded in the Registry of Deeds; and that
the plaintiff was not the real party in interest and, as a mere mortgagee, had no
standing to question the validity of the sale. The motion was denied by the
respondent Judge, in its order dated June 20, 1978, "on the ground that this action
is actually one for collection."
On June 23, 1978, defendant Jose Y. Servando died. The defendants filed a
Manifestation and Motion, informing the trial court accordingly, and moving for the
dismissal of the complaint pursuant to Section 21 of Rule 3 of the Rules of Court,
pointing out that the action was for. recovery of money based on an actionable
document to which only the deceased defendant was a party. The motion to dismiss
was denied on July 25, 1978, "it appearing from the face of the complaint that the
instant action is not purely a money claim, it being only incidental, the main action
being one for annulment and damages."
On August 1, 1978, plaintiff filed a motion to declare defendants in default, and on
the very next day, August 2, the respondent Judge granted the motion and set the
hearing for presentation of plaintiff's evidence ex-parte on August 24, 1978.
On August 2, 1978, or the same day that the default order was issued, defendants
Hechanova and Masa filed their Answers, denying the allegations of the complaint
and repeating, by way of special and affirmative defenses, the grounds stated in
their motions to dismiss.
On August 25, 1978, a judgment by default was rendered against the defendants,
annulling the deed of sale in question and ordering the Register of Deeds of Iloilo
to cancel the titles issued to Priscilla Masa and Gemma Hechanova, and to revive
the title issued in the name of Jose Y. Servando and to deliver the same to the
plaintiff.
The defendants took timely steps to appeal the decision to the Court of Appeals by
filing a notice of appeal, an appeal bond, and a record on appeal. However, the trial
court disapproved the record on appeal due to the failure of defendants to comply
with its order to eliminate therefrom the answer filed on August 2, 1978 and
accordingly, dismissed the appeal, and on February 2, 1978, issued an order
granting the writ of execution prayed for by plaintiff.
We find the petition meritorious, and the same is hereby given due course.
It is clear from the records of this case that the plaintiff has no cause of action.
Plaintiff has no standing to question the validity of the deed of sale executed by the
deceased defendant Jose Servando in favor of his co-defendants Hechanova and
Masa. No valid mortgage has been constituted plaintiff's favor, the alleged deed of
mortgage being a mere private document and not registered; moreover, it contains
a stipulation (pacto comisorio) which is null and void under Article 2088 of the Civil
Code. Even assuming that the property was validly mortgaged to the plaintiff, his
recourse was to foreclose the mortgage, not to seek annulment of the sale.
Page 8 of 152
WHEREFORE, the decision of the respondent court dated August 25, 1973 and its
Order of February 2, 1979 are set aside, and the complaint filed by plaintiff dated
February 4, 1978 is hereby dismissed.
SO ORDERED.
THIRD DIVISION
G.R. No. L-53955 January 13, 1989
THE MANILA BANKING CORPORATION, plaintiff-appellee,
vs.
ANASTACIO TEODORO, JR. and GRACE ANNA TEODORO, defendants-
appellants.
Formoso & Quimbo Law Office for plaintiff-appellee.
Serafin P. Rivera for defendants-appellants.
BIDIN, J.:
This is an appeal from the decision* of the Court of First Instance of Manila, Branch
XVII in Civil Case No. 78178 for collection of sum of money based on promissory
notes executed by the defendants-appellants in favor of plaintiff-appellee bank. The
dispositive portion of the appealed decision (Record on Appeal, p. 33) reads as
follows:
WHEREFORE judgment is hereby rendered (a) sentencing defendants,
Anastacio Teodoro, Jr. and Grace Anna Teodoro jointly and severally, to
pay plaintiff the sum of P15,037.11 plus 12% interest per annum from
September 30, 1969 until fully paid, in payment of Promissory Notes No.
11487, plus the sum of P1,000.00 as attorney's fees; and (b) sentencing
defendant Anastacio Teodoro, Jr. to pay plaintiff the sum of P8,934.74,
plus interest at 12% per annum from September 30, 1969 until fully paid,
in payment of Promissory Notes Nos. 11515 and 11699, plus the sum of
P500.00 an attorney's fees.
With Costs against defendants.
The facts of the case as found by the trial court are as follows:
On April 25, 1966, defendants, together with Anastacio Teodoro, Sr.,
jointly and severally, executed in favor of plaintiff a Promissory Note
(No. 11487) for the sum of P10,420.00 payable in 120 days, or on August
25, 1966, at 12% interest per annum. Defendants failed to pay the said
amount inspire of repeated demands and the obligation as of
September 30, 1969 stood at P 15,137.11 including accrued interest and
service charge.
On May 3, 1966 and June 20, 1966, defendants Anastacio Teodoro, Sr.
(Father) and Anastacio Teodoro, Jr. (Son) executed in favor of plaintiff
two Promissory Notes (Nos. 11515 and 11699) for P8,000.00 and
P1,000.00 respectively, payable in 120 days at 12% interest per annum.
Father and Son made a partial payment on the May 3, 1966 promissory
Note but none on the June 20, 1966 Promissory Note, leaving still an
unpaid balance of P8,934.74 as of September 30, 1969 including accrued
interest and service charge.
The three Promissory Notes stipulated that any interest due if not paid
at the end of every month shall be added to the total amount then due,
the whole amount to bear interest at the rate of 12% per annum until
fully paid; and in case of collection through an attorney-at-law, the
makers shall, jointly and severally, pay 10% of the amount over-due as
attorney's fees, which in no case shall be leas than P200.00.
It appears that on January 24, 1964, the Son executed in favor of plaintiff
a Deed of Assignment of Receivables from the Emergency Employment
Administration in the sum of P44,635.00. The Deed of Assignment
provided that it was for and in consideration of certain credits, loans,
overdrafts and other credit accommodations extended to defendants as
security for the payment of said sum and the interest thereon, and that
defendants do hereby remise, release and quitclaim all its rights, title,
and interest in and to the accounts receivables. Further.
(1) The title and right of possession to said accounts
receivable is to remain in the assignee, and it shall have the
right to collect the same from the debtor, and whatsoever the
Assignor does in connection with the collection of said
accounts, it agrees to do as agent and representative of the
Assignee and in trust for said Assignee ;
xxx xxx xxx
CRED TRANS Pledge, Mortgage Antichresis Fulltext
(6) The Assignor guarantees the existence and legality of
said accounts receivable, and the due and punctual payment
thereof unto the assignee, ... on demand, ... and further, that
Assignor warrants the solvency and credit worthiness of each
and every account.
(7) The Assignor does hereby guarantee the payment when
due on all sums payable under the contracts giving rise to
the accounts receivable ... including reasonable attorney's
fees in enforcing any rights against the debtors of the
assigned accounts receivable and will pay upon demand, the
entire unpaid balance of said contract in the event of non-
payment by the said debtors of any monthly sum at its due
date or of any other default by said debtors;
xxx xxx xxx
(9) ... This Assignment shall also stand as a continuing
guarantee for any and all whatsoever there is or in the future
there will be justly owing from the Assignor to the Assignee
...
In their stipulations of Fact, it is admitted by the parties that plaintiff
extended loans to defendants on the basis and by reason of certain
contracts entered into by the defunct Emergency Employment
Administration (EEA) with defendants for the fabrication of fishing boats,
and that the Philippine Fisheries Commission succeeded the EEA after its
abolition; that non-payment of the notes was due to the failure of the
Commission to pay defendants after the latter had complied with their
contractual obligations; and that the President of plaintiff Bank took steps
to collect from the Commission, but no collection was effected.
For failure of defendants to pay the sums due on the Promissory Note,
this action was instituted on November 13, 1969, originally against the
Father, Son, and the latter's wife. Because the Father died, however,
during the pendency of the suit, the case as against him was dismiss
under the provisions of Section 21, Rule 3 of the Rules of Court. The
action, then is against defendants Son and his wife for the collection of
the sum of P 15,037.11 on Promissory Note No. 14487; and against
defendant Son for the recovery of P 8,394.7.4 on Promissory Notes Nos.
11515 and 11699, plus interest on both amounts at 12% per annum from
September 30, 1969 until fully paid, and 10% of the amounts due as
attorney's fees.
Neither of the parties presented any testimonial evidence and submitted
the case for decision based on their Stipulations of Fact and on then,
documentary evidence.
The issues, as defined by the parties are: (1) whether or not plaintiff
claim is already considered paid by the Deed of Assign. judgment of
Receivables by the Son; and (2) whether or not it is plaintiff who should
directly sue the Philippine Fisheries Commission for collection.' (Record
on Appeal, p. 29- 32).
On April 17, 1972, the trial court rendered its judgment adverse to defendants. On
June 8, 1972, defendants filed a motion for reconsideration (Record on Appeal, p.
33) which was denied by the trial court in its order of June 14, 1972 (Record on
Appeal, p. 37). On June 23, 1972, defendants filed with the lower court their notice
of appeal together with the appeal bond (Record on Appeal, p. 38). The record of
appeal was forwarded to the Court of Appeals on August 22, 1972 (Record on
Appeal, p. 42).
In their appeal (Brief for the Appellants, Rollo, p. 12), appellants raised a single
assignment of error, that is
THAT THE DECISION IN QUESTION AMOUNTS TO A JUDICIAL
REMAKING OF THE CONTRACT BETWEEN THE PARTIES, IN VIOLATION
OF LAW; HENCE, TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.
As the appeal involves a pure question of law, the Court of Appeals, in its resolution
promulgated on March 6, 1980, certified the case to this Court (Rollo, p. 24). The
record on Appeal was forwarded to this Court on March 31, 1980 (Rollo, p. 1).
In the resolution of May 30, 1980, the First Division of this Court ordered that the
case be docketed and declared submitted for decision (Rollo, p. 33).
On March 7, 1988, considering the length of time that the case has been pending
with the Court and to determine whether supervening events may have rendered
the case moot and academic, the Court resolved (1) to require the parties to MOVE
IN THE PREMISES within thirty days from notice, and in case they fail to make the
proper manifestation within the required period, (2) to consider the case terminated
and closed with the entry of judgment accordingly made thereon (Rollo, p. 40).
On April 27, 1988, appellee moved for a resolution of the appeal review interposed
by defendants-appellants (Rollo, p. 41).
Page 9 of 152
The major issues raised in this case are as follows: (1) whether or not the assignment
of receivables has the effect of payment of all the loans contracted by appellants
from appellee bank; and (2) whether or not appellee bank must first exhaust all legal
remedies against the Philippine Fisheries Commission before it can proceed against
appellants for collections of loan under the promissory notes which are plaintiffs
bases in the action for collection in Civil Case No. 78178.
Assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dation in payment, exchange
or donation, and without the need of the consent of the debtor, transfers his credit
and its accessory rights to another, known as the assignee, who acquires the power
to enforce it to the same extent as the assignor could have enforced it against the
debtor. ... It may be in the form of a sale, but at times it may constitute a dation in
payment, such as when a debtor, in order to obtain a release from his debt, assigns
to his creditor a credit he has against a third person, or it may constitute a donation
as when it is by gratuitous title; or it may even be merely by way of guaranty, as
when the creditor gives as a collateral, to secure his own debt in favor of the
assignee, without transmitting ownership. The character that it may assume
determines its requisites and effects. its regulation, and the capacity of the parties to
execute it; and in every case, the obligations between assignor and assignee will
depend upon the judicial relation which is the basis of the assignment: (Tolentino,
Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. 5, pp.
165-166).
There is no question as to the validity of the assignment of receivables executed by
appellants in favor of appellee bank.
The issue is with regard to its legal effects.
I
It is evident that the assignment of receivables executed by appellants on January
24, 1964 did not transfer the ownership of the receivables to appellee bank and
release appellants from their loans with the bank incurred under promissory notes
Nos. 11487,11515 and 11699.
The Deed of Assignment provided that it was for and in consideration of certain
credits, loans, overdrafts, and their credit accommodations in the sum of P10,000.00
extended to appellants by appellee bank, and as security for the payment of said
sum and the interest thereon; that appellants as assignors, remise, release, and
quitclaim to assignee bank all their rights, title and interest in and to the accounts
receivable assigned (lst paragraph). It was further stipulated that the assignment will
also stand as a continuing guaranty for future loans of appellants to appellee bank
and correspondingly the assignment shall also extend to all the accounts receivable;
appellants shall also obtain in the future, until the consideration on the loans
secured by appellants from appellee bank shall have been fully paid by them (No.
9).
The position of appellants, however, is that the deed of assignment is a quitclaim in
consideration of their indebtedness to appellee bank, not mere guaranty, in view of
the following provisions of the deed of assignment:
... the Assignor do hereby remise, release and quit-claim unto said
assignee all its rights, title and interest in the accounts receivable
described hereunder. (Emphasis supplied by appellants, first par., Deed
of Assignment).
... that the title and right of possession to said account receivable is to
remain in said assignee and it shall have the right to collect directly from
the debtor, and whatever the Assignor does in connection with the
collection of said accounts, it agrees to do so as agent and
representative of the Assignee and it trust for said Assignee ...(Ibid. par. 2
of Deed of Assignment).' (Record on Appeal, p. 27)
The character of the transactions between the parties is not, however, determined
by the language used in the document but by their intention. Thus, the Court,
quoting from the American Jurisprudence (68 2d, Secured Transaction, Section 50)
said:
The characters of the transaction between the parties is to be
determined by their intention, regardless of what language was used or
what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge. However, even
though a transfer, if regarded by itself, appellate to have been absolute,
its object and character might still be qualified and explained by a
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been Id that a transfer of property
by the debtor to a creditor, even if sufficient on its farm to make an
absolute conveyance, should be treated as a pledge if the debt
continues in existence and is not discharged by the transfer, and that
accordingly, the use of the terms ordinarily exporting conveyance, of
absolute ownership will not be given that effect in such a transaction if
they are also commonly used in pledges and mortgages and therefore
do not unqualifiedly indicate a transfer of absolute ownership, in the
absence of clear and ambiguous language or other circumstances
excluding an intent to pledge. (Lopez v. Court of Appeals, 114 SCRA 671
[1982]).
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Definitely, the assignment of the receivables did not result from a sale transaction. It
cannot be said to have been constituted by virtue of a dation in payment for
appellants' loans with the bank evidenced by promissory note Nos. 11487, 11515
and 11699 which are the subject of the suit for collection in Civil Case No. 78178. At
the time the deed of assignment was executed, said loans were non-existent yet.
The deed of assignment was executed on January 24, 1964 (Exh. "G"), while
promissory note No. 11487 is dated April 25, 1966 (Exh. 'A), promissory note 11515,
dated May 3, 1966 (Exh. 'B'), promissory note 11699, on June 20, 1966 (Exh. "C"). At
most, it was a dation in payment for P10,000.00, the amount of credit from appellee
bank indicated in the deed of assignment. At the time the assignment was executed,
there was no obligation to be extinguished except the amount of P10,000.00.
Moreover, in order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each
other (Article 1292, New Civil Code).
Obviously, the deed of assignment was intended as collateral security for the bank
loans of appellants, as a continuing guaranty for whatever sums would be owing by
defendants to plaintiff, as stated in stipulation No. 9 of the deed.
In case of doubt as to whether a transaction is a pledge or a dation in payment, the
presumption is in favor of pledge, the latter being the lesser transmission of rights
and interests (Lopez v. Court of Appeals, supra).
In one case, the assignments of rights, title and interest of the defendant in the
contracts of lease of two buildings as well as her rights, title and interest in the land
on which the buildings were constructed to secure an overdraft from a bank
amounting to P110,000.00 which was increased to P150,000.00, then to P165,000.00
was considered by the Court to be documents of mortgage contracts inasmuch as
they were executed to guarantee the principal obligations of the defendant
consisting of the overdrafts or the indebtedness resulting therefrom. The Court
ruled that an assignment to guarantee an obligation is in effect a mortgage and not
an absolute conveyance of title which confers ownership on the assignee (People's
Bank & Trust Co. v. Odom, 64 Phil. 126 [1937]).
II
As to whether or not appellee bank must have to exhaust all legal remedies against
the Philippine Fisheries Commission before it can proceed against appellants for
collection of loans under their promissory notes, must also be answered in the
negative.
The obligation of appellants under the promissory notes not having been released
by the assignment of receivables, appellants remain as the principal debtors of
appellee bank rather than mere guarantors. The deed of assignment merely
guarantees said obligations. That the guarantor cannot be compelled to pay the
creditor unless the latter has exhausted all the property of the debtor, and has
resorted to all the legal remedies against the debtor, under Article 2058 of the New
Civil Code does not therefore apply to them. It is of course of the essence of a
contract of pledge or mortgage that when the principal obligation becomes due,
the things in which the pledge or mortgage consists may be alienated for the
payment to the creditor (Article 2087, New Civil Code). In the instant case,
appellants are both the principal debtors and the pledgors or mortgagors. Resort to
one is, therefore, resort to the other.
Appellee bank did try to collect on the pledged receivables. As the Emergency
Employment Agency (EEA) which issued the receivables had been abolished, the
collection had to be coursed through the Office of the President which disapproved
the same (Record on Appeal, p. 16). The receivable became virtually worthless
leaving appellants' loans from appellee bank unsecured. It is but proper that after
their repeated demands made on appellants for the settlement of their obligations,
appellee bank should proceed against appellants. It would be an exercise in futility
to proceed against a defunct office for the collection of the receivables pledged.
WHEREFORE, the appeal is Dismissed for lack of merit and the appealed decision of
the trial court is affirmed in toto.
SO ORDERED.
EN BANC
G.R. No. 3227 March 22, 1907
PEDRO ALCANTARA, plaintiff-appellee,
vs.
AMBROSIO ALINEA, ET AL., defendants-appellants.
S.D. Reyes for appellants.
J. Gerona for appellee.
TORRES, J.:
On the 13th day of March, 1905, the plaintiff filed a complaint in the Court of First
Instance of La Laguna, praying that judgment be rendered in his behalf ordering the
defendants to de liver to him the house and lot claimed, and to pay him in addition
Page 10 of 152
thereto as rent the sum of 8 pesos per month from February of that year, and to pay of the contracts of mortgage or of pledge or that of antichresis, none of which have
the costs of the action; and the plaintiff alleged in effect that on the 29th day of coincided in the loan indicated herein.
February, 1904, the defendants, Ambrosio Alinea and Eudosia Belarmino, borrowed
from him the sum of 480 pesos, payable in January of said year 1905 under the
It is a principle in law, invariably applied by the courts in the decisions of actions
agreement that if, at the expiration of the said period, said amount should not be
instituted in the matter of compliance with obligations, that the will of the
paid it would be understood that the house and lot, the house being constructed of
contracting parties is the law of contracts and that a man obligates himself to that
strong materials, owned by the said defendants and located in the town of San
to which he promises to be bound, a principle in accordance with Law 1, title 1,
Pablo on the street of the same name, Province of La Laguna, be considered as
book 10 of the Novisima Recopilacion, and article 1091 of the Civil Code. That which
absolutely sold to the plaintiff for the said sum; that the superficial extent and
is agreed to in a contract is law between the parties, a doctrine established, among
boundaries of said property are described in the complaint; and that,
others, in judgments of the supreme court of Spain of February 20, 1897, and
notwithstanding that the time for the payment of said sum has expired and no
February 13, 1904.
payment has been made, the defendants refuse to deliver to plaintiff the said
property, openly violating that which they contracted to do and depriving him to his
loss of the rents which plaintiff should received, the same counting from February, It was agreed between plaintiff and defendants herein that if defendants should not
1905. pay the loan of 480 pesos in January, 1905, the property belonging to the
defendants and described in the contract should remain sold for the aforesaid sum,
and such agreement must be complied with, inasmuch as there is no ground in law
The defendants, after the overruling of a demurrer to the complaint herein,
to oppose the compliance with that which has been agreed upon, having been so
answered denying generally and specifically all the allegations contained in the
acknowledged by the obligated parties.
complaint, except those which were expressly admitted, and alleged that the
amount claimed included the interest; and that the principal borrowed was only 200
pesos and that the interest was 280 pesos, although in drawing the document by The supreme court of Spain, applying the aforementioned laws of Spanish origin to
mutual consent of the parties thereto the amount of indebtedness was made to a similar case, establishes in its decision of January 16, 1872, the following legal
appear in the sum of 480 pesos; and that as their special defense defendants doctrine:
alleged that they offered to pay the plaintiff the sum of 480 pesos, but the plaintiff
had refused to accept the same, therefore they persisted in making said offer and
Basing the complaint upon the obligation signed by the debtor, which
tender of payment, placing at the disposal of the plaintiff the said 480 pesos first
judicially recognized his signature; and after confessing to have received
tendered; and defendants asked for the costs of action.
from the plaintiff a certain amount, binding himself to return same to
the satisfaction of the plaintiff within the term of four years, or in case of
After having taken the evidence of both parties and attaching the documents default to transfer direct domain of the properties described in the
presented in evidence to the record, the judge on November 27, 1905, rendered a obligation and to execute the necessary sale; and the term having
judgment ordering the defendants to deliver to the plaintiff the house and lot, the expired and the aforesaid amount not having been paid, said plaintiff
object of this litigation, and to pay the costs of the action, not making any finding has his right free from impediment to claim same against the heirs of
upon the question of loss or damages by reason of the absence of proof on these the debtor.
points. The defendants duly took exception to this decision, and asked for a new
trial of the case on the ground that the findings of the court below in its decision
The document of contract has been recognized by the defendant Alinea and by the
were plainly contrary to law, which motion was overruled and from which ruling
witnesses who signed same with him, being therefore an authentic and efficacious
defendants also excepted.
document, in accordance with article 1225 of the Civil Code; and as the amount
loaned has not been paid and continues in possession of the debtor, it is only just
We have in this case a contract of loan and a promise of sale of a house and lot, the that the promise of sale be carried into effect, and the necessary instrument be
price of which should be the amount loaned, if within a fixed period of time such executed by the vendees.
amount should not be paid by the debtor-vendor of the property to the creditor-
vendee of same.
Therefore, by virtue of the reasons given above and accepting the findings given in
the judgment appealed from, we affirm the said judgment herein, with the costs
Either one of the contracts are perfectly legal and both are authorized respectively against the appellants.
by articles 1451, 1740, and 1753, and those following, of the Civil Code. The fact that
the parties have agreed at the same time, in such a manner that the fulfillment of
After expiration of twenty days from the date of the notification of this decision let
the promise of sale would depend upon the nonpayment or return of the amount
judgment be entered in accordance herewith and ten days thereafter let the case be
loaned, has not produced any charge in the nature and legal conditions of either
remanded to the court from whence it came for proper action. So ordered.
contract, or any essential defect which would tend to nullify the same.

Arellano, C.J., Mapa, Johnson, and Tracey, JJ., concur.

If the promise of sale is not vitiated because, according to the agreement between
the parties thereto, the price of the same is to be the amount loaned and not
repaid, neither would the loan be null or illegal, for the reason that the added
agreement provides that in the event of failure of payment the sale of property as
agreed will take effect, the consideration being the amount loaned and not paid. No
article of the Civil Code, under the rules or regulations of which such double
Separate Opinions
contract was executed, prohibits expressly, or by inference from any of its
provisions, that an agreement could not be made in the form in which the same has
been executed; on the contrary, article 1278 of the aforesaid code provides that WILLARD, J., dissenting:
"contracts shall be binding, whatever may be the form in which they may have been
executed, provided the essential conditions required for their validity exist." This
This contract violates the fundamental principle of the Spanish law, which does not
legal prescription appears firmly sustained by the settled practice of the courts.
permit a debtor, at the time he secures a loan of money, to make an agreement
whereby the mere failure to pay the loan at maturity shall divest him irrevocably of
The property, the sale of which was agreed to by the debtors, does not appear allow his interest in the specific property mentioned in the agreement without any
mortgaged in favor of the creditor, because in order to constitute a valid mortgage right on his part to redeem or to have the property sold to pay the debt. (Civil Code,
it is indispensable that the instrument be registered in the Register of Property, in arts. 1859, 1872, and 1884.) I therefore dissent.
accordance with article 1875 of the Civil Code, and the document of contract,
Exhibit A, does not constitute a mortgage, nor could it possibly be a mortgage, for
THIRD DivISION
the reason of said document is not vested with the character and conditions of a
public instrument.
G.R. No. 77465 May 21, 1988
By the aforesaid document, Exhibit A, said property could not be pledged, not being
personal property, and notwithstanding the said double contract the debtor SPOUSES UY TONG & KHO PO GIOK, petitioners,
continued in possession thereof and the said property has never been occupied by vs.
the creditor. HONORABLE COURT OF APPEALS, HONORABLE BIENVENIDO C. EJERCITO,
Judge of the Court of First Instance of Manila, Branch XXXVII and BAYANIHAN
AUTOMOTIVE CORPORATION, respondents.
Neither was there ever nay contract of antichresis by reason of the said contract of
loan, as is provided in articles 1881 and those following of the Civil Code, inasmuch
as the creditor-plaintiff has never been in possession thereof, nor has he enjoyed Platon A. Baysa for petitioner.
the said property, nor for one moment ever received its rents; therefore, there are
no proper terms in law, taking into consideration the terms of the conditions
Manuel T. Ybarra for respondents.
contained in the aforesaid contract, whereby this court can find that the contract
was null, and under no consideration whatever would it be just to apply to the
plaintiff articles 1859 and 1884 of the same code.

The contract ( pactum commissorium) referred to in Law 41, title 5, and law 12, title CORTES, J.:
12, of the fifth Partida, and perhaps included in the prohibition and declaration of
nullity expressed in articles 1859 and 1884 of the Civil Code, indicates the existence

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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:
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;

That immediately upon signing of this Agreement, the VENDEE shall

4. Ordering the defendants spouses Uy Tong and Kho Po Giok to pay to
pay unto the VENDOR the amount of Seven Thousand Seven Hundred
the plaintiff the sum of P200.00 commencing from June, 1971 to
(P7,000.00) Pesos, Philippine Currency, and the amount of Fifteen
November 30, 1972, or a total amount of P3,400.00 as rental for the
Thousand (P15,000.00) Pesos shah be paid on or before March 30,
apartment, and the sum of P200.00 from December 1, 1972 until the
1969 and the balance of Twenty Five Thousand (P25,000.00) Pesos shall
premises are finally vacated and surrendered to the plaintiff, as
be paid on or before April 30, 1969, the said amount again to be
reasonable compensation for the use of the apartment; and
secured by another postdated check with maturity on April 30, 1969 to
be drawn by the VENDEE;
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
That it is fully understood that should the two (2) aforementioned
suit.
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; 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
That if for any reason the VENDEE should fail to pay her
of the said decision was denied by the respondent Court in a resolution dated
aforementioned obligation to the VENDOR, the latter shall become
February 11, 1987 [Petition, Annex "C", Rollo, pp. 31- 34].
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 Petitioners-SPOUSES in seeking a reversal of the decision of the Court of Appeals
Thousand Five Hundred Thirty Five (P3,535.00) Pesos, Philippine rely on the following reasons:
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
I. The deed of assignment is null and void because it is in the nature of
Leasehold Rights. [emphasis supplied]. (Quoted in Decision in Civil Case
a pactum commissorium and/or was borne out of the same.
No. 80420, Exhibit "A" of Civil Case No. 1315321].

II. The genuineness and due Prosecution of the deed of assignment was
After making a downpayment of P7,700.00, the SPOUSES failed to pay the balance
not deemed admitted by petitioner.
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. III. The deed of assignment is unenforceable because the condition for
its execution was not complied with.

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].
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.

Pursuant to said judgment, an order for execution pending appeal was issued by the The prohibition on pactum commissorium stipulations is provided for by Article
trial court and a deed of assignment dated May 27, 1972, was executed by the 2088 of the Civil Code:
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
Art. 2088. The creditor cannot appropriate the things given
stands. The SPOUSES acknowledged receipt of the sum of P3,000.00 more or less,
by way of pledge or mortgage, or dispose of the same. Any
paid by BAYANIHAN pursuant to the said judgment.
stipulation to the contrary is null and void.

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
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

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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;
-witnesseth-
WHEREAS, 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.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
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.
Page 13 of 152
 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 term-until 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.
SECOND DIVISION
SPOUSES WILFREDO N. G.R. No. 172592
ONG and EDNA SHEILA
PAGUIO-ONG, Present:
Petitioners,
QUISUMBING, J., Chairperson,
- versus - CARPIO MORALES,
TINGA,
BRION, and
ROBAN LENDING AUSTRIA-MARTINEZ,* JJ.
CORPORATION,
Respondent.
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, Tarlac City 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]
CRED TRANS Pledge, Mortgage Antichresis Fulltext
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) Declaring the Memorandum of Agreement xxx and
Dacion in Payment x x x as null and void for being pactum
commissorium;
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 is P4,000,000
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)
Page 14 of 152
 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
constitute pactum 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.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
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 being pactum commissorium.
In line with the foregoing findings, the following terms of the loan
contracts between the parties are MODIFIED as follows:
1. The monthly interest rate of 3.5%, or 42% per annum, is
reduced to 12% per annum;
2. 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
3. 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.
FIRST DIVISION
G.R. No. 199420 August 27, 2014
PHILNICO INDUSTRIAL CORPORATION, Petitioner,
vs.
PRIVATIZATION AND MANAGEMENT OFFICE, Respondent.
x-----------------------x
G.R. No. 199432
PRIVATIZATION AND MANAGEMENT OFFICE, Petitioner,
vs.
PHILNICO INDUSTRIAL CORPORATION, Respondent.
DECISION
Page 15 of 152
LEONARDO-DE CASTRO, J.: xxxx

Before the Court are the consolidated Petitions for Review on Certiorari under Rule (b) From and after the Closing Date, the Buyer shall exercise all the
45 of the Rules of Court involving the Decision1 dated January 31, 2011 and rights (including the right to vote) of a shareholder in respect of the
Resolution2 dated November 18, 2011 of the Court of Appeals in CA-G.R. SP. No. Shares (subject to the negative covenants contained in the Pledge
111108, which affirmed the Order3 dated August 25, 2009 of the Regional Trial Agreement).8
Court (R TC), Branch 64 of Makati City in Civil Case No. 03-114.
Also worthy of note herein is Section 8 of the ARDA on default, which states:
THE PARTIES

SECTION 8. DEFAULT AND DEFAULT REMEDIES

The Petition in G.R. No. 199420 was filed by Philnico Industrial Corporation (PIC). It
is a corporation duly organized under the laws of the Philippines and which,
8.01 Events of Default
together withPhilnico Processing Corporation (PPC) and Pacific Nickel Philippines,
Inc. (PNPI), form the Philnico Group. The Philnico Group is engaged in nickel mining
and refining business. PIC and PNPI hold a Mineral Production Sharing Agreement Subject to any applicable curing period, each of the following events shall constitute
over nickel mining areas in Nonoc and Dinagat Islands inSurigao, while PPC owns a an Event of Default hereunder:
nickel refinery complex also in Nonoc Island.4

(a) The Buyer shall, subject tothe provisions of Section 2.03(b), fail to pay
The Petition in G.R. No. 199432 was filed by the Privatization and Management any two consecutive installments on the Purchase Price in accordance
Office (PMO), an attached agency of the Department of Finance. PMO succeeded with the terms of Section 2.03.
the Asset Privatization Trust (APT), when the latters life ended on December 31,
2000.5 The PMO serves as the marketing arm of the Government with respect to
(b) The Buyer shall fail to complywith or observe any other material
Transferred Assets, Government Corporations and other properties assigned to it by
term, obligation or covenant contained in this Agreement or in the
the Privatization Council (PrC) for disposition. Together, the mission of the PMO and
Pledge Agreement.
PrC is to take title to and possession of, conserve, provisionally manage, and
dispose of assets previouslyidentified for privatization; and, in the process, reduce
the Governments maintenance expense on nonperforming assets, generating (c) The Buyer shall commit any act of bankruptcy or insolvency, or shall
maximum cash recovery for the National Government. 6 file any petition or action for relief under any bankruptcy,
reorganization, insolvency or moratorium law or other law or laws for
the relief of debtors.
ANTECEDENT FACTS

8.02 Consequence of Default

The Development Bank of the Philippines and Philippine National Bank, by virtue of
foreclosure proceedings, became the holders of all the shares of stock in PPC (then
still the Nonoc Mining and Industrial Corporation). The banks eventually transferred At any time after the happening of an Event of Default, and provided that the same
their PPC shares of stock to PMO (then still the APT) in 1987. shall not have been remedied within ninety (90) days from receipt by the Buyer of
written notice from the Seller, the Seller may declare the buyer in default and, asa
consequence thereof, exercise such rights and remedies as it may have under this
On May 10, 1996, PMO, PIC (then still the Philnico Mining and Industrial
Agreement and applicable laws (including the cancellation of these Agreement);
Corporation), and PPC executed a contract, denominated as the Amended and
provided that in case of default under Section 8.01(a), the title to the Existing Shares
Restated Definitive Agreement (ARDA), which laid down the terms and conditions of
and the Converted Shares shall ipso facto revertto the Seller without need of
the purchase and acquisition by PIC from PMO of 22,500,000 shares of stock of PPC
demand in case such payment default is not remedied by the Buyer within ninety
(representing 90% of ownership of PPC), as well as receivables of PMO from PPC.
(90) days from the due date of the second installment. (Emphasis supplied.) 9
Under the ARDA, PIC agreed to pay PMO the peso equivalent of US$333,762,000.00
as purchase price, payable in installments and in accordance with the schedule also
set out in the ARDA.7 In accordance with the ARDA, PMO executed and delivered to PIC the necessary
documents to transfer the formers rights, title, and interests to and in the PPC
shares of stock to the latter; and PPC issued new certificates for the same shares of
Among the provisions of the ARDA relevant to the instant cases are Sections 2.04
stock in the name of PIC and/or its nominees.
and 2.07, which govern the rights and obligations of the parties as regards the PPC
shares of stock, viz: 2.04 Security
On May 2, 1997, PIC and PNPI as pledgors and PMO as pledgee executed a Pledge
Agreement10 which began with "Whereas Clauses" that read:
(a) As security for the payment of the Purchase Price in accordance with
the terms of this Agreement, the Buyer shall pledge the Shares to the
Seller and execute a pledge agreement (the "Pledge Agreement") in WHEREAS, [PIC] and the [PMO] have entered into an Amended and Restated
favor of the Seller in substantially the form of Annex A. The Buyer shall Definitive Agreement, dated May 10, 1996, involving the purchase by the [PIC] from
also pledge to the Seller the Converted Shares and the New Shares as the [PMO] of 22,500,000 shares of common stock of [PPC] and certain receivables of
security for the payment of the Purchase Price upon the issuance of such the [PMO] from said corporation; and
shares in the name of the Buyer.

WHEREAS, to secure the obligation of [PIC] to pay the purchase price and all other
xxxx amounts due the [PMO] under the aforesaid Definitive Agreement and the
performance by [PIC] of its other obligations thereunder and under this Pledge
Agreement, the [PIC and PNPI] have agreed to execute and deliver thisPledge
2.07 Closing
Agreement, giving unto the [PMO] a good and valid pledge over the pledge[d]
shares[.]11
(a) The closing of the sale and purchase of the Shares and the Tranche B
Receivables under this Agreement shall take place on the Closing Date
Sections 3.01 and 3.02 of the Pledge Agreement expressly acknowledged that PIC
and at such place as may be agreed between the Buyer and the Seller
delivered its certificates of shares of stock in PPC and that PMO received said
upon the fulfillment of all of the conditions precedent specified in
certificates.12 Section 5 of the same Agreement covered default and the available
Sections 4.01 and 4.02 (unless any such condition precedent shall have
remedies in case thereof, thus: SECTION [5]. DEFAULT REMEDIES, ETC.
been waived by the Buyer or the Seller, as the case may be). At the
closing, the following transactions shall take place:
5.01 Events of Default

(1) the Seller shall execute and deliver to the Buyer the
necessary deed of sale transferring to the Buyer all of the The following shall be considered Events of Default under this Pledge Agreement:
Sellers right, title and interest in and to the Shares and deliver
to the Buyer the stock certificates representing such shares,
(a) [PIC] shall fail to pay when duethe obligations after giving effect to
each duly endorsed, or with separatestock transfer powers
any applicable period of grace; or
attached, in favor of the Buyer together with the duly executed
resignations of the directors of the Company named in
Schedule 6; (b) [PIC] or PNPI shall fail to comply with or observe any other material
term, obligation or covenant contained in this Pledge Agreement or the
Definitive Agreement; or
(2) the Company shall issue in the name of, and deliver to, the
Buyer new stock certificates representing the Shares;
(c) [PIC] or PNPI shall commit any act of bankruptcy or insolvency, or
shall file any petition or action for relief under any bankruptcy,
(3) the Buyer shall execute and deliver the Pledge Agreement
reorganization, insolvency or moratorium law or other x x x laws for the
covering the Shares and deliver to the Seller the stock
relief of debtors; or
certificates representing such shares;

CRED TRANS Pledge, Mortgage Antichresis Fulltext Page 16 of 152

 (d) The priority of the lien of or the security interest granted by this
Pledge Agreement shall be impaired, or this Pledge Agreement shall
cease to be a first and preferred lien upon the Pledged Shares.
5.02 Consequences of Default
If an Event of Default shall have occurred, then at any time thereafter, if any such
event shall then be continuing after the applicable grace period, if any, the [PMO] is
hereby authorized:
(a) To sell in one or more sales, either public or private, at any time the
whole or any part of the Pledged Shares in such order and number as
the [PMO] may elect at its place of business or elsewhere and the [PMO]
may, in all allowable cases, be the purchaser of any or all Pledged Shares
so sold and hold the same thereafter in its own right free from any claim
of [PIC] or any right of redemption;
(b) To issue receipts and to execute and deliver any instrument or
document or do any act necessary for the transferand assignment of all
rights, title and interest of [PIC] in the Pledged Shares to the purchaser
or purchasers thereof; and
(c) To apply, at the [PMOs] option, the proceeds of any said sale, as well
as all sums received orcollected by the [PMO] from or on account of
such Pledged Shares to (i) the payment of expenses incurred or paid by
the [PMO] in connection with any sale, transfer or delivery of the
Pledged Shares and (ii) the payment of the Obligations or any part
thereof.13
In the meantime, the nickel refinery complex of PPC, which last operated in the
1980s, had become obsolete and much of the facilities therein were already scrap.
The estimated cost in 2003 for building an entirely new refinery plant based on new
technology was about US$1 Billion. The Philnico Group, which had already invested
at least US$60 Million, was inviting and negotiating withprospective foreign
investors who could assist in its business.
On account of the huge financial cost of building a new nickel refinery plant,
coupled with the economic problems then affecting the AsiaPacific Region, PMO,
PIC, and PPC executed an Amendment Agreement 14 on September 27, 1999 which
provided for the restructuring of the payment terms of the entire obligation under
the ARDA, the repayment of advances, the conditions for borrowings or financing, a
new cash break-even formula, and the adoption of an investment plan.
Three years later, in a letter dated November 6, 2002, PMO notified PIC that the
latter had defaulted in the payment of its obligations and demanded that PIC settle
its unpaid amortizations in the total amount of US$275,000.00 within 90 days, or on
or about February 5, 2003, or else the PMO would enforce the automatic reversion
of the PPC shares of stock under Section 8.02 of the ARDA. PIC replied in a letter
dated January 7, 2003 requesting PMO to set aside its notice of default; to not
rescind the sale of the PPC shares of stock; and to give PIC an opportunity to
conclude its fund-raising efforts for its business, particularly with a group of
investors from China. In another letter dated January 22, 2003 to PIC, PMO clearly
indicated its intention to enforce Section 8.02 of the ARDA should PIC fail to settle
its outstanding obligations after February 5, 2003.
On February 4, 2003, a day before the deadline for payment set by PMO in its
letters, PIC filed beforethe RTC a Complaint for Prohibition against Reversion of
Shares with Prayer for Writ of Preliminary Injunction and/or Temporary Restraining
Order, Suspension of Payment and Fixing of Period of Payment, against PMO, PPC,
and the PPC Corporate Secretary.
On February 7, 2003, PIC filed an Amended Complaint raising, among other
arguments, the need for mutual restitution in case the ARDAis rescinded by the RTC.
Ultimately, PIC prayed of the RTC that:
(a) Upon the filing of this complaint, a temporary restraining order be
issued under Sec. 5 of Rule 58 of [the] 1997 Rules of Civil Procedure
prohibiting [PMO, PPC, and the PPC Corporate Secretary] from reverting
the 22,500,000 shares covered by Stock Certificate Nos. 018, 022, 024,
025, 026, 027, 028, 030 and 031 x x x in the name of [PIC] to defendant
PMO.
(b) After hearing
(i) A writ of preliminary injunction be issued prohibiting [PMO, PPC, and
the PPC Corporate Secretary] from effecting the reversion of the
aforementioned shares in favor of defendant PMO until further orders
from the Court; and thereafter,
(c) Judgment issue
(i) Making the injunction permanent and ordering the suspension of the
payment of the amortizations as provided for in the ARDA and fixing a
reasonable period within which said payment should be due; and
CRED TRANS Pledge, Mortgage Antichresis Fulltext
(d) Or in the alternative, in the remote possibility that the ARDA x x x be
considered rescinded, mutual restitution be ordered by the Honorable
Court as provided by the Civil Code relative to reciprocal obligations.
[PIC] prays for such further and equitable relief as may be just and equitable in the
premises.15
After the summary hearing held on February 7, 2003, the RTC issued a temporary
restraining order (TRO), effective for 20 days, restraining PMO, PPC, and the PPC
Corporate Secretary from effecting the reversion of the 22,500,000 shares of stock
of PPC.
The RTC then conducted hearings on the prayer of PIC for the issuance of a writ of
preliminary injunction. The RTC subsequently issued an Order16 on February 27,
2003 finding PIC entitled to the issuance of such a writ for the following reasons:
While the failure of [PIC] to meet its amortization with respect to the smaller portion
of the purchase price cannot be denied, said default cannot automatically result in
the reversion of the shares of stocks to PMO. The provision in the ARDA providing
for ipso facto reversion of the shares of stock is null and void for being a pactum
commissorium. x x x.
xxxx
The automatic reversion of the shares of stock is by itself automatic appropriation of
the thing pledged, which is contrary to good morals and public policy. It would
alsoresult in unjust enrichment on the part of defendant PMO. Even in case of
rescission, mutual restitution is allowed so as not to enrich one party to the
prejudice of the other. It would be tantamount to confiscation ofproperty without
due process. The seller had the option of foreclosing the property pledged. The
seller cannot automatically appropriate the same to himself when the ownership is
already transferred to [PIC]. Thus, even for the time being when foreclosure of the
shares pledge[d] isbeing considered, and the question of rescission is being
deliberated, [PIC] has a right to be protected and therefore entitled to the relief of
preliminary injunction.
Regarding the provision on referral to arbitration, granting that the case is proper
for arbitration, [PIC] isnonetheless entitled to the writ of preliminary injunction
pending the arbitration proceeding.
xxxx
One of the requirements for the issuance of the writ of preliminary injunction is
when there is an urgent and paramount necessity for the writ to prevent an
irreparable damage. Irreparable means one that can not be rectified. [PIC] is in
danger of losingits investment in the project without any recourse if PMO will be
allowed the automatic reversion of the ownership of the 22,500,000 shares. The
right of [PIC] will be prejudiced if the writ of preliminary injunction will not be issued
in the meantime.17
The RTC thus decreed:
WHEREFORE, premises considered, the Writ of Preliminary Injunction is GRANTED.
Until further Order from this Court,and subject to [PICs] filing of a bond in the
amount of P100,000,000.00 to pay for all the damages which [PMO, PPC, and the
PPC Corporate Secretary] may sustain by reason of the injunction if the Court will
finally decide that [PIC] is not entitled thereto, defendants Privatization and
Management Office (PMO), Philnico Processing Corporation (PPC), and the
Corporation Secretary of PPC are enjoined from effecting the reversion to PMO of
the 22,500,000 shares purchased by plaintiff Philnico Industrial Corporation and
from selling the same to any third party.18
PMO filed a Motion for Reconsideration of the RTC Order dated February 27, 2003,
insisting that the provision on ipso factoreversion in the ARDA did not constitute
pactum commissoriumand would not result in unjust enrichment on the part of
PMO. PMO likewise filed a Motion to Dismiss on the ground that the complaint of
PIC did not state a cause of action. In its Order19 dated June 19, 2003, the RTC found
no merit in both Motions and held that:
1. The Motion for Reconsideration is DENIED. This Court maintains that [PIC] is
entitled to the issuance of the Writ of Preliminary Injunction.
[PIC] has already acquired ownership of the 22,500,000 shares when the ARDA was
executed between the parties. The ARDA merely provides for the transfer of the
subject shares to [PIC]. As a matter of fact, [PIC] has executed a Pledge Agreement
as a security for the payment of [PICs] obligation with defendant PMO.
xxxx
Under the ARDA, the relationship of [PIC] and defendant PMO is that of a pledgor
and pledgee and no longer as a buyer and seller. As such, the ipso facto reversion of
the shares in the ARDA constitutes pactum commissorium. The execution of the
Pledge Agreement is precisely made to secure the payment of [PICs] obligation
Page 17 of 152
with defendant PMO. The automatic reversion of the shares if allowed will in fact
constitute automatic appropriation of the thing pledged which is proscribed being
pactum commissorium. The automatic appropriation itself will prejudice the
investment made by [PIC] in the said project and all improvements will inure to
defendant PMO which the law abhors. Even in case of rescission, mutual restitution
is allowed so as not to enrich one party at the expense of the other. This
forfeitureclause in the ARDA is contrary to law, good morals and public policy.
2. With respect to the Motion To Dismiss, the same is DENIED.
Cause of action is the act or omission by which a party violates a right of another
(Sec. 2, Rule 2 of the 1997 Rules on Civil Procedure). As already stated in the
resolution of the motion for reconsideration, the ipso facto reversion of the shares
pursuant to Section 8.02 of the ARDA constitute[s] pactum commissorium, and
therefore null and void being contrary to morals, law and public policy. As such, the
ipso facto reversion of the shares will result inunjust enrichment on the part of
defendant PMO for the reason that all investment of [PIC] with the said project will
inure to the benefit ofdefendant PMO with [PIC] getting nothing.
The present case does not violate the principles of autonomy of contract[s]. [PIC]
seeks to prohibit the implementation of the ipso facto reversion clause in the ARDA,
which is contrary to law being a pactum commissorium. This is a limitation imposed
by law, which is considered to be part of a contract. Contracts must respect the law,
for the law forms part of the contract. While the contract is the law between the
parties, the Court may stop its enforcement if it is contrary to law, morals, good
customs or public policy (San Andres vs. Rodriguez, 332 SCRA 69).
While the ARDA provides for arbitration as mode of settlement of the dispute
(Section 9.05), the present complaint involves interpretation of the provisions of the
ARDA. Interpretation of contracts is within the domain of the Court. The ipso facto
reversion of the shares in the ARDA can never be subject of arbitration but it is
within the domain of the court to declare whether or not the same is valid or null
and void.20
In the same Order, the RTC directed PMO, PPC, and the PPC Secretary to file their
answer to the complaint of PIC. PMO no longer challenged the RTC Orders dated
February 27, 2003 and June 19, 2003 before the appellate courts. Instead, PMO
complied with the RTC directive and already filed with the said trial court its Answer
and Amended Answer to the complaint of PIC. The RTC proceeded to pre-trial when
the parties failed to arrive at an amicable settlement. On February 6,2009, the RTC
issued its Pre-trial Order21 in which it enumerated the respective issues for
resolution submitted by PIC and PMO, to wit:
ISSUES ([PIC])
1. Whether or not the ipso facto reversion clause in the ARDA is valid,
and, whether or not it is a specie[s] of pactum commissoriumwhich is
outlawed.
2. Whether or not [PIC] is in default under the terms of the ARDA which
clearly contemplates the actual operation of the plant before the
subsequent installments after the third year will be due, as it even
recognizes deferment of payment of installment if the Nonoc mining
plant and refinery is not yet in full operation and has not produced
sufficient cash equivalent for payment to seller.
3. Even assuming that the schedule of payment is not modified by the
other terms of the ARDA (as actual operation of the plant and refinery),
whether or not [PIC] may be considered as in default considering the
fortuitous events which are unforeseen and beyond the control of [PIC]
which had prevented [PIC] from complying with its obligation under the
scheduled amortization. 4. Whether or not [PIC] is entitled to be
reimbursed what it had already paid and spent to implement the
contract, in the remote event that APT/PMO may be allowed to exercise
right [of] rescission.
5. Whether or not plaintiff [PIC] is required to resort to arbitration to
enforce its cause of action in the complaint.
ISSUES ([PMO])
1. Whether or not defendant PMO may be prohibited from ipso facto
reverting the shares pursuant to the ARDA considering that [PIC]
defaulted in its payment and there is an express provision in the ARDA
providing for the said provision.
2. Whether or not the terms and modes of payments as provided in the
ARDA may be suspended or fixed anew by reason of unforeseen events
cited by [PIC].
3. Whether or not defendant PMO may be enjoined by this Honorable
Court in the performance of its functions and duties in connection with
the sale or disposition of assets transferred to it pursuant to
Proclamation No. 50-A.22 (Emphases supplied.)
CRED TRANS Pledge, Mortgage Antichresis Fulltext
PIC filed a Manifestation and Motion praying for the modification of the foregoing
Pre-trial Order dated February 6, 2009 of the RTC by deleting Issue Nos. 1 and 5 in
the Statement of Issues of PIC. PIC posited that these two issues were already
resolved by the RTC in the Order dated June 19, 2003 and should no longer be
among the issuesto be tried in the course of subsequent proceedings.
PMO countered in its Comment/Opposition that the RTC Orders dated February 27,
2003 and June 19, 2003 concerned only the issuance of the Writ of Preliminary
Injunction; and the findings and conclusions of the trial court on the propriety of the
issuance of the injunctive writ are premised on initial and incomplete evidence,
which should be considered merely as provisional. Said RTC Orders should not bind
the trial court in its determination of the merits of the caseand to hold otherwise
would result in the prejudgment of the case or disposition of the main case without
a fullblown trial. Consequently, PMO prayed that the RTC deny the Manifestation
and Motion of PIC.
PMO also successively filed an Omnibus Motion and a Supplement to Omnibus
Motion, asserting that: (1) the Writ of Preliminary Injunction was issued in 2003 by
the RTC without jurisdiction and was therefore void, because there was no
compliance with the arbitration clause in the ARDA; (2) the continuance of the Writ
of Preliminary Injunction is causing irreparable damage to the National Government;
(3) since the issuance of the Writ of Preliminary Injunction six years before, PIC had
effectively achieved and obtained the reliefs it had prayed for in its complaint as it
was able to suspend the payment of monthly amortization and prevent the
reversion, or even the selling, of the PPC shares of stock in the event of default; (4)
the amount of injunction bond is insufficient and grossly disproportionate to the
enormity of the damages that PMO stands to suffer; (5) the injunctive writ is
supposed to be a "strong arm of equity" and should not be used as an instrument
of perpetrating injustice against the National Government; (6) in accordance with
Rule 58, Section 6 of the Rules of Court, PMO is signifying its intention to post a
counterbond that would answer for the damages PIC might suffer by the dissolution
of the Writ of Preliminary Injunction; and (7) PMO thought it prudent to no longer
assail the RTC Orders dated February 27, 2003 and June 19, 2003 before the
appellate courts believing that such a move would only cause further delay in the
resolution of the case and cause more irreparable damage to the
National Government. PMO sought several reliefs from the RTC in its Omnibus
Motion, quoted as follows:
(1) That the Writ of Preliminary Injunction be dissolved;
(2) That a representative of defendant PMO be appointed to the PPCs
and PNPIs board of directors or management; and
(3) That [PIC] be required to submit an accounting of its books and
financial reports from the year 2003 to 2008.
Other just and equitable reliefs are also prayed for. 23
Following hearings and exchange ofpleadings by the parties, the RTC collectively
resolved the pending motions of PIC and PMO in its Order dated August 25, 2009.
The RTC determined that there was sufficient basis to grant the Manifestation and
Motion of PIC to delete two issues from the Pre-Trial Order dated February 6, 2009:
The Court will not disturb the earlier findings of the previous judge that the ipso
factoreversion clause in the ARDA is invalid and that it constitute[s] pactum
commissorium. The Court finds no legal and factual reasons to change the previous
findings of the Honorable Delia H. Panganiban that [PIC] has already acquired
ownership of the 22,500,000 shares sold to it and that the ARDA is merely a scheme
for the transfer of the said share to the latter. As such, the relation between [PIC]
and defendant PMO has become that ofa mortgagor and mortgagee. Accordingly,
the proviso in the ARDA for the ipso factoreversion constitutes pactum
commissorium.
The Court disagrees with [PMO] that the said finding is merely initiatory as it was a
finding on a legal issue. No other evidence is needed to change the same. In fact,
said issue was extensively and exhaustively argued by the parties in their respective
pleadings in relation thereto. It is presumed that the previous Presiding Judge of
this Court has considered all the arguments raised by the parties.Section 3(o) of
Rule 131 of the Revised Rules of Court provides: that all matters within an issue
raised in a case were laid before the court and passed upon by it. In addition, based
on the personal analysis of its new Presiding Judge, the Court is judiciously
convinced of the soundness of its earlier findings. More importantly, it appears from
the records that defendant PMO never challenged such finding in a higher judicial
arena. Thus, this Court deems its resolution to be incontestable at this stage.
Consequently, since the said finding has attained finality, any error that thisCourt
may have committed in resolving the said issue may only be raised in an appeal to
be made by the adverse party.
This Court also finds merit [i]n plaintiffs prayer for the deletion of the fifth issue
raised during the pre-trial of this case. The denial of the motion to dismiss
previously filed by defendant PMO also [constitutes] as an adjudication on the issue
as to whether or not the subject matter of this case is a proper subject of arbitration
proceedings as provided for in ARDA. The Court reached the said conclusion based
on jurisprudential law which up to this date is unchanged. Said conclusionhas also
Page 18 of 152
become immutable when [PMO, PPC, and the PPCCorporate Secretary] similarly
failed to challenge the same.24
As for the Omnibus Motion and Supplement to Omnibus Motion of PMO, the RTC
only conceded to requiring PIC to submit accounting and financial reports to PMO:
The elements of pactum commissoriumare: (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 nonpayment of the principal obligation within the stipulated period.

On defendant PMOs omnibus motion and its supplemental thereto, the Court
resolves the first motion in the negative. As stated above[,] this instant case does
not involve matters which can be adjudicated through arbitration. It involves the
interpretation of contract which falls within the jurisdiction of this Court. This Court
agrees with [PIC] that there can be no damage whenwhat is being restrained is an
illegal act. It need not be said that no right can emanate from an illegal act. In this
instant case, what is being restrained by the Writ is the enforcement by defendant
PMO of the reversion clause in the ARDA. Having unequivocally declared such
reversion clause illegal, the Court has no reason to terminate the efficacy of the Writ
it issued. The Court notes that defendant PMO did not lift a finger during the time
that it should have done so. Thus, the delay, if there be any, is not solely attributable
to [PIC]. Having impliedly consented thereto, defendant PMO must suffer the
consequences of its inaction. The same is true on the allegation of insufficiency of
the injunction bond filed by [PIC]. The defendant PMOs failure to question the
same withinreasonable time the amount of the injunction bond posted by [PIC] is
fatal to its cause as it galvanized the resolution of the Court on the matter.
The Court will not act on defendant PMOs prayer for the appointment of a
representative in [PICs] Board of Director[s]. As stated by [PIC] in its opposition to
the pending incident, that it is not preventing defendant PMO to appoint a
representative [in the] former, the Court will no longer discuss the said motion. The
parties, however, are directed to notify this Court of the appointmentby [PMO] of a
representative in [PICs] Board of Director[s]. Ondefendant PMOs motion to submit
accounting report, while it may be true that [PIC] is submitting its financial
statements to the Bureau ofInternal Revenue and the Securities and Exchange
Commission, the Court finds no legal obstacle not to direct [PIC] to submit a copy of
the said documents to [PMO]. Lastly, on the motion of [PMO] to post counter bond,
the Court finds the same to [be] without merit.The Court cannot allow, even if a
bond is posted, [PMO] to commit an act which it has declared to be illegal. There is
no premium for an illegal act.25
The dispositive portion of the RTC Order dated August 25, 2009 reads:
In the instant case, the subject ARDA basically pertains to the contract of sale of
shares of stock. There was nothing given by way of pledge or mortgage in said
contract, through which [PMO] could have appropriated the shares to itself should
default in the payment thereof arise.
At this point, We have to agree with [PMO] that the ARDA is separate and distinct
from the Pledge Agreement. The two agreements have separate terms and
conditions, especially concerning the consequences of default. Under the ARDA,
[PMO] may effect the ipso factoreversion of the title over the sharesof stock of [PIC],
without need of demand. On the other hand, under the Pledge Agreement, [PMO]
may conduct a public or private sale of the shares of stock of [PIC], wherein it may
opt to buy the same.
Furthermore, the first element of pactum commissoriumonly holds true under the
Pledge Agreement whilethe second element with respect to the stipulation for
automatic appropriation can be found under the ARDA. Thus, it is plainly
irreconcilable how pactum commissoriumcan be made to apply in the present case,
absentthe two elements concurring in one contract. 28
Notwithstanding its aforequotedpronouncements, the Court of Appeals still
declared the ipso factoreversion clause in the ARDA invalid:
Nevertheless, the questioned provision on automatic reversion of shares still cannot
be held valid. While the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, they should, however, be not
contrary to law, morals, good customs, public order, or public policy.
In a contract of sale involving shares of stock, ownership is deemed transferred
upon the issuance ofcertificate of stock. Section 63 of the Corporation Code
provides that "shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer."

WHEREFORE, premises considered, the Court GRANTS the following motion:

The word "transfer," as contemplatedin that particular section of the Corporation
Code, means any act by which the share of stock of one person is vested in another,
1. Manifestation [and] Motion filed by [PIC] and hereby DELETES issues
that is, he is divested and another acquires ownership of such stock.
numbers 1 and 5 in pages 5 and 6 of its Pre-Trial Order of February 6,
2009.
Applying these principles, ownership over the stock of shares was already
transferred to [PIC] when it was issued new certificates of stock. [PMO] cannot
2. The Omnibus Motion on requiring [PIC] to submit an accounting and
oblige [PIC] to automatically part with its ownership over the shares in favor of the
financial reportto the defendant [PMO], and submit to this Court a
former on the occasion of default or nonpayment, even if they have previously
manifestation of its compliance thereto; and DENIESthe following:
agreed upon the same. Such stipulation contained in the ARDA is contraryto law,
hence, null and void.
1. The dissolution of the Writ of Preliminary Injunction
for lack of merit.
It bears stressing that what is being declared null and void here is the "automatic
reversion of shares" clause and not the provision for the rescission/cancellation of
2. The appointment of a representative of [PMO to the] ARDA, as what has been impressed by [PMO] in its arguments.
Board of Directors for lack of merit.

Accordingly, [PIC] is entitled to be protected of his rights through the issuance of

3. The posting of counter bond for lack of merit.26 the Writ of Preliminary Injunction. And it is but proper to deny the dissolution of
said writ. Itshould be of no moment that it has been in effect for several years now.
Until the matter has been settled on whether [PIC] has substantially breached its
PMO assailed the RTC Order dated August 25,2009 before the Court of Appeals viaa
obligation as to constitute default, then, the shares of stock cannotas yet be
Petition for Certiorari, averring that:
foreclosed and sold, in accordance with the terms and conditionsof the Pledge
Agreement, to satisfy [PMOs] alleged claims. 29 (Citations omitted.)
I.

The Court of Appeals accordingly ruled in the end:

PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN HOLDING THAT
In view of all the foregoing, We simply cannot ascribe grave abuse of discretion to
THE IPSO FACTOREVERSION CLAUSE IN THE ARDA IS A SPECIE[S] OF
public respondent. While We may have a different take on the matter at hand, it is
PACTUM COMMISSORIUMAND SUCH DISPOSITION IS A FINAL
axiomatic thatnot every erroneous conclusion of law or fact is abuse of discretion.
DETERMINATION OF THE COURT WHICH CAN ONLY BE QUESTIONED
ON APPEAL; AND
WHEREFORE, premises considered, the instant petition is DENIED. The assailed
Order dated 25 August 2009 issued by public respondent, Hon. Judge Gina M.
II.
Bibat-Palamos of RTC Makati, Branch 64, in Civil Case No. 03-114 is hereby
AFFIRMED.30 (Citation omitted.)
PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DENYING
PIC filed a Motion for Partial Reconsideration, while PMO filed a Motion for
[PMOS] MOTION TO DISSOLVE THE WRIT OF PRELIMINARY
Reconsideration of the Decision dated January 31, 2011 of the Court of Appeals,
INJUNCTION AND MOTION TO FILE A COUNTERBOND FOR THE
which the appellatecourt both denied in its Resolution dated November 18, 2011.
DISSOLUTION THEREOF.27

Hence, the instant Petitions.

The Court of Appeals, in itsDecision dated January 31, 2011, disagreed with the
finding of the RTC that the instant case involves a pactum commissorium, but still
affirmed the denial by the RTC of the motion of PMO to dissolve the Writ of In its Petition in G.R. No. 199420, PICassigned the following errors on the part of the
Preliminary Injunction issued in 2003. Court of Appeals:

According to the Court of Appeals, Section 8.02 of the ARDA does not constitute I
pactum commissorium:

CRED TRANS Pledge, Mortgage Antichresis Fulltext Page 19 of 152

THE HONORABLE COURT OF APPEALS COMMITTED GROSS ERROR, ACTED WITH
GRAVE ABUSE OF DISCRETION WHEN IT DECIDED A QUESTION OF SUBSTANCE
NOT IN ACCORD WITH LAW AND ESTABLISHED JURISPRUDENCE BY HOLDING
THAT THE ESSENTIAL ELEMENTS OFPACTUM COMMISSORIUM, NAMELY, 1) THAT
THERE SHOULD BE A [PLEDGE] OR [MORTGAGE] WHEREIN A PROPERTY 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 NONPAYMENT OF THE PRINCIPAL OBLIGATION
WITHIN THE STIPULATED PERIOD, MUST CONCUR OR BE PRESENT IN ONE
CONTRACT UNLIKE IN THE CASE AT BENCH WHERE ONE ELEMENT PURPORTEDLY
APPEARS IN THE ARDA WHILE THE OTHER APPEARS INTHE PLEDGE AGREEMENT.
II
THE HONORABLE COURT OF APPEALS COMMITTED GROSS ERROR, ACTED WITH
GRAVE ABUSE OF DISCRETION AND NOT IN ACCORD WITH LAW AND
ESTABLISHED JURISPRUDENCE WHEN IT GAVE DUE COURSE AND RULED ON
[PMOS] PETITION FOR CERTIORARI ASSAILING THE ORDER ISSUED BY THE TRIAL
COURT ON FEBRUARY 27, 2003 HOLDING THAT THE IPSO FACTOOR AUTOMATIC
REVERSION TO PMO OF THE PLEDGED SHARES OF STOCK UNDER SECTION 8.02 OF
THE ARDA IS PACTUM COMMISSORIUMWHEN SAID ORDER HAD LONG BECOME
FINAL AND THEREFORE THE PETITION ASSAILING IT IS TIME-BARRED AND SHOULD
HAVE BEEN DISMISSED OUTRIGHT.31
On the other hand, PMO raised the following arguments in its Petition in G.R. No.
199432:
I the ARDA and explains that the Pledge Agreement is being executed to
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE IPSO
FACTOREVERSION CLAUSE OF THE ARDA IS CONTRARY TO LAW IN THE ABSENCE
OF ANY LAW ALLEGEDLY VIOLATED BYTHE SAID CLAUSE.
II
THE HONORABLE COURT OF APPEALS ERRED IN DENYING [PMOS] PRAYER FOR
THE DISSOLUTION OF THE WRIT OF PRELIMINARY INJUNCTION EVEN IF THE
PURPOSE FOR WHICH IT WAS ISSUED HAD ALREADY BEEN MET AND ITS
CONTINUED IMPLEMENTATION DEPRIVED [PMO] OF REMEDIES UNDER THE LAW
AND THE ARDA.
III
THE DISSOLUTION OF THE WRIT AFTER THE LAPSE OF ALMOST NINE (9) YEARS IS
IN ORDER AND IN THE INTEREST OF EQUITABLE JUSTICE. 32
RULING OF THE COURT
The allegations and arguments of PIC and PMO in their respective Petitions
essentially boil down to two fundamental issues: (1) Whether Section 8.02 of the
ARDA on ipso factoor automatic reversion of the PPC shares of stock to PMO in
case of default by PIC constitutes pactum commissorium; and (2) Whether the Writ
of Preliminary Injunction should be dissolved. The Court resolves the first issue in
the positive and the second issue in the negative.
Section 8.02 of the ARDA constitutes pactum commissorium and, thus, null and void
for being contrary to Article 2088 of the Civil Code.
Article 1305 of the Civil Code allowscontracting parties to establish such stipulation,
clauses, terms,and conditions asthey may deem convenient, provided, however, that
theyare not contrary to law, morals, good customs, public order, or public policy.
Pactum commissoriumis among the contractual stipulations that are deemed
contrary to law. It is defined as "a stipulation empowering the creditor to
appropriate the thing given as guaranty for the fulfillment of the obligation in the
event the obligor fails to live up to his undertakings, without further formality, such
as foreclosure proceedings, and a public sale."33 It is explicitly prohibited under
Article 2088 of the Civil Code which provides:
ART. 2088. 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.
There are two elements for pactum commissoriumto 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 nonpayment of the principal obligation within the
stipulated period.34
Both elements of pactum commissoriumare present in the instant case: (1) By virtue
of the Pledge Agreement dated May 2,1997, PIC pledged its PPC shares of stock in
favor of PMO as security for the fulfillment of the formers obligations under the
ARDA dated May 10, 1996 and the Pledge Agreement itself; and (2) There is
CRED TRANS Pledge, Mortgage Antichresis Fulltext
automatic appropriation as under Section 8.02 of the ARDA, in the event of default
by PIC, title to the PPC shares of stock shall ipso factorevert from PIC to PMO
without need of demand.
The Court of Appeals, in ruling that there is no pactum commissorium, adopted the
position of PMO that the ARDA and the Pledge Agreement are entirely separate and
distinct contracts. Neither contract contains both elements of pactum
commissorium: the ARDA solely has the second element, while the Pledge
Agreement only has the first element.
The Court disagrees.
In Blas v. Angeles-Hutalla,35 the Court recognized that the agreement of the parties
may be embodied in only one contract or in two or more separate writings. In case
of the latter, the writings of the parties should be read and interpreted together in
sucha way as to render their intention effective.
The agreement between PMO and PIC isthe sale of the PPC shares of stock by the
former to the latter, to besecured by a pledge on the very same shares of stock. The
ARDA and the Pledge Agreement herein, although executed in separate written
instruments, are integral to one another. On one hand, Section 2.04 of the ARDA
explicitly requires the execution of a pledge agreement as security for the payment
by PIC of the purchase price for the PPC shares of stock and receivables, and even
provides the form for said pledge agreement in Annex A thereof. Section 2.07 of the
ARDA also states that the closing of the sale and purchase of the PPCshares of stock
and receivables shall take place on the same date that PIC shall execute and deliver
the pledge agreement, together with the certificates of shares of stock, to PMO. On
the other hand, the "Whereas Clauses" of the Pledge Agreement expressly mentions
securepayment by PIC of the purchase price and all other amounts due to PMO
under the ARDA, aswell as the performance by PIC of its other obligations under the
ARDA and the Pledge Agreement itself. Clearly, itwas the intention of the parties to
enter into and execute both contracts for a complete effectuation of their
agreement.
To reiterate, the Pledge Agreement secures, for the benefit of PMO, the
performance by PIC of its obligations under both the ARDA and the Pledge
Agreement itself. It is withthe execution of the Pledge Agreement that PIC turned
over possession of its certificates of shares of stock in PPC to PMO. As the RTC
pertinently observed in its Order dated June 19, 2003, there had already been a shift
in the relations of PMO and PIC, from mere seller and buyer, to creditor-pledgee
and debtor-pledgor. Having enjoyed the security and benefits of the Pledge
Agreement, PMO cannot now insist on applying Section 8.02 of the ARDAand
conveniently and arbitrarily exclude and/or ignore the Pledge Agreement so as to
evade the prohibition against pactum commissorium.
More importantly, the Court, in determining the existence of pactum commissorium,
had focused more on the evident intention of the parties, rather than the formal or
written form. In A. Francisco Realty and Development Corporation v. Court of
Appeals,36 therein petitioner similarly denied the existence of pactum
commissoriumbecause the proscribed stipulation was found in the promissory note
and not in the mortgage deed. The Court held that:
The contention is patently without merit. To sustain the theory of petitioner would
be to allow a subversion of the prohibition in Art. 2088.
In Nakpil v. Intermediate Appellate Court, which involved the violation of a
constructive trust, nodeed of mortgage was expressly executed between the parties
in that case. Nevertheless, this Court ruled that an agreement whereby property
held in trust was ceded to the trustee upon failure of the beneficiary to pay his debt
to the former as secured by the said property was void for being a pactum
commissorium. It was there held:
The arrangement entered into between the parties, whereby Pulong Maulapwas to
be "considered sold to him (respondent) x x x" incase petitioner fails to reimburse
Valdes, must then be construed as tantamount to a pactum commissoriumwhich is
expressly prohibited by Art. 2088 of the Civil Code. For, there was to be automatic
appropriation of the property by Valdez in the event of failure of petitioner to pay
the value of the advances. Thus, contrary to respondents manifestations, all the
elements of a pactum commissoriumwere present: there was a creditordebtor
relationship between the parties; the property was used as security for the loan; and,
there was automatic appropriation by respondent of Pulong Maulap in case of
default of petitioner.
Similarly, the Court has struck down such stipulations as contained in deeds of sale
purporting to be pacto de retrosales but found actually to be equitable mortgages.
It has been consistently held that the presence of even one of the
circumstancesenumerated in Art. 1602 of the New Civil Code is sufficient to declare
a contract of sale with right to repurchase an equitable mortgage. This is so because
pacto de retrosales with the stringent and onerous effects that accompany them are
not favored. In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage.
Petitioner, to prove her claim, cannot rely on the stipulation in the contract
providing that complete and absolute title shall be vested on the vendee should the
Page 20 of 152
vendors fail to redeem the property on the specified date. Such stipulation that the
ownership of the property would automatically pass to the vendee in case no
redemption was effected within the stipulated period is void for being a pactum
commissoriumwhich enables the mortgagee to acquire ownership of the mortgaged
property without need of foreclosure. Its insertion in the contract is an avowal of the
intention to mortgage rather that to sell the property.
Indeed, in Reyes v. Sierra, this Court categorically ruled that a mortgagees mere act
of registering the mortgaged property in his own name upon the mortgagors
failure to redeem the property amounted to the exercise of the privilege of a
mortgagee in a pactum commissorium. Obviously, from the nature of the
transaction, applicants predecessor-in-interest is a mere mortgagee, and ownership
of the thing mortgaged is retained by Basilia Beltran, the mortgagor. The
mortgagee, however, may recover the loan, although the mortgage document
evidencing the loan was nonregistrable being a purely private instrument. Failure
ofmortgagor to redeem the property does not automatically vest ownership of the
property to the mortgagee, which would grant the latter the right to appropriate the
thing mortgaged or dispose of it. This violates the provision of Article 2088 of the
New Civil Code, which reads:
The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose by them. Any stipulation to the contrary is null and void.
The act of applicant inregistering the property in his own name upon
mortgagorsfailure to redeem the property would amount to a pactum
commissoriumwhich is against good moralsand public policy.
Thus, in the case at bar, the stipulations in the promissory notes providing that,
upon failure of respondent spouses to pay interest, ownership of the property
would be automatically transferred to petitioner A. Francisco Realty and the deed of
sale in its favor would be registered, are in substance a pactum commissorium. They
embody the two elements of pactum commissoriumas laid down in Uy Tong v.
Court of Appeals, x x x. (Citations omitted.)
Appreciating the ARDA together with the Pledge Agreement, the Court can only
conclude that Section 8.02 of the ARDA constitutes pactum commissoriumand,
therefore, null and void.
PMO though insists that there is no valid Pledge Agreement, arguing that PIC could
not have validly pledged the PPC shares of stock because it is not yet the absolute
owner of said shares. According to PMO, the sale of the PPC shares of stock to PIC is
subject to the resolutory condition of nonpayment by PIC of the installmentsdue on
the purchase price.
Again, the Court is unconvinced.
Among the requirements of a contract ofpledge is that the pledgor is the absolute
owner of the thing pledged.37Based on the provisions of the ARDA, ownership of
the PPC shares ofstock had passed on to PIC, hence, enabling PIC to pledge the very
same shares to PMO. In accordance with Section 2.07(a)(1) and 2.07(a)(2) of the
ARDA, PMO had transferred to PIC all rights, title, and interests in and to the PPC
sharesof stock, and delivered to PIC the certificates for said shares for cancellation
and replacement of new certificates already in the name ofPIC. In addition, Section
2.07(b) of the ARDA explicitly declares that PIC asbuyer shall exercise all the rights,
including the right to vote, of a shareholder in respect of the PPC shares of stock.
PMO cannot maintain that the ownership of the PPC shares of stock did not pass on
to PIC, but in the same breath claim that non-payment by PIC of the installments
due on the purchase price is a resolutory condition for the contract of sale these
two arguments are actually contradictory. As the Court clearly explained in Heirs of
Paulino Atienza v. Espidol38:
Regarding the right to cancel the contract for nonpayment of an installment, there
is need to initially determine if what the parties had was a contract of sale or a
contract to sell. In a contract of sale, the title to the property passes to the buyer
upon the delivery of the thing sold. In a contract to sell, on the other hand, the
ownership is, by agreement, retained by the seller and is not to pass to the vendee
until full payment of the purchase price. In the contract of sale, the buyers
nonpayment of the price is a negative resolutory condition;in the contract to sell,
the buyers full payment of the price is a positive suspensive condition to the
coming into effect of the agreement. In the first case, the seller has lost and cannot
recover the ownership of the property unless he takes action to set aside the
contract of sale.In the second case, the title simply remains in the seller if the buyer
does not comply with the condition precedent of making payment at the time
specified in the contract. x x x. (Emphases supplied, citation omitted.)
So that it could invoke the resolutory condition of nonpayment of an installment,
PMO must necessarily concede that its contract with PIC was a one of sale and that
ownership of the PPC shares of stock had indeed passed on to PIC. And even then,
having lostownership of the shares, PMO cannot automatically recover the same
without taking steps to set aside the contract of sale.
Moreover, the general rule is that in the absence of a stipulation, a party cannot
unilaterally and extrajudicially rescind a contract. A party must invoke the right to
rescind a contract judicially.39 It is also settled that the rescission of a contract based
on Article 1191 of the Civil Code requires mutual restitution to bring back the
CRED TRANS Pledge, Mortgage Antichresis Fulltext
parties to their original situation prior to the inception of the contract.
Rescissioncreates the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can return whatever he may
be obliged to restore.40
Even though PMO had previouslyacknowledged the need for restitution or
restoration following rescission, it also qualified that such restitution or restoration
shall still be "subject x x x to the fair determination of the amount to be restored
asmay be deemed reasonable and substantiated." 41
Section 8.02 of the ARDA provides for the ipso factoreversion of the pledged shares
of PIC to PMO in case ofdefault on the part of the former, which as explained above,
is prohibited by Article 2088 of the Civil Code. The said Section does not mention
the broader concept of rescission of the entire ARDA.
In its Petition in G.R. No. 199432, PMO is asking the Court, among other things, to
already declare the ARDA rescinded.1wphi1 The Court cannot grant or deny such
prayer at this point for there are questions of fact and law which are still under
litigation before the RTC.
There is no basis for dissolving the Writ of Preliminary Injunction.
The Court emphasizes that the Writ of Preliminary Injunction was granted in the RTC
Order dated February 27, 2003; and the Motion for Reconsideration of the issuance
of saidWrit filed by the PMO was denied in the RTC Order dated June 19, 2003
both of which are interlocutory orders. Under Rule 65 of the Rules of Court,the PMO
only had 60 days from notice to file with the Court of Appeals a petition for
certiorariassailing said orders. However, PMO did not file such a petition and lost
the right to avail itself of the remedy.
PMO, in challenging the RTC Order dated August 25, 2009, cannot be allowed to
revive the issues of pactum commissoriumand the arbitration clause, together with
its opposition to the Writ of Preliminary Injunction, which were already settled and
ruled upon six years before in the RTC Orders dated February 27, 2003 and June 19,
2003. The removal of said issues from those submitted for trial before the R TC is
thus justified. That the R TC issued the aforementioned Orders of 2003 based only
on initial and incomplete evidence is incorrect. The issues of pactum commisorium
and arbitration clause are questions of law that do not require the review or
evaluation of evidence. The RTC, before issuing said Orders of 2003, conducted
hearings and required the submission of pleadings, so the parties were given the
opportunity to present their arguments on said questions of law. In particular, the
ruling of the RTC that Section 8.02 of the ARDA constitutes pactum commissorium,
cannot be set aside and the Writ of Injunction issued based on such ruling cannot
be dissolved, even if there be changes in the factual circumstances of the parties, for
as long as the applicable law remains the same.
There are still several remaining issues in the Pre-Trial Order dated February 6, 2009
that the RTC needs to resolve, among others, the alleged default under the ARDA.
They involve both questions of fact and law, so their resolution requires further
hearings for presentation of evidence by the parties. Hence, PMO cannot claim pre-
judgment of its case with the issuance by the RTC of the Orders dated February 27,
2003 and June 19, 2003. Despite the declaration that Section 8.02 of the ARDA is
null and void as it constitutes pactum commissorium, PMO and PIC shall have the
opportunity to thresh-out other issues between them which are not resolved in
these cases, such as the issue of default, during the trial on the merits before the
RTC. WHEREFORE, premises considered, the Court:
(1) GRANTS the Petition for Review of PIC in G.R. No. 199420 by
declaring that Section 8.02 of the ARDA constitutes pactum
commissorium and, thus, null and void;
(2) DENIES the Petition for Review of PMO in G.R. No. 199432 for lack of
merit; and
(3) DIRECTS the RTC to resolve Civil Case No. 03-114 with utmost
dispatch.
SO ORDERED.
II. PROVISIONS APPLICABLE ONLY TO PLEDGE
EN BANC
G.R. No. L-5219 February 15, 1910
JOSE McMICKING, sheriff of Manila, plaintiff-appellee,
vs.
PEDRO MARTINEZ and GO JUNA, defendants.
GO JUNA, appellant.
M. Legazpi Florendo, for appellant.
Eugenio de Lara, for defendant Pedro Martinez.
MORELAND, J.:
Page 21 of 152
The defendant, Pedro Martinez, some time during the year 1908 obtained judgment
in the Court of First Instance of the city of Manila against one Maria Aniversario; that
thereafter execution was issued upon said judgment and the sheriff levied upon
a pailebot, Tomasa, alleged to be the property of said Maria Aniversario; that
thereupon the said defendant Go Juna intervened and claimed a lien upon said boat
by virtue of a pledge of the same to him by the said Maria Aniversario made on the
27th day of February, 1907, which said pledge was evidenced by a public instrument
bearing that date.
This action was brought by the sheriff against Go Juna and Pedro Martinez to
determine the rights of the parties to the funds in his hands. Maria Aniversario was
not made a party.
The said Pedro Martinez alleged as a defense that the pledge which said document
was intended to constitute had not been made effective by delivery of the property
pledged, as required by article 1863 of the Civil Code, and that, therefore, there
existed no preference in favor of said Go Juna.
The court below found with the contention of the said Pedro Martinez, declared a
preference in his favor, and ordered the sheriff to pay over the said funds in
consonance therewith. An appeal was taken from said judgment.
The conclusion of the court below that the property was not delivered in accordance
with the provisions of article 1863 of the Civil Code is sustained by the proofs. His
conclusion that the pledge was ineffective against Martinez is correct. It appears,
however, that the document of pledge is a public document which contains an
admission of indebtedness. In other words, while it is intended to be a pledge, it is
also a credit which appears in a public document. Article 1924, paragraph 3, letter a,
is therefore applicable; and, said public document antedating the judgment of
defendant Martinez, takes preference thereover. The validity of that document in so
far as it shows an indebtedness against Maria Aniversario and its effectiveness
against her have not, however, been determined. She is not a party to this action.
No judgment can be rendered affecting her rights or liabilities under said
instrument. If said instrument is invalid or for any other cause unenforceable against
her, it would be wholly unjust, by declaring its preference over a debt acknowledged
by and conclusive against her, to require that said funds be paid over to the holder
of said document. That would be to require her to pay a debt which has not only
not been shown to be enforceable against her but which, as a witness for the
defendant Martinez on the trial of this cause, she expressly and vehemently
repudiated as a valid claim against her.
The judgement is, therefore, reversed; and it is ordered that the cause be returned
to the court below; that the plaintiff bring in Maria Aniversario as a party to this
action, and that she be given an opportunity to make her defense, if she have any,
to the document in question under proper procedure. No finding as to costs. So
ordered.
Arellano, C.J., Torres, Mapa, Johnson and Carson, JJ., concur.
SECOND DIVISION
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No.
23615 1 affirming with modifications, the earlier decision of the Regional Trial Court
of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein
petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted
by respondent court, appears of record:
1. On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit (CTDs) in
favor of one Angel dela Cruz who deposited with herein defendant the
aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation
of Facts and Statement of Issues, Original Records, p. 207; Defendant's
Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
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4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein
plaintiff in connection with his purchased of fuel products from the latter
(Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo
Tiangco, the Sucat Branch Manger, that he lost all the certificates of time
deposit in dispute. Mr. Tiangco advised said depositor to execute and
submit a notarized Affidavit of Loss, as required by defendant bank's
procedure, if he desired replacement of said lost CTDs (TSN, February 9,
1987, pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to
defendant bank the required Affidavit of Loss (Defendant's Exhibit 281).
On the basis of said affidavit of loss, 280 replacement CTDs were issued
in favor of said depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan
from defendant bank in the amount of Eight Hundred Seventy Five
Thousand Pesos (P875,000.00). On the same date, said depositor
executed a notarized Deed of Assignment of Time Deposit (Exhibit 562)
which stated, among others, that he (de la Cruz) surrenders to defendant
bank "full control of the indicated time deposits from and after date" of
the assignment and further authorizes said bank to pre-terminate, set-
off and "apply the said time deposits to the payment of whatever
amount or amounts may be due" on the loan upon its maturity (TSN,
February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff
Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and
presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the same were delivered to herein plaintiff "as security for
purchases made with Caltex Philippines, Inc." by said depositor (TSN,
February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's
Exhibit 563) from herein plaintiff formally informing it of its possession
of the CTDs in question and of its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to
furnish the former "a copy of the document evidencing the guarantee
agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel
dela Cruz" obligation against which plaintiff proposed to apply the time
deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and
claim for payment of the value of the CTDs in a letter dated February 7,
1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank
matured and fell due and on August 5, 1983, the latter set-off and
applied the time deposits in question to the payment of the matured
loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint,
praying that defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest therein at 16% per
annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the
instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of
the complaint, hence this petition wherein petitioner faults respondent court in
ruling (1) that the subject certificates of deposit are non-negotiable despite being
clearly negotiable instruments; (2) that petitioner did not become a holder in due
course of the said certificates of deposit; and (3) in disregarding the pertinent
provisions of the Code of Commerce relating to lost instruments payable to
bearer. 4
The instant petition is bereft of merit.
Page 22 of 152
A sample text of the certificates of time deposit is reproduced below to provide a
better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this
Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days. after date, upon
presentation and surrender of this certificate, with interest at the
rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
----------------------------
AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable instruments,
nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather
boldly in the CTDs issued, it is important to note that after the word
"BEARER" stamped on the space provided supposedly for the name of
the depositor, the words "has deposited" a certain amount follows. The
document further provides that the amount deposited shall be
"repayable to said depositor" on the period indicated. Therefore, the
text of the instrument(s) themselves manifest with clarity that they are
payable, not to whoever purports to be the "bearer" but only to the
specified person indicated therein, the depositor. In effect, the appellee
bank acknowledges its depositor Angel dela Cruz as the person who
made the deposit and further engages itself to pay said depositor the
amount indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the CTDs in
question are negotiable instruments. Section 1 Act No. 2031, otherwise known as
the Negotiable Instruments Law, enumerates the requisites for an instrument to
become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain
in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named
or otherwise indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties' bone of contention is with regard to requisite (d) set forth
above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way
back in 1982, testified in open court that the depositor reffered to in the CTDs is no
other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:q In other words Mr. Witness, you are saying that per books
of the bank, the depositor referred (sic) in these certificates states that it
was Angel dela Cruz?
witness:a Yes, your Honor, and we have the record to show that Angel
dela Cruz was the one who cause (sic) the amount.
Atty. Calida: q And no other person or entity or company, Mr. Witness?
witness: a None, your Honor. 7
xxx xxx xxx
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Atty. Calida: q Mr. Witness, who is the depositor identified in all of these
certificates of time deposit insofar as the bank is concerned?
witness: a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the instrument
itself. 9 In the construction of a bill or note, the intention of the parties is to control,
if it can be legally ascertained. 10 While the writing may be read in the light of
surrounding circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other words are to be added to
it or substituted in its stead. The duty of the court in such case is to ascertain, not
what the parties may have secretly intended as contradistinguished from what their
words express, but what is the meaning of the words they have used. What the
parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The
documents provide that the amounts deposited shall be repayable to the depositor.
And who, according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be the bearer at
the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la
Cruz only, it could have with facility so expressed that fact in clear and categorical
terms in the documents, instead of having the word "BEARER" stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to whoever may be the
bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la
Cruz is the depositor "insofar as the bank is concerned," but obviously other parties
not privy to the transaction between them would not be in a position to know that
the depositor is not the bearer stated in the CTDs. Hence, the situation would
require any party dealing with the CTDs to go behind the plain import of what is
written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be
avoided by the Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time,
the answer is in the negative. The records reveal that Angel de la Cruz, whom
petitioner chose not to implead in this suit for reasons of its own, delivered the
CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank
thereof at any time. Unfortunately for petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires both delivery and
indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in
reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any
doubt as to whether the CTDs were delivered as payment for the fuel products or as
a security has been dissipated and resolved in favor of the latter by petitioner's own
authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q.
Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were
negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"
(Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of 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. 14 A party may not go back on his own acts
and representations to the prejudice of the other party who relied upon them. 15 In
the law of evidence, whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, and to
act upon such belief, he cannot, in any litigation arising out of such declaration, act,
or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security,
petitioner's credit manager could have easily said so, instead of using the words "to
guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant
in the court below, moved for a bill of particularity therein 17 praying, among others,
that petitioner, as plaintiff, be required to aver with sufficient definiteness or
particularity (a) the due date or dates of payment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter's alleged
indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the
receipt prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion,
petitioner now labors under the presumption that evidence willfully suppressed
would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty
Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:
Page 23 of 152
 . . . Adverting again to the Court's pronouncements in Lopez, supra, we quote and in the statement of issues submitted by them to the trial court. 29
The issues
therefrom: agreed upon by them for resolution in this case are:

The character of the transaction between the parties is to be 1. Whether or not the CTDs as worded are negotiable instruments.
determined by their intention, regardless of what language was used
or what the form of the transfer was. If it was intended to secure the
2. Whether or not defendant could legally apply the amount covered by
payment of money, it must be construed as a pledge; but if there was
the CTDs against the depositor's loan by virtue of the assignment
some other intention, it is not a pledge. However, even though a
(Annex "C").
transfer, if regarded by itself, appears to have been absolute, its object
and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the 3. Whether or not there was legal compensation or set off involving the
property as collateral security. It has been said that a transfer of amount covered by the CTDs and the depositor's outstanding account
property by the debtor to a creditor, even if sufficient on its face to with defendant, if any.
make an absolute conveyance, should be treated as a pledge if the
debt continues in inexistence and is not discharged by the transfer,
4. Whether or not plaintiff could compel defendant to preterminate the
and that accordingly the use of the terms ordinarily importing
CTDs before the maturity date provided therein.
conveyance of absolute ownership will not be given that effect in such
a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of 5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.
6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under
the Negotiable Instruments Law, an instrument is negotiated when it is transferred
As respondent court correctly observed, with appropriate citation of some doctrinal
from one person to another in such a manner as to constitute the transferee the
authorities, the foregoing enumeration does not include the issue of negligence on
holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is
the part of respondent bank. An issue raised for the first time on appeal and not
in possession of it, or the bearer thereof. 22 In the present case, however, there was
raised timely in the proceedings in the lower court is barred by
no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
estoppel. 30 Questions raised on appeal must be within the issues framed by the
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs
parties and, consequently, issues not raised in the trial court cannot be raised for the
would have sufficed. Here, the delivery thereof only as security for the purchases of
first time on appeal. 31
Angel de la Cruz (and we even disregard the fact that the amount involved was not
disclosed) could at the most constitute petitioner only as a holder for value by
reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by Pre-trial is primarily intended to make certain that all issues necessary to the
mere delivery of the instrument since, necessarily, the terms thereof and the disposition of a case are properly raised. Thus, to obviate the element of surprise,
subsequent disposition of such security, in the event of non-payment of the parties are expected to disclose at a pre-trial conference all issues of law and fact
principal obligation, must be contractually provided for. which they intend to raise at the trial, except such as may involve privileged or
impeaching matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. 32
The pertinent law on this point is that where the holder has a lien on the instrument
arising from contract, he is deemed a holder for value to the extent of his lien. 23 As
such holder of collateral security, he would be a pledgee but the requirements To accept petitioner's suggestion that respondent bank's supposed negligence may
therefor and the effects thereof, not being provided for by the Negotiable be considered encompassed by the issues on its right to preterminate and receive
Instruments Law, shall be governed by the Civil Code provisions on pledge of the proceeds of the CTDs would be tantamount to saying that petitioner could raise
incorporeal rights, 24 which inceptively provide: on appeal any issue. We agree with private respondent that the broad ultimate issue
of petitioner's entitlement to the proceeds of the questioned certificates can be
premised on a multitude of other legal reasons and causes of action, of which
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . .
respondent bank's supposed negligence is only one. Hence, petitioner's submission,
may also be pledged. The instrument proving the right pledged shall be
if accepted, would render a pre-trial delimitation of issues a useless exercise. 33
delivered to the creditor, and if negotiable, must be indorsed.

Still, even assuming arguendo that said issue of negligence was raised in the court
Art. 2096. A pledge shall not take effect against third persons if a
below, petitioner still cannot have the odds in its favor. A close scrutiny of the
description of the thing pledged and the date of the pledge do not
provisions of the Code of Commerce laying down the rules to be followed in case of
appear in a public instrument.
lost instruments payable to bearer, which it invokes, will reveal that said provisions,
even assuming their applicability to the CTDs in the case at bar, are merely
Aside from the fact that the CTDs were only delivered but not indorsed, the factual permissive and not mandatory. The very first article cited by petitioner speaks for
findings of respondent court quoted at the start of this opinion show that petitioner itself.
failed to produce any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of
Art 548. The dispossessed owner, no matter for what cause it may
the CTDs did not legally vest in petitioner any right effective against and binding
be, may apply to the judge or court of competent jurisdiction, asking
upon respondent bank. The requirement under Article 2096 aforementioned is not a
that the principal, interest or dividends due or about to become due,
mere rule of adjective law prescribing the mode whereby proof may be made of the
be not paid a third person, as well as in order to prevent the ownership
date of a pledge contract, but a rule of substantive law prescribing a condition
of the instrument that a duplicate be issued him. (Emphasis ours.)
without which the execution of a pledge contract cannot affect third persons
adversely. 26
xxx xxx xxx
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor
of respondent bank was embodied in a public instrument. 27 With regard to this The use of the word "may" in said provision shows that it is not mandatory but
other mode of transfer, the Civil Code specifically declares: discretionary on the part of the "dispossessed owner" to apply to the judge or court
of competent jurisdiction for the issuance of a duplicate of the lost instrument.
Where the provision reads "may," this word shows that it is not mandatory but
Art. 1625. An assignment of credit, right or action shall produce no
discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an
effect as against third persons, unless it appears in a public instrument,
auxiliary verb indicating liberty, opportunity, permission and possibility. 36
or the instrument is recorded in the Registry of Property in case the
assignment involves real property.
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the
Code of Commerce, on which petitioner seeks to anchor respondent bank's
Respondent bank duly complied with this statutory requirement. Contrarily,
supposed negligence, merely established, on the one hand, a right of recourse in
petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved
favor of a dispossessed owner or holder of a bearer instrument so that he may
the amount of its credit or the extent of its lien nor the execution of any public
obtain a duplicate of the same, and, on the other, an option in favor of the party
instrument which could affect or bind private respondent. Necessarily, therefore, as
liable thereon who, for some valid ground, may elect to refuse to issue a
between petitioner and respondent bank, the latter has definitely the better right
replacement of the instrument. Significantly, none of the provisions cited by
over the CTDs in question.
petitioner categorically restricts or prohibits the issuance a duplicate or replacement
instrument sans compliance with the procedure outlined therein, and none
Finally, petitioner faults respondent court for refusing to delve into the question of establishes a mandatory precedent requirement therefor.
whether or not private respondent observed the requirements of the law in the case
of lost negotiable instruments and the issuance of replacement certificates therefor,
WHEREFORE, on the modified premises above set forth, the petition is DENIED and
on the ground that petitioner failed to raised that issue in the lower court. 28
the appealed decision is hereby AFFIRMED.

On this matter, we uphold respondent court's finding that the aspect of alleged
SO ORDERED.
negligence of private respondent was not included in the stipulation of the parties

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 and thus directed Mendoza to pay Tan the sum of P 76,000.00, the sum still due,
FIRST DIVISION plus damages and attorney's fees. 10
G.R. No. L-49120 June 30, 1988
ESTATE OF GEORGE LITTON, petitioner,
Mendoza seasonably filed an appeal with the Court of Appeals, dockted as C.A. G.R.
vs.
No. 41900-R, arguing in the main that his liability is one of an accommodation party
CIRIACO B. MENDOZA and COURT OF APPEALS, respondents.
and not as a drawer.
Ruben G. Bala for respondent Mendoza.

On January 27, 1977, the Court of Appeals rendered a decision affirming in toto the
GANCAYCO, J.:
decision of the lower court. 11

This petition for review presents two (2) main issues, to wit: (1) Can a plaintiff in a
Meanwhile, on February 2, 1971, pending the resolution of the said appeal,
case, who had previously assigned in favor of his creditor his litigated credit in said
Mendoza entered into a compromise agreement with Tan wherein the latter
case, by a deed of assignment which was duly submitted to the court, validly enter
acknowledged that all his claims against Mendoza had been settled and that by
into a compromise agreement thereafter releasing the defendant therein from his
reason of said settlement both parties mutually waive, release and quit whatever
claim without notice to his assignee? and (2) Will such previous knowledge on the
claim, right or cause of action one may have against the other, with a provision that
part of the defendant of the assignment made by the plaintiff estop said defendant
the said compromise agreement shall not in any way affect the right of Tan to
from invoking said compromise as a ground for dismissal of the action against him?
enforce by appropriate action his claims against the Bernal spouses. 12

The present case stemmed from Civil Case No. Q-8303 1 entitled "Alfonso Tan vs.
On February 25, 1977, Mendoza filed a motion for reconsideration praying that the
Ciriaco B. Mendoza," an action for the collection of a sum of money representing
decision of January 27, 1977 be set aside, principally anchored upon the ground that
the value of two (2) checks which plaintiff Tan claims to have been delivered to him
a compromise agreement was entered into between him and Tan which in effect
by defendant Mendoza, private respondent herein, by way of guaranty with a
released Mendoza from liability. Tan filed an opposition to this motion claiming that
commission.
the compromise agreement is null and void as he was not properly represented by
his counsel of record Atty. Quiogue, and was instead represented by a certain Atty.
The record discloses that the Bernal spouses 2 are engaged in the manufacture of Laberinto, and principally because of the deed of assignment that he executed in
embroidery, garments and cotton materials. Sometime in September 1963, C.B.M. favor of George Litton, Sr. alleging that with such, he has no more right to alienate
Products, 3 with Mendoza as president, offered to sell to the Bernals textile cotton said credit.
materials and, for this purpose, Mendoza introduced the Bernals to Alfonso Tan.
Thus, the Bernals purchased on credit from Tan some cotton materials worth P
While the case was still pending reconsideration by the respondent court, Tan, the
80,796.62, payment of which was guaranteed by Mendoza. Thereupon, Tan
assignor, died leaving no properties whatever to satisfy the claim of the estate of
delivered the said cotton materials to the Bernals. In view of the said arrangement,
the late George Litton, Sr.
on November 1963, C.B.M. Products, through Mendoza, asked and received from
the Bernals PBTC Check No. 626405 for P 80,796.62 dated February 20, 1964 with
the understanding that the said check will remain in the possession of Mendoza In its Resolution dated August 30, 1977, 13 the respondent court set aside its
until the cotton materials are finally manufactured into garments after which time decision and approved the compromise agreement.
Mendoza will sell the finished products for the Bernals. Meanwhile, the said check
matured without having been cashed and Mendoza demanded the issuance of
As to the first ground invoked by Tan, now deceased, the respondent court ruled
another check 4 in the same amount without a date.
that the non-intervention of Tan's counsel of record in the compromise agreement
does not affect the validity of the settlement on the ground that the client had an
On the other hand, on February 28, 1964, defendant Mendoza issued two (2) PNB undoubted right to compromise a suit without the intervention of his lawyer,
checks 5 in favor of Tan in the total amount of P 80,796.62. He informed the Bernals citing Aro vs. Nanawa. 14
of the same and told them that they are indebted to him and asked the latter to
sign an instrument whereby Mendoza assigned the said amount to Insular Products
As to the second ground, respondent court ruled as follows:
Inc. Tan had the two checks issued by Mendoza discounted in a bank. However, the
said checks were later returned to Tan with the words stamped "stop payment"
which appears to have been ordered by Mendoza for failure of the Bernals to ... it is relevant to note that Paragraph 1of the deed of assignment states that
deposit sufficient funds for the check that the Bernals issued in favor of Mendoza. the cession,assignment, transfer, bond conveyance by Alfonso Tan was only
by way of securing, or guaranteeing his obligation to GEORGE LITTON, SR.

Hence, as adverted to above, Tan brought an action against Mendoza docketed as

Civil Case No. Q-8303 6 while the Bernals brought an action for interpleader Hence, Alfonso Tan retained possession and dominion of the credit (Par. 2,
docketed as Civil Case No. 56850 7 for not knowing whom to pay. While both Art. 2085, Civil Code).
actions were pending resolution by the trial court, on March 20, 1966, Tan assigned
in favor of George Litton, Sr. his litigatious credit * in Civil Case No. 56850 against
"Even considered as a litigations credit," which indeed characterized the
Mendoza, duly submitted to the court, with notice to the parties. 8 The deed of
claims herein of Alfonso Tan, such credit may be validly alienated by Tan
assignment was framed in the following tenor:
(Art. 1634. Civil Code).

DEED OF ASSIGNMENT
Such alienation is subject to the remedies of Litton under Article 6 of the
Civil Code, whereby the waiver, release, or quit-claim made by plaintiff-
I, ALFONSO TAN, of age, Chinese, married to UY CHAY UA, residing at No. appellee Alfonso Tan in favor of defendant-appellant Ciriaco B. Mendoza, if
6 Kanlaon, Quezon City, doing business under the name and style ALTA proven prejudicial to George Litton, Sr. as assignee under the deed of
COMMERCIAL by way of securing or guaranteeing my obligation to Mr. assignment, may entitle Litton to pursue his remedies against Tan.
GEORGE LITTON, SR., do by these presents CEDE, ASSIGN, TRANSFER
AND CONVEY unto the said Mr. GEORGE LITTON, SR., my claim against
The alienation of a litigatious credit is further subject to the debtor's right of
C.B.M. Products, Inc., personally guaranteed by Mr. Ciriaco B. Mendoza, in
redemption under Article 1634 of the Civil Code.
the amount of Eighty-Thousand Seven Hundred Ninety Six Pesos and
Sixty-two centavos (P 80,796.62) the balance of which, in principal, and
excluding, interests, costs, damages and attorney's fees now stands at P As mentioned earlier, the assignor Tan died pending resolution of the motion for
76,000.00, P 4,796.62, having already been received by the assignor on reconsideration. The estate of George Litton, Sr., petitioner herein, as represented by
December 23, 1965, pursuant to the order of the court in Civil Case No. James Litton, son of George Litton, Sr. and administrator 15 of the former's estate, is
56850, C.F.I., Manila, authorizing Alfonso Tan to withdraw the amount of P now appealing the said resolution to this Court as assignee of the amount sued in
4,796.62 then on deposit with the court. All rights, and interests in said Civil Case No. Q-8303, in relation to Civil Case No. 56850.
net amount, plus interests and costs, and less attorney's fees, in case the
amount allowed therefor be less than the amounts claimed in the relief in
Before resolving the main issues aforementioned, the question of legal personality
Civil Case 56850 (C.F.I., Manila) and Q-8503 (C.F.I., Quezon City) are by
of herein petitioner to bring the instant petition for review, must be resolved.
these presents covered by this assignment.

As a rule, the parties in an appeal through a review on certiorari are the same
I further undertake to hold in trust any and all amounts which may
original parties to the case. 16 If after the rendition of judgment the original party
hereafter be realized from the aforementioned cases for the ASSIGNEE,
dies, he should be substituted by his successor-in-interest. In this case, it is not
Mr. GEORGE LITTON, SR., and to turn over to him such amounts in
disputed that no proper substitution of parties was done. This notwithstanding, the
application to my liability to him, as his interest may then show, and I
Court so holds that the same cannot and will not materially affect the legal right of
further undertake to cooperate towards the successful prosecution of the
herein petitioner in instituting the instant petition in view of the tenor of the deed
aforementioned cases making available myself, as witness or otherwise, as
of assignment, particularly paragraph two thereof 17 wherein the assignor, Tan,
well as any and all documents thereto appertaining. ... 9
assumed the responsibility to prosecute the case and to turn over to the assignee
whatever amounts may be realized in the prosecution of the suit.
After due trial, the lower court ruled that the said PNB checks were issued by
Mendoza in favor of Tan for a commission in the sum of P 4,847.79 and held
We note that private respondent moved for the dismissal of the appeal without
Mendoza liable as a drawer whose liability is primary and not merely as an indorser
notifying the estate of George Litton, Sr. whereas the former was fully aware of the

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fact that the said estate is an assignee of Tan's right in the case litigated. 18 Hence, if
herein petitioner failed to observe the proper substitution of parties when Alfonso
Tan died during the pendency of private respondent's motion for reconsideration,
no one is to blame but private respondent himself. Moreover, the right of the
petitioner to bring the present petition is well within the concept of a real party-in-
interest in the subject matter of the action. Well-settled is the rule that a real party-
in-interest is a party entitled to the avails of the suit or the party who would be
injured by the judgment. 19 We see the petitioner well within the latter category.
Hence, as the assignee and successor-in-interest of Tan, petitioner has the
personality to bring this petition in substitution of Tan.
Now, the resolution of the main issues.
The purpose of a compromise being to replace and terminate controverted
claims, 20 courts encourage the same. A compromise once approved by final order
of the court has the force of res judicata between parties and should not be
disturbed except for vices of consent or forgery. 21
In this case, petitioner seeks to set aside the said compromise on the ground that
previous thereto, Tan executed a deed of assignment in favor of George Litton, Sr.
involving the same litigated credit.
We rule for the petitioner. The fact that the deed of assignment was done by way of
securing or guaranteeing Tan's obligation in favor of George Litton, Sr., as observed
by the appellate court, will not in any way alter the resolution on the matter. The
validity of the guaranty or pledge in favor of Litton has not been questioned. Our
examination of the deed of assignment shows that it fulfills the requisites of a valid
pledge or mortgage. 22Although it is true that Tan may validly alienate the litigatious
credit as ruled by the appellate court, citing Article 1634 of the Civil Code, said
provision should not be taken to mean as a grant of an absolute right on the part of
the assignor Tan to indiscriminately dispose of the thing or the right given as
security. The Court rules that the said provision should be read in consonance with
Article 2097 of the same code. 23 Although the pledgee or the assignee, Litton, Sr.
did not ipso facto become the creditor of private respondent Mendoza, the pledge
being valid, the incorporeal right assigned by Tan in favor of the former can only be
alienated by the latter with due notice to and consent of Litton, Sr. or his duly
authorized representative. To allow the assignor to dispose of or alienate the
security without notice and consent of the assignee will render nugatory the very
purpose of a pledge or an assignment of credit.
Moreover, under Article 1634, 24 the debtor has a corresponding obligation to
reimburse the assignee, Litton, Sr. for the price he paid or for the value given as
consideration for the deed of assignment. Failing in this, the alienation of the
litigated credit made by Tan in favor of private respondent by way of a compromise
agreement does not bind the assignee, petitioner herein.
Indeed, a painstaking review of the record of the case reveals that private
respondent has, from the very beginning, been fully aware of the deed of
assignment executed by Tan in favor of Litton, Sr. as said deed was duly submitted
to Branch XI of the then Court of First Instance of Manila in Civil Case No. 56850 (in
relation to Civil Case No. Q-8303) where C.B.M. Products is one of the defendants
and the parties were notified through their counsel. 25 As earlier mentioned, private
respondent herein is the president of C.B.M. Products, hence, his contention that he
is not aware of the said deed of assignment deserves scant consideration from the
Court. Petitioner pointed out at the same time that private respondent together
with his counsel were served with a copy of the deed of assignment which
allegation remains uncontroverted. Having such knowledge thereof, private
respondent is estopped from entering into a compromise agreement involving the
same litigated credit without notice to and consent of the assignee, petitioner
herein. More so, in the light of the fact that no reimbursement has ever been made
in favor of the assignee as required under Article 1634. Private respondent acted in
bad faith and in connivance with assignor Tan so as to defraud the petitioner in
entering into the compromise agreement.
WHEREFORE, the petition is GRANTED. The assailed resolution of the respondent
court dated August 30,1977 is hereby SET ASIDE, the said compromise agreement
being null and void, and a new one is hereby rendered reinstating its decision dated
January 27, 1977, affirming in toto the decision of the lower court. This decision is
immediately executory. No motion for extension of time to file a motion for
reconsideration will be granted.
SO ORDERED.
EN BANC
G.R. No. L-19227 February 17, 1968
DIOSDADO YULIONGSIU, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK (Cebu Branch), defendant-appellee.
Vicente Jaime, Regino Hermosisima & E. Lumontad, Sr. for plaintiff-appellant.
Tomas Besa, R. B. de los Reyes and C. E. Medina for defendant-appellee.
BENGZON, J.P., J.:
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Plaintiff-appellant Diosdado Yuliongsiu 1 was the owner of two (2) vessels,
namely: The M/S Surigao, valued at P109,925.78 and the M/S Don Dino, valued at
P63,000.00, and operated the FS-203, valued at P210,672.24, which was purchased
by him from the Philippine Shipping Commission, by installment or on account. As
of January or February, 1943, plaintiff had paid to the Philippine Shipping
Commission only the sum of P76,500 and the balance of the purchase price was
payable at P50,000 a year, due on or before the end of the current year. 2
On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant
Philippine National Bank, Cebu Branch. To guarantee its payment, plaintiff pledged
the M/S Surigao, M/S Don Dino and its equity in the FS-203 to the defendant bank,
as evidenced by the pledge contract, Exhibit "A" & "1-Bank", executed on the same
day and duly registered with the office of the Collector of Customs for the Port of
Cebu. 3
Subsequently, plaintiff effected partial payment of the loan in the sum of
P20,000. The remaining balance was renewed by the execution of two (2)
promissory notes in the bank's favor. The first note, dated December 18, 1947, for
P20,000, was due on April 16, 1948 while the second, dated February 26, 1948, for
P10,000, was due on June 25, 1948. These two notes were never paid at all by plaintiff
on their respective due dates. 4
On April 6, 1948, the bank filed criminal charges against plaintiff and two
other accused for estafa thru falsification of commercial documents, because
plaintiff had, as last indorsee, deposited with defendant bank, from March 11 to
March 31, 1948, seven Bank of the Philippine Islands checks totalling P184,000. The
drawer thereof one of the co-accused had no funds in the drawee bank.
However, in connivance with one employee of defendant bank, plaintiff was able to
withdraw the amount credited to him before the discovery of the defraudation on
April 2, 1948. Plaintiff and his co-accused were convicted by the trial court
and sentenced to indemnify the defendant bank in the sum of P184,000. On appeal,
the conviction was affirmed by the Court of Appeals on October 31, 1950. The
corresponding writ of execution issued to implement the order for indemnification
was returned unsatisfied as plaintiff was totally insolvent. 5
Meanwhile, together with the institution of the criminal action, defendant
bank took physical possession of three pledged vessels while they were at the Port
of Cebu, and on April 29, 1948, after the first note fell due and was not paid, the
Cebu Branch Manager of defendant bank, acting as attorney-in-fact of plaintiff
pursuant to the terms of the pledge contract, executed a document of sale, Exhibit
"4", transferring the two pledged vessels and plaintiff's equity in FS-203, to
defendant bank for P30,042.72. 6
The FS-203 was subsequently surrendered by the defendant bank to the
Philippine Shipping Commission which rescinded the sale to plaintiff on September
8, 1948, for failure to pay the remaining installments on the purchase price
thereof. 7 The other two boats, the M/S Surigao and the M/S Don Dino were sold by
defendant bank to third parties on March 15, 1951.
On July 19, 1948, plaintiff commenced action in the Court of First Instance of
Cebu to recover the three vessels or their value and damages from defendant bank.
The latter filed its answer, with a counterclaim for P202,000 plus P5,000 damages.
After issues were joined, a pretrial was held resulting in a partial stipulation of facts
dated October 2, 1958, reciting most of the facts above-narrated. During the course
of the trial, defendant amended its answer reducing its claim from P202,000 to
P8,846.01, 8 but increasing its alleged damages to P35,000.
The lower court rendered its decision on February 13, 1960 ruling: (a) that the
bank's taking of physical possession of the vessels on April 6, 1948 was justified by
the pledge contract, Exhibit "A" & "1-Bank" and the law; (b) that the private sale of
the pledged vessels by defendant bank to itself without notice to the plaintiff-
pledgor as stipulated in the pledge contract was likewise valid; and (c) that the
defendant bank should pay to plaintiff the sums of P1,153.99 and P8,000, as his
remaining account balance, or set-off these sums against the indemnity which
plaintiff was ordered to pay to it in the criminal cases.
When his motion for reconsideration and new trial was denied, plaintiff
brought the appeal to Us, the amount involved being more than P200,000.00.
In support of the first assignment of error, plaintiff-appellant would have this
Court hold that Exhibit "A" & "1-Bank" is a chattel mortgage contract so that the
creditor defendant could not take possession of the chattels object thereof until
after there has been default. The submission is without merit. The parties stipulated
as a fact that Exhibit "A" & "1-Bank" is a pledge contract
3. That a credit line of P50,000.00 was extended to the plaintiff by
the defendant Bank, and the plaintiff obtained and received from the
said Bank the sum of P50,000.00, and in order to guarantee the payment
of this loan, the pledge contract, Exhibit "A" & Exhibit "1-Bank", was
executed and duly registered with the Office of the Collector of Customs
for the Port of Cebu on the date appearing therein; (Emphasis
supplied)1wph1.t
Necessarily, this judicial admission binds the plaintiff. Without any showing
that this was made thru palpable mistake, no amount of rationalization can offset
it. 9
Page 26 of 152
 The defendant bank as pledgee was therefore entitled to the actual
possession of the vessels. While it is true that plaintiff continued operating the
vessels after the pledge contract was entered into, his possession was expressly
made "subject to the order of the pledgee." 10 The provision of Art. 2110 of the
present Civil Code 11being new cannot apply to the pledge contract here which
was entered into on June 30, 1947. On the other hand, there is an authority
supporting the proposition that the pledgee can temporarily entrust the physical
possession of the chattels pledged to the pledgor without invalidating the pledge.
In such a case, the pledgor is regarded as holding the pledged property merely as
trustee for the pledgee. 12
Plaintiff-appellant would also urge Us to rule that constructive delivery is
insufficient to make pledge effective. He points to Betita v. Ganzon, 49 Phil. 87 which
ruled that there has to be actual delivery of the chattels pledged. But then there is
also Banco Espaol-Filipino v. Peterson, 7 Phil. 409 ruling that symbolic delivery
would suffice. An examination of the peculiar nature of the things pledged in the
two cases will readily dispel the apparent contradiction between the two rulings.
In Betita v. Ganzon, the objects pledged carabaos were easily capable of
actual, manual delivery unto the pledgee. In Banco Espaol-Filipino v. Peterson, the
objects pledged goods contained in a warehouse were hardly capable of
actual, manual delivery in the sense that it was impractical as a whole for the
particular transaction and would have been an unreasonable requirement. Thus, for
purposes of showing the transfer of control to the pledgee, delivery to him of the
keys to the warehouse sufficed. In other words, the type of delivery will depend
upon the nature and the peculiar circumstances of each case. The parties here
agreed that the vessels be delivered by the "pledgor to the pledgor who shall hold
said property subject to the order of the pledgee." Considering the circumstances of
this case and the nature of the objects pledged, i.e., vessels used in maritime
business, such delivery is sufficient.
Since the defendant bank was, pursuant to the terms of pledge contract, in
full control of the vessels thru the plaintiff, the former could take actual possession
at any time during the life of the pledge to make more effective its security. Its
taking of the vessels therefore on April 6, 1948, was not unlawful. Nor was it
unjustified considering that plaintiff had just defrauded the defendant bank in the
huge sum of P184,000.
The stand We have taken is not without precedent. The Supreme Court of
Spain, in a similar case involving Art. 1863 of the old Civil Code, 13 has ruled: 14
Que si bien la naturaleza del contrato de prenda consiste en pasar
las cosas a poder del acreedor o de un tercero y no quedar en la del
deudor, como ha sucedido en el caso de autos, es lo cierto que todas las
partes interesadas, o sean acreedor, deudor y Sociedad, convinieron que
continuaran los coches en poder del deudor para no suspender el
trafico, y el derecho de no uso de la prenda pertenence al deudor, y el
de dejar la cosa bajo su responsabilidad al acreedor, y ambos
convinieron por creerlo util para las partes contratantes, y estas no
reclaman perjuicios no se infringio, entre otros este articulo.
In the second assignment of error imputed to the lower court plaintiff-
appellant attacks the validity of the private sale of the pledged vessels in favor of
the defendant bank itself. It is contended first, that the cases holding that the
statutory requirements as to public sales with prior notice in connection with
foreclosure proceedings are waivable, are no longer authoritative in view of the
passage of Act 3135, as amended; second, that the charter of defendant bank does
not allow it to buy the property object of foreclosure in case of private sales;
and third, that the price obtained at the sale is unconscionable.
There is no merit in the claims. The rulings in Philippine National Bank v. De
Poli, 44 Phil. 763 and El Hogar Filipino v. Paredes, 45 Phil. 178 are still authoritative
despite the passage of Act 3135. This law refers only, and is limited, to foreclosure
of real estate mortgages. 15 So, whatever formalities there are in Act 3135 do not
apply to pledge. Regarding the bank's authority to be the purchaser in the
foreclosure sale, Sec. 33 of Act 2612, as amended by Acts 2747 and 2938 only states
that if the sale is public, the bank could purchase the whole or part of the property
sold " free from any right of redemption on the part of the mortgagor or pledgor."
This even argues against plaintiff's case since the import thereof is this if the sale
were private and the bank became the purchaser, the mortgagor or pledgor could
redeem the property. Hence, plaintiff could have recovered the vessels by exercising
this right of redemption. He is the only one to blame for not doing so.
Regarding the third contention, on the assumption that the purchase price
was unconscionable, plaintiff's remedy was to have set aside the sale. He did not
avail of this. Moreover, as pointed out by the lower court, plaintiff had at the time
an obligation to return the P184,000 fraudulently taken by him from defendant
bank.
The last assignment of error has to do with the damages allegedly suffered by
plaintiff-appellant by virtue of the taking of the vessels. But in view of the results
reached above, there is no more need to discuss the same.
On the whole, We cannot say the lower court erred in disposing of the case as
it did. Plaintiff-appellant was not all-too-innocent as he would have Us believe. He
did defraud the defendant bank first. If the latter countered with the seizure and
sale of the pledged vessels pursuant to the pledge contract, it was only to protect
its interests after plaintiff had defaulted in the payment of the first promissory note.
Plaintiff-appellant did not come to court with clean hands.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against
plaintiff-appellant. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles
and Fernando, JJ., concur.1wph1.t
FIRST DIVISION
[G.R. No. 126891. August 5, 1998]
LIM TAY, petitioner vs., COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK,
and THE ESTATE OF ALFONSO LIM, respondents.
DECISION
PANGANIBAN, J.:
The duty of a corporate secretary to record transfers of stocks is ministerial.
However, he cannot be compelled to do so when the transferees title to said shares
has no prima facievalidity or is uncertain. More specifically, a pledgee, prior to
foreclosure and sale, does not acquire ownership rights over the pledged
shares and thus cannot compel the corporate secretary to record his alleged
ownership of such shares on the basis merely of the contract of pledge. Similarly,
the SEC does not acquire jurisdiction over a dispute when a partys claim to being a
shareholder is, on the face of the complaint, invalid or inadequate or is otherwise
negated by the very allegations of such complaint. Mandamus will not issue to
establish a right, but only to enforce one that is already established.
Statement of the Case
These are the principles used by this Court in resolving this Petition for
Review on Certiorari before us assailing the October 24, 1996 Decision [1] of the
Court of Appeals[2] in CA-GR SP No. 40832, the dispositive portion of which reads:
IN THE LIGHT OF ALL THE FOREGOING, the Petition at bench is DENIED DUE
COURSE and is hereby DISMISSED. With costs against the [p]etitioner.[3]
By the foregoing disposition, the Court of Appeals effectively affirmed the
March 7, 1996 Decision[4] of the Securities and Exchange Commission (SEC) en banc:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing
the appeal on the ground that mandamus will only issue upon a clear showing of
ownership over the assailed shares of stock, [t]he determination of which, on the
basis of the foregoing facts, is within the jurisdiction of the regular courts and not
with the SEC.[5]
The SEC en banc upheld the August 16, 1993 Decision[6] of SEC Hearing
Officer Rolando C. Malabonga, which dismissed the action for mandamus filed by
petitioner.
The Facts
As found by the Court of Appeals, the facts of the case are as follows:
x x x On January 8, 1980, Respondent-Appellee Sy Guiok secured a loan from the
[p]etitioner in the amount of P40,000 payable within six (6) months. To secure the
payment of the aforesaid loan and interest thereon, Respondent Guiok executed a
Contract of Pledge in favor of the [p]etitioner whereby he pledged his three
hundred (300) shares of stock in the Go Fay & Company Inc., Respondent
Corporation, for brevitys sake. Respondent Guiok obliged himself to pay interest on
said loan at the rate of 10% per annum from the date of said contract of pledge. On
the same date, Alfonso Sy Lim secured a loan from the [p]etitioner in the amount of
P40,000 payable in six (6) months. To secure the payment of his loan, Sy Lim
executed a Contract of Pledge covering his three hundred (300) shares of stock in
Respondent Corporation. Under said contract, Sy Lim obliged himself to pay interest
on his loan at the rate of 10% per annum from the date of the execution of said
contract.
Under said Contracts of Pledge, Respondent[s] Guiok and Sy Lim covenanted, inter
alia, that:
3. In the event of the failure of the PLEDGOR to pay the amount within a period of
six (6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose
the pledge upon the said shares of stock hereby created by selling the same at
public or private sale with or without notice to the PLEDGOR, at which sale the
PLEDGEE may be the purchaser at his option; and the PLEDGEE is hereby authorized
and empowered at his option to transfer the said shares of stock on the books of
the corporation to his own name and to hold the certificate issued in lieu thereof
under the terms of this pledge, and to sell the said shares to issue to him and to
apply the proceeds of the sale to the payment of the said sum and interest, in the
manner hereinabove provided;
4. In the event of the foreclosure of this pledge and the sale of the pledged
certificate, any surplus remaining in the hands of the PLEDGEE after the payment of
the said sum and interest, and the expenses, if any, connected with the foreclosure
sale, shall be paid by the PLEDGEE to the PLEDGOR;
Page 27 of 152
5. Upon payment of the said amount and interest in full, the PLEDGEE will, on
demand of the PLEDGOR, redeliver to him the said shares of stock by surrendering
the certificate delivered to him by the PLEDGOR or by retransferring each share to
the PLEDGOR, in the event that the PLEDGEE, under the option hereby granted, shall
have caused such shares to be transferred to him upon the books of the issuing
company. (idem, supra)
Respondent Guiok and Sy Lim endorsed their respective shares of stock in
blank and delivered the same to the [p]etitioner.[7]
However, Respondent Guiok and Sy Lim failed to pay their respective loans
and the accrued interests thereon to the [p]etitioner. In October, 1990, the
[p]etitioner filed a Petition for Mandamus against Respondent Corporation, with the
SEC entitled Lim Tay versus Go Fay & Company, Inc., SEC Case No. 03894, praying
that:
PRAYER
WHEREFORE, premises considered, it is respectfully prayed that an order be issued
directing the corporate secretary of [R]espondent Go Fay & Co., Inc. to register the
stock transfers and issue new certificates in favor of Lim Tay. It is likewise prayed
that [R]espondent Go Fay & Co., Inc[.] be ordered to pay all dividends due and
unclaimed on the said certificates to [P]laintiff Lim Tay.
Plaintiff further prays for such other relief just and equitable in the premises. (page
34, Rollo)
The [p]etitioner alleged, inter alia, in his Petition that the controversy between him
as stockholder and the Respondent Corporation was intra-corporate in view of the
obstinate refusal of the corporate secretary of Respondent Corporation to record
the transfer of the shares of stock of Respondent Guiok and Sy Lim in favor of and
under the name of the [p]etitioner and to issue new certificates of stock to the
[p]etitioner.
The Respondent Corporation filed its Answer to the Complaint and alleged, as
Affirmative Defense, that:
AFFIRMATIVE DEFENSE
7. Respondent repleads and incorporates herein by reference the foregoing
allegations.
8. The Complaint states no cause of action against [r]espondent.
9. Complainant is not a stockholder of [r]espondent. Hence, the Honorable
Commission has no jurisdiction to enter the present controversy since their [sic] is
no intracorporate relationship between complainant and respondent.
10. Granting arguendo that a pledge was constituted over the shareholdings of Sy
Guiok in favor of the complainant and that the former defaulted in the payment of
his obligations to the latter, the same did not automatically vest [i]n complainant
ownership of the pledged shares. (page 37, Rollo)
In the interim, Sy Lim died. Respondents Guiok and the Intestate Estate of Alfonso
Sy Lim, represented by Conchita Lim, filed their Answer-In-Intervention with the SEC
alleging, inter alia, that:
xxx
3. Deny specifically the allegation under paragraph 5 of the Complaint that, failure
to pay the loan within the contract period automatically foreclosed the pledged
shares of stocks and that the share of stocks are automatically purchased by the
plaintiff, for being false and distorted, the truth being that pursuant to the [sic]
paragraph 3 of the contract of pledges, Annexes A and B, it is clear that upon failure
to pay the amount within the stipulated period, the pledgee is authorized to
foreclose the pledge and thereafter, to sell the same to satisfy the loan. [H]owever,
to this point in time, plaintiff has not performed any operative act of foreclosing the
shares of stocks of [i]ntervenors in accordance with the Chattel Mortgage law,
[n]either was there any sale of stocks -- by way of public or private auction -- made
after foreclosure in favor of the plaintiff to speak about, and therefore, the
respondent company could not be force[d] to [sic] by way of mandamus, to transfer
the subject shares of stocks from the name of your [i]ntervenors to that of the
plaintiff in the absence of clear and legal basis for such;
4. DENY specifically the allegations under paragraphs 6, 7 and 8 of the complaint as
to the existence of the alleged intracorporate dispute between plaintiff and
company for being without proper and legal basis. In the first place, plaintiff is not a
stockholder of the respondent corporation; there was no foreclosure of shares
executed in accordance with the Chattel Mortgage Law whatsoever; there were no
sales consumated that would transfer to the plaintiff the subject shares of stocks
and therefore, any demand to transfer the shares of stocks to the name of the
plaintiff has no legal basis. In the second place, [i]ntervenors had been in the past
negotiating possible compromise and at the same time, had tendered payment of
CRED TRANS Pledge, Mortgage Antichresis Fulltext
the loan secured by the subject pledges but plaintiff refused unjustifiably to oblige
and accept payment o[r] even agree on the computation of the principal amount of
the loan and interest on top of a substantial amount offered just to settle and
compromise the indebtedness of [i]ntervenors;
II. SPECIAL AFFIRMATIVE DEFENSES
Intervenors replead by way of reference all the foregoing allegations to form part of
the special affirmative defenses;
5. This Honorable Commission has no jurisdiction over the person of the respondent
and nature of the action, plaintiff having no personality at all to compel respondent
by way of mandamus to perform certain corporate function[s];
6. The complaint states no cause of action;
7. That respondent is not [a] real party in interest;
8. The appropriation of the subject shares of stocks by plaintiff, without compliance
with the formality of law, amounted to [p]actum commis[s]orium therefore, null and
void;
9. Granting for the sake of argument only that there was a valid foreclosure and sale
of the subject st[o]cks in favor of the plaintiff -- which [i]ntervenors deny -- still
paragraph 5 of the contract allows redemption, for which intervenors are willing to
redeem the share of stocks pledged;
10. Even the Chattel Mortgage law allowed redemption of the [c]hattel foreclosed;
11. As a matter of fact, on several occasions, [i]ntervenors had made representations
with the plaintiff for the compromise and settlement of all the obligations secured
by the subject pledges -- even offering to pay compensation over and above the
value of the obligations, interest[s] and dividends accruing to the share of stocks
but, plaintiff unjustly refused to accept the offer of payment; (pages 39-42, Rollo)
The [r]espondents-[i]ntervenors prayed the SEC that judgment be rendered in their
favor, as follows:
IV. PRAYER
It is respectfully prayed to this Honorable Commission after due hearing, to dismiss
the case for lack of merit, ordering plaintiff to accept payment for the loans secured
by the subject shares of stocks and to pay plaintiff:
1. The sum of P50,000.00, as moral damages;
2. the sum of P50,000.00, as attorneys fees; and,
3. costs of suit.
Other reliefs just and equitable [are] likewise prayed for. (pages 42-43, Rollo)
After due proceedings, the [h]earing [o]fficer promulgated a Decision dismissing
[p]etitioners Complaint on the ground that although the SEC had jurisdiction over
the action, pursuant to the Decision of the Supreme Court in the case of Rural Bank
of Salinas, et al. versus Court of Appeals, et al., 210 SCRA 510, he failed to prove
the legal basis for the secretary of the Respondent Corporation to be compelled to
register stock transfers in favor of the [p]etitioner and to issue new certificates of
stock under his name (pages 67-77, Rollo). The [p]etitioner appealed the Decision
of the [h]earing [o]fficer to the SEC, but, on March 7, 1996, the SEC promulgated a
Decision, dismissing [p]etitioners appeal on the grounds that: (a) the issue between
the [p]etitioner and the [r]espondents being one involving the ownership of the
shares of stock pledged by Respondent Guiok and Sy Lim, the SEC had no
jurisdiction over the action filed by the [p]etitioner; (b) the latter had no cause of
action for mandamus against the Respondent Corporation, the right of ownership of
the [p]etitioner over the 300 shares of stock pledged by Respondent Guiok and Sy
Lim not having been as yet, established, preparatory to the institution of said
Petition for Mandamus with the SEC.
Ruling of the Court of Appeals
On the issue of jurisdiction, the Court of Appeals ruled:
In ascertaining whether or not the SEC had exclusive jurisdiction over [p]etitioners
action, the [a]ppellate [c]ourt must delve into and ascertain: (a) whether or not there
is a need to enlist the expertise and technical know-how of the SEC in resolving the
issue of the ownership of the shares of stock; (b) the status of the relationships of
the parties; [and] (c) the nature of the question that is the subject of the controversy.
Where the controversy is purely a civil matter resoluble by civil law principles and
there is no need for the application of the expertise and technical know-how of the
SEC, then the regular courts have jurisdiction over the action. [8] [citations omitted]
Page 28 of 152
 On the issue of whether mandamus can be availed of by the petitioner, the
Court of Appeals agreed with the SEC, viz.:
x x x [T]he [p]etitioner failed to establish a clear and legal right to the writ of
mandamus prayed for by him. x x x Mandamus will not issue to enforce a right
which is in substantial dispute or to which a substantial doubt exists x x x. The
principal function of the writ of mandamus is to command and expedite, and not to
inquire and adjudicate and, therefore it is not the purpose of the writ to establish a
legal right, but to enforce one which has already been established. [9] [citations
omitted]
The Court of Appeals debunked petitioners claim that he had acquired
ownership over the shares by virtue of novation, holding that respondents
indorsement and delivery of the shares were pursuant to Articles 2093 and 2095 of
the Civil Code and that petitioners receipt of dividends was in compliance with
Article 2102 of the same Code. Petitioners claim that he had acquired ownership of
the shares by virtue of prescription was likewise dismissed by Respondent Court in
this wise:
The prescriptive period for the action of Respondent[s] Guiok and Sy Lim to recover
the shares of stock from the [p]etitioner accrued only from the time they paid their
loans and the interests thereon and [made] a demand for their return. [10]
Hence, the petitioner brought before us this Petition for Review
on Certiorari in accordance with Rule 45 of the Rules of Court.[11]
Assignment of Errors
Petitioner submits, for the consideration of this Court, these issues: [12]
(a) Whether the Securities and Exchange Commission had jurisdiction over the
complaint filed by the petitioner; and
(b) Whether the petitioner is entitled to the relief of mandamus as against the
respondent Go Fay & Co., Inc.
In addition, petitioner contends that it has acquired ownership of the shares
through extraordinary prescription, pursuant to Article 1132 of the Civil Code, and
through respondents subsequent acts, which amounted to a novation of the
contracts of pledge. Petitioner also claims that there was dacion en pago, in which
the shares of stock were deemed sold to petitioner, the consideration for which was
the extinguishment of the loans and the interests thereon. Petitioner likewise claims
that laches bars respondents from recovering the subject shares.
The Courts Ruling
The petition has no merit.
First Issue: Jurisdiction of the SEC
Claiming that the present controversy is intra-corporate and falls within the
exclusive jurisdiction of the SEC, petitioner relies heavily on Abejo v. De
la Cruz,[13] which upheld the jurisdiction of the SEC over a suit filed by an
unregistered stockholder seeking to enforce his rights. He also seeks support
from Rural Bank of Salinas, Inc. v. Court of Appeals,[14] which ruled that the right of a
transferee or an assignee to have stocks transferred to his name was an inherent
right flowing from his ownership of the said stocks.
The registration of shares in a stockholders name, the issuance of stock
certificates, and the right to receive dividends which pertain to the said shares are all
rights that flow from ownership. The determination of whether or not a shareholder
is entitled to exercise the above-mentioned rights falls within the jurisdiction of the
SEC. However, if ownership of the shares is not clearly established and is still
unresolved at the time the action for mandamus is filed, then jurisdiction lies with
the regular courts.
Section 5 of Presidential Decree No. 902-A sets forth the jurisdiction of the
SEC as follows:
SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and decrees,
it shall have original and exclusive jurisdiction to hear and decide cases involving:
(a) Devices or schemes employed by or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of stockholders, partners,
members of associations or organizations registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between
and among stockholders, members, or associates; between any or all of them and
the corporation, partnership or association of which they are stockholders, members
or associates, respectively; and between such corporation, partnership or association
and the State insofar as it concerns their individual franchise or right to exist as such
entity;
(c) Controversies in the election or appointment of directors, trustees, officers or
managers of such corporations, partnerships or associations.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
(d) Petitions of corporations, partnerships or associations to be declared in the state
of suspension of payments in cases where the corporation, partnership or
association possesses property to cover all its debts but foresees the impossibility of
meeting them when they respectively fall due or in cases where the corporation,
partnership or association has no sufficient assets to cover its liabilities, but is under
the Management Committee created pursuant to this decree. [15]
Thus, a controversy among stockholders, partners or associates
themselves[16] is intra-corporate in nature and falls within the jurisdiction of the SEC.
As a general rule, the jurisdiction of a court or tribunal over the subject
matter is determined by the allegations in the complaint. [17] In the present case,
however, petitioners claim that he was the owner of the shares of stock in question
has no prima facie basis.
In his Complaint, petitioner alleged that, pursuant to the contracts of pledge,
he became the owner of the shares when the term for the loans expired. The
Complaint contained the following pertinent averments:
xxx
3. On [J]anuary 8, 1990, under a Contract of Pledge, Lim Tay received three hundred
(300) shares of stock of Go Fay & Co., Inc., from Sy Guiok as security for the
payment of a loan of [f]orty [t]housand [p]esos (P40,000.00) Philippine currency, the
sum of which was payable within six (6) months [with
interest] at ten percentum (10%) per annum from the date of the execution of the
contract; a copy of this Contract of Pledge is attached as Annex A and made part
hereof;
4. On the same date January 8, 1980, under a similar Contract of Pledge, Lim Tay
received three hundred (300) shares of stock of Go Fay & Co., Inc. from Alfonso Sy
Lim as security for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00)
Philippine currency, the sum of which was payable within six (6) months [with
interest] at ten percentum (10%) per annum from the date of the execution of the
contract; a copy of this Contract of Pledge is attached as Annex B and made part
hereof;
5. By the express terms of the agreements, upon failure of the borrowers to pay the
stated amounts within the contract period, the pledge is foreclosed and the shares
of stock are purchased by [p]laintiff, who is expressly authorized and empowered to
transfer the duly endorsed shares of stock on the books of the corporation to his
own name; x x x[18](underscoring supplied)
However , the contracts of pledge, which were made integral parts of the
Complaint, contain this common proviso:
3. In the event of the failure of the PLEDGOR to pay the amount within a period of
six (6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose
the pledge upon the said shares of stock hereby created by selling the same at
public or private sale with or without notice to the PLEDGOR, at which sale the
PLEDGEE may be the purchaser at his option; and the PLEDGEE is hereby authorized
and empowered at his option, to transfer the said shares of stock on the books of
the corporation to his own name and to hold the certificate issued in lieu thereof
under the terms of this pledge, and to sell the said shares to issue to him and to
apply the proceeds of the sale to the payment of the said sum and interest, in the
manner hereinabove provided;
This contractual stipulation, which was part of the Complaint, shows that
plaintiff was merely authorized to foreclose the pledge upon maturity of the loans,
not to own them. Such foreclosure is not automatic, for it must be done in a public
or private sale. Nowhere did the Complaint mention that petitioner had in fact
foreclosed the pledge and purchased the shares after such foreclosure. His status as
a mere pledgee does not, under civil law, entitle him to ownership of the subject
shares. It is also noteworthy that petitioners Complaint did not aver that said shares
were acquired through extraordinary prescription, novation or laches. Moreover,
petitioners claim, subsequent to the filing of the Complaint, that he acquired
ownership of the said shares through these three modes is not indubitable and still
has to be resolved. In fact, as will be shown, such allegation has no merit. Manifestly,
the Complaint by itself did not contain any prima facie showing that petitioner was
the owner of the shares of stocks. Quite the contrary, it demonstrated that he was
merely a pledgee, not an owner.Accordingly, it failed to lay down a sufficient basis
for the SEC to exercise jurisdiction over the controversy. In fact, the very allegations
of the Complaint and its annexes negated the jurisdiction of the SEC.
Petitioners reliance on the doctrines set forth in Abejo v. De la Cruz and Rural
Bank of Salinas, Inc. v. Court of Appeals is misplaced. In Abejo, the Abejo spouses
sold to Telectronic Systems, Inc. shares of stock in Pocket Bell Philippines,
Inc. Subsequent to such contract of sale, the corporate secretary, Norberto Braga,
refused to record the transfer of the shares in the corporate books and instead
asked for the annulment of the sale, claiming that he and his wife had a preemptive
right over some of the shares, and that his wifes shares were sold without
consideration or consent.
At the time the Bragas questioned the validity of the sale, the contract had
already been perfected, thereby demonstrating that Telectronic Systems, Inc. was
already the prima facieowner of the shares and, consequently, a stockholder
of Pocket Bell Philippines, Inc. Even if the sale were to be annulled later on,
Telectronic Systems, Inc. had, in the meantime, title over the shares from the time
the sale was perfected until the time such sale was annulled. The effects of an
annulment operate prospectively and do not, as a rule retroact to the time the sale
Page 29 of 152
was made. Therefore, at the time the Bragas questioned the validity of the transfers
made by the Abejos, Telectronic Systems, Inc. was already a prima facie shareholder
of the corporation, thus making the dispute between the Bragas and the Abejos
intra-corporate in nature. Hence, the Court held that the issue is not on ownership
of shares but rather the non-performance by the corporate secretary of the
ministerial duty of recording transfers of shares of stock of the corporation of which
he is secretary.[19]
Unlike Abejo, however, petitioners ownership over the shares in this case was
not yet perfected when the Complaint was filed. The contract of pledge certainly
does not make him the owner of the shares pledged. Further, whether prescription
effectively transferred ownership of the shares, whether there was a novation of the
contracts of pledge, and whether laches had set in were difficult legal issues, which
were unpleaded and unresolved when herein petitioner asked the corporate
secretary of Go Fay to effect the transfer, in his favor, of the shares pledged to him.
In Rural Bank of Salinas, Melenia Guerrero executed deeds of assignment for
the shares in favor of the respondents in that case. When the corporate secretary
refused to register the transfer, an action for mandamus was
instituted. Subsequently, a motion for intervention was filed, seeking the annulment
of the deeds of assignment on the grounds that the same were fictitious and
antedated, and that they were in fact donations because the considerations therefor
were below the book value of the shares.
Like the Abejo spouses, the respondents in Rural Bank of Salinas were
already prima facie shareholders when the deeds of assignment were questioned. If
the said deeds were to be annulled later on, respondents would still be considered
shareholders of the corporation from the time of the assignment until the
annulment of such contracts.
Second Issue: Mandamus Will Not
Issue to Establish a Right
Petitioner prays for the issuance of a writ of mandamus, directing the
corporate secretary of respondent corporation to have the shares transferred to his
name in the corporate books, to issue new certificates of stock and to deliver the
corresponding dividends to him.[20]
In order that a writ of mandamus may issue, it is essential that the person
petitioning for the same has a clear legal right to the thing demanded and that it is
the imperative duty of the respondent to perform
the act required. It neither confers powers nor imposes duties and is never issued in
doubtful cases. It is simply a command to exercise a power already possessed and
to perform a duty already imposed.[21]
In the present case, petitioner has failed to establish a clear legal
right. Petitioners contention that he is the owner of the said shares is completely
without merit. Quite the contrary and as already shown, he does not have any
ownership rights at all. At the time petitioner instituted his suit at the SEC, his
ownership claim had no prima facie leg to stand on. At best, his contention was
disputable and uncertain. Mandamus will not issue to establish a legal right, but
only to enforce one that is already clearly established.
Without Foreclosure and
Purchase at Auction, Pledgee
Is Not the Owner of Pledged Shares
Petitioner initially argued that ownership of the shares pledged had passed
to him, upon Respondents Sy Guiok and Sy Lims failure to pay their respective
loans. But on appeal, petitioner claimed that ownership over the shares had passed
to him, not via the contracts of pledge, but by virtue of prescription and by
respondents subsequent acts which amounted to a novation of the contracts of
pledge. We do not agree.
At the outset, it must be underscored that petitioner did not acquire
ownership of the shares by virtue of the contracts of pledge. Article 2112 of the Civil
Code states:
The creditor to whom the credit has not been satisfied in due time, may proceed
before a Notary Public to the sale of the thing pledged. This sale shall be made at a
public auction, and with notification to the debtor and the owner of the thing
pledged in a proper case, stating the amount for which the public sale is to be held.
If at the first auction the thing is not sold, a second one with the same formalities
shall be held; and if at the second auction there is no sale either, the creditor may
appropriate the thing pledged. In this case he shall be obliged to give an
acquaintance for his entire claim.
Furthermore, the contracts of pledge contained a common proviso, which we
quote again for the sake of clarity:
3. In the event of the failure of the PLEDGOR to pay the amount within a period of
six (6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose
the pledge upon the said shares of stock hereby created by selling the same at
public or private sale with or without notice to the PLEDGOR, at which sale the
PLEDGEE may be the purchaser at his option; and the PLEDGEE is hereby authorized
and empowered at his option to transfer the said shares of stock on the books of
the corporation to his own name, and to hold the certificate issued in lieu thereof
under the terms of this pledge, and to sell the said shares to issue to him and to
apply the proceeds of the sale to the payment of the said sum and interest, in the
manner hereinabove provided;[22]
There is no showing that petitioner made any attempt to foreclose or sell the
shares through public or private auction, as stipulated in the contracts of pledge
CRED TRANS Pledge, Mortgage Antichresis Fulltext
and as required by Article 2112 of the Civil Code. Therefore, ownership of the shares
could not have passed to him. The pledgor remains the owner during the pendency
of the pledge and prior to foreclosure and sale, as explicitly provided by Article 2103
of the same Code:
Unless the thing pledged is expropriated, the debtor continues to be the owner
thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner
of the thing pledged in order to recover it from, or defend it against a third person.
No Ownership
by Prescription
Petitioner did not acquire the shares by prescription either. The period of
prescription of any cause of action is reckoned only from the date the cause of
action accrued.
Since a cause of action requires as an essential element not only a legal right
of the plaintiff and a correlative obligation of the defendant, but also an act or
omission of the defendant in violation of said legal right, the cause of action does
not accrue until the party obligated refuses, expressly or impliedly, to comply with
its duty.[23] Accordingly, a cause of action on a written contract accrues when a
breach or violation thereof occurs.
Under the contracts of pledge, private respondents would have a right to ask
for the redelivery of their certificates of stock upon payment of their debts to
petitioner, consonant with Article 2105 of the Civil Code, which reads:
The debtor cannot ask for the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its interest, with expenses in a
proper case.[24]
Thus, the right to recover the shares based on the written contract of pledge
between petitioner and respondents would arise only upon payment of their
respective loans. Therefore, the prescriptive period within which to demand the
return of the thing pledged should begin to run only after the payment of the loan
and a demand for the thing has been made, because it is only then that
respondents acquire a cause of action for the return of the thing pledged.
Prescription should not begin to run on the action to demand the return of
the thing pledged while the loan still exists. This is because the right to ask for the
return of the thing pledged will not arise so long as the loan subsists. In the present
case, the prescriptive period did not begin to run when the loan became due. On
the other hand, it is petitioners right to demand payment that may be in danger of
prescription.
Petitioner contends that he can be deemed to have acquired ownership over
the certificates of stock through extraordinary prescription, as provided for in Article
1132 of the Civil Code which states:
Art. 1132. The ownership of movables prescribes through uninterrupted possession
for four years in good faith.
The ownership of personal property also prescribes through uninterrupted
possession for eight years, without need of any other condition. x x x.
Petitioners argument is untenable. What is required by Article 1132 is
possession in the concept of an owner. In the present case, petitioners possession of
the stock certificates came about because they were delivered to him pursuant to
the contracts of pledge. His possession as a pledgee cannot ripen into ownership by
prescription. As aptly pointed out by Justice Jose C. Vitug:
Acquisitive prescription is a mode of acquiring ownership by a possessor through
the requisite lapse of time. In order to ripen into ownership, possession must be in
the concept of an owner, public, peaceful and uninterrupted. Thus, possession with
a juridical title, such as by a usufructory, a trustee, a lessee, agent or a pledgee, not
being in the concept of an owner, cannot ripen into ownership by acquisitive
prescription unless the juridical relation is first expressly repudiated and such
repudiation has been communicated to the other party. [25]
Petitioner expressly repudiated the pledge, only when he filed his Complaint
and claimed that he was not a mere pledgee, but that he was already the owner of
the shares. Based on the foregoing, petitioner has not acquired the certificates of
stock through extraordinary prescription.
No Novation
in Favor of Petitioner
Neither did petitioner acquire the shares by virtue of a novation of the
contract of pledge. Novation is defined as the extinguishment of an obligation by a
subsequent one which terminates it, either by changing its object or principal
conditions, by substituting a new debtor in place of the old one, or by subrogating a
third person to the rights of the creditor. [26]Novation of a contract must not be
presumed. In the absence of an express agreement, novation takes place only when
the old and the new obligations are incompatible on every point. [27]
In the present case, novation cannot be presumed by (a) respondents
indorsement and delivery of the certificates of stock covering the 600 shares, (b)
Page 30 of 152
petitioners receipt of dividends from 1980 to 1983, and (c) the fact that respondents
have not instituted any action to recover the shares since 1980.
Respondents indorsement and delivery of the certificates of stock were
pursuant to paragraph 2 of the contract of pledge which reads:
2. The said certificates had been delivered by the PLEDGOR endorsed in blank to be
held by the PLEDGEE under the pledge as security for the payment of the
aforementioned sum and interest thereon accruing. [28]
This stipulation did not effect the transfer of ownership to petitioner. It was
merely in compliance with Article 2093 of the Civil Code, [29] which requires that the
thing pledged be placed in the possession of the creditor or a third person of
common agreement; and Article 2095,[30] which states that if the thing pledged are
shares of stock, then the instrument proving the right pledged must be delivered to
the creditor.
Moreover, the fact that respondents allowed the petitioner to receive
dividends pertaining to the shares was not meant to relinquish ownership
thereof. As stated by respondent corporation, the same was done pursuant to an
agreement between the petitioner and Respondents Sy Guiok and Sy Lim, following
Article 2102 of the Civil Code which provides:
If the pledge earns or produces fruits, income, dividends, or interests, the creditor
shall compensate what he receives with those which are owing him; but if none are
owing him, or insofar as the amount may exceed that which is due, he shall apply it
to the principal. Unless there is a stipulation to the contrary, the pledge shall extend
to the interest and the earnings of the right pledged.
Novation cannot be inferred from the mere fact that petitioner has not, since
1980, instituted any action to recover the shares. Such action is, in fact, premature,
as the loan is still outstanding. Besides, as already pointed out, novation is never
presumed or inferred.
No Dacion en Pago
in Favor of Petitioner
Neither can there be dacion en pago, in which the certificates of stock are
deemed sold to petitioner, the consideration for which is the extinguishment of the
loans and the accrued interests thereon. Dacion en pago is a form of novation in
which a change takes place in the object involved in the original contract. Absent an
explicit agreement, petitioner cannot simply presume dacion en pago.
Laches Not
a Bar to Petitioner
Petitioner submits that the inaction of the individual respondents with
respect to the recovery of the shares of stock serves to bar them from asserting
rights over said shares on the basis of laches.[31]
Laches has been defined as the failure or neglect, for an unreasonable 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.[32]
In this case, it is in fact petitioner who may be guilty of laches. Petitioner had
all the time to demand payment of the debt. More important, under the contracts of
pledge, petitioner could have foreclosed the pledges as soon as the loans became
due. But for still unknown or unexplained reasons, he failed to do so, preferring
instead to pursue his baseless claim to ownership.
WHEREFORE, the petition is hereby DENIED and the assailed Decision
is AFFIRMED. Costs against petitioner.
SO ORDERED.
THIRD DIVISION
[G.R. No. 140964. January 16, 2002]
INSULAR LIFE ASSURANCE COMPANY, LTD., INSULAR SAVINGS BANK and
JACINTO D. JIMENEZ, petitioners, vs. ROBERT YOUNG, GABRIEL
LA'O II, ARTHUR TAN, LOPE JUBAN, JR., MARIA LOURDES ONGPIN,
ANTONIO ONGPIN, ELSIE DIZON, YOLANDA BAYER, CECILIA VIRAY,
MANUEL VIRAY and JOSE VITO BORROMEO, respondents.
[G.R. No. 142267. January 16, 2002]
INSULAR LIFE ASSURANCE COMPANY, LTD., INSULAR SAVINGS BANK and
JACINTO D. JIMENEZ, petitioners, vs. ROBERT YOUNG, GABRIEL
LA'O II, ARTHUR TAN, LOPE JUBAN, JR., MARIA LOURDES ONGPIN,
ANTONIO ONGPIN, ELSIE DIZON, YOLANDA BAYER, CECILIA VIRAY,
MANUEL VIRAY and JOSE VITO BORROMEO, COURT OF APPEALS
and DEPUTY SHERIFF RUBEN NEQUINTO, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before this Court are two (2) consolidated petitions, the first, docketed
as G.R. No. 140964, is a petition for review on certiorari[1] of the Decision of the
Court of Appeals dated September 22, 1999 in CA-G.R. CV No. 54264 reversing the
Decision of the Regional Trial Court, Branch 142, Makati City in Civil Case No. 92-
CRED TRANS Pledge, Mortgage Antichresis Fulltext
049. The other, G. R. No. 142267, is a petition for certiorari,[2] assailing the
Resolution dated March 10, 2000 of the Court of Appeals (in the same civil case)
which granted private respondents' motion for execution pending appeal.
The undisputed facts are:
In December, 1987, respondent Robert Young, together with his associates
and co-respondents, namely: Gabriel La'O II, Arthur Tan, Lope Juban, Jr., Maria
Lourdes Ongpin, Antonio Ongpin, Elsie Dizon, Yolanda Bayer, Cecilia Viray, Manuel
Viray and Jose Vito Borromeo, acquired by purchase Home Bankers Savings and
Trust Co., now petitioner Insular Savings Bank ("the Bank," for brevity), from the
Licaros family for P65,000,000.00. Young and his group obtained 55% equity in the
Bank, while Jorge Go and his group owned the remaining 45%.
Subsequently, the Bank granted respondents and others individual loans in
the total amount of P153,000,000.00, secured by promissory notes.[3]
On December, 1990, Benito Araneta, a stockholder of the Bank, signified his
intention to purchase 99.82% of its outstanding capital stock for P340,000,000.00,
subject to the condition that the ownership of all the shares will be consolidated in
Young's name. On February 5, 1991, Araneta paid Young P14,000,000.00 as part of
the downpayment.[4]
In order to carry out the intended sale to Araneta, Young bought from Jorge
Go and his group their 45% equity in the Bank for P153,000,000.00. In order to pay
this amount, Young obtained a short-term loan of P170,000,000.00 from
International Corporate Bank ("Interbank") to finance the purchase.
However, Araneta backed out from the intended sale and demanded the
return of his downpayment.
Meanwhile, Young's loan from Interbank became due, causing his serious
financial problem. Consequently, he engaged the services of Asian Oceanic
Investment House, Inc. ("Asian Oceanic"), a domestic company owned and
controlled by another petitioner, Insular Life Assurance Co., Ltd. ("Insular Life"), to
look for possible sources of capital.
On August 27, 1991, through the intervention of Asian Oceanic, Young and
Insular Life entered into a Credit Agreement. [5] Under its provisions, Insular Life
extended a loan to Young in the amount of P200,000,000.00. To secure the loan,
Young, acting in his behalf and as attorney-in-fact of the other stockholders,
executed on the same day a Deed of Pledge[6] over 1,324,864 shares which
represented 99.82% of the outstanding capital stock of the Bank. The next day, he
also executed a promissory note[7] in favor of Insular Life in the same amount with
an interest rate of 26% per annum to mature 120 days from execution. The Credit
Agreement further provides that Insular Life shall have the prior right to purchase
the Schedule I Shares (owned by Young) and the Schedule II Shares (owned by the
other stockholders of the Bank), as well as the 250,000 shares which will be issued
after the additional capital of P25,000,000.00 (payable from the proceeds of the
loan) shall have been infused.
On October 1, 1991, Insular Life and Insular Life Pension Fund formally
informed Young of their intention to acquire 30% and 12%, respectively, of the
Bank's outstanding shares, subject to due diligence audit and proper
documentation.[8] On October 9, 1991, Insular Life and Young, authorized to
represent the other stockholders, entered into a Memorandum of Agreement
(MOA),[9] wherein Insular Life and its Pension Fund agreed to purchase 830,860
common shares and 311,572 common shares, respectively, for a total consideration
of P198,000,000.00. Under its terms, the MOA is subject to Young's representations
and warranties[10] that, as of September 30, 1991, the Bank has (a) a total
outstanding paid-in capital of P157,714,900.00, (b) a total net worth
of P114,801,539.00, and (c) total loans with doubtful recovery of P60,000,000.00. The
MOA is also subject to these "condition precedents":[11](1) Young shall infuse
additional capital of P50,000,000.00 into the Bank, and (2) Insular Life and its
Pension Fund shall undertake a due diligence audit on the Bank to determine
whether the provision for P60,000,000.00 doubtful account made by Young is
sufficient.
On October 11, 1991, Insular Life, through a team of auditors led by Mr.
Wilfrido Patawaran, conducted a due diligence audit on the Bank pursuant to the
MOA. The audit revealed several check-kiting operations which amounted
to P340,000,000.00. As a result, the Bank's Board of Directors was convened to
discuss this matter.
On October 17, 1991, a special meeting of the Bank's directors was
held. Chief Executive Officer Antonino L. Alindogan, Jr. reported to the Board the
initial findings of the audit team about the irregularities in the Banks "kiting
operations." When asked to explain these anomalies, Young, who was then the
Bank's President, assumed responsibility since it happened during his
incumbency. Thereupon, he offered, among others, to the Bank the 45% of his
holdings as security. He admitted that he has compromised the interest of the Bank
and thus tendered his resignation. The Board deferred its acceptance.[12]
On October 21, 1991, Young signed a letter[13] prepared by Atty. Jacinto
Jimenez, counsel of Insular Life, addressed to Mr. Vicente R. Ayllon, Chairman of the
Bank's Board of Directors, stating that due to business reverses, he shall not be able
to pay his obligations under the Credit Agreement between him and Insular
Life. Consequently, Young "unconditionally and irrevocably waive(s) the benefit of
the period" of the loan (up to December 26, 1991) and Insular "may consider (his)
obligations thereunder as defaulted." He likewise interposes no objection to Insular
Life's exercise of its rights under the said agreement.
Forthwith, Insular Life instructed its counsel to foreclose the pledge
constituted upon the shares. The latter then sent Young a notice informing him of
the sale of the shares in a public auction scheduled on October 28, 1991, and in the
Page 31 of 152
event that the shares are not sold, a second auction sale shall be held the next day,
October 29.
On October 28, 1991, only Insular Life submitted a bid, hence, the shares
were not sold on that day. The next day, a second auction was held. Again, Insular
Life was the sole bidder. Since the shares were not sold at the two public auctions,
Insular Life appropriated to itself, not only the original 1,324,864 shares, but also the
250,000 shares subsequently issued by the Bank and delivered to Insular Life by way
of pledge. Thus, Insular Life gave Young an acquittance of his entire claim. [14]
Thereafter, title to the said shares was consolidated in the name of Insular
Life. On November 12, 1991, the Bangko Sentral ng Pilipinas' Supervision and
Examination Sector approved Insular Life's request to maintain its present
ownership of 99.82% of the Bank.[15]
From October 31, 1991 to December 27, 1991, Insular Life invested a total
of P325,000,000.00 in the Bank. Meanwhile, on November 27, 1991, its Board of
Directors, during its meeting, accepted the resignation of Young as President.[16]
On January 7, 1992, Young and his associates filed with the Regional Trial
Court (RTC), Branch 142, Makati City, a complaint[17] against the Bank, Insular Life
and its counsel, Atty. Jacinto Jimenez, petitioners, for annulment of notarial sale,
specific performance and damages, docketed as Civil Case No. 92-049. The
complaint alleges, inter alia, that the notarial sale conducted by petitioner Atty.
Jacinto Jimenez is void as it does not comply with the requirement of notice of the
second auction sale; that Young was forced by the officers of Insular Life to sign
letters to enable them to have control of the Bank; that under the MOA, Insular Life
should apply the purchase price of P198,000,000.00 (corresponding to the 55% of
the outstanding capital stock of the Bank) to Young's loan of P200,000,000.00 and
pay the latter P162,000,000.00, representing the remaining 45% of its outstanding
capital stock, which must be set-off against the loans of the other respondents.
Petitioners filed their answer[18] with counterclaim against Young, Gabriel
La'O II, Arthur Tan, Lope Juban, Jr., Antonio Ongpin, Elsie Dizon, Yolanda Bayer and
Manuel Viray, respondents herein. Except for Young, none of the respondents
answered the counterclaim, hence, the RTC declared them in default.
On May 10, 1995, the RTC rendered a Decision, [19] dismissing the complaint,
ordering the respondents to pay the Bank their respective loans with interest at the
rate of 30% per annum and monthly penalty interest of 3% from the date they are
due until fully paid and dismissing petitioners' counterclaim against Young, thus:
"Judgment is therefore rendered as follows:
1. Dismissing the complaint; and
2. Ordering the plaintiffs jointly and severally to reimburse to the defendants the
sum of P300,000.00 as attorney's fees and cost of litigation;
ON THE COUNTERCLAIMS:
Judgment is hereby rendered in favor of counterplaintiff HOME as follows:
1. Ordering GABRIEL LA'O II to pay HOME the following amounts:
a. the sum of P4 Million with interest at the rate of 30% per annum and monthly
penalty interest at 3% from June 17, 1991 until fully paid;
b. the sum of P6 Million with interest at the rate of 30% per annum and monthly
penalty interest at 3% from September 10, 1991 until fully paid;
c. the sum of P500,000.00 with interest at the rate of 30% per annum and monthly
penalty interest at 3% from September 12, 1991 until fully paid;
2. Ordering ARTHUR TAN to pay to HOME the sum of P4.2 Million with interest at
the rate of 30% per annum and monthly penalty interest at 3% from July 4, 1991
until fully paid;
3. Ordering LOPE JUBAN, JR., to pay to HOME the sum of P3 Million with interest at
the rate of 29% per annum from May 27, 1991 to August 25, 1991, and 30% per
annum from August 26, 1991 and monthly penalty interest at 3% from May 27, 1991
until fully paid;
4. Ordering ANTONIO ONGPIN to pay to HOME the following amounts:
a. the sum of P445,000.00 with interest at the rate of 32% per annum from May 25,
1991 to August 29, 1991, and 29% per annum from August 30, 1991, and monthly
penalty interest at 3% from May 25, 1991 until fully paid;
b. the sum of P1 Million with interest at the rate of 32% a month from May 4, 1991
to August 29, 1991, and 29% per annum from August 30, 1991, and monthly penalty
interest at 3% from May 4, 1991 until fully paid;
c. the sum of P550,000.00 with interest at the rate of 32% per annum from May 21,
1991 to August 29, 1991, and 29% per annum from August 30, 1991 and monthly
penalty interest at 3% from May 21, 1991 until fully paid;
CRED TRANS Pledge, Mortgage Antichresis Fulltext
d. the sum of P5 Million with interest at the rate of 32% per annum from May 16,
1991 to August 29, 1991, and 29% per annum from August 30, 1991 and monthly
penalty interest at 3% from May 16, 1991 until fully paid;
e. the sum of P705,000.00 with interest at the rate of 32% per annum from May 4,
1991 to August 29, 1991, and 29% per annum from May 4, 1991 and monthly
penalty interest at 3% from May 4, 1991 until fully paid;
5. Ordering ELSIE DIZON to pay to HOME the following amounts:
a. the sum of P2 Million with interest at the rate of 30% per annum and monthly
penalty interest at 3% from June 17, 1991 until fully paid; and
b. the sum of P7.4 Million with interest at the rate of 30% per annum and monthly
penalty interest at 3% from September 10, 1991 until fully paid;
6. Ordering YOLANDA BAYER to pay to HOME the following amounts:
a. the sum of P1 Million with interest at the rate of 30% per annum and monthly
penalty interest at 3% from June 17, 1991 until fully paid; and
b. the sum of P6.9 Million with interest at the rate of 30% per annum and monthly
penalty interest at 3% from September 10, 1991 until fully paid;
7. Ordering MANUEL VIRAY to pay to HOME the sum of P8.7 Million with interest at
the rate of 29% per annum from May 29, 1991 to August 26, 1991, and 30% per
annum from August 27, 1991, and monthly penalty interest at 3% from May 29,
1991 until fully paid;
8. Ordering the above counterdefendants jointly and severally to pay to the
counterplaintiff the some of P500,000.00 as attorney's fees and cost of litigation.
The counterclaim against YOUNG is dismissed for lack of merit." [20]
Aggrieved by the RTC Decision, respondents appealed to the Court of
Appeals.
On September 22, 1999, the Court of Appeals rendered
judgment[21] reversing the RTC Decision, the dispositive portion of which reads:
PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and SET
ASIDE, and a new one entered thereby:
1. Declaring the Credit Agreement dated August 27, 1991 and the Memorandum of
Agreement dated October 9, 1991 valid and binding between the parties;
2. Declaring the delinquent accounts of borrowers Lope Juben, Elsie Dizon, Arthur
Tan, Gabriel La O, Yolanda Bayer, Antonio Ongpin and Jose Vito Borromeo as fully
paid;
3. Ordering the defendant Insular Life to pay the appellant Robert T. Young the
amount of One Hundred Sixty Two Million Pesos (P162,000,000.00) representing the
money value of 45% of the shareholdings of Home Bankers Savings and Trust Co.,
Inc.;
4. Ordering the appellee Insular Life Assurance Co., Ltd. to pay appellant Robert T.
Young moral damages in the amount of Five Million Pesos (P5,000,000.00); and
5. Ordering the appellees to pay attorneys fees of One Million Five Hundred
Thousand Pesos (P1,500,000.00) and the costs of the suit.
SO ORDERED.[22]
On October 14, 1999, petitioners filed a motion for reconsideration, while
respondents filed a motion for execution pending appeal.
On December 1, 1999, the Court of Appeals issued a Resolution [23] denying
petitioners' motion for reconsideration for lack of merit, prompting them to file the
instant petition for review on certiorari (G. R. No. 140964).
On March 10, 2000, the Court of Appeals issued a Resolution [24] granting
respondents' motion for execution pending appeal. Forthwith, petitioners filed the
instant petition for certiorari (G. R. No. 142267).
On March 27, 2000, we issued a Resolution [25] ordering the consolidation of
the two petitions and directing the parties "to maintain the STATUS QUO before the
assailed (CA) Resolution of March 10, 2000 was issued, until further orders from this
Court.
In G.R. No. 140964, petitioners ascribe to the Court of Appeals the following
errors:
Page 32 of 152
 1. In declaring the MOA dated October 9, 1991 valid and enforceable
between the parties despite respondent Young's failure to comply with
the terms and conditions thereof;
2. In holding that the foreclosure of the pledge held on October 29, 1992 is
void; and
3. In awarding moral damages and attorneys fees in favor of respondent
Robert Young.
In G.R. No. 142267, petitioners allege that the Court of Appeals acted with
grave abuse of discretion in granting respondent Young's motion for execution
pending appeal.[26]
Petitioners contend that the MOA executed on October 9, 1991 is not
enforceable considering that Robert Young committed fraud, misrepresented the
warranties and failed to comply with his obligations. Hence, the Court of Appeals
erred when it held that the MOA is valid and ordered petitioners to pay for the
shares covered by the same.
In their comment, respondents simply contend that since the MOA was
prepared by counsel of petitioner Insular Life and duly signed by them, they cannot
now impugn the same and avoid compliance with their obligations specified
therein.
The Court of Appeals, in reversing the Decision of the RTC, ruled that the
MOA is binding between the parties as it was not validly rescinded. In exercising its
option to rescind the MOA, Insular Life failed to notify Young pursuant to Article
1599 of the Civil Code.[27] Hence, the MOA is enforceable against the parties
thereto. The Appellate Court then concluded that Young's loan with Insular Life is
deemed fully paid based on the representation and warranty in the MOA that "the
entire proceeds of the sale shall be used to pay off the outstanding debt of Robert
T. Young to Insular Life."
In other words, the Court of Appeals construed the MOA as a contract of
sale since it applied Article 1599 of the Civil Code which pertains to cases where
there is a breach of warranty.
We disagree.
The Memorandum of Agreement pertinently provides:
"1. Insular Life and the Pension Fund hereby agree to purchase from the Vendor
and the Vendor agrees to convey, transfer, assign EIGHT HUNDRED THIRTY
THOUSAND EIGHT HUNDRED SIXTY (830,860) Common Shares and THREE
HUNDRED ELEVEN THOUSAND FIVE HUNDRED SEVENTY TWO (311,572) Common
Shares of Home Bankers Savings and Trust Co., respectively, Insular Life and the
Pension Fund, or to such person designated by Insular Life or the Pension Fund, for
a total consideration of ONE HUNDRED NINETY-EIGHT MILLION PESOS
(P198,000,000.00), subject to the following terms and conditions and
representations and warranties made by the Vendor:
A. REPRESENTATION AND WARRANTIES:
1. As of September 30, 1991, the total outstanding paid in capital of
the bank is ONE HUNDRED FIFTY SEVEN MILLION SEVEN
HUNDRED FOURTEEN THOUSAND NINE HUNDRED PESOS
(P157,714,900.00),
2. As of September 30, 1991, the total net worth of the bank is ONE
HUNDRED FOURTEEN MILLION EIGHT HUNDRED ONE
THOUSAND FIVE HUNDRED THIRTY NINE PESOS
(P114,801,593.00),
3. As of September 30, 1991, the total loans with doubtful recovery
amounted to SIXTY MILLION PESOS (P60,000,000.00), which
includes the loans with doubtful recovery contained in the May
1991 findings of the Central Bank and an additional provision for
certain loan accounts identified and listed by Robert T. Young,
4. The entire proceeds of the sale shall be used to pay off the
outstanding debt of Robert T. Young to Insular Life.
B. CONDITION PRECEDENTS:
Upon the signing of this Agreement and prior to the execution of a Deed
of Sale by the parties, the following events shall occur:
1. The Vendor shall infuse an additional capital of FIFTY MILLION
PESOS (P50,000,000.00) into the Bank,
2. The Vendee shall undertake a due diligence audit on the bank
for a period not exceeding 60 days from the date of the
signing of this Agreement, and the audit shall be undertaken
to determine that the provision for SIXTY MILLION
PESOS (P60,000,000.00) for doubtful account is sufficient,
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3. After signing of this Agreement and during the 60 days due
diligence audit of the Vendee, as mentioned in No. 2, the Vendor
shall endorse and deliver the stock certificates representing
TWENTY FIVE (25%) percent of the total outstanding capital stock
of the bank to the Vendee, the stock certificates shall be returned
to the Vendor at the end of the 60 days due diligence audit and
after the Vendee is satisfied that the provision of SIXTY MILLION
PESOS (P60,000,000.00) for doubtful accounts is
sufficient.[28] (Emphasis ours)
Contrary to the findings of the Court of Appeals, the foregoing provisions of
the MOA negate the existence of a perfected contract of sale. The MOA is merely
a contract to sellsince the parties therein specifically undertook to enter into
a contract of sale if the stipulated conditions are met and the representation
and warranties given by Young prove to be true. The obligation of petitioner
Insular Life to purchase, as well as the concomitant obligation of Young to convey to
it the shares, are subject to the fulfillment of the conditions contained in the
MOA. Once the conditions, representation and warranties are satisfied, then it is
incumbent upon the parties to perform their respective obligations under the
contract.Conversely, in the event that these conditions are not met or complied
with, no obligation on the part of either party arises. This is in accord with Article
1181 of the Civil Code which provides that "(i)n conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those already acquired,
shall depend upon the happening of the event which constitutes the
condition." And when the obligation assumed by a party to a contract is expressly
subjected to a condition, the obligation cannot be enforced against him unless the
condition is complied with.[29]
Here, the MOA provides that Young shall infuse additional capital
of P50,000,000.00 into the Bank. It likewise specifies the warranty given by Young
that the doubtful accounts of petitioner Bank amounted to P60,000,000.00
only. However, records show that Young failed to infuse the required additional
capital. Moreover, the due diligence audit shows that Young was involved in
fraudulent schemes like check-kiting[30] which amounted to a
staggering P344,000,000.00. This belies his representation that the doubtful
accounts of petitioner Bank amounted only to P60,000,000.00. As a result of these
anomalous transactions, the reserves of the Bank were depleted and it had to
undergo a ten-year rehabilitation plan under the supervision of the Central Bank.
Significantly, respondents do not dispute petitioners assertion that Young
committed fraud, misrepresented the warranties and failed to comply with his
obligations under the MOA.Accordingly, no right in favor of Young's arose and no
obligation on the part of Insular Life was created. [31] In Mortel vs. Kassco, Inc.,[32] this
Court held:
In contracts subject to a suspensive condition, the birth or effectivity of such
contracts only takes place if and when the event constituting the condition happens
or is fulfilled, and if the suspensive condition does not take place or is not
fulfilled, the parties would stand as if the conditional obligation had never
existed.
Since no sale transpired between the parties, the Court of Appeals erred in
concluding that Insular Life purchased 55% of the total shares of the Bank under the
MOA. Consequently, its findings that the debt of Young has been fully paid and that
Insular Life is liable to pay for the remaining 45% equity have no basis. It must be
emphasized that the MOA did not convey title of the shares to Insular Life. If ever
there was delivery of the said shares to Insular Life, it was because they were
pledged by Young to Insular Life under the Credit Agreement.
It would be unfair on the part of Young to demand compliance by Insular Life
of its obligations when he himself was remiss in his own. Neither can he feign
ignorance of the stipulation in the MOA since it is presumed that he read the same
and was satisfied with its provisions before he affixed his signature therein. The fact
that no deed of sale was subsequently executed by the parties confirms the
conclusion that no sale transpired between them.
Notably, the Deed of Pledge which secured the Credit Agreement between
the parties, covered not only 1,324,864 shares which then constituted 99.82% of the
total outstanding shares of petitioner Bank, but also the 250,000 shares
subsequently issued. Consequently, when Young waived in his letter the period
granted him under the said agreement and manifested his inability to pay his
obligation (which waiver has been declared by the RTC and the CA to be valid), the
loan extended by petitioner Insular Life became due and demandable. [33] Definitely,
petitioners merely exercised the right granted to them under the law, which is to
foreclose the pledge constituted on the shares, in satisfaction of respondent
Young's loan.
The Court of Appeals also erred in declaring that the auction sale is void
since petitioners failed to send a separate notice for the second auction.
Article 2112 of the Civil Code provides:
The creditor to whom the credit has not been satisfied in due time, may proceed
before a Notary Public for the sale of the thing pledged. The sale shall be made at a
public auction, and with notification to the debtor and the owner of the thing
pledged in a proper case, stating the amount for which the public sale is to be
held. If at the first auction the thing is not sold, a second one with the same
formalities shall be held; and if at the second auction there is no sale either, the
creditor may appropriate the thing pledged. In this case he shall be obliged to give
an acquittance for his entire claim.
Page 33 of 152
 Clearly, there is no prohibition contained in the law against the sending of
one notice for the first and second public auction as was done here by petitioner
Insular Life. The purpose of the law in requiring notice is to sufficiently apprise the
debtor and the pledgor that the thing pledged to secure payment of the loan will
be sold in a public auction and the proceeds thereof shall be applied to satisfy the
debt. When petitioner Insular Life sent a notice to Young informing him of the
public auction scheduled on October 28, 1991, and a second auction on the next
day, October 29, in the event that the shares are not sold on the first auction, the
purpose of the law was achieved. We thus reject respondents' argument that the
term "second one" refers to a separate notice which requires the same formalities as
the first notice.
Petitioners contend that the Court of Appeals likewise erred when it declared
in the fallo of its decision that the unpaid accounts of the other respondents have
been fully paid. There is no showing how the Appellate Court reached such
conclusion. In doing so, the Court of Appeals violated the constitutional mandate
that "(n)o decision shall be rendered by any court without expressing clearly and
distinctly the facts and the law on which it is based."[34] Indeed, due process
demands that the parties to a litigation be informed of how it was decided with an
explanation of the factual and legal reasons that led to the conclusions of the
court.[35] It must be observed that those respondents did not contest petitioners'
counterclaim against them.
On the issue of damages, we find the Court of Appeals' award of moral
damages of P5,000,000.00 and attorney's fees of P1,500,000.00 to respondents
without any basis. Under Article 2220 of the Civil Code, moral damages may be
awarded in breach of contracts where the defendant acted fraudulently or in bad
faith. Contrary to the finding of the Court of Appeals, we find no such breach
committed by petitioners, much less any badge of fraud or bad faith on their part. It
must be stressed that moral damages are emphatically not intended to enrich a
plaintiff at the expense of the defendant. [36] Attorney's fees are not automatically
awarded to every winning litigant.[37] It must be shown that any of the instances
enumerated under Art. 2208 of the Civil Code exists to justify the award
thereof.[38] Not one of such instances exists here. Surprisingly, the Court of Appeals
awarded the excessive amounts of P5,000,000.00 as moral damages
and P1,500,000.00 as attorneys fees to respondents.
We now come to the issue of whether or not the Court of Appeals
committed grave abuse of discretion when it ordered the execution of its own
judgment, thus:
It can not be denied that the plaintiffs-appellants, who are stockholders of Home,
have long been deprived of their rights as such stockholders. It has been almost a
decade since their cause of action accrued. And to this day, no immediate relief is
still in sight. On the contrary, with Insular Life practically controlling the fate of
Home, redress may become all but nugatory. This is the very line of reasoning this
Court has adopted in rendering its main decision. There has been an unjust
enrichment on the part of the defendants-appellees, all to the injury and humiliation
of the plaintiffs-appellants are denied what is properly theirs, the injury will be a
continued one.
"This, we believe, is good reason enough to grant the plaintiffs'-appellants'
motion. Good reasons consist of compelling circumstances justifying the immediate
execution lest judgment becomes illusory, or the prevailing party may after the
lapse of time become unable to enjoy it, considering the tactics of the adverse party
who may apparently have no case except to delay.
"The allegation by the defendants-appellees that the plaintiff-appellant Young is a
fugitive from justice deserves scant consideration from this Court. It is a personal
attack on an adverse party that is completely uncalled for and has no bearing
whatsoever in the present case. And even if the same is true, it is not difficult to see
that the present predicament Young now finds himself in stemmed from the unfair,
nay, unlawful treatment he has received from the defendants-appellees. That Young
now has very little assets should not come as a surprise to the defendants-
appellees; through their own machinations they deprived him of the same. To now
hold the plight of Young against himself would be to and insult to injury, especially
if one is to consider that the latter's situation was brought about by the same party
who now opposes the claim for immediate relief.
"With the grant of the instant motion, plaintiff-appellant Young may once again
reclaim his rightful place in society, before he sinks deeper into the mire in which he,
according to the defendants-appellees, may now be in. Contrary to the defendants'-
appellees' contentions, it is, in fact, another reason to extend our favorable
consideration to the motion. It is the least we can do.
xxx
"In fine, it is this Court's considered opinion that the combination of all the
foregoing facts, and the plaintiffs'-appellants' readiness and willingness to post the
requisite bond, constitute sufficient grounds to grant immediate relief. [39]
We reject the Court of Appeal's ratiocination. The ruling of this Court in Heirs
of the Late Justice Jose B. L. Reyes vs. Court of Appeals[40] is instructive on this point:
One final word. It was bad enough that the Court of Appeals erred in ruling that the
lease contract must be judicially rescinded before respondent MMB, Inc. may be
evicted from the premises. It was worse that the Court of Appeals immediately
enforced its decision pending appeal restoring respondent in possession of the
leased premises and worst, appointed a special sheriff to carry out the writ of
CRED TRANS Pledge, Mortgage Antichresis Fulltext
execution. In the first place, we emphatically rule that the Court of Appeals has
no authority to issue immediate execution pending appeal of its own
decision. Discretionary execution under Rule 29, Section 2 (a), 1997 Rules of Civil
Procedure, as amended, is allowed pending appeal of a judgment or final order
of the trial court, upon good reasons to be stated in a special order after due
hearing. A judgment of the Court of Appeals cannot be executed pending
appeal. Once final and executory, the judgment must be remanded to the
lower court, where a motion for its execution may be filed only after its
entry. In other words, before its finality, the judgment cannot be
executed. There can be no discretionary execution of a decision of the Court of
Appeals. x x x.
We therefore rule that the Court of Appeals committed grave abuse of
discretion when it granted respondents motion for execution pending appeal.
WHEREFORE, the petitions are GRANTED. In G.R. No. 140964, the assailed
Decision dated September 22, 1999 and the Resolution dated December 1, 1999
issued by the Court of Appeals in CA G.R. CV No. 54264 are REVERSED and SET
ASIDE.
In G.R. No. 142267, the Resolution dated March 10, 2000 issued by the Court
of Appeals granting respondents' motion for execution is declared VOID.
The Decision dated March 10, 1995 of the Regional Trial Court, Branch
42, Makati City, in Civil Case No. 92-049, is REINSTATED. Costs against respondents.
SO ORDERED.
EN BANC
G.R. No. L-21069 October 26, 1967
MANILA SURETY and FIDELITY COMPANY, INC., plaintiff-appellee,
vs.
RODOLFO R. VELAYO, defendant-appellant.
Villaluz Law Office for plaintiff-appellee.
Rodolfo R. Velayo for and in his own behalf as defendant-appellant.
REYES, J.B.L., J.:
Direct appeal from a judgment of the Court of First Instance of Manila (Civil Case
No. 49435) sentencing appellant Rodolfo Velayo to pay appellee Manila Surety &
Fidelity Co., Inc. the sum of P2,565.00 with interest at 12-% per annum from July
13, 1954; P120.93 as premiums with interest at the same rate from June 13, 1954:
attorneys' fees in an amount equivalent to 15% of the total award, and the costs.
Hub of the controversy are the applicability and extinctive effect of Article 2115 of
the Civil Code of the Philippines (1950).
The uncontested facts are that in 1953, Manila Surety & Fidelity Co., upon request of
Rodolfo Velayo, executed a bond for P2,800.00 for the dissolution of a writ of
attachment obtained by one Jovita Granados in a suit against Rodolfo Velayo in the
Court of First Instance of Manila. Velayo undertook to pay the surety company an
annual premium of P112.00; to indemnify the Company for any damage and loss of
whatsoever kind and nature that it shall or may suffer, as well as reimburse the same
for all money it should pay or become liable to pay under the bond including costs
and attorneys' fees.
As "collateral security and by way of pledge" Velayo also delivered four pieces of
jewelry to the Surety Company "for the latter's further protection", with power to
sell the same in case the surety paid or become obligated to pay any amount of
money in connection with said bond, applying the proceeds to the payment of any
amounts it paid or will be liable to pay, and turning the balance, if any, to the
persons entitled thereto, after deducting legal expenses and costs (Rec. App. pp. 12-
15).
Judgment having been rendered in favor of Jovita Granados and against Rodolfo
Velayo, and execution having been returned unsatisfied, the surety company was
forced to pay P2,800.00 that it later sought to recoup from Velayo; and upon the
latter's failure to do so, the surety caused the pledged jewelry to be sold, realizing
therefrom a net product of P235.00 only. Thereafter and upon Velayo's failure to
pay the balance, the surety company brought suit in the Municipal Court. Velayo
countered with a claim that the sale of the pledged jewelry extinguished any further
liability on his part under Article 2115 of the 1950 Civil Code, which recites:
Art. 2115. The sale of the thing pledged shall extinguish the principal
obligation, whether or not the proceeds of the sale are equal to the
amount of the principal obligation, interest and expenses in a proper
case. If the price of the sale is more than said amount, the debtor shall
not be entitled to the excess, unless it is otherwise agreed. If the price of
the sale is less, neither shall the creditor be entitled to recover the
deficiency, notwithstanding any stipulation to the contrary.
The Municipal Court disallowed Velayo's claims and rendered judgment against him.
Appealed to the Court of First Instance, the defense was once more overruled, and
the case decided in the terms set down at the start of this opinion.
Thereupon, Velayo resorted to this Court on appeal.
Page 34 of 152
The core of the appealed decision is the following portion thereof (Rec. Appeal pp.
71-72):
It is thus crystal clear that the main agreement between the parties is
the Indemnity Agreement and if the pieces of jewelry mentioned by the
defendant were delivered to the plaintiff, it was merely as an added
protection to the latter. There was no understanding that, should the
same be sold at public auction and the value thereof should be short of
the undertaking, the defendant would have no further liability to the
plaintiff. On the contrary, the last portion of the said agreement specifies
that in case the said collateral should diminish in value, the plaintiff may
demand additional securities. This stipulation is incompatible with the
idea of pledge as a principal agreement. In this case, the status of the
pledge is nothing more nor less than that of a mortgage given as a
collateral for the principal obligation in which the creditor is entitled to a
deficiency judgment for the balance should the collateral not command
the price equal to the undertaking.
It appearing that the collateral given by the defendant in favor of the
plaintiff to secure this obligation has already been sold for only the
amount of P235.00, the liability of the defendant should be limited to
the difference between the amounts of P2,800.00 and P235.00 or
P2,565.00.
We agree with the appellant that the above quoted reasoning of the appealed
decision is unsound. The accessory character is of the essence of pledge and
mortgage. As stated in Article 2085 of the 1950 Civil Code, an essential requisite of
these contracts is that they be constituted to secure the fulfillment of a principal
obligation, which in the present case is Velayo's undertaking to indemnify the surety
company for any disbursements made on account of its attachment counterbond.
Hence, the fact that the pledge is not the principal agreement is of no significance
nor is it an obstacle to the application of Article 2115 of the Civil Code.
The reviewed decision further assumes that the extinctive effect of the sale of the
pledged chattels must be derived from stipulation. This is incorrect, because Article
2115, in its last portion, clearly establishes that the extinction of the principal
obligation supervenes by operation of imperative law that the parties cannot
override:
If the price of the sale is less, neither shall the creditor be entitled to
recover the deficiency notwithstanding any stipulation to the contrary.
The provision is clear and unmistakable, and its effect can not be evaded. By
electing to sell the articles pledged, instead of suing on the principal obligation, the
creditor has waived any other remedy, and must abide by the results of the sale. No
deficiency is recoverable.
It is well to note that the rule of Article 2115 is by no means unique. It is but an
extension of the legal prescription contained in Article 1484(3) of the same Code,
concerning the effect of a foreclosure of a chattel mortgage constituted to secure
the price of the personal property sold in installments, and which originated in Act
4110 promulgated by the Philippine Legislature in 1933.
WHEREFORE, the decision under appeal is modified and the defendant absolved
from the complaint, except as to his liability for the 1954 premium in the sum of
P120.93, and interest at 12-1/2% per annum from June 13, 1954. In this respect the
decision of the Court below is affirmed. No costs. So ordered.
PART IX: REAL MORTGAGE (ARTICLES 2124-2131), ACT 3135 & FORECLOUSRE
OF REAL ESTATE MORTGAGE
THIRD DIVISION
[G.R. No. 115548. March 5, 1996]
STATE INVESTMENT HOUSE INC., petitioner, vs. COURT OF APPEALS, ET
AL., respondents.
DECISION
FRANCISCO, J.:
The factual background of the case, aptly summarized in the decision of the
Office of the President and cited by respondent Court of Appeals [1] in its assailed
decision, and which we have verified to be supported by the record is herein
reproduced as follows:
The uncontroverted facts of the case as recited in the decision of the Office of the
President are as follows:
Records show that, on October 15, 1969, Contract to Sell No. 36 was executed by
the Spouses Canuto and Ma. Aranzazu Oreta, and the Solid Homes, Inc. (SOLID),
involving a parcel of land identified as Block No. 8, Lot No. 1, Phase I of the Capitol
Park Homes Subdivision, Quezon City, containing 511 square meters for a
consideration of P39,347.00. Upon signing of the contract, the spouses Oreta made
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payment amounting to P7,869.40, with the agreement that the balance shall be
payable in monthly installments of P45 1.70, at 12% interest per annum.
On November 4, 1976, SOLID executed several real estate mortgage contracts in
favor of State Investment Homes, (sic) Inc. (STATE) over its subdivided parcels of
land, one of which is the subject lot covered by Transfer Certificate of Title No.
209642.
For Failure of SOLID to comply with its mortgage obligations contract, STATE extra-
judicially foreclosed the mortgaged properties including the subject lot on April 6,
1983, with the corresponding certificate of sale issued therefor to STATE annotated
at the back of the titles covering the said properties on October 13, 1983.
On June 23, 1984, SOLID thru a Memorandum of Agreement negotiated for the
deferment of consolidation of ownership over the foreclosed properties by
committing to redeem the properties from STATE.
On August 15, 1988, the spouses filed a complaint before the Housing and Land Use
Regulatory Board, HLRB, against the developer SOLID and STATE for failure on the
part of SOLID to execute the necessary absolute deed of sale as well as to deliver
title to said property x x x in violation of the contract to sell x x x, despite full
payment of the purchase price as of January 7, 1981. In its Answer, SOLID, by way of
alternative defense, alleged that the obligations under the Contract to Sell has
become so difficult x x x the herein respondents be partially released from said
obligation by substituting subject lot with another suitable residential lot from
another subdivision which respondents own/operates. Upon the other hand, STATE,
to which the subject lot was mortgaged, averred that unless SOLID pays the
redemption price of P125,1955.00, (sic) it has a right to hold on and not release the
foreclosed properties.
On May 23, 1989, the Office of Appeals, Adjudication and Legal Affairs (OAALA)
rendered a decision the decretal portion of which reads:
1. Ordering respondent, State Investment House, Inc. to execute a Deed of
Conveyance of Lot 1, B lock 8, in Capital Park Homes Subdivision in favor of
complainants and to deliver to the latter the corresponding certificate of title;
2. Ordering respondent, Solid Homes, Inc. to pay State Investment House, Inc. that
portion of its loan which corresponds to the value of the lot as collateral;
3. Ordering respondent, Solid Homes, Inc. to pay to this Board the amount of Six
Thousand Pesos (P6,000.00) as administrative fine in accordance with Section 25 in
relation to Section 38 of P.D. 957.
Both the STATE and SOLID appealed to the Board of Commissioners, HLRB, which
affirmed on June 5, 1990 the OAALAs decision (Annex C of the Petition; ibid., p. 34).
Again, both STATE and SOLID appealed the decision of the Board of Commissioners,
HLRB, to the Office of the President which dismissed the twin appeals on February
26, 1993.
Petitioner filed with the Supreme Court this petition for review of decision of the
Office of the President where it was docketed as G.R. No. 109364. However, in a
resolution dated May 13, 1993, the Supreme Court referred this case to this Court
for proper disposition. On the other hand, SOLID does not appear to have joined
herein petitioner in this petition for review.[2]
[Italics added.]
In a decision dated May 19, 1994, respondent court sustained the judgment
of the Office of the President. Hence, this petition substantially anchored on these
two alleged errors, namely: (1) error in ruling that private respondent
spouses Oretas unregistered rights over the subject property are superior to the
registered mortgage rights of petitioner State Investment House, Inc. (STATE); and
(2) error in not applying the settled rule that that persons dealing with property
covered by torrens certificate of title are not required to go beyond what appears
on the face of the title.
At the outset, we note that herein petitioner argues more extensively on the
second assigned issue, than on the first. In fact, petitioner admits the superior rights
of respondents-spouses Oreta over the subject property as it did not pray for the
nullification of the contract between respondents-spouses and SOLID, but instead
asked for the payment of the release value of the property in question, plus interest,
attorneys fees and costs of suit against SOLID or, in case of the latters inability to
pay, against respondents-spouses before it can be required to release the title of
the subject property in favor of the respondent spouses. [3] And even if we were to
pass upon the first assigned error, we find respondent courts ruling on the matter to
be well-founded. STATEs registered mortgage right over the property is inferior to
that of respondents-spouses unregistered right. The unrecorded sale between
respondents-spouses and SOLID is preferred for the reason that if the original
owner (SOLID, in this case) had parted with his ownership of the thing sold then he
no longer had ownership and free disposal of that thing so as to be able to
mortgage it again.[4] Registration of the mortgage is of no moment since it is
understood to be without prejudice to the better right of third parties. [5]
Anent the second issue, petitioner asserts that a purchaser or mortgagee of
land/s covered under the Torrens System is not required to do more than rely upon
Page 35 of 152
the certificate of title [for] it is enough that the [purchaser or mortgagee] examines
the pertinent certificate of title [without] need [of] look[ing] beyond such title.[6]
As a general rule, where there is nothing in the certificate of title to indicate
any cloud or vice in the ownership of the property, or any encumbrance thereon,
the purchaser is not required to explore further than what the Torrens Title upon its
face indicates in quest for any hidden defect or inchoate right that may
subsequently defeat his right thereto. This rule, however, admits of an exception as
where the purchaser or mortgagee, has knowledge of a defect or lack of title in his
vendor, or that he was aware of sufficient facts to induce a reasonably prudent man
to inquire into the status of the title of the property in litigation. [7] In this case,
petitioner was well aware that it was dealing with SOLID, a business entity engaged
in the business of selling subdivision lots. In fact, the OAALA found that at the time
the lot was mortgaged, respondent State Investment House, Inc., [now petitioner]
had been aware of the lots location and that said lot formed part of Capital
Park/Homes Subdivision.[8] In Sunshine Finance and investment Corp. v. Intermediate
Appellate Court,[9] the Court, noting petitioner therein to be a financing corporation,
deviated from the general rule that a purchaser or mortgagee of a land is not
required to look further than what appears on the face of the Torrens Title. Thus:
Nevertheless, we have to deviate from the general rule because of the failure
of the petitioner in this case to take the necessary precautions to ascertain if
there was any flaw in the title of the Nolascos and to examine the condition of
the property they sought to mortgage. The petitioner is an investment and
financing corporation. We presume it is experienced in its
business.Ascertainment of the status and condition of properties offered to it
as security for the loans it extends must be a standard and indispensable part
of its operations. Surely, it cannot simply rely on an examination of
a Torrens certificate to determine what the subject property looks like as its
condition is not apparent in the document. The land might be in a depressed
area. There might be squatters on it. It might be easily inundated. It might be an
interior lot, without convenient access. These and other similar factors determine
the value of the property and so should be of practical concern to the petitioner.
xxx xxx xxx
Our conclusion might have been different if the mortgagee were an ordinary
individual or company without the expertise of the petitioner in the mortgage and
sale of registered land or if the land mortgaged were some distance from the
mortgagee and could not be conveniently inspected. But there were no such
impediments in this case. The facilities of the petitioner were not so limited as to
prevent it from making a more careful examination of the land to assure itself that
there were no unauthorized persons in possession.[10]
[Emphasis supplied.]
The above-enunciated rule should apply in this case as petitioner admits of
being a financing institution.[11] We take judicial notice of the uniform practice of
financing institutions to investigate, examine and assess the real property offered as
security for any loan application especially where, as in this case, the subject
property is a subdivision lot located at QuezonCity, M.M. It is a settled rule that a
purchaser or mortgagee cannot close its eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor or
mortgagor.[12] Petitioners constructive knowledge of the defect in the title of the
subject property, or lack of such knowledge due to its negligence, takes the place of
registration of the rights of respondents-spouses. Respondent court thus correctly
ruled that petitioner was not a purchaser or mortgagee in good faith; hence
petitioner can not solely rely on what merely appears on the face of the Torrens
Title.
ACCORDINGLY, finding no reversible error in the assailed judgment, the
same is hereby AFFIRMED
SO ORDERED.
FIRST DIVISION
[G.R. No. 156295. September 23, 2003]
MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO and ROSALINA
GALIT, respondents.
DECISION
YNARES-SANTIAGO, J.:
Petitioner was issued a writ of possession in Civil Case No. 6643 [1] for Sum of
Money by the Regional Trial Court of Balanga, Bataan, Branch 1. The writ of
possession was, however, nullified by the Court of Appeals in CA-G.R. SP No.
65891[2] because it included a parcel of land which was not among those explicitly
enumerated in the Certificate of Sale issued by the Deputy Sheriff, but on which
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stand the immovables covered by the said Certificate. Petitioner contends that the
sale of these immovables necessarily encompasses the land on which they stand.
Dissatisfied, petitioner filed the instant petition for review on certiorari.
Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano,
in the total sum of P480,000.00, evidenced by four promissory notes in the amount
of P120,000.00 each dated August 2, 1996;[3] August 15, 1996;[4] September 4,
1996[5] and September 14, 1996.[6] This loan was secured by a real estate mortgage
over a parcel of land covered by Original Certificate of Title No. 569. [7] After he failed
to pay his obligation, Soriano filed a complaint for sum of money against him with
the Regional Trial Court of Balanga City, Branch 1, which was docketed as Civil Case
No. 6643.[8]
Respondents, the Spouses Ricardo and Rosalina Galit, failed to file their
answer. Hence, upon motion of Marcelo Soriano, the trial court declared the
spouses in default and proceeded to receive evidence for
petitioner Soriano ex parte.
On July 7, 1997, the Regional Trial Court of Balanga City, Branch 1 rendered
judgment[9] in favor of petitioner Soriano, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the latter to pay:
1. the plaintiff the amount of P350,000.00 plus 12% interest to be
computed from the dates of maturity of the promissory
notes until the same are fully paid;
2. the plaintiff P20,000.00, as attorneys fees; and
3. the costs of suit.
SO ORDERED.[10]
The judgment became final and executory. Accordingly, the trial court issued
a writ of execution in due course, by virtue of which, Deputy Sheriff Renato E. Robles
levied on the following real properties of the Galit spouses:
1. A parcel of land covered by Original Certificate of Title No. T-569
(Homestead Patent No. 14692) situated in the Bo.
of Tapulac, Orani, Bataan. Bounded on the SW, along line 1-
2 by Lot No. 3, Cad. 145; containing an area of THIRTY FIVE
THOUSAND SEVEN HUNDRED FIFTY NINE (35,759) SQUARE
METERS, more or less x x x;
2. STORE/HOUSE CONSTRUCTED on Lot No. 1103 made of strong
materials G.I. roofing situated at Centro I, Orani, Bataan,
x x x containing an area of 30 sq. meters, more or less
x x x(constructed on TCT No. T40785);
3. BODEGA constructed on Lot 1103, made of strong materials, G.I.
roofing, situated in Centro I, Orani, Bataan, x x x with a floor
area of 42.75 sq. m. more or less x x x.[11]
At the sale of the above-enumerated properties at public auction held
on December 23, 1998, petitioner was the highest and only bidder with a bid price
of P483,000.00.Accordingly, on February 4, 1999, Deputy Sheriff Robles issued a
Certificate of Sale of Execution of Real Property,[12] which reads:
CERTIFICATE OF SALE ON EXECUTION OF REAL PROPERTY
TO ALL WHO MAY SEE THESE PRESENTS:
GREETINGS:
I HEREBY that (sic) by virtue of the writ of execution dated October 16, 1998, issued
in the above-entitled case by the HON. BENJAMIN T. VIANZON, ordering the
Provincial Sheriff of Bataan or her authorized Deputy Sheriff to cause to be made
(sic) the sum of P350,000.00 plus 12% interest to be computed from the date of
maturity of the promissory notes until the same are fully paid; P20,000.00 as
attorneys fees plus legal expenses in the implementation of the writ of execution,
the undersigned Deputy Sheriff sold at public auction on December 23, 1998 the
rights and interests of defendants Sps. Ricardo and Rosalina Galit, to the plaintiff
Marcelo Soriano, the highest and only bidder for the amount of FOUR HNDRED
EIGHTY THREE THOUSAND PESOS (P483,000.00, Philippine Currency), the following
real estate properties more particularly described as follows :
ORIGINAL CERTIFICATE OF TITLE NO. T-569
A parcel of land (Homestead Patent No. 14692) situated in the Bo.
of Tapulac, Orani, Bataan, x x x. Bounded on the SW., along line 1-2 by Lot No. 3,
Cad. 145, containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY
NINE (35,759) SQUARE METERS, more or less x x x
Page 36 of 152
 TAX DEC. NO. PROPERTY INDEX NO. 018-09-001-02
STOREHOUSE constructed on Lot 1103, made of strong materials G.I. roofing
situated at Centro I, Orani, Bataan x x x containing an area of 30 sq. meters, more or
less x x (constructed on TCT No. 40785)
TAX DEC. NO. 86 PROPERTY INDEX No. 018-09-001-02
BODEGA constructed on Lot 1103, made of strong materials G.I. roofing situated in
Centro I, Orani, Bataan, x x x with a floor area of 42.75 sq. m. more or less x x x
IT IS FURTHER CERTIFIED, that the aforesaid highest and lone bidder,
Marcelo Soriano, being the plaintiff did not pay to the Provincial Sheriff
of Bataan the amount of P483,000.00, the sale price of the above-described
property which amount was credited to partial/full satisfaction of the judgment
embodied in the writ of execution.
The period of redemption of the above described real properties together with all
the improvements thereon will expire One (1) year from and after the registration of
this Certificate of Sale with the Register of Deeds.
This Certificate of Sheriffs Sale is issued to the highest and lone bidder,
Marcelo Soriano, under guarantees prescribed by law.
Balanga, Bataan, February 4, 1999.
On April 23, 1999, petitioner caused the registration of the Certificate of Sale
on Execution of Real Property with the Registry of Deeds.
The said Certificate of Sale registered with the Register of Deeds includes at
the dorsal portion thereof the following entry, not found in the Certificate of Sale on
file with Deputy Sheriff Renato E. Robles:[13]
ORIGINAL CERTIFICATE OF TITLE NO. T-40785
A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the
improvements thereon, situated in the Municipality of Orani, Bounded on the NE;
by Calle P. Gomez; on the E. by Lot No. 1104; on the SE by Calle Washington; and on
the W. by Lot 4102, containing an area of ONE HUNDRED THIRTY NINE (139)
SQUARE METERS, more or less. All points referred to are indicated on the plan;
bearing true; declination 0 deg. 40E., date of survey, February 191-March 1920.
On February 23, 2001, ten months from the time the Certificate of Sale on
Execution was registered with the Registry of Deeds, petitioner moved [14] for the
issuance of a writ of possession. He averred that the one-year period of redemption
had elapsed without the respondents having redeemed the properties sold at public
auction; thus, the sale of said properties had already become final. He also argued
that after the lapse of the redemption period, the titles to the properties should be
considered, for all legal intents and purposes, in his name and favor. [15]
On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1 granted
the motion for issuance of writ of possession. [16] Subsequently, on July 18, 2001, a
writ of possession[17]was issued in petitioners favor which reads:
WRIT OF POSSESSION
Mr. Renato E. Robles
Deputy Sheriff
RTC, Br. 1, Balanga City
Greetings :
WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the Issuance
of Writ of Possession;
WHEREAS on June 4, 2001, this court issued an order granting the issuance of the
Writ of Possession;
WHEREFORE, you are hereby commanded to place the herein plaintiff
Marcelo Soriano in possession of the property involved in this case situated (sic)
more particularly described as:
1. STORE HOUSE constructed on Lot No. 1103 situated at Centro
1, Orani, Bataan covered by TCT No. 40785;
2. BODEGA constructed on Lot No. 1103 with an area of 42.75 square
meters under Tax Declaration No. 86 situated at Centro
1, Orani, Bataan;
3. Original Certificate of Title No. 40785 with an area of 134 square
meters known as Lot No. 1103 of the Cadastral Survey
of Orani
CRED TRANS Pledge, Mortgage Antichresis Fulltext
against the mortgagor/former owners Sps. Ricardo and Rosalinda (sic) Galit, her (sic)
heirs, successors, assigns and all persons claiming rights and interests adverse to the
petitioner and make a return of this writ every thirty (30) days from receipt hereof
together with all the proceedings thereon until the same has been fully satisfied.
WITNESS THE HONORABLE BENJAMIN T. VIANZON, Presiding Judge, this 18 th day
of July 2001, at Balanga City.
(Sgd) GILBERT S. ARGONZA
I
C
Respondents filed a petition for certiorari with the Court of Appeals, which
was docketed as CA-G.R. SP No. 65891, assailing the inclusion of the parcel of land
covered by Transfer Certificate of Title No. T-40785 among the list of real properties
in the writ of possession.[18] Respondents argued that said property was not among
those sold on execution by Deputy Sheriff Renato E. Robles as reflected in the
Certificate of Sale on Execution of Real Property.
In opposition, petitioner prayed for the dismissal of the petition because
respondent spouses failed to move for the reconsideration of the assailed order
prior to the filing of the petition. Moreover, the proper remedy against the assailed
order of the trial court is an appeal, or a motion to quash the writ of possession.
On May 13, 2002, the Court of Appeals rendered judgment as follows:
WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the writ of
possession issued by the Regional Trial Court of Balanga City, Branch 1, on 18 July
2001 is declared NULL and VOID.
In the event that the questioned writ of possession has already been implemented,
the Deputy Sheriff of the Regional Trial Court of Balanga City, Branch 1, and private
respondent Marcelo Soriano are hereby ordered to cause the redelivery of Transfer
Certificate of Title No. T-40785 to the petitioners.
SO ORDERED.[19]
Aggrieved, petitioner now comes to this Court maintaining that
1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 IS
NOT THE PLAIN, SPEEDY AND ADEQUATE REMEDY OF THE
RESPONDENTS IN ASSAILING THE WRIT OF POSSESSION
ISSUED BY THE LOWER COURT BUT THERE WERE STILL
OTHER REMEDIES AVAILABLE TO THEM AND WHICH WERE
NOT RESORTED TO LIKE THE FILING OF A MOTION FOR
RECONSIDERATION OR MOTION TO QUASH OR EVEN
APPEAL.
2.) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
DECLARAING THE CERTIFICATE OF SALE ON EXECUTION OF
REAL PROPERTY AS NULL AND VOID AND SUBSEQUENTLY
THE WRIT OF POSSESSION BECAUSE THE SAME IS A PUBLIC
DOCUMENT WHICH ENJOYS THE PRESUMPTION OF
REGULARITY AND IT CANNOT BE OVERCOME BY A MERE
STRANGE FEELING THAT SOMETHING IS AMISS ON ITS
SURFACE SIMPLY BECAUSE THE TYPEWRITTEN WORDS ON
THE FRONT PAGE AND AT THE DORSAL PORTION THEREOF
IS DIFFERENT OR THAT IT IS UNLIKELY FOR THE SHERIFF TO
USE THE DORSAL PORTION OF THE FIRST PAGE BECAUSE
THE SECOND PAGE IS MERELY HALF FILLED AND THE
NOTATION ON THE DORSAL PORTION COULD STILL BE
MADE AT THE SECOND PAGE.
On the first ground, petitioner contends that respondents were not without
remedy before the trial court. He points out that respondents could have filed a
motion for reconsideration of the Order dated June 4, 1999, but they did not do so.
Respondents could also have filed an appeal but they, likewise, did not do so. When
the writ of possession was issued, respondents could have filed a motion to quash
the writ. Again they did not. Respondents cannot now avail of the special civil action
for certiorari as a substitute for these remedies.They should suffer the consequences
for sleeping on their rights.
We disagree.
Concededly, those who seek to avail of the procedural remedies provided by
the rules must adhere to the requirements thereof, failing which the right to do so is
lost. It is, however, equally settled that the Rules of Court seek to eliminate undue
reliance on technical rules and to make litigation as inexpensive as practicable and
as convenient as can be done.[20] This is in accordance with the primary purpose of
the 1997 Rules of Civil Procedure as provided in Rule 1, Section 6, which reads:
Section 6. Construction. These rules shall be liberally construed in order to promote
their objective of securing a just, speedy and inexpensive determination of every
action and proceeding.[21]
Page 37 of 152
 The rules of procedure are not to be applied in a very rigid, technical sense
and are used only to help secure substantial justice. If a technical and rigid
enforcement of the rules is made, their aim would be defeated. [22] They should be
liberally construed so that litigants can have ample opportunity to prove their claims
and thus prevent a denial of justice due to technicalities.[23] Thus, in China Banking
Corporation v. Members of the Board of Trustees of Home Development Mutual
Fund,[24] it was held:
while certiorari as a remedy may not be used as a substitute for an appeal,
especially for a lost appeal, this rule should not be strictly enforced if the petition is
genuinely meritorious.[25] It has been said that where the rigid application of the
rules would frustrate substantial justice, or bar the vindication of a legitimate
grievance, the courts are justified in exempting a particular case from the
operation of the rules.[26] (Emphasis ours)
Indeed, well-known is the rule that departures from procedure may be
forgiven where they do not appear to have impaired the substantial rights of the
parties.[27] Apropos in this regard is Cometa v. CA,[28] where we said that
There is no question that petitioners were remiss in attending with dispatch to the
protection of their interests as regards the subject lots, and for that reason the case
in the lower court was dismissed on a technicality and no definitive pronouncement
on the inadequacy of the price paid for the levied properties was ever made. In this
regard, it bears stressing that procedural rules are not to be belittled or dismissed
simply because their non-observance may have resulted in prejudice to a
partys substantive rights as in this case. Like all rules, they are required to be
followed except when only for the most persuasive of reasons they may be
relaxed to relieve a litigant of an injustice not commensurate with the degree
of his thoughtlessness in not complying with the procedure
prescribed.[29] (emphasis and italics supplied.)
In short, since rules of procedure are mere tools designed to facilitate the
attainment of justice, their strict and rigid application which would result in
technicalities that tend to frustrate rather than promote substantial justice must
always be avoided.[30] Technicality should not be allowed to stand in the way of
equitably and completely resolving the rights and obligations of the parties. [31]
Eschewing, therefore, the procedural objections raised by petitioner, it
behooves us to address the issue of whether or not the questioned writ of
possession is in fact a nullity considering that it includes real property not expressly
mentioned in the Certificate of Sale of Real Property.
Petitioner, in sum, dwells on the general proposition that since the certificate
of sale is a public document, it enjoys the presumption of regularity and all entries
therein are presumed to be done in the performance of regular functions.
The argument is not persuasive.
There are actually two (2) copies of the Certificate of Sale on Execution of Real
Properties issued on February 4, 1999 involved, namely: (a) copy which is on file with
the deputy sheriff; and (b) copy registered with the Registry of Deeds. The object of
scrutiny, however, is not the copy of the Certificate of Sale on Execution of Real
Properties issued by the deputy sheriff on February 4, 1999, [32] but the copy
thereof subsequently registered by petitioner with the Registry of Deeds on April 23,
1999,[33] which included an entry on the dorsal portion of the first page thereof
describing a parcel of land covered by OCT No. T-40785 not found in the Certificate
of Sale of Real Properties on file with the sheriff.
True, public documents by themselves may be adequate to establish the
presumption of their validity. However, their probative weight must be evaluated
not in isolation but in conjunction with other evidence adduced by the parties in the
controversy, much more so in this case where the contents of a copy thereof
subsequently registered for documentation purposes is being contested. No reason
has been offered how and why the questioned entry was subsequently intercalated
in the copy of the certificate of sale subsequently registered with the Registry of
Deeds. Absent any satisfactory explanation as to why said entry was belatedly
inserted, the surreptitiousness of its inclusion coupled with the furtive manner of its
intercalation casts serious doubt on the authenticity of petitioners copy of the
Certificate of Sale. Thus, it has been held that while a public document like a
notarized deed of sale is vested with the presumption of regularity, this is not a
guarantee of the validity of its contents.[34]
It must be pointed out in this regard that the issuance of a Certificate of Sale
is an end result of judicial foreclosure where statutory requirements are strictly
adhered to; where even the slightest deviations therefrom will invalidate the
proceeding[35] and the sale.[36] Among these requirements is an explicit enumeration
and correct description of what properties are to be sold stated in the notice.
The stringence in the observance of these requirements is such that an incorrect
title number together with a correct technical description of the property to be sold
and vice versa is deemed a substantial and fatal error which results in the
invalidation of the sale.[37]
The certificate of sale is an accurate record of what properties were actually
sold to satisfy the debt. The strictness in the observance of accuracy and correctness
in the description of the properties renders the enumeration in the certificate
exclusive. Thus, subsequently including properties which have not been explicitly
mentioned therein for registration purposes under suspicious circumstances smacks
of fraud. The explanation that the land on which the properties sold is necessarily
included and, hence, was belatedly typed on the dorsal portion of the copy of the
certificate subsequently registered is at best a lame excuse unworthy of belief.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
The appellate court correctly observed that there was a marked difference in
the appearance of the typewritten words appearing on the first page of the copy of
the Certificate of Sale registered with the Registry of Deeds [38] and those appearing
at the dorsal portion thereof. Underscoring the irregularity of the intercalation is the
clearly devious attempt to let such an insertion pass unnoticed by typing the same
at the back of the first page instead of on the second page which was merely half-
filled and could accommodate the entry with room to spare.
The argument that the land on which the buildings levied upon in execution
is necessarily included is, likewise, tenuous. Article 415 of the Civil Code provides:
ART. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil.
xxxxxxxxx
(3) Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking them material or deterioration of
the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in
buildings or on lands by the owner of the immovable in such a manner that it
reveals the intention to attach them permanently to the tenements;
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs of the said industry or
works;
(6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar
nature, in case their owner has placed them or preserves them with the intention to
have them permanently attached to the land, and forming a permanent part of it;
the animals in these places are also included;
xxxxxxxxx
(9) Docks and structures which, though floating, are intended by their nature and
object to remain at a fixed place on a river, lake or coast;
x x x x x x x x x.
The foregoing provision of the Civil Code enumerates land and
buildings separately. This can only mean that a building is, by itself, considered
immovable.[39] Thus, it has been held that
. . . while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may
be mortgaged apart from the land on which it has been built. Such mortgage
would be still a real estate mortgage for the building would still be considered
immovable property even if dealt with separately and apart from the
land.[40](emphasis and italics supplied)
In this case, considering that what was sold by virtue of the writ of execution
issued by the trial court was merely the storehouse and bodega constructed on the
parcel of land covered by Transfer Certificate of Title No. T-40785, which by
themselves are real properties of respondents spouses, the same should be
regarded as separate and distinct from the conveyance of the lot on which they
stand.
WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for
lack of merit. The Decision dated May 13, 2002 of the Court of Appeals in CA-G.R.
SP No. 65891, which declared the writ of possession issued by
the Regional Trial Court of Balanga City, Branch 1, on July 18, 2001, null and void, is
AFFIRMED in toto.
SO ORDERED.
SECOND DIVISION
[G.R. No. 116710. June 25, 2001]
DANILO D. MENDOZA, also doing business under the name and style of
ATLANTIC EXCHANGE PHILIPPINES, petitioner, vs. COURT OF
APPEALS, PHILIPPINE NATIONAL BANK, FERNANDO MARAMAG,
JR., RICARDO G. DECEPIDA and BAYANI A. BAUTISTA, respondents.
DECISION
DE LEON, JR., J.:
Page 38 of 152
 Before us is a petition for review on certiorari of the Decision[1] dated August
8, 1994 of the respondent Court of Appeals (Tenth Division) in CA-G.R. CV No.
38036 reversing the judgment[2] of the Regional Trial Court (RTC) and dismissing the
complaint therein.
Petitioner Danilo D. Mendoza is engaged in the domestic and international
trading of raw materials and chemicals. He operates under the business name
Atlantic Exchange Philippines (Atlantic), a single proprietorship registered with the
Department of Trade and Industry (DTI). Sometime in 1978 he was granted by
respondent Philippine National Bank (PNB) a Five Hundred Thousand Pesos
(P500,000.00) credit line and a One Million Pesos (P1,000,000.00) Letter of
Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for those which may
thereinafter be granted, petitioner mortgaged to respondent PNB the following: 1)
three (3) parcels of land[3] with improvements in F. Pasco Avenue, Santolan, Pasig; 2)
his house and lot in Quezon City; and 3) several pieces of machinery and equipment
in his Pasig coco-chemical plant.
The real estate mortgage[4] provided the following escalation clause:
(f) The rate of interest charged on the obligation secured by this mortgage as well
as the interest on the amount which may have been advanced by the Mortgagee in
accordance with paragraph (d) of the conditions herein stipulated shall be subject
during the life of this contract to such increase within the rates allowed by law, as
the Board of Directors of the Mortgagee may prescribe for its debtors.
Petitioner executed in favor of respondent PNB three (3) promissory notes
covering the Five Hundred Thousand Pesos (P500,000.00) credit line, one dated
March 8, 1979 for Three Hundred Ten Thousand Pesos (P310,000.00); another dated
March 30, 1979 for Forty Thousand Pesos (P40,000.00); and the last dated
September 27, 1979 for One Hundred Fifty Thousand Pesos (P150,000.00). The said
1979 promissory notes uniformly stipulated: "with interest thereon at the rate of
12% per annum, until paid, which interest rate the Bank may, at any time, without
notice, raise within the limits allowed by law xxx." [5]
Petitioner made use of his LC/TR line to purchase raw materials from foreign
importers. He signed a total of eleven (11) documents denominated as "Application
and Agreement for Commercial Letter of Credit,"[6] on various dates from February 8
to September 11, 1979, which uniformly contained the following clause: "Interest
shall be at the rate of 9% per annum from the date(s) of the draft(s) to the date(s) of
arrival of payment therefor in New York. The Bank, however, reserves the right to
raise the interest charges at any time depending on whatever policy it may follow in
the future."[7]
In a letter dated January 3, 1980 and signed by Branch Manager Fil S.
Carreon Jr., respondent PNB advised petitioner Mendoza that effective December 1,
1979, the bank raised its interest rates to 14% per annum, in line with Central Bank's
Monetary Board Resolution No. 2126 dated November 29, 1979.
On March 9, 1981, he wrote a letter to respondent PNB requesting for the
restructuring of his past due accounts into a five-year term loan and for an
additional LC/TR line of Two Million Pesos (P2,000,000.00). [8] According to the letter,
because of the shut-down of his end-user companies and the huge amount spent
for the expansion of his business, petitioner failed to pay to respondent bank his
LC/TR accounts as they became due and demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of
the respondent bank and required petitioner to submit the following documents
before the bank would act on his request: 1) Audited Financial Statements for 1979
and 1980; 2) Projected cash flow (cash in - cash out) for five (5) years detailed yearly;
and 3) List of additional machinery and equipment and proof of ownership
thereof. Cura also suggested that petitioner reduce his total loan obligations to
Three Million Pesos (P3,000,000.00) "to give us more justification in recommending
a plan of payment or restructuring of your accounts to higher authorities of the
Bank."[9]
On September 25, 1981, petitioner sent another letter addressed to PNB
Vice-President Jose Salvador, regarding his request for restructuring of his loans. He
offered respondent PNB the following proposals: 1) the disposal of some of the
mortgaged properties, more particularly, his house and lot and a vacant lot in order
to pay the overdue trust receipts; 2) capitalization and conversion of the balance
into a 5-year term loan payable semi-annually or on annual installments; 3) a new
Two Million Pesos (P2,000,000.00) LC/TR line in order to enable Atlantic Exchange
Philippines to operate at full capacity; 4) assignment of all his receivables to PNB
from all domestic and export sales generated by the LC/TR line; and 5) maintenance
of the existing Five Hundred Thousand Pesos (P500,000.00) credit line.
The petitioner testified that respondent PNB Mandaluyong Branch found his
proposal favorable and recommended the implementation of the
agreement. However, Fernando Maramag, PNB Executive Vice-President,
disapproved the proposed release of the mortgaged properties and reduced the
proposed new LC/TR line to One Million Pesos (P1,000,000.00). [10] Petitioner claimed
he was forced to agree to these changes and that he was required to submit a new
formal proposal and to sign two (2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the following revised
proposals to respondent bank: 1) the restructuring of past due accounts including
interests and penalties into a 5-year term loan, payable semi-annually with one year
grace period on the principal; 2) payment of Four Hundred Thousand Pesos
(P400,000.00) upon the approval of the proposal; 3) reduction of penalty from 3% to
1%; 4) capitalization of the interest component with interest rate at 16% per annum;
5) establishment of a One Million Pesos (P1,000,000.00) LC/TR line against the
CRED TRANS Pledge, Mortgage Antichresis Fulltext
mortgaged properties; 6) assignment of all his export proceeds to respondent bank
to guarantee payment of his loans.
According to petitioner, respondent PNB approved his proposal. He further
claimed that he and his wife were asked to sign two (2) blank promissory note
forms. According to petitioner, they were made to believe that the blank promissory
notes were to be filled out by respondent PNB to conform with the 5-year
restructuring plan allegedly agreed upon. The first Promissory Note,[11] No. 127/82,
covered the principal while the second Promissory Note, [12] No. 128/82, represented
the accrued interest.
Petitioner testified that respondent PNB allegedly contravened their verbal
agreement by 1) affixing dates on the two (2) subject promissory notes to make
them mature in two (2) years instead of five (5) years as supposedly agreed upon; 2)
inserting in the first Promissory Note No. 127/82 an interest rate of 21% instead of
18%; 3) inserting in the second Promissory Note No. 128/82, the amount stated
therein representing the accrued interest as One Million Five Hundred Thirty Six
Thousand Four Hundred Ninety Eight Pesos and Seventy Three Centavos
(P1,536,498.73) when it should only be Seven Hundred Sixty Thousand Three
Hundred Ninety Eight Pesos and Twenty Three Centavos (P760,398.23) and pegging
the interest rate thereon at 18% instead of 12%.
The subject Promissory Notes Nos. 127/82 and 128/82 both dated December
29, 1982 in the principal amounts of Two Million Six Hundred Fifty One Thousand
One Hundred Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and One
Million Five Hundred Thirty Six Thousand Seven Hundred Ninety Eight and Seventy
Three Centavos (P1,536,798.73) respectively and marked Exhibits BB and CC
respectively, were payable on equal semi-annual amortization and contained the
following escalation clause:
x x x which interest rate the BANK may increase within the limits allowed by law at
any time depending on whatever policy it may adopt in the future; Provided, that,
the interest rate on this note shall be correspondingly decreased in the event that
the applicable maximum interest rate is reduced by law or by the Monetary
Board. In either case, the adjustment in the interest rate agreed upon shall take
effect on the effectivity date of the increase or decrease in the maximum interest
rate. x x x
It appears from the record that the subject Promissory Notes Nos. 127/82
and 128/82 superseded and novated the three (3) 1979 promissory notes and the
eleven (11) 1979 Application and Agreement for Commercial Letter of Credit which
the petitioner executed in favor of respondent PNB.
According to the petitioner, sometime in June 1983 the new PNB
Mandaluyong Branch Manager Bayani A. Bautista suggested that he sell the coco-
chemical plant so that he could keep up with the semi-annual amortizations. On
three (3) occasions, Bautista even showed up at the plant with some unidentified
persons who claimed that they were interested in buying the plant.
Petitioner testified that when he confronted the PNB management about the
two (2) Promissory Notes Nos. 127/82 and 128/82 (marked Exhibits BB and CC
respectively) which he claimed were improperly filled out, Bautista and Maramag
assured him that the five-year restructuring agreement would be implemented on
the condition that he assigns 10% of his export earnings to the Bank.[13] In a letter
dated August 22, 1983, petitioner Mendoza consented to assign 10% of the net
export proceeds of a Letter of Credit covering goods amounting to One Hundred
Fourteen Thousand Dollars ($114,000.00). [14] However, petitioner claimed that
respondent PNB subsequently debited 14% instead of 10% from his export
proceeds.[15]
Pursuant to the escalation clauses of the subject two (2) promissory notes,
the interest rate on the principal amount in Promissory Note No. 127/82 was
increased from 21% to 29% on May 28, 1984, and to 32% on July 3, 1984 while the
interest rate on the accrued interest per Promissory Note No. 128/82 was increased
from 18% to 29% on May 28, 1984, and to 32% on July 3, 1984.
Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and
128/82 (Exhibits BB and CC) as they fell due. Respondent PNB extra-judicially
foreclosed the real and chattel mortgages, and the mortgaged properties were sold
at public auction to respondent PNB, as highest bidder, for a total of Three Million
Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen Pesos and Fifty
Centavos (P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a complaint for specific
performance, nullification of the extra-judicial foreclosure and damages against
respondents PNB, Fernando Maramag Jr., Ricardo C. Decepida, Vice-President for
Metropolitan Branches, and Bayani A. Bautista. He alleged that the Extrajudicial
Foreclosure Sale of the mortgaged properties was null and void since his loans were
restructured to a five-year term loan; hence, it was not yet due and demandable;
that the escalation clauses in the subject two (2) Promissory Notes Nos. 127/82 and
128/82 were null and void, that the total amount presented by PNB as basis of the
foreclosure sale did not reflect the actual loan obligations of the plaintiff to PNB;
that Bautista purposely delayed payments on his exports and caused delays in the
shipment of materials; that PNB withheld certain personal properties not covered by
the chattel mortgage; and that the foreclosure of his mortgages was premature so
that he was unable to service his foreign clients, resulting in actual damages
amounting to Two Million Four Thousand Four Hundred Sixty One Pesos
(P2,004,461.00).
On March 16, 1992, the trial court rendered judgment in favor of the
petitioner and ordered the nullification of the extrajudicial foreclosure of the real
estate mortgage, the Sheriffs sale of the mortgaged real properties by virtue of
consolidation thereof and the cancellation of the new titles issued to PNB; that PNB
Page 39 of 152
vacate the subject premises in Pasig and turn the same over to the petitioner; and
also the nullification of the extrajudicial foreclosure and sheriff's sale of the
mortgaged chattels, and that the chattels be returned to petitioner Mendoza if they
were removed from his Pasig premises or be paid for if they were lost or rendered
unserviceable.
The trial court also ordered respondent PNB to restructure to five-years
petitioner's principal loan of Two Million Six Hundred Fifty One Thousand One
Hundred Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and the
accumulated capitalized interest on the same in the amount of Seven Hundred Sixty
Thousand Three Hundred Eighty Nine Pesos and Twenty Three Centavos
(P760,389.23) as of December 1982, and that respondent PNB should compute the
additional interest from January 1983 up to October 15, 1984 only when respondent
PNB took possession of the said properties, at the rate of 12% and 9% respectively.
The trial court also ordered respondent PNB to grant petitioner Mendoza an
additional Two Million Pesos (P2,000,000.00) loan in order for him to have the
necessary capital to resume operation. It also ordered respondents PNB, Bayani A.
Bautista and Ricardo C. Decepida to pay to petitioner actual damages in the amount
of Two Million One Hundred Thirteen Thousand Nine Hundred Sixty One Pesos
(P2,113,961.00) and the peso equivalent of Six Thousand Two Hundred Fifteen
Dollars ($6,215.00) at the prevailing foreign exchange rate on October 11, 1983; and
exemplary damages in the amount of Two Hundred Thousand Pesos (P200,000.00).
Respondent PNB appealed this decision of the trial court to the Court of
Appeals. And the Court of Appeals reversed the decision of the trial court and
dismissed the complaint. Hence, this petition.
It is the petitioners contention that the PNB management restructured his
existing loan obligations to a five-year term loan and granted him another Two
Million Pesos (P2,000,000.00) LC/TR line; that the Promissory Notes Nos. 127/82 and
128/82 evidencing a 2-year restructuring period or with the due maturity date
December 29, 1984 were filled out fraudulently by respondent PNB, and contrary to
his verbal agreement with respondent PNB; hence, his indebtedness to respondent
PNB was not yet due and the extrajudicial foreclosure of his real estate and chattel
mortgages was premature. On the other hand, respondent PNB denies that
petitioner's loan obligations were restructured to five (5) years and maintains that
the subject two (2) Promissory Notes Nos. 127/82 and 128/82 were filled out
regularly and became due as of December 29, 1984 as shown on the face thereof.
Respondent Court of Appeals held that there is no evidence of a promise
from respondent PNB, admittedly a banking corporation, that it had accepted the
proposals of the petitioner to have a five-year restructuring of his overdue loan
obligations. It found and held, on the basis of the evidence adduced, that
"appellee's (Mendoza) communications were mere proposals while the bank's
responses were not categorical that the appellee's request had been favorably
accepted by the bank."
Contending that respondent PNB had allegedly approved his proposed five-
year restructuring plan, petitioner presented three (3) documents executed by
respondent PNB officials. The first document is a letter dated March 16, 1981
addressed to the petitioner and signed by Ceferino D. Cura, Branch Manager of PNB
Mandaluyong, which states:
x x x In order to study intelligently the feasibility of your above request, please
submit the following documents/papers within thirty (30) days from the date
thereof, viz:
1. Audited Financial Statements for 1979 and 1980;
2. Projected cash flow (cash in - cash out) for five years detailed yearly;
and
3. List of additional machinery and equipment and proof of ownership
thereof.
We would strongly suggest, however, that you reduce your total obligations to at
least P3 million (principal and interest and other charges) to give us more
justification in recommending a plan of payment or restructuring of your accounts
to higher authorities of this bank.
The second document is a letter dated May 11, 1981 addressed to Mr. S. Pe
Benito, Jr., Managing Director of the Technological Resources Center and signed by
said PNB Branch Manager, Ceferino D. Cura. According to petitioner, this letter
showed that respondent PNB seriously considered the restructuring of his loan
obligations to a five-year term loan, to wit:
xxx
At the request of our client, we would like to furnish you with the following
information pertinent to his accounts with us:
xxx
We are currently evaluating the proposal of the client to re-structure his accounts
with us into a five-year plan.
We hope that the above information will guide you in evaluating the proposals of
Mr. Danilo Mendoza.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
xxx
The third document is a letter dated July 8, 1981 addressed to petitioner and
signed by PNB Assistant Vice-President Apolonio B. Francisco.
xxx
Considering that your accounts/accommodations were granted and carried in the
books of our Mandaluyong Branch, we would suggest that your requests and
proposals be directed to Ceferino Cura, Manager of our said Branch.
We feel certain that Mr. Cura will be pleased to discuss matters of mutual interest
with you.
xxx
Petitioner also presented a letter which he addressed to Mr. Jose Salvador,
Vice-President of the Metropolitan Branches of PNB, dated September 24, 1981,
which reads:
Re: Restructuring of our Account into a 5-year Term Loan and Request for the
Establishment of a P2.0 Million LC/TR Line
Dear Sir:
In compliance with our discussion last September 17, we would like to formalize our
proposal to support our above requested assistance from the Philippine National
Bank.
xxx
Again we wish to express our sincere appreciation for your open-minded approach
towards the solution of this problem which we know and will be beneficial and to
the best interest of the bank and mutually advantageous to your client.
xxx
Petitioner argues that he submitted the requirements according to the
instructions given to him and that upon submission thereof, his proposed five-year
restructuring plan was deemed automatically approved by respondent PNB.
We disagree.
Nowhere in those letters is there a categorical statement that respondent
PNB had approved the petitioners proposed five-year restructuring plan. It is
stretching the imagination to construe them as evidence that his proposed five-year
restructuring plan has been approved by the respondent PNB which is admittedly a
banking corporation. Only an absolute and unqualified acceptance of a definite
offer manifests the consent necessary to perfect a contract. [16] If anything, those
correspondences only prove that the parties had not gone beyond the preparation
stage, which is the period from the start of the negotiations until the moment just
before the agreement of the parties.[17]
There is nothing in the record that even suggests that respondent PNB
assented to the alleged five-year restructure of petitioners overdue loan obligations
to PNB. However, the trial court ruled in favor of petitioner Mendoza, holding that
since petitioner has complied with the conditions of the alleged oral contract, the
latter may not renege on its obligation to honor the five-year restructuring period,
under the rule of promissory estoppel. Citing Ramos v. Central Bank,[18] the trial
court said:
The broad general rule to the effect that a promise to do or not to do something in
the future does not work an estoppel must be qualified, since there are numerous
cases in which an estoppel has been predicated on promises or assurances as to
future conduct. The doctrine of promissory estoppel is by no means new, although
the name has been adopted only in comparatively recent years. According to that
doctrine, an estoppel may arise from the making of a promise, even though without
consideration, if it was intended that the promise should be relied upon and in fact
it was relied upon, and if a refusal to enforce it would be virtually to sanction the
perpetration of fraud or would result in other injustice. In this respect, the reliance
by the promisee is generally evidenced by action or forbearance on his part, and the
idea has been expressed that such action or forbearance would reasonably have
been expected by the promissor. xxx
The doctrine of promissory estoppel is an exception to the general rule that a
promise of future conduct does not constitute an estoppel. In some jurisdictions, in
order to make out a claim of promissory estoppel, a party bears the burden of
establishing the following elements: (1) a promise reasonably expected to induce
action or forebearance; (2) such promise did in fact induce such action or
forebearance, and (3) the party suffered detriment as a result.[19]
It is clear from the forgoing that the doctrine of promissory estoppel
presupposes the existence of a promise on the part of one against whom estoppel
is claimed. The promise must be plain and unambiguous and sufficiently specific so
that the Judiciary can understand the obligation assumed and enforce the promise
according to its terms.[20] For petitioner to claim that respondent PNB is estopped to
deny the five-year restructuring plan, he must first prove that respondent PNB had
promised to approve the plan in exchange for the submission of the proposal. As
discussed earlier, no such promise was proven, therefore, the doctrine does not
Page 40 of 152
apply to the case at bar. A cause of action for promissory estoppel does not lie
where an alleged oral promise was conditional, so that reliance upon it was not
reasonable.[21] It does not operate to create liability where it does not otherwise
exist.[22]
Since there is no basis to rule that petitioner's overdue loan obligations were
restructured to mature in a period of five (5) years, we see no other option but to
respect the two-year period as contained in the two (2) subject Promissory Notes
Nos. 127/82 and 128/82, marked as Exhibits BB and CC respectively which
superseded and novated all prior loan documents signed by petitioner in favor of
respondent PNB. Petitioner argues, in his memorandum, that "respondent Court of
Appeals had no basis in saying that the acceptance of the five-year restructuring is
totally absent from the record."[23] On the contrary, the subject Promissory Notes
Nos. 127/82 and 128/82 are clear on their face that they were due on December 29,
1984 or two (2) years from the date of the signing of the said notes on December
29, 1982.
Petitioner claims that the two (2) subject Promissory Notes Nos. 127/82 and
128/82 were signed by him in blank with the understanding that they were to be
subsequently filled out to conform with his alleged oral agreements with PNB
officials, among which is that they were to become due only after five (5) years. If
petitioner were to be believed, the PNB officials concerned committed a fraudulent
act in filling out the subject two (2) promissory notes in question. Private
transactions are presumed to be fair and regular. [24] The burden of presenting
evidence to overcome this presumption falls upon petitioner. Considering that
petitioner imputes a serious act of fraud on respondent PNB, which is a banking
corporation, this court will not be satisfied with anything but the most convincing
evidence. However, apart from petitioner's self-serving verbal declarations, we find
no sufficient proof that the subject two (2) Promissory Notes Nos. 127/82 and
128/82 were completed irregularly.Therefore, we rule that the presumption has not
been rebutted.
Besides, it could be gleaned from the record that the petitioner is an astute
businessman who took care to reduce in writing his business proposals to the
respondent bank. It is unthinkable that the same person would commit the careless
mistake of leaving his subject two (2) promissory notes in blank in the hands of
other persons. As the respondent Court of Appeals correctly pointed out:
Surely, plaintiff-appellee who is a C.P.A and a Tax Consultant (p. 3 TSN, January 9,
1990) will insist that the details of the two promissory notes he and his wife
executed in 1982 should be specific to enable them to make the precise
computation in the event of default as in the case at bench. In fact, his alleged
omission as a C.P.A. and a Tax Consultant to insist that the two promissory notes be
filled up on important details like the rates of interest is inconsistent with the legal
presumption of a person who takes ordinary care of his concerns (Section 3 (c), Rule
131, Revised Rules on Evidence).
As pointed out by the Court of Appeals, Orlando Montecillo, Chief, Loans and
Discounts, PNB Mandaluyong Branch, testified that the said Promissory Notes Nos.
127/82 and 128/82 were completely filled out when Danilo Mendoza signed them
(Rollo, p. 14).
In a last-ditch effort to save his five-year loan restructuring theory, petitioner
contends that respondent PNB's action of withholding 10% from his export
proceeds is proof that his proposal had been accepted and the contract had been
partially executed. He claims that he would not have consented to the additional
burden if there were no corresponding benefit. This contention is not well
taken. There is no credible proof that the 10% assignment of his export proceeds
was not part of the conditions of the two-year restructuring deal. Considering that
the resulting amount obtained from this assignment of export proceeds was not
even enough to cover the interest for the corresponding month, [25] we are hard-
pressed to construe it as the required proof that respondent PNB allegedly
approved the proposed five-year restructuring of petitioners overdue loan
obligations.
It is interesting to note that in his Complaint, petitioner made no mention
that the assignment of his export proceeds was a condition for the alleged approval
of his proposed five-year loan restructuring plan. The Complaint merely alleged that
"plaintiff in a sincere effort to make payments on his obligations agreed to assign
10% of his export proceeds to defendant PNB." This curious omission leads the
court to believe that the alleged link between the petitioners assignment of export
proceeds and the alleged five-year restructuring of his overdue loans was more
contrived than real.
It appears that respondent bank increased the interest rates on the two (2)
subject Promissory Notes Nos. 127/82 and 128/82 without the prior consent of the
petitioner. The petitioner did not agree to the increase in the stipulated interest rate
of 21% per annum on Promissory Note No. 127/82 and 18% per annum on
Promissory Note No. 128/82. As held in several cases, the unilateral determination
and imposition of increased interest rates by respondent bank is violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil
Code.[26] As held in one case:[27]
It is basic that there can be no contract in the true sense in the absence of the
element of agreement, or of mutual assent of the parties. If this assent is wanting on
the part of one who contracts, his act has no more efficacy than if it had been done
under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed modification,
especially when it affects an important aspect of the agreement. In the case of loan
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contracts, it cannot be gainsaid that the rate of interest is always a vital component,
for it can make or break a capital venture.
It has been held that no one receiving a proposal to change a contract to
which he is a party is obliged to answer the proposal, and his silence per se cannot
be construed as an acceptance. [28] Estoppel will not lie against the petitioner
regarding the increase in the stipulated interest on the subject Promissory Notes
Nos. 127/82 and 128/82 inasmuch as he was not even informed beforehand by
respondent bank of the change in the stipulated interest rates. However, we also
note that the said two (2) subject Promissory Notes Nos. 127/82 and 128/82
expressly provide for a penalty charge of 3% per annum to be imposed on any
unpaid amount when due.
Petitioner prays for the release of some of his movables [29] being withheld by
respondent PNB, alleging that they were not included among the chattels he
mortgaged to respondent bank. However, petitioner did not present any proof as to
when he acquired the subject movables and hence, we are not disposed to believe
that the same were after-acquired chattels not covered by the chattel and real
estate mortgages.
In asserting its rights over the subject movables, respondent PNB relies on a
common provision in the two (2) subject Promissory Notes Nos. 127/82 and 128/82
which states:
In the event that this note is not paid at maturity or when the same becomes due
under any of the provisions hereof, we hereby authorized the BANK at its option
and without notice, to apply to the payment of this note, any and all moneys,
securities and things of value which may be in its hands on deposit or otherwise
belonging to me/us and for this purpose. We hereby, jointly and severally,
irrevocably constitute and appoint the BANK to be our true Attorney-in-Fact with
full power and authority for us in our name and behalf and without prior notice to
negotiate, sell and transfer any moneys securities and things of value which it may
hold, by public or private sale and apply the proceeds thereof to the payment of this
note.
It is clear, however, from the above-quoted provision of the said promissory
notes that respondent bank is authorized, in case of default, to sell things of value
belonging to the mortgagor which may be on its hands for deposit or otherwise
belonging to me/us and for this purpose. Besides the petitioner executed not only a
chattel mortgage but also a real estate mortgage to secure his loan obligations to
respondent bank.
A stipulation in the mortgage, extending its scope and effect to after-
acquired property is valid and binding where the after-acquired property is in
renewal of, or in substitution for, goods on hand when the mortgage was executed,
or is purchased with the proceeds of the sale of such goods.[30] As earlier pointed
out, the petitioner did not present any proof as to when the subject movables were
acquired.
More importantly, respondent bank makes a valid argument for the retention
of the subject movables. Respondent PNB asserts that those movables were in fact
"immovables by destination" under Art. 415 (5) of the Civil Code. [31] It is an
established rule that a mortgage constituted on an immovable includes not only the
land but also the buildings, machinery and accessories installed at the time the
mortgage was constituted as well as the buildings, machinery and accessories
belonging to the mortgagor, installed after the constitution thereof. [32]
Petitioner also contends that respondent PNBs bid prices for this foreclosed
properties in the total amount of Three Million Seven Hundred Ninety Eight
Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50), were
allegedly unconscionable and shocking to the conscience of men. He claims that the
fair market appraisal of his foreclosed plant site together with the improvements
thereon located in Pasig, Metro Manila amounted to Five Million Four Hundred
Forty One Thousand Six Hundred Fifty Pesos (P5,441,650.00) while that of his house
and lot in Quezon City amounted to Seven Hundred Twenty Two Thousand Pesos
(P722,000.00) per the appraisal report dated September 20, 1990 of Cuervo
Appraisers, Inc.[33] That contention is not well taken considering that:
1. The total of the principal amounts alone of petitioners subject
Promissory Notes Nos. 127/82 and 128/82 which are both
overdue amounted to Four Million One Hundred Eighty Seven
Thousand Nine Hundred Seventeen Pesos and Fifty Nine
Centavos (P4,187,917.59).
2. While the appraisal of Cuervo Appraisers, Inc. was undertaken in
September 1990, the extrajudicial foreclosure of petitioners real
estate and chattel mortgages have been effected way back on
October 15, 1984, October 23, 1984 and December 21,
1984.[34] Common experience shows that real estate values
especially in Metro Manila tend to go upward due to
developments in the locality.
3. In the public auction/foreclosure sales, respondent PNB, as
mortgagee, was not obliged to bid more than its claims or more
than the amount of petitioners loan obligations which are all
overdue. The foreclosed real estate and chattel mortgages which
petitioner earlier executed are accessory contracts covering the
collaterals or security of his loans with respondent PNB. The
principal contracts are the Promissory Notes Nos. 127/82 and
128/82 which superseded and novated the 1979 promissory
notes and the 1979 eleven (11) Applications and Agreements for
Commercial Letter of Credit.
Page 41 of 152
 Finally, the record shows that petitioner did not even attempt to tender any for the purpose of determining their actual obligation, but all their requests were
redemption price to respondent PNB, as highest bidder of the said foreclosed real unjustifiably ignored on account of which they were forced to discontinue payment;
estate properties, during the one-year redemption period. that the foreclosure proceedings and auction sale were not only irregularly and
prematurely held but were null and void because the mortgage debt is
In view of all the foregoing, it is our view and we hold that the extrajudicial only P2,224,073.31 on the principal obligation and P1,455,137.36 on the interest, or
foreclosure of petitioners real estate and chattel mortgages was not premature and a total of only P3,679,210.67 as of April 15, 2003, but the mortgaged properties
that it was in fact legal and valid. were sold to satisfy an inflated and erroneous principal obligation of P4,783,254.69,
plus 3% penalty fee per month or 33% per year and 15% interest per year, which
WHEREFORE, the petition is hereby DENIED. The challenged Decision of the
amounted to P14,024,623.22 as of September 30, 2002; that the parties never agreed
Court of Appeals in CA-G.R. CV No. 38036 is AFFIRMED with modification that the
and stipulated in the real estate mortgage contract that the 15% interest per annum
increase in the stipulated interest rates of 21% per annum and 18% per annum
on the principal loan and the 3% penalty fee per month on the outstanding
appearing on Promissory Notes Nos. 127/82 and 128/82 respectively is hereby
amount would be covered or secured by the mortgage; that assuming respondent
declared null and void.
could impose such interest and penalty fee, the same are exorbitant, unreasonable,
SO ORDERED. iniquitous and unconscionable, hence, must be reduced; and that respondent is only
allowed to impose the legal rate of interest of 12% per annum on the principal loan
absent any stipulation thereon.[6]
SECOND DIVISION
In its Answer, respondent denied petitioners assertions,
SPOUSES LEOPOLDO S. VIOLA and G.R. No. 177886 contending, inter alia, that the absence of stipulation in the mortgage contract
MERCEDITA VIOLA, securing the payment of 15% interest per annum on the principal loan, as well as
Petitioners, Present: the 3% penalty fee per month on the outstanding amount, is immaterial since the
mortgage contract is a mere accessory contract which must take its bearings from
QUISUMBING, J., Chairperson, the principal Credit Line Agreement.[7]
- versus - CARPIO MORALES,
TINGA, During the pre-trial conference, the parties defined as sole issue in the
VELASCO, JR., and case whether the mortgage contract also secured the payment of 15% interest per
BRION, JJ. annum on the principal loan of P4,700,000.00 and the 3% penalty fee per month on
EQUITABLE PCI BANK, INC., the outstanding amount, which interest and penalty fee are stipulated only in
Respondent. Promulgated: the Credit Line Agreement.[8]
November 27, 2008
x----------------------------------x By Decision[9] of September 14, 2005, the trial court sustained
respondents affirmative position on the issue but found the questioned interest and
DECISION penalty fee excessive and exorbitant. Thus, it equitably reduced the interest on the
principal loan from 15% to 12% per annum and the penalty fee per month on the
outstanding amount from 3% to 1.5% per month.
CARPIO MORALES, J.:
Accordingly, the court nullified the foreclosure proceedings and the
Certificate of Sale subsequently issued, without prejudice to the holding anew of
Via a contract denominated as CREDIT LINE AND REAL ESTATE MORTGAGE foreclosure proceedings based on the re-computed amount of the indebtedness, if
AGREEMENT FOR PROPERTY LINE[1] (Credit Line Agreement) executed on March 31, the circumstances so warrant.
1997, Leo-Mers Commercial, Inc., as the Client, and its officers spouses Leopoldo
and Mercedita Viola (petitioners) obtained a loan through a credit line facility in the The dispositive portion of the trial courts Decision reads:
maximum amount of P4,700,000.00 from the Philippine Commercial International
Bank (PCI Bank), which was later merged with Equitable Bank and became known as WHEREFORE, judgment is hereby rendered as follows:
Equitable PCI Bank, Inc. (respondent).
1) The interest on the principal loan in the
amount of Four Million Seven Hundred Thousand
(P4,700,000.00) Pesos should
The Credit Line Agreement stipulated that the loan would bear interest at be recomputed at 12% per annum;
the prevailing PCIBank lending rate per annum on the principal obligation and a
penalty fee of three percent (3%) per month on the outstanding amount. 2) The 3% per month penalty on delinquent
account as stipulated by the parties in the Credit Line
To secure the payment of the loan, petitioners executed also on March 31, 1997 a Contract dated March 31, 1997 is
Real Estate Mortgage[2] in favor of PCIBank over their two parcels of land covered by hereby REDUCED to 1.5% per month;
Transfer Certificates of Title No. N-113861 (consisting of 300 square meters, more or
less ) and N-129036 (consisting of 446 square meters, more or less) of the Registry 3) The foreclosure sale conducted on April 10,
of Deeds of Marikina. 2003 by the Clerk of Court and Ex-Officio Sheriff of Marikina,
to satisfy the plaintiffs mortgage
Petitioners availed of the full amount of the loan. Subsequently, they made partial indebtedness, and the Certificate ofSale issued as a
payments which totaled P3,669,210.67. By respondents claim, petitioner had consequence of the said
since November 24, 2000 made no further payments and despite demand, they proceedings, are declared NULL and VOID, without prejudice
failed to pay their outstanding obligation which, as of September 30, 2002, to the conduct of another foreclosure proceedings on the b
totaled P14,024,623.22, broken down as follows: asis of the re-
(a) Principal obligation P4,783,254.69 computedamount of the plaintiffs indebtedness, if the circu
(b) Past due interest from mstances so warrant.
11/24/00 to 09/30/02 No pronouncement as to costs.
at 15% interest P1,345,290.38
SO ORDERED. (Underscoring supplied)

Petitioners filed a Motion for Partial Reconsideration, [10] contending that

(c) Penalty at 3% per month the penalty fee per month on the outstanding amount should have been taken out
from 03/31/98 to 02/23/02 P7,896,078.15 of the coverage of the mortgage contract as it was not stipulated therein. By Order
_____________________ dated December 6, 2005, the trial court denied the motion.
P14,024,623.22[3] (Underscoring supplied)
On appeal by petitioners, the Court of Appeals, by
Decision[11] of February 21, 2007, dismissed the same for lack of merit, holding that
Respondent thus extrajudicially foreclosed the mortgage before the the Real Estate Mortgage covers not only the principal amount [of P4,700,000.00]
Office of the Clerk of Court & Ex-Officio Provincial Sheriff of the Regional Trial Court but also the interest and bank charges, which [phrase bank charges] refers to
(RTC) of Marikina City. The mortgaged properties were sold on April 10, the penalty charges stipulated in the Credit Line Agreement.[12]
2003 for P4,284,000.00 at public auction to respondent, after which a Certificate of
Sale dated April 21, 2003[4] was issued. Petitioners Motion for Reconsideration having been denied by
Resolution[13] of May 16, 2007, they filed the present Petition for Review
More than five months later or on October 8, 2003, petitioners filed a on Certiorari, alleging that
complaint[5] for annulment of foreclosure sale, accounting and damages before the
Marikina RTC, docketed as Civil Case No. 2003-905-MK and raffled to Branch THE HONORABLE COURT OF APPEALS
192. Petitioners alleged, inter alia, that they had made substantial payments COMMITTED A REVERSIBLE ERROR IN DECIDING THE CASE
of P3,669,210.67 receipts of which were issued without respondent specifying NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS
whether the payment was for interest, penalty or the principal obligation; that based OF THE SUPREME COURT BY RULING THAT THERE
on respondents statement of account, not a single centavo of their payments was IS NO AMBIGUITY IN
applied to the principal obligation; that every time respondent sent them a
statement of account and demand letters, they requested for a proper accounting

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 CONSTRUING TOGETHER THE CREDIT LINE AND
MORTGAGE CONTRACTS WHICH
PROVIDED CONFLICTING PROVISIONS AS TO INTEREST
AND PENALTY.[14]
The only issue is whether the mortgage contract also secured the
penalty fee per month on the outstanding amount as stipulated in the Credit Line
Agreement.
The Court holds not.
A mortgage must sufficiently describe the debt sought to be secured,
which description must not be such as to mislead or deceive, and an obligation is
not secured by a mortgage unless it comes fairly within the terms of the
mortgage.[15]
In the case at bar, the parties executed two separate documents
on March 31, 1997 the Credit Line Agreement granting the Client a loan through a
credit facility in the maximum amount of P4,700,000.00, and the Real Estate
Mortgage contract securing the payment thereof. Undisputedly, both contracts were
prepared by respondent and written in fine print, single space.
The Credit Line Agreement contains the following stipulations on interest
and delinquency charges:
A. CREDIT FACILITY
9. INTEREST ON AVAILMENTS
The CLIENT shall pay the BANK interest on each
availment against the Credit Facility at the rate of:
PREVAILING PCIBANK LENDING RATE
for the first interest period as defined in A(10) hereof. x x x.
xxxx
15. DELINQUENCY
CLIENTs account shall be considered delinquent if the
availments exceed the amount of the line and/or in case the
Account is debited for unpaid interest and the Available
Balance is insufficient to cover the amount debited. In such
cases, the Available Balance shall become negative and the
CLIENT shall pay the deficiency immediately in addition to
collection expenses incurred by the BANK and a penalty fee
of three percent (3%) per month of the outstanding amount
to be computed from the day deficiency is incurred up to
the date of full payment thereon.
x x x x.[16] (Underscoring supplied)
The Real Estate Mortgage contract states its coverage, thus:
That for and in consideration of certain loans, credit and
other banking facilities obtained x x x from the Mortgagee,
the principal amount of which is PESOS FOUR MILLION
SEVEN HUNDERED THOUSAND ONLY (P4,700,000.00)
Philippine Currency, and for the purpose of securing the
payment thereof, including the interest and bank
charges accruing thereon, the costs of collecting the same
and of taking possession of and keeping the mortgaged
propert[ies], and all other expenses to which the Mortgagee
may be put in connection with or as an incident to this
mortgage, as well as the faithful compliance with the terms
and conditions of this agreement and of the separate
instruments under which the credits hereby secured were
obtained, the Mortgagor does hereby constitute in favor of
the Mortgagee, its successors or assigns, a mortgage on the
real property particularly described, and the location of
which is set forth, in the list appearing at the back hereof
and/or appended hereto, of which the Mortgagor declare
that he is the absolute owner and the one in possession
thereof, free and clear of any liens, encumbrances and
adverse claims.[17] (Emphasis and underscoring supplied)
The immediately-quoted provision of the mortgage contract does not
specifically mention that, aside from the principal loan obligation, it also secures the
payment of a penalty fee of three percent (3%) per month of the outstanding
amount to be computed from the day deficiency is incurred up to the date of full
payment thereon, which penalty as the above-quoted portion of the Credit Line
Agreement expressly stipulates.
Since an action to foreclose must be limited to the amount mentioned
in the mortgage[18] and the penalty fee of 3% per month of the outstanding
obligation is not mentioned in the mortgage, it must be excluded from the
computation of the amount secured by the mortgage.
The ruling of the Court of Appeals in its assailed Decision that the
phrase including the interest and bank charges in the mortgage contract refers to
the penalty charges stipulated in the Credit Line Agreement is unavailing.
Penalty fee is entirely different from bank charges. The phrase bank
charges is normally understood to refer to compensation for services. A penalty fee
is likened to a compensation for damages in case of breach of the
obligation. Being penal in nature, such fee must be specific and fixed by the
contracting parties, unlike in the present case which slaps
a 3% penalty fee per month of the outstanding amount of the obligation.
Moreover, the penalty fee does not belong to the species of obligation
enumerated in the mortgage contract, namely: loans, credit and other banking
facilities obtained x x x from the Mortgagee, . . . including the interest and bank
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charges, . . . the costs of collecting the same and of taking possession of and
keeping the mortgaged properties, and all other expenses to which the Mortgagee
may be put in connection with or as an incident to this mortgage . . .
In Philippine Bank of Communications v. Court of Appeals[19] which raised
a similar issue, this Court held:
The sole issue in this case is whether, in the foreclosure of a
real estate mortgage, the penalties stipulated in two
promissory notes secured by the mortgage may be charged
against the mortgagors as part of the sums secured,
although the mortgage contract does not mention the said
penalties.
xxxx
We immediately discern that the mortgage contract does
not at all mention the penalties stipulated in the promissory
notes. However, the petitioner insists that the penalties are
covered by the following provision of the mortgage contract:
This mortgage is given as security for
the payment to the MORTGAGEE on
demand or at maturity, as the case
may be, of all promissory notes,
letters of credit, trust receipts, bills of
exchange, drafts, overdrafts and all
other obligations of every kind
already incurred or which hereafter
may be incurred.
xxxx
The Court is unconvinced, for the cases relied upon by the petitioner are
inapplicable. x x x.
xxxx
The mortgage contract is also one of adhesion as it was prepared solely
by the petitioner and the only participation of the other
party was the affixing of his signature or adhesion
thereto. Being a contract of adhesion, the mortgage is to be
strictly construed against the petitioner, the party which
prepared the agreement.
A reading, not only of the earlier quoted provision, but of the entire
mortgage contract yields no mention of penalty charges.
Construing this silence strictly against the petitioner, it can
fairly be concluded that the petitioner did not intend to
include the penalties on the promissory notes in the secured
amount. This explains the finding by the trial court, as
affirmed by the Court of Appeals, that penalties and charges
are not due for want of stipulation in the mortgage contract.
Indeed, a mortgage must sufficiently describe the debt sought to be
secured, which description must not be such as to mislead
or deceive, and an obligation is not secured by a
mortgage unless it comes fairly within the terms of the
mortgage. In this case, the mortgage contract provides that
it secures notes and other evidences of indebtedness. Under
the rule of ejusdem generis, where a description of things of
a particular class or kind is accompanied by words of a
generic character, the generic words will usually be limited
to things of a kindred nature with those particularly
enumerated . . . A penalty charge does not belong to the
species of obligations enumerated in the mortgage,
hence, the said contract cannot be understood to secure
the penalty.[20] (Emphasis and underscoring supplied)
Respondents contention that the absence in the mortgage contract of a
stipulation securing the payment of the 3% penalty fee per month on the
outstanding amount is of no consequence, the deed of mortgage being merely an
accessory contract that must take its bearings from the principal Credit Line
Agreement,[21] fails. Such absence is significant as it
creates an ambiguity between the two contracts, which ambiguity must be resolved
in favor of petitioners and against respondent who drafted the contracts. Again, as
stressed by the Court in Philippine Bank of Communications:
There is also sufficient authority to declare that any ambiguity in a
contract whose terms are susceptible of different
interpretations must be read against the party who drafted
it.
A mortgage and a note secured by it are deemed
parts of one transaction and are construed together, thus, an
ambiguity is created when the notes provide for the
payment of a penalty but the mortgage contract does
not. Construing the ambiguity against the petitioner, it
follows that no penalty was intended to be covered by
the mortgage. The mortgage contract consisted of three
pages with no less than seventeen conditions in fine print; it
Page 43 of 152
 included provisions for interest and attorneys fees similar to
those in the promissory notes; and it even provided for the
payment of taxes and insurance charges. Plainly, the
petitioner can be as specific as it wants to be, yet it simply
did not specify nor even allude to, that the penalty in the
promissory notes would be secured by the mortgage. This
can then only be interpreted to mean that the petitioner had
no design of including the penalty in the amount
secured.[22](Emphasis and underscoring supplied)
WHEREFORE, the assailed Court of Appeals Decision of February 21,
2007 and Resolution of May 16, 2007 in CA-G.R. SP No. CA-G.R. CV No. 86412
affirming the trial courts decision are, in light of the foregoing
disquisition, AFFIRMED with MODIFICATION in that the penalty fee per month of
the outstanding obligation is excluded in the computation of the amount secured
by the Real Estate Mortgage executed by petitioners in respondents favor.
SO ORDERED.
EN BANC
G.R. No. L-38745 August 6, 1975
LUCIA TAN, plaintiff-appellee,
vs.
ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-appellants.
Alaric P. Acosta for plaintiff-appellee.
Lorenzo P. de Guzman for defendants-appellants.
CASTRO, J.:
This appeal was certified to this Court by the Court of Appeals as involving
questions purely of law.
The decision a quo was rendered by the Court of First Instance of Misamis
Occidental (Branch I) in an action instituted by the plaintiff-appellee Lucia Tan
against the defendants-appellants Arador Valdehueza and Rediculo Valdehueza
(docketed as civil case 2574) for (a) declaration of ownership and recovery of
possession of the parcel of land described in the first cause of action of the
complaint, and (b) consolidation of ownership of two portions of another parcel of
(unregistered) land described in the second cause of action of the complaint,
purportedly sold to the plaintiff in two separate deeds of pacto de retro.
After the issues were joined, the parties submitted the following stipulation of facts:
1. That parties admit the legal capacity of plaintiff to sue;
that defendants herein, Arador, Rediculo, Pacita, Concepcion
and Rosario, all surnamed Valdehueza, are brothers and
sisters; that the answer filed by Arador and Rediculo stand as
the answer of Pacita, Concepcion and Rosario.
2. That the parties admit the identity of the land in the first
cause of action.
3. That the parcel of land described in the first cause of
action was the subject matter of the public auction sale held
on May 6, 1955 at the Capitol Building in Oroquieta, Misamis
Occidental, wherein the plaintiff was the highest bidder and
as such a Certificate of Sale was executed by MR. VICENTE D.
ROA who was then the Ex-Officio Provincial Sheriff in favor
of LUCIA TAN the herein plaintiff. Due to the failure of
defendant Arador Valdehueza to redeem the said land
within the period of one year as being provided by law, MR.
VICENTE D. ROA who was then the Ex-Officio Provincial
Sheriff executed an ABSOLUTE DEED OF SALE in favor of the
plaintiff LUCIA TAN.
A copy of the NOTICE OF SHERIFFS SALE is hereby marked
as 'Annex A', the CERTIFICATE OF SALE is marked as 'Annex
B' and the ABSOLUTE DEED OF SALE is hereby marked as
Annex C and all of which are made as integral parts of this
stipulation of facts.
4. That the party-plaintiff is the same plaintiff in Civil Case
No. 2002; that the parties defendants Arador, Rediculo and
Pacita, all Valdehueza were the same parties-defendants in
the same said Civil Case No. 2002; the complaint in Civil Case
No. 2002 to be marked as Exhibit 1; the answer as Exhibit 2
CRED TRANS Pledge, Mortgage Antichresis Fulltext
and the order dated May 22, 1963 as Exhibit 3, and said
exhibits are made integral part of this stipulation.
5. That defendants ARADOR VALDEHUEZA and REDICULO
VALDEHUEZA have executed two documents of DEED OF
PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA
TAN of two portions of a parcel of land which is described in
the second cause of action with the total amount of ONE
THOUSAND FIVE HUNDRED PESOS (P1,500.00), Philippine
Currency, copies of said documents are marked as 'Annex D'
and Annex E', respectively and made as integral parts of this
stipulation of facts.
6. That from the execution of the Deed of Sale with right to
repurchase mentioned in the second cause of action,
defendants Arador Valdehueza and Rediculo Valdehueza
remained in the possession of the land; that land taxes to
the said land were paid by the same said defendants.
Civil case 2002 referred to in stipulation of fact no. 4 was a
complaint for injunction filed by Tan on July 24, 1957 against
the Valdehuezas, to enjoin them "from entering the above-
described parcel of land and gathering the nuts therein ...."
This complaint and the counterclaim were subsequently
dismissed for failure of the parties "to seek for the
immediate trial thereof, thus evincing lack of interest on
their part to proceed with the case. 1
The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex D"
(dated August 5, 1955) was not registered in the Registry of Deeds, while the Deed
of Pacto de Retro referred to as "Annex E" (dated March 15, 1955) was registered.
On the basis of the stipulation of facts and the annexes, the trial court rendered
judgment, as follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff:
1. Declaring Lucia Tan the absolute owner of the property
described in the first cause of action of the amended
complaint; and ordering the herein defendants not to
encroach and molest her in the exercise of her proprietary
rights; and, from which property they must be dispossessed;
2. Ordering the defendants, Arador Valdehueza and Rediculo
Valdehueza jointly and severally to pay to the plaintiff, Lucia
Tan, on Annex 'E' the amount of P1,200, with legal interest of
6% as of August 15, 1966, within 90 days to be deposited
with the Office of the Court within 90 days from the date of
service of this decision, and that in default of such payment
the property shall be sold in accordance with the Rules of
Court for the release of the mortgage debt, plus costs;
3. And as regards the land covered by deed of pacto de retro
annex 'D', the herein defendants Arador Valdehueza and
Rediculo Valdehueza are hereby ordered to pay the plaintiff
the amount of P300 with legal interest of 6% from August
15, 1966, the said land serving as guaranty of the said
amount of payment;
4. Sentencing the defendants Arador Valdehueza and
Rediculo Valdehueza to pay jointly and severally to the
herein plaintiff Lucia Tan the amount of 1,000.00 as
attorney's fees; and .
5. To pay the costs of the proceedings.
The Valdehuezas appealed, assigning the following errors:
That the lower court erred in failing to adjudge on the first
cause of action that there exists res judicata; and
That the lower court erred in making a finding on the second
cause of action that the transactions between the parties
were simple loan, instead, it should be declared as equitable
mortgage.
We affirm in part and modify in part.
1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently provides
that a dismissal for failure to prosecute "shall have the effect of an adjudication
upon the merits," the Valdehuezas submit that the dismissal of civil case 2002
operated, upon the principle of res judicata, as a bar to the first cause of action in
civil case 2574. We rule that this contention is untenable as the causes of action in
Page 44 of 152
the two cases are not identical. Case 2002 was for injunction against the entry into
and the gathering of nuts from the land, while case 2574 seeks to "remove any
doubt or cloud of the plaintiff's ownership ..." (Amended complaint, Rec. on App., p.
27), with a prayer for declaration of ownership and recovery of possession.
Applying the test of absence of inconsistency between prior and subsequent
judgments, 2 we hold that the failure of Tan, in case 2002, to secure an injunction
against the Valdehuezas to prevent them from entering the land and gathering nuts
is not inconsistent with her being adjudged, in case 2574, as owner of the land with
right to recover possession thereof. Case 2002 involved only the possession of the
land and the fruits thereof, while case 2574 involves ownership of the land, with
possession as a mere attribute of ownership. The judgment in the first case could
not and did not encompass the judgment in the second, although the second
judgment would encompass the first. Moreover, the new Civil Code provides that
suitors in actions to quiet title "need not be in possession of said property. 3
2. The trial court treated the registered deed of pacto de retro as an equitable
mortgage but considered the unregistered deed of pacto de retro "as a mere case of
simple loan, secured by the property thus sold under pacto de retro," on the ground
that no suit lies to foreclose an unregistered mortgage. It would appear that the trial
judge had not updated himself on law and jurisprudence; he cited, in support of his
ruling, article 1875 of the old Civil Code and decisions of this Court circa 1910 and
1912.
Under article 1875 of the Civil Code of 1889, registration was a necessary requisite
for the validity of a mortgage even as between the parties, but under article 2125 of
the new Civil Code (in effect since August 30,1950), this is no longer so. 4
If the instrument is not recorded, the mortgage is
nonetheless binding between the parties. (Article 2125, 2nd
sentence).
The Valdehuezas having remained in possession of the land and the realty taxes
having been paid by them, the contracts which purported to be pacto de
retro transactions are presumed to be equitable mortgages, 5 whether registered or
not, there being no third parties involved.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed
that they remained in possession of the land and gave the proceeds of the harvest
to the plaintiff; it is thus argued that they would suffer double prejudice if they are
to pay legal interest on the amounts stated in the pacto de retro contracts, as the
lower court has directed, and that therefore the court should have ordered evidence
to be adduced on the harvest.
The record does not support this claim. Nowhere in the original and the amended
complaints is an allegation of delivery to the plaintiff of the harvest from the land
involved in the second cause of action. Hence, the defendants' answer had none to
affirm.
In submitting their stipulation of facts, the parties prayed "for its approval
and maybe made the basis of the decision of this Honorable Court. " (emphasis
supplied) This, the court did. It cannot therefore be faulted for not receiving
evidence on who profited from the harvest.
4. The imposition of legal interest on the amounts subject of the equitable
mortgages, P1,200 and P300, respectively, is without legal basis, for, "No interest
shall be due unless it has been expressly stipulated in writing." (Article 1956, new
Civil Code) Furthermore, the plaintiff did not pray for such interest; her thesis was a
consolidation of ownership, which was properly rejected, the contracts being
equitable mortgages.
With the definitive resolution of the rights of the parties as discussed above, we find
it needless to pass upon the plaintiffs petition for receivership. Should the
circumstances so warrant, she may address the said petition to the court a quo.
ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the amounts
of P1,200 and P300 mentioned in Annexes E and D shall bear interest at six percent
per annum from the finality of this decision; and (b) the parcel of land covered by
Annex D shall be treated in the same manner as that covered by Annex E, should
the defendants fail to pay to the plaintiff the sum of P300 within 90 days from the
finality of this decision. In all other respects the judgment is affirmed. No costs.
THIRD DIVISION
[G.R. No. 115548. March 5, 1996]
STATE INVESTMENT HOUSE INC., petitioner, vs. COURT OF APPEALS, ET
AL., respondents.
DECISION
FRANCISCO, J.:
The factual background of the case, aptly summarized in the decision of the
Office of the President and cited by respondent Court of Appeals [1] in its assailed
decision, and which we have verified to be supported by the record is herein
reproduced as follows:
CRED TRANS Pledge, Mortgage Antichresis Fulltext
The uncontroverted facts of the case as recited in the decision of the Office of the
President are as follows:
Records show that, on October 15, 1969, Contract to Sell No. 36 was executed by
the Spouses Canuto and Ma. Aranzazu Oreta, and the Solid Homes, Inc. (SOLID),
involving a parcel of land identified as Block No. 8, Lot No. 1, Phase I of the Capitol
Park Homes Subdivision, Quezon City, containing 511 square meters for a
consideration of P39,347.00. Upon signing of the contract, the spouses Oreta made
payment amounting to P7,869.40, with the agreement that the balance shall be
payable in monthly installments of P45 1.70, at 12% interest per annum.
On November 4, 1976, SOLID executed several real estate mortgage contracts in
favor of State Investment Homes, (sic) Inc. (STATE) over its subdivided parcels of
land, one of which is the subject lot covered by Transfer Certificate of Title No.
209642.
For Failure of SOLID to comply with its mortgage obligations contract, STATE extra-
judicially foreclosed the mortgaged properties including the subject lot on April 6,
1983, with the corresponding certificate of sale issued therefor to STATE annotated
at the back of the titles covering the said properties on October 13, 1983.
On June 23, 1984, SOLID thru a Memorandum of Agreement negotiated for the
deferment of consolidation of ownership over the foreclosed properties by
committing to redeem the properties from STATE.
On August 15, 1988, the spouses filed a complaint before the Housing and Land Use
Regulatory Board, HLRB, against the developer SOLID and STATE for failure on the
part of SOLID to execute the necessary absolute deed of sale as well as to deliver
title to said property x x x in violation of the contract to sell x x x, despite full
payment of the purchase price as of January 7, 1981. In its Answer, SOLID, by way of
alternative defense, alleged that the obligations under the Contract to Sell has
become so difficult x x x the herein respondents be partially released from said
obligation by substituting subject lot with another suitable residential lot from
another subdivision which respondents own/operates. Upon the other hand, STATE,
to which the subject lot was mortgaged, averred that unless SOLID pays the
redemption price of P125,1955.00, (sic) it has a right to hold on and not release the
foreclosed properties.
On May 23, 1989, the Office of Appeals, Adjudication and Legal Affairs (OAALA)
rendered a decision the decretal portion of which reads:
1. Ordering respondent, State Investment House, Inc. to execute a Deed of
Conveyance of Lot 1, B lock 8, in Capital Park Homes Subdivision in favor of
complainants and to deliver to the latter the corresponding certificate of title;
2. Ordering respondent, Solid Homes, Inc. to pay State Investment House, Inc. that
portion of its loan which corresponds to the value of the lot as collateral;
3. Ordering respondent, Solid Homes, Inc. to pay to this Board the amount of Six
Thousand Pesos (P6,000.00) as administrative fine in accordance with Section 25 in
relation to Section 38 of P.D. 957.
Both the STATE and SOLID appealed to the Board of Commissioners, HLRB, which
affirmed on June 5, 1990 the OAALAs decision (Annex C of the Petition; ibid., p. 34).
Again, both STATE and SOLID appealed the decision of the Board of Commissioners,
HLRB, to the Office of the President which dismissed the twin appeals on February
26, 1993.
Petitioner filed with the Supreme Court this petition for review of decision of the
Office of the President where it was docketed as G.R. No. 109364. However, in a
resolution dated May 13, 1993, the Supreme Court referred this case to this Court
for proper disposition. On the other hand, SOLID does not appear to have joined
herein petitioner in this petition for review.[2]
[Italics added.]
In a decision dated May 19, 1994, respondent court sustained the judgment
of the Office of the President. Hence, this petition substantially anchored on these
two alleged errors, namely: (1) error in ruling that private respondent
spouses Oretas unregistered rights over the subject property are superior to the
registered mortgage rights of petitioner State Investment House, Inc. (STATE); and
(2) error in not applying the settled rule that that persons dealing with property
covered by torrens certificate of title are not required to go beyond what appears
on the face of the title.
At the outset, we note that herein petitioner argues more extensively on the
second assigned issue, than on the first. In fact, petitioner admits the superior rights
of respondents-spouses Oreta over the subject property as it did not pray for the
nullification of the contract between respondents-spouses and SOLID, but instead
asked for the payment of the release value of the property in question, plus interest,
attorneys fees and costs of suit against SOLID or, in case of the latters inability to
pay, against respondents-spouses before it can be required to release the title of
the subject property in favor of the respondent spouses. [3] And even if we were to
pass upon the first assigned error, we find respondent courts ruling on the matter to
be well-founded. STATEs registered mortgage right over the property is inferior to
that of respondents-spouses unregistered right. The unrecorded sale between
Page 45 of 152
respondents-spouses and SOLID is preferred for the reason that if the original
owner (SOLID, in this case) had parted with his ownership of the thing sold then he
no longer had ownership and free disposal of that thing so as to be able to
mortgage it again.[4] Registration of the mortgage is of no moment since it is
understood to be without prejudice to the better right of third parties. [5]
Anent the second issue, petitioner asserts that a purchaser or mortgagee of
land/s covered under the Torrens System is not required to do more than rely upon
the certificate of title [for] it is enough that the [purchaser or mortgagee] examines
the pertinent certificate of title [without] need [of] look[ing] beyond such title.[6]
As a general rule, where there is nothing in the certificate of title to indicate
any cloud or vice in the ownership of the property, or any encumbrance thereon,
the purchaser is not required to explore further than what the Torrens Title upon its
face indicates in quest for any hidden defect or inchoate right that may
subsequently defeat his right thereto. This rule, however, admits of an exception as
where the purchaser or mortgagee, has knowledge of a defect or lack of title in his
vendor, or that he was aware of sufficient facts to induce a reasonably prudent man
to inquire into the status of the title of the property in litigation. [7] In this case,
petitioner was well aware that it was dealing with SOLID, a business entity engaged
in the business of selling subdivision lots. In fact, the OAALA found that at the time
the lot was mortgaged, respondent State Investment House, Inc., [now petitioner]
had been aware of the lots location and that said lot formed part of Capital
Park/Homes Subdivision.[8] In Sunshine Finance and investment Corp. v. Intermediate
Appellate Court,[9] the Court, noting petitioner therein to be a financing corporation,
deviated from the general rule that a purchaser or mortgagee of a land is not
required to look further than what appears on the face of the Torrens Title. Thus:
Nevertheless, we have to deviate from the general rule because of the failure
of the petitioner in this case to take the necessary precautions to ascertain if
there was any flaw in the title of the Nolascos and to examine the condition of
the property they sought to mortgage. The petitioner is an investment and
financing corporation. We presume it is experienced in its
business.Ascertainment of the status and condition of properties offered to it
as security for the loans it extends must be a standard and indispensable part
of its operations. Surely, it cannot simply rely on an examination of
a Torrens certificate to determine what the subject property looks like as its
condition is not apparent in the document. The land might be in a depressed
area. There might be squatters on it. It might be easily inundated. It might be an
interior lot, without convenient access. These and other similar factors determine
the value of the property and so should be of practical concern to the petitioner.
xxx xxx xxx
Our conclusion might have been different if the mortgagee were an ordinary
individual or company without the expertise of the petitioner in the mortgage and
sale of registered land or if the land mortgaged were some distance from the
mortgagee and could not be conveniently inspected. But there were no such
impediments in this case. The facilities of the petitioner were not so limited as to
prevent it from making a more careful examination of the land to assure itself that
there were no unauthorized persons in possession.[10]
[Emphasis supplied.]
The above-enunciated rule should apply in this case as petitioner admits of
being a financing institution.[11] We take judicial notice of the uniform practice of
financing institutions to investigate, examine and assess the real property offered as
security for any loan application especially where, as in this case, the subject
property is a subdivision lot located at QuezonCity, M.M. It is a settled rule that a
purchaser or mortgagee cannot close its eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor or
mortgagor.[12] Petitioners constructive knowledge of the defect in the title of the
subject property, or lack of such knowledge due to its negligence, takes the place of
registration of the rights of respondents-spouses. Respondent court thus correctly
ruled that petitioner was not a purchaser or mortgagee in good faith; hence
petitioner can not solely rely on what merely appears on the face of the Torrens
Title.
ACCORDINGLY, finding no reversible error in the assailed judgment, the
same is hereby AFFIRMED
SO ORDERED.
SECOND DIVISION
PHILIPPINE NATIONAL BANK, G.R. No. 180945
AS THE ATTORNEY-IN-FACT OF
OPAL PORTFOLIO INVESTMENTS
(SPV-AMC), INC.,
Petitioner, Present:
Carpio, J., Chairperson,
- versus - Brion, Del Castillo, Abad, and Perez, JJ.
MERCEDES CORPUZ, REPRESENTED
BY HER ATTORNEY-IN-FACT Promulgated:
VALENTINA CORPUZ,
Respondent. February 12, 2010
CRED TRANS Pledge, Mortgage Antichresis Fulltext
x ------------------------------------------------------------------- x
DECISION
ABAD, J.:
This case is about the need for a mortgagee-bank, faced with suspicious layers of
transfers involving a property presented for mortgage, to exercise proper diligence
in ascertaining the bona fide status of those transfers.
The Facts and the Case
On October 4, 1974 respondent Mercedes Corpuz delivered her owners duplicate
copy of Transfer Certificate of Title (TCT) 32815 to Dagupan City Rural Bank as
security against any liability she might incur as its cashier. She later left her job and
went to the United States.
On October 24, 1994 the rural bank where she worked cancelled its lien on Corpuzs
title, she having incurred no liability to her employer. Without Corpuzs knowledge
and consent, however, Natividad Alano, the rural banks manager, turned over
Corpuzs title to Julita Camacho and Amparo Callejo.
Conniving with someone from the assessors office, Alano, Camacho, and Callejo
prepared a falsified deed of sale, making it appear that on February 23, 1995 Corpuz
sold her land to one Mary Bondoc for P50,000.00. They caused the registration of
the deed of sale, resulting in the cancellation of TCT 32815 and the issuance of TCT
63262 in Bondocs name. About a month later or on March 27, 1995 the trio
executed another fictitious deed of sale with Mary Bondoc selling the property to
the spouses Rufo and Teresa Palaganas for only P15,000.00. This sale resulted in the
issuance of TCT 63466 in favor of the Palaganases.
Nine days later or on April 5, 1995 the Palaganases executed a deed of sale in favor
of spouses Virgilio and Elena Songcuan for P50,000.00, resulting in the issuance of
TCT 63528. Finally, four months later or on August 10, 1995 the Songcuans took out
a loan of P1.1 million from petitioner Philippine National Bank (PNB) and, to secure
payment, they executed a real estate mortgage on their title. Before granting the
loan, the PNB had the title verified and the property inspected.
On November 20, 1995 respondent Corpuz filed, through an attorney-
in-fact, a complaint before the Dagupan Regional Trial Court (RTC) against Mary
Bondoc, the Palaganases, the Songcuans, and petitioner PNB, asking for the
annulment of the layers of deeds of sale covering the land, the cancellation of TCTs
63262, 63466, and 63528, and the reinstatement of TCT 32815 in her name.
On June 29, 1998 the RTC rendered a decision granting respondent Corpuzs
prayers. This prompted petitioner PNB to appeal to the Court of Appeals (CA). On
July 31, 2007 the CA affirmed the decision of the RTC and denied the motion for its
reconsideration, prompting PNB to take recourse to this Court.
The Issue Presented
The sole issue presented in this case is whether or not petitioner PNB is
a mortgagee in good faith, entitling it to its lien on the title to the property in
dispute.
The Ruling of the Court
Petitioner PNB points out that, since it did a credit investigation, inspected the
property, and verified the clean status of the title before giving out the loan to the
Songcuans, it should be regarded as a mortgagee in good faith. PNB claims that the
precautions it took constitute sufficient compliance with the due diligence required
of banks when dealing with registered lands.
As a rule, the Court would not expect a mortgagee to conduct an exhaustive
investigation of the history of the mortgagors title before he extends a loan. [1] But
petitioner PNB is not an ordinary mortgagee; it is a bank.[2] Banks are expected to be
more cautious than ordinary individuals in dealing with lands, even registered ones,
since the business of banks is imbued with public interest. [3] It is of judicial notice
that the standard practice for banks before approving a loan is to send a staff to the
property offered as collateral and verify the genuineness of the title to determine
the real owner or owners.[4]
One of the CAs findings in this case is that in the course of its
verification, petitioner PNB was informed of the previous TCTs covering the subject
property.[5] And the PNB has not categorically contested this finding. It is evident
from the faces of those titles that the ownership of the land changed from Corpuz
to Bondoc, from Bondoc to the Palaganases, and from the Palaganases to the
Songcuans in less than three months and mortgaged to PNB within four months of
the last transfer.
The above information in turn should have driven the PNB to look at the
deeds of sale involved. It would have then discovered that the property was sold for
ridiculously low prices: Corpuz supposedly sold it to Bondoc for just P50,000.00;
Bondoc to the Palaganases for just P15,000.00; and the Palaganases to the
Songcuans also for just P50,000.00. Yet the PNB gave the property an appraised
value of P781,760.00. Anyone who deliberately ignores a significant fact that would
create suspicion in an otherwise reasonable person cannot be considered as an
innocent mortgagee for value.[6]
The Court finds no reason to reverse the CA decision.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the
Court of Appeals dated July 31, 2007 and its resolution dated December 17, 2007 in
CA-G.R. CV 60616.
Page 46 of 152

SO ORDERED.
THIRD DIVISION
G.R. No. 196118 July 30, 2014
LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO, Petitioner,
vs.
SECURITY BANK CORPORATION, JRC POULTRY FARMS or SPOUSES LEON C.
CASTILLO, JR., and TERESITA FLORESCASTILLO, Respondents.
DECISION
PERALTA, J.:
This is a Petition for Review questioning the Decision 1 of the Court of Appeals (CA)
dated November 26, 2010, as well as its Resolution 2 dated March 17, 2011 in CA-
G.R. CV No. 88914. The CA reversed and set aside the Decision3 of the Regional Trial
Court (RTC) of San Pablo City, Laguna, Branch 32, dated October 16, 2006 in Civil
Case No. SP-5882 (02), and consequently, upheld the validity of the real estate
mortgage entered into by respondents spouses Leon C. Castillo, Jr. and Teresita
Flores-Castillo, and Security Bank Corporation (SBC).
The facts, as culled from the records, are as follows:
Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are siblings. Leon
and Teresita Flores-Castillo (the Spouses Castillo) were doing business under the
name of JRC Poultry Farms. Sometime in 1994, the Spouses Castillo obtained a loan
from respondent SBC in the amount of P45,000,000.00. To secure said loan, they
executed a real estate mortgage on August 5, 1994 over eleven (11) parcels of land
belonging to different members of the Castillo family and which are all located in
San Pablo City.4 They also procured a second loan5amounting to P2,500,000.00,
which was covered by a mortgage on a land in Pasay City. Subsequently, the
Spouses Castillo failed to settle the loan, prompting SBC to proceed with the
foreclosure of the properties. SBC was then adjudged as the winning bidder in the
foreclosure sale held on July 29, 1999. Thereafter, they were able to redeem the
foreclosed properties, withthe exception of the lots covered by Torrens Certificate of
Title(TCT) Nos. 28302 and 28297.
On January 30, 2002, Leonardo filed a complaint for the partial annulment of the
real estate mortgage. He alleged that he owns the property covered by TCT No.
28297 and that the Spouses Castillo used it as one of the collaterals for a loan
without his consent. He contested his supposed Special Power of Attorney (SPA) in
Leons favor, claiming that it is falsified. According to him, the date of issuance of his
Community Tax Certificate (CTC) as indicated on the notarization of said SPA is
January 11, 1993, when he only secured the same on May 17, 1993. He also assailed
the foreclosure of the lots under TCT Nos.20030 and 10073 which were still
registered in the name of their deceased father. Lastly, Leonardo attacked SBCs
imposition of penalty and interest on the loans as being arbitrary and
unconscionable.
On the other hand, the Spouses Castillo insisted on the validity of Leonardos SPA.
They alleged that they incurred the loan not only for themselves, but also for the
other members of the Castillo family who needed money at that time. Upon receipt
of the proceeds of the loan, they distributed the same to their family members, as
agreed upon. However, when the loan became due, their relatives failed to pay their
respective shares such that Leon was forced to use his own money until SBC had to
finally foreclose the mortgage over the lots.6
In a Decision dated October 16, 2006, the RTC of San Pablo City ruled in Leonardos
favor, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Leonardo C.
Castillo and against the defendants SECURITY BANK CORPORATION, and JRC
POULTRY FARMS or SPS. LEON C. CASTILLO, JR. and TERESITA FLORES-CASTILLO
declaring as null and void the Real Estate Mortgage dated August 5, 1994, the
Memorandum of Agreement dated October 28, 1997 and the Certificate of Sale
dated August 27, 1999 insofar as plaintiffs property with Transfer Certificate of Title
No. T-28297 is concerned. The Security Bank Corporation is likewise ordered to
return the ownership of the Transfer Certificate of Title No. T-28297 to plaintiff
Leonardo Castillo. Likewise, defendants spouses Leon C. Castillo, Jr. and Teresita
Flores-Castillo are hereby ordered to pay plaintiff moral damages in the total
amount of P500,000.00 and exemplary damages of P20,000.00. All other claims for
damages and attorneys fees are DENIED for insufficiency of evidence.
SO ORDERED.7
Both parties elevated the case to the CA. On November 26, 2010, the CA denied
Leonardos appeal and granted that of the Spouses Castillo and SBC. It reversed and
set aside the RTC Decision, essentially ruling that the August 5, 1994 real estate
mortgage isvalid. Leonardo filed a Motion for Reconsideration, but the same was
denied for lack of merit.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Hence, Leonardo brought the case to the Court and filed the instant Petition for
Review.1wphi1 The main issue soughtto be resolved here is whether or not the real
estate mortgage constituted over the property under TCT No. T-28297 is valid and
binding.
The Court finds the petition to be without merit.
As a rule, the jurisdiction of the Court over appealed cases from the CA is limited to
the review and revision of errors of law it allegedly committed, as its findings of fact
are deemed conclusive. Thus, the Court is not duty-bound to evaluate and weigh
the evidence all over again which were already considered in the proceedings
below, except when, as in this case, the findings of fact of the CAare contrary to the
findings and conclusions of the trial court.8
The following are the legal requisites for a mortgage to be valid:
(1) It must be constituted to secure the fulfillment of a principal
obligation;
(2) The mortgagor must be the absolute owner of the thing mortgaged;
(3) The persons constituting the mortgage must have the free disposal
of their property, and in the absence thereof, they should be legally
authorized for the purpose.9
Leonardo asserts that his signature inthe SPA authorizing his brother, Leon, to
mortgage his property covered by TCT No. T-28297 was falsified. He claims that he
was in America at the time of its execution. As proof of the forgery, he focuses on
his alleged CTC used for the notarization10 of the SPA on May 5, 1993 and points
out that it appears to have been issued on January 11, 1993 when, in fact, he only
obtained it on May 17, 1993. But it is a settled rule that allegations of forgery, like all
other allegations, must be proved by clear, positive, and convincing evidence by the
party alleging it. It should not be presumed, but must beestablished by comparing
the alleged forged signature with the genuine signatures. 11 Here, Leonardo simply
relied on his self-serving declarations and refused to present further corroborative
evidence, saying that the falsified document itself is the best evidence. 12He did not
even bother comparing the alleged forged signature on the SPA with samples of his
real and actual signature. What he consistently utilized as lone support for his
allegation was the supposed discrepancy on the date of issuance of his CTC as
reflectedon the subject SPAs notarial acknowledgment. On the contrary, in view of
the great ease with which CTCs are obtained these days, 13 there is reasonable
ground to believe that, as the CA correctly observed, the CTC could have been
issued with the space for the date left blank and Leonardo merelyfilled it up to
accommodate his assertions. Also, upon careful examination, the handwriting
appearing on the space for the date of issuance is different from that on the
computation of fees, which in turn was consistent with the rest of the writings on
the document.14 He did not likewise attempt to show any evidence that would back
up his claim that at the time of the execution of the SPA on May 5, 1993, he was
actually in America and therefore could not have possibly appeared and signed the
document before the notary.
And even if the Court were to assume, simply for the sake of argument, that
Leonardo indeed secured his CTC only on May 17, 1993, this does not automatically
render the SPA invalid. The appellate court aptly held that defective notarization will
simply strip the document of its public character and reduce it to a private
instrument, but nonetheless, binding, provided its validity is established by
preponderance of evidence.15 Article 1358 of the Civil Code requires that the form of
a contract that transmits or extinguishes real rights over immovable property should
be in a public document, yet the failure to observethe proper form does not render
the transaction invalid.16 The necessity of a public document for said contracts is
only for convenience; it is not essential for validity or enforceability. 17 Even a sale of
real property, though notcontained in a public instrument or formal writing, is
nevertheless valid and binding, for even a verbal contract of sale or real estate
produceslegal effects between the parties.18 Consequently, when there is a defect in
the notarization of a document, the clear and convincing evidentiary standard
originally attached to a dulynotarized document is dispensed with, and the measure
to test the validity of such document is preponderance of evidence. 19
Here, the preponderance ofevidence indubitably tilts in favor of the respondents,
still making the SPA binding between the parties even with the aforementioned
assumed irregularity.1wphi1 There are several telling circumstances that would
clearly demonstrate that Leonardo was aware of the mortgage and he indeed
executed the SPA to entrust Leon with the mortgage of his property. Leon had inhis
possession all the titles covering the eleven (11) properties mortgaged, including
that of Leonardo.20 Leonardo and the rest of their relatives could not have just
blindly ceded their respective TCTs to Leon.21 It is likewise ridiculous how Leonardo
seemed to have been totally oblivious to the status of his property for eight (8) long
years, and would only find outabout the mortgage and foreclosure from a nephew
who himself had consented to the mortgage of his own lot. 22 Considering the lapse
of time from the alleged forgery on May 5, 1993 and the mortgage on August 5,
1994, to the foreclosure on July 29, 1999, and to the supposed discovery in 2001, it
appears that the suit is a mere afterthought or a last-ditch effort on Leonardos part
to extend his hold over his property and to prevent SBC from consolidating
ownership over the same. More importantly, Leonardo himself admitted on cross-
examination that he granted Leon authority to mortgage, only that, according to
him, he thought it was going to be with China Bank, and not SBC.23 But as the CA
noted, there is no mention of a certainbank in the subject SPA with which Leon must
Page 47 of 152
specifically deal. Leon, therefore, was simply acting within the bounds of the SPAs
authority when hemortgaged the lot to SBC.
True, banks and other financing institutions, in entering into mortgage contracts, are
expected to exercise due diligence.24 The ascertainment of the status or condition of
a property offered to it as security for a loan must be a standard and indispensable
part of its operations.25 In this case, however, no evidence was presented to show
that SBC was remiss in the exercise of the standard care and prudence required of it
or that it was negligent in accepting the mortgage. 26 SBC could not likewise
befaulted for relying on the presumption of regularity of the notarized SPA when it
entered into the subject mortgage agreement.
Finally, the Court finds that the interest and penalty charges imposed by SBC are
just, and not excessive or unconscionable.
Section 47 of The General Banking Law of 2000 thus provides:
27
Section 47. Foreclosure of Real Estate Mortgage.- In the event of foreclosure,
whether judicially or extra-judicially, of any mortgage on real estate which is security
for any loan or other credit accommodation granted, the mortgagor or debtor
whose real property has been sold for the full or partial payment of his obligation
shall have the right within one year after the sale of the real estate, to redeem the
property by paying the amount due under the mortgage deed, with interest thereon
at the rate specified in the mortgage, and all the costs and expenses incurred by the
bank or institutionfrom the sale and custody of said property less the income
derived therefrom. However,the purchaser at the auction sale concerned whether in
a judicial or extra-judicial foreclosure shall have the right to enter upon and take
possession of such property immediately after the date of the confirmation of the
auction sale and administer the same in accordance with law. Any petition in court
to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to
this provision shall be given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will pay all the damages
which the bank may suffer by the enjoining or the restraint of the foreclosure
proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant
to an extrajudicial foreclosure, shall have the right to redeem the property in
accordance with this provision until, but not after, the registration of the certificate
of foreclosure sale with the applicable Register of Deeds which in no case shall be
more than three (3) months after foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale prior to the effectivity of this Act
shall retain their redemption rights until their expiration. 28 Verily, the redemption
price comprises not only the total amount due under the mortgage deed, but also
with interest at the rate specified in the mortgage, and all the foreclosure expenses
incurred by the mortgagee bank.
To sustain Leonardo's claim that their payment of P45,000,000.00 had already
extinguished their entire obligation with SBC would mean that no interest ever
accrued from 1994, when the loan was availed, up to the time the payment
of P45,000,000.00 was made in 2000-2001.
SBC's 16% rate of interest is not computed per month, but rather per annum or only
1.33% per month. In Spouses Bacolor v. Banco Filipino Savings and Mortgage Bank,
Dagupan City Branch,29 the Court held that the interest rate of 24% per annum on a
loan of P244,000.00 is not considered as unconscionable and excessive. As such, the
Court ruled that the debtors cannot renege on their obligation to comply with what
is incumbent upon them under the contract of loan as they are bound by its
stipulations. Also, the 24o/o per annum rate or 2% per month for the penalty
charges imposed on account of default, cannot be considered as skyrocketing. The
enforcement of penalty can be demanded by the creditor in case of non-
performance due to the debtor's fault or fraud. The nonperformance gives rise to
the presumption of fault and in order to avoid the penalty, the debtor has the
burden of proving that the failure of the performance was due to either force
majeure or the creditor's own acts.30 In the instant case, petitioner failed to
discharge said burden and thus cannot avoid the payment of the penalty charge
agreed upon.
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court
of Appeals, dated November 26, 2010, as well as its Resolution dated March 17,
2011 in CA-G.R. CV No. 88914, are hereby AFFIRMED.
SO ORDERED.
THIRD DIVISION
[G.R. No. 112160. February 28, 2000]
OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner, vs. COURT OF
APPEALS, ASIAN SAVINGS BANK, MAXIMO C. CONTRERAS and VICENTE
MAOSCA, respondents.
DECISION
PURISIMA, J.: Mi-so
CRED TRANS Pledge, Mortgage Antichresis Fulltext
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
seeking to review and set aside the Decision[1] of the Court of Appeals in CA-G.R. CV
No. 25242, which reversed the Decision[2] of Branch 59 of the Regional Trial Court of
Makati City in Civil Case No. M-028; the dispositive portion of which reads:
"WHEREFORE, the decision appealed from is hereby
REVERSED and SET ASIDE and a new one is hereby entered
DISMISSING the complaint of the spouses Osmundo and
Angelina Canlas. On the counterclaim of defendant Asian
Savings Bank, the plaintiffs Canlas spouses are hereby ordered
to pay the defendant Asian Savings Bank the amount
of P50,000.00 as moral and exemplary damages
plus P15,000.00 as and for attorney's fees.
With costs against appellees.
SO ORDERED."[3]
The facts that matter:
Sometime in August, 1982, the petitioner, Osmundo S. Canlas, and private
respondent, Vicente Maosca, decided to venture in business and to raise the capital
needed therefor. The former then executed a Special Power of Attorney authorizing
the latter to mortgage two parcels of land situated in San Dionisio, (BF
Homes) Paranaque, Metro Manila, each lot with semi-concrete residential house
existing thereon, and respectively covered by Transfer Certificate of Title No. 54366
in his (Osmundo's) name and Transfer Certificate of Title No. S-78498 in the name of
his wife Angelina Canlas.
Subsequently, Osmundo Canlas agreed to sell the said parcels of land to Vicente
Manosca, for and in consideration of P850,000.00, P500,000.00 of which payable
within one week, and the balance of P350,000.00 to serve as
his (Osmundo's) investment in the business. Thus, Osmundo Canlas delivered to
Vicente Maosca the transfer certificates of title of the parcels of land involved.
Vicente Maosca, as his part of the transaction, issued two postdated checks in favor
of Osmundo Canlas in the amounts of P40,000.00 and P460,000.00, respectively, but
it turned out that the check covering the bigger amount was not sufficiently
funded.[4]Ne-xold
On September 3, 1982, Vicente Maosca was able to mortgage the same parcels of
land for P100,000.00 to a certain Attorney Manuel Magno, with the help of
impostors who misrepresented themselves as the spouses, Osmundo Canlas and
Angelina Canlas.[5]
On September 29, 1982, private respondent Vicente Maosca was granted a loan by
the respondent Asian Savings Bank (ASB) in the amount of P500,000.00, with the use
of subject parcels of land as security, and with the involvement of the same
impostors who again introduced themselves as the Canlas spouses. [6] When the loan
it extended was not paid, respondent bank extrajudicially foreclosed the mortgaged.
On January 15, 1983, Osmundo Canlas wrote a letter informing the respondent bank
that the execution of subject mortgage over the two parcels of land in question was
without their (Canlas spouses) authority, and request that steps be taken to annul
and/or revoke the questioned mortgage. On January 18, 1983, petitioner Osmundo
Canlas also wrote the office of Sheriff Maximo C. Contreras, asking that the auction
sale scheduled on February 3, 1983 be cancelled or held in abeyance.
But respondents Maximo C. Contreras and Asian Savings Bank refused to heed
petitioner Canlas' stance and proceeded with the scheduled auction sale. [7]
Consequently, on February 3, 1983 the herein petitioners instituted the present case
for annulment of deed of real estate mortgage with prayer for the issuance of a writ
of preliminary injunction; and on May 23, 1983, the trial court issued an Order
restraining the respondent sheriff from issuing the corresponding Certificate of
Sheriffs Sale.[8]
For failure to file his answer, despite several motions for extension of time for the
filing thereof, Vicente Maosca was declared in default. [9]
On June 1, 1989, the lower court a quo came out with a decision annulling subject
deed of mortgage and disposing, thus:
"Premises considered, judgment is hereby rendered as follows:
1. Declaring the deed of real estate mortgage (Exhibit 'L)
involving the properties of the plaintiffs as null and void; Man-
ikx
2. Declaring the public auction sale conducted by the
defendant Sheriff, involving the same properties as illegal and
without binding effect;
3. Ordering the defendants, jointly and severally, to pay the
plaintiffs the sum of P20,000.00 representing attorney's fees;
Page 48 of 152
 4. On defendant ASB's crossclaim: ordering the cross-
defendant Vicente Maosca to pay the defendant ASB the sum
of P350,000.00, representing the amount which he received as
proceeds of the loan secured by the void mortgage, plus
interest at the legal rate, starting February 3, 1983, the date
when the original complaint was filed, until the amount is
fully paid;
5. With costs against the defendants.
SO ORDERED." [10]
From such Decision below, Asian Savings Bank appealed to the Court of Appeals,
which handed down the assailed judgment of reversal, dated September 30, 1983, in
CA-G.R. CV No. 25242. Dissatisfied therewith, the petitioners found their way to this
Court via the present Petition; theorizing that:
"I
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE
MORTGAGE OF THE PROPERTIES SUBJECT OF THIS CASE WAS VALID.
II
RESPONDENT COURT OF APPEALS ERRED IN HIOLDING THAT
PETITIONERS ARE NOT ENTITLED TO RELIEF BECAUSE THEY WERE
NEGLIGENT AND THEREFORE MUST BEAR THE LOSS.
III
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
RESPONDENT ASB EXERCISED DUE DILIGENCE IN GRANTING THE LOAN
APPLICATION OF RESPONDENT. Manik-s
IV
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
RESPONDENT ASB DID NOT ACT WITH BAD FAITH IN PROCEEDING
WITH THE FORECLOSURE SALE OF THE PROPERTIES.
V
RESPONDENT COURT OF APPEALS ERRED IN AWARDING RESPONDENT
ASB MORAL DAMAGES."[11]
The Petition is impressed with merit.
Article 1173 of the Civil Code, provides:
"Article 1173. The fault or negligence of the obligor consist in
the omission of that diligence which is required by the nature
of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. When negligence
shows bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence which is to
be observed in the performance, that which is expected of a
good father of a family shall be required. (1104)"
The degree of diligence required of banks is more than that of a good father of a
family;[12] in keeping with their responsibility to exercise the necessary care and
prudence in dealing even on a register or titled property. The business of a bank is
affected with public interest, holding in trust the money of the depositors, which
bank deposits the bank should guard against loss due to negligence or bad faith, by
reason of which the bank would be denied the protective mantle of the land
registration law, accorded only to purchases or mortgagees for value and in good
faith.[13]Man-ikan
In the case under consideration, from the evidence on hand it can be gleaned
unerringly that respondent bank did not observe the requisite diligence in
ascertaining or verifying the real identity of the couple who introduced themselves
as the spouses Osmundo Canlas and Angelina Canlas. It is worthy to note that not
even a single identification card was exhibited by the said impostors to show their
true identity; and yet, the bank acted on their representations simply on the basis of
the residence certificates bearing signatures which tended to match the signatures
affixed on a previous deed of mortgage to a certain Atty. Magno, covering the same
parcels of land in question. Felizado Mangubat, Assistant Vice President of Asian
Savings Bank, thus testified inter alia:
"x x x
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Q:.....According to you, the basis for your having
recommended for the approval of MANASCO's (sic) loan
particularly that one involving the property of plaintiff in this
case, the spouses OSMUNDO CANLAS and ANGELINA
CANLAS, the basis for such approval was that according to
you all the signatures and other things taken into account
matches with that of the document previously executed by the
spouses CANLAS?
A:.....That is the only basis for accepting the signature on the
mortgage, the basis for the recommendation of the approval
of the loan are the financial statement of MAOSCA?
A:.....Yes, among others the signature and TAX Account
Number, Residence Certificate appearing on the previous loan
executed by the spouses CANLAS, I am referring to EXHIBIT 5,
mortgage to ATTY. MAGNO, those were made the basis.
A:.....That is just the basis of accepting the signature, because
at that time the loan have been approved already on the basis
of the financial statement of the client the Bank Statement.
Wneh (sic) it was approved we have to base it on the Financial
statement of the client, the signatures were accepted only for
the purpose of signing the mortgage not for the approval, we
don't (sic) approve loans on the signature.
ATTY. CLAROS:
.....Would you agree that as part of ascertaining the identify of
the parties particularly the mortgage, you don't consider also
the signature, the Residence Certificate, the particular address
of the parties involved.
A:.....I think the question defers (sic) from what you asked a
while ago.
Q:.....Among others?
A:.....We have to accept the signature on the basis of the other
signatures given to us it being a public instrument. Ol-dmiso
ATTY. CARLOS:
.....You mean to say the criteria of ascertaining the identity of
the mortgagor does not depend so much on the signature on
the residence certificate they have presented.
A:.....We have to accept that
xxx.....xxx.....xxx
A:.....We accepted the signature on the basis of the mortgage
in favor of ATTY. MAGNO duly notarized which I have been
reiterrting (sic) entitled to full faith considering that it is a
public instrument.
ATTY. CARLOS:
.....What other requirement did you take into account in
ascertaining the identification of the parties particularly the
mortgagor in this case.
A:.....Residence Certificate.
Q:.....Is that all, is that the only requirement?
A:.....We requested for others but they could not produce, and
because they presented to us the Residence Certificate which
matches on the signature on the Residence Certificate in favor
of Atty. Magno."[14]M-isjuris
Evidently, the efforts exerted by the bank to verify the identity of the couple posing
as Osmundo Canlas and Angelina Canlas fell short of the responsibility of the bank
to observe more than the diligence of a good father of a family. The negligence of
respondent bank was magnified by the fact that the previous deed of
mortgage (which was used as the basis for checking the genuineness of the signatures
of the suppose Canlas spouses) did not bear the tax account number of the
spouses,[15] as well as the Community Tax Certificate of Angelina Canlas. [16] But such
fact notwithstanding, the bank did not require the impostors to submit additional
proof of their true identity.
Page 49 of 152
Under the doctrine of last clear chance, which is applicable here, the respondent
bank must suffer the resulting loss. In essence, the doctrine of last clear chance is to
the effect that where both parties are negligent but the negligent act of one is
appreciably later in point of time than that of the other, or where it is impossible to
determine whose fault or negligence brought about the occurrence of the incident,
the one who had the last clear opportunity to avoid the impending harm but failed
to do so, is chargeable with the consequences arising therefrom. Stated differently,
the rule is that the antecedent negligence of a person does not preclude recovery of
damages caused by the supervening negligence of the latter, who had the last fair
chance to prevent the impending harm by the exercise of due diligence. [17]
Assuming that Osmundo Canlas was negligent in giving Vicente Maosca the
opportunity to perpetrate the fraud, by entrusting to latter the owner's copy of the
transfer certificates of title of subject parcels of land, it cannot be denied that the
bank had the last clear chance to prevent the fraud, by the simple expedient of
faithfully complying with the requirements for banks to ascertain the identity of the
persons transacting with them.
For not observing the degree of diligence required of banking institutions, whose
business is impressed with public interest, respondent Asian Savings Bank has to
bear the loss sued upon.
In ruling for respondent bank, the Court of Appeals concluded that the petitioner
Osmundo Canlas was a party to the fraudulent scheme of Maosca and therefore,
estopped from impugning the validity of subject deed of mortgage; ratiocinating
thus: Sd-aamiso
"x x x
Thus, armed with the titles and the special power of attorney,
Manosca went to the defendant bank and applied for a loan.
And when Maosca came over to the bank to submit additional
documents pertinent to his loan application, Osmundo Canlas
was with him, together with a certain Rogelio Viray. At that
time, Osmundo Canlas was introduced to the bank personnel
as 'Leonardo Rey.
When he was introduced as 'Leonardo Rey for the first time
Osmundo should have corrected Maosca right away. But he
did not. Instead, he even allowed Maosca to avail of his
(Osmundo's) membership privileges at the Metropolitan Club
when Maosca invited two officers of the defendant bank to a
luncheon meeting which Osmundo also attended. And during
that meeting, Osmundo did not say who he really is, but even
let Maosca introduced him again as 'Leonardo Rey, which all
the more indicates that he connived with Maosca in deceiving
the defendant bank.
Finally after the loan was finally approved, Osmundo
accompanied Maosca to the bank when the loan was released.
At that time a manger's check for P200,000.00 was issued in
the name of Oscar Motorworks, which Osmundo admits he
owns and operates.
Collectively, the foregoing circumstances cannot but conjure
to a single conclusion that Osmundo actively participated in
the loan application of defendant Asian Savings Bank, which
culminated in his receiving a portion of the process
thereof."[18]
A meticulous and painstaking scrutiny of the Records on hand, reveals, however,
that the findings arrived at by the Court of Appeals are barren of any sustainable
basis. For instance, the execution of the deeds of mortgages constituted by Maosca
on subject pieces of property of petitioners were made possible not by the Special
Power of Attorney executed by Osmundo Canlas in favor of Maosca but through the
use of impostors who misrepresented themselves as the spouses Angelina Canlas
and Osmundo Canlas. It cannot be said therefore, that the petitioners authorized
Vicente Maosca to constitute the mortgage on their parcels of land.
What is more, Osmundo Canlas was introduced as "Leonardo Rey" by Vicente
Maosca, only on the occasion of the luncheon meeting at the Metropolitan
Club.[19] Thereat, the failure of Osmundo Canlas to rectify Maosca's
misrepresentations could not be taken as a fraudulent act. As well explained by the
former, he just did not want to embarrass Maosca, so that he waited for the end of
the meeting to correct Maosca.[20]
Then, too, Osmundo Canlas recounted that during the said luncheon meeting, they
did not talk about the security or collateral for the loan of Maosca with ASB.[21] So
also, Mrs. Josefina Rojo, who was the Account Officer of Asian Savings Bank when
Maosca applied for subject loan, corroborated the testimony of Osmundo Canlas,
she testified: S-daad
"xxx.....xxx.....xxx
CRED TRANS Pledge, Mortgage Antichresis Fulltext
QUESTION:.....Now could you please
describe out the lunch conference at
the Metro Club in Makati?
ANSWER:.....Mr. Mangubat, Mr.
Maosca and I did not discuss with
respect to the loan application and
discuss primarily his business.
xxx.....xxx.....xxx
xxx.....xxx.....xxx
QUESTION:..... So, what is the main topic of your discussion
during the meeting?
ANSWER:..... The main topic was then, about his business
although, Mr, Leonardo Rey, who actually turned out as Mr.
Canlas, supplier of Mr. Maosca.
QUESTION:..... I see ... other than the business of Mr. Maosca,
were there any other topic discussed?
ANSWER:..... YES.
QUESTION:..... And what was the topic?
ANSWER:..... General Economy then.
x x x"[22]
Verily, Osmundo Canlas was left unaware of the illicit plan of Maosca, explaining
thus why he (Osmundo) did not bother to correct what Maosca misrepresented and
to assert ownership over the two parcels of land in question. Scs-daad
Not only that; while it is true that Osmundo Canlas was with Vicente Maosca when
the latter submitted the documents needed for his loan application, and when the
check of P200,000.000 was released, the former did not know that the collateral
used by Maosca for the said loan were their (Canlas spouses) properties. Osmundo
happened to be with Maosca at the time because he wanted to make sure that
Maosca would make good his promise to pay the balance of the purchase price of
the said lots out of the proceeds of the loan. [23]
The receipt by Osmundo Canlas of the P200,000.00 check from ASB could not estop
him from assailing the validity of the mortgage because the said amount was in
payment of the parcels of land he sold to Maosca. [24]
What is decisively clear on record is that Maosca managed to keep Osmundo Canlas
uninformed of his (Maosca's) intention to use the parcels of land of the Canlas
spouses as security for the loan obtained from Asian Savings Bank. Since Vicente
Maosca showed Osmundo Canlas several certificates of title of lots which, according
to Maosca were the collaterals, Osmundo Canlas was confident that
their (Canlases) parcels of land were not involved in the loan transaction with the
Asian Savings Bank.[25] Under the attendant facts and circumstances, Osmundo
Canlas was undoubtedly negligent, which negligence made
them (petitioners) undeserving of an award of Attorneys fees.
Settled is the rule that a contract of mortgage must be constituted only by the
absolute owner on the property mortgaged;[26] a mortgage, constituted by an
impostor is void.[27]Considering that it was established indubitably that the contract
of mortgage sued upon was entered into and signed by impostors who
misrepresented themselves as the spouses Osmundo Canlas and Angelina Canlas,
the Court is of the ineluctible conclusion and finding that subject contract of
mortgage is a complete nullity.
WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals,
dated September 30, 1993, in CA-G.R. CV No. 25242 SET ASIDE. The Decision of
Branch 59 of the Regional Trial Court of Makati City in Civil Case No. M-028 is
hereby REINSTATED. No pronouncement as to costs.
SO ORDERED.
EN BANC
G.R. No. L-13313 April 28, 1960
AGRICULTURAL CREDIT COOPERATIVE ASSOCIATION OF
HINIGARAN, movant-appellee,
vs.
ESTANISLAO YULO YUSAY, ET AL., oppositors-appellants.
Page 50 of 152
Aritao, Garcia & Aritao for appellee. CARPIO, J.:
Catalino A. Dayon and Arsenio Al. Acuna for appellant.
The Case
LABRADOR, J.:

This is an appeal from an order of the Court of First Instance of Negros Occidental,
Hon. Jose S. de la Cruz, presiding the Register of Deeds of Negros Occidental to
register a mortgage executed by Rafael Yulo in favor of the movant covering Lot No.
855, Pontevedra Cadastre, covered by Original Certificate of Title No. 4979.
G.R. No. 170166 is a petition for review1 assailing the Decision2 promulgated on 17
October 2005 by the Court of Appeals (appellate court) in CA-G.R. CV No. 76845.
The appellate court granted the appeal filed by the Philippine National Bank
Laoag Branch (PNB). The appellate court reversed the 29 June 2001 Decision of
Branch 15 of the Regional Trial Court of Laoag City (trial court) in Civil Case No.
7803.

The records disclose that on July 20, 1952, Rafaela Yulo executed in favor of the
movant a mortgage for P33,626.29, due from her, her mother, sisters, brothers, and The trial court declared the Deed of Real Estate Mortgage executed by spouses Jose
others, which amount she assumed to pay to the movant. A motion was presented A. Ros3 (Ros) and Estrella Aguete (Aguete) (collectively, petitioners), as well as the
to the court by the movant demanding the surrender of the owner's duplicate subsequent foreclosure proceedings, void. Aside from payment of attorneys fees,
certificate of title that he may annotate said mortgage at the back of the certificate. the trial court also ordered PNB to vacate the subject property to give way to
Estanislao Yusay, a part owner of the lot, opposed the petition on the ground that petitioners possession.
he is owner of a part of the property in question; that the granting of the motion
would operate to his prejudice, as he has not participated in the mortgage cited in
The Facts
the motion; that Rafaela Yulo is dead; that the motion is not verified and movant's
rights have lapsed by prescription. Finally it is argued that his opposition raises a
controversial matter which the court has no jurisdiction to pass upon. Margarita, The appellate court narrated the facts as follows:
Maria, Elena and Pilar, all surnamed Yulo, joined the oppositor Estanislao Yusay,
raising the same objections interposed by Yusay.
On January 13, 1983, spouses Jose A. Ros and Estrella Aguete filed a complaint for
the annulment of the Real Estate Mortgage and all legal proceedings taken
The existence of the mortgage is not disputed, and neither is the fact that the thereunder against PNB, Laoag Branch before the Court of First Instance, Ilocos
mortgagor Rafaela Yulo is part owner of Lot No. 855 of the Cadastral Survey of Norte docketed as Civil Case No. 7803.
Pontevedra. The oppositors do not dispute that she is such a part owner, and their
main objection to the petition is that as part owners of the property, the annotation
The complaint was later amended and was raffled to the Regional Trial Court,
of the mortgage on the common title will affect their rights.
Branch 15, Laoag City.

The court held that even if the ownership of the deceased Rafaela Yulo over the
The averments in the complaint disclosed that plaintiff-appellee Joe A. Ros obtained
portion of the lot in question and the validity of the mortgage are disputed, such
a loan of P115,000.00 from PNB Laoag Branch on October 14, 1974 and as security
invalidity of the mortgage is no proof of the non-existence of the mortgage nor a
for the loan, plaintiff-appellee Ros executed a real estate mortgage involving a
ground for objecting to its registration, citing the case of Register of Deeds of
parcel of land Lot No. 9161 of the Cadastral Survey of Laoag, with all the
Manila vs. Maxima Tinoco Vda. de Cruz, et, al., 95 Phil., 818; 53 Off. Gaz., 2804.
improvements thereon described under Transfer Certificate of Title No. T-9646.

In his Brief before this Court, counsel for appellants argue that the mortgage sought
Upon maturity, the loan remained outstanding. As a result, PNB instituted
to be registered was not recorded before the closing of the intestate proceedings of
extrajudicial foreclosure proceedings on the mortgaged property. After the
the deceased mortgagor, but was so recorded only four months after the
extrajudicial sale thereof, a Certificate of Sale was issued in favor of PNB, Laoag as
termination of said proceedings, so that the claim of movant has been reduced to
the highest bidder. After the lapse of one (1) year without the property being
the character of a mere money claim, not a mortgage, hence the mortgage may not
redeemed, the property was consolidated and registered in the name of PNB, Laoag
be registered. In the first place, as the judge below correctly ruled, the proceeding
Branch on August 10, 1978.
to register the mortgage does not purport to determine the supposed invalidity of
the mortgage or its effect. Registration is a mere ministerial act by which a deed,
contract or instrument is sought to be inscribed in the records of the Office of the Claiming that she (plaintiff-appellee Estrella Aguete) has no knowledge of the loan
Register of Deeds and annotated at the back of the certificate of title covering the obtained by her husband nor she consented to the mortgage instituted on the
land subject of the deed, contract or instrument. conjugal property a complaint was filed to annul the proceedings pertaining to
the mortgage, sale and consolidation of the property interposing the defense that
her signatures affixed on the documents were forged and that the loan did not
The registration of a lease or mortgage, or the entry of a memorial of a
redound to the benefit of the family.1avvphi1
lease or mortgage on the register, is not a declaration by the state that
such an instrument is a valid and subsisting interest in land; it is merely a
declaration that the record of the title appears to be burdened with the In its answer, PNB prays for the dismissal of the complaint for lack of cause of
lease or mortgage described, according to the priority set forth in the action, and insists that it was plaintiffs-appellees own acts [of]
certificate.

The mere fact that a lease or mortgage was registered does not stop any
party to it from setting up that it now has no force or effect. (Niblack,
pp. 134-135, quoted in Francisco Land Registration Act, l950 ed., p. 348.)
omission/connivance that bar them from recovering the subject property on the
ground of estoppel, laches, abandonment and prescription. 4]
The Trial Courts Ruling

The court below, in ordering the registration and annotation of the mortgage, did
On 29 June 2001, the trial court rendered its Decision5 in favor of petitioners. The
not pass on its invalidity or effect. As the mortgage is admittedly an act of the
trial court declared that Aguete did not sign the loan documents, did not appear
registered owner, all that the judge below did and could do, as a registration court,
before the Notary Public to acknowledge the execution of the loan documents, did
is to order its registration and annotation on the certificate of title covering the land
not receive the loan proceeds from PNB, and was not aware of the loan until PNB
mortgaged. By said order the court did not pass upon the effect or validity of the
notified her in 14 August 1978 that she and her family should vacate the mortgaged
mortgage these can only be determined in an ordinary case before the courts,
property because of the expiration of the redemption period. Under the Civil Code,
not before a court acting merely as a registration court, which did not have the
the effective law at the time of the transaction, Ros could not encumber any real
jurisdiction to pass upon the alleged effect or validity.
property of the conjugal partnership without Aguetes consent. Aguete may, during
their marriage and within ten years from the transaction questioned, ask the courts
Wherefore, the order appealed from is hereby affirmed, with costs against for the annulment of the contract her husband entered into without her consent,
oppositors-appellants. So ordered. especially in the present case where her consent is required. The trial court,
however, ruled that its decision is without prejudice to the right of action of PNB to
recover the amount of the loan and its interests from Ros.
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Concepcion, Endencia,
and Gutierrez David, JJ., concur.
The dispositive portion reads:
SECOND DIVISION
WHEREFORE, premises considered, judgment is hereby rendered:
G.R. No. 170166 April 6, 2011
1. DECLARING the Deed of Real Estate Mortgage (Exhibit "C") and the
subsequent foreclosure proceedings conducted thereon NULL and
JOE A. ROS and ESTRELLA AGUETE, Petitioners,
VOID;
vs.
PHILIPPINE NATIONAL BANK - LAOAG BRANCH, Respondent.
2. ORDERING the Register of Deeds of the City of Laoag to cancel TCT
No. T-15276 in the name of defendant PNB and revert the same in the
DECISION
name of plaintiffs spouses Joe Ros and Estrella Aguete;

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 3. ORDERING defendant to vacate and turnover the possession of the
premises of the property in suit to the plaintiffs; and
4. ORDERING defendant to pay plaintiffs attorneys fee and litigation
expenses in the sum of TEN THOUSAND (P10,000.00) PESOS.
No pronouncement as to costs.
SO ORDERED.6]
PNB filed its Notice of Appeal7 of the trial courts decision on 13 September 2001
and paid the corresponding fees. Petitioners filed on the same date a motion for
execution pending appeal,8 which PNB opposed.9 In their comment to the
opposition10 filed on 10 October 2001, petitioners stated that at the hearing of the
motion on 3 October 2001, PNBs lay representative had no objection to the
execution of judgment pending appeal. Petitioners claimed that the house on the
subject lot is dilapidated, a danger to life and limb, and should be demolished.
Petitioners added that they obliged themselves to make the house habitable at a
cost of not less P50,000.00. The repair cost would accrue to PNBs benefit should the
appellate court reverse the trial court. PNB continued to oppose petitioners
motion.11
In an Order12 dated 8 May 2002, the trial court found petitioners motion for
execution pending appeal improper because petitioners have made it clear that
they were willing to wait for the appellate courts decision. However, as a court of
justice and equity, the trial court allowed petitioners to occupy the subject property
with the condition that petitioners would voluntarily vacate the premises and waive
recovery of improvements introduced should PNB prevail on appeal.
The Appellate Courts Ruling
On 17 October 2005, the appellate court rendered its Decision13 and granted PNBs
appeal. The appellate court reversed the trial courts decision, and dismissed
petitioners complaint.
The appellate court stated that the trial court concluded forgery without adequate
proof; thus it was improper for the trial court to rely solely on Aguetes testimony
that her signatures on the loan documents were forged. The appellate court
declared that Aguete affixed her signatures on the documents knowingly and with
her full consent.
Assuming arguendo that Aguete did not give her consent to Ros loan, the appellate
court ruled that the conjugal partnership is still liable because the loan proceeds
redounded to the benefit of the family. The records of the case reveal that the loan
was used for the expansion of the familys business. Therefore, the debt obtained is
chargeable against the conjugal partnership.
Petitioners filed the present petition for review before this Court on 9 December
2005.
The Issues
Petitioners assigned the following errors:
I. The Honorable Court of Appeals erred in not giving weight to the findings and
conclusions of the trial court, and in reversing and setting aside such findings and
conclusions without stating specific contrary evidence;
II. The Honorable Court of Appeals erred in declaring the real estate mortgage valid;
III. The Honorable Court of Appeals erred in declaring, without basis, that the loan
contracted by husband Joe A. Ros with respondent Philippine National Bank Laoag
redounded to the benefit of his family, aside from the fact that such had not been
raised by respondent in its appeal.14]
The Courts Ruling
The petition has no merit. We affirm the ruling of the appellate court.
The Civil Code was the applicable law at the time of the mortgage. The subject
property is thus considered part of the conjugal partnership of gains. The pertinent
articles of the Civil Code provide:
Art. 153. The following are conjugal partnership property:
(1) That which is acquired by onerous title during the marriage at the
expense of the common fund, whether the acquisition be for the
partnership, or for only one of the spouses;
(2) That which is obtained by the industry, or work or as salary of the
spouses, or of either of them;
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(3) The fruits, rents or interest received or due during the marriage,
coming from the common property or from the exclusive property of
each spouse.
Art. 160. All property of the marriage is presumed to belong to the conjugal
partnership, unless it be proved that it pertains exclusively to the husband or to the
wife.
Art. 161. The conjugal partnership shall be liable for:
(1) All debts and obligations contracted by the husband for the benefit
of the conjugal partnership, and those contracted by the wife, also for
the same purpose, in the cases where she may legally bind the
partnership;
(2) Arrears or income due, during the marriage, from obligations which
constitute a charge upon property of either spouse or of the
partnership;
(3) Minor repairs or for mere preservation made during the marriage
upon the separate property of either the husband or the wife; major
repairs shall not be charged to the partnership;
(4) Major or minor repairs upon the conjugal partnership property;
(5) The maintenance of the family and the education of the children of
both husband and wife, and of legitimate children of one of the spouses;
(6) Expenses to permit the spouses to complete a professional,
vocational or other course.
Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or
is under civil interdiction or is confined in a leprosarium, the husband cannot
alienate or encumber any real property of the conjugal partnership without the
wifes consent. If she refuses unreasonably to give her consent, the court may
compel her to grant the same.
Art. 173. The wife may, during the marriage, and within ten years from the
transaction questioned, ask the courts for the annulment of any contract of the
husband entered into without her consent, when such consent is required, or any
act or contract of the husband which tends to defraud her or impair her interest in
the conjugal partnership property. Should the wife fail to exercise this right, she or
her heirs after the dissolution of the marriage may demand the value of the
property fraudulently alienated by the husband.
There is no doubt that the subject property was acquired during Ros and Aguetes
marriage. Ros and Aguete were married on 16 January 1954, while the subject
property was acquired in 1968.15 There is also no doubt that Ros encumbered the
subject property when he mortgaged it for P115,000.00 on 23 October 1974. 16 PNB
Laoag does not doubt that Aguete, as evidenced by her signature, consented to
Ros mortgage to PNB of the subject property. On the other hand, Aguete denies
ever having consented to the loan and also denies affixing her signature to the
mortgage and loan documents.
The husband cannot alienate or encumber any conjugal real property without the
consent, express or implied, of the wife. Should the husband do so, then the
contract is voidable.17 Article 173 of the Civil Code allows Aguete to question Ros
encumbrance of the subject property. However, the same article does not guarantee
that the courts will declare the annulment of the contract. Annulment will be
declared only upon a finding that the wife did not give her consent. In the present
case, we follow the conclusion of the appellate court and rule that Aguete gave her
consent to Ros encumbrance of the subject property.
The documents disavowed by Aguete are acknowledged before a notary public,
hence they are public documents. Every instrument duly acknowledged and certified
as provided by law may be presented in evidence without further proof, the
certificate of acknowledgment being prima facie evidence of the execution of the
instrument or document involved.18 The execution of a document that has been
ratified before a notary public cannot be disproved by the mere denial of the
alleged signer.19 PNB was correct when it stated that petitioners omission to
present other positive evidence to substantiate their claim of forgery was fatal to
petitioners cause.20Petitioners did not present any corroborating witness, such as a
handwriting expert, who could authoritatively declare that Aguetes signatures were
really forged.
A notarized document carries the evidentiary weight conferred upon it with respect
to its due execution, and it has in its favor the presumption of regularity which may
only be rebutted by evidence so clear, strong and convincing as to exclude all
controversy as to the falsity of the certificate. Absent such, the presumption must be
upheld. The burden of proof to overcome the presumption of due execution of a
notarial document lies on the one contesting the same. Furthermore, an allegation
of forgery must be proved by clear and convincing evidence, and whoever alleges it
has the burden of proving the same.21]
Page 52 of 152
Ros himself cannot bring action against PNB, for no one can come before the courts
with unclean hands.1avvphi1 In their memorandum before the trial court,
petitioners themselves admitted that Ros forged Aguetes signatures.
Joe A. Ros in legal effect admitted in the complaint that the signatures of his wife in
the questioned documents are forged, incriminating himself to criminal prosecution.
If he were alive today, he would be prosecuted for forgery. This strengthens the
testimony of his wife that her signatures on the questioned documents are not hers.
In filing the complaint, it must have been a remorse of conscience for having
wronged his family; in forging the signature of his wife on the questioned
documents; in squandering the P115,000.00 loan from the bank for himself,
resulting in the foreclosure of the conjugal property; eviction of his family
therefrom; and, exposure to public contempt, embarassment and ridicule. 22]
The application for loan shows that the loan would be used exclusively "for
additional working [capital] of buy & sell of garlic & virginia tobacco." 23 In her
testimony, Aguete confirmed that Ros engaged in such business, but claimed to be
unaware whether it prospered. Aguete was also aware of loans contracted by Ros,
but did not know where he "wasted the money."24 Debts contracted by the husband
for and in the exercise of the industry or profession by which he contributes to the
support of the family cannot be deemed to be his exclusive and private debts. 25
If the husband himself is the principal obligor in the contract, i.e., he directly
received the money and services to be used in or for his own business or his own
profession, that contract falls within the term "x x x x obligations for the benefit of
the conjugal partnership." Here, no actual benefit may be proved. It is enough that
the benefit to the family is apparent at the signing of the contract. From the very
nature of the contract of loan or services, the family stands to benefit from the loan
facility or services to be rendered to the business or profession of the husband. It is
immaterial, if in the end, his business or profession fails or does not succeed. Simply
stated, where the husband contracts obligations on behalf of the family business,
the law presumes, and rightly so, that such obligation will redound to the benefit of
the conjugal partnership.26]
For this reason, we rule that Ros loan from PNB redounded to the benefit of the
conjugal partnership. Hence, the debt is chargeable to the conjugal partnership.
WHEREFORE, we DENY the petition. The Decision of the Court of Appeals in CA-
G.R. CV No. 76845 promulgated on 17 October 2005 is AFFIRMED. Costs against
petitioners.
SO ORDERED.
SECOND DIVISION
PRODUCERS BANK OF THE G.R. No. 152071
PHILIPPINES,
Petitioner,
Present:
CARPIO MORALES, J.*,
- versus- Acting Chairperson,
TINGA,
VELASCO, JR.,
LEONARDO-DE CASTRO, and**
EXCELSA INDUSTRIES, INC., BRION, JJ.
Respondent.
Promulgated:
May 8, 2009
x -----------------------------------------------------------------------x
DECISION
TINGA, J.:
This is a petition for review on certiorari[1] under Rule 43 of the 1997 Rules of Civil
Procedure, assailing the decision[2] and resolution[3] of the Court of Appeals in CA-
G.R. CV No. 59931. The Court of Appeals decision [4] reversed the decision of the
Regional Trial Court (RTC), Branch 73, Antipolo, Rizal, upholding the extrajudicial
foreclosure of the mortgage on respondents properties, while the resolution denied
petitioners motion for reconsideration.[5]
As borne by the records of the case, the following factual antecedents
appear:
Respondent Excelsa Industries, Inc. is a manufacturer and exporter of fuel products,
particularly charcoal briquettes, as an alternative fuel source. Sometime in January
1987, respondent applied for a packing credit line or a credit export advance with
petitioner Producers Bank of the Philippines, a banking institution duly organized
and existing under Philippines laws.[6]
The application was supported by Letter of Credit No. M3411610NS2970
dated 14 October 1986. Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter of
credit through its correspondent bank, the Bank of the Philippine Islands, in the
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amount of US$23,000.00 for the account of Shin Sung Commercial Co., Ltd., also
located in Seoul, Korea. T.L. World Development Corporation was the original
beneficiary of the letter of credit. On 05 December 1986, for value received, T.L.
World transferred to respondent all its rights and obligations under the said letter of
credit. Petitioner approved respondents application for a packing credit line in the
amount of P300,000.00, of which about P96,000.00 in principal remained
outstanding.[7] Respondent executed the corresponding promissory notes
evidencing the indebtedness.[8]
Prior to the application for the packing credit line, respondent had
obtained a loan from petitioner in the form of a bill discounted and secured credit
accommodation in the amount of P200,000.00, of which P110,000.00 was
outstanding at the time of the approval of the packing credit line. The loan was
secured by a real estate mortgage dated 05 December 1986 over respondents
properties covered by Transfer Certificates of Titles (TCT) No. N-68661, N-68662, N-
68663, N-68664, N-68665 and N-68666, all issued by the Register of Deeds of
Marikina.[9]
Significantly, the real estate mortgage contained the following clause:
For and in consideration of those certain loans,
overdraft and/or other credit accommodations on this date
obtained from the MORTGAGEE, and to secure the payment
of the same, the principal of all of which is hereby fixed at
FIVE HUNDRED THOUSAND PESOS ONLY (P500,000.00)
Pesos, Philippine Currency, as well as those that the
MORTGAGEE may hereafter extend to the MORTGAGOR,
including interest and expenses or any other obligation
owing to the MORTGAGEE, the MORTGAGOR does hereby
transfer and convey by way of mortgage unto the
MORTGAGEE, its successors or assigns, the parcel(s) of land
which is/are described in the list inserted on the back of this
document, and/or appended hereto, together with all the
buildings and improvements now existing or which may
hereafter be erected or constructed thereon, of which the
MORTGAGOR declares that he/it is the absolute owner, free
from all liens and encumbrances.[10]
On 17 March 1987, respondent presented for negotiation to petitioner
drafts drawn under the letter of credit and the corresponding export documents in
consideration for its drawings in the amounts of US$5,739.76 and US$4,585.79.
Petitioner purchased the drafts and export documents by paying respondent the
peso equivalent of the drawings. The purchase was subject to the conditions laid
down in two separate undertakings by respondent dated 17 March 1987 and 10
April 1987.[11]
On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable
that the Korean buyer refused to pay respondents export documents on account of
typographical discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the export
documents.[12]
Upon learning about the Korean importers non-payment, respondent
sent petitioner a letter dated 27 July 1987, informing the latter that respondent had
brought the matter before the Korea Trade Court and that it was ready to liquidate
its past due account with petitioner. Respondent sent another letter dated 08
September 1987, reiterating the same assurance. In a letter 05 October 1987, Kwang
Ju Bank, Ltd. informed petitioner that it would be returning the export documents
on account of the non-acceptance by the importer.[13]
Petitioner demanded from respondent the payment of the peso
equivalent of the export documents, plus interest and other charges, and also of the
other due and unpaid loans. Due to respondents failure to heed the demand,
petitioner moved for the extrajudicial foreclosure on the real estate mortgage over
respondents properties.
Per petitioners computation, aside from charges for attorneys fees and
sheriffs fees, respondent had a total due and demandable obligation of P573,225.60,
including interest, in six different accounts, namely:
1) EBP-PHO-87-1121 (US$4,585.97 x 21.212) = P119,165.06
2) EBP-PHO-87-1095 (US$ 5,739.76 x 21.212) = 151,580.97
3) BDS-001-87 = 61,777.78
4) BDS-030/86 A = 123,555.55
5) BDS-PC-002-/87 = 55,822.91
6) BDS-005/87 = 61,323.33
P573,225.60[14]
The total approved bid price, which included the attorneys fees and
sheriff fees, was pegged at P752,074.63. At the public auction held on 05 January
1988, the Sheriff of Antipolo, Rizal issued a Certificate of Sale in favor of petitioner
as the highest bidder.[15] The certificate of sale was registered on 24 March 1988. [16]
On 12 June 1989, petitioner executed an affidavit of consolidation over
the foreclosed properties after respondent failed to redeem the same. As a result,
the Register of Deeds of Marikina issued new certificates of title in the name of
petitioner.[17]
On 17 November 1989, respondent instituted an action for the
annulment of the extrajudicial foreclosure with prayer for preliminary injunction and
Page 53 of 152
damages against petitioner and the Register of Deeds of Marikina. Docketed as Civil
Case No. 1587-A, the complaint was raffled to Branch 73 of the RTC of Antipolo,
Rizal. The complaint prayed, among others, that the defendants be enjoined from
causing the transfer of ownership over the foreclosed properties from respondent
to petitioner.[18]
On 05 April 1990, petitioner filed a petition for the issuance of a writ of
possession, docketed as LR Case No. 90-787, before the same branch of the RTC of
Antipolo, Rizal. The RTC ordered the consolidation of Civil Case No, 1587-A and LR
Case No. 90-787.[19]
On 18 December 1997, the RTC rendered a decision upholding the
validity of the extrajudicial foreclosure and ordering the issuance of a writ of
possession in favor of petitioner, to wit:
WHEREFORE, in Case No. 1587-A, the court
hereby rules that the foreclosure of mortgage for the old
and new obligations of the plaintiff Excelsa Industries Corp.,
which has remained unpaid up to the time of foreclosure by
defendant Producers Bank of the Philippines was valid, legal
and in order; In Case No. 787-A, the court hereby orders for
the issuance of a writ of possession in favor of Producers
Bank of the Philippines after the properties of Excelsa
Industries Corp., which were foreclosed and consolidated in
the name of Producers Bank of the Philippines under TCT
No. 169031, 169032, 169033, 169034 and 169035 of the
Register of Deeds of Marikina.
SO ORDERED.[20]
The RTC held that petitioner, whose obligation consisted only of
receiving, and not of collecting, the export proceeds for the purpose of converting
into Philippine currency and remitting the same to respondent, cannot be
considered as respondents agent. The RTC also held that petitioner cannot be
presumed to have received the export proceeds, considering that respondent
executed undertakings warranting that the drafts and accompanying documents
were genuine and accurately represented the facts stated therein and would be
accepted and paid in accordance with their tenor.[21]
Furthermore, the RTC concluded that petitioner had no obligation to
return the export documents and respondent could not expect their return prior to
the payment of the export advances because the drafts and export documents were
the evidence that respondent received export advances from petitioner.[22]
The RTC also found that by its admission, respondent had other loan
obligations obtained from petitioner which were due and demandable; hence,
petitioner correctly exercised its right to foreclose the real estate mortgage, which
provided that the same secured the payment of not only the loans already obtained
but also the export advances.[23]
Lastly, the RTC found respondent guilty of laches in questioning the
foreclosure sale considering that petitioner made several demands for payment of
respondents outstanding loans as early as July 1987 and that respondent
acknowledged the failure to pay its loans and advances. [24]
The RTC denied respondents motion for reconsideration. [25] Thus,
respondent elevated the matter to the Court of Appeals, reiterating its claim that
petitioner was not only a collection agent but was considered a purchaser of the
export
On 30 May 2001, the Court of Appeals rendered the assailed decision,
reversing the RTCs decision, thus:
WHEREFORE, the appeal is hereby GRANTED.
The decision of the trial court dated December 18, 1997 is
REVERSED and SET ASIDE. Accordingly, the foreclosure of
mortgage on the properties of appellant is declared as
INVALID. The issuance of the writ of possession in favor of
appellee is ANNULLED. The following damages are hereby
awarded in favor of appellant:
(a) Moral damages in the amount of P100,000.00;
(b) Exemplary damages in the amount
of P100,000.00; and
(c) Costs.
SO ORDERED.[26]
The Court of Appeals held that respondent should not be faulted for the
dishonor of the drafts and export documents because the obligation to collect the
export proceeds from Kwang Ju Bank, Ltd. devolved upon petitioner. It cited the
testimony of petitioners manager for the foreign currency department to the effect
that petitioner was respondents agent, being the only entity authorized under
Central Bank Circular No. 491 to collect directly from the importer the export
proceeds on respondents behalf and converting the same to Philippine currency for
remittance to respondent. The appellate court found that respondent was not
authorized and even powerless to collect from the importer and it appeared that
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respondent was left at the mercy of petitioner, which kept the export documents
during the time that respondent attempted to collect payment from the Korean
importer.
The Court of Appeals disregarded the RTCs finding that the export
documents were the only evidence of respondents export advances and that
petitioner was justified in refusing to return them. It opined that granting petitioner
had no obligation to return the export documents, the former should have helped
respondent in the collection efforts instead of augmenting respondents dilemma.
Furthermore, the Court of Appeals found petitioners negligence as the
cause of the refusal by the Korean buyer to pay the export proceeds based on the
following: first, petitioner had a hand in preparing and scrutinizing the export
documents wherein the discrepancies were found; and, second, petitioner failed to
advise respondent about the warning from Kwang Ju Bank, Ltd. that the export
documents would be returned if no explanation regarding the discrepancies would
be made.
The Court of Appeals invalidated the extrajudicial foreclosure of the real
estate mortgage on the ground that the posting and publication of the notice of
extrajudicial foreclosure proceedings did not comply with
the personal notice requirement under paragraph 12[27] of the real estate mortgage
executed between petitioner and respondent. The Court of Appeals also overturned
the RTCs finding that respondent was guilty of estoppel by laches in questioning the
extrajudicial foreclosure sale.
Petitioners motion for reconsideration[28] was denied in a Resolution
dated 29 January 2002. Hence, the instant petition, arguing that the Court of
Appeals erred in finding petitioner as respondents agent, which was liable for the
discrepancies in the export documents, in invalidating the foreclosure sale and in
declaring that respondent was not estopped from questioning the foreclosure
sale.[29]
The validity of the extrajudicial foreclosure of the mortgage is
dependent on the following issues posed by petitioner: (1) the coverage of the
blanket mortgage clause; (2) petitioners failure to furnish personal notice of the
foreclosure to respondent; and (3) petitioners obligation as negotiating bank under
the letter of credit.
Notably, the errors cited by petitioners are factual in nature. Although
the instant case is a petition for review under Rule 45 which, as a general rule, is
limited to reviewing errors of law, findings of fact being conclusive as a matter of
general principle, however, considering the conflict between the factual findings of
the RTC and the Court of Appeals, there is a need to review the factual issues as an
exception to the general rule.[30]
Much of the discussion has revolved around who should be liable for
the dishonor of the draft and export documents. In the two undertakings executed
by respondent as a condition for the negotiation of the drafts, respondent held
itself liable if the drafts were not accepted. The two undertakings signed by
respondent are similarly-worded and contained respondents express warranties, to
wit:
In consideration of your negotiating the above
described draft(s), we hereby warrant that the said
draft(s) and accompanying documents thereon are valid,
genuine and accurately represent the facts stated
therein, and that such draft(s) will be accepted and paid
in accordance with its/their tenor. We further undertake
and agree, jointly and severally, to defend and hold you free
and harmless from any and all actions, claims and demands
whatsoever, and to pay on demand all damages actual or
compensatory including attorneys fees, costs and other
awards or be adjudged to pay, in case of suit, which you may
suffer arising from, by reason, or on account of your
negotiating the above draft(s) because of the following
discrepancies or reasons or any other discrepancy or reason
whatever.
We hereby undertake to pay on demand the
full amount of the above draft(s) or any unpaid balance
thereof, the Philippine perso equivalent converted at the
prevailing selling rate (or selling rate prevailing at the date
you negotiate our draft, whichever is higher) allowed by the
Central Bank with interest at the rate prevailing today from
the date of negotiation, plus all charges and expenses
whatsoever incurred in connection therewith. You shall
neither be obliged to contest or dispute any refusal to
accept or to pay the whole or any part of the above draft(s),
nor proceed in any way against the drawee, the issuing bank
or any endorser thereof, before making a demand on us for
the payment of the whole or any unpaid balance of the
draft(s).(Emphasis supplied)[31]
Page 54 of 152

In Velasquez v. Solidbank Corporation,[32] where the drawer therein also
executed a separate letter of undertaking in consideration for the banks negotiation
of its sight drafts, the Court held that the drawer can still be made liable under the
letter of undertaking even if he is discharged due to the banks failure to protest the
non-acceptance of the drafts. The Court explained, thus:
Petitioner, however, can still be made liable
under the letter of undertaking. It bears stressing that it is a
separate contract from the sight draft. The liability of
petitioner under the letter of undertaking is direct and
primary. It is independent from his liability under the sight
draft. Liability subsists on it even if the sight draft was
dishonored for non-acceptance or non-payment.
Respondent agreed to purchase the draft and
credit petitioner its value upon the undertaking that he will
reimburse the amount in case the sight draft is dishonored.
The bank would certainly not have agreed to grant petitioner
an advance export payment were it not for the letter of
undertaking. The consideration for the letter of undertaking
was petitioners promise to pay respondent the value of the
sight draft if it was dishonored for any reason by the Bank of
Seoul.[33]
Thus, notwithstanding petitioners alleged failure to comply with the
requirements of notice of dishonor and protest under Sections 89 [34] and
152,[35] respectively, of the Negotiable Instruments Law, respondent may not escape
its liability under the separate undertakings, where respondent promised to pay on
demand the full amount of the drafts.
The next question, therefore, is whether the real estate mortgage also
served as security for respondents drafts that were not accepted and paid by the
Kwang Ju Bank, Ltd.
Respondent executed a real estate mortgage containing a blanket
mortgage clause, also known as a dragnet clause. It has been settled in a long line
of decisions that mortgages given to secure future advancements are valid and legal
contracts, and the amounts named as consideration in said contracts do not limit
the amount for which the mortgage may stand as security if from the four corners
of the instrument the intent to secure future and other indebtedness can be
gathered.[36]
In Union Bank of the Philippines v. Court of Appeals,[37] the nature of a
dragnet clause was explained, thus:
Is one which is specifically phrased to subsume
all debts of past and future origins. Such clauses are carefully
scrutinized and strictly construed. Mortgages of this
character enable the parties to provide continuous dealings,
the nature or extent of which may not be known or
anticipated at the time, and they avoid the expense and
inconvenience of executing a new security on each new
transaction. A dragnet clause operates as a convenience and
accommodation to
the borrowers as it makes available additional funds without
their
having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal
services, recording fees, et cetera.[38]
xxx
Petitioner, therefore, was not precluded from seeking the foreclosure of
the real estate mortgage based on the unpaid drafts drawn by respondent. In any
case, respondent had admitted that aside from the unpaid drafts, respondent also
had due and demandable loans secured from another account as evidenced by
Promissory Notes (PN Nos.) BDS-001-87, BDS-030/86 A, BDS-PC-002-/87 and BDS-
005/87.
However, the Court of Appeals invalidated the extrajudicial foreclosure
of the mortgage on the ground that petitioner had failed to furnish respondent
personal notice of the sale contrary to the stipulation in the real estate mortgage.
Petitioner, on the other hand, claims that under paragraph 12 [39] of the
real estate mortgage, personal notice of the foreclosure sale is not a requirement to
the validity of the foreclosure sale.
A perusal of the records of the case shows that a notice of sheriffs
sale[40] was sent by registered mail to respondent and received in due course. [41] Yet,
respondent claims that it did not receive the notice but only learned about it from
petitioner. In any event, paragraph 12 of the real estate mortgage requires
petitioner merely to furnish respondent with the notice and does not oblige
petitioner to ensure that respondent actually receives the notice. On this score, the
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Court holds that petitioner has performed its obligation under paragraph 12 of the
real estate mortgage.
As regards the issue of whether respondent may still question the
foreclosure sale, the RTC held that the sale was conducted according to the legal
procedure, to wit:
Plaintiff is estopped from questioning the
foreclosure. The plaintiff is guilty of laches and cannot at this
point in time question the foreclosure of the subject
properties. Defendant bank made demands against the
plaintiff for the payment of plaintiffs outstanding loans and
advances with the defendant as early as July 1997. Plaintiff
acknowledged such outstanding loans and advances to the
defendant bank and committed to liquidate the same. For
failure of the plaintiff to pay its obligations on maturity,
defendant bank foreclosed the mortgage on subject
properties on January 5, 1988 the certificate of sale was
annotated on March 24, 1988 and there being no
redemption made by the plaintiff, title to said properties
were consolidated in the name of defendant in July 1989.
Undeniably, subject foreclosure was done in accordance with
the prescribed rules as may be borne out by the exhibits
submitted to this Court which are Exhibit 33, a notice of
extrajudicial sale executed by the Sheriff of Antipolo, Exhibit
34 certificate posting of extrajudicial sale, Exhibit 35 return
card evidencing receipt by plaintiff of the notice of
extrajudicial sale and Exhibit 21 affidavit of publication.
The Court adopts and approves the aforequoted findings by the RTC,
the same being fully supported by the evidence on record.
WHEREFORE, the instant petition for review on certiorari is GRANTED
and the decision and resolution of the Court of Appeals in CA-G.R. CV No. 59931 are
REVERSED and SET ASIDE. The decision of the Regional Trial Court Branch 73,
Antipolo, Rizal in Civil Case No. 1587-A and LR Case No. 90-787 is REINSTATED.
SO ORDERED.
SECOND DIVISION
G.R. No. 173171 July 11, 2012
PHILIPPINE CHARITY SWEEPSTAKES OFFICE (PCSO), Petitioner,
vs.
NEW DAGUPAN METRO GAS CORPORATION, PURITA E. PERALTA and
PATRICIA P. GALANG, Respondents.
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court, assailing the
Decision1 dated September 29, 2005 and Resolution2 dated June 9, 2006 of the
Court of Appeals (CA) in CA-G.R. CV No. 59590.
In the assailed Decision, the CA Affirmed the Decision3 dated January 28, 1998 of
the Regional Trial Court (RTC), Branch 42 of Dagupan City in Civil Case No. 94-
00200-D, ordering petitioner Philippine Charity Sweepstakes Office (PCSO) to
surrender the owners duplicate of Transfer
Certificate of Title (TCT) No. 52135 to the Register of Deeds of Dagupan City for
cancellation and issuance of a new certificate of title in the name of respondent
New Dagupan Metro Gas Corporation (New Dagupan).
In its Resolution4 dated June 9, 2006, the CA denied PCSOs motion for
reconsideration.
The Factual Antecedents
Respondent Purita E. Peralta (Peralta) is the registered owner of a parcel of land
located at Bonuan Blue Beach Subdivision, Dagupan City under TCT No. 52135. On
March 8, 1989, a real estate mortgage was constituted over such property in favor
of PCSO to secure the payment of the sweepstakes tickets purchased by one of its
provincial distributors, Patricia P. Galang (Galang). The salient provisions of the Deed
of Undertaking with First Real Estate Mortgage, 5 where Galang, PCSO and Peralta
were respectively designated as "principal", "mortgagee" and "mortgagor", are as
follows:
Page 55 of 152
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and unpaid
account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY THOUSAND
(P450,000.00), representing the balance of his/her accountabilities for all draws;
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days after
each draw with interest at the rate of 14% per annum.
xxxx
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE, provided that the
said balance shall bear interest thereon at the rate of 14% per annum;
To secure the faithful compliance and as security to the obligation of the PRINCIPAL
stated in the next preceding paragraph hereof, the MORTGAGOR hereby convey
unto and in favor of the MORTGAGEE, its successor and assigns by way of its first
real estate mortgage, a parcel/s of land together with all the improvements now or
hereafter existing thereon located at BOQUIG, DAGUPAN CITY, covered by TCT No.
52135, of the Register of Deeds of DAGUPAN CITY, and more particularly described
as follows:
xxxx
4. During the lifetime of this mortgage, the MORTGAGOR shall not alienate, sell, or
in any manner dispose of or encumber the above-mentioned property, without the
prior written consent of the MORTGAGEE;
xxxx
15. Upon payment of the principal amount together with interest and other
expenses legally incurred by the MORTGAGEE, the above undertaking is considered
terminated.6
On July 31, 1990, Peralta sold, under a conditional sale, the subject property to New
Dagupan, the conveyance to be absolute upon the latters full payment of the price
of P800,000.00. New Dagupan obliged to pay Peralta P200,000.00 upon the
execution of the corresponding deed and the balance of P600,000.00 by monthly
instalments of P70,000.00, the first instalment falling due on August 31, 1990.
Peralta showed to New Dagupan a photocopy of TCT No. 52135, which bore no
liens and encumbrances, and undertook to deliver the owners duplicate within
three (3) months from the execution of the contract. 7
New Dagupan withheld payment of the last instalment, which was intended to cover
the payment of the capital gains tax, in view of Peraltas failure to deliver the
owners duplicate of TCT No. 52135 and to execute a deed of absolute sale in its
favor. Further, New Dagupan, through its President, Julian Ong Cua (Cua),
executed an affidavit of adverse claim, which was annotated on TCT No. 52135 on
October 1, 1991 as Entry No. 14826.8
In view of Peraltas continued failure to deliver a deed of absolute sale and the
owners duplicate of the title, New Dagupan filed a complaint for specific
performance against her with the RTC on February 28, 1992. New Dagupans
complaint was raffled to Branch 43 and docketed as Civil Case No. D-10160.
On May 20, 1992, during the pendency of New Dagupans complaint against
Peralta, PCSO caused the registration of the mortgage. 9
On February 10, 1993, PCSO filed an application for the extrajudicial foreclosure sale
of the subject property in view of Galangs failure to fully pay the sweepstakes she
purchased in 1992.10 A public auction took place on June 15, 1993 where PCSO was
the highest bidder. A certificate of sale was correspondingly issued to PCSO.11
The certified true copy of TCT No. 52135 that New Dagupan obtained from the
Register of Deeds of Dagupan City for its use in Civil Case No. D-10160 reflected
PCSOs mortgage lien. New Dagupan, claiming that it is only then that it was
informed of the subject mortgage, sent a letter to PCSO on October 28, 1993,
notifying the latter of its complaint against Peralta and its claim over the subject
property and suggesting that PCSO intervene and participate in the case.
On January 21, 1994, the RTC Branch 43 rendered a Decision, approving the
compromise agreement between Peralta and New Dagupan. Some of the
stipulations made are as follows:
3. For her failure to execute, sign and deliver a Deed of Absolute Sale to
plaintiff by way of transferring TCT No. 52135 in the name of the latter,
defendant hereby waives and quitclaims the remaining balance of the
purchase price in the amount of P60,000.00 in favor of the plaintiff, it
being understood that the said amount shall be treated as a penalty for
such failure;
xxxx
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6. Upon the signing of this compromise agreement, possession and
ownership of the above described property, together with all the
improvements existing thereon, are hereby vested absolutely upon, and
transferred to the plaintiff whom the defendant hereby declares and
acknowledges to be the absolute owner thereof, now and hereafter;
7. This compromise agreement shall be without prejudice to whatever
rights and remedies, if any, that the Philippine Charity Sweepstakes
Office has against the herein defendant and Patricia P. Galang under the
Deed of Undertaking adverted to under par. 2(f) hereof. 12
As the RTC Branch 43 Decision dated January 21, 1994 became final and executory,
New Dagupan once again demanded Peraltas delivery of the owners duplicate of
TCT No. 52135. Also, in a letter dated March 29, 1994, New Dagupan made a similar
demand from PCSO, who in response, stated that it had already foreclosed the
mortgage on the subject property and it has in its name a certificate of sale for
being the highest bidder in the public auction that took place on June 15, 1993.
Thus, on June 1, 1994, New Dagupan filed with the RTC a petition against PCSO for
the annulment of TCT No. 52135 or surrender of the owners duplicate
thereof.13 The petition was docketed as Civil Case No. 94-00200-D and raffled to
Branch 43.
In an Answer14 dated March 7, 1995, PCSO alleged that: (a) New Dagupan was a
buyer in bad faith; (b) New Dagupan and Peralta colluded to deprive PCSO of its
rights under the subject mortgage; (c) New Dagupan is estopped from questioning
the superior right of PCSO to the subject property when it entered into the
compromise agreement subject of the RTC Branch 43 Decision dated January 21,
1994; and (d) New Dagupan is bound by the foreclosure proceedings where PCSO
obtained title to the subject property.
In a Motion for Leave to File Third-Party Complaint15 dated April 17, 1995, PCSO
sought the inclusion of Peralta and Galang who are allegedly indispensable parties.
In its Third-Party Complaint,16 PCSO reiterated its allegations in its Answer dated
March 7, 1995 and made the further claim that the sale of the subject property to
New Dagupan is void for being expressly prohibited under the Deed of Undertaking
with First Real Estate Mortgage.
In their Answer to Third-Party Complaint with Counterclaims17 dated January 2,
1996, Peralta and Galang claimed that: (a) the provision in the Deed of Undertaking
with First Real Estate Mortgage prohibiting the sale of the subject property is void
under Article 2130 of the Civil Code; (b) PCSOs failure to intervene in Civil Case No.
D-10160 despite notice barred it from questioning the sale of the subject property
to New Dagupan and the compromise agreement approved by the RTC Branch 43;
(c) it was due to PCSOs very own neglect in registering its mortgage lien that
preference is accorded to New Dagupans rights as a buyer of the subject property;
and (d) PCSO no longer has any cause of action against them following its decision
to foreclose the subject mortgage.
On March 6, 1996, Civil Case No. 94-00200-D was transferred to Branch 42, after the
presiding judge of Branch 43 inhibited himself.
On January 28, 1998, the RTC Branch 42 rendered a Decision 18 in New Dagupans
favor, the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the
defendant, ordering PCSO to deliver the owners duplicate copy of TCT No. 52135 in
its possession to the Registry of Deeds of Dagupan City for the purpose of having
the decision in favor of the petitioner annotated at the back thereof. Should said
defendant fail to deliver the said title within 30 days from the date this decision
becomes final and executory, the said owners duplicate certificate of title is hereby
cancelled and the Register of Deeds can issue a new one carrying all the
encumbrances of the original owners duplicate subject of this case. Further, the
defendant is ordered to pay to petitioner the sum of Ten Thousand Pesos
(P10,000.00) as attorneys fees. It is also ordered to pay costs.
SO ORDERED.19
The RTC Branch 42 ruled that New Dagupan is a buyer in good faith, ratiocinating
that:
In other words, the evidence of the petitioner would show that although the Deed
of Undertaking with First Real Estate Mortgage was executed on March 8, 1989 its
annotation was made long after the conditional sale in favor of the petitioner was
executed and annotated at the back of the title in question. Because of the said
exhibits, petitioner contended that it was a buyer in good faith and for value.
Defendant, to controvert the aforementioned evidence of the plaintiff, alleged that
Exhibits C, C-1 to C-1-C was contrary to the testimony of Mr. Julian Ong Cua to the
effect that when defendants sold the property to petitioner only the xerox copy of
the title was shown and petitioner should have verified the original as it was a buyer
in bad faith. Defendant also alleged that the decision in Civil Case D-10160 dated
January 21, 1994 would show that there was a collusion between the petitioner and
the third-party defendants.
Page 56 of 152
The Court cannot go along with the reasoning of the defendant because what was
shown to Mr. Cua by the third-party defendants was Exhibit "C" which did not carry
any encumbrance at the back of the subject title and the annotation made on May
20, 1992 in favor of the PCSO. Mr. Cua verified the title x x x but the encumbrance
on the title was not still there at [that] time. One thing more, there was nothing
indicated in the decision in Civil Case No. D-10160 that petitioner already knew that
there was already a mortgage in favor of the PCSO. Worst, defendant did not even
introduce any oral evidence to show that petitioner was in bad faith except the
manifestations of counsel. Unfortunately, manifestations could not be considered
evidence.
xxxx
Defendant should not be allowed to profit from its negligence of not registering the
Deed of Undertaking with First Real Estate Mortgage in its favor.20
Also, the RTC Branch 42 ruled that the prohibition on the sale of the subject
property is void. Specifically:
Suffice it to say that there is no law prohibiting a mortgagor from encumbering or
alienating the property mortgaged. On the contrary, there is a law prohibiting an
agreement forbidding the owner from alienating a mortgaged property. We are
referring to Article 2130 of the New Civil Code which provides as follows:
"A stipulation forbidding the owner from alienating the immovable mortgage shall
be void."21
Moreover, the RTC Branch 42 ruled that PCSO had no right to foreclose the subject
mortgage as the land in question had already been disencumbered after Galangs
full payment of all the sweepstakes tickets she purchased in 1989 and 1990.
It should be recalled that Amparo Abrigo, OIC Chief of the Credit Accounts Division
of the PCSO, admitted not only once but twice that Patricia Galang has no more
liability with the PCSO for the years 1989 and 1990 x x x. Another witness, Carlos
Castillo who is the OIC of the Sales Department of the PCSO, joined Amparo Abrigo
in saying that Patricia Galang has already paid her liability with the PCSO for the
years 1989 and 1990 x x x. Thus, the undertaking was already discharged. Both of
the said witnesses of the PCSO alleged that the undertaking has been re-used by
Patricia Galang for the years 1991 to 1992 yet there is no proof whatsoever showing
that Purita Peralta consented to the use of the undertaking by Patricia Galang for
1991 to 1992. Incidentally, it is not far-fetched to say that Purita Peralta might have
thought that the undertaking was already discharged which was the reason she
executed the Deed of Conditional Sale x x x in favor of petitioner in 1990. That being
the case, the foreclosure sale in favor of the PCSO has no legal leg to stand as the
Deed of Undertaking with First Real Estate Mortgage has already been discharged
before the foreclosure sale was conducted.22
According to the RTC Branch 42, the intent to use the subject property as security
for Galangs purchases for the years after 1989, as PCSO claimed, is not clear from
the Deed of Undertaking with First Real Estate Mortgage:
Was it not provided in the deed that the undertaking would be for "all draws". That
might be true but the terms of the Contract should be understood to mean only to
cover the draws relative to the current liabilities of Patricia Galang at the time of the
execution of the undertaking in 1989. It could have not been agreed upon that it
should also cover her liability for 1991 up to 1992 because if that was the intention
of the parties, the undertaking should have so provided expressly. The term of the
undertaking with respect to the period was ambiguous but any ambiguity in the
Contract should be resolved against PCSO because the form used was a standard
form of the defendant and it appeared that it was its lawyers who prepared it,
therefore, it was the latter which caused the ambiguity. 23
PCSOs appeal from the foregoing adverse decision was dismissed. By way of its
assailed decision, the CA did not agree with PCSOs claim that the subject mortgage
is in the nature of a continuing guaranty, holding that Peraltas undertaking to
secure Galangs liability to PCSO is only for a period of one year and was
extinguished when Peralta completed payment on the sweepstakes tickets she
purchased in 1989.
The instant appeal must fail. There is nothing in the Deed of Undertaking with First
Real Estate Mortgage, expressly or impliedly, that would indicate that Peralta agreed
to let her property be burdened as long as the contract of undertaking with real
estate mortgage was not cancelled or revoked. x x x
xxxx
A perusal of the deed of undertaking between the PCSO and Peralta would reveal
nothing but the undertaking of Peralta to guarantee the payment of the pre-
existing obligation of Galang, constituting the unpaid sweepstakes tickets issued to
the latter before the deed of undertaking was executed, with the PCSO in the
amount of P450,000.00. No words were added therein to show the intention of the
parties to regard it as a contract of continuing guaranty. In other jurisdictions, it has
been held that the use of the particular words and expressions such as payment of
"any debt", "any indebtedness", "any deficiency", or "any sum", or the guaranty of
"any transaction" or money to be furnished the principal debtor "at any time", or
"on such time" that the principal debtor may require, have been construed to
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indicate a continuing guaranty. Similar phrases or words of the same import or
tenor are not extant in the deed of undertaking. The deed of undertaking states:
"WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and
unpaid account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
THOUSAND (P450,000.00), representing the balance of his/her ticket
accountabilities for all draws."
xxxx
Upon full payment of the principal obligation, which from the testimonies of the
officers of the PCSO had been paid as early as 1990, the subsidiary contract of
guaranty was automatically terminated. The parties have not executed another
contract of guaranty to secure the subsequent obligations of Galang for the tickets
issued thereafter. It must be noted that a contract of guaranty is not presumed; it
must be express and cannot extend to more than what is stipulated therein.
xxxx
The arguments of PCSO fail to persuade us. The phrase "for all draws" is limited to
the draws covered by the original transaction. In its pleadings, the PCSO asserted
that the contract of undertaking was renewed and the collateral was re-used by
Galang to obtain again tickets from the PCSO after she had settled her account
under the original contract. From such admission, it is thus clear that the contract is
not in the nature of a continuing guaranty. For a contract of continuing guaranty is
not renewed as it is understood to be of a continuing nature without the necessity
of renewing the same every time a new transaction contemplated under the original
contract is entered into. x x x 24 (Citations omitted)
In this petition, PCSO claims that the CA erred in holding that the subject mortgage
had been extinguished by Galangs payment of P450,000.00, representing the
amount of the sweepstakes tickets she purchased in 1989. According to PCSO, the
said amount is actually the credit line granted to Galang and the phrase "all draws"
refers to her ticket purchases for subsequent years drawn against such credit line.
Consequently, PCSO posits, the subject mortgage had not been extinguished by
Peraltas payment of her ticket purchases in 1989 and its coverage extends to her
purchases after 1989, which she made against the credit line that was granted to
her. That when Galang failed to pay her ticket purchases in 1992, PCSOs right to
foreclose the subject mortgage arose.
PCSO also maintains that its rights over the subject property are superior to those of
New Dagupan. Considering that the contract between New Dagupan is a
conditional sale, there was no conveyance of ownership at the time of the execution
thereof on July 31, 1989. It was only on January 21, 1994, or when the RTC Branch
43 approved the compromise agreement, that a supposed transfer of title between
Peralta and New Dagupan took place. However, since PCSO had earlier foreclosed
the subject mortgage and obtained title to the subject property as evidenced by the
certificate of sale dated June 15, 1993, Peralta had nothing to cede or assign to New
Dagupan.
PCSO likewise attributes bad faith to New Dagupan, claiming that Peraltas
presentation of a mere photocopy of TCT No. 52135, albeit without any annotation
of a lien or encumbrance, sufficed to raise reasonable suspicions against Peraltas
claim of a clean title and should have prompted it to conduct an investigation that
went beyond the face of TCT No. 52135.
PCSO even assails the validity of the subject sale for being against the prohibition
contained in the Deed of Undertaking with First Real Estate Mortgage.
New Dagupan, in its Comment,25 avers that it was a purchaser in good faith and it
has a superior right to the subject property, considering that PCSOs mortgage lien
was annotated only on May 20, 1992 or long after the execution of the conditional
sale on July 31, 1990 and the annotation of New Dagupans adverse claim on
October 1, 1991. While the subject mortgage antedated the subject sale, PCSO was
already aware of the latter at the time of its belated registration of its mortgage lien.
PCSOs registration was therefore in bad faith, rendering its claim over the subject
property defeasible by New Dagupans adverse claim.
New Dagupan also claims that the subject property had already been discharged
from the mortgage, hence, PCSO had nothing to foreclose when it filed its
application for extra-judicial foreclosure on February 10, 1993. The subject
mortgage was intended to secure Galangs ticket purchases that were outstanding
at the time of the execution of the same, the amount of which has been specified to
be P450,000.00 and does not extend to Galangs future purchases. Thus, upon
Galangs full payment of P450,000.00, which PCSO admits, the subject mortgage
had been automatically terminated as expressly provided under Section 15 of the
Deed of Undertaking with First Real Estate Mortgage quoted above.
Issue
The rise and fall of this recourse is dependent on the resolution of the issue who
between New Dagupan and PCSO has a better right to the property in question.
Our Ruling
Page 57 of 152
PCSO is undeterred by the denial of its appeal to the CA and now seeks to convince
this Court that it has a superior right over the subject property. However, PCSOs
resolve fails to move this Court and the ineluctability of the denial of this petition is
owing to the following:
a. At the time of PCSOs registration of its mortgage lien on May 20,
1992, the subject mortgage had already been discharged by Galangs
full payment of P450,000.00, the amount specified in the Deed of
Undertaking with First Real Estate Mortgage;
b. There is nothing in the Deed of Undertaking with First Real Estate
Mortgage that would indicate that it is a continuing security or that
there is an intent to secure Galangs future debts;
c. Assuming the contrary, New Dagupan is not bound by PCSOs
mortgage lien and was a purchaser in good faith and for value; and
d. While the subject mortgage predated the sale of the subject property
to New Dagupan, the absence of any evidence that the latter had
knowledge of PCSOs mortgage lien at the time of the sale and its prior
registration of an adverse claim created a preference in its favor.
I
As a general rule, a mortgage liability is usually limited to the amount mentioned in
the contract. However, the amounts named as consideration in a contract of
mortgage do not limit the amount for which the mortgage may stand as security if
from the four corners of the instrument the intent to secure future and other
indebtedness can be gathered.26
Alternatively, while a real estate mortgage may exceptionally secure future loans or
advancements, these future debts must be specifically described in the mortgage
contract. An obligation is not secured by a mortgage unless it comes fairly within
the terms of the mortgage contract.27
The stipulation extending the coverage of a mortgage to advances or loans other
than those already obtained or specified in the contract is valid and has been
commonly referred to as a "blanket mortgage" or "dragnet" clause. In Prudential
Bank v. Alviar,28 this Court elucidated on the nature and purpose of such a clause as
follows:
A "blanket mortgage clause," also known as a "dragnet clause" in American
jurisprudence, is one which is specifically phrased to subsume all debts of past or
future origins. Such clauses are "carefully scrutinized and strictly construed."
Mortgages of this character enable the parties to provide continuous dealings, the
nature or extent of which may not be known or anticipated at the time, and they
avoid the expense and inconvenience of executing a new security on each new
transaction. A "dragnet clause" operates as a convenience and accommodation to
the borrowers as it makes available additional funds without their having to execute
additional security documents, thereby saving time, travel, loan closing costs, costs
of extra legal services, recording fees, et cetera. x x x. 29 (Citations omitted)
A mortgage that provides for a dragnet clause is in the nature of a continuing
guaranty and constitutes an exception to the rule than an action to foreclose a
mortgage must be limited to the amount mentioned in the mortgage contract. Its
validity is anchored on Article 2053 of the Civil Code and is not limited to a single
transaction, but contemplates a future course of dealing, covering a series of
transactions, generally for an indefinite time or until revoked. It is prospective in its
operation and is generally intended to provide security with respect to future
transactions within certain limits, and contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable. In other words, a continuing
guaranty is one that covers all transactions, including those arising in the future,
which are within the description or contemplation of the contract of guaranty, until
the expiration or termination thereof.30
In this case, PCSO claims the subject mortgage is a continuing guaranty. According
to PCSO, the intent was to secure Galangs ticket purchases other than those
outstanding at the time of the execution of the Deed of Undertaking with First Real
Estate Mortgage on March 8, 1989 such that it can foreclose the subject mortgage
for Galangs non-payment of her ticket purchases in 1992. PCSO does not deny and
even admits that Galang had already settled the amount of P450,000.00. However,
PCSO refuses to concede that the subject mortgage had already been discharged,
claiming that Galang had unpaid ticket purchases in 1992 and these are likewise
secured as evidenced by the following clause in the Deed of Undertaking with First
Real Estate Mortgage:
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days after
each draw with interest at the rate of 14% per annum; 31
This Court has to disagree with PCSO in view of the principles quoted above. A
reading of the other pertinent clauses of the subject mortgage, not only of the
provision invoked by PCSO, does not show that the security provided in the subject
mortgage is continuing in nature. That the subject mortgage shall only secure
Galangs liability in the amount of P450,000.00 is evident from the following:
CRED TRANS Pledge, Mortgage Antichresis Fulltext
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and unpaid
account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY THOUSAND
(P450,000.00), representing the balance of his/her ticket accountabilities for all
draws;
xxxx
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE, provided that the
said balance shall bear interest thereon at the rate of 14% per annum;
To secure the faithful compliance and as security to the obligation of the PRINCIPAL
stated in the next preceding paragraph hereof, the MORTGAGOR hereby convey
unto and in favor of the MORTGAGEE, its successor and assigns by way of its first
real estate mortgage, a parcel/s of land together with all the improvements now or
hereafter existing thereon, located at BOQUIG, DAGUPAN CITY, covered by TCT No.
52135, of the Register of Deeds of DAGUPAN CITY, and more particularly described
as follows:32
As the CA correctly observed, the use of the terms "outstanding" and "unpaid"
militates against PCSOs claim that future ticket purchases are likewise secured. That
there is a seeming ambiguity between the provision relied upon by PCSO containing
the phrase "after each draw" and the other provisions, which mention with
particularity the amount of P450,000.00 as Galangs unpaid and outstanding
account and secured by the subject mortgage, should be construed against PCSO.
The subject mortgage is a contract of adhesion as it was prepared solely by PCSO
and the only participation of Galang and Peralta was the act of affixing their
signatures thereto.
Considering that the debt secured had already been fully paid, the subject
mortgage had already been discharged and there is no necessity for any act or
document to be executed for the purpose. As provided in the Deed of Undertaking
with First Real Estate Mortgage:
15. Upon payment of the principal amount together with interest and other
expenses legally incurred by the MORTGAGEE, the above-undertaking is considered
terminated.33
Section 6234 of Presidential Decree (P.D.) No. 1529 appears to require the execution
of an instrument in order for a mortgage to be cancelled or discharged. However,
this rule presupposes that there has been a prior registration of the mortgage lien
prior to its discharge. In this case, the subject mortgage had already been cancelled
or terminated upon Galangs full payment before PCSO availed of registration in
1992. As the subject mortgage was not annotated on TCT No. 52135 at the time it
was terminated, there was no need for Peralta to secure a deed of cancellation in
order for such discharge to be fully effective and duly reflected on the face of her
title.
Therefore, since the subject mortgage is not in the nature of a continuing guaranty
and given the automatic termination thereof, PCSO cannot claim that Galangs ticket
purchases in 1992 are also secured. From the time the amount of P450,000.00 was
fully settled, the subject mortgage had already been cancelled such that Galangs
subsequent ticket purchases are unsecured. Simply put, PCSO had nothing to
register, much less, foreclose.
Consequently, PCSOs registration of its non-existent mortgage lien and subsequent
foreclosure of a mortgage that was no longer extant cannot defeat New Dagupans
title over the subject property.
II
Sections 51 and 53 of P.D. No. 1529 provide:
Section 51. Conveyance and other dealings by registered owner. An owner of
registered land may convey, mortgage, lease, charge or otherwise deal with the
same in accordance with existing laws. He may use such forms of deeds, mortgages,
leases or other voluntary instrument, except a will purporting to convey or affect
registered land, but shall operate only as a contract between the parties and as
evidence of authority to the Register of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar
as third persons are concerned, and in all cases under this Decree, the registration
shall be made in the office of the Register of Deeds for the province or city where
the land lies.
Section 52. Constructive notice upon registration. Every conveyance, mortgage,
lease, lien, attachment, order, judgment, instrument or entry affecting registered
land shall, if registered, filed or entered in the office of the Register of Deeds for the
province or city where the land to which it relates lies, be constructive notice to all
persons from the time of such registering, filing or entering.
On the other hand, Article 2125 of the Civil Code states:
Page 58 of 152
Article 2125. In addition to the requisites stated in Article 2085, it is indispensable, in
order that a mortgage may be validly constituted, that the document in which it
appears be recorded in the Registry of Property. If the instrument is not recorded,
the mortgage is nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have no other right than
to demand the execution and the recording of the document in which the mortgage
is formalized.
Construing the foregoing conjunctively, as to third persons, a property registered
under the Torrens system is, for all legal purposes, unencumbered or remains to be
the property of the person in whose name it is registered, notwithstanding the
execution of any conveyance, mortgage, lease, lien, order or judgment unless the
corresponding deed is registered.
The law does not require a person dealing with the owner of registered land to go
beyond the certificate of title as he may rely on the notices of the encumbrances on
the property annotated on the certificate of title or absence of any
annotation.35 Registration affords legal protection such that the claim of an innocent
purchaser for value is recognized as valid despite a defect in the title of the
vendor.36
In Cruz v. Bancom Finance Corporation, 37 the foregoing principle was applied as
follows:
Second, respondent was already aware that there was an adverse claim and notice
of lis pendens annotated on the Certificate of Title when it registered the mortgage
on March 14, 1980. Unless duly registered, a mortgage does not affect third parties
like herein petitioners, as provided under Section 51 of PD NO. 1529, which we
reproduce hereunder:
xxxx
True, registration is not the operative act for a mortgage to be binding between the
parties. But to third persons, it is indispensible. In the present case, the adverse
claim and the notice of lis pendens were annotated on the title on October 30, 1979
and December 10, 1979, respectively; the real estate mortgage over the subject
property was registered by respondent only on March 14, 1980. Settled in this
jurisdiction is the doctrine that a prior registration of a lien creates a preference.
Even a subsequent registration of the prior mortgage will not diminish this
preference, which retroacts to the date of the annotation of the notice of lis
pendens and the adverse claim. Thus, respondents failure to register the real estate
mortgage prior to these annotations, resulted in the mortgage being binding only
between it and the mortgagor, Sulit. Petitioners, being third parties to the
mortgage, were not bound by it. Contrary to respondents claim that petitioners
were in bad faith because they already had knowledge of the existence of the
mortgage in favor of respondent when they caused the aforesaid annotations,
petitioner Edilberto Cruz said that they only knew of this mortgage when
respondent intervened in the RTC proceedings.38 (Citations omitted)
It is undisputed that it was only on May 20, 1992 that PCSO registered its mortgage
lien. By that time, New Dagupan had already purchased the subject property, albeit
under a conditional sale. In fact, PCSOs mortgage lien was yet to be registered at
the time New Dagupan filed its adverse claim on October 1, 1991 and its complaint
against Peralta for the surrender of the owners duplicate of TCT No. 52135 on
February 28, 1992. It was only during the pendency of Civil Case No. D-10160, or
sometime in 1993, that New Dagupan was informed of PCSOs mortgage lien. On
the other hand, PCSO was already charged with knowledge of New Dagupans
adverse claim at the time of the annotation of the subject mortgage. PCSOs
attempt to conceal these damning facts is palpable. However, they are patent from
the records such that there is no gainsaying that New Dagupan is a purchaser in
good faith and for value and is not bound by PCSOs mortgage lien.
A purchaser in good faith and for value is one who buys property of another,
without notice that some other person has a right to, or interest in, such property,
and pays a full and fair price for the same, at the time of such purchase, or before
he has notice of the claim or interest of some other person in the property. 39 Good
faith is the opposite of fraud and of bad faith, and its non-existence must be
established by competent proof.40 Sans such proof, a buyer is deemed to be in good
faith and his interest in the subject property will not be disturbed. A purchaser of a
registered property can rely on the guarantee afforded by pertinent laws on
registration that he can take and hold it free from any and all prior liens and claims
except those set forth in or preserved against the certificate of title.41
This Court cannot give credence to PCSOs claim to the contrary. PCSO did not
present evidence, showing that New Dagupan had knowledge of the mortgage
despite its being unregistered at the time the subject sale was entered into. Peralta,
in the compromise agreement, even admitted that she did not inform New
Dagupan of the subject mortgage.42 PCSOs only basis for claiming that New
Dagupan was a buyer in bad faith was the latters reliance on a mere photocopy of
TCT No. 52135. However, apart from the fact that the facsimile bore no annotation
of a lien or encumbrance, PCSO failed to refute the testimony of Cua that his
verification of TCT No. 52135 with the Register of Deeds of Dagupan City confirmed
Peraltas claim of a clean title.
Since PCSO had notice of New Dagupans adverse claim prior to the registration of
its mortgage lien, it is bound thereby and thus legally compelled to respect the
CRED TRANS Pledge, Mortgage Antichresis Fulltext
proceedings on the validity of such adverse claim. It is therefore of no moment if
PCSOs foreclosure of the subject mortgage and purchase of the subject property at
the auction sale took place prior to New Dagupans acquisition of title as decreed in
the Decision dated January 21, 1994 of RTC Branch 43. The effects of a foreclosure
sale retroact to the date the mortgage was registered. 43 Hence, while PCSO may be
deemed to have acquired title over the subject property on May 20, 1992, such title
is rendered inferior by New Dagupans adverse claim, the validity of which was
confirmed per the Decision dated January 21, 1994 of RTC Branch 43.
Otherwise, if PCSOs mortgage lien is allowed to prevail by the mere expediency of
registration over an adverse claim that was registered ahead of time, the object of
an adverse claim to apprise third persons that any transaction regarding the
disputed property is subject to the outcome of the dispute would be rendered
naught. A different conclusion would remove the primary motivation for the public
to rely on and respect the Torrens system of registration. Such would be
inconsistent with the well-settled, even axiomatic, rule that a person dealing with
registered property need not go beyond the title and is not required to explore
outside the four (4) corners thereof in search for any hidden defect or inchoate right
that may turn out to be superior.
Worthy of extrapolation is the fact that there is no conflict between the disposition
of this case and Garbin v. CA44where this Court decided the controversy between a
buyer with an earlier registered adverse claim and a subsequent buyer, who is
charged with notice of such adverse claim at the time of the registration of her title,
in favor of the latter. As to why the adverse claim cannot prevail against the rights of
the later buyer notwithstanding its prior registration was discussed by this Court in
this wise:
It is undisputed that the adverse claim of private respondents was registered
pursuant to Sec. 110 of Act No. 496, the same having been accomplished by the
filing of a sworn statement with the Register of Deeds of the province where the
property was located. However, what was registered was merely the adverse claim
and not the Deed of Sale, which supposedly conveyed the northern half portion of
the subject property. Therefore, there is still need to resolve the validity of the
adverse claim in separate proceedings, as there is an absence of registration of the
actual conveyance of the portion of land herein claimed by private respondents.
From the provisions of the law, it is clear that mere registration of an adverse claim
does not make such claim valid, nor is it permanent in character. More importantly,
such registration does not confer instant title of ownership since judicial
determination on the issue of the ownership is still necessary. 45 (Citation omitted)
Apart from the foregoing, the more important consideration was the improper
resort to an adverse claim.1wphi1 In L.P. Leviste & Co. v. Noblejas,46 this Court
emphasized that the availability of the special remedy of an adverse claim is subject
to the absence of any other statutory provision for the registration of the claimants
alleged right or interest in the property. That if the claimants interest is based on a
perfected contract of sale or any voluntary instrument executed by the registered
owner of the land, the procedure that should be followed is that prescribed under
Section 51 in relation to Section 52 of P.D. No. 1529. Specifically, the owners
duplicate certificate must be presented to the Register of Deeds for the inscription
of the corresponding memorandum thereon and in the entry day book. It is only
when the owner refuses or fails to surrender the duplicate certificate for annotation
that a statement setting forth an adverse claim may be filed with the Register of
Deeds. Otherwise, the adverse claim filed will not have the effect of a conveyance of
any right or interest on the disputed property that could prejudice the rights that
have been subsequently acquired by third persons.
What transpired in Gabin is similar to that in Leviste. In Gabin, the basis of the claim
on the property is a deed of absolute sale. In Leviste, what is involved is a contract
to sell. Both are voluntary instruments that should have been registered in
accordance with Sections 51 and 52 of P.D. No. 1529 as there was no showing of an
inability to present the owners duplicate of title.
It is patent that the contrary appears in this case. Indeed, New Dagupans claim over
the subject property is based on a conditional sale, which is likewise a voluntary
instrument. However, New Dagupans use of the adverse claim to protect its rights is
far from being incongruent in view of the undisputed fact that Peralta failed to
surrender the owners duplicate of TCT No. 52135 despite demands.
Moreover, while the validity of the adverse claim in Gabin is not established as there
was no separate proceeding instituted that would determine the existence and due
execution of the deed of sale upon which it is founded, the same does not obtain in
this case. The existence and due execution of the conditional sale and Peraltas
absolute and complete cession of her title over the subject property to New
Dagupan are undisputed. These are matters covered by the Decision dated January
21, 1994 of RTC Branch 43, which had long become final and executory.
At any rate, in Sajonas v.CA,47 this Court clarified that there is no necessity for a prior
judicial determination of the validity of an adverse claim for it to be considered a
flaw in the vendors title as that would be repugnant to the very purpose thereof. 48
WHEREFORE, premises considered, the petition is DISMISSED and the Decision
dated September 29, 2005 and Resolution dated June9, 2006 of the Court of
Appeals in CA-G.R. CV No. 59590 are hereby AFFIRMED.
SO ORDERED.
Page 59 of 152
 SECOND DIVISION
PRUDENTIAL BANK, G.R. No. 150197
Petitioner,
Present:
PUNO, J.,
Chairman,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
DON A. ALVIAR and GEORGIA
B. ALVIAR,
Respondents. Promulgated:
July 28, 2005
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court.
Petitioner Prudential Bank seeks the reversal of the Decision[1] of the Court of
Appeals dated 27 September 2001 in CA-G.R. CV No. 59543 affirming
the Decision of the Regional Trial Court (RTC) of Pasig City, Branch 160, in favor of
respondents.
Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners
of a parcel of land in San Juan, Metro Manila, covered by Transfer Certificate of Title
(TCT) No. 438157 of the Register of Deeds of Rizal. On 10 July 1975, they executed a
deed of real estate mortgage in favor of petitioner Prudential Bank to secure the
payment of a loan worth P250,000.00.[2] This mortgage was annotated at the back of
TCT No. 438157. On 4 August 1975, respondents executed the corresponding
promissory note, PN BD#75/C-252, covering the said loan, which provides that the
loan matured on 4 August 1976 at an interest rate of 12% per annum with a 2%
service charge, and that the note is secured by a real estate mortgage as
aforementioned.[3] Significantly, the real estate mortgage contained the following
clause:
That for and in consideration of certain loans, overdraft and
other credit accommodations obtained from the Mortgagee
by the Mortgagor and/or ________________ hereinafter referred
to, irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be
obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine
Currency, as well as those that the Mortgagee may extend to
the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee,
whether direct or indirect, principal or secondary as appears
in the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of
mortgage unto the Mortgagee, its successors or assigns, the
parcels of land which are described in the list inserted on the
back of this document, and/or appended hereto, together
with all the buildings and improvements now existing or
which may hereafter be erected or constructed thereon, of
which the Mortgagor declares that he/it is the absolute
owner free from all liens and incumbrances. . . . [4]
On 22 October 1976, Don Alviar executed another promissory note, PN BD#76/C-
345 for P2,640,000.00, secured by D/A SFDX #129, signifying that the loan was
secured by a hold-out on the mortgagors foreign currency savings account with the
bank under Account No. 129, and that the mortgagors passbook is to be
surrendered to the bank until the amount secured by the hold-out is settled.[5]
On 27 December 1976, respondent spouses executed for Donalco Trading, Inc., of
which the husband and wife were President and Chairman of the Board and Vice
President,[6] respectively, PN BD#76/C-430 covering P545,000.000. As provided in
the note, the loan is secured by Clean-Phase out TOD CA 3923, which means that
the temporary overdraft incurred by Donalco Trading, Inc. with petitioner is to be
converted into an ordinary loan in compliance with a Central Bank circular directing
the discontinuance of overdrafts.[7]
On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter of its
approval of a straight loan of P545,000.00, the proceeds of which shall be used to
liquidate the outstanding loan of P545,000.00 TOD. The letter likewise mentioned
that the securities for the loan were the deed of assignment on two promissory
notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of
A.U. Valencia and Co. and the chattel mortgage on various heavy and transportation
equipment.[8]
On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to the
obligations of G.B. Alviar Realty and Development, Inc. and for the release of the
real estate mortgage for the P450,000.00 loan covering the two (2) lots located at
Vam Buren and Madison Streets, North Greenhills, San Juan, Metro Manila. The
payment was acknowledged by petitioner who accordingly released the mortgage
over the two properties.[9]
CRED TRANS Pledge, Mortgage Antichresis Fulltext
On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the
mortgage on the property covered by TCT No. 438157. Per petitioners computation,
respondents had the total obligation of P1,608,256.68, covering the three (3)
promissory notes, to wit: PN BD#75/C-252 for P250,000.00, PN BD#76/C-345
for P382,680.83, and PN BD#76/C-340 for P545,000.00, plus assessed past due
interests and penalty charges. The public auction sale of the mortgaged property
was set on 15 January 1980.[10]
Respondents filed a complaint for damages with a prayer for the issuance of a writ
of preliminary injunction with the RTC of Pasig,[11]claiming that they have paid their
principal loan secured by the mortgaged property, and thus the mortgage should
not be foreclosed. For its part, petitioner averred that the payment of P2,000,000.00
made on 6 March 1979 was not a payment made by respondents, but by G.B. Alviar
Realty and Development Inc., which has a separate loan with the bank secured by a
separate mortgage.[12]
On 15 March 1994, the trial court dismissed the complaint and ordered the Sheriff
to proceed with the extra-judicial foreclosure.[13]Respondents sought
reconsideration of the decision.[14] On 24 August 1994, the trial court issued
an Order setting aside its earlier decision and awarded attorneys fees to
respondents.[15] It found that only the P250,000.00 loan is secured by the mortgage
on the land covered by TCT No. 438157. On the other hand, the P382,680.83 loan is
secured by the foreign currency deposit account of Don A. Alviar, while
the P545,000.00 obligation was an unsecured loan, being a mere conversion of the
temporary overdraft of Donalco Trading, Inc. in compliance with a Central Bank
circular. According to the trial court, the blanket mortgage clause relied upon by
petitioner applies only to future loans obtained by the mortgagors, and not by
parties other than the said mortgagors, such as Donalco Trading, Inc., for which
respondents merely signed as officers thereof.
On appeal to the Court of Appeals, petitioner made the following assignment of
errors:
I. The trial court erred in holding that
the real estate mortgage covers only the
promissory note BD#75/C-252 for the sum
of P250,000.00.
II. The trial court erred in holding that
the promissory note BD#76/C-345
for P2,640,000.00 (P382,680.83 outstanding
principal balance) is not covered by the real
estate mortgage by expressed agreement.
III. The trial court erred in holding that
Promissory Note BD#76/C-430 for P545,000.00 is
not covered by the real estate mortgage.
IV. The trial court erred in holding that
the real estate mortgage is a contract of
adhesion.
V. The trial court erred in holding
defendant-appellant liable to pay plaintiffs-
appellees attorneys fees for P20,000.00.[16]
The Court of Appeals affirmed the Order of the trial court but deleted
the award of attorneys fees.[17] It ruled that while a continuing loan or credit
accommodation based on only one security or mortgage is a common practice in
financial and commercial institutions, such agreement must be clear and
unequivocal. In the instant case, the parties executed different promissory notes
agreeing to a particular security for each loan. Thus, the appellate court ruled that
the extrajudicial foreclosure sale of the property for the three loans is improper. [18]
The Court of Appeals, however, found that respondents have not yet
paid the P250,000.00 covered by PN BD#75/C-252 since the payment
of P2,000,000.00 adverted to by respondents was issued for the obligations of G.B.
Alviar Realty and Development, Inc.[19]
Aggrieved, petitioner filed the instant petition, reiterating the
assignment of errors raised in the Court of Appeals as grounds herein.
Petitioner maintains that the blanket mortgage clause or the dragnet
clause in the real estate mortgage expressly covers not only the P250,000.00 under
PN BD#75/C-252, but also the two other promissory notes included in the
application for extrajudicial foreclosure of real estate mortgage. [20] Thus, it claims
that it acted within the terms of the mortgage contract when it filed its petition for
extrajudicial foreclosure of real estate mortgage. Petitioner relies on the cases
of Lim Julian v. Lutero,[21] Tad-Y v. Philippine National Bank,[22] Quimson v. Philippine
National Bank,[23] C & C Commercial v. Philippine National Bank,[24] Mojica v. Court of
Appeals,[25] and China Banking Corporation v. Court of Appeals, [26] all of which upheld
the validity of mortgage contracts securing future advancements.
Anent the Court of Appeals conclusion that the parties did not intend to
include PN BD#76/C-345 in the real estate mortgage because the same was
specifically secured by a foreign currency deposit account, petitioner states that
there is no law or rule which prohibits an obligation from being covered by more
than one security.[27] Besides, respondents even continued to withdraw from the
same foreign currency account even while the promissory note was still outstanding,
strengthening the belief that it was the real estate mortgage that principally secured
all of respondents promissory notes.[28] As for PN BD#76/C-345, which the Court of
Appeals found to be exclusively secured by the Clean-Phase out TOD 3923,
petitioner posits that such security is not exclusive, as the dragnet clause of the real
estate mortgage covers all the obligations of the respondents. [29]
Moreover, petitioner insists that respondents attempt to evade foreclosure by the
expediency of stating that the promissory notes were executed by them not in their
personal capacity but as corporate officers. It claims that PN BD#76/C-430 was in
fact for home construction and personal consumption of respondents. Thus, it states
that there is a need to pierce the veil of corporate fiction. [30]
Finally, petitioner alleges that the mortgage contract was executed by respondents
with knowledge and understanding of the dragnet clause, being highly educated
individuals, seasoned businesspersons, and political personalities. [31] There was no
Page 60 of 152
oppressive use of superior bargaining power in the execution of the promissory
notes and the real estate mortgage.[32]
For their part, respondents claim that the dragnet clause cannot be applied to the
subsequent loans extended to Don Alviar and Donalco Trading, Inc. since these
loans are covered by separate promissory notes that expressly provide for a
different form of security.[33] They reiterate the holding of the trial court that the
blanket mortgage clause would apply only to loans obtained jointly by respondents,
and not to loans obtained by other parties.[34] Respondents also place a premium on
the finding of the lower courts that the real estate mortgage clause is a contract of
adhesion and must be strictly construed against petitioner bank.[35]
The instant case thus poses the following issues pertaining to: (i) the validity of the
blanket mortgage clause or the dragnet clause; (ii) the coverage of the blanket
mortgage clause; and consequently, (iii) the propriety of seeking foreclosure of the
mortgaged property for the non-payment of the three loans.
At this point, it is important to note that one of the loans sought to be included in
the blanket mortgage clause was obtained by respondents for Donalco Trading, Inc.
Indeed, PN BD#76/C-430 was executed by respondents on behalf of Donalco
Trading, Inc. and not in their personal capacity. Petitioner asks the Court to pierce
the veil of corporate fiction and hold respondents liable even for obligations they
incurred for the corporation. The mortgage contract states that the mortgage covers
as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR,
including interest and expenses or any other obligation owing to the Mortgagee,
whether direct or indirect, principal or secondary. Well-settled is the rule that a
corporation has a personality separate and distinct from that of its officers and
stockholders. Officers of a corporation are not personally liable for their acts as such
officers unless it is shown that they have exceeded their authority. [36] However, the
legal fiction that a corporation has a personality separate and distinct from
stockholders and members may be disregarded if it is used as a means to
perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate issues. [37] PN
BD#76/C-430, being an obligation of Donalco Trading, Inc., and not of the
respondents, is not within the contemplation of the blanket mortgage clause.
Moreover, petitioner is unable to show that respondents are hiding behind the
corporate structure to evade payment of their obligations. Save for the notation in
the promissory note that the loan was for house construction and personal
consumption, there is no proof showing that the loan was indeed for respondents
personal consumption. Besides, petitioner agreed to the terms of the promissory
note. If respondents were indeed the real parties to the loan, petitioner, a big, well-
established institution of long standing that it is, should have insisted that the note
be made in the name of respondents themselves, and not to Donalco Trading Inc.,
and that they sign the note in their personal capacity and not as officers of the
corporation.
Now on the main issues.
A blanket mortgage clause, also known as a dragnet clause in American
jurisprudence, is one which is specifically phrased to subsume all debts of past or
future origins. Such clauses are carefully scrutinized and strictly
construed.[38] Mortgages of this character enable the parties to provide continuous
dealings, the nature or extent of which may not be known or anticipated at the time,
and they avoid the expense and inconvenience of executing a new security on each
new transaction.[39] A dragnet clause operates as a convenience and accommodation
to the borrowers as it makes available additional funds without their having to
execute additional security documents, thereby saving time, travel, loan closing
costs, costs of extra legal services, recording fees, et cetera.[40] Indeed, it has been
settled in a long line of decisions that mortgages given to secure future
advancements are valid and legal contracts, [41] and the amounts named as
consideration in said contracts do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the intent to secure
future and other indebtedness can be gathered.[42]
The blanket mortgage clause in the instant case states:
That for and in consideration of certain loans,
overdraft and other credit accommodations obtained from
the Mortgagee by the Mortgagor and/or ________________
hereinafter referred to, irrespective of number, as DEBTOR,
and to secure the payment of the same and those that
may hereafter be obtained, the principal or all of which is
hereby fixed at Two Hundred Fifty Thousand (P250,000.00)
Pesos, Philippine Currency, as well as those that the
Mortgagee may extend to the Mortgagor and/or
DEBTOR, including interest and expenses or any other
obligation owing to the Mortgagee, whether direct or
indirect, principal or secondary as appears in the accounts,
books and records of the Mortgagee, the Mortgagor does
hereby transfer and convey by way of mortgage unto the
Mortgagee, its successors or assigns, the parcels of land
which are described in the list inserted on the back of this
document, and/or appended hereto, together with all the
buildings and improvements now existing or which may
hereafter be erected or constructed thereon, of which the
Mortgagor declares that he/it is the absolute owner free
from all liens and incumbrances. . . .[43] (Emphasis supplied.)
Thus, contrary to the finding of the Court of Appeals, petitioner and respondents
intended the real estate mortgage to secure not only the P250,000.00 loan from the
petitioner, but also future credit facilities and advancements that may be obtained
by the respondents. The terms of the above provision being clear and
unambiguous, there is neither need nor excuse to construe it otherwise.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
The cases cited by petitioner, while affirming the validity of dragnet
clauses or blanket mortgage clauses, are of a different factual milieu from the
instant case. There, the subsequent loans were not covered by any security other
than that for the mortgage deeds which uniformly contained the dragnet clause.
In the case at bar, the subsequent loans obtained by respondents were
secured by other securities, thus: PN BD#76/C-345, executed by Don Alviar was
secured by a hold-out on his foreign currency savings account, while PN BD#76/C-
430, executed by respondents for Donalco Trading, Inc., was secured by Clean-
Phase out TOD CA 3923 and eventually by a deed of assignment on two promissory
notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of
A.U. Valencia and Co., and by a chattel mortgage on various heavy and
transportation equipment. The matter of PN BD#76/C-430 has already been
discussed. Thus, the critical issue is whether the blanket mortgage clause applies
even to subsequent advancements for which other securities were intended, or
particularly, to PN BD#76/C-345.
Under American jurisprudence, two schools of thought have emerged
on this question. One school advocates that a dragnet clause so worded as to be
broad enough to cover all other debts in addition to the one specifically secured will
be construed to cover a different debt, although such other debt is secured by
another mortgage.[44] The contrary thinking maintains that a mortgage with such a
clause will not secure a note that expresses on its face that it is otherwise secured as
to its entirety, at least to anything other than a deficiency after exhausting the
security specified therein,[45] such deficiency being an indebtedness within the
meaning of the mortgage, in the absence of a special contract excluding it from the
arrangement.[46]
The latter school represents the better position. The parties having conformed to
the blanket mortgage clause or dragnet clause, it is reasonable to conclude that
they also agreed to an implied understanding that subsequent loans need not be
secured by other securities, as the subsequent loans will be secured by the first
mortgage. In other words, the sufficiency of the first security is a corollary
component of the dragnet clause. But of course, there is no prohibition, as in the
mortgage contract in issue, against contractually requiring other securities for the
subsequent loans. Thus, when the mortgagor takes another loan for which another
security was given it could not be inferred that such loan was made in reliance solely
on the original security with the dragnet clause, but rather, on the new security
given. This is the reliance on the security test.
Hence, based on the reliance on the security test, the California court in the cited
case made an inquiry whether the second loan was made in reliance on the original
security containing a dragnet clause. Accordingly, finding a different security was
taken for the second loan no intent that the parties relied on the security of the first
loan could be inferred, so it was held. The rationale involved, the court said, was that
the dragnet clause in the first security instrument constituted a continuing offer by
the borrower to secure further loans under the security of the first security
instrument, and that when the lender accepted a different security he did not accept
the offer.[47]
In another case, it was held that a mortgage with a dragnet clause is an
offer by the mortgagor to the bank to provide the security of the mortgage for
advances of and when they were made. Thus, it was concluded that the offer was
not accepted by the bank when a subsequent advance was made because (1) the
second note was secured by a chattel mortgage on certain vehicles, and the clause
therein stated that the note was secured by such chattel mortgage; (2) there was no
reference in the second note or chattel mortgage indicating a connection between
the real estate mortgage and the advance; (3) the mortgagor signed the real estate
mortgage by her name alone, whereas the second note and chattel mortgage were
signed by the mortgagor doing business under an assumed name; and (4) there was
no allegation by the bank, and apparently no proof, that it relied on the security of
the real estate mortgage in making the advance. [48]
Indeed, in some instances, it has been held that in the absence of clear, supportive
evidence of a contrary intention, a mortgage containing a dragnet clause will not be
extended to cover future advances unless the document evidencing the subsequent
advance refers to the mortgage as providing security therefor. [49]
It was therefore improper for petitioner in this case to seek foreclosure
of the mortgaged property because of non-payment of all the three promissory
notes. While the existence and validity of the dragnet clause cannot be denied,
there is a need to respect the existence of the other security given for PN BD#76/C-
345. The foreclosure of the mortgaged property should only be for the P250,000.00
loan covered by PN BD#75/C-252, and for any amount not covered by the security
for the second promissory note. As held in one case, where deeds absolute in form
were executed to secure any and all kinds of indebtedness that might subsequently
become due, a balance due on a note, after exhausting the special security given for
the payment of such note, was in the absence of a special agreement to the
contrary, within the protection of the mortgage, notwithstanding the giving of the
special security.[50] This is recognition that while the dragnet clause subsists, the
security specifically executed for subsequent loans must first be exhausted before
the mortgaged property can be resorted to.
One other crucial point. The mortgage contract, as well as the promissory notes
subject of this case, is a contract of adhesion, to which respondents only
participation was the affixing of their signatures or adhesion thereto. [51] A contract
of adhesion is one in which a party imposes a ready-made form of contract which
the other party may accept or reject, but which the latter cannot modify. [52]
The real estate mortgage in issue appears in a standard form, drafted
and prepared solely by petitioner, and which, according to jurisprudence must be
strictly construed against the party responsible for its preparation. [53] If the parties
intended that the blanket mortgage clause shall cover subsequent advancement
secured by separate securities, then the same should have been indicated in the
Page 61 of 152
mortgage contract. Consequently, any ambiguity is to be taken contra proferentum,
that is, construed against the party who caused the ambiguity which could have
avoided it by the exercise of a little more care. [54] To be more emphatic, any
ambiguity in a contract whose terms are susceptible of different interpretations
must be read against the party who drafted it,[55] which is the petitioner in this case.
Even the promissory notes in issue were made on standard forms
prepared by petitioner, and as such are likewise contracts of adhesion. Being of such
nature, the same should be interpreted strictly against petitioner and with even
more reason since having been accomplished by respondents in the presence of
petitioners personnel and approved by its manager, they could not have been
unaware of the import and extent of such contracts.
Petitioner, however, is not without recourse. Both the Court of Appeals and the trial
court found that respondents have not yet paid the P250,000.00, and gave no
credence to their claim that they paid the said amount when they paid
petitioner P2,000,000.00. Thus, the mortgaged property could still be properly
subjected to foreclosure proceedings for the unpaid P250,000.00 loan, and as
mentioned earlier, for any deficiency after D/A SFDX#129, security for PN BD#76/C-
345, has been exhausted, subject of course to defenses which are available to
respondents.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 59543 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
SECOND DIVISION
G.R. No. 183987 July 25, 2012
ASIA TRUST DEVELOPMENT BANK, Petitioner,
vs.
CARMELO H. TUBLE, Respondent.
DECISION
SERENO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, seeking to review the Court of Appeals (CA) 28 March 2008 Decision
and 30 July 2008 Resolution in CA-G.R. CV No. 87410. The CA affirmed the Regional
Trial Court (RTC) Decision of 15 May 2006 in Civil Case No. 67973, which granted to
respondent the refund of P845,805.491 representing the amount he had paid in
excess of the redemption price.
The antecedent facts are as follows: 2
Respondent Carmelo H. Tuble, who served as the vice-president of petitioner
Asiatrust Development Bank, availed himself of the car incentive plan and loan
privileges offered by the bank. He was also entitled to the banks Senior Managers
Deferred Incentive Plan (DIP).
Respondent acquired a Nissan Vanette through the companys car incentive plan.
The arrangement was made to appear as a lease agreement requiring only the
payment of monthly rentals. Accordingly, the lease would be terminated in case of
the employees resignation or retirement prior to full payment of the price.
As regards the loan privileges, Tuble obtained three separate loans. The first, a real
estate loan evidenced by the 18 January 1993 Promissory Note No. 01423 with
maturity date of 1 January 1999, was secured by a mortgage over his property
covered by Transfer Certificate of Title No. T 145794. No interest on this loan was
indicated.
The second was a consumption loan, evidenced by the 10 January 1994 Promissory
Note No. 01434 with the maturity date of 31 January 1995 and interest at 18% per
annum. Aside from the said indebtedness, Tuble allegedly obtained a salary loan,
his third loan.
On 30 March 1995, he resigned. Subsequently, he was given the option to either
return the vehicle without any further obligation or retain the unit and pay its
remaining book value.
Respondent had the following obligations to the bank after his retirement: (1) the
purchase or return of the Nissan Vanette; (2) P100,000 as consumption loan;
(3) P421,800 as real estate loan; and (4) P16,250 as salary loan.5
In turn, petitioner owed Tuble (1) his pro-rata share in the DIP, which was to be
issued after the bank had given the resigned employees clearance; and
(2) P25,797.35 representing his final salary and corresponding 13th month pay.
Respondent claimed that since he and the bank were debtors and creditors of each
other, the offsetting of loans could legally take place. He then asked the bank to
simply compute his DIP and apply his receivables to his outstanding
CRED TRANS Pledge, Mortgage Antichresis Fulltext
loans.6 However, instead of heeding his request, the bank sent him a 1 June 1995
demand letter7obliging him to pay his debts. The bank also required him to return
the Nissan Vanette. Despite this demand, the vehicle was not surrendered.
On 14 August 1995, Tuble wrote the bank again to follow up his request to offset
the loans. This letter was not immediately acted upon. It was only on 13 October
1995 that the bank finally allowed the offsetting of his various claims and liabilities.
As a result, his liabilities were reduced to P970,691.46 plus the unreturned value of
the vehicle.
In order to recover the Nissan Vanette, the bank filed a Complaint for replevin
against Tuble. Petitioner obtained a favorable judgment. Then, to collect the
liabilities of respondent, it also filed a Petition for Extra-judicial Foreclosure of real
estate mortgage over his property. The Petition was based only on his real estate
loan, which at that time amounted to P421,800. His other liabilities to the bank were
excluded. The foreclosure proceedings terminated, with the bank emerging as the
purchaser of the secured property.
Thereafter, Tuble timely redeemed the property on 17 March 1997
for P1,318,401.91.8 Notably, the redemption price increased to this figure, because
the bank had unilaterally imposed additional interest and other charges.
With the payment of P1,318,401.91, Tuble was deemed to have fully paid his
accountabilities. Thus, three years after his payment, the bank issued him a
Clearance necessary for the release of his DIP share. Subsequently, he received a
Managers Check in the amount of P166,049.73 representing his share in the DIP
funds.
Despite his payment of the redemption price, Tuble questioned how the foreclosure
basis of P421,800 ballooned to P1,318,401.91 in a matter of one year. Belatedly, the
bank explained that this redemption price included the Nissan Vanettes book value,
the salary loan, car insurance, 18% annual interest on the banks redemption price
of P421,800, penalty and interest charges on Promissory Note No. 0142, and
litigation expenses.9 By way of note, from these items, the amounts that remained to
be collected as stated in the Petition before us, are (1) the 18% annual interest on
the redemption price and (2) the interest charge on Promissory Note No. 0142.
Because Tuble disputed the redemption price, he filed a Complaint for recovery of a
sum of money and damages before the RTC. He specifically sought to
collect P896,602.0210 representing the excess charges on the redemption price.
Additionally, he prayed for moral and exemplary damages.
The RTC ruled in favor of Tuble. The trial court characterized the redemption price
as excessive and arbitrary, because the correct redemption price should not have
included the above-mentioned charges. Moral and exemplary damages were also
awarded to him.
According to the trial court,11 the value of the car should not have been included,
considering that the bank had already recovered the Nissan Vanette. The
obligations arising from the salary loan and car insurance should have also been
excluded, for there was no proof that these debts existed. The interest and penalty
charges should have been deleted, too, because Promissory Note No. 0142 did not
indicate any interest or penalty charges. Neither should litigation expenses have
been added, since there was no proof that the bank incurred those expenses.
As for the 18% annual interest on the bid price of P421,800, the RTC agreed with
Tuble that this charge was unlawful. Act 313512 as amended, in relation to Section
28 of Rule 39 of the Rules of Court,13 only allows the mortgagee to charge an
interest of 1% per month if the foreclosed property is redeemed. Ultimately, under
the principle of solutio indebiti, the trial court required the refund of these amounts
charged in excess of the correct redemption price.
On appeal, the CA affirmed the findings of the RTC. 14 The appellate court only
expounded the rule that, at the time of redemption, the one who redeemed is liable
to pay only 1% monthly interest plus taxes. Thus, the CA also concluded that there
was practically no basis to impose the additional charges.
Before this Court, petitioner reiterates its claims regarding the inclusion in the
redemption price of the 18% annual interest on the bid price of P421,800 and the
interest charges on Promissory Note No. 0142. Petitioner emphasizes that an 18%
interest rate allegedly referred to in the mortgage deed is the proper basis of the
interest. Pointing to the Real Estate Mortgage Contract, the bank highlights the
blanket security clause or "dragnet clause" that purports to cover all obligations
owed by Tuble:15
All obligations of the Borrower and/or Mortgagor, its renewal, extension,
amendment or novation irrespective of whether such obligations as renewed,
extended, amended or novated are in the nature of new, separate or additional
obligations;
All other obligations of the Borrower and/or Mortgagor in favor of the Mortgagee,
executed before or after the execution of this document whether presently owing or
hereinafter incurred and whether or not arising from or connection with the
aforesaid loan/Credit accommodation; x x x.
Page 62 of 152
Tubles obligations are defined in Promissory Note Nos. 0142 and 0143. By way of
recap, Promissory Note No. 0142 refers to the real estate loan; it does not contain
any stipulation on interest. On the other hand, Promissory Note No. 0143 refers to
the consumption loan; it charges an 18% annual interest rate. Petitioner uses this
latter rate to impose an interest over the bid price of P421,800.
Rather than relying on an expired contract, the bank should have collected on the
excluded loans by instituting the proper actions for recovery of sums of money.
Simply put, petitioner should have run after Tuble separately, instead of hostaging
the same property to cover all of his liabilities.

The Right of Redemption

Further, the bank sees the inclusion in the redemption price of an addition 12%
annual interest on Tubles real estate loan.
Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had the
right to redeem the security by paying the redemption price.
On top of these claims, the bank raises a new item the cars rental fee to be
included in the redemption price. In dealing with this argument raised for the first
The right of redemption of foreclosed properties was a statutory privilege27 he
time on certiorari, this Court dismisses the contention based on the well-entrenched
enjoyed. Redemption is by force of law, and the purchaser at public auction is
prohibition on raising new issues, especially factual ones, on appeal. 16
bound to accept it.28 Thus, it is the law that provides the terms of the right; the
mortgagee cannot dictate them. The terms of this right, based on Section 47 of the
Thus, the pertinent issue in the instant appeal is whether or not the bank is entitled General Banking Law, are as follows:
to include these items in the redemption price: (1) the interest charges on
Promissory Note No. 0142; and (2) the 18% annual interest on the bid price of
1. The redemptioner shall have the right within one year after the sale of the real
P421,800.
estate, to redeem the property.

RULING OF THE COURT

2. The redemptioner shall pay the amount due under the mortgage deed, with
interest thereon at rate specified in the mortgage, and all the costs and expenses
The 18% Annual Interest on the Bid incurred by the bank or institution from the sale and custody of said property less
Price of P421,800 the income derived therefrom.

The Applicable Law 3. In case of redemptioners who are considered by law as juridical persons, they
shall have the right to redeem not after the registration of the certificate of
foreclosure sale with the applicable Register of Deeds which in no case shall be
The bank argues that instead of referring to the Rules of Court to compute the
more than three (3) months after foreclosure, whichever is earlier.
redemption price, the courts a quo should have applied the General Banking
Law,17 considering that petitioner is a banking institution.
Consequently, the bank cannot alter that right by imposing additional charges and
including other loans. Verily, the freedom to stipulate the terms and conditions of
The statute referred to requires that in the event of judicial or extrajudicial
an agreement is limited by law.29
foreclosure of any mortgage on real estate that is used as security for an obligation
to any bank, banking institution, or credit institution, the mortgagor can redeem the
property by paying the amount fixed by the court in the order of execution, with Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate Appellate Court 30 that
interest thereon at the rate specified in the mortgage. 18 the power to decide whether or not to foreclose is the prerogative of the
mortgagee; however, once it has made the decision by filing a petition with the
sheriff, the acts of the latter shall thereafter be governed by the provisions of the
Petitioner is correct. We have already established in Union Bank of the Philippines v.
mortgage laws, and not by the instructions of the mortgagee. In direct
Court of Appeals,19 citing Ponce de Leon v. Rehabilitation Finance
contravention of this ruling, though, the bank included numerous charges and loans
Corporation20 and Sy v. Court of Appeals,21 that the General Banking Act being a
in the redemption price, which inexplicably ballooned to P1,318,401.91. On this error
special and subsequent legislation has the effect of amending Section 6 of Act No.
alone, the claims of petitioner covering all the additional charges should be denied.
3135, insofar as the redemption price is concerned, when the mortgagee is a bank.
Thus, considering the undue inclusions of the additional charges, the bank cannot
Thus, the amount to be paid in redeeming the property is determined by the
impose the 18% annual interest on the redemption price.
General Banking Act, and not by the Rules of Court in Relation to Act 3135.

The Dragnet Clause

The Remedy of Foreclosure

In any event, assuming that the Real Estate Mortgage Contract subsists, we rule that
In reviewing the banks additional charges on the redemption price as a result of the
the dragnet clause therein does not justify the imposition of an 18% annual interest
foreclosure, this Court will first clarify certain vital points of fact and law that both
on the redemption price.
parties and the courts a quo seem to have missed.

This Court has recognized that, through a dragnet clause, a real estate mortgage
Firstly, at the time respondent resigned, which was chronologically before the
contract may exceptionally secure future loans or advancements. 31 But an obligation
foreclosure proceedings, he had several liabilities to the bank. Secondly, when the
is not secured by a mortgage, unless, that mortgage comes fairly within the terms of
bank later on instituted the foreclosure proceedings, it foreclosed only the
the mortgage contract.32
mortgage secured by the real estate loan of P421,800.22 It did not seek to include, in
the foreclosure, the consumption loan under Promissory Note No. 0143 or the other
alleged obligations of respondent. Thirdly, on 28 February 1996, the bank availed We have also emphasized that the mortgage agreement, being a contract of
itself of the remedy of foreclosure and, in doing so, effectively gained the property. adhesion, is to be carefully scrutinized and strictly construed against the bank, the
party that prepared the agreement.33

As a result of these established facts, one evident conclusion surfaces: the Real
Estate Mortgage Contract on the secured property is already extinguished. Here, after reviewing the entire deed, this Court finds that there is no specific
mention of interest to be added in case of either default or redemption. The Real
Estate Mortgage Contract itself is silent on the computation of the redemption
In foreclosures, the mortgaged property is subjected to the proceedings for the
price. Although it refers to the Promissory Notes as constitutive of Tubles secured
satisfaction of the obligation.23 As a result, payment is effected by abnormal means
obligations, the said contract does not state that the interest to be charged in case
whereby the debtor is forced by a judicial proceeding to comply with the
of redemption should be what is specified in the Promissory Notes.
presentation or to pay indemnity.24

In Philippine Banking Communications v. Court of Appeals, 34 we have construed such

Once the proceeds from the sale of the property are applied to the payment of the
silence or omission of additional charges strictly against the bank. In that case, we
obligation, the obligation is already extinguished.25 Thus, in Spouses Romero v.
affirmed the findings of the courts a quo that penalties and charges are not due for
Court of Appeals,26 we held that the mortgage indebtedness was extinguished with
want of stipulation in the mortgage contract.
the foreclosure and sale of the mortgaged property, and that what remained was
the right of redemption granted by law.
Worse, when petitioner invites us to look at the Promissory Notes in determining
the interest, these loan agreements offer different interest charges: Promissory Note
Consequently, since the Real Estate Mortgage Contract is already extinguished,
No. 0142, which corresponds exactly to the real estate loan, contains no stipulation
petitioner can no longer rely on it or invoke its provisions, including the dragnet
on interest; while Promissory Note No. 0143, which in turn corresponds to the
clause stipulated therein. It follows that the bank cannot refer to the 18% annual
consumption loan, provides a charge of 18% interest per annum.
interest charged in Promissory Note No. 0143, an obligation allegedly covered by
the terms of the Contract.
Thus, an ambiguity results as to which interest shall be applied, for to apply an 18%
interest per annum based on Promissory Note No. 0143 will negate the existence of
Neither can the bank use the consummated contract to collect on the rest of the
the 0% interest charged by Promissory Note No. 0142. Notably, it is this latter
obligations, which were not included when it earlier instituted the foreclosure
Promissory Note that refers to the principal agreement to which the security
proceedings. It cannot be allowed to use the same security to collect on the other
attaches.
loans. To do so would be akin to foreclosing an already foreclosed property.

CRED TRANS Pledge, Mortgage Antichresis Fulltext Page 63 of 152

In resolving this ambiguity, we refer to a basic principle in the law of contracts: "Any (1) That each one of the obligors be bound principally, and that he be at the same
ambiguity is to be taken contra proferentem, that is, construed against the party who time a principal creditor of the other;
caused the ambiguity which could have avoided it by the exercise of a little more
care."35 Therefore, the ambiguity in the mortgage deed whose terms are susceptible
(2) That both debts consist in a sum of money, or if the things due are consumable,
of different interpretations must be read against the bank that drafted it.
they be of the same kind, and also of the same quality if the latter has been stated;
Consequently, we cannot impute grave error on the part of the courts a quo for not
appreciating a charge of 18% interest per annum.
(3) That the two debts be due;

Furthermore, this Court refuses to be blindsided by the dragnet clause in the Real
Estate Mortgage Contract to automatically include the consumption loan, and its (4) That they be liquidated and demandable;
corresponding interest, in computing the redemption price.

As we have held in Prudential Bank v. Alviar,36 in the absence of clear and supportive
evidence of a contrary intention, a mortgage containing a dragnet clause will not be
extended to cover future advances, unless the document evidencing the subsequent
advance refers to the mortgage as providing security therefor.
In this regard, this Court adopted the "reliance on the security test" used in the
above-mentioned cases, Prudential Bank37 and Philippine Bank of
Communications.38 In these Decisions, we elucidated the test as follows:
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor. (Emphasis supplied)
Liquidated debts are those whose exact amount has already been determined. 46 In
this case, the receivable of Tuble, including his DIP share, was not yet determined; it
was the petitioners policy to compute and issue the computation only after the
retired employee had been cleared by the bank. Thus, Tuble incorrectly invoked
legal compensation in addressing this issue of default.

x x x A mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank
to provide the security of the mortgage for advances of and when they were made.
Thus, it was concluded that the "offer" was not accepted by the bank when a
subsequent advance was made because (1) the second note was secured by a
chattel mortgage on certain vehicles, and the clause therein stated that the note
was secured by such chattel mortgage; (2) there was no reference in the second
note or chattel mortgage indicating a connection between the real estate mortgage
and the advance; (3) the mortgagor signed the real estate mortgage by her name
alone, whereas the second note and chattel mortgage were signed by the
mortgagor doing business under an assumed name; and (4) there was no allegation
by the bank, and apparently no proof, that it relied on the security of the real estate
mortgage in making the advance.39 (Emphasis supplied)
Here, the second loan agreement, or Promissory Note No. 0143, referring to the
consumption loan makes no reference to the earlier loan with a real estate
mortgage. Neither does the bank make any allegation that it relied on the security
of the real estate mortgage in issuing the consumption loan to Tuble.
Nevertheless, based on the findings of the RTC and the CA, the obligation of Tuble
as evidenced by Promissory Note No. 0142, was set to mature on 1 January 1999.
But then, he had already settled his liabilities on 17 March 1997 by
paying P1,318,401.91 as redemption price. Then, in 1999, the bank issued his
Clearance and share in the DIP in view of the full settlement of his obligations. Thus,
there being no substantial delay on his part, the CA did not grievously err in not
declaring him to be in default.
The Award of Moral and Exemplary
Damages
The courts a quo awarded Tuble P200,000 as moral damages and P50,000 as
exemplary damages.1wphi1 As appreciated by the RTC, which had the opportunity
to examine the parties,47 the bank treated Tuble unfairly and unreasonably by
refusing to lend even a little charity and human consideration when it immediately
foreclosed the loans of its previous vice-president instead of heeding his request to
make a straightforward calculation of his receivables and offset them against his
liabilities.48

It must be remembered that Tuble was petitioners previous vice-president. Hence,

To the mind of the trial court, this was such a simple request within the control of
as one of the senior officers, the consumption loan was given to him not as an
the bank to grant; and if petitioner had only acceded, the troubles of the lawsuit
ordinary loan, but as a form of accommodation or privilege. 40The banks grant of the
would have been avoided.1wphi1
salary loan to Tuble was apparently not motivated by the creation of a security in
favor of the bank, but by the fact the he was a top executive of petitioner.
Moreover, the RTC found that the bank caused Tuble severe humiliation when the
Nissan Vannette was seized from his new office at Kuok Properties Philippines. The
Thus, the bank cannot claim that it relied on the previous security in granting the
trial court also highlighted the fact that respondent as the previous vice-president
consumption loan to Tuble. For this reason, the dragnet clause will not be extended
of petitioner was no ordinary employee he was a man of good professional
to cover the consumption loan. It follows, therefore, that its corresponding interest
standing, and one who actively participated in civic organizations. The RTC then
18% per annum is inapplicable. Consequently, the courts a quo did not gravely
concluded that a man of his standing deserved fair treatment from his employer,
abuse their discretion in refusing to apply an annual interest of 18% in computing
especially since they served common goals.
the redemption price. A finding of grave abuse of discretion necessitates that the
judgment must have been exercised arbitrarily and without basis in fact and in law.41
This Court affirms the dispositions of the RTC and the CA. They correctly ruled that
the award of moral damages also includes cases of besmirched reputation, moral
The Interest Charges on Promissory
shock, social humiliation and similar injury. In this regard, the social and financial
Note No. 0142
standings of the parties are additional elements that should be taken into account
in the determination of the amount of moral damages. 49 Based on their findings
In addition to the 18% annual interest, the bank also claims a 12% interest per that Tuble suffered undue embarrassment, given his social standing, the courts a
annum on the consumption loan. Notwithstanding that Promissory Note No. 0142 quo had factual Basis50 to justify the award of moral damages and, consequently,
contains no stipulation on interest payments, the bank still claims that Tuble is liable exemplary damages51 in his favor.
to pay the legal interest. This interest is currently at 12% per annum, pursuant to
Central Bank Circular No. 416 and Article 2209 of the Civil Code, which provides:
From all the foregoing, we rule that the appellate court correctly deleted the 18%
annual interest charges, albeit for different reasons. First, the interest cannot be
If the obligation consists in the payment of a sum of money, and the debtor incurs imposed, because any reference to it under the Real Estate Mortgage Contract is
in delay, the indemnity for damages, there being no stipulation to the contrary, shall misplaced, as the contract is already extinguished. Second, the said interest cannot
be the payment of the interest agreed upon, and in the absence of stipulation, the be collected without any basis in terms of Tuble's redemption rights. Third,
legal interest, which is six per cent per annum. (Emphasis supplied) assuming that the Real Estate Mortgage Contract subsists, the bank cannot collect
the interest because of the contract's ambiguity. Fourth, the dragnet clause referred
to in the contract cannot be presumed to include the 18% annual interest specified
While Article 2209 allows the recovery of interest sans stipulation, this charge is
in the consumption loan. Fifth, with respect to the compensatory interest claimed by
provided not as a form of monetary interest, but as one of compensatory interest. 42
the bank, we hold that neither is the interest due, because Tuble cannot be deemed
to be in default of his obligations.
Monetary interest refers to the compensation set by the parties for the use or
forbearance of money.43 On the other hand, compensatory interest refers to the
IN VIEW THEREOF, the assailed 28 March 2008 Decision and 30 July 2008
penalty or indemnity for damages imposed by law or by the courts. 44 Compensatory
Resolution of the Court of Appeals in CA-G.R. CV No. 87410 are hereby AFFIRMED.
interest, as a form of damages, is due only if the obligor is proven to have defaulted
in paying the loan.45
SO ORDERED.
Thus, a default must exist before the bank can collect the compensatory legal
interest of 12% per annum. In this regard, Tuble denies being in default since, by SECOND DIVISION
way of legal compensation, he effectively paid his liabilities on time.

SPS. ANTONIO & LETICIA VEGA, G.R. No. 181672

This argument is flawed. The bank correctly explains in its Petition that in order for
Petitioner,
legal compensation to take effect, Article 1279 of the Civil Code requires that the
Present:
debts be liquidated and demandable. This provision reads:
CARPIO, J., Chairperson,
- versus - PERALTA, BERSAMIN,* ABAD, and PEREZ,** JJ.
SOCIAL SECURITY SYSTEM (SSS)

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& PILAR DEVELOPMENT Promulgated:
CORPORATION,
Respondents. September 20, 2010
x --------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
This case is about the lack of authority of a sheriff to execute upon a
property that the judgment obligor had long sold to another although the
registered title to the property remained in the name of the former.
The Facts and the Case
Magdalena V. Reyes (Reyes) owned a piece of titled
land[1] in Pilar Village, Las Pias City. On August 17, 1979 she got a housing loan from
respondent Social Security System (SSS) for which she mortgaged her land. [2] In late
1979, however, she asked the petitioner spouses Antonio and Leticia Vega (the
Vegas) to assume the loan and buy her house and lot since she wanted to
emigrate.[3]
Upon inquiry with the SSS, an employee there told the Vegas that the
SSS did not approve of members transferring their mortgaged homes. The Vegas
could, however, simply make a private arrangement with Reyes provided they paid
the monthly amortizations on time. This practice, said the SSS employee, was
commonplace.[4] Armed with this information, the Vegas agreed for Reyes to
execute in their favor a deed of assignment of real property with assumption of
mortgage and paid Reyes P20,000.00 after she undertook to update the
amortizations before leaving the country. The Vegas then took possession of the
house in January 1981.[5]
But Reyes did not readily execute the deed of assignment. She left the
country and gave her sister, Julieta Reyes Ofilada (Ofilada), a special power of
attorney to convey ownership of the property. Sometime between 1983 and 1984,
Ofilada finally executed the deed promised by her sister to the Vegas. Ofilada kept
the original and gave the Vegas two copies. The latter gave one copy to the Home
Development Mortgage Fund and kept the other. [6] Unfortunately, a storm in 1984
resulted in a flood that destroyed the copy left with them.[7]
In 1992, the Vegas learned that Reyes did not update the amortizations
for they received a notice to Reyes from the SSS concerning it.[8] They told the SSS
that they already gave the payment to Reyes but, since it appeared indifferent, on
January 6, 1992 the Vegas updated the amortization themselves and
paid P115,738.48 to the SSS, through Antonio Vegas personal check. [9] They
negotiated seven additional remittances and the SSS accepted P8,681.00 more from
the Vegas.[10]
Meanwhile, on April 16, 1993 respondent Pilar Development
Corporation (PDC) filed an action for sum of money against Reyes before the
Regional Trial Court (RTC) of Manila in Civil Case 93-6551. PDC claimed that Reyes
borrowed from Apex Mortgage and Loans Corporation (Apex) P46,500.00 to buy the
lot and construct a house on it. [11] Apex then assigned Reyes credit to the PDC on
December 29, 1992,[12] hence, the suit by PDC for the recovery of the unpaid
debt. On August 26, 1993 the RTC rendered judgment, ordering Reyes to pay the
PDC the loan of P46,398.00 plus interest and penalties beginning April 11, 1979 as
well as attorneys fees and the costs. [13]Unable to do so, on January 5, 1994 the RTC
issued a writ of execution against Reyes and its Sheriff levied on the property
in Pilar Village.[14]
On February 16, 1994 the Vegas requested the SSS to acknowledge their
status as subrogees and to give them an update of the account so they could settle
it in full. The SSS did not reply. Meantime, the RTC sheriff published a notice for the
auction sale of the property on February 24, March 3 and 10, 1994. [15] He also served
on the Vegas notice of that sale on or about March 20, 1994. [16] On April 5, 1994, the
Vegas filed an affidavit of third party claimant and a motion for leave to admit a
motion in intervention to quash the levy on the property. [17]
Still, stating that Vegas remedy lay elsewhere, the RTC directed the
sheriff to proceed with the execution.[18] Meantime, the Vegas got a telegram dated
August 29, 1994, informing them that the SSS intended to foreclose on the property
to satisfy the unpaid housing debt of P38,789.58.[19] On October 19, 1994 the Vegas
requested the SSS in writing for the exact computation of the indebtedness and for
assurance that they would be entitled to the discharge of the mortgage and delivery
of the proper subrogation documents upon payment. They also sent a P37,521.95
managers check that the SSS refused to accept.[20]
On November 8, 1994 the Vegas filed an action for consignation,
damages, and injunction with application for preliminary injunction and temporary
restraining order against the SSS, the PDC, the sheriff of RTC Branch 19, and the
Register of Deeds before the RTC of Las Pias in Civil Case 94-2943. Still, while the
case was pending, on December 27, 1994 the SSS released the mortgage to the
PDC.[21] And on August 22, 1996 the Register of Deeds issued TCT T-56657 to the
PDC.[22] A writ of possession subsequently evicted the Vegas from the property.
On May 8, 2002 the RTC decided Civil Case 94-2943 in favor of the
Vegas. It ruled that the SSS was barred from rejecting the Vegas final payment
of P37,521.95 and denying their assumption of Reyes debt, given the SSS previous
acceptance of payments directly from them. The Vegas were subrogated to the
rights of Reyes and substituted her in the SSS housing loan and mortgage
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contract. That the Vegas had the receipts show that they were the ones who made
those payments. The RTC ordered the PDC to deliver to the Vegas the certificate of
title covering the property. It also held the SSS and PDC solidarily liable to the Vegas
for P300,000.00 in moral damages, P30,000.00 in exemplary damages,
and P50,000.00 in attorneys fees and for costs of the suit.[23]
The SSS appealed to the Court of Appeals (CA) in CA G.R. CV 77582. On August 30,
2007 the latter court reversed the RTC decision[24] for the reasons that the Vegas
were unable to produce the deed of assignment of the property in their favor and
that such assignment was not valid as to PDC. Their motion for reconsideration
having been denied, the Vegas filed this petition for review on certiorari under Rule
45.[25]
The Issues Presented
The issues in this case are:
1. Whether or not the Vegas presented adequate proof of Reyes sale of
the subject property to them;
2. In the affirmative, whether or not Reyes validly sold her SSS-
mortgaged property to the Vegas; and
3. In the affirmative, whether or not the sheriff validly sold the same at
public auction to satisfy Reyes debt to PDC.
The Rulings of the Court
One. The CA ruled that the Vegas were unable to prove that Reyes assigned the
subject property to them, given that they failed to present the deed of assignment
in their favor upon a claim that they lost it. [26] But the rule requiring the presentation
of the original of that deed of assignment is not absolute. Secondary evidence of
the contents of the original can be adduced, as in this case, when the original has
been lost without bad faith on the part of the party offering it. [27]
Here, not only did the Vegas prove the loss of the deed of assignment in
their favor and what the same contained, they offered strong corroboration of the
fact of Reyes sale of the property to them. They took possession of the house and
lot after they bought it. Indeed, they lived on it and held it in the concept of an
owner for 13 years before PDC came into the picture. They also paid all the
amortizations to the SSS with Antonio Vegas personal check, even those that Reyes
promised to settle but did not. And when the SSS wanted to foreclose the property,
the Vegas sent a managers check to it for the balance of the loan. Neither Reyes nor
any of her relatives came forward to claim the property. The Vegas amply proved
the sale to them.
Two. Reyes acquired the property in this case through a loan from the
SSS in whose favor she executed a mortgage as collateral for the loan. Although the
loan was still unpaid, she assigned the property to the Vegas without notice to or
the consent of the SSS. The Vegas continued to pay the amortizations apparently in
Reyes name. Meantime, Reyes apparently got a cash loan from Apex, which
assigned the credit to PDC. This loan was not secured by a mortgage on the
property but PDC succeeded in getting a money judgment against Reyes and had it
executed on the property. Such property was still in Reyes name but, as pointed out
above, the latter had disposed of it in favor of the Vegas more than 10 years before
PDC executed on it.
The question is: was Reyes disposal of the property in favor of the Vegas
valid given a provision in the mortgage agreement that she could not do so without
the written consent of the SSS?
The CA ruled that, under Article 1237 [28] of the Civil Code, the Vegas who paid the
SSS amortizations except the last on behalf of Reyes, without the latters knowledge
or against her consent, cannot compel the SSS to subrogate them in her rights
arising from the mortgage. Further, said the CA, the Vegas claim of subrogation was
invalid because it was done without the knowledge and consent of the SSS as
required under the mortgage agreement.[29]
But Article 1237 cannot apply in this case since Reyes consented to the
transfer of ownership of the mortgaged property to the Vegas. Reyes also agreed
for the Vegas to assume the mortgage and pay the balance of her obligation to
SSS. Of course, paragraph 4 of the mortgage contract covering the property
required Reyes to secure SSS consent before selling the property. But, although
such a stipulation is valid and binding, in the sense that the SSS cannot be
compelled while the loan was unpaid to recognize the sale, it cannot be interpreted
as absolutely forbidding her, as owner of the mortgaged property, from selling the
same while her loan remained unpaid. Such stipulation contravenes public policy,
being an undue impediment or interference on the transmission of property. [30]
Besides, when a mortgagor sells the mortgaged property to a third
person, the creditor may demand from such third person the payment of the
principal obligation. The reason for this is that the mortgage credit is a real right,
which follows the property wherever it goes, even if its ownership changes. Article
2129[31] of the Civil Code gives the mortgagee, here the SSS, the option of collecting
from the third person in possession of the mortgaged property in the concept of
owner.[32] More, the mortgagor-owners sale of the property does not affect the right
of the registered mortgagee to foreclose on the same even if its ownership had
been transferred to another person. The latter is bound by the registered mortgage
on the title he acquired.
After the mortgage debt to SSS had been paid, however, the latter had
no further justification for withholding the release of the collateral and the
registered title to the party to whom Reyes had transferred her right as
Page 65 of 152
owner. Under the circumstance, the Vegas had the right to sue for the conveyance
to them of that title, having been validly subrogated to Reyes rights.
Three. The next question is: was Reyes sale of the property to the Vegas
binding on PDC which tried to enforce the judgment credit in its favor on the
property that was then still mortgaged to the SSS?
The CA ruled that Reyes assignment of the property to the Vegas did not bind PDC,
which had a judgment credit against Reyes, since such assignment neither appeared
in a public document nor was registered with the register of deeds as Article 1625 of
the Civil Code required. Article 1625 reads:
Art. 1625. An assignment of a credit, right or action shall
produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is
recorded in the Registry of Property in case the
assignment involves real property. (1526)
But Article 1625 referred to assignment of credits and other incorporeal
rights. Reyes did not assign any credit or incorporeal right to the Vegas. She sold
the Vegas her house and lot. They became owner of the property from the time she
executed the deed of assignment covering the same in their favor. PDC had a
judgment for money against Reyes only. A courts power to enforce its judgment
applies only to the properties that are indisputably owned by the judgment
obligor.[33] Here, the property had long ceased to belong to Reyes when she sold it
to the Vegas in 1981.
The PDC cannot take comfort in the fact that the property remained in
Reyes name when it bought the same at the sheriff sale. The PDC cannot assert that
it was a buyer in good faith since it had notice of the Vegas claim on the property
prior to such sale.
Under the circumstances, the PDC must reconvey the subject property
to the Vegas or, if this is no longer possible, pay them its current market value as
the trial court may determine with interest of 12 percent per annum from the date
of the determination of such value until it is fully paid. Further, considering the
distress to which the Vegas were subjected after the unlawful levy on their property,
aggravated by their subsequent ouster from it through a writ of possession secured
by PDC, the RTC was correct in awarding the Vegas moral damages of P300,000.00,
exemplary damages of P30,000.00 and attorneys fees of P50,000.00 plus costs of the
suit. But these are to be borne solely by PDC considering that the SSS had nothing
to do with the sheriffs levy on the property. It released the title to the PDC simply
because it had a sheriffs sale in its favor.
The PDC is, however, entitled to reimbursement from the Vegas of the
sum of P37,820.15 that it paid to the SSS for the release of the mortgaged title.
WHEREFORE, the Court GRANTS the petition, REVERSES the assailed
decision of the Court of Appeals in CA-G.R. CV 77582 dated August 30, 2007, and in
its place DIRECTS respondent Pilar Development Corporation:
1. To convey to petitioner spouses Antonio and
Leticia Vega the title to and possession of the property
subject of this case, covered by Transfer Certificate of Title
56657 of the Register of Deeds of Las Pias City, for the
issuance of a new title in their names; and
2. To pay the same petitioner spouses moral
damages of P300,000.00, exemplary damages of P30,000.00,
and attorneys fees of P50,000.00.
On the other hand, the Court DIRECTS petitioner spouses to reimburse
respondent Pilar Development Corp. the sum of P37,820.15, representing what it
paid the respondent SSS for the release of the mortgaged certificate of title.
SO ORDERED.
FIRST DIVISION
[G.R. No. 114172. August 25, 2003]
JUANITA P. PINEDA, assisted by her husband, CRISPIN PINEDA, and LILIA
SAYOC, petitioners, vs. COURT OF APPEALS and TERESITA A.
GONZALES, assisted by her husband, FRANCISCO G.
GONZALES, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review on certiorari[1] seeks to reverse the Decision[2] of the
Court of Appeals dated 26 August 1993 in CA-G.R. SP No. 28651 as well as the
Resolution dated 4 March 1994 denying the motion for reconsideration. In its
assailed decision, the Court of Appeals declared void the orders [3] of the Regional
Trial Court[4] of Cavite City dated 10 January 1992, 5 February 1992 and 30 April
1992, and made the preliminary injunction permanent. In the first order, the trial
court declared that Teresita A. Gonzales, despite notice, failed to appear at the
hearing of the motion to surrender Transfer Certificate of Title No. T-16084 and to
file opposition to the motion. In the second order, the trial court declared void the
original and owners duplicate of Transfer Certificate of Title No. T-16084 and
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ordered the reinstatement of Transfer Certificate of Title No. T-8361. In the third
order, the trial court denied the motions to lift the first order and to reconsider the
second order.
The Facts
On 4 January 1982, the Spouses Virgilio and Adorita Benitez (Spouses
Benitez) mortgaged a house and lot (Property) covered by Transfer Certificate of
Title No. T-8361 (TCT 8361) in favor of Juanita P. Pineda (Pineda) and Leila P. Sayoc
(Sayoc). The real estate mortgage secured the Spouses Benitezs loan of P243,000
with a one-year maturity period.[5]Pineda and Sayoc did not register the mortgage
with the Register of Deeds. The Spouses Benitez delivered the owners duplicate of
TCT 8361 to Pineda.
On 9 November 1983, with the consent of Pineda, the Spouses Benitez sold
the house,[6] which was part of the Property, to Olivia G. Mojica (Mojica). On the
same date, Mojica filed a petition for the issuance of a second owners duplicate of
TCT 8361 alleging that she purchased a parcel of land [7] and the owners duplicate
copy of TCT No. T-8361 was lost.[8]
On 7 December 1983, the trial court granted the petition. The Register of
Deeds of Cavite City issued the second owners duplicate of TCT 8361 in the name of
the Spouses Benitez.
On 12 December 1983, the Spouses Benitez sold the lot [9] covered by TCT
8361 to Mojica. With the registration of the deed of sale and presentation of the
second owners duplicate of TCT 8361, the Register of Deeds cancelled TCT 8361 and
issued Transfer Certificate of Title No. T-13138 (TCT 13138) in the name of Mojica.
On 22 February 1985, Mojica obtained a loan of P290,000 from Teresita A.
Gonzales (Gonzales). Mojica executed a promissory note and a deed of mortgage
over the Property in favor of Gonzales. Gonzales registered this deed of mortgage
with the Register of Deeds of Cavite City who annotated the mortgage on TCT
13138 as Entry No. 33209.
Meanwhile, on 8 May 1985, Pineda and Sayoc filed a complaint before the
Regional Trial Court[10] of Cavite City, docketed as Civil Case No. 4654, against the
Spouses Benitez and Mojica. The complaint prayed for the cancellation of the
second owners duplicate of TCT 8361 and the award of moral damages and
attorneys fees.
In their answer, the Spouses Benitez admitted selling to Mojica the Property
which was already subject to a previous mortgage in favor of Pineda and Sayoc. The
Spouses Benitez claimed that under the Acknowledgment of Indebtedness,[11] Mojica,
with the conformity of Pineda and Sayoc, agreed to assume the balance of the
mortgage debt of the Spouses Benitez to Pineda and Sayoc.
The Spouses Benitez denied any knowledge of Mojicas petition for the
issuance of a second owners duplicate of TCT 8361. The Spouses Benitez prayed for
the dismissal of the complaint and the award of moral damages and attorneys
fees. The Spouses Benitez also prayed that in case the court would render judgment
in favor of Pineda and Sayoc, only Mojica should be held liable.
On the other hand, Mojica denied conspiring with the Spouses Benitez and
committing fraud in filing the petition for the issuance of a second owners duplicate
of TCT 8361. Mojica stated that the Spouses Benitez sold to her the Property. Mojica
claimed that upon the execution of the deed of sale, the Spouses Benitez delivered
to her the owners duplicate of TCT 8361. However, Mojica alleged that the owners
duplicate of TCT 8361 was lost.
Mojica also asserted that she verified with the Register of Deeds of Cavite
City the provision in the deed of sale that the Property was free from all liens and
encumbrances and found the same to be true. Mojica added that on learning of the
Spouses Benitezs mortgage with Pineda and Sayoc, she signed the Acknowledgment
of Indebtedness. Mojica contended that since Pineda, for herself and Sayoc,
conformed to this agreement, Pineda and Sayoc had no personality to file the
complaint. Mojica further alleged that Pineda and Sayoc were in estoppel from
challenging the validity of the second owners duplicate of TCT 8361 because Pineda
and Sayoc, despite notice, failed to oppose the reconstitution of the title.
Mojica maintained that the Spouses Benitez are indispensable parties
because TCT 8361 was in their name. Mojica also asserted that she did not breach
the Acknowledgment of Indebtedness since she had paid the Spouses Benitez an
amount more than their debt to Pineda and Sayoc. Mojica contended that had the
Spouses Benitez paid the amount to Pineda and Sayoc, there would have been no
obligation to assume. Mojica prayed for the dismissal of the complaint and the
award of moral and exemplary damages and attorneys fees.
During the pendency of the case, Pineda caused the annotation on 18
August 1986 of a notice of lis pendens on the original of TCT 8361 with the Register
of Deeds.
After trial, the trial court rendered a Decision dated 15 June 1987, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment declaring
the second owners duplicate of TCT No. T-8361 of the land records of Cavite as null
and void and the Register of Deeds of Cavite City is hereby ordered upon payment
of the corresponding legal fees the annotation of this pronouncement in its record
and the revival of the first owners duplicate with the same faith and credit before its
Page 66 of 152
alleged loss. The counterclaim of defendants Benitezes is hereby dismissed. No
pronouncement as to costs.
SO ORDERED.[12]
On 7 December 1987, Mojica defaulted in paying her obligation to
Gonzales. Hence, Gonzales extrajudicially foreclosed the mortgage. On 27 January
1988, Gonzales purchased at public auction the Property for P423,244.88.
For failure of Mojica to redeem the Property, Gonzales consolidated the title
to the Property. On 29 March 1989, Gonzales executed the corresponding Affidavit
of Consolidation.
On 30 March 1989, the Register of Deeds of Cavite City cancelled TCT 13138,
which was in Mojicas name, and issued Transfer Certificate of Title No. T-16084 (TCT
16084) in the name of Gonzales. TCT 16084 contained Entry No. 35520, the notice
of lis pendens dated 18 August 1986 in relation to Civil Case No. 4654. [13] The
Register of Deeds annotated on TCT 16084 the notice of lis pendens, even though
TCT 13138 did not contain such annotation.
Meanwhile, dissatisfied with the trial courts decision, the Spouses Benitez
and Mojica appealed to the Court of Appeals, docketed as CA-G.R. CV No.
15417. On 29 January 1991, the Court of Appeals rendered a Decision [14] affirming
the trial courts decision declaring void the second owners duplicate of TCT
8361. The decision of the Court of Appeals became final and was entered in the
Book of Entries of Judgments on 17 June 1991.
The Court of Appeals returned the records of the case to the trial court on 10
July 1991. On motion of Pineda and Sayoc, the trial court issued a writ of execution
to enforce the judgment.
However, the writ of execution was returned unsatisfied. The Sheriffs Return
of 12 September 1991 stated that the Register of Deeds could not implement the
writ of execution. The Sheriffs Return showed that the Register of Deeds had already
cancelled TCT 8361 and issued TCT 16084 in the name of Gonzales by virtue of the
consolidation of title dated 29 March 1989.
Consequently, on 6 December 1991, Pineda and Sayoc filed a motion with
the trial court for the issuance of an order requiring Gonzales to surrender the
owners duplicate of TCT 16084 to the Register of Deeds of Cavite City.
In its Order dated 10 January 1992 (first order), the trial court declared that
Gonzales, despite notice, failed to appear at the hearing and to oppose the motion
to surrender TCT 16084. In the same order, the trial court directed Gonzales to file a
memorandum. Gonzales received this order on 20 January 1992.
Subsequently, Gonzales filed a motion to lift the first order alleging that since
she was not a party in Civil Case No. 4654, the decision did not bind her. Gonzales
also claimed that she did not receive notice of the hearing, copy of the motion to
surrender TCT 16084 and the order resetting the hearing because she was in the
United States of America. Gonzales finally alleged that she was an innocent
purchaser for value.
In an Order dated 5 February 1992 (second order), the trial court declared
void the original and the owners duplicate of TCT 16084 in the name of
Gonzales. The trial court ordered the reinstatement of TCT 8361 in the name of the
Spouses Benitez.
Gonzales filed a motion for reconsideration of the second order. On 30 April
1992, the trial court issued an Order (third order) denying Gonzales motions to lift
the first order and to reconsider the second order.
Aggrieved by the trial courts orders, Gonzales filed with the Court of Appeals
a petition for the issuance of a writ of prohibitory injunction.
On 26 August 1993, the Court of Appeals rendered a decision disposing as
follows:
WHEREFORE, the petition is granted. The assailed orders dated 10 January 1992, 5
February 1992, and 30 April 1992 are hereby declared NULL and VOID, and the
preliminary prohibitory injunction is made permanent.
SO ORDERED.[15]
Hence, the instant petition.
The Ruling of the Court of Appeals
In the Court of Appeals, Gonzales maintained that the trial court had no
jurisdiction over her person and property because Pineda and Sayoc did not
implead her as a party in Civil Case No. 4654. Insisting that the questioned orders
were procured through extrinsic or collateral fraud, Gonzales claimed that the
orders of the trial court were void. Gonzales further alleged that she was an
innocent purchaser for value making her title to the Property indefeasible and
imprescriptible.
Pineda and Sayoc, on the other hand, argued that the notice of lis
pendens annotated on the title of the Property bound Gonzales, as subsequent
purchaser of the Property, to the outcome of the case. Pineda and Sayoc contended
CRED TRANS Pledge, Mortgage Antichresis Fulltext
that Gonzales was not a purchaser in good faith because Gonzales had constructive
notice of the pending litigation when she purchased the Property.
Moreover, Pineda and Sayoc argued that no separate action is necessary to
cancel the title because Gonzales is bound by the outcome of the litigation. They
contended that there was no extrinsic fraud because the notice of lis
pendens warned Gonzales of the pendency of Civil Case No. 4654 where she could
have intervened. Pineda and Sayoc further alleged that foreclosure and sale, not a
mortgage, vest title on a mortgagee. Foreclosure and sale, however, are always
subject to a notice of lis pendens.
In granting the petition, the Court of Appeals ruled that the trial court erred
when it voided TCT 16084 upon a mere motion for the surrender of the owners
duplicate of TCT 16084.The Court of Appeals further held that the trial court erred in
ordering the reinstatement of TCT 8361 in the name of the Spouses Benitez.
The Court of Appeals held that Pineda and Sayoc should have filed the
petition to surrender TCT 16084 in the original case where the decree of registration
of TCT 16084 was entered and not in Civil Case No. 4654. The second paragraph of
Section 108 of Presidential Decree No. 1529[16] (PD 1529) requires the filing of such
separate petition. The appellate court stated that it was beyond the trial courts
authority to act on the matter on a mere motion to surrender TCT 16084.
The Court of Appeals likewise ruled that the trial court did not acquire
jurisdiction over the person of Gonzales because she was not a party in Civil Case
No. 4654. The appellate court found that Gonzales could not have known of, and
appeared at, the hearing of the motion to surrender TCT 16084 because Gonzales
was then out of the country.
Assuming that the trial court could validly act on the motion of Pineda and
Sayoc, the Court of Appeals declared that the orders nevertheless contravened
Section 107 of PD 1529.This provision of law requires a hearing before the court can
act on a petition to surrender a duplicate certificate of title.
The Issues
Petitioners raise the following issues for resolution:
1. Whether a notice of lis pendens binds a subsequent purchaser of
the property to the outcome of the pending case.
2. Whether TCT 13138 and TCT 16084, being derived from the void
second owners duplicate of TCT 8361, are also void.
3. Whether a separate action should be filed to cancel TCT 16084.
4. Whether Gonzales was an innocent purchaser for value.
5. Whether Gonzales was denied due process of law.
The Ruling of the Court
We deny the petition.
Validity of TCT 13138 and TCT 16084
Mojica filed a petition for reconstitution[17] of the owners duplicate of TCT
8361 claiming that this owners duplicate was lost. However, contrary to Mojicas
claims, the owners duplicate of TCT 8361 was not lost but in Pinedas
possession. Since the owners duplicate of TCT 8361 was in fact not lost or
destroyed, there was obviously nothing to reconstitute or replace. Therefore, the
trial court correctly ruled that the reconstitution proceedings and the second
owners duplicate of TCT 8361 are void.[18] As the Court held in New Durawood Co.,
Inc. v. Court of Appeals:[19]
In the instant case, the owners duplicate certificates of title were in the possession
of Dy Quim Pong, the petitioners chairman of the board and whose family controls
the petitioner-corporation. Since said certificates were not in fact lost or destroyed,
there was no necessity for the petition filed in the trial court for the Issuance of New
Owners Duplicate Certificates of Title . . . In fact, the said court never acquired
jurisdiction to order the issuance of new certificates. Hence, the newly issued
duplicates are themselves null and void. (Emphasis supplied)
Mojica registered with the Register of Deeds the deed of sale executed by
the Spouses Benitez conveying the Property to her. Mojica also presented to the
Register of Deeds the second owners duplicate of TCT 8361. The Register of Deeds
cancelled TCT 8361 and issued on 14 December 1983 TCT 13138 in the name of
Mojica. However, since TCT 13138 is derived from the void second owners duplicate
of TCT 8361, TCT 13138 is also void. No valid transfer certificate of title can issue
Page 67 of 152
from a void transfer certificate of title, unless an innocent purchaser for value has
intervened.[20]
Mojica was not a purchaser in good faith. Mojica alleged that the Spouses
Benitez gave her the owners duplicate of TCT 8361 on 9 November 1983, the day
the Spouses Benitez sold to her the house. However, in her petition for
reconstitution, which she also filed on the same day, 9 November 1983, Mojica
claimed that the owners duplicate of TCT 8361 was lost. In effect, Mojica claimed
that she received the owners duplicate of TCT 8361 from the Spouses Benitez, lost
the same, and filed the petition for reconstitution, all on the same day, 9 November
1983.
In her petition for reconstitution, Mojica also claimed that she purchased a
parcel of land when in fact she only purchased on 9 November 1983 the house, and
not the lot covered by TCT 8361. Obviously, Mojica procured the reconstitution of
the second owners duplicate of TCT 8361 through misrepresentation. Hence, Mojica
was not a purchaser in good faith when she later purchased on 12 December 1983
the lot since she knew of the irregularity in the reconstitution of the second owners
duplicate of TCT 8361.
Therefore, TCT 13138 issued in the name of Mojica is void. However, what is
void is the transfer certificate of title and not the title over the Property. The title
refers to the ownership of the Property covered by the transfer certificate of title
while the transfer certificate of title merely evidences that ownership. A certificate of
title is not equivalent to title as the Court explained in Lee Tek Sheng v. Court of
Appeals:[21]
xxx The certificate referred to is that document issued by the Register of Deeds
known as the Transfer Certificate of Title (TCT). By title, the law refers to
ownership which is represented by that document. Petitioner apparently confuses
certificate with title. Placing a parcel of land under the mantle of the Torrens system
does not mean that ownership thereof can no longer be disputed. Ownership is
different from a certificate of title. The TCT is only the best proof of ownership of a
piece of land. Besides, the certificate cannot always be considered as conclusive
evidence of ownership. Mere issuance of the certificate of title in the name of any
person does not foreclose the possibility that the real property may be under co-
ownership with persons not named in the certificate or that the registrant may only
be a trustee or that other parties may have acquired interest subsequent to the
issuance of the certificate of title. To repeat, registration is not the equivalent of
title, but is only the best evidence thereof. Title as a concept of ownership
should not be confused with the certificate of title as evidence of such
ownership although both are interchangeable. xxx (Emphasis supplied)
Mojicas Title
The prior mortgage of the Property by the Spouses Benitez to Pineda and
Sayoc did not prevent the Spouses Benitez, as owners of the Property, from selling
the Property to Mojica.A mortgage is merely an encumbrance on the property and
does not extinguish the title of the debtor who does not lose his principal attribute
as owner to dispose of the property.[22] The law even considers void a stipulation
forbidding the owner of the property from alienating the mortgaged immovable. [23]
Since the Spouses Benitez were the undisputed owners of the Property, they
could validly sell and deliver the Property to Mojica. The execution of the notarized
deed of sale between the Spouses Benitez and Mojica had the legal effect of actual
or physical delivery. Ownership of the Property passed from the Spouses Benitez to
Mojica.[24] The nullity of the second owners duplicate of TCT 8361 did not affect the
validity of the sale as between the Spouses Benitez and Mojica.
Gonzales Title
After the sale of the Property to her, Mojica obtained a loan from Gonzales
secured by a real estate mortgage over the Property. Gonzales registered this
mortgage on 22 February 1985 with the Register of Deeds who annotated the
mortgage on the void TCT 13138 in Mojicas name. The nullity of TCT 13138 did not
automatically carry with it the nullity of the annotation of Gonzales mortgage. The
rule is that a mortgage annotated on a void title is valid if the mortgagee registered
the mortgage in good faith.[25] In Blanco v. Esquierdo,[26] the Court held:
That the certificate of title issued in the name of Fructuosa Esquierdo is a nullity, the
same having been secured thru fraud, is not here in question. The only question for
determination is whether the defendant bank is entitled to the protection accorded
to innocent purchasers for value, which phrase, according to sec. 38 of the Land
Registration Law, includes an innocent mortgagee for value. The question, in our
opinion, must be answered in the affirmative.
The trial court, in the decision complained of, made no finding that the defendant
mortgagee bank was a party to the fraudulent transfer of the land to Fructuosa
Esquierdo. Indeed, there is nothing alleged in the complaint which may implicate
said defendant mortgagee in the fraud, or justify a finding that it acted in bad faith.
On the other hand, the certificate of title was in the name of the mortgagor
Fructuosa Esquierdo when the land was mortgaged by her to the defendant bank.
Such being the case, the said defendant bank, as mortgagee, had the right to rely
on what appeared in the certificate and, in the absence of anything to excite
suspicion, was under no obligation to look beyond the certificate and investigate
CRED TRANS Pledge, Mortgage Antichresis Fulltext
the title of the mortgagor appearing on the face of said certificate. (De Lara, et al. vs.
Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838, Joaquin vs. Madrid, et al., 106 Phil.,
1060). Being thus an innocent mortgagee for value, its right or lien upon the
land mortgaged must be respected and protected, even if the mortgagor
obtained her title thereto thru fraud. The remedy of the persons prejudiced is to
bring an action for damages against those causing the fraud, xxx. (Emphasis
supplied)
Thus, the annotation of Gonzales mortgage on TCT 13138 was valid and operated to
bind the Property and the world, despite the invalidity of TCT 13138.
Gonzales registered her mortgage in good faith. Gonzales had no actual
notice of the prior unregistered mortgage in favor of Pineda and Sayoc. To bind
third parties to an unregistered encumbrance, the law requires actual notice.[27] The
fact that Mojica, who sold the Property to Gonzales, had actual notice of the
unregistered mortgage did not constitute actual notice to Gonzales, absent proof
that Gonzales herself had actual notice of the prior mortgage. Thus, Gonzales
acquired her rights as a mortgagee in good faith.
When Mojica defaulted in paying her debt, Gonzales caused the extrajudicial
foreclosure of the mortgaged Property. Gonzales purchased the mortgaged
Property as the sole bidder at the public auction sale. For Mojicas failure to redeem
the foreclosed Property within the prescribed period, Gonzales consolidated her title
to the Property. Absent any evidence to the contrary, the sale at public auction of
the Property to Gonzales was valid. Thus, the title or ownership of the Property
passed from Mojica to Gonzales. At this point, therefore, Gonzales became the
owner of the Property.
When Gonzales purchased the Property at the auction sale, Pineda and Sayoc
had already annotated the lis pendens on the original of TCT 8361, which remained
valid. However, the mortgage of Gonzales was validly registered prior to the
notation of the lis pendens. The subsequent annotation of the lis pendens could not
defeat the rights of the mortgagee or the purchaser at the auction sale who derived
their rights under a prior mortgage validly registered. The settled rule is that the
auction sale retroacts to the date of the registration of the mortgage,[28] putting the
auction sale beyond the reach of any intervening lis pendens, sale or attachment. As
the Court explained in Caviles, Jr. v. Bautista:[29]
We have also consistently ruled that an auction or execution sale retroacts to the
date of levy of the lien of attachment. When the subject property was sold on
execution to the petitioners, this sale retroacted to the date of inscription of
petitioners notice of attachment on October 6, 1982. The earlier registration of the
petitioners levy on preliminary attachment gave them superiority and preference in
rights over the attached property as against respondents.
Accordingly, we rule that the execution sale in favor of the petitioner Caviles
spouses was anterior and superior to the sale of the same property to the
respondent Bautista spouses on October 18, 1982. The right of petitioners to the
surrender of the owners duplicate copy of TCT No. 57006 covering the subject
property for inscription of the certificate of sale, and for the cancellation of said
certificate of title and the issuance of a new title in favor of petitioners cannot be
gainsaid.
A contrary rule would make a prior registration of a mortgage or any lien
meaningless.[30] The prior registered mortgage of Gonzales prevails over the
subsequent notice of lis pendens, even if the auction sale took place after the
notation of the lis pendens. Consequently, TCT 16084, issued to Gonzales after she
presented the sheriffs certificate of sale and her affidavit of consolidation, is valid.
What remained with Pineda and Sayoc after the foreclosure was the
mortgagors residual rights over the foreclosed Property, which rights are the equity
of redemption[31] and a share in the surplus fund, if any. [32] Since Mojica was not a
purchaser in good faith, the residual rights of Mojica were subject to the claim of
Pineda and Sayoc. Of course, Pineda and Sayoc may still file an action to recover the
outstanding debt of the Spouses Benitez, and even go after Mojica for her
assumption of obligation under the Acknowledgment of Indebtedness.
The Equities Favor Gonzales over Pineda and Sayoc
Pineda and Sayoc were negligent in not registering their mortgage, which
ultimately led to this controversy. Had Pineda and Sayoc registered their mortgage,
their rights as prior mortgagees would have prevailed over that of Gonzales. Pineda
and Sayoc were also negligent in not foreclosing their mortgage ahead of Gonzales,
when they could have done so as early as 4 January 1983 after the Spouses Benitez
defaulted on their loan.[33] In contrast, the loan of Mojica fell due only on 7
December 1987.
Since Gonzales vigilantly exercised her right to foreclose the mortgaged
Property ahead of Pineda and Sayoc, Gonzales mortgage would still prevail over the
mortgage of Pineda and Sayoc even if Gonzales mortgage was not validly
registered. The unregistered mortgage of Pineda and Sayoc was extinguished upon
foreclosure of Gonzales mortgage even assuming for the sake of argument that the
latter mortgage was unregistered. Between two unregistered mortgagees, both
being in good faith, the first to foreclose his mortgage prevails over the other.
Even assuming that Gonzales mortgage was not validly registered, the notice
of lis pendens could still not defeat Gonzales right under the foreclosure sale. The
effect of the notice of lis pendens was to subject Gonzales, as the subsequent
Page 68 of 152
purchaser of the Property, to the outcome of the case. The outcome of the case is
the cancellation of the second owners duplicate of TCT 8361. The complaint of
Pineda and Sayoc simply prayed for the cancellation of the second owners duplicate
of TCT 8361 and the award of damages. [34]
The notice of lis pendens would only bind Gonzales to the declaration of
nullity of the second owners duplicate of TCT 8361. Gonzales could not use TCT
13138, as a void issue of the void second owners duplicate of TCT 8361, to secure a
new TCT in her name. This is the legal consequence of the notice of lis pendens,
which would have bound Gonzales had the registration of her mortgage been
void. However, the declaration of nullity of TCT 13138 would still not make the
mortgage of Pineda and Sayoc preferred over that of Gonzales. Since Gonzales
foreclosed her mortgage ahead of Pineda and Sayoc, she would still have a better
right than Pineda and Sayoc who slept on their rights as mortgagees.
Conclusion
The nullity of TCT 13138 did not affect the validity of the title or ownership of
Mojica or Gonzales as subsequent transferees of the Property. What is void is the
transfer certificate of title, not the title or ownership itself of Mojica or
Gonzales. The notice of lis pendens could not defeat Gonzales rights over the
Property for two reasons. First, Gonzales registered in good faith her mortgage
before the notation of the lis pendens, making the registration of her mortgage valid
despite the invalidity of TCT 13138. Second, since Gonzales mortgage was valid, the
auction sale retroacted to the date of registration of her mortgage, making the
auction sale prior in time to the notice of lis pendens. Thus, TCT 16084, issued to
Gonzales as a result of the foreclosure sale, is valid.
WHEREFORE, the petition is DENIED. The Decision dated 26 August 1993
and the Resolution dated 4 March 1994 of the Court of Appeals in CAG.R. SP No.
28651 are AFFIRMED. Petitioners Juanita P. Pineda and Lilia Sayoc are directed to
surrender the owners duplicate of Transfer Certificate of Title No. 8361 to the
Register of Deeds of Cavite City for cancellation. Transfer Certificate of Title No.
16084 in the name of Teresita A. Gonzales is declared valid. This is without prejudice
to any action petitioners Juanita P. Pineda and Lilia Sayoc may file against the
Spouses Virgilio and Adorita Benitez as well as Olivia G. Mojica. No pronouncement
as to costs.
SO ORDERED.
THIRD DIVISION
[G.R. No. 137792. August 12, 2003]
SPOUSES RICARDO ROSALES and ERLINDA SIBUG, petitioners, vs. SPOUSES
ALFONSO and LOURDES SUBA, THE CITY SHERIFF OF
MANILA, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Challenged in the instant petition for review on certiorari are the
Resolutions[1] dated November 25, 1998 and February 26, 1999 of the Court of
Appeals dismissing the petition for certiorari in CA G.R. SP No. 49634, Spouses
Ricardo Rosales and Erlinda Sibug vs. Alfonso and Lourdes Suba.
On June 13, 1997, the Regional Trial Court, Branch 13, Manila rendered a
Decision[2] in Civil Cases Nos. 94-72303 and 94-72379, the dispositive portion of
which reads:
WHEREFORE, judgment is rendered:
(1) Declaring the Deed of Sale of Exhibit D, G and I, affecting the property in
question, as an equitable mortgage;
(2) Declaring the parties Erlinda Sibug and Ricardo Rosales, within 90 days from
finality of this Decision, to deposit with the Clerk of Court, for payment to the
parties Felicisimo Macaspac and Elena Jiao, the sum of P65,000.00, with interest at
nine (9) percent per annum from September 30, 1982 until payment is made, plus
the sum of P219.76 as reimbursement for real estate taxes;
(3) Directing the parties Felicisimo Macaspac and Elena Jiao, upon the deposit on
their behalf of the amounts specified in the foregoing paragraph, to execute a deed
of reconveyance of the property in question to Erlinda Sibug, married to Ricardo
Rosales, and the Register of Deeds of Manila shall cancel Transfer Certificate of Title
No. 150540 in the name of the Macaspacs (Exh. E) and issue new title in the name of
Sibug;
(4) For non-compliance by Sibug and Rosales of the directive in paragraph (2) of this
dispositive portion, let the property be sold in accordance with the Rules of Court
for the release of the mortgage debt and the issuance of title to the purchaser.
SO ORDERED.[3]
The decision became final and executory. Spouses Ricardo and Erlinda
Rosales, judgment debtors and herein petitioners, failed to comply with paragraph 2
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quoted above, i.e., to deposit with the Clerk of Court, within 90 days from finality of
the Decision, P65,000.00, etc., to be paid to Felicisimo Macaspac and Elena Jiao. This
prompted Macaspac, as judgment creditor, to file with the trial court a motion for
execution.
Petitioners opposed the motion for being premature, asserting that the
decision has not yet attained finality. On March 5, 1998, they filed a manifestation
and motion informing the court of their difficulty in paying Macaspac as there is no
correct computation of the judgment debt.
On February 23, 1998, Macaspac filed a supplemental motion for execution
stating that the amount due him is P243,864.08.
Petitioners failed to pay the amount. On March 25, 1998, the trial court
issued a writ of execution ordering the sale of the property subject of litigation for
the satisfaction of the judgment.
On May 15, 1998, an auction sale of the property was held wherein
petitioners participated. However, the property was sold for P285,000.00 to spouses
Alfonso and Lourdes Suba, herein respondents, being the highest bidders. On July
15, 1998, the trial court issued an order confirming the sale of the property and
directing the sheriff to issue a final deed of sale in their favor.
On July 28, 1998, Macaspac filed a motion praying for the release to him of
the amount of P176,176.06 from the proceeds of the auction sale, prompting
petitioners to file a motionpraying that an independent certified public accountant
be appointed to settle the exact amount due to movant Macaspac.
Meanwhile, on August 3, 1998, the Register of Deeds of Manila issued a new
Transfer Certificate of Title over the subject property in the names of respondents.
On August 18, 1998, respondents filed with the trial court a motion for a writ
of possession, contending that the confirmation of the sale effectively cut off
petitioners equity of redemption. Petitioners on the other hand, filed a motion for
reconsideration of the order dated July 15, 1998 confirming the sale of the property
to respondents.
On October 19, 1998, the trial court, acting upon both motions, issued an
order (1) granting respondents prayer for a writ of possession and (2) denying
petitioners motion for reconsideration. The trial court ruled that petitioners have no
right to redeem the property since the case is for judicial foreclosure of mortgage
under Rule 68 of the 1997 Rules of Civil Procedure, as amended. Hence,
respondents, as purchasers of the property, are entitled to its possession as a matter
of right.
Forthwith, petitioners filed with the Court of Appeals a petition for certiorari,
docketed as CA-G.R. SP No. 49634, alleging that the trial court committed grave
abuse of discretion amounting to lack or excess of jurisdiction in issuing a writ of
possession to respondents and in denying their motion for reconsideration of the
order dated July 15, 1998 confirming the sale of the property to said respondents.
On November 25, 1998, the CA dismissed outright the petition for lack of
merit, holding that there is no right of redemption in case of judicial foreclosure
of mortgage.Petitioners motion for reconsideration was also denied.
Hence this petition.
In the main, petitioners fault the Appellate Court in applying the rules on
judicial foreclosure of mortgage. They contend that their loan with Macaspac is
unsecured, hence, its payment entails an execution of judgment for money under
Section 9 in relation to Section 25, Rule 39 of the 1997 Rules of Civil Procedure, as
amended,[4] allowing the judgment debtor one (1) year from the date of
registration of the certificate of sale within which to redeem the foreclosed
property.
Respondents, upon the other hand, insist that petitioners are actually
questioning the decision of the trial court dated June 13, 1997 which has long
become final and executory; and that the latter have no right to redeem a
mortgaged property which has been judicially foreclosed.
Petitioners contention lacks merit. The decision of the trial court, which is
final and executory, declared the transaction between petitioners and Macaspac an
equitable mortgage. In Matanguihan vs. Court of Appeals,[5] this Court defined an
equitable mortgage as one which although lacking in some formality, or form or
words, or other requisites demanded by a statute, nevertheless reveals the intention
of the parties to charge real property as security for a debt, and contains nothing
impossible or contrary to law. An equitable mortgage is not different from a real
estate mortgage, and the lien created thereby ought not to be defeated by
requiring compliance with the formalities necessary to the validity of a voluntary real
estate mortgage.[6] Since the parties transaction is an equitable mortgage and that
the trial court ordered its foreclosure, execution of judgment is governed by
Sections 2 and 3, Rule 68 of the 1997 Rules of Civil Procedure, as amended, quoted
as follows:
SEC. 2. Judgment on foreclosure for payment or sale. If upon the trial in such action
the court shall find the facts set forth in the complaint to be true, it shall ascertain
the amount due to the plaintiff upon the mortgage debt or obligation, including
interest and other charges as approved by the court, and costs, and shall render
judgment for the sum so found due and order that the same be paid to the
court or to the judgment obligee within a period of not less that ninety (90)
days nor more than one hundred twenty (120) days from the entry of
judgment, and that in default of such payment the property shall be sold at
public auction to satisfy the judgment.
Page 69 of 152
SEC. 3. Sale of mortgaged property, effect. When the defendant, after being
directed to do so as provided in the next preceding section, fails to pay the
amount of the judgment within the period specified therein, the court, upon
motion, shall order the property to be sold in the manner and under the
provisions of Rule 39 and other regulations governing sales of real estate under
execution.Such sale shall not effect the rights of persons holding prior
encumbrances upon the property or a part thereof, and when confirmed by an
order of the court, also upon motion, it shall operate to divest the rights in the
property of all the parties to the action and to vest their rights in the
purchaser, subject to such rights of redemption as may be allowed by law.
x x x.
In Huerta Alba Resort, Inc. vs. Court of Appeals, we held that the right of
[7]
redemption is not recognized in a judicial foreclosure, thus:
The right of redemption in relation to a mortgageunderstood in the sense of a
prerogative to re-acquire mortgaged property after registration of the
foreclosure saleexists only in the case of the extrajudicial foreclosure of the
mortgage. No such right is recognized in a judicial foreclosure except only
where the mortgagee is the Philippine National bank or a bank or a banking
institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the
right of redemption within one (1) year from the registration of the sheriffs
certificate of foreclosure sale.
Where the foreclosure is judicially effected, however, no equivalent right of
redemption exists. The law declares that a judicial foreclosure sale, when
confirmed by an order of the court, x x x shall operate to divest the rights of all
the parties to the action and to vest their rights in the purchaser, subject to
such rights of redemption as may be allowed by law. Such rights exceptionally
allowed by law (i.e., even after the confirmation by an order of the court) are those
granted by the charter of the Philippine National Bank (Act Nos. 2747 and 2938),
and the General Banking Act (R.A.337). These laws confer on the mortgagor, his
successors in interest or any judgment creditor of the mortgagor, the right to
redeem the property sold on foreclosureafter confirmation by the court of the
foreclosure salewhich right may be exercised within a period of one (1) year, counted
from the date of registration of the certificate of sale in the Registry of Property.
But, to repeat, no such right of redemption exists in case of judicial foreclosure
of a mortgage if the mortgagee is not the PNB or a bank or banking
institution. In such a case, the foreclosure sale, when confirmed by an order of
the court, x x x shall operate to divest the rights of all the parties to the action
and to vest their rights in the purchaser. There then exists only what is known
as the equity of redemption. This is simply the right of the defendant
mortgagor to extinguish the mortgage and retain ownership of the property by
paying the secured debt within the 90-day period after the judgment becomes
final, in accordance with Rule 68, or even after the foreclosure sale but prior to
its confirmation.
xxx
This is the mortgagors equity (not right) of redemption which, as above stated,
may be exercised by him even beyond the 90-day period from the date of
service of the order, and even after the foreclosure sale itself, provided it be
before the order of confirmation of the sale. After such order of confirmation,
no redemption can be effected any longer. (Italics supplied)
Clearly, as a general rule, there is no right of redemption in a judicial
foreclosure of mortgage. The only exemption is when the mortgagee is the
Philippine National Bank or a bank or a banking institution. Since the mortgagee in
this case is not one of those mentioned, no right of redemption exists in favor of
petitioners. They merely have an equity of redemption, which, to reiterate, is simply
their right, as mortgagor, to extinguish the mortgage and retain ownership of the
property by paying the secured debt prior to the confirmation of the foreclosure
sale. However, instead of exercising this equity of redemption, petitioners chose to
delay the proceedings by filing several manifestations with the trial court. Thus, they
only have themselves to blame for the consequent loss of their property.
WHEREFORE, the petition is DENIED. The Resolutions of the Court of
Appeals dated November 25, 1998 and February 26, 1999 in CA G.R. SP No. 49634
are AFFIRMED.
SO ORDERED.
FIRST DIVISION
[G.R. No. 125838. June 10, 2003]
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS
and EMERALD RESORT HOTEL CORPORATION, respondents.
DECISION
CARPIO, J.:
The Case
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This petition for review on certiorari[1] seeks to reverse the Joint Decision[2] of
the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 dated 31 January 1996
and the Resolution dated 30 July 1996 denying the motion for reconsideration. The
Court of Appeals affirmed the Decision[3] of the Regional Trial Court of Iriga City,
Branch 36, declaring the foreclosure of the mortgaged properties void for failure to
comply with the statutory requisites.
The Facts
Private respondent Emerald Resort Hotel Corporation (ERHC) obtained a loan
from petitioner Development Bank of the Philippines (DBP). DBP released the loan
of P3,500,000.00 in three installments: P2,000,000.00 on 27 September
1975, P1,000,000.00 on 14 June 1976 and P500,000.00 on 14 September 1976. To
secure the loan, ERHC mortgaged its personal and real properties to DBP.
On 18 March 1981, DBP approved a restructuring of ERHCs loan subject to
certain conditions.[4] On 25 August 1981, DBP allegedly cancelled the restructuring
agreement for ERHCs failure to comply with some of the material conditions [5] of the
agreement.
Subsequently, ERHC delivered to DBP three stock certificates of ERHC
aggregating 3,477,052 shares with a par value of P1.00 per share. ERHC first
delivered to DBP on 20 October 1981 Stock Certificate No. 30 covering 1,862,148
shares. Then ERHC delivered on 3 November 1981 Stock Certificate No. 31 covering
691,052 shares, and on 27 November 1981 Stock Certificate No. 32 covering
923,852 shares.
On 5 June 1986, alleging that ERHC failed to pay its loan, DBP filed with the
Office of the Sheriff, Regional Trial Court of Iriga City, an Application for Extra-
judicial Foreclosure of Real Estate and Chattel Mortgages.
Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the
required notices of public auction sale of the personal and real properties. However,
Sheriffs Ramos and Galeon failed to execute the corresponding certificates of
posting of the notices. On 10 July 1986, the auction sale of the personal properties
proceeded.
The Office of the Sheriff scheduled on 12 August 1986 the public auction sale
of the real properties. The Bicol Tribune published on 18 July 1986, 25 July 1986 and
1 August 1986 the notice of auction sale of the real properties. However, the Office
of the Sheriff postponed the auction sale on 12 August 1986 to 11 September 1986
at the request of ERHC. DBP did not republish the notice of the rescheduled auction
sale because DBP and ERHC signed an agreement to postpone the 12 August 1986
auction sale.[6] ERHC, however, disputes the authority of Jaime Nuevas who signed
the agreement for ERHC.
In a letter dated 24 November 1986, ERHC informed DBP of its intention to
lease the foreclosed properties.[7]
On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City a
complaint for annulment of the foreclosure sale of the personal and real
properties. Subsequently, ERHC filed a Supplemental Complaint. ERHC alleged that
the foreclosure was void mainly because (1) DBP failed to comply with the
procedural requirements prescribed by law; and (2) the foreclosure was
premature. ERHC maintained that the loan was not yet due and demandable
because the DBP had restructured the loan.
DBP moved to dismiss the complaint because it stated no cause of action
and ERHC had waived the alleged procedural defenses. The trial court denied the
motion to dismiss.Consequently, DBP filed its answer, claiming that it complied with
the legal requirements for a valid foreclosure. DBP further claimed that it cancelled
the conditional restructuring of ERHCs loan because ERHC failed to comply with
some material conditions of the restructuring agreement.
Meanwhile, acting on ERHCs application for the issuance of a writ of
preliminary injunction, the trial court granted the writ on 20 August
1990. Accordingly, the trial court enjoined DBP from enforcing the legal effects of
the foreclosure of both the chattel and real estate mortgages.
Thereafter, trial on the merits ensued. After the parties presented their
evidence, the trial court rendered a Decision [8] dated 28 January 1992, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff corporation and against the defendants:
1. Declaring as null and void the foreclosure and auction sale of the personal
properties of plaintiff corporation held on July 10, 1986;
2. Declaring as null and void the foreclosure and auction sale of the real properties
of plaintiff corporation covered by TCT No. RT-1075 (19980); TCT No. RT-1076
(19981); TCT No. RT-1077 (22367) and TCT No. 10244 of the Register of Deeds of
Camarines Sur (now Iriga City) in the auction sale thereof held on September 11,
1986, and all the improvements therein;
3. Ordering the Register of Deeds of Camarines Sur (now Iriga City) to cancel the
annotations of the Sheriffs Certificate of Sale on the aforestated titles as null and
void and without any legal effect;
Page 70 of 152
4. Ordering the defendant Development Bank of the Philippines to comply with the
restructuring of plaintiff corporations loans retroactively as though the foreclosure
had not taken place in the interest of justice and equity; and
5. Ordering the defendant DBP to pay plaintiff corporation moral damages in the
amount of P500,000.00 for initiating what was a clearly illegal foreclosure and
causing the said plaintiff corporation to suffer needlessly anguish, opprobrium and
disrepute as a consequence thereto.
SO ORDERED.
Both ERHC and DBP appealed the trial courts decision to the Court of
Appeals. ERHC anchored its appeal on the insufficiency of the moral damages
awarded by the trial court and the absence of any award of temperate, nominal or
exemplary damages. DBPs appeal, on the other hand, assailed the decision as well
as the order dismissing its petition for a writ of possession.
The Court of Appeals, which consolidated the appeals, affirmed the decision
of the trial court.[9] DBP filed a Motion for Reconsideration which the Court of
Appeals denied.[10]
Hence, this petition.
The Ruling of the Court of Appeals
The Court of Appeals sustained the trial courts ruling that the foreclosure
was void. The Court of Appeals affirmed the trial courts finding that DBP failed to
comply with the posting and publication requirements under the applicable laws.
The Court of Appeals held that the non-execution of the certificate of posting of the
notices of auction sale and the non-republication of the notice of the rescheduled
11 September 1986 auction sale invalidated the foreclosure.
The Court of Appeals also found that the parties perfected the restructuring
agreement and that ERHC substantially complied with its conditions based on the
following circumstances:
(a) The transmittal letter dated October 20, 1981 which relates to the progress of the
restructuring of the mortgage account of Emerald Resort Hotel Corporation and
that the same has been approved by the SEC (Exh. D)
(b) The transfer of shares of stocks to appellant DBP, the value of which are broken
as follows:
1. Stock certificate No. 30 for 1,862,148 shares worth P1,862,148.00 (Exhs. D and D-
1);
2. Stock certificate No. 32 for 932,852 shares worth P953,852.00 (Exhs. F and F-1);
3. Stock certificate No. 031, for 691,052 shares worth P691,052.00 (Exhs. M and M-5).
(c) The acceptance of the foregoing by the DBP without raising the fact of delay as
embodied in condition no. 7 of Exh. B.
(d) No rejection was made by the defendant-appellant DBP at the time the shares of
stocks were being held by the latter.
(e) The belated rejection of the shares of stocks was interposed only at the time the
instant suit was filed which was long after the expiration of the 90-day period
extended by DBP to Emerald.
(f) No rejection was also made when plaintiff corporation did not avail of the
additional loan which was allegedly part of the package accommodation. [11]
The Court of Appeals also affirmed the trial courts award of moral damages
but denied ERHCs claim for temperate and exemplary damages. The Court of
Appeals found that DBPs intrusion, assisted by sheriffs and several armed men, into
Hotel Ibalon and the sheriffs inventory of the hotels furniture and fixtures caused
fear and anxiety to the hotel owner, staff and guests. These acts, according to the
Court of Appeals, debased the hotels goodwill and undermined its viability
warranting the award of moral damages.
Finding the foreclosure void, the Court of Appeals also denied DBPs petition
for a deficiency claim and a writ of possession.
The Issues
DBP presents the following issues for resolution:
CRED TRANS Pledge, Mortgage Antichresis Fulltext
1. Whether DBP complied with the posting and publication
requirements under applicable laws for a valid foreclosure.
2. Whether the restructuring agreement between DBP and ERHC was
perfected and implemented by the parties before the
foreclosure.
3. Whether ERHCs offer to lease the foreclosed properties constitutes
a waiver of its right to question the validity of the foreclosure.
4. Whether the award of moral damages to ERHC, a juridical person, is
proper.
The Courts Ruling
The petition is partly meritorious.
First Issue: Compliance with the posting and publication
requirements under applicable laws
Posting requirement under Acts Nos. 3135 and 1508
In alleging that the foreclosure was valid, DBP maintains that it complied with
the mandatory posting requirement under applicable laws. [12] DBP insists that the
non-execution of the certificate of posting of the auction sale notices did not
invalidate the foreclosure.
We agree.
This Court ruled in Cristobal v. Court of Appeals [13] that a certificate of
posting is not required, much less considered indispensable for the validity of an
extrajudicial foreclosure sale of real property under Act No. 3135. Cristobal merely
reiterated the doctrine laid down in Bohanan v. Court of Appeals.[14] In the present
case, the foreclosing sheriffs failed to execute the certificate of posting of the
auction sale notices. However, this fact alone does not prove that the sheriffs failed
to post the required notices. As held in Bohanan, the fact alone that there is no
certificate of posting attached to the sheriff's records is not sufficient to prove the
lack of posting.[15]
Based on the records, DBP presented sufficient evidence to prove that the
sheriffs posted the notices of the extrajudicial sale. The trial and appellate courts
glaringly erred and gravely abused its discretion in disregarding the sheriffs partial
report and the sheriffs certificate of sale executed after the auction sale. A careful
examination of these two documents clearly shows that the foreclosing sheriffs
posted the required notices of sale.
The partial report dated 10 July 1986 signed by both Sheriff Abel Ramos and
Deputy Sheriff Ruperto Galeon states in part:
That on July 1, 1986, the undersigned sheriffs posted the notice of public auction
sale of chattel mortgage in the conspicuous places, and at the Iriga City Hall
Bulletin Board, including Ibalon Hotel, Iriga City xxx. [16] (Emphasis supplied)
Similarly, the certificate of sale of the real properties signed by both Sheriff
Ramos and Deputy Sheriff Galeon on 11 September 1986 states in part:
I, FURTHERMORE CERTIFY that the Notice of Sale was published in BICOL TRIBUNE,
a newspaper of general circulation in the province of Camarines Sur, for three (3)
consecutive weeks and three (3) copies of the notices of sale were posted in
three (3) public places of the City where the properties are located for no less than
twenty (20) days before the sale. [17] (Emphasis supplied)
Deputy Sheriff Galeon also testified that he, together with Sheriff
Ramos,[18] actually posted the notices of sale.[19] Indisputably, there is clear and
convincing evidence of the posting of the notices of sale. What the law requires is
the posting of the notice of sale, which is present in this case, and not the execution
of the certificate of posting.
Moreover, ERHC bore the burden of presenting evidence that the sheriffs
failed to post the notices of sale.[20] In the absence of contrary evidence, as in this
case, the presumption prevails that the sheriffs performed their official duty of
posting the notices of sale. Consequently, we hold that the non-execution of the
certificate of posting cannot nullify the foreclosure of the chattel and real estate
mortgages in the instant case.
Publication requirement under Act No. 3135
Having shown that there was posting of the notices of auction sale, we shall
now resolve whether there was publication of the notice of sale of the real
properties in compliance with Act No. 3135. [21]
There is no question that DBP published the notice of auction sale scheduled
on 12 August 1986. However, no auction sale took place on 12 August 1986
because DBP, at the instance of ERHC, agreed to postpone the same to 11
September 1986. DBP contends that the agreement to postpone dispensed with the
need to publish again the notice of auction sale. Thus, DBP did not anymore publish
the notice of the 11 September 1986 auction sale. DBP insists that the law does not
require republication of the notice of a rescheduled auction sale. Consequently, DBP
Page 71 of 152
argues vigorously that the extrajudicial foreclosure of the real estate mortgage is
valid.
We do not agree.
The Court held recently in Ouano v. Court of Appeals[22] that republication
in the manner prescribed by Act No. 3135 is necessary for the validity of a
postponed extrajudicial foreclosure sale. Another publication is required in case the
auction sale is rescheduled, and the absence of such republication invalidates the
foreclosure sale.
The Court also ruled in Ouano that the parties have no right to waive the
publication requirement in Act No. 3135. The Court declared thus:
Petitioner further contends that republication may be waived voluntarily by the
parties.
This argument has no basis in law. The issue of whether republication may be
waived is not novel, as we have passed upon the same query in Philippine National
Bank v. Nepomuceno Productions Inc.Petitioner therein sought extrajudicial
foreclosure of respondents mortgaged properties with the Sheriffs Office of Pasig,
Rizal. Initially scheduled on August 12, 1976, the auction sale was rescheduled
several times without republication of the notice of sale, as stipulated in their
Agreements to Postpone Sale. Finally, the auction sale proceeded on December 20,
1976, with petitioner as the highest bidder.Aggrieved, respondents sued to nullify
the foreclosure sale. The trial court declared the sale void for non-compliance with
Act No. 3135. This decision was affirmed in toto by the Court of Appeals.Upholding
the conclusions of the trial and appellate courts, we held:
Petitioner and respondents have absolutely no right to waive the posting and
publication requirements of Act No. 3135.
xxx
Publication, therefore, is required to give the foreclosure sale a reasonably wide
publicity such that those interested might attend the public sale. To allow the
parties to waive this jurisdictional requirement would result in converting into a
private sale what ought to be a public auction.
DBP further asserts that Section 24, Rule 39 of the Rules of Court, which
allows adjournment of execution sales by agreement of the parties, applies to the
present case. Section 24 of Rule 39 provides:
Sec. 24. Adjournment of Sale By written consent of debtor and creditor, the officer
may adjourn any sale upon execution to any date agreed upon in writing by the
parties. Without such agreement, he may adjourn the sale from day to day, if it
becomes necessary to do so for lack of time to complete the sale on the day fixed in
the notice.
The Court ruled in Ouano that Section 24 of Rule 39 does not apply to
extrajudicial foreclosure sales, thus:
Petitioner submits that the language of the abovecited provision [23] implies that the
written request of the parties suffices to authorize the sheriff to reset the sale
without republication or reposting.
At the outset, distinction should be made of the three different kinds of sales under
the law, namely: an ordinary execution sale, a judicial foreclosure sale, and an
extrajudicial foreclosure sale. An ordinary execution sale is governed by the
pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules of Court
applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135, as
amended by Act No. 4118 otherwise known as An Act to Regulate the Sale of
Property under Special Powers Inserted in or Annexed to Real Estate Mortgages
applies in cases of extrajudicial foreclosure sale. A different set of law applies to
each class of sale mentioned. The cited provision in the Rules of Court hence does
not apply to an extrajudicial foreclosure sale. (Emphasis supplied)
DBP also maintains that ERHCs act of requesting postponement of the 12
August 1986 auction sale estops ERHC from challenging the absence of publication
of the notice of the rescheduled auction sale.
We do not agree.
ERHC indeed requested postponement of the auction sale scheduled on 12
August 1986.[24] However, the records are bereft of any evidence that ERHC
requested the postponement without need of republication of the notice of
sale. In Philippine National Bank v. Nepomuceno Productions Inc.,[25] the Court
held that:
x x x To request postponement of the sale is one thing; to request it without need of
compliance with the statutory requirements is another. Respondents, therefore, did
not commit any act that would have estopped them from questioning the validity of
the foreclosure sale for non-compliance with Act No. 3135. x x x
The form of the notice of extrajudicial sale is now prescribed in Circular No.
7-2002[26] issued by the Office of the Court Administrator on 22 January
2002. Section 4(a) of Circular No. 7-2002 provides that:
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of
mortgage was raffled shall do the following:
a. Prepare a Notice of Extra-judicial Sale using the following form:
NOTICE OF EXTRA-JUDICIAL SALE
Upon extra-judicial petition for sale under Act 3135/1508 filed _________ against
(name and address of Mortgagor/s) to satisfy the mortgage indebtedness which as
of ___________ amounts to P__________ excluding penalties, charges, attorneys fees
and expenses of foreclosure, the undersigned or his duly authorized deputy will sell
at public auction on (date of sale) ________ at 10:00 A.M. or soon thereafter at the
main entrance of the ________ (place of sale) to the highest bidder, for cash or
managers check and in Philippine Currency, the following property with all its
improvements, to wit:
(Description of Property)
All sealed bids must be submitted to the undersigned on the above stated time and
date.
In the event the public auction should not take place on the said date, it shall
be held on ___________,______ without further notice.
__________
(date)
SHERIFF
(Emphasis supplied)
The last paragraph of the prescribed notice of sale allows the holding of a
rescheduled auction sale without reposting or republication of the notice. However,
the rescheduled auction sale will only be valid if the rescheduled date of auction is
clearly specified in the prior notice of sale. The absence of this information in the
prior notice of sale will render the rescheduled auction sale void for lack of
reposting or republication. If the notice of auction sale contains this particular
information, whether or not the parties agreed to such rescheduled date, there is no
more need for the reposting or republication of the notice of the rescheduled
auction sale.
The Office of the Court Administrator issued Circular No. 7-2002 pursuant to
the 14 December 1999 Resolution of this Court in A.M. No. 99-10-05-0, as amended
by the Resolutions of 30 January 2001 and 7 August 2001. The Court issued these
Resolutions for two reasons.
First, the Court seeks to minimize the expenses which the mortgagee incurs
in publishing the notice of extrajudicial sale. With the added information in the
notice of sale, the mortgagee need not cause the reposting and republication of the
notice of the rescheduled auction sale. There is no violation of the notice
requirements under Acts Nos. 3135 and 1508 precisely because the interested
parties as well as the public are informed of the schedule of the next auction sale, if
the first auction sale does not proceed. Therefore, the purpose of a notice of sale,
which is to notify the mortgagor and the public of the foreclosure sale, is satisfied.
Second, the Court hopes to deter the practice of some mortgagors in
requesting postponement of the auction sale of real properties, then later attacking
the validity of the foreclosure for lack of republication. This practice will only force
mortgagees to deny outright requests for postponement by mortgagors since it will
only mean added publication expense on the part of mortgagees. Such
development will eventually work against mortgagors because mortgagees will
hesitate to grant postponements to mortgagors.
In the instant case, there is no information in the notice of auction sale of any
date of a rescheduled auction sale. Even if such information were stated in the
notice of sale, the reposting and republication of the notice of sale would still be
necessary because Circular No. 7-2002 took effect only on 22 April 2002. There were
no such guidelines in effect during the questioned foreclosure.
Clearly, DBP failed to comply with the publication requirement under Act No.
3135. There was no publication of the notice of the rescheduled auction sale of the
real properties.Therefore, the extrajudicial foreclosure of the real estate mortgage is
void.
DBP, however, complied with the mandatory posting of the notices of the
auction sale of the personal properties. Under the Chattel Mortgage Law,[27] the only
requirement is posting of the notice of auction sale. There was no postponement of
the auction sale of the personal properties and the foreclosure took place as
scheduled. Thus, the extrajudicial foreclosure of the chattel mortgage in the instant
case suffers from no procedural infirmity.
Second Issue: Perfection and implementation of the
restructuring agreement between DBP and ERHC
ERHC consistently argues that its restructuring agreement with DBP was
perfected and even implemented by the parties. ERHC maintains that the delivery of
its certificates of stocks to DBP was part of its compliance with the conditions of the
restructuring agreement.
We do not agree.
Page 72 of 152
 Contrary to ERHCs allegations and the Court of Appeals findings, the
restructuring agreement was never perfected. ERHC failed to comply with the
material conditions for the perfection of the restructuring agreement. As specified in
DBP Resolution No. 956 dated 19 March 1981[28] approving the restructuring
agreement, the following are the conditions for the restructuring agreement:
RESOLUTION NO. 956. Emerald Resort Hotel Corporation (Hotel Ibalon) Conversion
Into Common and/or Preferred Shares of P2,786,000.00 Representing 40% of the
Total Outstanding Obligations; a Third Additional Loan of P679,000.00 and
Restructuring of the Account.
xxx
In view thereof and as favorably recommended by the Manager of the Industrial
Projects Department III in her memorandum dated February 24, 1981, the Board,
upon motion made and duly seconded, APPROVED in favor of Emerald Resort Hotel
Corporation (Hotel Ibalon) the following:
1. Immediate conversion into common and/or preferred shares at
borrowers option, of P2,786,000.00 representing 40% of
the total outstanding obligation as of May 15, 1980, in
the reduced amount of P6,965,000.00 composed of
outstanding principal balance of P3,500,000.00 and total
arrearages on interest and other charges of P3,465,000.00,
the conversion price to be equal to the par value of the
shares;
2. A third additional loan of Six Hundred Seventy-Nine Thousand
Pesos (P679,000.00), payable quarterly under the same
restructured terms of the original and two (2) additional
loans, at 18% interest per annum; and
3. Restructuring of the firms total outstanding principal obligation
of P3,500,000.00 in the form of extension of grace period on
principal repayment from two (2) years to nine (9) years to
make a maximum loan term of nineteen (19) years, regular
amortizations to commence three (3) months after the end
of the extended grace period on October 31, 1985 and
payable quarterly at the following interest rates:
Original Loan - P1,425,800 at 16% interest per annum
- 574,200 at 18% interest per annum
1st Additional Loan - 1,000,000 at 18% interest per annum
- __ 500,000 at 18% interest per annum
Total - P3,500,000
subject to the following terms and conditions:
A. For the P679,000.00 Additional Loan
a. That subject-firm shall first pay the amount of P473.00 to reduce its
total arrearages on interest and other charges of P3,465,473.00
as of May 15, 1980 to P3,465,000.00; and
b. That the proceeds of this additional loan shall be applied to
subject-firms accrued interest and other charges due DBP as
of May 15, 1980 not otherwise covered by the proposed equity
conversion of P2,786,000.00.
B. For Both Additional Loan and Restructuring
a. That a quasi-reorganization shall first be undertaken for the
purpose of eliminating existing deficits, which should be
formally authorized by the stockholders of the corporation,
should comply with legal requirements, and should be
approved by the Securities and Exchange Commission which
sees to it that the rights of creditors are not prejudiced.
xxx
e. That subject-firm shall apply with SEC for an amendment of
its authorized capitalization to include preferred shares
in case immediate conversion into equity of 40% of the
total outstanding obligation as of May 15, 1980 will
include preferred shares.
xxx (Emphasis supplied)
A careful review of the facts and the evidence presented by the parties
discloses that ERHC failed to comply with the terms and conditions set forth in DBP
Resolution No. 956.
First, ERHC failed to comply with the important condition of converting into
equity 40 percent of its outstanding debt to DBP. ERHC did not present any
evidence to show that it complied with this particular requirement. While it is true
CRED TRANS Pledge, Mortgage Antichresis Fulltext
that ERHC delivered to DBP certificates of stocks, it was to comply with ERHCs
commitment under the original mortgage contracts.[29] ERHC committed to
pledge or assign to DBP at least 67 percent of its outstanding shares to secure the
original loan accommodation. The original mortgage contractscontain the following
condition:
xxx
c. By an assignment to the Mortgagee of not less than 67% of the
total subscribed and outstanding voting shares of the
company. The said percentages of shares assigned shall be
maintained at all times and the said assignment to subsist for
as long as the Assignee may deem necessary during the
existence of the Mortgagees approved accommodation. xxx[30]
On 17 April 1985, DBP informed ERHC that it had not complied with the
condition in the original mortgage contract on the assignment of 67 percent of its
outstanding shares to DBP.The letter of DBP states in part:
2. The condition requiring ERHC to assign in favor of DBP at least
67% of the subscribed and outstanding voting shares of
company has not been met.
Of the 4,917,500 outstanding voting shares as of December 31,
1982, only 911,800 shares have been assigned instead of
3,294,725 (67% of 4,917,000), more of the outstanding voting
shares have increased. [31]
The deficiency of 2,382,925 shares (3,294,725 - 911,800) may
however be covered by the 2,786,000 shares you transferred in
the name of DBP as an alternative compliance with 65%
requirement. (Emphasis supplied)
In its reply letter dated 11 June 1985 to DBP, ERHC signified its readiness to
assign 67 percent of its outstanding shares to DBP. Thus, ERHCs reply letter, signed
by its President Atty. Jose C. Reyes, states in part:
With reference to your letter dated 17 April 1985 which could not be seasonably
acted upon on account of my absence from the country for medical reasons, I am
pleased to inform your goodself of the action taken on the various items thereon
enumerated, to wit:
1. x x x
2. Assignment of 67% of outstanding voting shares.
We are ready to bring up the assigned shares in favor of DBP to 67% of the
corporations outstanding voting shares of 4,917,500 as of December 31, 1982 or
total of 3,294,725 shares.
The corporation will maintain its previous assignment of 911,800 shares.
Moreover, the corporation is agreeable that Stock Certificate No. 030 for 1,862,148
shares which had been transferred to DBP be considered as an alternative
compliance to the raising of DBPs assigned shares to the full 67% or 3,294,725
shares. Your formal conformity to this arrangement is likewise requested.
Finally, the corporation will further assign to DBP another 520,777 shares in
exchange of Stock Certificate No. 032 for 923,852 shares which was transferred to
DBP conditionally. This Stock Certificate has to be surrendered to the corporation
for cancellation before we can issue by way of further assignment the 520,777
shares. In short, the 3 blocks of shares mentioned above would result as follows:
1. 911,800 shares
2. 1,862,148 shares
3. 520,777 shares
________
Total 3,294,725 shares of 67% outstanding
voting shares
x x x. [32]
Clearly, when ERHC delivered the certificates of stocks, it was to comply with ERHCs
commitment under the original mortgage contracts, not the restructuring
agreement.
Besides, there is a vast difference between an assignment of shares to DBP
by existing stockholders and conversion of DBPs loan into equity of ERHC. In the
first, the paid-up capital of ERHC remains the same. In the latter, the paid-up capital
of ERHC, as well as its liabilities, changes in that the liabilities are transferred to the
capital account to the extent of the conversion. The latter case, which is the
conversion of debt into equity required under the restructuring agreement, never
happened. The delivery to DBP of stock certificates representing 3,294,725 ERHC
Page 73 of 152
shares did not reduce the liabilities of ERHC. The reason for the requirement to
convert P2,786,000.00 in liabilities of ERHC into equity was to reduce ERHCs debt to
equity ratio, which the assignment and delivery of the stock certificates did not and
could not have achieved.
Second, ERHC did not avail of the P679,000.00 additional loan, despite this
being a material condition of the restructuring agreement. ERHC could not simply
refuse to avail of the additional loan because the proceeds of this loan were to pay
the balance of ERHCs accrued interest and other charges due DBP as of 15 May
1980. Clearly, ERHCs refusal to avail of the additional loan, intended to up-date
ERHCs loan account, prevented the perfection of the restructuring agreement.
Lastly, ERHC failed to comply with the quasi-reorganization requirement, as
clearly admitted in ERHCs letter dated 3 November 1982 to DBP, thus:
3. On July 31, 1981, we once more communicated with your Naga Branch advising
of the Emerald Resort Hotel Corporations Stockholders Resolution approving the
quasi-reorganization and the Petition filed with the Securities and Exchange
Commission requesting approval of the corporations resolution on quasi-
reorganization and the transfer of 1,862,148 shares in favor of the DBP, copy
whereof is attached as Annex C;
4. On September 7, 1981, we received by personal delivery a letter from Manager
Mario C. Leao, copy whereof is attached as Annex D. In our conversation had on this
occasion, I reiterated our request in our letter dated 19 June 1981 that in view of the
circumstances affecting our papers in the Securities and Exchange Commission
there was need to extend our period of compliance.
xxx
It will thus be noted from the foregoing communications that we have exerted
our utmost best to comply with the conditions for the re-structuring of our loan
accounts and all have been complied, with the exception of the quasi-
reorganization, for reasons beyond our legal control since it is the SEC that passes
upon the question as to whether or not we meet the SEC guidelines for a quasi-
reorganization. Unfortunately, for the reasons stated in Annex H and the enclosures
thereto, the SEC felt that ERHC was not within their guidelines for a quasi-
reorganization.[33] (Emphasis supplied)
The quasi-reorganization is required specifically to eliminate ERHCs existing
deficits. However, the SEC must first approve the quasi-reorganization which
approval ERHC admittedly failed to secure. Through no fault of DBP, SEC
disapproved ERHCs application for quasi-reorganization.
Considering that ERHC failed to comply with the material conditions of the
restructuring agreement, the agreement was never implemented or even
perfected. The perfection and implementation of the restructuring agreement were
expressly subject to the following conditions embodied in DBP Resolution No. 956
and in DBPs notice of approval to ERHC, respectively:
t. x x x Implementation of the restructuring scheme as approved shall take effect
upon compliance with the terms and conditions and with all the legal and
documentation requirements;[34]
xxxxxxxxx
7. All documents for this loan approval shall be executed and perfected within 90
days from the date of this notice; otherwise, this accommodation shall be
automatically cancelled.[35]
The trial and appellate courts gravely misapprehended the facts and made
manifestly mistaken inferences in finding that the parties had perfected the
restructuring agreement. Consequently, when DBP filed the application for
extrajudicial foreclosure of the chattel and real estate mortgages, ERHC was already
in default in paying its debt to DBP.
Third Issue: ERHCs offer to lease the foreclosed properties
ERHC offered to lease from DBP the foreclosed properties after the auction
sale. DBP argues that when ERHC offered to lease from DBP the foreclosed
properties, ERHC waived its right to question the validity of the foreclosure.
We do not agree.
To constitute a waiver, the intent to waive must be shown clearly and
convincingly.[36] A mere offer to lease the foreclosed properties cannot constitute a
waiver of ERHCs right to contest the validity of the foreclosure on the ground of
non-compliance with the statutory requisites. ERHCs offer to lease does not
relinquish ERHCs right to challenge the validity of the foreclosure. The offer to lease
the foreclosed properties cannot validate or ratify a void foreclosure. ERHCs
intention to lease the foreclosed properties cannot simply outweigh DBPs failure to
comply with the statutory requisite for a valid extrajudicial foreclosure. As the Court
of Appeals correctly ruled, there can be no waiver of the posting and publication
requirements in foreclosure proceedings because the same is contrary to law and
public order.
Fourth Issue: Award of moral damages
DBP maintains that ERHC, a juridical person, is not entitled to moral
damages. ERHC counters that its reputation was debased when the sheriffs and
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several armed men intruded into Hotel Ibalons premises and inventoried the
furniture and fixtures in the hotel.
The Court of Appeals erred in awarding moral damages to ERHC. The Court
of Appeals sole basis for its ruling is a quoted portion of the testimony of ERHCs
President, Atty. Jose Reyes. The testimony was not even offered to prove the
justification and amount of damages which ERHC claims against DBP. In other
words, ERHC failed to present evidence to warrant the award of moral damages. In a
long line of decisions, this Court has held that the claimant for moral damages must
present concrete proof to justify its award, thus:
xxx while no proof of pecuniary loss is necessary in order that moral damages may
be awarded, the amount of indemnity being left to the discretion of the court (Art.
2216), it is, nevertheless, essential that the claimant satisfactorily prove the existence
of the factual basis of the damage (Art. 2217) and its causal relation to
defendants acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the
wrongdoer.[37] (Emphasis supplied)
In the body of its decision, the trial court gave no basis to justify the award of moral
damages. The trial court simply awarded moral damages in the dispositive portion
of its decision.[38]
Moreover, as a general rule, moral damages are not awarded to a
corporation, thus:
The award of moral damages cannot be granted in favor of a corporation because,
being an artificial person and having existence only in legal contemplation, it has no
feelings, no emotions, no senses. It cannot, therefore, experience physical suffering
and mental anguish, which can be experienced only be one having a nervous
system. The statement in People v. Manero and Mambulao Lumber Co. v. PNBthat a
corporation may recover moral damages if it has a good reputation that is debased,
resulting in social humiliation is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation. [39]
WHEREFORE, the Joint Decision of the Court of Appeals in CA-G.R. CV Nos.
38569 and 38604 is AFFIRMED with MODIFICATION. The extrajudicial foreclosure of
the chattel mortgage is valid whereas the extrajudicial foreclosure of the real estate
mortgage is void. The award of moral damages is deleted for lack of basis. No costs.
SO ORDERED.
THIRD DIVISION
[G.R. No. 133079. August 9, 2005]
SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI, petitioners, vs. THE
HONORABLE COURT OF APPEALS; SPS. BENJAMIN SAN DIEGO and
CARMENCITA SAN DIEGO; The EX-OFFICIO SHERIFF and CLERK OF
COURT of the Regional Trial Court, Makati City; and the REGISTER
OF DEEDS, Makati City, respondents.
DECISION
GARCIA, J.:
Herein petitioners, the spouses Maximo Landrito, Jr. and Pacita Landrito,
have come to this Court via this petition for review on certiorari under Rule 45 of
the Rules of Court to seek the reversal and setting aside of the decision dated 12
December 1997[1] and resolution dated 10 March 1998[2] of the Court of Appeals in
CA-G.R. CV No. 48896, affirming an earlier order of the Regional Trial Court at
Makati City which granted the motion to dismiss filed by the herein private
respondents, the spouses Benjamin San Diego and Carmencita San Diego, in its Civil
Case No. 94-2950, a complaint for annulment of extrajudicial foreclosure and
auction sale, thereat commenced by them against the San Diegos, the ex-
officio sheriff and the Register of Deeds of Makati City.
The facts:
In July 1990, petitioners obtained a loan of P350,000.00 from respondent
Carmencita San Diego. To secure payment thereof, petitioners executed on 02
August 1990 in favor of the same respondent a deed of real estate mortgage over
their parcel of land located at Bayanan, Muntinlupa, Rizal and registered in their
names under Transfer Certificate of Title No. (432281) S-21000.
After making substantial payments, petitioners again obtained and were
granted by Carmencita San Diego an additional loan of One Million Pesos
(P1,000,000.00). To secure this additional loan, the parties executed on 13
September 1991 an Amendment of Real Estate Mortgage, whereunder they
stipulated that the loan shall be paid within six (6) months from 16 September 1991,
and if not paid within said period, the mortgagee shall have the right to declare the
Page 74 of 152
mortgage due and may immediately foreclose the same judicially or extrajudicially,
in accordance with law.
It appears that petitioners defaulted in paying their loan and continuously
refused to comply with their obligation despite repeated demands therefor,
prompting respondent Carmencita San Diego to send them on 27 April 1993, a final
notice of demand requiring them to settle their financial obligation which, by then,
already amounted to P1,950,000.00.
On 30 June 1993, after her efforts to collect proved futile, respondent
Carmencita San Diego filed with the Office of the Clerk of Court and Ex-Officio
Sheriff of RTC-Makati, a petition for the extrajudicial foreclosure of the mortgage.
On 06 July 1993, said office sent to the parties a Notice of Sheriffs Sale,
therein announcing that petitioners mortgaged property will be sold in a public
auction to be conducted on 11 August 1993 at 10:00 oclock in the morning, copies
of which notice were posted in several conspicuous places within the sheriffs
territorial jurisdiction.
As announced, on 11 August 1993, at 10:00 oclock in the morning, the public
auction sale was held and the mortgaged property sold to respondent Carmencita
San Diego as the highest bidder for P2,000,000.00, as evidenced by the Sheriffs
Certificate of Sale issued in her favor on 07 October 1993.
On 29 October 1993, respondent San Diego caused the registration of the
same sheriffs certificate of sale with the Office of the Register of Deeds, Makati City,
and duly inscribed on the same date at the dorsal side of the petitioners TCT No.
(432281) S-21000.
With the petitioners having failed to redeem their property within the 1-year
redemption period from the date of inscription of the sheriffs certificate of sale, as
provided for in Act No. 3135, as amended, the San Diegos caused the consolidation
of title over the foreclosed property in their names.
Then, on 09 November 1994, before the Regional Trial Court at Makati City,
petitioners filed their complaint for annulment of the extrajudicial foreclosure and
auction sale, with damages. In their complaint, thereat docketed as Civil Case No.
94-2950, petitioners alleged that (1) said foreclosure and auction sale were null and
void for failure to comply with the requirements of notice and publication, as
mandated by Act 3135, as amended; (2) the mortgaged property was illegally
foreclosed in the light of the settled rule that an action to foreclose a mortgage
must be limited to the amount mentioned in the mortgage document, in this
case, P1,000,000.00, which amount was allegedly bloated by respondent Carmencita
San Diego to P1,950,000.00; and (3) the San Diegos application for consolidation of
title was premature because the husband, Benjamin San Diego, allegedly granted
them an extension of the period of redemption up to 11 November 1994.
To the complaint, respondents interposed a Motion to Dismiss, therein
alleging that said complaint failed to state a cause of action as no primary right of
the petitioners had been violated since they actually failed to exercise their right of
redemption within the one-year redemption period, adding that petitioners never
took any action which may stall the running of the same period, thereby leaving
them no further right or interest in the property in question.
In an order dated 13 January 1995, the trial court granted respondents
motion to dismiss and accordingly dismissed petitioners complaint, saying that the
latters cause of action, if any, is already barred by laches on account of their failure
or neglect for an unreasonable length of time to do that which, by exercising due
diligence, could or should have been done earlier. Further, the trial court ruled that
petitioners inaction constituted a waiver on their part.
Therefrom, petitioners went on appeal to the Court of Appeals in CA-G.R. CV
No. 48896.
As stated at the outset hereof, the appellate court, in its decision of 12
December 1997, dismissed petitioners appeal and affirmed in toto the trial courts
order of dismissal. With their motion for reconsideration having been denied by the
same court in its resolution of 10 March 1998,[3] petitioners are now with us via the
present recourse, faulting the Court of Appeals, as follows:
1. The Court of Appeals gravely erred in avoiding to resolve in the
assailed Decision and in the questioned Resolution the
basic issue as to whether or not the extra-judicial
foreclosure and public auction sale of the subject
parcel of land are valid and lawful when the amount
stated in letter-request or the petition for extra-judicial
foreclosure and in the notice of sheriff sale doubled
the amount stipulated in the Amendment of Real
Estate Mortgage;
2. The Court of Appeals has similarly committed serious error in
considering that the complaint of the petitioner is a
complaint for redemption when in the caption; in the
body; and in the prayer of the complaint, petitioner
spouses have sought the nullity as void ab initio the
extra-judicial foreclosure and auction sale of the
subject property;
3. The respondent Appellate Court likewise incredulously erred to
have resolved the admissibility and probative value of
the statement of account attached as Annex E of the
complaint when it was not yet presented in evidence;
because the stage of the case at the time the assailed
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dismissal order was issued, was yet in the period of
pleadings;
4. The Court of Appeals has grievously erred in affirming the
assailed dismissal order by declaring petitioner
spouses to have been guilty of laches in failing to
redeem during the legal period of redemption the
foreclosed parcel of land; when the cause of the failure
to redeem was the illegal increase by 100% of the
original obligation, stated in the Amendment of Real
Estate Mortgage and bloating of the redemption price
from Two Million Pesos (P2,000,000.00) to Three
Million Four Hundred Ninety One Thousand Two
Hundred Twenty Five & 98/100 Pesos (P3,491,225.98).
We DENY.
The records indubitably show that at the time of the foreclosure sale on 11
August 1993, petitioners were already in default in their loan obligation to
respondent Carmencita San Diego.
Much earlier, or on 27 April 1993, a final notice of demand for payment had
been sent to them, despite which they still failed to pay. Hence, respondent
Carmencita San Diegos resort to extrajudicial foreclosure, provided no less in the
parties Amendment of Real Estate Mortgage.
The rule has been, and still is, that in real estate mortgage, when the principal
obligation is not paid when due, the mortgagee has the right to foreclose on the
mortgage and to have the mortgaged property seized and sold with the view of
applying the proceeds thereof to the payment of the obligation. [4]
Here, the validity of the extrajudicial foreclosure on 11 August 1993 was
virtually confirmed by the trial court when it dismissed petitioners complaint, and
rightly so, what with the fact that petitioners failed to exercise their right of
redemption within the 1-year period therefor counted from the registration of the
sheriffs certificate of sale.
It is petitioners main submission, however, that the very reason why they did
not avail of their redemption right is because Mrs. San Diego bloated their original
loan of P1,000,000.00 to P1,950,000.00, an issue supposedly not considered and/or
addressed by the appellate court in the decision under review. In this regard,
petitioners argue that the Court of Appeals, in sustaining the extrajudicial
foreclosure proceedings, thereby go against the established jurisprudence that an
action for foreclosure must be limited to the amount mentioned in the mortgage
document, P1,000,000.00 in this case.
We do not take issue with petitioners submission that a mortgage may be
foreclosed only for the amount appearing in the mortgage document, more so
where, as here, the mortgage contract entered into by the parties is evidently silent
on the payment of interest.
However, contrary to petitioners claim, the appellate court did pass upon the
legal issue raised by them, albeit ruling that petitioners had been barred by laches
from raising the same. We quote from the challenged decision:
[Petitioners] next argued that the mortgaged property was illegally foreclosed since
it is a well settled rule that an action to foreclose a mortgage must be limited to the
amount mentioned in the mortgage.
The argument is without merit.
It appears from the evidence on record that despite due notice and publication of
the same in a newspaper of general circulation (Exhs. 5, 5-A and 5-B, pp. 53-55,
Record), [petitioners] did not bother to attend the foreclosure sale nor raise any
question regarding the propriety of the sale. It was only on November 9, 1994, or
more than one year from the registration of the Sheriffs Certificate of Sale, that
[petitioners] filed the instant complaint. Clearly, [petitioners] had slept on their
rights and are therefore guilty of laches, which is defined as the failure or neglect for
an unreasonable or explained length of time to do that which, by exercising due
diligence, could or should have been done earlier, failure of which gives rise to the
presumption that the person possessed of the right or privilege has abandoned or
has declined to assert the same. (Words in bracket added.)
For sure, in the very petition they filed in this case, petitioners have not
offered any valid excuse why, despite notice to them of the petition for extrajudicial
foreclosure filed by the respondents, they failed to attend the proceedings and
there voiced out what they are now claiming. Truly, laches has worked against them.
The law on redemption of mortgaged property is clear. Republic Act No.
3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In Or
Annexed to Real Estate Mortgages), as amended by Republic Act No. 4118, provides
in Section 6 thereof, thus:
Sec. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under which the property is
sold, may redeem the same at any time within the term of one year from and
after the date of the sale; xxx (Emphasis supplied)
Page 75 of 152
 In a long line of cases[5], this Court has consistently ruled that the one-year
redemption period should be counted not from the date of foreclosure sale, but
from the time the certificate of sale is registered with the Register of Deeds. Here, it
is not disputed that the sheriffs certificate of sale was registered on 29 October
1993.
And under Article 13 of the New Civil Code , a year is understood to have
[6]
three hundred sixty-five (365) days each. Thus, excluding the first day and counting
from 30 October 1993 (under paragraph 3 of Article 13 of the New Civil Code), and
bearing in mind that 1994 was a leap year, petitioners had only until 29 October
1994, the 365th day after registration of the sheriffs certificate of sale on 29 October
1993, within which to redeem the foreclosed property in accordance with law. And
since 29 October 1994 fell on a Saturday, petitioners had until the following working
day, 31 October 1994, within which to exercise their right of redemption.
From the foregoing, it is clear as day that even the complaint filed by the
petitioners with the trial court on 09 November 1994 was instituted beyond the 1-
year redemption period. In fact, petitioners no less acknowledged that their
complaint for annulment of extrajudicial foreclosure and auction sale was filed
about eleven (11) days after the redemption period had already expired on 29
October 1994[7]. They merely harp on the alleged increase in the redemption price
of the mortgaged property as the reason for their failure to redeem the same.
However, and as already pointed out herein, they chose not, despite notice, to
appear during the foreclosure proceedings.
Of course, petitioners presently insist that they requested for and were
granted an extension of time within which to redeem their property, relying on a
handwritten note allegedly written by Mrs. San Diegos husband on petitioners
statement of account, indicating therein the date 11 November 1994 as the last
day to pay their outstanding account in full. Even assuming, in gratia argumenti, that
they were indeed granted such an extension, the hard reality, however, is that at no
time at all did petitioners make a valid offer to redeem coupled with a tender of the
redemption price.
Even on this score, petitioners case must fall.
For, in Lazo v. Republic Surety & Insurance Co., Inc. [8], this Court has made it
clear that it is only where, by voluntary agreement of the parties, consisting of
extensions of the redemption period, followed by commitment by the debtor to
pay the redemption price at a fixed date, will the concept of legal redemption be
converted into one of conventional redemption.
Here, there is no showing whatsoever that petitioners agreed to pay the
redemption price on or before 11 November 1994, as allegedly set by Mrs. San
Diegos husband. On the contrary, their act of filing their complaint on 09 November
1994 to declare the nullity of the foreclosure sale is indicative of their refusal to pay
the redemption price on the alleged deadline set by the husband. At the very least,
if they so believed that their loan obligation was only for P1,000,000.00, petitioners
should have made an offer to redeem within one (1) year from the registration of
the sheriffs certificate of sale, together with a tender of the same amount. This, they
never did.
It must be remembered that the period of redemption is not a prescriptive
period but a condition precedent provided by law to restrict the right of the person
exercising redemption. Correspondingly, if a person exercising the right of
redemption has offered to redeem the property within the period fixed, he is
considered to have complied with the condition precedent prescribed by law and
may thereafter bring an action to enforce redemption. If, on the other hand, the
period is allowed to lapse before the right of redemption is exercised, then the
action to enforce redemption will not prosper, even if the action is brought within
the ordinary prescriptive period. Moreover, the period within which to redeem the
property sold at a sheriffs sale is not suspended by the institution of an action to
annul the foreclosure sale.[9] It is clear, then, that petitioners have lost any right or
interest over the subject property primarily because of their failure to redeem the
same in the manner and within the period prescribed by law. Their belated attempts
to question the legality and validity of the foreclosure proceedings and public
auction must accordingly fail.
WHEREFORE, the instant petition is DENIED and the challenged decision and
resolution of the Court of Appeals AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
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CITY MAYOR, CITY TREASURER, CITY G.R. No. 171033
ASSESSOR, ALL OF QUEZON CITY,
and ALVIN EMERSON S. YU, Present:
Petitioners,
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
-versus- ABAD, and
MENDOZA, JJ.
RIZAL COMMERCIAL BANKING
CORPORATION, Promulgated:
Respondent. August 3, 2010
x-----------------------------------------------------------------x
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision[1] dated
December 6, 2005, of the Regional Trial Court (RTC), National Capital Judicial
Region, Branch 101, Quezon City, in SP. Civil Action Q-04-53522 for Mandamus with
Prayer for Issuance of a Temporary Restraining Order and a Writ of Preliminary
Injunction.
The procedural and factual antecedents are as follows:
The facts are undisputed. The spouses Roberto and Monette Naval
obtained a loan from respondent Rizal Commercial Banking Corporation, secured by
a real estate mortgage of properties covered by Transfer Certificate of Title (TCT)
Nos. N-167986, N-167987, and N-167988. In 1998, the real estate mortgage was
later foreclosed and the properties were sold at public auction with respondent as
the highest bidder. The corresponding Certificates of Sale were issued in favor of
respondent on August 4, 1998.However, the certificates of sale were allegedly
registered only on February 10, 2004.
Meanwhile, on May 30, 2003, an auction sale of tax delinquent
properties was conducted by the City Treasurer of Quezon City. Included in the
properties that were auctioned were two (2) townhouse units covered by TCT Nos.
N-167986 and N-167987 and the parcel of land covered by TCT No. N-167988. For
these delinquent properties, Alvin Emerson S. Yu was adjudged as the highest
bidder. Upon payment of the tax delinquencies, he was issued the corresponding
Certificate of Sale of Delinquent Property.
On February 10, 2004, the Certificate of Sale of Delinquent Property was
registered with the Office of the Register of Deeds of Quezon City.
On June 10, 2004, respondent tendered payment for all of the assessed
tax delinquencies, interest, and other costs of the subject properties with the Office
of the City Treasurer, Quezon City. However, the Office of the City Treasurer refused
to accept said tender of payment.
Undeterred, on June 15, 2004, respondent filed before the Office of the
City Treasurer a Petition[2] for the acceptance of its tender of payment and for the
subsequent issuance of the certificate of redemption in its favor. Nevertheless,
respondents subsequent tender of payment was also denied.
Consequently, respondent filed a Petition for Mandamus with Prayer for
Issuance of a Temporary Restraining Order and a Writ of Preliminary
Injunction[3] before the RTC. Petitioners contended, among other things, that it had
until February 10, 2005, or one (1) year from the date of registration of the
certificate of sale on February 10, 2004, within which to redeem the subject
properties, pursuant to Section 78 of Presidential Decree (P.D.) No. 464 or the Real
Property Tax Code.
After the parties filed their respective pleadings, the RTC initially denied
the petition in the Order[4] dated December 6, 2004. In denying the petition, the RTC
opined that respondents reliance on Section 78 of P.D. No. 464 as basis of the
reckoning period in counting the one (1) year period within which to redeem the
subject properties was misplaced, since P.D. No. 464 has been expressly repealed by
Republic Act (R.A.) No. 7160, or the Local Government Code.
Aggrieved, respondent filed a Motion for Reconsideration[5] questioning
the Order, arguing that:
A.
The Honorable Court committed grave error when it
summarily denied the petition for Mandamus filed by herein
petitioner during the hearing on the Motion for Issuance of
Temporary Restraining Order and/or Issuance of a Writ of
Preliminary Injunction without conducting a hearing or trial
on petition for mandamus. The order of the court effectively
denied petitioner its right to due process.
B.
The principal action subject of the petition for mandamus is
the annulment of the auction sale. Alternatively, petitioner
sought the right to consign the redemption price, inclusive
of interests on the basis that it was exercising the right of
Page 76 of 152
 redemption within the period provided by law. The
Honorable Court ruled only on the repeal of Presidential
Decree No. 464 and not the issues/grounds raised in the
temporary restraining order/writ of preliminary injunction
nor on the issues raised in the petition for mandamus,
contrary to law.
C.
The Honorable Court committed grave error when it
sustained the validity of the actions of the City Treasurer
with respect to the auction sale of the properties subject of
the petition and its unlawful refusal to accept the
redemption price of the properties subject of the auction
sale contrary to the provisions of Quezon City Ordinance
No. 91-93, in relation to Presidential Decree No. 464 and the
Local Government Code and DOF Assessment Regulations
No. 7-85.
D.
The Honorable Court committed grave error when it denied
petitioner its right to consign the payment of the
redemption price of the properties sold in auction sale
without a determination of the factual issues of the case,
contrary to due process.
E.
The legal and factual question of the validity of the notice of
the auction sale cannot be summarily dismissed without
hearing and ruling on the allegation of lack of notice and
fraud raised by petitioner in its petition for mandamus. [6]
On December 6, 2005, the RTC rendered a Decision [7] granting the
petition, the decretal portion of which reads:
WHEREFORE, premises considered, the above-
captioned petition for mandamus is hereby granted.
Accordingly, the public respondents are ordered to
accept the petitioners tender of redemption payment, to
issue the corresponding certificate of redemption in the
name of the petitioner and to cancel the certificate of tax
sale issued to the private respondent.
SO ORDERED.[8]
In granting the petition, the RTC ratiocinated that the counting of the
one (1) year redemption period of tax delinquent properties sold at public auction
should start from the date of registration of the certificate of sale or the final deed
of sale in favor of the purchaser, so that the delinquent registered owner or third
parties interested in the redemption may be notified that the delinquent property
had been sold, and that they have one (1) year from said constructive notice of the
sale within which to redeem the property. The RTC was also of the opinion that
Section 261, R.A. No. 7160 did not amend Section 78 of P.D. No. 464.
Hence, the petition raising the following arguments:
I Decrees Nos. 381, 436, 464, 477, 526, 632, 752, and 1136 are
THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON CITY,
DECIDED A QUESTION [OF] LAW CONTRARY TO LAW AND
JURISPRUDENCE WHEN IT DECIDED THAT SECTION 78 OF
P.D. 464 WAS NOT REPEALED BY REPUBLIC ACT NO. 7160
KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991.
II
THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON CITY,
DECIDED A QUESTION [OF] LAW CONTRARY TO LAW AND
JURISPRUDENCE WHEN IT RAISED THE FOLLOWING ISSUES
WHICH DO NOT CONFORM TO THE PETITION AND
ANSWER FILED BY THE PARTIES:
A. WHETHER OR NOT THE RESPONDENT IS
ENTITLED TO THE PROTECTION OF ALL THE
PROVISIONS OF QUEZON CITY TAX ORDINANCE
NUMBER SP-91-93, OTHERWISE KNOWN AS
QUEZON CITY REVENUE CODE OF 1993, INCLUDING
SECTION 14 THEREOF, PROMULGATED PURSUANT
TO R.A. 7160;
B. WHETHER THE PERIOD OF REDEMPTION IN A
REALTY TAX SALE IN QUEZON CITY [H]AS TO BE
RECKONED FROM THE DATE OF ANNOTATION OF
THE CERTIFICATE OF SALE PURSUANT TO
PARAGRAPH 7, SECTION 14 OF QUEZON CITY TAX
ORDINANCE NO. SP-91-93 OR FROM THE DATE
OF SALE PURSUANT TO SECTION 261 OF R.A.
7160.[9]
Petitioners argue that the RTC erred when it ruled that P.D. No. 464 was
not repealed by R.A. No. 7160 and when it concluded that the phrase from the date
of sale as appearing in Section 261 of R.A. No. 7160 means that the counting of the
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one (1) year redemption period of tax delinquent properties sold at public action
shall commence from the date of registration of the certificate of sale.
Petitioners insist that, since Section 14 (a), Paragraph 7 of the Quezon
City Revenue Code of 1993 was not initially alleged in respondents petition and was
not used as basis for its filing, the RTC erred when it took cognizance of it when it
rendered the assailed decision.
Conversely, respondent argues, among other things, that the RTC did
not rule that P.D. No. 464 was not repealed by R.A. No. 7160, it merely made
reference to Section 78 of P.D. No. 464. Respondent maintains that it has not altered
its cause of action when it cited Section 14 (a), paragraph 7 of the Quezon City
Revenue Code of 1993 for the first time in its memorandum and that its failure to
invoke the said provision in the petition for mandamus does not preclude
respondent from invoking it in the later part of the proceedings. Ultimately,
respondent contends that the RTC correctly ruled that it had timely exercised its
right to redeem the subject properties.
Section 78 of P.D. No. 464 provides for a one-year redemption period
for properties foreclosed due to tax delinquency, thus:
Sec. 78. Redemption of real property after sale. Within the
term of one year from the date of the registration of the sale
of the property, the delinquent taxpayer or his representative,
or in his absence, any person holding a lien or claim over the
property, shall have the right to redeem the same by paying
the provincial or city treasurer or his deputy the total
amount of taxes and penalties due up to the date of
redemption, the costs of sale and the interest at the rate of
twenty per centum on the purchase price, and such payment
shall invalidate the sale certificate issued to the purchaser
and shall entitle the person making the same to a certificate
from the provincial or city treasurer or his deputy, stating
that he had redeemed the property.[10]
From the foregoing, the owner or any person holding a lien or claim
over a tax delinquent property sold at public auction has one (1) year from the date
of registration of sale to redeem the property. However, since the passing of R.A.
No. 7160, such is no longer controlling. The issue of whether or not R.A No. 7160 or
the Local Government Code, repealed P.D. No. 464 or the Real Property Tax Code
has long been laid to rest by this Court. Jurisdiction thrives to the effect that R.A.
No. 7160 repealed P.D. No. 464.[11] From January 1, 1992 onwards, the proper basis
for the computation of the real property tax payable, including penalties or
interests, if applicable, must be R. A. No. 7160. Its repealing clause, Section 534,
reads:
SECTION 534. Repealing Clause.
xxxx
(c) The provisions of Sections 2, 3, and 4 of Republic
Act No. 1939 regarding hospital fund; Section 3, a (3) and b
(2) of Republic Act No. 5447 regarding the Special Education
Fund; Presidential Decree No. 144 as amended by
Presidential Decree Nos. 559 and 1741; Presidential Decree
No. 231 as amended; Presidential Decree No. 436 as
amended by Presidential Decree No. 558; and Presidential
hereby repealed and rendered of no force and effect.
Inasmuch as the crafter of the Local Government Code clearly worded
the above-cited Section to repeal P.D. No. 464, it is a clear showing of their
legislative intent that R.A. No. 7160 was to supersede P.D. No. 464. As such, it is
apparent that in case of sale of tax delinquent properties, R.A. No. 7160 is the
general law applicable.Consequently, as regards redemption of tax delinquent
properties sold at public auction, the pertinent provision is Section 261 of R.A. No.
7160, which provides:
Section 261. Redemption of Property Sold. Within one
(1) year from the date of sale, the owner of the delinquent
real property or person having legal interest therein, or his
representative, shall have the right to redeem the property
upon payment to the local treasurer of the amount of
delinquent tax, including the interest due thereon, and the
expenses of sale from the date of delinquency to the date of
sale, plus interest of not more than two percent (2%) per
month on the purchase price from the date of sale to the
date of redemption. Such payment shall invalidate the
certificate of sale issued to the purchaser and the owner of
the delinquent real property or person having legal interest
therein shall be entitled to a certificate of redemption which
shall be issued by the local treasurer or his deputy.
From the date of sale until the expiration of the
period of redemption, the delinquent real property shall
remain in the possession of the owner or person having
legal interest therein who shall remain in the possession of
the owner or person having legal interest therein who shall
be entitled to the income and other fruits thereof.
The local treasurer or his deputy, upon receipt from
the purchaser of the certificate of sale, shall forthwith return
to the latter the entire amount paid by him plus interest of
Page 77 of 152
 not more than two percent (2%) per month. Thereafter, the
property shall be free from all lien of such delinquent tax,
interest due thereon and expenses of sale.[12]
From the foregoing, the owner of the delinquent real property or person
having legal interest therein, or his representative, has the right to redeem the
property within one (1) year from the date of sale upon payment of the delinquent
tax and other fees. Verily, the period of redemption of tax delinquent properties
should be counted not from the date of registration of the certificate of sale, as
previously provided by Section 78 of P.D. No. 464, but rather on the date of sale of
the tax delinquent property, as explicitly provided by Section 261 of R.A. No. 7160.
Nonetheless, the government of Quezon City, pursuant to the
taxing power vested on local government units by Section 5, Article X of the 1987
Constitution[13]and R.A. No. 7160, enacted City Ordinance No. SP-91, S-93, otherwise
known as the Quezon City Revenue Code of 1993, providing, among other things,
the procedure in the collection of delinquent taxes on real properties within the
territorial jurisdiction of Quezon City. Section 14 (a), Paragraph 7, the Code provides:
7) Within one (1) year from the date of the annotation of
the sale of the property at the proper registry, the owner
of the delinquent real property or person having legal
interest therein, or his representative, shall have the
right to redeem the property by paying to the City
Treasurer the amount of the delinquent tax, including
interest due thereon, and the expenses of sale plus
interest of two percent (2) per month on the purchase
price from the date of sale to the date of
redemption. Such payment shall invalidate the
certificate of sale issued to the purchaser and the
owner of the delinquent real property or person
having legal interest therein shall be entitled to a
certificate of redemption which shall be issued by the
City Treasurer.
xxxx
Verily, the ordinance is explicit that the one-year redemption period
should be counted from the date of the annotation of the sale of the property at the
proper registry.At first glance, this provision runs counter to that of Section 261 of
R.A. No. 7160 which provides that the one year redemption period shall be counted
from the date of sale of the tax delinquent property. There is, therefore, a need to
reconcile these seemingly conflicting provisions of a general law and a special law.
A general statute is one which embraces a class of subjects or places
and does not omit any subject or place naturally belonging to such class. A special
statute, as the term is generally understood, is one which relates to particular
persons or things of a class or to a particular portion or section of the state
only.[14] In the present case, R.A. No. 7160 is to be construed as a general law, while
City Ordinance No. SP-91, S-93 is a special law, having emanated only from R.A. No.
7160 and with limited territorial application in Quezon City only.
A general law and a special law on the same subject should be
accordingly read together and harmonized, if possible, with a view to giving effect
to both. Where there are two acts, one of which is special and particular and the
other general which, if standing alone, would include the same matter and thus
conflict with the special act, the special must prevail, since it evinces the legislative
intent more clearly than that of the general statute and must be taken as intended
to constitute an exception to the rule. [15]More so, when the validity of the law is not
in question.
In giving effect to these laws, it is also worthy to note that in cases
involving redemption, the law protects the original owner. It is the policy of the law
to aid rather than to defeat the owners right. Therefore, redemption should be
looked upon with favor and where no injury will follow, a liberal construction will be
given to our redemption laws, specifically on the exercise of the right to redeem.[16]
To harmonize the provisions of the two laws and to maintain the policy
of the law to aid rather than to defeat the owners right to redeem his property,
Section 14 (a), Paragraph 7 of City Ordinance No. SP-91, S-93 should be construed
as to define the phrase one (1) year from the date of sale as appearing in Section 261
of R.A. No. 7160, to mean one (1) year from the date of the annotation of the sale of
the property at the proper registry.
Consequently, the counting of the one (1) year redemption period of
property sold at public auction for its tax delinquency should be counted from
the date of annotation of the certificate of sale in the proper Register of
Deeds. Applying the foregoing to the case at bar, from the date of registration of
the Certificate of Sale of Delinquent Property on February 10, 2004, respondent had
until February 10, 2005 to redeem the subject properties. Hence, its tender of
payment of the subject properties tax delinquencies and other fees on June 10,
2004, was well within the redemption period, and it was manifest error on the part
of petitioners to have refused such tender of payment.
Finally, respondents failure to cite Section 14 (a), Paragraph 7, City
Ordinance No. SP-91, S-93 in its petition for mandamus does not preclude it from
invoking the said provision in the later part of the judicial proceeding.
The issues in every case are limited to those presented in the
pleadings. The object of the pleadings is to draw the lines of battle between the
litigants and to indicate fairly the nature of the claims or defenses of both
parties.[17] Points of law, theories, issues and arguments should be brought to the
attention of the trial court to give the opposing party an opportunity to present
CRED TRANS Pledge, Mortgage Antichresis Fulltext
further evidence material to these matters during judicial proceedings before the
lower court. Otherwise, it would be too late to raise these issues during appeal.
A party cannot, on appeal, change fundamentally the nature of the issue in the
case. When a party deliberately adopts a certain theory and the case is decided
upon that theory in the court below, he will not be permitted to change the same
on appeal, because to permit him to do so would be unfair to the adverse party. [18]
As early as in its Memorandum to Serve as Draft
Resolution,[19] respondent had brought Section 14 (a), Paragraph 7 of City
Ordinance No. SP-91, S-93, or the Quezon City Revenue Code of 1993, to the
attention of petitioners. Respondent also reiterated the applicability of the
provision to his claim of redemption in its motion for reconsideration of the Order
initially denying the petition for mandamus. Petitioners were given every
opportunity to counter respondents allegations, which it in fact did by filing an
Opposition[20] to the motion for reconsideration. Since the inception of the petition
in the lower court, respondent has not changed its preposition that the one (1) year
redemption period shall be counted from the date of registration of the certificate
of sale and not from the date of sale of the subject properties. Citing the
appropriate provision of the Quezon City Revenue Code of 1993 did not alter this,
but on the contrary, even buttressed its claim.
Furthermore, petitioners cannot feign ignorance of a law that it has
promulgated in the exercise of its local autonomy. Nor can it be allowed to deny
the applicability of Section 14 (a), Paragraph 7 of the Quezon City Revenue Code of
1993, while at the same time invoking that it has strictly adhered to the Quezon
City Revenue Code when it conducted the public auction of the tax delinquent
properties.
WHEREFORE, premises considered, the petition is DENIED. Subject to
the above disquisitions, the Decision of the RTC in SP. Civil Action Q-04-53522,
dated December 6, 2005, is AFFIRMED.
SO ORDERED.
FIRST DIVISION
G.R. No. 195540 March 13, 2013
GOLDENWAY MERCHANDISING CORPORATION, Petitioner,
vs.
EQUITABLE PCI BANK, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on certiorari which seeks to reverse and set
aside the Decision1 dated November 19, 2010 and Resolution2 dated January 31,
2011 of the Court of Appeals (CA) in CA-G.R. CV No. 91120. The CA affirmed the
Decision3 dated January 8, 2007 of the Regional Trial Court (RTC) of- Valenzuela
City, Branch 171 dismissing the complaint in Civil Case No. 295-V -01.
The facts are undisputed.
On November 29, 1985, Goldenway Merchandising Corporation (petitioner)
executed a Real Estate Mortgage in favor of Equitable PCI Bank (respondent) over its
real properties situated in Valenzuela, Bulacan (now Valenzuela City) and covered by
Transfer Certificate of Title (TCT) Nos. T-152630, T-151655 and T-214528 of the
Registry of Deeds for the Province of Bulacan. The mortgage secured the Two
Million Pesos (P2,000,000.00) loan granted by respondent to petitioner and was duly
registered.4
As petitioner failed to settle its loan obligation, respondent extrajudicially foreclosed
the mortgage on December 13, 2000. During the public auction, the mortgaged
properties were sold for P3,500,000.00 to respondent. Accordingly, a Certificate of
Sale was issued to respondent on January 26, 2001. On February 16, 2001, the
Certificate of Sale was registered and inscribed on TCT Nos. T-152630, T-151655
and T-214528.5
In a letter dated March 8, 2001, petitioners counsel offered to redeem the
foreclosed properties by tendering a check in the amount of P3,500,000.00. On
March 12, 2001, petitioners counsel met with respondents counsel reiterating
petitioners intention to exercise the right of redemption.6 However, petitioner was
told that such redemption is no longer possible because the certificate of sale had
already been registered. Petitioner also verified with the Registry of Deeds that title
to the foreclosed properties had already been consolidated in favor of respondent
and that new certificates of title were issued in the name of respondent on March 9,
2001.
On December 7, 2001, petitioner filed a complaint 7 for specific performance and
damages against the respondent, asserting that it is the one-year period of
redemption under Act No. 3135 which should apply and not the shorter redemption
period provided in Republic Act (R.A.) No. 8791. Petitioner argued that applying
Section 47 of R.A. 8791 to the real estate mortgage executed in 1985 would result in
the impairment of obligation of contracts and violation of the equal protection
Page 78 of 152
clause under the Constitution. Additionally, petitioner faulted the respondent for
allegedly failing to furnish it and the Office of the Clerk of Court, RTC of Valenzuela
City with a Statement of Account as directed in the Certificate of Sale, due to which
petitioner was not apprised of the assessment and fees incurred by respondent,
thus depriving petitioner of the opportunity to exercise its right of redemption prior
to the registration of the certificate of sale.
In its Answer with Counterclaim,8 respondent pointed out that petitioner cannot
claim that it was unaware of the redemption price which is clearly provided in
Section 47 of R.A. No. 8791, and that petitioner had all the opportune time to
redeem the foreclosed properties from the time it received the letter of demand and
the notice of sale before the registration of the certificate of sale. As to the check
payment tendered by petitioner, respondent said that even assuming arguendo
such redemption was timely made, it was not for the amount as required by law.
On January 8, 2007, the trial court rendered its decision dismissing the complaint as
well as the counterclaim. It noted that the issue of constitutionality of Sec. 47 of R.A.
No. 8791 was never raised by the petitioner during the pre-trial and the trial. Aside
from the fact that petitioners attempt to redeem was already late, there was no
valid redemption made because Atty. Judy Ann Abat-Vera who talked to Atty.
Joseph E. Mabilog of the Legal Division of respondent bank, was not properly
authorized by petitioners Board of Directors to transact for and in its behalf; it was
only a certain Chan Guan Pue, the alleged President of petitioner corporation, who
gave instruction to Atty. Abat-Vera to redeem the foreclosed properties.9
Aggrieved, petitioner appealed to the CA which affirmed the trial courts decision.
According to the CA, petitioner failed to justify why Section 47 of R.A. No. 8791
should be declared unconstitutional. Furthermore, the appellate court concluded
that a reading of Section 47 plainly reveals the intention to shorten the period of
redemption for juridical persons and that the foreclosure of the mortgaged
properties in this case when R.A. No. 8791 was already in effect clearly falls within
the purview of the said provision.10
Petitioners motion for reconsideration was likewise denied by the CA.
In the present petition, it is contended that Section 47 of R.A. No. 8791 is
inapplicable considering that the contracting parties expressly and categorically
agreed that the foreclosure of the real estate mortgage shall be in accordance with
Act No. 3135. Citing Co v. Philippine National Bank 11 petitioner contended that the
right of redemption is part and parcel of the Deed of Real Estate Mortgage itself
and attaches thereto upon its execution, a vested right flowing out of and made
dependent upon the law governing the contract of mortgage and not on the
mortgagees act of extrajudicially foreclosing the mortgaged properties. This Court
thus held in said case that "Under the terms of the mortgage contract, the terms
and conditions under which redemption may be exercised are deemed part and
parcel thereof whether the same be merely conventional or imposed by law."
Petitioner then argues that applying Section 47 of R.A. No. 8791 to the present case
would be a substantial impairment of its vested right of redemption under the real
estate mortgage contract. Such impairment would be violative of the constitutional
proscription against impairment of obligations of contract, a patent derogation of
petitioners vested right and clearly changes the intention of the contracting parties.
Moreover, citing this Courts ruling in Rural Bank of Davao City, Inc. v. Court of
Appeals12 where it was held that "Section 119 prevails over statutes which provide
for a shorter period of redemption in extrajudicial foreclosure sales", and in Sulit
v. Court of Appeals,13 petitioner stresses that it has always been the policy of this
Court to aid rather than defeat the mortgagors right to redeem his property.
Petitioner further argues that since R.A. No. 8791 does not provide for its retroactive
application, courts therefore cannot retroactively apply its provisions to contracts
executed and consummated before its effectivity. Also, since R.A. 8791 is a general
law pertaining to the banking industry while Act No. 3135 is a special law specifically
governing real estate mortgage and foreclosure, under the rules of statutory
construction that in case of conflict a special law prevails over a general law
regardless of the dates of enactment of both laws, Act No. 3135 clearly should
prevail on the redemption period to be applied in this case.
The constitutional issue having been squarely raised in the pleadings filed in the trial
and appellate courts, we shall proceed to resolve the same.
The law governing cases of extrajudicial foreclosure of mortgage is Act No.
3135,14 as amended by Act No. 4118. Section 6 thereof provides:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors-in-interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of
trust under which the property is sold, may redeem the same at any time within the
term of one year from and after the date of the sale; and such redemption shall be
governed by the provisions of sections four hundred and sixty-four to four hundred
and sixty-six, inclusive, of the Code of
Civil Procedure,15 in so far as these are not inconsistent with the provisions of this
Act.
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The one-year period of redemption is counted from the date of the registration of
the certificate of sale. In this case, the parties provided in their real estate mortgage
contract that upon petitioners default and the latters entire loan obligation
becoming due, respondent may immediately foreclose the mortgage judicially in
accordance with the Rules of Court, or extrajudicially in accordance with Act No.
3135, as amended.
However, Section 47 of R.A. No. 8791 otherwise known as "The General Banking Law
of 2000" which took effect on June 13, 2000, amended Act No. 3135. Said provision
reads:
SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure,
whether judicially or extrajudicially, of any mortgage on real estate which is security
for any loan or other credit accommodation granted, the mortgagor or debtor
whose real property has been sold for the full or partial payment of his obligation
shall have the right within one year after the sale of the real estate, to redeem the
property by paying the amount due under the mortgage deed, with interest thereon
at the rate specified in the mortgage, and all the costs and expenses incurred by the
bank or institution from the sale and custody of said property less the income
derived therefrom. However, the purchaser at the auction sale concerned whether in
a judicial or extrajudicial foreclosure shall have the right to enter upon and take
possession of such property immediately after the date of the confirmation of the
auction sale and administer the same in accordance with law. Any petition in court
to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to
this provision shall be given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will pay all the damages
which the bank may suffer by the enjoining or the restraint of the foreclosure
proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant
to an extrajudicial foreclosure, shall have the right to redeem the property in
accordance with this provision until, but not after, the registration of the certificate
of foreclosure sale with the applicable Register of Deeds which in no case shall be
more than three (3) months after foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale prior to the effectivity of this Act
shall retain their redemption rights until their expiration. (Emphasis supplied.)
Under the new law, an exception is thus made in the case of juridical persons which
are allowed to exercise the right of redemption only "until, but not after, the
registration of the certificate of foreclosure sale" and in no case more than three (3)
months after foreclosure, whichever comes first. 16
May the foregoing amendment be validly applied in this case when the real estate
mortgage contract was executed in 1985 and the mortgage foreclosed when R.A.
No. 8791 was already in effect?
We answer in the affirmative.
When confronted with a constitutional question, it is elementary that every court
must approach it with grave care and considerable caution bearing in mind that
every statute is presumed valid and every reasonable doubt should be resolved in
favor of its constitutionality.17 For a law to be nullified, it must be shown that there is
a clear and unequivocal breach of the Constitution. The ground for nullity must be
clear and beyond reasonable doubt.18Indeed, those who petition this Court to
declare a law, or parts thereof, unconstitutional must clearly establish the basis
therefor. Otherwise, the petition must fail.19
Petitioners contention that Section 47 of R.A. 8791 violates the constitutional
proscription against impairment of the obligation of contract has no basis.
The purpose of the non-impairment clause of the Constitution20 is to safeguard the
integrity of contracts against unwarranted interference by the State. As a rule,
contracts should not be tampered with by subsequent laws that would change or
modify the rights and obligations of the parties.21 Impairment is anything that
diminishes the efficacy of the contract. There is an impairment if a subsequent law
changes the terms of a contract between the parties, imposes new conditions,
dispenses with those agreed upon or withdraws remedies for the enforcement of
the rights of the parties.22
Section 47 did not divest juridical persons of the right to redeem their foreclosed
properties but only modified the time for the exercise of such right by reducing the
one-year period originally provided in Act No. 3135. The new redemption period
commences from the date of foreclosure sale, and expires upon registration of the
certificate of sale or three months after foreclosure, whichever is earlier. There is
likewise no retroactive application of the new redemption period because Section
47 exempts from its operation those properties foreclosed prior to its effectivity and
whose owners shall retain their redemption rights under Act No. 3135.
Petitioners claim that Section 47 infringes the equal protection clause as it
discriminates mortgagors/property owners who are juridical persons is equally
bereft of merit.
The equal protection clause is directed principally against undue favor and
individual or class privilege.1wphi1 It is not intended to prohibit legislation which is
limited to the object to which it is directed or by the territory in which it is to
operate. It does not require absolute equality, but merely that all persons be treated
Page 79 of 152
alike under like conditions both as to privileges conferred and liabilities
imposed.23 Equal protection permits of reasonable classification.24We have ruled
that one class may be treated differently from another where the groupings are
based on reasonable and real distinctions.25 If classification is germane to the
purpose of the law, concerns all members of the class, and applies equally to
present and future conditions, the classification does not violate the equal
protection guarantee.26
We agree with the CA that the legislature clearly intended to shorten the period of
redemption for juridical persons whose properties were foreclosed and sold in
accordance with the provisions of Act No. 3135.27
The difference in the treatment of juridical persons and natural persons was based
on the nature of the properties foreclosed whether these are used as residence,
for which the more liberal one-year redemption period is retained, or used for
industrial or commercial purposes, in which case a shorter term is deemed
necessary to reduce the period of uncertainty in the ownership of property and
enable mortgagee-banks to dispose sooner of these acquired assets. It must be
underscored that the General Banking Law of 2000, crafted in the aftermath of the
1997 Southeast Asian financial crisis, sought to reform the General Banking Act of
1949 by fashioning a legal framework for maintaining a safe and sound banking
system.28 In this context, the amendment introduced by Section 47 embodied one
of such safe and sound practices aimed at ensuring the solvency and liquidity of our
banks.1wphi1 It cannot therefore be disputed that the said provision amending the
redemption period in Act 3135 was based on a reasonable classification and
germane to the purpose of the law.
This legitimate public interest pursued by the legislature further enfeebles
petitioners impairment of contract theory.
The right of redemption being statutory, it must be exercised in the manner
prescribed by the statute,29 and within the prescribed time limit, to make it effective.
Furthermore, as with other individual rights to contract and to property, it has to
give way to police power exercised for public welfare.30 The concept of police power
is well-established in this jurisdiction. It has been defined as the "state authority to
enact legislation that may interfere with personal liberty or property in order to
promote the general welfare." Its scope, ever-expanding to meet the exigencies of
the times, even to anticipate the future where it could be done, provides enough
room for an efficient and flexible response to conditions and circumstances thus
assuming the greatest benefits.31
The freedom to contract is not absolute; all contracts and all rights are subject to
the police power of the State and not only may regulations which affect them be
established by the State, but all such regulations must be subject to change from
time to time, as the general well-being of the community may require, or as the
circumstances may change, or as experience may demonstrate the
necessity.32 Settled is the rule that the non-impairment clause of the Constitution
must yield to the loftier purposes targeted by the Government. The right granted by
this provision must submit to the demands and necessities of the States power of
regulation.33 Such authority to regulate businesses extends to the banking industry
which, as this Court has time and again emphasized, is undeniably imbued with
public interest.34
Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we find
no reversible error committed by the CA in holding that petitioner can no longer
exercise the right of redemption over its foreclosed properties after the certificate of
sale in favor of respondent had been registered.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. The
Decision dated November 19, 2010 and Resolution dated January 31, 2011 of the
Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.
With costs against the petitioner.
SO ORDERED.
FIRST DIVISION
[G.R. No. 133366. August 5, 1999]
UNIONBANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS and
FERMINA S. DARIO and REYNALDO S. DARIO, respondents.
DECISION
DAVIDE, JR., C.J.:
Unionbank of the Philippines (hereafter UNIONBANK) appeals, by way
of certiorari, the Decision[1] of the Court of Appeals (CA) of 26 June 1997 and its
Resolution of 7 April 1998[2] The CA nullified the Regional Trial Courts (RTC)
Order[3] of 7 August 1995 denying private respondents application for preliminary
injunction as UNIONBANKs consolidation of ownership divested private
respondents of their property without due process of law. It also ordered the
register of deeds to cancel UNIONBANKs title and the trial court to hear private
respondents prayer for injunctive relief.
This case stemmed from a real estate mortgage executed on 17 December
1991 by spouses Leopoldo and Jessica Dario (hereafter mortgagors) in favor of
UNIONBANK to secure a P3 million loan, including interest and other charges. The
mortgage covered a Quezon City property with Transfer Certificate of Title (TCT) No.
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41828 in Leopoldo Darios name and was annotated on the title on 18 December
1991. For non-payment of the principal obligation, UNIONBANK extrajudicially
foreclosed the property mortgaged on 12 August 1993 and sold the same at public
auction, with itself posting the highest bid.
On 4 October 1994, one week before the one-year redemption period
expired, private respondents filed a complaint with the RTC of Quezon City against
the mortgagors, UNIONBANK, the Register of Deeds and the City Sheriff of Quezon
City. Docketed as Civil Case No. Q-94-21830, the complaint was for annulment of
sale and real estate mortgage with reconveyance and prayer for restraining order
and prohibitory injunction. A notice of lis pendens was annotated on the title.
On 10 October 1994, RTC, Branch 81, through Presiding Judge (later CA
Justice) Celia Lipana-Reyes, issued a temporary restraining order (TRO) enjoining the
redemption of property within the statutory period and its consolidation under
UNIONBANKs name. At a hearing four days later, UNIONBANKs counsel orally
moved for dismissal of the complaint alleging that a certification of non-forum
shopping as prescribed by SC Circular 4-94[4] is now Rule 7 Section 5 of the 1997
Rules of Civil Procedure.4 was not attached thereto. Judge Lipana-Reyes settled the
motion in favor of UNIONBANK and dismissed[5] the complaint on 17 October 1994.
Aggrieved, private respondents filed a motion for reconsideration [6] of the
dismissal on 20 October 1994 and prayed that they be permitted to amend their
verified complaint to comply with the requisites of Circular 4-94. Upon the
appointment of Judge Lipana-Reyes to the CA, pairing Judge Agustin S. Dizon took
over the case and on 15 November 1994 allowed private respondents to
incorporate the mandatory formal requirements of SC Administrative Circular 4-94
to their complaint.
In the meantime, without notifying private respondents, UNIONBANK
consolidated its title over the foreclosed property on 24 October 1994. TCT No.
41828 was cancelled and TCT No. 120929 in UNIONBANKs name was issued in its
stead.
Private respondents filed an amended complaint [7] on 9 December 1994,
alleging that they, not the mortgagors, are the true owners of the property
mortgaged and insisting on the invalidity of both the mortgage and its subsequent
extrajudicial foreclosure. They claimed that the original title, TCT No. 61571, was
entrusted to a certain Atty. Reynaldo Singson preparatory to its administrative
reconstitution after a fire gutted the Quezon City Hall building. Mortgagor
Leopoldo, private respondent Ferminas son, obtained the property from Atty.
Singson, had the title reconstituted under his name without private respondents
knowledge, executed an ante-dated deed of sale in his favor and mortgaged the
property to UNIONBANK.
On 19 December 1994, Judge Ignacio M. Capulong to whom this case was
assigned admitted the aforementioned amended complaint and set the application
for writ of preliminary injunction for hearing. After UNIONBANKs motion for
reconsideration of said Order was denied on 17 January 1995, it filed a petition
for certiorari with the CA questioning the admission of the amended complaint.The
CA upheld Judge Capulongs order admitting the amended complaint on 24 April
1995, UNIONBANK thereafter elevated its cause to this Court.
Meanwhile, on 9 February 1995 UNIONBANK filed its answer ad
cautelam asserting its status as an innocent mortgagee for value whose right or lien
upon the property mortgaged must be respected even if the mortgagor obtained
his title through fraud. It also averred that the action had become moot and
academic by the consolidation of the foreclosed property on 24 October 1994 in its
name, resulting to the issuance of TCT No. 120929 by the Register of Deeds of
Quezon City. In reaction to UNIONBANKs revelation, private respondents moved to
declare UNIONBANKs counsel in indirect contempt attacking his disobedience to
the TRO.
On 19 May 1995, private respondents moved to declare the other defendants
in default for their non-filing of responsive pleadings within the mandatory period
and to set the application for preliminary injunction and indirect contempt for pre-
trial and trial.
On 14 June 1995 the second division of this Court denied the petition
for certiorari, which it considered as a petition for review under Rule 45, for failure to
show that the CA had committed any reversible error in judgment.
In its 19 August 1995 Order, the RTC held the mortgagors and the City
Sheriff of Quezon City in default and sustained UNIONBANKs contention that the
act sought to be enjoined had been enforced, negating the need of hearing the
application for preliminary injunction. Private respondents filed a lengthy motion for
reconsideration to this Order.
The annulment case was re-raffled to Branch 227 under Presiding Judge
Vicente Q. Roxas upon the creation of new salas. Judge Roxas, on 25 March 1996,
denied the motion to reconsider the 19 August 1995 Order but suggested that
private respondents amend their application from prohibitory to mandatory
injunction.
As private respondents were unable to amend their application, the RTC
denied the motion for reconsideration and their motion for indirect contempt, in the
interest of free speech and tolerance on 9 July 1996. Asserting grave abuse of
discretion, private respondents brought the denial of their motion for
reconsideration with the Court of Appeals on 6 September 1996.
After considering the arguments presented by the parties, the CA ruled that
despite its knowledge that the ownership of the property was being questioned,
UNIONBANK took advantage of private respondents procedural error by
consolidating title to the property, which smack[ed] of bad faith and evince[d] a
reprobate disposition of the part of its counsel to advance his clients cause by fair
Page 80 of 152
means or foul. As a result thereof the transfer of title was vitiated by non-adherence
to procedural due process.[8]
On 26 June 1997, CA nullified the consolidation of ownership, ordered the
Register of Deeds to cancel the certificate of title in UNIONBANKs name and to
reinstate TCT No. 41828 with the notice of lis pendens annotated at the back. The
CA also set aside the portion of the assailed RTC Orders that declared private
respondents prayer for writ of preliminary injunction as moot and
academic.UNIONBANKs motion for reconsideration of the above-mentioned
decision was likewise rejected for lack of merit on 7 April 1998.
Hence, UNIONBANK came to this Court claiming to be a mortgagee in good
faith and for value with a right to consolidate ownership over the foreclosed
property with the redemption period having expired and there having been no
redemptioners. UNIONBANK contends that the TRO which provisionally enjoined
the tolling of the redemption period was automatically dissolved upon dismissal of
the complaint on 17 October 1994. Conformably, consolidation of title in its name
and the issuance of TCT No. 120929 rendered further proceedings on the
application for injunction academic. Moreover, the alleged fraudulent mortgage was
facilitated through private respondents negligence so they must bear the loss. It
also contends that since private respondents had filed several pleadings, due
process, being an opportunity to be heard either through pleadings or oral
arguments, was observed.
Private respondents maintain that UNIONBANKs consolidation of the title in
its name was in bad faith, vitiated a standing court order, is against the law, thus
void ab initio. The application for preliminary injunction was not rendered moot and
academic by consolidation, which took place during the lifetime of the TRO, and did
not follow the proper legal procedure due to the surreptitious manner it was
accomplished. By treating the application for preliminary injunction as moot and
academic and denying the motion for indirect contempt without hearing, the RTC
order ran afoul with the requirements of due process.
Two main issues can be gleaned from the posturing and claims of the parties,
to wit, was the consolidation of title in UNIONBANKs name proper, and was the
dismissal of the application for preliminary prohibitory injunction valid.
The issues must be answered in the affirmative.
UNIONBANKs consolidation of title over the property on 24 October 1994
was proper, though precipitate. Contrary to private respondents allegation
UNIONBANK violated no standing court order.The only bar to consolidation was the
temporary restraining order issued by Justice Lipana-Reyes on 10 October 1994
which effectively halted the tolling of the redemption period 7 days short of its
expiration. When private respondents original complaint was dismissed on 17
October 1994 for failure to append a certification of non-forum shopping, the TRO,
as an ancillary order that cannot stand independent of the main proceeding,
became functus officio. Thus the tolling of the 12-month redemption period,
interrupted by the filing of the complaint and the TRO, recommenced and
eventually expired 7 days thereafter or on 24 October 1994, the date of the disputed
consolidation.
The motion for reconsideration and to amend complaint filed by private
respondent on 20 October 1994 was of no moment, this Court recognizing that a
dismissal, discontinuance or non-suit of an action in which a restraining order or
temporary injunction has been granted operates as a dissolution of the restraining
order or temporary injunction,[9] regardless of whether the period for filing a motion
for reconsideration of the order dismissing the case or appeal therefrom has
expired.[10] The rationale therefor is that even in cases where an appeal is taken from
a judgment dismissing an action on the merits, the appeal does not suspend the
judgment, hence the general rule applies that a temporary injunction terminates
automatically on the dismissal of the action.[11]
We disagree with the appellate courts observation that consolidation
deprived private respondents of their property without due process. It is settled that
the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration
of the sale.[12] Consolidation took place as a matter of right since there was no
redemption of the foreclosed property and the TRO expired upon dismissal of the
complaint. UNIONBANK need not have informed private respondent that it was
consolidating its title over the property, upon the expiration of the redemption
period, without the judgment debtor having made use of his right of redemption,
the ownership of the property sold becomes consolidated in the
purchaser.[13] Notice to the mortgagors and with more reason, to private
respondents who are not even parties to the mortgage contract nor to the
extrajudicial sale is not necessary.
In real estate mortgage, when the principal obligation is not paid when due,
the mortgage has the right to foreclose the mortgage and to have the property
seized and sold with a view to applying the proceeds to the payment of the
principal obligation.[14] Foreclosure may be effected either judicially or
extrajudicially.
In a public bidding during extra-judicial foreclosure, the creditor-mortgagee,
trustee, or other person authorized to act for the creditor may participate and
purchase the mortgaged property as any other bidder. Thereafter the mortgagor
has one year within which to redeem the property from and after registration of sale
with the Register of Deeds.[15] In case of non-redemption, the purchaser at
foreclosure sale shall file with the Register of Deeds, either a final deed of sale
executed by the person authorized by virtue of the power of attorney embodied in
the deed or mortgage, or his sworn statement attesting to the fact of non-
redemption; whereupon, the Register of Deeds shall issue a new certificate of title in
favor of the purchaser after the owners duplicate of the certificate has been
previously delivered and cancelled.[16] Thus, upon failure to redeem foreclosed
realty, consolidation of title becomes a matter of right on the part of the auction
CRED TRANS Pledge, Mortgage Antichresis Fulltext
buyer,[17] and the issuance of a certificate of title in favor of the purchaser becomes
ministerial upon the Register of Deeds.
There is, moreover, nothing erroneous with the denial of private respondents
application for preliminary prohibitory injunction. The acts complained of have
already been consummated. It is impossible to restrain the performance of
consummated acts through the issuance of prohibitory injunction. When the act
sought to be prevented had long been consummated, the remedy of injunction
could no longer be entertained,[18] hearing the application for preliminary injunction
would just be an exercise in futility.
In addition, to be entitled to the injunctive writ, movant must show that there
exists a right to be protected which is directly threatened by an act sought to be
enjoined. Furthermore, there must be a showing that the invasion of the right is
material and substantial and that there is an urgent and paramount necessity for the
writ to prevent a serious damage.[19] The injunctive remedy prevents a threatened or
continuous irremediable injury to some of the parties before their claim can be
thoroughly investigated and advisedly adjudicated; it is resorted to only when there
is a pressing necessity to avoid injurious consequences which cannot be remedied
under any standard compensation.[20]
In the case at bar, the consolidation of ownership over the mortgaged
property in favor of UNIONBANK and the issuance of a new title in its name during
the pendency of an action for annulment and reconveyance will not cause
irreparable injury to private respondents who are plaintiffs in the said action that will
merit the protection of the court through the writ of preliminary injunction. This is
because as purchaser at a public auction, UNIONBANK is only substituted to and
acquires the right, title, interest and claim of the judgment debtors or mortgagors to
the property at the time of levy.[21]Perforce, the judgment in the main action for
reconveyance will not be rendered ineffectual by the consolidation of ownership
and the issuance of title in the name of UNIONBANK.
More importantly, with the main action for reconveyance pending before the
RTC, the notice of lis pendens, which despite consolidation remains annotated on
UNIONBANKs transfer certificate of title subject to the outcome of the litigation,
sufficiently protects private respondents interest over the property. A
transferee pendente lite stands exactly in the shoes of the transferor and is bound by
any judgment or decree which may be rendered for or against the transferor. Once
a notice of lis pendens has been duly registered, any cancellation or issuance of the
title of the land involved as well as any subsequent transaction affecting the same,
would have to be subject to the outcome of the litigation. In other words, upon the
termination of the litigation there can be no risk of losing the property or any part
thereof as a result of any conveyance of the land or any encumbrance that may be
made thereon posterior to the filing of the notice of lis pendens.[22]
Finally, as to the issue of who between private respondents and UNIONBANK
is negligent and hence must bear the loss, the same is not the proper subject of the
present petition and can only be resolved by the trial court after the trial on the
merit of the main case.
WHEREFORE, the assailed Decision of the Court of Appeals of 26 June 1997
nullifying the consolidation of ownership and ordering the Register of Deeds of
Quezon City to cancel TCT No. 120929 and reinstate TCT No. 41828 is hereby
REVERSED and SET ASIDE. The order of the trial court dated 7 August 1999,
declaring UNIONBANKs prayer for writ of preliminary injunction moot and
academic, is hereby REINSTATED. Let this case be remanded to the Regional Trial
Court for trial on the merits.
No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
CUA LAI CHU, CLARO G. CASTRO, G.R. No. 169190
and JUANITA CASTRO,
Petitioners, Present:
CARPIO, J., Chairperson,
- versus - BRION,
DEL CASTILLO,
ABAD, and
HON. HILARIO L. LAQUI, Presiding PEREZ, JJ.
Judge, Regional Trial Court, Branch 218,
Quezon City and PHILIPPINE BANK Promulgated:
OF COMMUNICATION,
Respondents. February 11, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CARPIO, J.:
The Case
This is a petition for review[1] of the 29 April 2005 and 4 August 2005 Resolutions[2]
of the Court of Appeals in CA-G.R. SP No. 88963. In its 29 April 2005 Resolution, the
Court of Appeals dismissed the petition for certiorari[3] of petitioner spouses Claro
G. Castro and Juanita Castro and petitioner Cua Lai Chu (petitioners). In its 4 August
Page 81 of 152
2005 Resolution, the Court of Appeals denied petitioners motion for
reconsideration.
The Facts
In November 1994, petitioners obtained a loan in the amount of P3,200,000 from
private respondent Philippine Bank of Communication. To secure the loan,
petitioners executed in favor of private respondent a Deed of Real Estate
Mortgage[4] over the property of petitioner spouses covered by Transfer Certificate
of Title No. 22990. In August 1997, petitioners executed an Amendment to the Deed
of Real Estate Mortgage[5] increasing the amount of the loan by P1,800,000,
bringing the total loan amount to P5,000,000.
For failure of petitioners to pay the full amount of the outstanding loan upon
demand,[6] private respondent applied for the extrajudicial foreclosure of the real
estate mortgage.[7] Upon receipt of a notice[8] of the extrajudicial foreclosure sale,
petitioners filed a petition to annul the extrajudicial foreclosure sale with a prayer
for temporary restraining order (TRO). The petition for annulment was filed in the
Regional Trial Court of Quezon City and docketed as Q-02-46184.[9]
The extrajudicial foreclosure sale did not push through as originally scheduled
because the trial court granted petitioners prayer for TRO. The trial court
subsequently lifted the TRO and reset the extrajudicial foreclosure sale on 29 May
2002. At the foreclosure sale, private respondent emerged as the highest bidder. A
certificate of sale[10] was executed on 4 June 2002 in favor of private respondent.
On 7 June 2002, the certificate of sale was annotated as Entry No. 1855[11] on TCT
No. 22990 covering the foreclosed property.
After the lapse of the one-year redemption period, private respondent filed in the
Registry of Deeds of Quezon City an affidavit of consolidation to consolidate its
ownership and title to the foreclosed property. Forthwith, on 8 July 2003, the
Register of Deeds cancelled TCT No. 22990 and issued in its stead TCT No.
251835[12] in the name of private respondent.
On 18 August 2004, private respondent applied for the issuance of a writ of
possession of the foreclosed property.[13] Petitioners filed an opposition.[14] The
trial court granted private respondents motion for a declaration of general default
and allowed private respondent to present evidence ex parte. The trial court denied
petitioners notice of appeal.
Undeterred, petitioners filed in the Court of Appeals a petition for certiorari. The
appellate court dismissed the petition. It also denied petitioners motion for
reconsideration.
The Orders of the Trial Court
The 8 October 2004 Order[15] granted private respondents motion for a declaration
of general default and allowed private respondent to present evidence ex parte. The
6 January 2005 Order[16] denied petitioners motion for reconsideration of the prior
order. The 24 February 2005 Order[17] denied petitioners notice of appeal.
The Ruling of the Court of Appeals
The Court of Appeals dismissed on both procedural and substantive grounds the
petition for certiorari filed by petitioners. The appellate court noted that the counsel
for petitioners failed to indicate in the petition the updated PTR Number, a ground
for outright dismissal of the petition under Bar Matter No. 1132. Ruling on the
merits, the appellate court held that a proceeding for the issuance of a writ of
possession is ex parte in nature. As such, petitioners right to due process was not
violated even if they were not given a chance to file their opposition. The appellate
court also ruled that there was no violation of the rule against forum shopping since
the application for the issuance of a writ of possession is not affected by a pending
case questioning the validity of the extrajudicial foreclosure sale.
The Issue
Petitioners raise the question of whether the writ of possession was properly issued
despite the pendency of a case questioning the validity of the extrajudicial
foreclosure sale and despite the fact that petitioners were declared in default in the
proceeding for the issuance of a writ of possession.
The Courts Ruling
The petition has no merit.
Petitioners contend they were denied due process of law when they were declared
in default despite the fact that they had filed their opposition to private respondents
application for the issuance of a writ of possession. Further, petitioners point out
that the issuance of a writ of possession will deprive them not only of the use and
possession of their property, but also of its ownership. Petitioners cite Bustos v.
Court of Appeals[18] and Vda. De Legaspi v. Avendao[19] in asserting that physical
possession of the property should not be disturbed pending the final determination
of the more substantial issue of ownership. Petitioners also allege forum shopping
on the ground that the application for the issuance of a writ of possession was filed
during the pendency of a case questioning the validity of the extrajudicial
foreclosure sale.
Private respondent, on the other hand, maintains that the application for the
issuance of a writ of possession in a foreclosure proceeding is ex parte in nature.
Hence, petitioners right to due process was not violated even if they were not given
a chance to file their opposition. Private respondent argues that the issuance of a
writ of possession may not be stayed by a pending case questioning the validity of
CRED TRANS Pledge, Mortgage Antichresis Fulltext
the extrajudicial foreclosure sale. It contends that the former has no bearing on the
latter; hence, there is no violation of the rule against forum shopping. Private
respondent asserts that there is no judicial determination involved in the issuance of
a writ of possession; thus, the same cannot be the subject of an appeal.
At the outset, we must point out that the authorities relied upon by petitioners are
not in point and have no application here. In Bustos v. Court of Appeals,[20] the
Court simply ruled that the issue of possession was intertwined with the issue of
ownership in the consolidated cases of unlawful detainer and accion
reinvindicatoria. In Vda. De Legaspi v. Avendao,[21] the Court merely stated that in a
case of unlawful detainer, physical possession should not be disturbed pending the
resolution of the issue of ownership. Neither case involved the right to possession
of a purchaser at an extrajudicial foreclosure of a mortgage.
Banco Filipino Savings and Mortgage Bank v. Pardo[22] squarely ruled on the right
to possession of a purchaser at an extrajudicial foreclosure of a mortgage. This case
involved a real estate mortgage as security for a loan obtained from a bank. Upon
the mortgagors default, the bank extrajudicially foreclosed the mortgage. At the
auction sale, the bank was the highest bidder. A certificate of sale was duly issued
and registered. The bank then applied for the issuance of a writ of possession, which
the lower court dismissed. The Court reversed the lower court and held that the
purchaser at the auction sale was entitled to a writ of possession pending the lapse
of the redemption period upon a simple motion and upon the posting of a bond.
In Navarra v. Court of Appeals,[23] the purchaser at an extrajudicial foreclosure sale
applied for a writ of possession after the lapse of the one-year redemption period.
The Court ruled that the purchaser at an extrajudicial foreclosure sale has a right to
the possession of the property even during the one-year redemption period
provided the purchaser files an indemnity bond. After the lapse of the said period
with no redemption having been made, that right becomes absolute and may be
demanded by the purchaser even without the posting of a bond. Possession may
then be obtained under a writ which may be applied for ex parte pursuant to
Section 7 of Act No. 3135,[24] as amended by Act No. 4118,[25] thus:
SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition
the Court of First Instance of the province or place where the property or any part
thereof is situated, to give him possession thereof during the redemption period,
furnishing bond in an amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that the sale was made
without violating the mortgage or without complying with the requirements of this
Act. Such petition shall be made under oath and filed in form of an ex parte motion
x x x and the court shall, upon approval of the bond, order that a writ of possession
issue, addressed to the sheriff of the province in which the property is situated, who
shall execute said order immediately. (Emphasis supplied)
In the present case, the certificate of sale of the foreclosed property was annotated
on TCT No. 22990 on 7 June 2002. The redemption period thus lapsed on 7 June
2003, one year from the registration of the sale.[26] When private respondent
applied for the issuance of a writ of possession on 18 August 2004, the redemption
period had long lapsed. Since the foreclosed property was not redeemed within one
year from the registration of the extrajudicial foreclosure sale, private respondent
had acquired an absolute right, as purchaser, to the writ of possession. It had
become the ministerial duty of the lower court to issue the writ of possession upon
mere motion pursuant to Section 7 of Act No. 3135, as amended.
Moreover, once ownership has been consolidated, the issuance of the writ of
possession becomes a ministerial duty of the court, upon proper application and
proof of title.[27] In the present case, when private respondent applied for the
issuance of a writ of possession, it presented a new transfer certificate of title issued
in its name dated 8 July 2003. The right of private respondent to the possession of
the property was thus founded on its right of ownership. As the purchaser of the
property at the foreclosure sale, in whose name title over the property was already
issued, the right of private respondent over the property had become absolute,
vesting in it the corollary right of possession.
Petitioners are wrong in insisting that they were denied due process of law when
they were declared in default despite the fact that they had filed their opposition to
the issuance of a writ of possession. The application for the issuance of a writ of
possession is in the form of an ex parte motion. It issues as a matter of course once
the requirements are fulfilled. No discretion is left to the court.[28]
Petitioners cannot oppose or appeal the courts order granting the writ of
possession in an ex parte proceeding. The remedy of petitioners is to have the sale
set aside and the writ of possession cancelled in accordance with Section 8 of Act
No. 3135, as amended, to wit:
SEC. 8. The debtor may, in the proceedings in which possession was requested, but
not later than thirty days after the purchaser was given possession, petition that the
sale be set aside and the writ of possession cancelled, specifying the damages
suffered by him, because the mortgage was not violated or the sale was not made
in accordance with the provisions hereof. x x x
Any question regarding the validity of the extrajudicial foreclosure sale and the
resulting cancellation of the writ may be determined in a subsequent proceeding as
outlined in Section 8 of Act No. 3135, as amended. Such question should not be
raised as a justification for opposing the issuance of a writ of possession since under
Act No. 3135, as amended, the proceeding for this is ex parte.
Further, the right to possession of a purchaser at an extrajudicial foreclosure sale is
not affected by a pending case questioning the validity of the foreclosure
Page 82 of 152
proceeding. The latter is not a bar to the former. Even pending such latter
proceeding, the purchaser at a foreclosure sale is entitled to the possession of the
foreclosed property.[29]
Lastly, we rule that petitioners claim of forum shopping has no basis. Under Act No.
3135, as amended, a writ of possession is issued ex parte as a matter of course upon
compliance with the requirements. It is not a judgment on the merits that can
amount to res judicata, one of the essential elements in forum shopping.[30]
The Court of Appeals correctly dismissed the petition for certiorari filed by
petitioners for lack of merit.
WHEREFORE, we DENY the petition for review. We AFFIRM the 29 April 2005 and 4
August 2005 Resolutions of the Court of Appeals in CA-G.R. SP No. 88963.
SO ORDERED.
FIRST DIVISION
ELIGIO P. MALLARI, G.R. No. 157659
Petitioner,
Present:
PUNO, C.J., Chairperson,
-versus- CARPIO-MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.
GOVERNMENT SERVICE
INSURANCE SYSTEM and
THE PROVINCIAL SHERIFF Promulgated:
OF PAMPANGA,
Respondents. January 25, 2010
x-----------------------------------------------------------------------------------------x
DECISION
BERSAMIN, J.:
By petition for review on certiorari, the petitioner appeals the decision
promulgated on March 17, 2003, whereby the Court of Appeals (CA) dismissed his
petition for certiorari.
Antecedents
In 1968, the petitioner obtained two loans totaling P34,000.00 from respondent
Government Service Insurance System (GSIS). To secure the performance of his
obligations, he mortgaged two parcels of land registered under his and his wife
Marcelina Mallaris names. However, he paid GSIS about ten years after contracting
the obligations only P10,000.00 on May 22, 1978 and P20,000.00 on August 11,
1978.[1]
What followed thereafter was the series of inordinate moves of the petitioner to
delay the efforts of GSIS to recover on the debt, and to have the unhampered
possession of the foreclosed property.
After reminding the petitioner of his unpaid obligation on May 2, 1979, GSIS sent on
November 2, 1981 a telegraphic demand to him to update his account. On
November 10, 1981, he requested a final accounting, but did not do anything more.
Nearly three years later, on March 21, 1984, GSIS applied for the extrajudicial
foreclosure of the mortgage by reason of his failure to settle his account. On
November 22, 1984, he requested an updated computation of his outstanding
account. On November 29, 1984, he persuaded the sheriff to hold the publication of
the foreclosure notice in abeyance, to await action on his pending request for final
accounting (that is, taking his payments of P30,000.00 made in 1978 into account).
On December 13, 1984, GSIS responded to his request and rendered a detailed
explanation of the account. On May 30, 1985, it sent another updated statement of
account. On July 21, 1986, it finally commenced extrajudicial foreclosure
proceedings against him because he had meanwhile made no further payments.
On August 22, 1986, the petitioner sued GSIS and the Provincial Sheriff of
Pampanga in the Regional Trial Court (RTC), Branch 44, in San Fernando, Pampanga,
docketed as Civil Case No. 7802,[2] ostensibly to enjoin them from proceeding
against him for injunction (with an application for preliminary injunction). The RTC
ultimately decided Civil Case No. 7802 in his favor, nullifying the extrajudicial
foreclosure and auction sale; cancelling Transfer Certificate of Title (TCT) No.
284272-R and TCT No. 284273-R already issued in the name of GSIS; and reinstating
TCT No. 61171-R and TCT No. 54835-R in his and his wifes names.[3]
GSIS appealed the adverse decision to the CA, which reversed the RTC on March 27,
1996.[4]
The petitioner elevated the CA decision to this Court via petition for review on
certiorari (G.R. No. 124468).[5]
On September 16, 1996, this Court denied his petition for review.[6] On January 15,
1997, this Court turned down his motion for reconsideration.[7]
CRED TRANS Pledge, Mortgage Antichresis Fulltext
As a result, the CA decision dated March 27, 1996 became final and executory,
rendering unassailable both the extrajudicial foreclosure and auction sale held on
September 22, 1986, and the issuance of TCT No. 284272-R and TCT No. 284273-R
in the name of GSIS.
GSIS thus filed an ex parte motion for execution and for a writ of possession on
September 2, 1999.[8] Granting the ex parte motion on October 8, 1999,[9] the RTC
issued a writ of execution cum writ of possession on October 21, 1999,[10] ordering
the sheriff to place GSIS in possession of the properties.
The sheriff failed to serve the writ, however, partly because of the petitioners
request for an extension of time within which to vacate the properties. It is noted
that GSIS acceded to the request.[11]
Yet, the petitioner did not voluntarily vacate the properties, but instead filed a
motion for reconsideration and/or to quash the writ of execution on March 27,
2000.[12] Also, the petitioner commenced a second case against GSIS and the
provincial sheriff in the RTC in San Fernando, Pampanga (Civil Case No. 12053),
ostensibly for consignation (coupled with a prayer for a writ of preliminary
injunction or temporary restraining order). However, the RTC dismissed Civil Case
No. 12053 on November 10, 2000 on the ground of res judicata, impelling him to
appeal the dismissal to the CA (C.A.-G.R. CV No. 70300).[13]
In the meanwhile, the petitioner filed a motion dated April 5, 2000 in Civil Case No.
7802 to hold GSIS, et al.[14] in contempt of court for painting the fence of the
properties during the pendency of his motion for reconsideration and/or to quash
the writ of execution.[15] He filed another motion in the same case, dated April 17,
2000, to hold GSIS and its local manager Arnulfo B. Cardenas in contempt of court
for ordering the electric company to cut off the electric services to the properties
during the pendency of his motion for reconsideration and/or to quash the writ of
execution.[16]
To prevent the Presiding Judge of Branch 44 of the RTC from resolving the pending
incidents in Civil Case No. 7802, GSIS moved to inhibit him for alleged partiality
towards the petitioner as borne out by his failure to act on the motion for
reconsideration and/or to quash writ of execution, motions for contempt of court,
and motion for issuance of break open order for more than a year from their filing,
praying that the case be re-raffled to another branch of the RTC.[17] Consequently,
Civil Case No. 7802 was re-assigned to Branch 48, whose Presiding Judge then
denied the motions for contempt of court on July 30, 2001, and directed the Branch
Clerk of Court to cause the re-implementation of the writ of execution cum writ of
possession dated October 21, 1999.[18]
The petitioner sought reconsideration,[19] but the Presiding Judge of Branch 48
denied his motion for reconsideration on February 11, 2002.[20]
Ruling of the CA
By petition for certiorari dated March 15, 2002 filed in the CA, the petitioner assailed
the orders of February 11, 2002, July 30, 2001, October 21, 1999, and October 8,
1999.[21]
On March 17, 2003, however, the CA dismissed the petition for certiorari for lack of
merit,[22] stating:
We find the instant petition patently devoid of merit. This Court is not unaware of
the legal tactics and maneuvers employed by the petitioner in delaying the
disposition of the subject case (Civil Case No. 7802) which has already become final
and executory upon the final resolution by the Supreme Court affirming the
judgment rendered by the Court of Appeals. We construe the actuation of the
petitioner in resorting to all kinds of avenues accorded by the Rules of Court,
through the filing of several pleadings and/or motions in litigating this case, as
running counter to the intendment of the Rules to be utilized in promoting the
objective of securing a just, speedy and inexpensive disposition of every action and
proceeding.
The issues raised in the present controversy have already been settled in our
existing jurisprudence on the subject. In the case of De Jesus vs. Obnamia, Jr., the
Supreme Court ruled that generally, no notice or even prior hearing of a motion for
execution is required before a writ of execution is issued when a decision has
already become final.
The recent accretion to the corpus of our jurisprudence has established the principle
of law, as enunciated in Buaya vs. Stronghold Insurance Co., Inc. that once a
judgment becomes final and executory, the prevailing party can have it executed as
a matter of right, and the issuance of a Writ of Execution becomes a ministerial duty
of the court.
The rule is also firmly entrenched in the aforecited Buaya case that the effective
and efficient administration of justice requires that once a judgment has become
final, the prevailing party should not be deprived of the fruits of the verdict by
subsequent suits on the same issues filed by the same parties. Courts are duty-
bound to put an end to controversies. Any attempt to prolong, resurrect or juggle
them should be firmly struck down. The system of judicial review should not be
misused and abused to evade the operation of final and executory judgments.
As succinctly put in Tag Fibers, Inc. vs. National Labor Relations Commission, the
Supreme Court is emphatic in saying that the finality of a decision is a jurisdictional
event that cannot be made to depend on the convenience of a party.
Page 83 of 152
We find no cogent reason to discompose the findings of the court below. Thus, we
sustain the assailed Orders of the court a quo since no abuse of discretion has been
found to have been committed by the latter in their issuance. Moreover, this Court
finds this petition to be part of the dilatory tactics of the petitioner to stall the
execution of a final and executory decision in Civil Case No. 7802 which has already
been resolved with finality by no less than the highest tribunal of the land.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED for lack
of merit. Costs against the petitioner.
SO ORDERED.[23]
Issues
Hence, this appeal.
The petitioner insists herein that the CA gravely erred in refusing to accept the
nullity of the following orders of the RTC, to wit:
1. THE ORDER OF THE TRIAL COURT DATED OCTOBER 8, 1999, GRANTING THE
EX-PARTE MOTION FOR EXECUTION AND/OR ISSUANCE OF THE WRIT OF
EXECUTION OF POSSESSION IN FAVOR OF THE RESPONDENT GSIS;
2. THE ORDER OF THE TRIAL COURT DATED OCTOBER 21, 1999 GRANTING THE
ISSUANCE AND IMPLEMENTATION OF THE WRIT OF EXECUTION CUM WRIT OF
POSSESSION IN FAVOR OF RESPONDENT GSIS;
3. THE ORDER OF THE TRIAL COURT DATED JULY 30, 2001 DIRECTING TO CAUSE
THE RE-IMPLEMENTATION OF THE WRIT OF EXECUTION CUM WRIT OF
POSSESSION IN FAVOR OF THE RESPONDENT GSIS; and
4. THE ORDER OF THE TRIAL COURT DATED FEBRUARY 11, 2002, DENYING THE
MOTION FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 14, 2001, IN
RELATION TO THE COURT ORDER DATED JULY 30, 2001.[24]
Ruling of the Court
The petition for review on certiorari absolutely lacks merit.
I be held as beginning to run not from the date of the sale but from the time of
Petition for Certiorari in CA
Was Filed Beyond Reglementary Period
The petition assailed before the CA on certiorari the following orders of the RTC, to
wit:
1. The order dated October 8, 1999 (granting the ex parte motion for execution
and/or issuance of the writ of execution cum writ of possession of GSIS);[25]
2. The order dated October 21, 1999 (directing the issuance of the writ of
execution cum writ of possession in favor of GSIS);[26]
3. The order dated July 30, 2001 (requiring the Branch Clerk of Court to cause the
re-implementation of the writ of execution cum writ of possession, and dismissing
the motions to hold GSIS, et al. in contempt);[27] and
4. The order dated February 11, 2002 (denying the motion for reconsideration
dated August 17, 2001 seeking the reconsideration of the order dated July 30,
2001).[28]
The July 30, 2001 order denied the petitioners motion for reconsideration and/or to
quash writ of execution, and motion to hold GSIS, Tony Dimatulac, et al. and Arnulfo
Cardenas in contempt; and declared GSISs motion for issuance of break open order
and for designation of special sheriff from GSIS Legal Services Group as premature.
In turn, the motion for reconsideration and/or to quash writ of execution denied by
the order of July 30, 2001 had merely challenged the orders of October 8, 1999 and
October 21, 1999 (granting the writ of execution cum writ of possession as a matter
of course).
Considering that the motion for reconsideration dated August 17, 2001 denied by
the order dated February 11, 2002 was in reality and effect a prohibited second
motion for reconsideration vis--vis the orders dated October 21, 1999 and October
8, 1999, the assailed orders dated July 30, 2001, October 21, 1999, and October 8,
1999 could no longer be subject to attack by certiorari. Thus, the petition for
certiorari filed only in March 2002 was already improper and tardy for being made
beyond the 60-day limitation defined in Section 4, Rule 65, 1997 Rules of Civil
Procedure, as amended,[29] which requires a petition for certiorari to be filed not
later than sixty (60) days from notice of the judgment, order or resolution, or, in
case a motion for reconsideration or new trial is timely filed, whether such motion is
required or not, the sixty (60) day period shall be counted from notice of the denial
of the said motion.
It is worth emphasizing that the 60-day limitation is considered inextendible,
because the limitation has been prescribed to avoid any unreasonable delay that
violates the constitutional rights of parties to a speedy disposition of their cases.[30]
II
Nature of the Writ of Possession
and its Ministerial Issuance
CRED TRANS Pledge, Mortgage Antichresis Fulltext
The petitioner claims that he had not been notified of the motion seeking the
issuance of the writ of execution cum writ of possession; hence, the writ was invalid.
As earlier shown, the CA disagreed with him.
We sustain the CA, and confirm that the petitioner, as defaulting mortgagor, was
not entitled under Act 3135, as amended, and its pertinent jurisprudence to any
prior notice of the application for the issuance of the writ of possession.
A writ of possession, which commands the sheriff to place a person in possession of
real property, may be issued in: (1) land registration proceedings under Section 17
of Act No. 496; (2) judicial foreclosure, provided the debtor is in possession of the
mortgaged property, and no third person, not a party to the foreclosure suit, had
intervened; (3) extrajudicial foreclosure of a real estate mortgage, pending
redemption under Section 7 of Act No. 3135, as amended by Act No. 4118; and (4)
execution sales, pursuant to the last paragraph of Section 33, Rule 39 of the Rules of
Court.[31]
Anent the redemption of property sold in an extrajudicial foreclosure sale
made pursuant to the special power referred to in Section 1[32] of Act No. 3135,[33]
as amended, the debtor, his successor-in-interest, or any judicial creditor or
judgment creditor of said debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the property is sold has
the right to redeem the property at anytime within the term of one year from and
after the date of the sale, such redemption to be governed by the provisions of
Section 464 to Section 466 of the Code of Civil Procedure, to the extent that said
provisions were not inconsistent with the provisions of Act 3135.[34]
In this regard, we clarify that the redemption period envisioned under Act 3135 is
reckoned from the date of the registration of the sale, not from and after the date of
the sale, as the text of Act 3135 shows. Although the original Rules of Court
(effective on July 1, 1940) incorporated Section 464 to Section 466 of the Code of
Civil Procedure as its Section 25 (Section 464); Section 26 (Section 465); and Section
27 (Section 466) of Rule 39, with Section 27 still expressly reckoning the redemption
period to be at any time within twelve months after the sale; and although the
Revised Rules of Court (effective on January 1, 1964) continued to provide in Section
30 of Rule 39 that the redemption be made from the purchaser at any time within
twelve (12) months after the sale,[35] the 12-month period of redemption came to
registration of the sale in the Office of the Register of Deeds.[36] This construction
was due to the fact that the sheriffs sale of registered (and unregistered) lands did
not take effect as a conveyance, or did not bind the land, until the sale was
registered in the Register of Deeds.[37]
Desiring to avoid any confusion arising from the conflict between the texts of the
Rules of Court (1940 and 1964) and Act No. 3135, on one hand, and the
jurisprudence clarifying the reckoning of the redemption period in judicial sales of
real property, on the other hand, the Court has incorporated in Section 28 of Rule
39 of the current Rules of Court (effective on July 1, 1997) the foregoing judicial
construction of reckoning the redemption period from the date of the registration
of the certificate of sale, to wit:
Sec. 28. Time and manner of, and amounts payable on, successive redemptions;
notice to be given and filed. The judgment obligor, or redemptioner, may
redeem the property from the purchaser, at any time within one (1) year from the
date of the registration of the certificate of sale, by paying the purchaser the
amount of his purchase, with one per centum per month interest thereon in
addition, up to the time of redemption, together with the amount of any
assessments or taxes which the purchaser may have paid thereon after purchase,
and interest on such last named amount at the same rate; and if the purchaser be
also a creditor having a prior lien to that of the redemptioner, other than the
judgment under which such purchase was made, the amount of such other lien, with
interest.
Property so redeemed may again be redeemed within sixty (60) days after the last
redemption upon payment of the sum paid on the last redemption, with two per
centum thereon in addition, and the amount of any assessments or taxes which the
last redemptioner may have paid thereon after redemption by him, with interest on
such last-named amount, and in addition, the amount of any liens held by said last
redemptioner prior to his own, with interest. The property may be again, and as
often as a redemptioner is so disposed, redeemed from any previous redemptioner
within sixty (60) days after the last redemption, on paying the sum paid on the last
previous redemption, with two per centum thereon in addition, and the amounts of
any assessments or taxes which the last previous redemptioner paid after the
redemption thereon, with interest thereon, and the amount of any liens held by the
last redemptioner prior to his own, with interest.
Written notice of any redemption must be given to the officer who made the sale
and a duplicate filed with the registry of deeds of the place, and if any assessments
or taxes are paid by the redemptioner or if he has or acquires any lien other than
that upon which the redemption was made, notice thereof must in like manner be
given to the officer and filed with the registry of deeds; if such notice be not filed,
the property may be redeemed without paying such assessments, taxes, or liens.
(30a) (Emphasis supplied).
Accordingly, the mortgagor or his successor-in-interest must redeem the foreclosed
property within one year from the registration of the sale with the Register of Deeds
in order to avoid the title from consolidating in the purchaser. By failing to redeem
thuswise, the mortgagor loses all interest over the foreclosed property.[38] The
purchaser, who has a right to possession that extends beyond the expiration of the
redemption period, becomes the absolute owner of the property when no
Page 84 of 152
redemption is made,[39] that it is no longer necessary for the purchaser to file the
bond required under Section 7 of Act No. 3135, as amended, considering that the
possession of the land becomes his absolute right as the lands confirmed
owner.[40] The consolidation of ownership in the purchasers name and the issuance
to him of a new TCT then entitles him to demand possession of the property at any
time, and the issuance of a writ of possession to him becomes a matter of right
upon the consolidation of title in his name.
The court can neither halt nor hesitate to issue the writ of possession. It cannot
exercise any discretion to determine whether or not to issue the writ, for the
issuance of the writ to the purchaser in an extrajudicial foreclosure sale becomes a
ministerial function.[41] Verily, a marked distinction exists between a discretionary
act and a ministerial one. A purely ministerial act or duty is one that an officer or
tribunal performs in a given state of facts, in a prescribed manner, in obedience to
the mandate of a legal authority, without regard to or the exercise of his own
judgment upon the propriety or impropriety of the act done. If the law imposes a
duty upon a public officer and gives him the right to decide how or when the duty
shall be performed, such duty is discretionary, not ministerial. The duty is ministerial
only when its discharge requires neither the exercise of official discretion nor the
exercise of judgment.[42]
The proceeding upon an application for a writ of possession is ex parte and
summary in nature, brought for the benefit of one party only and without notice
being sent by the court to any person adverse in interest. The relief is granted even
without giving an opportunity to be heard to the person against whom the relief is
sought.[43] Its nature as an ex parte petition under Act No. 3135, as amended,
renders the application for the issuance of a writ of possession a non-litigious
proceeding.[44]
It is clear from the foregoing that a non-redeeming mortgagor like the petitioner
had no more right to challenge the issuance of the writ of execution cum writ of
possession upon the ex parte application of GSIS. He could not also impugn
anymore the extrajudicial foreclosure, and could not undo the consolidation in GSIS
of the ownership of the properties covered by TCT No. 284272-R and TCT No.
284273-R, which consolidation was already irreversible. Hence, his moves against
the writ of execution cum writ of possession were tainted by bad faith, for he was
only too aware, being his own lawyer, of the dire consequences of his non-
redemption within the period provided by law for that purpose.
III
Dismissal of Petitioners Motion for Indirect Contempt
Was Proper and In Accord with the Rules of Court
The petitioner insists that the RTC gravely erred in dismissing his charges for
indirect contempt against GSIS, et al.; and that the CA should have consequently
granted his petition for certiorari.
The petitioners insistence is plainly unwarranted.
First of all, Section 4, Rule 71, 1997 Rules of Civil Procedure, provides as follows:
Section 4. How proceedings commenced. Proceedings for indirect contempt may
be initiated motu proprio by the court against which the contempt was committed
by an order or any other formal charge requiring the respondent to show cause why
he should not be punished for contempt.
In all other cases, charges for indirect contempt shall be commenced by a verified
petition with supporting particulars and certified true copies of documents or
papers involved therein, and upon full compliance with the requirements for filing
initiatory pleadings for civil actions in the court concerned. If the contempt charges
arose out of or are related to a principal action pending in the court, the petition for
contempt shall allege that fact but said petition shall be docketed, heard and
decided separately, unless the court in its discretion orders the consolidation of the
contempt charge and the principal action for joint hearing and decision. (n)
(Emphasis supplied).
Indeed, a person may be charged with indirect contempt only by either of two
alternative ways, namely: (1) by a verified petition, if initiated by a party; or (2) by an
order or any other formal charge requiring the respondent to show cause why he
should not be punished for contempt, if made by a court against which the
contempt is committed. In short, a charge of indirect contempt must be initiated
through a verified petition, unless the charge is directly made by the court against
which the contemptuous act is committed.
Justice Regalado has explained why the requirement of the filing of a verified
petition for contempt is mandatory:[45]
1. This new provision clarifies with a regulatory norm the proper procedure for
commencing contempt proceedings. While such proceeding has been classified as
a special civil action under the former Rules, the heterogeneous practice, tolerated
by the courts, has been for any party to file a mere motion without paying any
docket or lawful fees therefor and without complying with the requirements for
initiatory pleadings, which is now required in the second paragraph of this amended
section. Worse, and as a consequence of unregulated motions for contempt, said
incidents sometimes remain pending for resolution although the main case has
already been decided. There are other undesirable aspects but, at any rate, the same
may now be eliminated by this amendatory procedure.
Henceforth, except for indirect contempt proceedings initiated motu proprio by
order of or a formal charge by the offended court, all charges shall be commenced
CRED TRANS Pledge, Mortgage Antichresis Fulltext
by a verified petition with full compliance with the requirements therefor and shall
be disposed of in accordance with the second paragraph of this section. (Emphasis
supplied).
Clearly, the petitioners charging GSIS, et al. with indirect contempt by mere motions
was not permitted by the Rules of Court.
And, secondly, even assuming that charges for contempt could be initiated by
motion, the petitioner should have tendered filing fees. The need to tender filing
fees derived from the fact that the procedure for indirect contempt under Rule 71,
Rules of Court was an independent special civil action. Yet, the petitioner did not
tender and pay filing fees, resulting in the trial court not acquiring jurisdiction over
the action. Truly, the omission to tender filing fees would have also warranted the
dismissal of the charges.
It seems to be indubitable from the foregoing that the petitioner initiated the
charges for indirect contempt without regard to the requisites of the Rules of Court
simply to vex the adverse party. He thereby disrespected the orderly administration
of justice and committed, yet again, an abuse of procedures.
IV
Petitioner Was Guilty of
Misconduct As A Lawyer
The CA deemed it unavoidable to observe that the petition for certiorari brought by
the petitioner to the CA was part of the dilatory tactics of the petitioner to stall the
execution of a final and executory decision in Civil Case No. 7802 which has already
been resolved with finality by no less than the highest tribunal of the land.[46]
The observation of the CA deserves our concurrence.
Verily, the petitioner wittingly adopted his aforedescribed worthless and vexatious
legal maneuvers for no other purpose except to delay the full enforcement of the
writ of possession, despite knowing, being himself a lawyer, that as a non-
redeeming mortgagor he could no longer impugn both the extrajudicial foreclosure
and the ex parte issuance of the writ of execution cum writ of possession; and that
the enforcement of the duly-issued writ of possession could not be delayed. He thus
deliberately abused court procedures and processes, in order to enable himself to
obstruct and stifle the fair and quick administration of justice in favor of mortgagee
and purchaser GSIS.
His conduct contravened Rule 10.03, Canon 10 of the Code of Professional
Responsibility, by which he was enjoined as a lawyer to observe the rules of
procedure and xxx not [to] misuse them to defeat the ends of justice. By his
dilatory moves, he further breached and dishonored his Lawyers Oath,
particularly:[47]
xxx I will not wittingly or willingly promote or sue any groundless, false or unlawful
suit, nor give aid nor consent to the same; I will delay no man for money or malice,
and will conduct myself as a lawyer according to the best of my knowledge and
discretion with all good fidelity as well to the courts as to my clients xxx
We stress that the petitioners being the party litigant himself did not give him the
license to resort to dilatory moves. His zeal to defend whatever rights he then
believed he had and to promote his perceived remaining interests in the property
already lawfully transferred to GSIS should not exceed the bounds of the law, for he
remained at all times an officer of the Court burdened to conduct himself with all
good fidelity as well to the courts as to [his] clients.[48] His true obligation as a
lawyer should not be warped by any misplaced sense of his rights and interests as a
litigant, because he was, above all, bound not to unduly delay a case, not to impede
the execution of a judgment, and not to misuse Court processes.[49] Consequently,
he must be made to account for his misconduct as a lawyer.
WHEREFORE, we deny the petition for review on certiorari for lack of merit, and
affirm the decision of the Court of Appeals promulgated on March 17, 2003, with
the costs of suit to be paid by the petitioner.
The Committee on Bar Discipline of the Integrated Bar of the Philippines is directed
to investigate the petitioner for what appear to be (a) his deliberate disregard of the
Rules of Court and jurisprudence pertinent to the issuance and implementation of
the writ of possession under Act No. 3135, as amended; and (b) his witting
violations of the Lawyers Oath and the Code of Professional Responsibility.
SO ORDERED.
FIRST DIVISION
[G.R. No. 129572. June 26, 2000]
PHILBANCOR FINANCE, INC. AND VICENTE HIZON, JR., petitioners, vs. COURT OF
APPEALS, THE HONORABLE DEPARTMENT OF AGRARIAN REFORM ADJUDICATION
BOARD (DARAB), ALFREDO PARE, PABLO GALANG and AMADO VIE, respondents.
DECISION
PARDO, J.:
The case before the Court is an appeal via certiorari from the decision[1] of the
Court of Appeals dismissing the petition for review of the decision of the
Department of Agrarian Reform Adjudication Board sustaining the ruling of the
Provincial Agrarian Reform Adjudication Board of San Fernando, Pampanga allowing
Page 85 of 152
the legal redemption by private respondents of two parcels of land mortgaged to
and acquired by petitioner Philbancor at public auction.
The facts, as found by the Court of Appeals, are as follows:
"Private respondents Alfredo Pare, Pablo Galang and Amado Vie, as plaintiffs, filed
with the Provincial Agrarian Reform Adjudication Board (PARAB) a complaint for
maintenance of possession with redemption and tenancy right of pre-emption
against petitioners Philbancor Finance, Inc. and Vicente Hizon, Jr. Private
respondents alleged, inter alia, that petitioner Vicente Hizon, Jr. is the owner of the
disputed agricultural lands covered by TCT Nos. 48320 and 48323 located in Balite,
San Fernando, Pampanga and that they (private respondents) are the legitimate and
bonfide tenants thereof; that on October 13, 1983, petitioner Hizon, without their
knowledge, mortgaged the disputed lots to petitioner Philbancor Finance, Inc.; that
petitioner Hizon failed to pay his obligations to petitioner Philbancor, which
eventually led to the sale of the mortgaged lots to the latter; that they came to
know of the transaction only when they were notified by petitioner Philbancor to
vacate the lots; that they have been tenants on the lots for more than fifty (50)
years; that petitioner Philbancor threatened to take from them the actual or physical
possession of the agricultural lots; that unless the threatened acts of petitioner are
restrained, they will suffer substantial and irreparable injury (Complaint, Rollo, pp.
51-55).
"In his answer, petitioner Hizon admitted that private respondents are his bonafide
and legitimate tenants but he averred, by way of affirmative defenses, that he is not
threatening to take possession of the disputed lots as he is no longer the owner
thereof after said lots were foreclosed by petitioner Philbancor; that private
respondents were aware when he mortgaged the lots as they were with him when
he tried to negotiate for payment of his loan to petitioner Philbancor (CA Rollo, p.
29).
"In its answer, petitioner Philbancor alleged, among others, that it has no tenancy or
agricultural relationship with private respondents considering that it acquired
ownership over the disputed lots by virtue of an extra-judicial foreclosure sale
pursuant to Act 3135, as amended; that it is not an agricultural lessor as
contemplated in Section 10 of Republic Act (RA) No. 3844, as amended; that
assuming private respondents have the right to redeem the lots in question, such
right has already expired in accordance with Section 12 of R. A. 3844, which states
that the right of redemption may be exercised within two (2) years from the
registration of the sale (CA Rollo, pp. 30-31).
"In a Decision dated September 17, 1993, Provincial Adjudicator Toribio E. Ilao, Jr.
rendered a decision in favor of private respondents, the dispositive portion of which
reads:
"WHEREFORE, judgment is hereby rendered:
"1. Ordering the redemption by the plaintiffs of the land in question at the price of
P201,182.92;
"2. Ordering the defendant, Philbamcor Finance, Inc., to execute the necessary Deed
of Redemption in favor of the plaintiffs; and
"3. Ordering the Register of Deeds of the Province of Pampanga to cause the
registration of the land in question to be conveyed to and redeemed by the
plaintiffs;
"The counterclaim of the defendant Philbancor Finance, Inc. is hereby dismissed."
(Ibid., pp. 81-90)
"Petitioners filed a motion for reconsideration but the same was denied by the
Provincial Adjudicator (CA Rollo, pp. 108-109). On appeal, public respondent
Department of Agrarian Reform Adjudication Board (DARAB) affirmed in toto the
findings of the Provincial Adjudicator in a Decision dated March 8, 1996 (Ibid., pp.
26-35).
"Petitioners' motion for reconsideration was denied by respondent DARAB in a
Resolution (Ibid., pp. 36-38) dated July 22, 1996, x x x."[2]
On August 14, 1996, petitioners filed with the Court of Appeals a petition for review
of the decision of the DARAB.[3]
After due proceedings, on March 17, 1997, the Court of Appeals rendered a decision
dismissing the petition.[4]
On April 18, 1997, petitioners filed with the Court of Appeals a motion for
reconsideration of the decision; however, on May 19, 1997, the Court of Appeals
denied the motion.[5]
Hence, this appeal.[6]
The petition raises three issues; however, the last issue raised is decisive, hence, only
this issue is herein resolved, that is, whether or not the private respondents could
still exercise their right of redemption of the parcels of land sold at public auction
due to foreclosure of the mortgages thereon considering that they invoked their
right to redeem only on July 14, 1992, seven years after the date of registration of
the certificate of sale with the Register of Deeds.
We grant the petition.
Republic Act No. 3844, Section 12, provides as follows:
CRED TRANS Pledge, Mortgage Antichresis Fulltext
"In case the landholding is sold to a third person without the knowledge of the
agricultural lessee, the latter shall have the right to redeem the same at a
reasonable price and consideration. Provided, that the entire landholding sold must
be redeemed. Provided further, that where there are two or more agricultural
lessees, each shall be entitled to said right of redemption only to the extent of the
area actually cultivated by him. The right of redemption under this section may be
exercised within two (2) years from the registration of the sale and shall have
priority over any other right of legal redemption."[7]
In this case, the certificate of sale of the subject property, which was sold at public
auction, was registered with the Register of Deeds of Pampanga on July 31, 1985.[8]
The two-year redemption period thus expired on July 31, 1987. The complaint for
redemption was filed by respondents only on July 14, 1992,[9] five (5) years after
expiration of the redemption period prescribed by law.
Nonetheless, private respondents may continue in possession and enjoyment of the
land in question as legitimate tenants[10] because the right of tenancy attaches to
the landholding by operation of law.[11] The leasehold relation is not extinguished
by the alienation or transfer of the legal possession of the landholding.[12]
WHEREFORE, the Court hereby GRANTS the petition for review on certiorari and
REVERSES the decision of the Court of Appeals. The Court orders the dismissal of
the complaint for redemption filed with the Department of Agrarian Reform
Adjudication Board, Region III, San Fernando, Pampanga. This is without prejudice
to the right of the private respondents to continue as agricultural tenants in
peaceful possession and enjoyment of the land tenanted by them. No costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 129279 March 4, 2003
ALFREDO M. OUANO, petitioner,
vs.
COURT OF APPEALS, and HEIRS OF JULIETA M. OUANO, respondents.
AZCUNA, J.:
Before us is a petition for review on certiorari against the decision and resolution of
the Court of Appeals on CA-GR CV No. 334991 affirming the decision of the
Regional Trial Court of Cebu, Branch 19, in Civil Case No. CEB-596, which set aside
the extrajudicial foreclosure proceedings involving respondents' properties.
From the documentary evidence and the Stipulation of Facts2 filed by the parties
before the Regional Trial Court of Cebu, the facts of the case are, as follows:
On June 8, 1977, respondent Julieta M. Ouano (Julieta), now deceased, obtained a
loan from the Philippine National Bank (PNB) in the amount of P104,280.00. As
security for said loan, she executed a real estate mortgage over two parcels of land
located at Opao, Mandaue City.3 She defaulted on her obligation. On September
29, 1980, PNB filed a petition for extrajudicial foreclosure with the City Sheriff of
Mandaue City.
On November 4, 1980, the sheriff prepared a notice of sale setting the date of
public auction of the two parcels of land on December 5, 1980 at 9:00 a.m. to 4:00
p.m.4 He caused the notice to be published in the Cebu Daily Times, a newspaper of
general circulation in Mandaue City, in its issues of November 13, 20 and 27, 1980.5
He likewise posted copies thereof in public places in Mandaue City and in the place
where the properties are located.6
However, the sale as scheduled and published did not take place as the parties, on
four separate dates, executed Agreements to Postpone Sale (Agreements).7 These
Agreements were addressed to the sheriff, requesting the latter to defer the auction
sale to another date at the same time and place, "without any further republication
of the Notice." The first of the four pro-forma Agreements reads, as follows:
AGREEMENT TO POSTPONE SALE
Provincial Sheriff
Mandaue City
Sir:
In accordance with this agreement of the parties in the above named case, it is
respectfully requested that the auction sale of the properties of the mortgagor,
scheduled to take place on December 5 1980 at 9:00 o'clock in the morning at
Office of the City Sheriff of Mandaue City be postponed to February 5, 1981, at the
same time and place, without any further republication of the notice of sale as
required by law. [italics supplied]
Cebu City, December 11, 1980.
PHILIPPINE NATIONAL BANK
(Mortgagee)
By:
(SGD.) F.B. Briones
Cebu Branch
Page 86 of 152
Branch Attorney
01134 and 00510, as attorney's fees, and to pay the costs.
(SGD.) JULIETA M. OUANO
(Mortgagor)
Address: Opao, Mandaue City
On December 3, 1980, two days prior to the date of the sale as published, the
parties executed and filed with the sheriff the Agreement to Postpone Sale moving
the date of sale from December 5, 1980 to February 5, 1981.8 On February 5, 1981,
however, no sale occurred.
Eight days later, on February 13, 1981, the parties executed and filed for the second
time a similar agreement moving the date of sale to February 28, 1981.9 Again, on
February 28, 1981, no sale occurred.
Ten days later, on March 10, 1981, the parties executed and filed for the third time a
similar agreement moving the date of sale to March 30, 1981.10 No sale occurred
on this date.
On March 30, 1981, the parties executed for the fourth time a similar agreement
moving the date of sale to May 29, 1981.11 This agreement was filed with the sheriff
on April 30, 1981.
In all these postponements, no new notice of sale was issued, nor was there any
republication or reposting of notice for the rescheduled dates.
Finally, on May 29, 1981, the sheriff conducted the auction sale, awarding the two
parcels of land to PNB, the only bidder. He executed a Certificate of Sale certifying
the sale for and in consideration of P195, 510.50.12
As Julieta failed to redeem the properties within the one year period from
registration of sale, PNB consolidated its title on February 12, 1983.13 On February
23 of the same year, it conveyed the properties to herein petitioner Alfredo Ouano,
the brother of Julieta, under a Deed of Promise to Sell payable in five years.14
On March 28, 1983, Julieta sent demand letters to PNB and petitioner, pointing out
irregularities in the foreclosure sale.15 On April 18, 1983, Julieta filed a complaint
with the Regional Trial Court (RTC) of Cebu for the nullification of the May 29, 1981
foreclosure sale.16 Petitioner filed a motion for leave to intervene in said case, and
filed his Answer in Intervention to protect his rights over the properties.17
While the case was pending, on February 25, 1986, PNB executed a Deed of Sale in
favor of petitioner.18 The Register of Deeds of Mandaue City accordingly cancelled
the TCTs in PNB's name and issued in lieu thereof TCTs in the name of petitioner
over the two parcels of land.19
On January 29, 1990, the Regional Trial Court of Cebu rendered a decision in favor
of Julieta, holding that the lack of republication rendered the foreclosure sale void.
The dispositive portion of said decision state:
WHEREFORE, judgment is hereby rendered,
1. declaring as null and void:
a) the auction sale by the City Sheriff of Mandaue City on May 29, 1981
over the aforesaid properties of plaintiff Julieta Ouano;
b) the Certificate of Sale (Exhibit K) issued by the City Sheriff of Mandaue
City on May 29, 1981, in favor of the Philippine National Bank;
c) the Deed of Sale (Exhibit L) executed by PNB to itself;
d) the Deed of Promise to Sell (Exhibit O) executed by PNB on February 23,
1983 in favor of Alfredo Ouano
e) the Deed of Sale (Exhibit 24) executed by PNB on February 5, 1986 in
favor of Alfredo Ouano;
f) TCT No. 17929 (Exhibit M) and TCT No. 17930 (Exhibit N) in the name of
PNB;
g) TCT No. 21982 (Exhibit 21) and TCT No. 21987 (Exhibit 22) in the name
of Alfredo Ouano;
2. ordering the Register of Deeds of Mandaue City to cancel the
aforementioned titles (TCT Nos. 17929 and 17930, as well as TCT Nos. 21982 and
21987), and to reinstate TCT Nos. 15724 (5033) and 24377 (6876) in the name of
Julieta Ouano;
3. ordering the City Sheriff of Mandaue City to conduct a new auction sale
strictly complying with the requirements for publication and posting as required by
Act 3135, as amended by Act 4118;
4. ordering PNB to return to Alfredo Ouano all amounts the latter has paid
to the said bank;
5. ordering Alfredo Ouano to vacate the premises in question and turn
them over to Julieta Ouano;
CRED TRANS Pledge, Mortgage Antichresis Fulltext
6. ordering PNB to pay the plaintiff the sum equivalent to 10% of the
market value of the properties in question as indicated in Tax Declaration Nos.
SO ORDERED.20
Not satisfied, PNB and petitioner brought the case to the Court of Appeals.21 In its
decision dated February 17, 1997, said court affirmed the trial court's ruling on the
same ground that there was no compliance with the mandatory requirements of
posting and publication of notice of sale.22 Petitioner filed a motion for
reconsideration, which was denied for lack of merit by the same court on April 15,
1997.23
PNB and petitioner filed their own petitions for review on certiorari before us. PNB's
petition however was dismissed on July 21, 1997 for being filed out of time and for
lack of certification of non-forum-shopping.24 The petition herein remaining is the
one filed by petitioner.
Petitioner assigns the following errors:
I. RESPONDENT COURT OF APPEALS ERRED IN SUSTAINING THE FINDING
OF THE LOWER COURT THAT THE POSTPONED AUCTION SALE OF SUBJECT
PROPERTIES HELD ON MAY 29, 1981 UPON WRITTEN AGREEMENT OF THE PARTIES
WAS NULL AND VOID FOR LACK OF PUBLICATION OF NOTICE OF SALE ON THE
SAID DATE ALTHOUGH THE REQUIREMENTS OF PUBLICATION OF NOTICE OF SALE
ON THE ORIGINALLY INTENDED DATE [WERE] FULLY COMPLIED WITH.
II. RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE
PROVISION OF SEC. 24, RULE 39 OF THE RULES OF COURT WHICH ALLOWS THE
SHERIFF TO ADJOURN ANY SALE UPON EXECUTION TO ANY DATE AGREED UPON
BY THE PARTIES IS NOT APPLICABLE TO THIS CASE.
III. RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT JULIETA
M. OUANO IS NOT ESTOPPED FROM CHALLENGING THE VALIDITY OF THE
AUCTION SALE SINCE THE SALE WAS REPEATEDLY POSTPONED UPON HER
REQUEST AND WRITTEN AGREEMENT[S] THAT THERE WOULD BE NO
REPUBLICATION OF THE NOTICE OF SALE.
IV. RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE DECISION
OF THE LOWER COURT ALTHOUGH JULIETA M. OUANO FILED HER COMPLAINT
AFTER ALMOST TWO YEARS FROM THE DATE OF THE AUCTION SALE.25
The main issue before us is whether or not the requirements of Act No. 3135 were
complied with in the May 29, 1981 foreclosure sale.
The governing law for extrajudicial foreclosures is Act No. 3135 as amended by Act
No. 4118. The provision relevant to this case is Section 3, which provides:
SEC. 3. Notice shall be given by posting notices of the sale for not less than
twenty (20) days in at least three public places of the municipality or city where the
property is situated, and if such property is worth more than four hundred pesos,
such notice shall also be published once a week for at least three consecutive weeks
in a newspaper of general circulation in the municipality of city.
It is a well-settled rule that statutory provisions governing publication of notice of
mortgage foreclosure sales must be strictly complied with, and that even slight
deviations therefrom will invalidate the notice and render the sale at least
voidable.26 In a number of cases, we have consistently held that failure to advertise
a mortgage foreclosure sale in compliance with statutory requirements constitutes a
jurisdictional defect invalidating the sale.27 Consequently, such defect renders the
sale absolutely void and no title passes.28
Petitioner, however, insists that there was substantial compliance with the
publication requirement, considering that prior publication and posting of the
notice of the first date were made.
In Tambunting v. Court of Appeals,29 we held that republication in the manner
prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial
foreclosure sale. Thus we stated:
Where required by the statute or by the terms of the foreclosure decree, public
notice of the place and time of the mortgage foreclosure sale must be given, a
statute requiring it being held applicable to subsequent sales as well as to the first
advertised sale of the property. [emphasis supplied].
Petitioner further contends that republication may be waived voluntarily by the
parties.30
This argument has no basis in law. The issue of whether republication may be
waived is not novel, as we have passed upon the same query in Philippine National
Bank v. Nepomuceno Productions Inc,.31 Petitioner therein sought extrajudicial
foreclosure of respondent's mortgaged properties with the Sheriff's Office of Pasig,
Rizal. Initially scheduled on August 12, 1976, the auction sale was rescheduled
several times without republication of the notice of sale, as stipulated in their
Agreements to Postpone Sale. Finally, the auction sale proceeded on December 20,
1976, with petitioner as the highest bidder. Aggrieved, respondents sued to nullify
the foreclosure sale. The trial court declared the sale void for non-compliance with
Act No. 3135. This decision was affirmed in toto by the Court of Appeals. Upholding
the conclusions of the trial and appellate court, we categorically held:
Petitioner and respondents have absolutely no right to waive the posting and
publication requirements of Act No. 3135.
Page 87 of 152

In People v. Donato, the Court expounded on what rights and privileges may be
waived, viz.:
xxx xxx xxx
[T]he principle is recognized that everyone has a right to waive, and agree to waive,
the advantage of a law or rule made solely for the benefit and protection of the
individual in his private capacity, if it can be dispensed with and relinquished
without infringing on any public right, and without detriment to the community at
large.
xxx xxx xxx
Although the general rule is that any right or privilege conferred by statute or
guaranteed by constitution may be waived, a waiver in derogation of a statutory
right is not favored, and a waiver will be inoperative and void if it infringes on the
rights of others, or would be against public policy or morals and the public interest
may be waived.
xxx xxx xxx
The principal object of a notice of sale in a foreclosure of mortgage is not so much
to notify the mortgagor as to inform the public generally of the nature and
condition of the property to be sold, and of the time, place, and terms of the sale.
Notices are given to secure bidders and prevent a sacrifice of the property. Clearly,
the statutory requirements of posting and publication are mandated, not for the
mortgagor's benefit, but for the public or third persons. In fact, personal notice to
the mortgagor in extrajudicial foreclosure proceedings is not even necessary, unless
stipulated. As such, it is imbued with public policy considerations and any waiver
thereon would be inconsistent with the intent and letter of Act No. 3135.
Publication, therefore, is required to give the foreclosure sale a reasonably wide
publicity such that those interested might attend the public sale.32 To allow the
parties to waive this jurisdictional requirement would result in converting into a
private sale what ought to be a public auction.
Moreover, assuming arguendo that the written waivers are valid, we find noticeable
flaws that would nevertheless invalidate the foreclosure proceedings. First, the
Agreements, as worded, only waived "further republication of the notice of sale."
Nothing in the Agreements indicates that the parties likewise dispensed with the
reposting of the notices of sale. As there was no reposting of notice of the May 29,
1981 sale, the foreclosure fell short of the requirements of Act No. 3135. Second, we
observe that the Agreements were executed and filed with the sheriff several days
after each rescheduled date. As stated in the facts, the first agreement was timely
filed, two days prior to the originally scheduled sale on December 5, 1980. The
second agreement, however, was executed and filed eight days after the
rescheduled sale on February 5, 1981. The third agreement was executed and filed
ten days after the rescheduled sale on February 28, 1981. The fourth agreement was
timely executed, but was filed with the sheriff one month after the rescheduled sale
on March 30, 1981. On the rescheduled dates, therefore, no public sale occurred,
nor was there any request to postpone filed with the sheriff, except for the first one.
In short, the Agreements are clearly defective for having been belatedly executed
and filed with the sheriff. The party who may be said to be at fault for this failure,
and who should bear the consequences, is no other than PNB, the mortgagee in the
case at bar. It is the mortgagee who causes the mortgaged property to be sold, and
the date of sale is fixed upon his instruction.33 We have held that the mortgagee's
right to foreclose a mortgage must be exercised according to the clear mandate of
the law. Every requirement of the law must be complied with, lest the valid exercise
of the right would end.34 PNB's inaction on the scheduled date of sale and belated
filing of requests to postpone may be deemed as an abandonment of the petition
to foreclose it filed with the sheriff. Consequently, its right to foreclose the
mortgage based on said petition lapsed.
In a vain attempt to uphold the validity of the aforesaid waiver, petitioner asserts
that the Court of Appeals should have applied Rule 39, Section 24 of the Rules of
Court, which allows adjournment of execution sales by agreement of the parties.
The said provision provides:
Sec. 24. Adjournment of Sale By written consent of debtor and creditor, the
officer may adjourn any sale upon execution to any date agreed upon in writing by
the parties. Without such agreement, he may adjourn the sale from day to day, if it
becomes necessary to do so for lack of time to complete the sale on the day fixed in
the notice.35
Petitioner submits that the language of the abovecited provision implies that the
written request of the parties suffices to authorize the sheriff to reset the sale
without republication or reposting.36
At the outset, distinction should be made of the three different kinds of sales under
the law, namely: an ordinary execution sale, a judicial foreclosure sale, and an
extrajudicial foreclosure sale. An ordinary execution sale is governed by the
pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules of Court
applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135, as
amended by Act No. 4118 otherwise known as "An Act to Regulate the Sale of
Property under Special Powers Inserted in or Annexed to Real Estate Mortgages"
applies in cases of extrajudicial foreclosure sale. A different set of law applies to
each class of sale mentioned.37 The cited provision in the Rules of Court hence
does not apply to an extrajudicial foreclosure sale.
Moreover, even assuming that the aforecited provision applies, all it authorizes is
the adjournment of the execution sale by agreement of the parties. Nowhere does it
CRED TRANS Pledge, Mortgage Antichresis Fulltext
state that republication and reposting of notice for the postponed sale may be
waived. Thus, it cannot, by any means, sanction the waiver in the case at bar.
Next, petitioner maintains that Julieta's act of requesting the postponement and
repeatedly signing the Agreements had placed her under estoppel, barring her from
challenging the lack of publication of the auction sale.38
We rule otherwise. Julieta did request for the postponement of the foreclosure sale
to extend the period to settle her obligation.39 However, the records do not show
that she requested the postponement without need of republication and reporting
of notice of sale. In Nepomuceno,40 we held:
. . . To request postponement of the sale is one thing; to request it without need of
compliance with the statutory requirements is another. Respondents, therefore, did
not commit any act that would have estopped them from questioning the validity of
the foreclosure sale for non-compliance with Act No. 3135. . . .
In addition, we observe herein that the Agreements prepared by the counsel of PNB
were in standard forms of the bank, labeled as "Legal Form No.41." The
Nepomuceno41 case likewise involved an "Agreement to Postpone Sale" that was in
a ready-made form, and the only participation of respondents therein was to affix or
"adhere" their signatures thereto. We therefore held that said agreement partakes
of the nature of a contract of adhesion, i.e., one in which one of the contracting
parties imposes a ready-made form of contract which the other party may accept or
reject, but cannot modify. One party prepares the stipulation in the contract, while
the other party merely affixes his signature or his "adhesion" thereto, giving no
room for negotiation, and depriving the latter of the opportunity to bargain on
equal footing.42 As such, their terms are construed strictly against the party who
drafted it.43
More importantly, the waiver being void for being contrary to the express mandate
of Act No. 3135, such cannot be ratified by estoppel.44 Estoppel cannot give validity
to an act that is prohibited by law or one that is against public policy.45 Neither can
the defense of illegality be waived.46
Petitioner, moreover, makes much of the fact that Julieta filed her complaint with
the trial court after almost two years from the May 29, 1981 auction sale, thus
arguing that the delayed filing was a clear case of laches.47
Laches is the failure or neglect, for an unreasonable and unexplained length of time,
to do that which by exercising due diligence, could or should have been done
earlier.48 In the case at bar, Julieta only realized the defect in the foreclosure sale
upon conferring with her counsel who discovered the irregularity.49 Thus, on March
25, 1983, Julieta filed her adverse claim with the Registrar of Deeds.50 Three days
after, she sent demand letters to PNB and petitioner.51 Soon after they replied on
April 6 and 7, 1983,52 she promptly sued to nullify the foreclosure sale in the
Regional Trial Court of Mandaue City on April 20, 1983.53 She likewise filed a suit
for forcible entry against petitioner in the Municipal Trial Court of Mandaue City.54
Considering all these, we find the delay of almost two years not unreasonable.
Julieta cannot be guilty of laches. Her prompt actions upon discovering her cause of
action negate the claim that she has abandoned her right to claim the properties.
Besides, this defense lacks merit in light of the Civil Code stating that an action or
defense for the declaration of the inexistence of a contract does not prescribe.55
WHEREFORE, premises considered, the Decision dated February 17, 1997 in CA-G.R.
CV No. 33499 and the Resolution therein dated April 15, 1997 are AFFIRMED. No
costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 198800, December 11, 2013
JOSE T. RAMIREZ, Petitioner, v. THE MANILA BANKING CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
We have consistently held that unless the parties stipulate, personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not necessary because Section
31 of Act No. 31352 only requires the posting of the notice of sale in three public
places and the publication of that notice in a newspaper of general circulation.3
Before us is a petition for review on certiorari under Rule 45 of the Decision4 dated
November 26, 2010 and Resolution5 dated September 28, 2011 of the Court of
Appeals (CA) in CAG.R. CV No. 80616.
The facts of the case are as follows:
Petitioner Jose T. Ramirez mortgaged two parcels of land located at Bayanbayanan,
Marikina City and covered by Transfer Certificate of Title (TCT) Nos. N107226 and
N230337 in favor of respondent The Manila Banking Corporation to secure his
P265,000 loan. The real estate mortgage provides that all correspondence relative to
the mortgage including notifications of extrajudicial actions shall be sent to
petitioner Ramirez at his given address, to wit:chanRoblesvirtualLawlibrary
N) All correspondence relative to this MORTGAGE, including demand letters,
summons, subpoenas or notifications of any judicial or extrajudicial actions shall be
sent to the MORTGAGOR at the address given above or at the address that may
hereafter be given in writing by the MORTGAGOR to the MORTGAGEE, and the
mere act of sending any correspondence by mail or by personal delivery to the said
Page 88 of 152
address shall be valid and effective notice to the MORTGAGOR for all legal purposes
and the fact that any communication is not actually received by the MORTGAGOR,
or that it has been returned unclaimed to the MORTGAGEE, or that no person was
found at the address given, or that the address is fictitious or cannot be located,
shall not excuse or relieve the MORTGAGOR from the effects of such
notice.8ChanRoblesVirtualawlibrary
Respondent filed a request for extrajudicial foreclosure of real estate mortgage9
before Atty. Hipolito Saez on the ground that Ramirez failed to pay his loan
despite demands. During the auction sale on September 8, 1994, respondent was
the only bidder for the mortgaged properties.10 Thereafter, a certificate of sale11
was issued in its favor as the highest bidder.
In 2000, respondent demanded that Ramirez vacate the properties.12
Ramirez sued respondent for annulment of sale and prayed that the certificate of
sale be annulled on the ground, among others, that paragraph N of the real estate
mortgage was violated for he was not notified of the foreclosure and auction sale.13
In its answer, respondent claimed that the foreclosure proceedings were valid.
The trial court ruled that the extrajudicial foreclosure proceedings were null and
void and the certificate of sale is invalid. The fallo of the Decision14 dated June 30,
2003 of the Regional Trial Court, Branch 193, Marikina City, in Civil Case No. 2001
701MK reads:chanRoblesvirtualLawlibrary
Premises considered, judgment is hereby rendered in favor of the plaintiff [Ramirez]
and against the defendant [bank], whose counterclaim is hereby dismissed,
declaring the Certificate of Sale of the properties covered by TCT Nos. N10722 and
N23033, as null and void and ordering the defendant [bank] to pay the following:
1) One Hundred Thousand (P100,000.00) Pesos as moral damages;
2) Fifty Thousand (P50,000.00) Pesos as exemplary damages;
3) Fifty Thousand (P50,000.00) Pesos as Attorneys fees; and
4) Costs of suit.
SO ORDERED.15ChanRoblesVirtualawlibrary
The CA reversed the trial courts decision and ruled that absence of personal notice
of foreclosure to Ramirez as required by paragraph N of the real estate mortgage is
not a ground to set aside the foreclosure sale.16 The fallo of the assailed CA
Decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, the appealed decision dated June 30, 2003 of the Regional Trial Court
of Marikina, Branch 193 is hereby REVERSED and SET ASIDE, and a new one is
entered AFFIRMING the validity of the Certificate of Sale of the properties covering
TCT Nos. N10722 and N23033.
SO ORDERED.17ChanRoblesVirtualawlibrary
Ramirezs motion for reconsideration was denied in the assailed CA Resolution.
Hence, this petition raising a lone issue:
What is the legal effect of violating paragraph N of the deed of mortgage which
requires personal notice to the petitionermortgagor by the respondentmortgagee
bank?18
Ramirez insists that the auction sale as well as the certificate of sale issued to
respondent are null and void since no notice of the foreclosure and sale by public
auction was personally given to him in violation of paragraph N of the real estate
mortgage which requires personal notice to him of said extrajudicial foreclosure.19
In its comment, respondent counters that under Section 3 of Act No. 3135, no
personal notice to the mortgagor is required in case of a foreclosure sale. The bank
claims that paragraph N of the real estate mortgage does not impose an additional
obligation to it to provide personal notice to the mortgagor Ramirez.20
We agree with Ramirez and grant his petition.
The CA erred in ruling that absence of notice of extrajudicial foreclosure sale to
Ramirez as required by paragraph N of the real estate mortgage will not invalidate
the extrajudicial foreclosure sale. We rule that when respondent failed to send the
notice of extrajudicial foreclosure sale to Ramirez, it committed a contractual breach
of said paragraph N sufficient to render the extrajudicial foreclosure sale on
September 8, 1994 null and void. Thus, we reverse the assailed CA Decision and
Resolution.
In Carlos Lim, et al. v. Development Bank of the Philippines,21 we held that unless
the parties stipulate, personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary because Section 3 of Act No. 3135 only requires the
posting of the notice of sale in three public places and the publication of that notice
in a newspaper of general circulation. In this case, the parties stipulated in
paragraph N of the real estate mortgage that all correspondence relative to the
mortgage including notifications of extrajudicial actions shall be sent to mortgagor
Ramirez at his given address. Respondent had no choice but to comply with this
contractual provision it has entered into with Ramirez. The contract is the law
between them. Hence, we cannot agree with the bank that paragraph N of the real
estate mortgage does not impose an additional obligation upon it to provide
personal notice of the extrajudicial foreclosure sale to the mortgagor Ramirez.
As we explained in Metropolitan Bank v. Wong,22 the banks violation of paragraph
N of the real estate mortgage is sufficient to invalidate the extrajudicial foreclosure
sale:chanRoblesvirtualLawlibrary
CRED TRANS Pledge, Mortgage Antichresis Fulltext
[A] contract is the law between the parties and absent any showing that its
provisions are wholly or in part contrary to law, morals, good customs, public order,
or public policy, it shall be enforced to the letter by the courts. Section 3, Act No.
3135 reads:chanRoblesvirtualLawlibrary
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality and city.
The Act only requires (1) the posting of notices of sale in three public places, and (2)
the publication of the same in a newspaper of general circulation. Personal notice to
the mortgagor is not necessary. Nevertheless, the parties to the mortgage contract
are not precluded from exacting additional requirements. In this case, petitioner and
respondent in entering into a contract of real estate mortgage, agreed inter
alia:chanRoblesvirtualLawlibrary
all correspondence relative to this mortgage, including demand letters,
summonses, subpoenas, or notifications of any judicial or extrajudicial action shall
be sent to the MORTGAGOR.
Precisely, the purpose of the foregoing stipulation is to apprise respondent of any
action which petitioner might take on the subject property, thus according him the
opportunity to safeguard his rights. When petitioner failed to send the notice of
foreclosure sale to respondent, he committed a contractual breach sufficient to
render the foreclosure sale on November 23, 1981 null and void.
We reiterated the Wong ruling in Global Holiday Ownership Corporation v.
Metropolitan Bank and Trust Company23 and recently, in Carlos Lim, et al. v.
Development Bank of the Philippines.24 Notably, all these cases involved provisions
similar to paragraph N of the real estate mortgage in this case.
On another matter, we note that the trial court awarded moral and exemplary
damages, attorneys fees and costs of suit to Ramirez. In granting said monetary
awards, the trial court noted that if the bank followed strictly the procedure in the
extrajudicial foreclosure of the real estate mortgage and had not filed prematurely
an unlawful detainer case against Ramirez, he would not have been forced to litigate
and incur expenses.25cralawred
We delete aforesaid monetary awards, except the award of costs of suit. Nothing
supports the trial courts award of moral damages. There was no testimony of any
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury26 suffered by
Ramirez. The award of moral damages must be anchored on a clear showing that
Ramirez actually experienced mental anguish, besmirched reputation, sleepless
nights, wounded feelings or similar injury.27 Ramirezs testimony28 is also wanting
as to the moral damages he suffered.
Similarly, no exemplary damages can be awarded since there is no basis for the
award of moral damages and there is no award of temperate, liquidated or
compensatory damages.29 Exemplary damages are imposed by way of example for
the public good, in addition to moral, temperate, liquidated or compensatory
damages.30
We likewise delete the trial courts award of attorneys fees since the trial court
failed to state in the body of its decision the factual or legal reasons for said
award.31
Indeed, even the instant petition32 does not offer any supporting fact or argument
for us to affirm the award of moral and exemplary damages and attorneys fees.
However, we agree, with the trial courts award of costs of suit to Ramirez. Costs
shall be allowed to the prevailing party as a matter of course unless otherwise
provided in the Rules of Court.33 These costs Ramirez may recover are those stated
in Section 10, Rule 142 of the Rules of Court.34 For instance, Ramirez may recover
the lawful fees he paid in docketing his action for annulment of sale before the trial
court. We add thereto the amount of P3,530 or the amount of docket and lawful
fees paid by Ramirez for filing this petition before this Court.35 We deleted the
award of moral and exemplary damages; hence, the restriction under Section 7, Rule
142 of the Rules of Court36 would have prevented Ramirez to recover any cost of
suit. But we certify, in accordance with said Section 7, that Ramirezs action for
annulment of sale involved a substantial and important right such that he is entitled
to an award of costs of suit. Needless to stress, the purpose of paragraph N of the
real estate mortgage is to apprise the mortgagor, Ramirez, of any action that the
mortgageebank might take on the subject properties, thus according him the
opportunity to safeguard his rights.37
WHEREFORE, we GRANT the petition, REVERSE and SET ASIDE the Decision dated
November 26, 2010 and Resolution dated September 28, 2011 of the Court of
Appeals in CAG.R. CV No. 80616. The extrajudicial foreclosure proceedings and
auction sale conducted by Atty. Hipolito Saez on September 8, 1994 and the
Certificate of Sale over the mortgaged properties covered by TCT Nos. N10722 and
N23033, issued in favor of respondent The Manila Banking Corporation, are hereby
DECLARED NULL and VOID.
Costs against respondent The Manila Banking
Corporation.ChanRoblesVirtualawlibrary
SO ORDERED.
FIRST DIVISION
[G.R. No. 199747, April 03, 2013]
TEODORO DARCEN, MAMERTO DARCEN, JR., NESTOR DARCEN, BENILDA DARCEN-
SANTOS, AND ELENITA DARCEN-VERGEL, Petitioners, v. V. R. GONZALES CREDIT
Page 89 of 152
ENTERPRISES, INC., REPRESENTED BY ITS PRESIDENT, VERONICA L. GONZALES,
Respondent.
DECISION
REYES, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the 1997
Rules of Civil Procedure of the Decision2 of the Court of Appeals (CA) in CA-G.R. SP
No. 114265 dated July 20, 2011, denying herein petitioners petition for certiorari
and prohibition which sought to annul and set aside the Orders dated March 16,
20103 and May 4, 20104 of the Regional Trial Court (RTC) of the City of Malolos,
Bulacan, Branch 81, in P-826-2009, entitled, In Re: Ex-Parte Petition for Issuance of
a Writ of Possession, V.R. Gonzalez Credit Enterprises, Inc., as represented by its
President Veronica Gonzalez, Petitioner, Teodoro Darcen, et al., Oppositors.
Antecedent Facts
The spouses Mamerto Darcen (Mamerto) and Flora De Guzman (Flora) were married
on February 2, 1947, and they begot seven (7) children, namely: Teodoro, Mamerto,
Jr., Nestor, Benilda, and Elenita (the petitioners), and their brothers Arturo and
Manuel. Mamerto died on September 18, 1986, leaving behind an estate consisting
of three titled parcels of land located in Baliuag, Bulacan and covered by Transfer
Certificate of Title (TCT) No. RT-19565 (T-41394), TCT No. RT-19566 (T-11678), and
TCT No. RT-19564 (T-193099), all under the name Mamerto Darcen married to
Flora de Guzman.
According to the petitioners, sometime in 1990 their late brother Manuel borrowed
money from Veronica Gonzales (Gonzales), president of V.R. Gonzales Credit
Enterprises, Inc. (respondent company). Manuel sought their consent in constituting
a mortgage over the above properties of their father, but the petitioners refused.
Manuel then caused the execution of an Extra-Judicial Settlement of Estate with
Waiver by forging the signatures of the petitioners and their mother Flora. In the
said instrument, the petitioners and their siblings were said to have waived their
shares in their fathers estate in favor of their mother, thus making Flora the sole
owner of the three lots.5 Meanwhile, fire had razed part of the Office of the Register
of Deeds of Bulacan and destroyed the titles to the said parcels. After the
reconstitution of the titles on April 7, 1992,6 new titles were issued in the name of
Flora de Guzman, Filipino, of legal age, widow, to wit:chanroblesvirtuallawlibrary
(1) TCT No. T-19267, which is a transfer from TCT No. RT-19565 (T-41394),
containing an area of 512 square meters, located in Barangay Sabang, Baliuag,
Bulacan;cralawlibrary
(2) TCT No. T-19268, which is a transfer from TCT No. RT-19566 (T-116789), covering
an area of 478.4 sq m, located at P. Angeles St., Baliuag, Bulacan; and
(3) TCT No. T-19269, which is a transfer from TCT No. RT-19564 (T-193099), covering
an area of 580 sq m, located in Baliuag, Bulacan.7
Petitioners further claim that on the day that the above new titles were issued, they
caused the annotation thereon of their hereditary claim in their fathers estate.8 On
December 4, 2000, Flora died.
Sometime in January 2007, Gonzales appeared and, claiming that the petitioners
late mother Flora had mortgaged the above properties to respondent company in
1995, demanded payment from the petitioners of several loans allegedly taken out
by Flora, as follows:9cralawvllred
(i)
P3,000,000.00, borrowed by Flora on January 30, 1995 secured by a mortgage
contract over TCT No. T-19269;
(ii)
P3,500,000.00, taken out on July 12, 1995 by Flora upon a mortgage over TCT No. T-
19267;
(iii)
P500,000.00, also borrowed on July 12, 1995 by Flora secured by a mortgage over
TCT No. T-19268;
On Februry 16, 2007, the petitioners were able to verify from the Register of Deeds
of Bulacan that the above properties had indeed been mortgaged to respondent
company in 1995, but they now say that they immediately noted that the
purported signatures of their mother on the three (3) mortgage contracts were
actually forgeries, and that the mortgage contracts did not state when the supposed
loan obligations would become due and demandable.10 They maintain that their
mother did not contract the loans, and they point to their brothers Manuel and
Arturo, whose signatures appear as witnesses on the mortgage documents, as guilty
of forging her signatures and of receiving the proceeds of the loans. The petitioners
also disclaim any knowledge of the loans, or of their consent thereto, either before
or after.
The respondent company extrajudicially foreclosed on the mortgage over the
aforesaid lots sometime in 2007, but meanwhile, on June 8, 2007, the petitioners
filed Civil Case No. 333-M-200711 with the RTC-Branch 78, for Annulment of
Mortgage, Extra-Judicial Foreclosure, Auction Sale, Certificate of Sale, and
Damages, seeking to void the real estate mortgages, the extrajudicial foreclosure
and the auction sale of the lots. Named defendants were respondent company and
their brothers Manuel and Arturo.
After posting and publication of the notice of sheriffs sale dated October 20, 2008,
the three properties were sold at auction held on November 18, 2008 for a total
price of P8,000,000, with the respondent company as the highest bidder. A
CRED TRANS Pledge, Mortgage Antichresis Fulltext
certificate of sale was issued by Ex-Officio Sheriff Emmanuel Ortega on November
20, 2008, duly annotated on the titles on November 28, 2008.12cralawvllred
The one-year period to redeem lapsed. Respondent company executed an affidavit
of consolidation of ownership. On December 8, 2009, it filed an ex parte petition for
issuance of a writ of possession in the RTC-Branch 81 docketed as P-826-2009.13 In
its Order14 dated December 17, 2009, the court set the petition for hearing on
February 26, 2010. Meanwhile, on February 25, 2010, the petitioners were able to file
an Opposition15 to the petition, praying for the outright denial thereof on the
ground of forum shopping because the respondent company did not disclose the
pendency of Civil Case No. 333-M-2007 in its certification against forum-shopping.
On March 10, 2010, V.R. Gonzales filed a Comment to the Opposition,16 to which
the petitioners filed a Reply17 on March 23, 2010.
In its Order18 dated March 16, 2010, the RTC-Branch 81 denied the petitioners
opposition and ruled that the respondent company was not guilty of forum
shopping. Citing Sps. Ong v. CA,19 it held that the issuance of the writ of possession
was a mere ministerial function of the court, and was summary in nature.20 Not
being a judgment on the merits, litis pendentia or res judicata would not set in to
bar the filing of Civil Case No. 333-M-2007.
Petitioners motion for reconsideration was denied in the courts Order21 dated May
4, 2010.
On June 2, 2010, the petitioners filed a petition for certiorari22 in the CA docketed
as CA-G.R. SP No. 114265, whose decision therein, dated July 20, 2011, is now the
subject of this Petition.
Meanwhile, on February 28, 2011, the RTC-Branch 81 granted the writ of possession
sought by the respondent company in P-826-2009. The notice to vacate was issued
on April 26, 2011 against the petitioners.
In a related development, on August 10, 2010, the RTC-Branch 78 dismissed the
complaint in Civil Case No. 333-M-2007, holding that the mortgage contracts
executed by Flora in favor of the respondent company over TCT Nos. T-19267, T-
19268, and T-19269 are valid, and declaring valid the extrajudicial foreclosure and
auction sale of the said properties. The decision is now pending appeal in the CA,
docketed as CA-G.R. CV No. 96251.
Petition for Certiorari in the CA
In CA-G.R. SP No. 114265,23 the petitioners reiterated their arguments: (1) that due
to identity of parties and cause of action, the respondent company committed
forum shopping for failing to disclose the pendency of Civil Case No. 333-M-2007;
(2) that due to the pendency of Civil Case No. 333-M-2007, the RTC-Branch 81 has
no jurisdiction over the ex parte petition for writ of possession, since the question of
possession was already laid before the RTC-Branch 78; and (3) that the issue of
validity of the mortgage contracts executed by Flora and the foreclosure of the
mortgages are material to the issue of possession.
On April 25, 2011, the CA denied petitioners urgent motion for writ of preliminary
injunction and/or Temporary Restraining Order.
On July 20, 2011, the CA rendered its now assailed decision denying the petition in
CA-G.R. SP No. 114265, ruling that respondent company was not guilty of forum
shopping since the ex parte petition for writ of possession it filed in P-826-2009 is
not an initiatory pleading as to require that a certification of non-forum shopping
be attached thereto; that the issuance of the writ of possession is merely a
ministerial function of the court a quo, the possession being incidental to the
transfer of title to the new owner; that the issuance of the writ is summary in nature
and is not a judgment on the merits.
The CA further explained that the ex parte writ of possession is for the sole benefit
of the new owner, without need of notice to or consent by any party who might be
adversely affected. Thus, notwithstanding the pendency of a suit to annul the real
estate mortgage and the extrajudicial foreclosure and auction sale, the purchaser is
entitled to a writ of possession, without prejudice to the outcome in the annulment
case, which can proceed without encroaching on the jurisdiction of the court
resolving the ex parte petition for writ of possession.
Petition for Review in the Supreme Court
On December 12, 2011, the CA denied the petitioners Motion for Reconsideration
from its above decision.24 Hence, this petition for review.
The petitioners now contend that the CA erred in failing to take into account the
fact that they, against whom the writ of possession issued by the RTC in P-826-2009
was directed, are adverse claimants who are third parties and strangers to the real
estate mortgages executed by their mother. They cite Villanueva v. Cherdan Lending
Investors Corporation,25 where it was reiterated that the issuance of a writ of
possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be
ministerial where the property is in the possession of a third party who holds the
property under a claim adverse to that of the debtor/mortgagor.26cralawvllred
The petitioners maintain that they knew nothing about the mortgage contracts,
whose validity is now the subject of their appeal in CA-G.R. CV No. 96251. They
further claim that their signatures in the Extrajudicial Settlement of Estate with
Waiver, which they supposedly executed in favor of their mother Flora, were forged.
As co-heirs and co-owners with their mother of the subject lots, they have a claim
directly adverse to hers, and therefore, also directly adverse to her successor-in-
interest, the respondent company. Consequently, the duty of the RTC to issue the
writ of possession to respondent company ceases to be ministerial.
Page 90 of 152

Our Ruling
We dismiss the petition.
The long-settled rule in extrajudicial foreclosure of real estate mortgage is that after
consolidation of ownership of the foreclosed property, it is the ministerial duty of
the court to issue, as a matter of right, an ex parte writ of possession to the buyer.
The established rule is that the purchaser in an extrajudicial foreclosure sale
becomes the absolute owner of the property if no redemption is made within one
(1) year from the registration of the certificate of sale by those who are entitled to
redeem.27 Possession being a recognized essential attribute of ownership,28 after
consolidation of title the purchaser may demand possession as a matter of right.29
Under Section 7 of Act No. 3135, as amended by Act No. 4118, the issuance of the
writ is merely a ministerial function of the RTC, which the new owner may obtain
through an ex parte motion.30 Section 7 of Act No. 3135
provides:chanroblesvirtuallawlibrary
Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition
the Court of First Instance of the province or place where the property or any part
thereof is situated, to give him possession thereof during the redemption period,
furnishing bond in an amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that the sale was made
without violating the mortgage or without complying with the requirements of this
Act. Such petition shall be made under oath and filed in form of an ex parte motion
in the registration or cadastral proceedings if the property is registered, or in special
proceedings in the case of property registered under the Mortgage Law or under
section one hundred and ninety-four of the Administrative Code, or of any other
real property encumbered with a mortgage duly registered in the office of any
register of deeds in accordance with any existing law, and in each case the clerk of
the court shall, upon the filing of such petition, collect the fees specified in
paragraph eleven of section one hundred and fourteen of Act numbered Four
hundred and ninety-six, as amended by Act numbered Twenty-eight hundred and
sixty-six, and the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.
The possession may be granted to the buyer either (a) within the one-year
redemption period, upon the filing by the purchaser of a bond, or (b) after the lapse
of the redemption period, without need of a bond.31 As explained in Spouses
Arquiza v. CA:32cralawvllred
Indeed, it is well-settled that an ordinary action to acquire possession in favor of the
purchaser at an extrajudicial foreclosure of real property is not necessary. There is
no law in this jurisdiction whereby the purchaser at a sheriffs sale of real property is
obliged to bring a separate and independent suit for possession after the one-year
period for redemption has expired and after he has obtained the sheriffs final
certificate of sale. The basis of this right to possession is the purchasers ownership
of the property. The mere filing of an ex parte motion for the issuance of the writ of
possession would suffice, and no bond is required.33 (Citations omitted and
underscoring ours)
We repeated the above rule in Asia United Bank v. Goodland Company, Inc.,34 in
this wise:chanroblesvirtuallawlibrary
It is a time-honored legal precept that after the consolidation of titles in the buyers
name, for failure of the mortgagor to redeem, entitlement to a writ of possession
becomes a matter of right. As the confirmed owner, the purchasers right to
possession becomes absolute. There is even no need for him to post a bond, and it
is the ministerial duty of the courts to issue the same upon proper application and
proof of title. To accentuate the writs ministerial character, the Court has
consistently disallowed injunction to prohibit its issuance despite a pending action
for annulment of mortgage or the foreclosure itself.
The nature of an ex parte petition for issuance of the possessory writ under Act No.
3135 has been described as a non-litigious proceeding and summary in nature. As
an ex parte proceeding, it is brought for the benefit of one party only, and without
notice to or consent by any person adversely interested.35 (Citations omitted)
Moreover, we made it clear in the recent case of BPI Family Savings Bank, Inc. v.
Golden Power Diesel Sales Center, Inc.,36 that not even a pending action for
annulment of mortgage or foreclosure sale will stay the issuance of the writ of
possession:chanroblesvirtuallawlibrary
Furthermore, it is settled that a pending action for annulment of mortgage or
foreclosure sale does not stay the issuance of the writ of possession. The trial court,
where the application for a writ of possession is filed, does not need to look into the
validity of the mortgage or the manner of its foreclosure. The purchaser is entitled
to a writ of possession without prejudice to the outcome of the pending annulment
case.37 (Citations omitted)
Nonetheless, the ministerial duty of the court to issue an ex parte writ of possession
ceases once it appears that there is a third party in possession of the property, who
is a stranger to the mortgage and who claims a right adverse to that of the debtor/
mortgagor.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Section 33, Rule 39 of the Rules of Court provides that in an execution sale, the
possession of the property shall be given to the purchaser or last redemptioner,
unless a third party is actually holding the property adversely to the judgment
obligor:chanroblesvirtuallawlibrary
Sec. 33. Deed and possession to be given at expiration of redemption period; by
whom executed or given.If no redemption be made within one (1) year from the
date of the registration of the certificate of sale, the purchaser is entitled to a
conveyance and possession of the property; or, if so redeemed whenever sixty (60)
days have elapsed and no other redemption has been made, and notice thereof
given, and the time for redemption has expired, the last redemptioner is entitled to
the conveyance and possession; but in all cases the judgment obligor shall have the
entire period of one (1) year from the date of the registration of the sale to redeem
the property. The deed shall be executed by the officer making the sale or by his
successor in office, and in the latter case shall have the same validity as though the
officer making the sale had continued in office and executed it.
Upon the expiration of the right of redemption, the purchaser or redemptioner shall
be substituted to and acquire all the rights, title, interest and claim of the judgment
obligor to the property as of the time of the levy. The possession of the property
shall be given to the purchaser or last redemptioner by the same officer unless a
third party is actually holding the property adversely to the judgment obligor.
The application of the above Section has been extended to extrajudicial foreclosure
sales pursuant to Section 6 of Act No. 3135, to wit:chanroblesvirtuallawlibrary
Sec. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under which the property is
sold, may redeem the same at any time within the term of one year from and after
the date of sale; and such redemption shall be governed by the provisions of
section four hundred and sixty-four to four hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these are not inconsistent with the provisions of
this Act.
Thus emboldened by Section 33 of Rule 39, the petitioners have persisted in making
the point that they are strangers to the mortgage contracts executed by their
mother over their fathers lots, which they claim to co-own with her, an interest
adverse to that of the respondent company. In Villanueva,38 they found support for
their contention:chanroblesvirtuallawlibrary
It is settled that the buyer in a foreclosure sale becomes the absolute owner of the
property purchased if it is not redeemed within one year after the registration of the
sale. As such, he is entitled to the possession of the property and can demand that
he be placed in possession at any time following the consolidation of ownership in
his name and the issuance to him of a new TCT. Time and again, we have held that it
is ministerial upon the court to issue a writ of possession after the foreclosure sale
and during the period of redemption. Upon the filing of an ex parte motion and the
approval of the corresponding bond, the court issues the order for a writ of
possession. The writ of possession issues as a matter of course even without the
filing and approval of a bond after consolidation of ownership and the issuance of a
new TCT in the name of the purchaser.
This rule, however, is not without exception. Under Section 33, Rule 39 of the Rules
of Court, which is made to apply suppletorily to the extrajudicial foreclosure of real
estate mortgages by Section 6, Act 3135, as amended, the possession of the
mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure
unless a third party is actually holding the property adversely to the judgment
debtor. Section 33 provides:cralaw
xxxx
The same issue had been raised in Bank of the Philippine Islands v. Icot,
Development Bank of the Philippines v. Prime Neighborhood Association, Dayot v.
Shell Chemical Company (Phils.), Inc., and Philippine National Bank v. Court of
Appeals, and we uniformly held that the obligation of the court to issue an ex parte
writ of possession in favor of the purchaser in an extrajudicial foreclosure sale
ceases to be ministerial once it appears that there is a third party in possession of
the property who is claiming a right adverse to that of the debtor/mortgagor.
The purchasers right of possession is recognized only as against the judgment
debtor and his successor-in-interest but not against persons whose right of
possession is adverse to the latter. In this case, petitioner opposed the issuance of
the writ of possession on the ground that he is in actual possession of the
mortgaged property under a claim of ownership. He explained that his title to the
property was cancelled by virtue of a falsified deed of donation executed in favor of
spouses Pearedondo. Because of this falsification, he filed civil and criminal cases
against spouses Pearedondo to nullify the deed of donation and to punish the
party responsible for the falsified document. Petitioners claim that he is in actual
possession of the property is not challenged, and he has come to court asserting an
ownership right adverse to that of the mortgagors, the spouses Pearedondo.39
(Citations omitted)
But in China Banking Corporation v. Lozada,40 the Supreme Court clarified that it is
not enough that the property be possessed by a third party, but the same must also
held by the third party adversely to the
debtor/mortgagor:chanroblesvirtuallawlibrary
Where a parcel levied upon on execution is occupied by a party other than a
judgment debtor, the procedure is for the court to order a hearing to determine the
nature of said adverse possession. Similarly, in an extrajudicial foreclosure of real
Page 91 of 152
property, when the foreclosed property is in the possession of a third party holding
the same adversely to the defaulting debtor/mortgagor, the issuance by the RTC of
a writ of possession in favor of the purchaser of the said real property ceases to be
ministerial and may no longer be done ex parte. For the exception to apply,
however, the property need not only be possessed by a third party, but also held by
the third party adversely to the debtor/mortgagor.41 (Citation omitted and
emphasis ours)
The Court then discussed the meaning of third party who is actually holding the
property adversely to the judgment obligor,42 thus:chanroblesvirtuallawlibrary
The exception provided under Section 33 of Rule 39 of the Revised Rules of Court
contemplates a situation in which a third party holds the property by adverse title or
right, such as that of a co-owner, tenant or usufructuary. The co-owner, agricultural
tenant, and usufructuary possess the property in their own right, and they are not
merely the successor or transferee of the right of possession of another co-owner or
the owner of the property. x x x.43 (Citations omitted)
Thus, it was held in BPI Family Savings Bank, Inc. that to be error for the court to
issue an ex parte writ of possession to the purchaser in an extrajudicial foreclosure,
or to refuse to abate one already granted, where a third party claimant in actual
possession has raised, in an opposition to the writ or in a motion to quash the same,
the matter of his actual possession upon a claim of ownership or a right adverse to
that of the debtor or mortgagor. The procedure, accordingly to Unchuan v. CA,44 is
for the trial court to order a hearing to determine the nature of the adverse
possession:45cralawvllred
Note, however, that a third party not privy to the debtor is protected by the law. He
may be ejected from the premises only after he has been given an opportunity to
be heard, conformably with the time-honored principle of due process. Where a
parcel of land levied on execution is occupied by a party other than the judgment
debtor, the proper procedure is for the court to order a hearing to determine the
nature of said adverse possession.46 (Citations omitted)
We find no proof that the petitioners are adverse third-party claimants entitled to
be retained in possession.
The RTCs chief consideration for granting to the respondent company a writ of
possession was that the assailed mortgages purportedly executed by Flora in 1995
were constituted on properties covered by certificates of title issued solely in her
name.
It will be noted that it was only in June 2007, after respondent company had
threatened them with extrajudicial foreclosure and eviction, or after 12 years had
passed, that the petitioners brought an action to annul the real estate mortgages,
and meanwhile, Flora had obtained several loans totaling P7.5 million from the
respondent company in 1995. It took petitioners even longer, 15 years, to assail the
validity of the alleged Extrajudicial Settlement of Estate with Waiver, which gave
Flora sole title to the subject lots under the new titles issued to her in April 1992.
Realizing that their claim of forgery of their mothers signature in the mortgage
contracts was tenuous after the RTC-Branch 78 dismissed Civil Case No. 333-M-
2007, the petitioners now claim that an earlier instrument, an Extrajudicial
Settlement of Estate with Waiver, was falsified by their brothers Manuel and Arturo
who forged their signatures. Yet, why the said instrument named neither Manuel
nor Arturo but their mother Flora as the sole beneficiary of the heirs waiver, the
petitioners did not explain. Thus, through the said instrument, on April 7, 1992, TCT
No. RT-19565 (T-41394), TCT No. RT-19566 (T-11678), and TCT No. RT-19564 (T-
193099), all under the name of Mamerto Darcen married to Flora de Guzman,
were cancelled and replaced with TCT Nos. T-19267, T-19268, and T-19269,
respectively, now in the name solely of Flora de Guzman, Filipino, of legal age,
widow.
Considering that the petitioners are now stridently asserting that their signatures in
the aforesaid Extrajudicial Settlement of Estate with Waiver had been forged, it is
inexplicable why they failed to attach a copy thereof either to their Opposition to
the ex parte petition for writ of possession, or to this petition. All that they could say
about this oversight is that they were never able to insist on the presentation of
the said document because they were never parties in the case for writ of
possession. Besides, the case for writ of possession is summary and non-
adversarial.47cralawvllred
But this is a lie and an obvious subterfuge, for the fact is that the RTC set a hearing
on February 26, 2010 to hear out the petitioners on the nature of their claimed
adverse possession. They appeared with their lawyer, and had an opportunity to lay
out the complete facts and present whatever pertinent documents were in their
possession. They did no such thing, and only affirmed the contents of their
Opposition, wherein they chiefly asserted their defense of lack of jurisdiction of the
RTC-Branch 81 and forum shopping.
Not only did petitioners not sue to annul the extrajudicial settlement, but on the
very day, April 7, 1992, that the new titles were issued to Flora, an inscription
appears in the said titles announcing that one-half () of the lots would be bound
for the next two years to possible claims by other heirs or unknown creditors
against the estate of Mamerto, pursuant to Section 4 of Rule 74 of the Rules of
Court. All three titles bear this same inscription,48 which the petitioners admit that
they themselves had caused to be annotated on their mothers titles,49 in the
following words:chanroblesvirtuallawlibrary
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Entry No. 7550 The portion of the land described herein is subject to the
provision of Sec. 4, Rule 74 of the Rules with respect to the inheritance left by the
deceased Mamerto Darcen.
Date of instrument March 7, 1992
Date of inscription April 7, 1992 at 9:35 a.m.50
All the above leave little doubt that the petitioners had always known about, and
had consented to, the extrajudicial settlement of the estate of their father Mamerto,
as well as waiver by them of their shares therein in favor of their mother Flora. For
this very reason, they cannot now be permitted to interpose an adverse claim in the
subject mortgaged lots and defeat the writ of possession issued to the respondent
company.
The petitioners were accorded an opportunity to be heard on the nature of their
claimed adverse possession, conformably with the time-honored principle of due
process.
On December 17, 2009, the RTC-Branch 81 set for hearing on February 26, 2010 the
petition for writ of possession in P-826-2009.51 On February 25, 2010, the
petitioners were able to file their Opposition52 to the said petition, wherein they
asserted that they are co-owners of the properties, being heirs of the deceased
Mamerto; that they filed a case, Civil Case No. 333-M-2007, to annul the mortgages
over the three lots on account of forgery; and that the extrajudicial foreclosure sale
of the lots was invalid. They, thus, prayed for outright denial of the writ on the
ground of forum shopping, because respondent company did not disclose the
pendency of Civil Case No. 333-M-2007 in its certification against forum shopping.
At the hearing on February 26, 2010, the petitioners appeared with their counsel,
Atty. Enrique dela Cruz, Jr. They did not however present any documents, and only
affirmed their Opposition already in the records.53 On March 11, 2010, respondent
company filed its comment to petitioners Opposition.54 On March 23, 2010, the
petitioners filed their reply.55cralawvllred
In its Order dated March 16, 2010, the RTC-Branch 81 held that respondent
company was not guilty of forum shopping, citing Sagarbarria v. Philippine Business
Bank,56 as follows:chanroblesvirtuallawlibrary
[A]ct No. 3135, as amended by Act No. 4118, is categorical in stating that the
purchaser must first be placed in possession of the mortgaged property pending
proceedings assailing the issuance of the writ of possession.
Consequently, the RTC under which the application for the issuance of a writ of
possession over the subject property is pending cannot defer the issuance of the
said writ in view of the pendency of an action for annulment of mortgage and
foreclosure sale. The judge with whom an application for a writ of possession is filed
need not look into the validity of the mortgage or the manner of its foreclosure.
Any question regarding the validity of the mortgage or its foreclosure cannot be a
legal ground for the refusal to issue a writ of possession. Regardless of whether or
not there is a pending suit for the annulment of the mortgage or the foreclosure
itself, the purchaser is entitled to a writ of possession without prejudice, of course,
to the eventual outcome of the pending annulment case.57 (Underscoring ours)
On April 8, 2010, petitioners filed their Motion for Reconsideration58 from the
denial of their opposition, but it was denied on May 4, 2010.
Even granting that the petitioners should be allowed to retain possession, the
petition has been rendered moot and academic by the issuance and satisfaction of
the writ of possession issued in P-826-2009.
As the petitioners have themselves admitted in their Petition,59 the RTC-Branch 81,
issued a Writ of Possession60 dated April 18, 2011, and on October 4, 2011 they
were physically evicted from the disputed lots by the Sheriff, and the respondent
company was placed in possession thereof, per the Sheriffs report dated October 4,
2011.61 With the writ of possession having been served and fully satisfied, the
instant petition has ceased to present a justiciable controversy for this Court to
resolve, and a declaration thereon would be of no practical use or value,62 in view
of the pendency in the CA of the petitioners appeal from the decision in Civil Case
No. 333-M-2007 on the question of the ownership of the subject mortgaged lots,
and thus of the rightful possession thereover. As we have reiterated in Madriaga, Jr.
v. China Banking Corporation:63cralawvllred
Judicial power presupposes actual controversies, the very antithesis of mootness.
Where there is no more live subject of controversy, the Court ceases to have a
reason to render any ruling or make any pronouncement. Courts generally decline
jurisdiction on the ground of mootness save when, among others, a compelling
constitutional issue raised requires the formulation of controlling principles to guide
the bench, the bar and the public; or when the case is capable of repetition yet
evading judicial review, which are not extant in this case.64 (Citations omitted)
What is now left for the petitioners to do is to await the resolution of their appeal in
Civil Case No. 333-M-2007. Their restoration to possession may then be sought
therein as an incident or relief, if justified.
WHEREFORE, premises considered, the Petition for Review on Certiorari is
DENIED.???r?bl? ??r??l l?? l?br?r
Page 92 of 152
SO ORDERED.
FIRST DIVISION
G.R. No. 196864, July 08, 2015
SPOUSES VICTOR P. DULNUAN AND JACQUELINE P. DULNUAN, Petitioners, v.
METROPOLITAN BANK & TRUST COMPANY, Respondent.
DECISION
PEREZ, J.:
This is a Petition for Review on Certiorari1 filed by petitioners Spouses Victor
Dulnuan and Jacqueline Dulnuan (Spouses Dulnuan) seeking to reverse and set
aside the 14 January 2011 Decision2 of the Court of Appeals and its 29 April 2011
Resolution3 in CA-G.R. SP No. 108628. The assailed decision and resolution
reversed the 3 December 2008 Order of the Regional Trial Court (RTC) of La
Trinidad, Benguet, which, in turn, enjoined the extrajudicial foreclosure sale of a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-46390 registered
under the name of the Spouses Dulnuan. The dispositive portion of the Court of
Appeals Decision reads:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
WHEREFORE, the petition is GRANTED. The Order dated December 3, 2008 of the
Regional Trial Court, Branch 63 of La Trinidad, Benguet in Civil Case No. 08-CV-2470
which granted [the Spouses Dulnuans] application for writ of preliminary injunction
and the RTCs Order dated March 24, 2009, which denied [Metropolitan Bank and
Trust Companys] motion for reconsideration, are hereby REVERSED and SET
ASIDE.4
The Facts
On several occasions, the Spouses Dulnuan obtained loans from Metropolitan Bank
and Trust Company (Metrobank), the total of which reached the sum P3,200,000.00,
as evidenced by promissory notes executed by them.5redarclaw
As a security for the loan obligations, the Spouses Dulnuan executed a Real Estate
Mortgage (REM) over a parcel of land covered by TCT No. 46390 registered under
their names and located at La Trinidad, Benguet with an area of 392 square meters
(subject property).6redarclaw
Subsequently, however, the Spouses Dulnuan incurred default and therefore the
loan obligations became due and demandable.
On 22 April 2008, Metrobank filed an application for extra-judicial foreclosure
proceedings over the subject property before the RTC of La Trinidad, Benguet. After
due notice and publication, the mortgaged property was sold at a public auction
where Metrobank was declared as the highest bidder after tendering the bid of
P6,189,000.00, as shown in the Certificate of Sale.7redarclaw
In order to validly effect the foreclosure, a copy of the said Notice of Public Auction
Sale was posted on the bulletin boards of Barangay Betag, Municipal Hall of La
Trinidad, Benguet, Provincial Capitol Benguet.8 Before the expiration of the one-
year redemption period allowed by law, Metrobank filed a Petition for the Issuance
of Writ of Possession docketed as LRC Case No. 08-60 which was raffled before
Branch 63 of the RTC.9redarclaw
On 30 September 2008, the Spouses Dulnuan instituted a Complaint seeking the
issuance of a temporary restraining order and preliminary and final injunction and,
for the annulment of extra-judicial foreclosure and real estate mortgage before the
RTC of La Trinidad, Benguet, Branch 10, which case was docketed as Civil Case No.
08-CV-2470. The complaint alleged that the mortgage constituted over the
property is null and void because at the time the agreement was entered on 18
October 2000, no contract of loan was yet executed by the parties. It was only on
19 December 2003 that they received the proceeds of the loan, as evidenced by the
Promissory Note. In other words, there is no principal obligation upon which the
ancillary contract of mortgage was attached to.
Upon motion of the Spouses Dulnuan, Civil Case No. 08-CV-2470 was consolidated
before Branch 63 of the RTC wherein the LRC Case No. 08-60 was pending. After
summary hearing, the court a quo in an Order dated 5 November 2008, issued a
Temporary Restraining Order and set the hearing for the issuance of Writ of
Preliminary Injunction. Both parties proceeded to adduce evidence for and against
the issuance of the writ of preliminary injunction.
Finding an imperative need to protect and preserve the rights of the Spouses
Dulnuan during the pendency of the principal action, the RTC issued an Order dated
3 December 2008, enjoining Metrobank from taking possession of the subject
property until the final disposition of the annulment of mortgage case. The decretal
portion of the Order reads:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, and finding compelling reason at this point in
time to grant for the application for preliminary injunction, the same is hereby
granted upon posting of preliminary injunction bond in the amount of P200,000.00
duly approved by the court, let the writ of preliminary injunction be issued to take
effect pendente lite, commanding the [Metrobank] including its agents and
representatives, as well as persons acting under its control, supervision, instruction,
order or authorization, to desist from entering, occupying, possessing, using, or
from performing any act of possession and occupation of the aforedescribed
CRED TRANS Pledge, Mortgage Antichresis Fulltext
property, as well as from causing the cancellation of the existing transfer certificate
of title of the [Spouses Dulnuan] and from securing in lieu thereof a transfer
certificate of title over the aforedescribed property in its favor.10
In an Order dated 24 March 2009, the RTC refused to reconsider its earlier Order.
Arguing that the RTC gravely abused its discretion in enjoining its taking of
possession over the subject realties, Metrobank filed a Petition for Certiorari before
the Court of Appeals.
On 14 January 2011, the Court of Appeals rendered a Decision reversing the
questioned Orders and declared that the issuance of the writ of preliminary
injunction is unjustified under the circumstances. The appellate court made a
pronouncement that as the highest bidder at the auction sale, Metrobank is entitled
to occupy the subject property, and, any question regarding the validity of the
mortgage or the foreclosure thereof shall not preclude the purchaser from taking
possession. The disquisition the Court of Appeals reads:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
WHEREFORE, the petition is GRANTED. The Order dated December 3, 2008 of the
Regional Trial Court, Branch 63 of La Trininidad, Benguet in Civil Case 08-CV-2470
which granted respondents application for writ of preliminary injunction and the
RTCs Order dated March 24, 2009 which denied [Metrobanks] motion for
reconsideration are hereby RESERVED and SET ASIDE.11
For lack of merit, the Spouses Dulnuans Motion for Reconsideration was denied by
the Court of Appeals in a Resolution dated 29 April 2011.
The Spouses Dulnuan is now before this Court via this instant Petition for Review on
Certiorari seeking the reversal of the Court of Appeals Decision and Resolution on
the following grounds:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
I.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR
IN OVERLOOKING THE UNDISPUTED FACT THAT THE PETITION FOR WRIT OF
POSSESSION WAS FILED DURING THE REDEMPTION PERIOD AND NO BOND HAD
BEEN POSTED BY RESPONDENT TO WARRANT ITS ISSUANCE; AND
II.
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE AND SERIOUS ERROR
IN OVERLOOKING THE FACT THAT CIVIL CASE NO. 08-CV-2470 AND LRC CASE NO.
08-60 WERE CONSOLIDATED.12
The Courts Ruling
The Court is urged to resolve the issue of whether or not the Court of Appeals erred
in dissolving the writ of preliminary injunction issued against Metrobank. The writ
of preliminary injunction enjoined Metrobank from entering, occupying, possessing,
using, or performing any act of possession and occupation over the subject
property. Without going into the merits of this case, the Court will confine itself in
the determination of the propriety of the preliminary injunction, such being a
preservative remedy for the protection of substantive rights or interests, is not a
cause of action in itself but merely a provisional remedy, an adjunct to a main
suit.13redarclaw
A writ of preliminary injunction and a TRO are injunctive reliefs and preservative
remedies for the protection of substantive rights and interests. An application for
the issuance of a writ of preliminary injunction and/or TRO may be granted upon
the filing of a verified application showing facts entitling the applicant to the relief
demanded.14 The purpose of injunction is to prevent threatened or continuous
irremediable injury to some of the parties before their claims can be thoroughly
studied and educated. Its sole aim is to preserve the status quo until the merits of
the case is heard fully.15redarclaw
The status quo is the last actual, peaceable and uncontested situation which
precedes a controversy.16 The status quo should be that existing at the time of the
filing of the case. A preliminary injunction should not establish new relations
between the parties, but merely maintain or re-establish the pre-existing
relationship between them.
Pertinent are the provisions of Section 3, Rule 58 of the Rules of Court, enumerates
the grounds for the issuance of a writ of preliminary injunction, to
wit:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary
SEC. 3. Grounds for issuance of preliminary injunction. A preliminary injunction
may be granted when it is established:LawlibraryofCRAlaw
(a) That the applicant is entitled to the relief demanded, and the whole or part of
such relief consists in restraining the commission or continuance of the act or acts
complained of, or in requiring the performance of an act or acts, either for a limited
period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts
complained of during the litigation would probably work injustice to the applicant;
or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to
do, or is procuring or suffering to be done, some act or acts probably in violation of
Page 93 of 152
the rights of the applicant respecting the subject of the action or proceeding, and
tending to render the judgment ineffectual.
Thus, to be entitled to the injunctive writ, petitioners must show that (1) there exists
a clear and unmistakable right to be protected; (2) this right is directly threatened by
an act sought to be enjoined; (3) the invasion of the right is material and substantial;
and (4) there is an urgent and paramount necessity for the writ to prevent serious
and irreparable damage.17redarclaw
As such, a writ of preliminary injunction may be issued only upon clear showing of
an actual existing right to be protected during the pendency of the principal action.
The requisites of a valid injunction are the existence of the right and its actual or
threatened violations. Thus, to be entitled to an injunctive writ, the right to be
protected and the violation against the right must be shown.18redarclaw
Extant from the pleadings of the parties is the failure of the Spouses Dulnuan to
establish the essential requisites for the issuance of the writ of preliminary
injunction.
First. The court a quo cannot enjoin Metrobank, at the instance of the Spouses
Dulnuan, from taking possession of the subject property simply because the period
of redemption has not yet expired. As the highest bidder in the foreclosure sale
upon whom a certificate sale was issued by the sheriff, Metrobank has the right to
be placed in possession of the subject property even during the redemption period
provided that the necessary amount of bond is posted. As elucidated by the Court
in Spouses Tolosa v. United Coconut Planters Bank:19redarclaw
ChanRoblesVirtualawlibrary
A writ of possession is simply an order by which the sheriff is commanded by the
court to place a person in possession of a real or personal property. Under Section 7
of Act No. 3135, as amended, a writ of possession may be issued in favor of a
purchaser in a foreclosure sale either (1) within the one-year redemption period,
upon the filing of a bond; or (2) after the lapse of the redemption period, without
need of a bond. Within the one-year redemption period, the purchaser may apply
for a writ of possession by filing a petition in the form of an ex parte motion under
oath, in the registration or cadastral proceedings of the registered property. The law
requires only that the proper motion be filed, the bond approved and no third
person is involved. After the consolidation of title in the buyers name for failure of
the mortgagor to redeem the property, entitlement to the writ of possession
becomes a matter of right. In the latter case, the right of possession becomes
absolute because the basis thereof is the purchasers ownership of the property.
It is an established rule that the purchaser in an extra-judicial foreclosure sale is
entitled to the possession of the property and can demand that he be placed in
possession of the same either during (with bond) or after the expiration (without
bond) of the redemption period therefor.20 The non-expiration of the period of
redemption shall not preclude the purchaser from taking possession of the property
provided that the necessary is posted. The buyer can in fact demand possession of
the land even during the redemption period except that he has to post a bond in
accordance with Section 721 of Act No. 3135, as amended. In the case at bar,
Metrobank manifested its willingness to post a bond but its application for the
issuance of the writ of possession was unjustly denied by the RTC.
Second. The pendency of the action assailing the validity of the mortgage should
not bar the issuance of the writ of possession. A pending action for annulment of
mortgage or foreclosure does not stay the issuance of a writ of possession.22
Regardless of the pendency of such suit, the purchaser remains entitled to a writ of
possession, without prejudice, of course, to the eventual outcome of the pending
annulment case. Emphatic to the point is the ruling of the Court in Spouses
Fortaleza v. Spouses Lapitan:23redarclaw
ChanRoblesVirtualawlibrary
Lastly, we agree with the CA that any question regarding the regularity and validity
of the mortgage or its foreclosure cannot be raised as a justification for opposing
the petition for the issuance of the writ of possession. The said issues may be raised
and determined only after the issuance of the writ of possession. Indeed, [t]he
judge with whom an application for writ of possession is filed need not look into the
validity of the mortgage or the manner of its foreclosure. The writ issues as a
matter of course. The rationale for the rule is to allow the purchaser to have
possession of the foreclosed property without delay, such possession being
founded on the right of ownership.
Without prejudice to the final disposition of the annulment case, Metrobank is
entitled to the writ of possession and cannot be barred from enjoying the property,
possession being one of the essential attributes of ownership.
Third. While the grant or denial of the preliminary injunction rests on the sound
discretion of the court taking cognizance of the case, and judicial discretion of the
court in injunctive matters should not be interfered with,24 in the absence of clear
and legal right, however, the issuance of a writ of injunction constitutes a grave
abuse of discretion.25redarclaw
Grave abuse of discretion in the issuance of writs of preliminary injunction implies a
capricious and whimsical exercise of judgment equivalent to lack of jurisdiction; or
the exercise of power in an arbitrary despotic manner by reason of passion,
prejudice or personal aversion amounting to an evasion of a positive duty or to a
virtual refusal to perform a duty enjoined or to act at all in contemplation of law.26
The burden is thus on petitioner to show in his application that there is meritorious
ground for the issuance of TRO in his favor.27 When the complainants right is
doubtful or disputed, he does not have a clear legal right and, therefore, the
issuance of injunctive writ is improper.28 Herein, the Spouses Dulnuan failed to
show that they have clear and unmistakable right to the issuance of writ in question.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
In fine, we find that the Court of Appeals committed no reversible error in reversing
the injunction issued by the RTC. The record shows that Metrobank caused the
extrajudicial foreclosure of the mortgage on the subject realties as a consequence of
the Spouses Dulnuans default on their mortgage obligation. As the highest bidder
at the foreclosure sale, Metrobank can exercise its right of possession over the
subject realty, and the issuance of writ of preliminary injunction, enjoining the bank
from occupying the property in question, is erroneous.
WHEREFORE, premises considered, the instant petition is hereby DENIED. The
assailed Decision dated 14 January 2011 and Resolution dated 29 April 2011 of the
Court of Appeals in CA-G.R. SP No. 108628 are hereby AFFIRMED.
SO ORDERED.cralawlawlibrary
EN BANC
G.R. No. 196040 August 26, 2014
FE H. OKABE, Petitioner,
vs.
ERNESTO A. SATURNINO, Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking the reversal of the Decision1 dated September 24, 2010 and Resolution2
dated March 9, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 110029.
The facts, as culled from the records, are as follows:
The subject of the controversy is an eighty-one (81)square meter property located in
Barangay San Antonio, Makati City, which was initially covered by Transfer
Certificate of Title (TCT) No. 175741under the name of the wife of respondent
Ernesto A. Saturnino. Sometime in 1994, the couple obtained a loan with the
Philippine National Bank (PNB), which was secured by the subject property. Because
of the couples failure to settle their loan obligation with the bank, PNB
extrajudicially foreclosed the mortgage.
On August 24, 1999, the Certificate ofSale was inscribed on TCT No. 175741.
Considering that the property was not redeemedby respondent during the
redemption period, consolidation of ownership was inscribed on October 13, 2006
and a new TCT was issued in favor of PNB. Without taking possession of the subject
property, PNB sold the land to petitioner Fe H. Okabe on June 17, 2008. TCT No.
225265 was later issued in petitioners name on August 13, 2008.
On November 27, 2008, petitioner filed with the Regional Trial Court (RTC) of Makati
City an Ex-Parte Petition for Issuance of Writ of Possession3 over the subject
property, to which respondent submitted an Opposition with Motion to Dismiss.4
Petitioner filed her Reply to/ Comment on the Opposition with Motion to Dismiss,5
while respondent submitted his Oppositor-MovantsRejoinder with Motion for
Postponement.6
On April 30 2009, the RTC issued an Order7 denying respondents Opposition with
Motion to Dismiss for lack of merit. The RTC, citing the case of Ramos v. Maalac
and Lopez8 opined that the issuance of a writ of possession in favor of the
petitioner was merely a ministerial and complementary duty of the court.
Respondent then filed an Urgent Motion for Clarification (of the Order dated 30
April 2009),9 then a Motion for Reconsideration,10 which was followed by a
Supplement to the Motion for Reconsideration11 which petitioner likewise
opposed.12
On July 29, 2009, the RTC issued an Order13 denying respondents Motion for
Reconsideration and the Supplement to the Motion for Reconsideration. The RTC
ruled, among other things, that the right of the petitioner to be placed in absolute
possession of the subject property was a consequence of her right of ownership and
that petitioner cannot be deprived of said possession being now the registered
owner of the property.
Dismayed, respondent filed on August 17, 2009 a Petition for Certiorari14 with the
CA questioning the Orders of the RTC based on the following grounds:
I
HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER THE FACT THAT PRIVATE
RESPONDENT WAS ALREADY ESTOPPED FROM ASKING FOR THE ISSUANCE OF A
WRIT OF POSSESSION CONSIDERING THAT THE VERY DEED OF ABSOLUTE SALE
FROM WHICH HER ALLEGED RIGHT EMANATES EXPLCITLY (sic) GAVE HER THE
ONLY OPTION OF FILING AN EJECTMENT SUIT.
II
HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER THAT SECTION 7 OF ACT
NO. 3135, AS AMENDED BY ACT 4118 SHOULD BE CONSTRUED STRICTLY.15
Respondent prayed, among other things, that the CA reverse and set aside the
assailed Orders and thata Temporary Restraining Order (TRO) be issued enjoining
the RTC from hearing the petition for the issuance of a writ of possession.
Page 94 of 152
Meanwhile, on November 23, 2009, the RTC rendered a Decision16 in favor of
petitioner, which granted her ex-parte petition and ordered that the corresponding
writ of possession over the subject property be issued in her favor. The decretal
portion of which reads:
WHEREFORE, premises considered, and in accordance with Section 7 of Act No.
3135, as amended, the instant petition [is] hereby GRANTED.
Let the corresponding Writ be issued in favor of the herein petitioner Fe H. Okabe
to place her inpossession of the subject property. No bond is required to be posted
by petitioner Fe H. Okabe, she, being the successor-in-interest of Philippine
National Bank, the purchaser in the foreclosure sale, which had consolidated that
title on the subject property in its name prior to the herein petitioner.
Furnish copies of this Decision to the parties and their respective counsels.
SO ORDERED.17
Respondent filed a motion to set aside the said Decision, but the same was denied
by the RTC in its Order18 dated April 27, 2010.
On May 13, 2010, petitioner filed a Motion for Execution of Judgment.
On July 8, 2010, the RTC issued an Order19 granting the motion. On even date, the
branch clerk of court issued a Writ of Possession20 addressed to the Sheriff
ordering the latter toplace petitioner in possession of the subject property.
On July 14, 2010, the Sheriff, together with petitioner, tried to cause the service of
the notice to vacate upon the respondent, but the property was already abandoned
by its occupants. The Sheriff, with the assistance of barangay officials, thus, posted
the notice to vacate together with the writ of possession in front of the gate of the
subject property.21
On July 20, 2010, the Sheriff,the petitioner, and the barangay officials returned to
the property to cause the implementation of the writ of possession. After finding
that no onewas occupying the property, the Sheriff turned over possession of the
subject property to the petitioner free and clear of occupants and personal
property.22
In the proceedings before the CA, respondent filed a Motion to Admit Herein
Memorandum of Authorities in Amplification/Support of the Position of Petitioner
in this Case and Reiterating Prayer for Issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injuction.23 In the said motion, respondent alleged that
the RTC was about to issue the writ of possession prayed for by the petitioner and
that a TRO was necessary to prevent great and irreparable injury which respondent
may suffer if removed from possession of the property in question.
On July 19, 2010, the CA issued a Resolution24 granting the issuance of a TRO in
favor of the respondentand commanding petitioner and the RTC to refrain from
committing any acts relative to the proceedings before it upon the posting of a
bond.
In a Manifestation25 dated July 21, 2010 the RTC Presiding Judge informed the CA
that as much as the court would like to comply with its directive, it can no longer do
so because the writ of possession had already been implemented by the Branch
Sheriff on July 20, 2010.
On September 24, 2010, the CA rendered the assailed Decision which granted
respondents petition and vacatedthe challenged orders of the RTC. The falloreads:
WHEREFORE,we resolve to GRANTthe instant petition. The challenged orders below
are consequently vacated. The respondents are permanently enjoined from
proceeding against the petitioner via an expartemotion for a writ of possession.
IT IS SO ORDERED.26
The CA opined, among other things, that although it may be true that by virtue of
the contract of sale, petitioner obtained the same rights of a purchaser-owner and
which rights she derived from erstwhile mortgagee turned owner PNB, this does not
mean that the right to file an ex-parte motion for a writ of possession under Act
3135 had also been transferred to the petitioner. Such a special right isgranted only
to purchasers in a sale made under the provisions of Act 3135. The CA ruled that to
allow a second, third, or even tenth subsequent buyer of the foreclosed property to
evict the mortgagor-debtor or his successor-in-interest from the said property or
wrench away possession from them via a mere ex-partemotion is to trample upon
due process because whatever defenses that the owner mortgagor/actual possessor
may have would have been drowned and muted by the ex-partewrit of possession.
Considering that the transaction between PNB and the petitioner was by an ordinary
contract of sale, an ex-partewrit of possession may not therefore be issued in favor
of the latter.
Unfazed, petitioner filed a Motion for Reconsideration on the ground that
respondents possession of the property had become illegal and that the procedure
affecting his possession was moot and academic for he was no longer in possession
of the subject property.
In a Resolution dated March 9, 2011, the CA denied petitioners
Motion for Reconsideration.
Hence, the present petition wherein petitioner raises the following arguments to
support its petition:
CRED TRANS Pledge, Mortgage Antichresis Fulltext
I
RESPONDENT IS WELL AWARE OF THE FACT THAT OWNERSHIP HAD
TRANSFERRED TO PETITIONER AND THAT HIS POSSESSION OF THE PROPERTY HAD
BECOME ILLEGAL.
II
PETITIONER, AS THE REGISTERED OWNER OF THE PROPERTY, IS ENJOYING
POSSESSION OF THE PROPERTY IN THE CONCEPT OF AN OWNER AND A RULING
OFTHIS HONORABLE COURT REGARDING THE PROCEDURE PERTAINING TO
PETITIONERS POSSESSION OF THE PROPERTY IS MOOT AND ACADEMIC.27
Petitioner argues that her possession of the subject property as its registered owner
should not be disturbed. Petitioner posits that considering that respondent failed to
redeem the subject property within the redemption period, respondent should not
be granted a favor nor rewarded for his failure to redeem and for his illegal
occupation of the property. Petitioner contends that the issue regarding possession
ofthe property has become moot and academic since she, being the registered
owner of the property, has been in possession thereof since July 20, 2010. Petitioner
stresses that the ruling of the CA, that she is "permanently enjoined from
proceeding against the [respondent] via an ex-partemotion for a writ of possession,"
would result in an absurdity since she is already in possession of the land.
Petitioner now prays that the Court rectify the situation and for it to reverse the
ruling of the CA based on the fact that the proceedings for the expartemotion for a
writ of possession has already been terminated and possession of the subject
property was awarded by the lower court in her favor, thus rendering the arguments
raised by respondent in his petition for certiorari before the CA moot and academic.
In essence, the issue is whether or not, in the case at bar, an ex-parte petition for the
issuance of a writ of possession was the proper remedy of the petitioner in
obtaining possession of the subject property.
Section 7 of Act No. 3135,28 as amended by Act No. 4118,29 states:
Section 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property or
any part thereof is situated, to give him possession thereof during the redemption
period, furnishing bond in an amount equivalent to the use of the property for a
period of twelve months, to indemnify the debtor in case it be shown that the sale
was made without violating the mortgage or without complying with the
requirements of this Act. Such petition shall be made under oath and filed in the
form of an ex partemotion x x x and the court shall, upon approval of the bond,
order that a writ of possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order immediately.
Under the provision cited above, the purchaser or the mortgagee who is also the
purchaser in the foreclosure sale may apply for a writ of possession during the
redemption period,30 upon an ex-partemotion and after furnishing a bond.
In GC Dalton Industries, Inc. v. Equitable PCI Bank,31 the Court held that the
issuance of a writ of possession to a purchaser in an extrajudicial foreclosureis
summary and ministerial in nature as such proceeding is merely an incident in the
transfer of title. Also, in China Banking Corporation v. Ordinario,32 we held that
under Section 7 of Act No. 3135, the purchaser in a foreclosure saleis entitled to
possession of the property.
In the recent case of Spouses Nicasio Marquez and Anita Marquez v. Spouses
Carlito Alindog and Carmen Alindog,33 although the Court allowed the purchaser in
a foreclosure sale to demand possession of the land during the redemption period,
it still required the posting ofa bond under Section 7 of Act No. 3135. Thus:
It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of
the property purchased if it is not redeemed during the period of one year after the
registration of the sale. As such, he is entitled to the possession of the said property
and can demand it at any time following the consolidation of ownership in his name
and the issuance to him of a new transfer certificate oftitle. The buyer can in fact
demand possession of the land even during the redemption period except that he
has to post a bond in accordance with Section 7 of Act No. 3135, as amended. No
such bond is required after the redemption period if the property is not redeemed.
Possession of the land then becomes an absolute right of the purchaser as
confirmed owner. Upon proper application and proof of title, the issuance of the
writ of possession becomes a ministerial duty of the court.34
Here, petitioner does not fall under the circumstances of the aforequoted case and
the provisions of Section 7 of Act No. 3135, as amended, since she bought the
property long after the expiration of the redemption period. Thus, it is PNB, if it was
the purchaser in the foreclosure sale, or the purchaser during the foreclosure sale,
who can file the ex-parte petition for the issuance of writ of possession during the
redemption period, but it will only issue upon compliance with the provisions of
Section 7 of Act No. 3135.
In fact, the Real Estate Mortgage35 contains a waiver executed by the mortgagor in
favor of the mortgagee, wherein the mortgagor even waives the issuance of the writ
of possession in favor of the mortgagee. The contract provides that "effective upon
the breach of any condition ofthe mortgage and in addition to the remedies
hereinstipulated, the mortgagee is hereby likewise appointed Attorney-in-Fact of
the Mortgagor/s with full power and authority with the use of force, if necessary, to
take actual possession of the mortgaged property/ies without the necessity of any
judicial order or permission, or power, to collect rents, to eject tenants, to lease or
Page 95 of 152
sell the mortgaged property/ies or any part thereof at a private sale without
previous notice or advertisement of any kind and execute the corresponding bills of
sale, lease or other agreement that may be deemed convenient to make repairs or
improvements on the mortgaged property/ies and pay for the same and perform
any other act which the Mortgagee may deem convenient for the proper
administration of the mortgaged property/ies."36
Moreover, even without the waiver, the issuance of the writ of possession is
ministerial and non-adversarial for the only issue involved is the purchasers right to
possession; thus, an ex-parteproceeding is allowed.1wphi1
Nevertheless, the purchaser is not left without any remedy. Section 6 of Act No.
3135, as amended by Act No. 4118, provides:
SEC. 6. In all cases in which anextrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successor-ininterest or any judicial creditor
or judgment creditor of said debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the property is sold, may
redeem the same at any time within the term of one year from and after the date of
the sale; and such redemption shall be governed by the provisions of sections four
hundred and sixty-six, inclusive, of the Code ofCivil Procedure, in so far as these are
not inconsistent with the provisions of this Act.
Consequently, the provision of Section 33, Rule 39 of the Rules of Court relative to
an execution sale ismade applicable to extrajudicial foreclosure of real estate
mortgages by virtue of Section 6 of Act No. 3135, as amended.37
Section 33, Rule 39 of the Rules of Court provides: SEC. 33. Deed and possession to
be given at expiration of redemption period; by whom executed or given. If no
redemption be made within one (1) year from the dateof registration of the
certificate of sale, the purchaser is entitled toa conveyance and possession of the
property; or, if so redeemed whenever sixty (60) days have elapsed and no other
redemption has been made, and notice thereof given, and the time for redemption
has expired, the lastredemptioner is entitled to the conveyance and possession; but
in all cases the judgment obligor shall have the entire period of one (1) year from
the date of registration of the sale to redeem the property. The deed shall be
executed by the officer making the sale or his successor in office,and in the latter
case shall have the same validity as though the officermaking the sale had
continued in office and executed it.
Upon the expiration of the right of redemption, the purchaser or redemptioner shall
be substituted to and acquire all the rights, title, interest and claim of the judgment
obligor to the property as of the time of the levy. The possession of the property
shall be given to the purchaser or last redemptioner by the same officer unless a
third party is actually holding the property adversely to the judgment obligor.38
From the foregoing, upon the expiration of the right of redemption, the purchaser
or redemptioner shall besubstituted to and acquire all the rights, title, interest and
claim of the judgment debtor to the property, and its possession shall be given to
the purchaser or last redemptioner unless a third party is actually holding the
property adversely to the judgment debtor. In which case, the issuance of the writ of
possession ceases to be ex-parte and non-adversarial. Thus, where the property
levied upon on execution is occupied by a party other than a judgment debtor, the
procedure is for the court to conduct a hearing to determine the nature of said
possession, i.e., whether or not he is in possession of the subject property under a
claim adverse to that of the judgment debtor.
It is but logical that Section 33, Rule 39 of the Rules of Court be applied to cases
involving extrajudicially foreclosed properties that were bought by a purchaser and
later sold to third-party-purchasers after the lapse of the redemption period. The
remedy of a writ of possession, a remedy that is available to the mortgagee-
purchaser to acquire possession of the foreclosed property from the mortgagor, is
made available to a subsequent purchaser, butonly after hearing and after
determining that the subject property is still in the possession of the mortgagor.
Unlike if the purchaser is the mortgagee or a third party during the redemption
period, a writ of possession may issue ex-parte or without hearing. In other words, if
the purchaser is a third party who acquired the property after the redemption
period, a hearing must be conducted to determine whether possession over the
subject property is still with the mortgagor or is already in the possession of a third
party holding the same adversely to the defaulting debtor or mortgagor. If the
property is in the possession of the mortgagor, a writ of possession could thus be
issued. Otherwise, the remedy of a writ of possession is no longer available to such
purchaser, but he can wrest possession over the property through an ordinary
action of ejectment.
To be sure, immediately requiring the subsequent purchaser to file a separate case
of ejectment instead of a petition for the issuance of a writ of possession, albeit not
ex-parte, will only prolong the proceedings and unduly deny the subsequent
purchaser of possession of the property which he already bought.
WHEREFORE, premises considered, the instant petition is GRANTED. The Decision
dated September 24, 2010 and Resolution dated March 9, 2011 of the Court of
Appeals in CA-G.R. SP No. 110029 are hereby REVERSED AND SET ASIDE.
SO ORDERED.
SECOND DIVISION
G.R. No. 191540, January 21, 2015
SPOUSES JOSE O. GATUSLAO AND ERMILA LEONILA LIMSIACO-GATUSLAO,
Petitioners, v. LEO RAY V. YANSON, Respondent.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
DECISION
DEL CASTILLO, J.:
Petitioners spouses Jose O. Gatuslao and Ermila Leonila Limsiaco-Gatuslao
(petitioners) are assailing the December 8, 20091 Order of the Regional Trial Court
(RTC) of Bacolod City, Branch 49 in Cad. Case No. 09-2802 which granted
respondent Leo Ray2 Yansons (respondent) Ex Parte Motion for the Issuance of
Writ of Possession over the properties being occupied by petitioners, as well as the
February 26, 2010 RTC Order3 denying petitioners motion for reconsideration
thereto.
Factual Antecedents
Petitioner Ermila Leonila Limsiaco-Gatuslao is the daughter of the late Felicisimo
Limsiaco (Limsiaco) who died intestate on February 7, 1989. Limsiaco was the
registered owner of two parcels of land with improvements in the City of Bacolod
described as Lots 10 and 11, Block 8 of the subdivision plan Psd-38577 and covered
by Transfer Certificates of Title (TCT) Nos. T-334294 and T-
24331.5chanRoblesvirtualLawlibrary
Limsiaco mortgaged the said lots along with the house standing thereon to
Philippine National Bank (PNB). Upon Limsiacos failure to pay, PNB extrajudicially
foreclosed on the mortgage and caused the properties sale at a public auction on
June 24, 1991 where it emerged as the highest bidder. When the one-year
redemption period expired without Limsiacos estate redeeming the properties, PNB
caused the consolidation of titles in its name. Ultimately, the Registry of Deeds of
Bacolod City cancelled TCT Nos. T-33429 and T-24331 and in lieu thereof issued TCT
Nos. T-3088186 and T-3088197 in PNBs name on October 25, 2006.
On November 10, 2006, a Deed of Absolute Sale8 was executed by PNB conveying
the subject properties in favor of respondent. As a consequence thereof, the
Registry of Deeds of Bacolod City issued TCT Nos. T-3111259 and T-31112610 in
respondents name in lieu of PNBs titles.
Then, as a registered owner in fee simple of the contested properties, respondent
filed with the RTC an Ex-Parte Motion for Writ of Possession11 pursuant to Section
7 of Act No. 3135,12 as amended by Act No. 4118 (Act No. 3135, as amended),13
docketed as Cad. Case No. 09-2802.
In their Opposition,14 petitioners argued that the respondent is not entitled to the
issuance of an ex-parte writ of possession under Section 7 of Act No. 3135 since he
was not the buyer of the subject properties at the public auction sale and only
purchased the same through a subsequent sale made by PNB. Not being the
purchaser at the public auction sale, respondent cannot file and be granted an ex
parte motion for a writ of possession. Petitioners also asserted that the intestate
estate of Limsiaco has already instituted an action for annulment of foreclosure of
mortgage and auction sale affecting the contested properties.15 They argued that
the existence of the said civil suit bars the issuance of the writ of possession and
that whatever rights and interests respondent may have acquired from PNB by
virtue of the sale are still subject to the outcome of the said case.
Ruling of the Regional Trial Court
The RTC granted the issuance of the writ of possession in an Order16 dated
December 8, 2009. It cited the Courts pronouncement in China Banking
Corporation v. Lozada,17viz:chanroblesvirtuallawlibrary
The Court recognizes the rights acquired by the purchaser of the foreclosed
property at the public auction sale upon the consolidation of his title when no
timely redemption of the property was made, x x x.
It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of
the property purchased if it is not redeemed during the period of one year after the
registration of the sale. As such, he is entitled to the possession of the said property
and can demand it at any time following the consolidation of ownership in his name
and the issuance to him of a new transfer certificate of title. x x x Possession of the
land then becomes an absolute right of the purchaser as confirmed owner. Upon
proper application and proof of title, the issuance of the writ of possession becomes
a ministerial duty of the court.
The purchaser, therefore, in the public auction sale of a foreclosed property is
entitled to a writ of possession x x x.18
PNB, therefore, as the absolute owner of the properties is entitled to a writ of
possession. And since respondent purchased the properties from PNB, the former
has necessarily stepped into the shoes of the latter. Otherwise stated, respondent,
by subrogation, has the right to pursue PNBs claims against petitioners as though
they were his own.
The dispositive portion of the above Order reads:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the Court hereby issues a writ of possession in
favor of movant Leo Ray V. Yanson ordering Spouses Jose and Mila Gatuslao, their
heirs, assigns, successors-in-interest, agents, representatives and/or any and all
other occupants or persons claiming any interest or title of the subject property to
deliver the possession of said property to the herein movant/ petitioner.
SO ORDERED.19
Petitioners moved for reconsideration20 which was denied in an Order21 dated
February 26, 2010, thus:chanroblesvirtuallawlibrary
Page 96 of 152

WHEREFORE, the Motion for Reconsideration filed by Oppositors is hereby DENIED.
Thus, the Order dated December 8, 2009 stands.
SO ORDERED.22
Respondent on March 19, 2010 moved to execute the possessory writ23 while
petitioners on April 15, 2010 filed with this Court the present Petition for Review on
Certiorari.
On September 30, 2010, the RTC issued an Order24 directing the implementation of
the writ. And per Sheriffs Return of Service,25 the same was fully implemented on
March 14, 2011.cralawred
Issues
According to petitioners, the pending action for annulment of foreclosure of
mortgage and the corresponding sale at public auction of the subject properties
operates as a bar to the issuance of a writ of possession;
Claiming violation of their right to due process, petitioners likewise assert that as
they were not parties to the foreclosure and are, thus, strangers or third parties
thereto, they may not be evicted by a mere ex parte writ of possession; and
Lastly, petitioners argue that respondent, a mere purchaser of the contested
properties by way of a negotiated sale between him and PNB, may not avail of a
writ of possession pursuant to Section 7 of Act No. 3135, as amended, as he is not
the purchaser at the public auction sale. Petitioners further contend that respondent
has no right to avail of the writ even by way of subrogation.
Our Ruling
Preliminarily, we note that petitioners direct resort to this Court from the assailed
Orders of the RTC violates the rule on hierarchy of courts. Their remedy lies with
the Court of Appeals. Considering however the length of time this case has been
pending and in view of our January 26, 2011 Resolution26 giving due course to the
Petition, we deem it proper to adjudicate the case on its merits.
The Petition is denied.
It is settled that the issuance of a Writ of
Possession may not be stayed by a pending
action for annulment of mortgage or the
foreclosure itself.
It is petitioners stand that the pending action for annulment of foreclosure of
mortgage and of the corresponding sale at public auction of the subject properties
operates as a bar to the issuance of a writ of possession.
The Court rules in the negative. BPI Family Savings Bank, Inc. v. Golden Power Diesel
Sales Center, Inc.27 reiterates the long-standing rule that:chanroblesvirtuallawlibrary
[I]t is settled that a pending action for annulment of mortgage or foreclosure sale
does not stay the issuance of the writ of possession. The trial court, where the
application for a writ of possession is filed, does not need to look into the validity of
the mortgage or the manner of its foreclosure. The purchaser is entitled to a writ of
possession without prejudice to the outcome of the pending annulment case.
This is in line with the ministerial character of the possessory writ. Thus, in Bank of
the Philippine Islands v. Tarampi,28 it was held:chanroblesvirtuallawlibrary
To stress the ministerial character of the writ of possession, the Court has disallowed
injunction to prohibit its issuance, just as it has held that its issuance may not be
stayed by a pending action for annulment of mortgage or the foreclosure itself.
Clearly then, until the foreclosure sale of the property in question is annulled by a
court of competent jurisdiction, the issuance of a writ of possession remains the
ministerial duty of the trial court. The same is true with its implementation;
otherwise, the writ will be a useless paper judgment a result inimical to the
mandate of Act No. 3135 to vest possession in the purchaser immediately.29
(Emphases supplied)
Clearly, petitioners argument is devoid of merit.
Petitioners are not strangers or third
parties to the foreclosure sale; they
were not deprived of due process.
Section 7 of Act No. 3135, as amended, sets forth the following procedure in the
availment of and issuance of a writ of possession in cases of extrajudicial
foreclosures, viz:chanroblesvirtuallawlibrary
SECTION 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance (Regional Trial Court) of the province or place
where the property or any part thereof is situated, to give him possession thereof
during the redemption period, furnishing bond in an amount equivalent to the use
of the property for a period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or without complying
with the requirements of this Act. Such petition shall be made under oath and filed
in form of an ex parte motion in the registration or cadastral proceedings if the
property is registered, or in special proceedings in the case of property registered
under the Mortgage Law or under section one hundred and ninety-four of the
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Administrative Code, or of any other real property encumbered with a mortgage
duly registered in the office of any register of deeds in accordance with any existing
law, and in each case the clerk of the court shall, upon the filing of such petition,
collect the fees specified in paragraph eleven of section one hundred and fourteen
of Act Numbered Four hundred and ninety-six, as amended by Act Numbered
Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond,
order that a writ of possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order immediately.
Although the above provision clearly pertains to a writ of possession availed of and
issued within the redemption period of the foreclosure sale, the same procedure
also applies to a situation where a purchaser is seeking possession of the foreclosed
property bought at the public auction sale after the redemption period has expired
without redemption having been made.30 The only difference is that in the latter
case, no bond is required therefor, as held in China Banking Corporation v.
Lozada,31 thus:chanroblesvirtuallawlibrary
It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of
the property purchased if it is not redeemed during the period of one year after the
registration of the sale. As such, he is entitled to the possession of the said property
and can demand it at any time following the consolidation of ownership in his name
and the issuance to him of a new transfer certificate of title. The buyer can in fact
demand possession of the land even during the redemption period except that he
has to post a bond in accordance with Section 7 of Act No. 3135, as amended. No
such bond is required after the redemption period if the property is not redeemed. x
x x32 (Emphasis supplied)
Upon the expiration of the period to redeem and no redemption was made, the
purchaser, as confirmed owner, has the absolute right to possess the land and the
issuance of the writ of possession becomes a ministerial duty of the court upon
proper application and proof of title.33chanRoblesvirtualLawlibrary
Nevertheless, where the extrajudicially foreclosed real property is in the possession
of a third party who is holding the same adversely to the judgment debtor or
mortgagor, the RTCs duty to issue a writ of possession in favor of the purchaser of
said real property ceases to be ministerial and, as such, may no longer proceed ex
parte.34 In such a case, the trial court must order a hearing to determine the nature
of the adverse possession.35 For this exception to apply, however, it is not enough
that the property is in the possession of a third party, the property must also be
held by the third party adversely to the judgment debtor or mortgagor,36 such as a
co-owner, agricultural tenant or usufructuary.37chanRoblesvirtualLawlibrary
In this case, petitioners do not fall under any of the above examples of such a third
party holding the subject properties adversely to the mortgagor; nor is their claim to
their right of possession analogous to the foregoing situations. Admittedly, they are
the mortgagor Limsiacos heirs. It was precisely because of Limsiacos death that
petitioners obtained the right to possess the subject properties and, as such, are
considered transferees or successors-in-interest of the right of possession of the
latter. As Limsiacos successors-in-interest, petitioners merely stepped into his
shoes and are, thus, compelled not only to acknowledge but, more importantly, to
respect the mortgage he had earlier executed in favor of respondent.38 They
cannot effectively assert that their right of possession is adverse to that of Limsiaco
as they do not have an independent right of possession other than what they
acquired from him.39 Not being third parties who have a right contrary to that of
the mortgagor, the trial court was thus justified in issuing the writ and in ordering its
implementation.
Petitioners claim that their right to due process was violated by the mere issuance
of the writ of possession must likewise fail. As explained, petitioners were not
occupying the properties adversely to the mortgagor, hence, a writ of possession
may be issued ex parte. And precisely because of this ex parte nature of the
proceedings no notice is needed to be served40 upon them. It has been stressed
time and again that the ex parte nature of the proceeding does not deny due
process to the petitioners because the issuance of the writ of possession does not
prevent a separate case for annulment of mortgage and foreclosure sale.41
Consequently, the RTC may grant the petition even without petitioners
participation. Nevertheless, even if the proceedings in this case was supposed to be
ex parte, the records of the case would show that petitioners side on this
controversy was actually heard as evidenced by the numerous pleadings42 filed by
them in the lower court. In fact, in its July 27, 2009 Order,43 the RTC expressly
directed respondent, in observance of equity and fair play x x x to furnish
[petitioners] with a copy of his motion/petition and to show x x x proof of
compliance thereof x x x.44 Then and now, the Court holds that a party cannot
invoke denial of due process when he was given an opportunity to present his
side.45chanRoblesvirtualLawlibrary
Respondent is entitled to the
issuance of writ of possession.
Petitioners insist that respondent is not entitled to the issuance of the writ of
possession under Section 7 of Act No. 3135 as he is only a buyer of the subject
properties in a contract of sale subsequently executed in his favor by the actual
purchaser, PNB. To them, it is only the actual purchaser of a property at the public
auction sale who can ask the court and be granted a writ of possession.
This argument is not tenable. Respondent, as a transferee or successor-in-interest of
PNB by virtue of the contract of sale between them, is considered to have stepped
into the shoes of PNB. As such, he is necessarily entitled to avail of the provisions of
Section 7 of Act No. 3135, as amended, as if he is PNB. This is apparent in the Deed
of Absolute Sale46 between the two, viz:chanroblesvirtuallawlibrary
Page 97 of 152
The Vendor hereby sells, transfer[s] and convey[s] unto[, and] in favor of the Vendee,
and the latters assigns and successors-in-interest, all of the formers rights and title
to, interests and participation in the Property on an AS IS, WHERE IS basis. It is
thus understood that the Vendee has inspected the Property and has ascertained its
condition.
xxxx
The Vendor is selling only whatever rights and title to, interests and participation it
has acquired over the Property, and the Vendee hereby acknowledges full
knowledge of the nature and extent of the Vendors rights and title to, [and]
interests and participation in the Property.
x x x The Vendee further agrees to undertake, at its/his/her expense, the ejectment
of any occupant of the Property.47 (Emphases in the original)
Verily, one of the rights that PNB acquired as purchaser of the subject properties at
the public auction sale, which it could validly convey by way of its subsequent sale
of the same to respondent, is the availment of a writ of possession. This can be
deduced from the above-quoted stipulation that [t]he [v]endee further agrees to
undertake, at xxx his expense, the ejectment of any occupant of the [p]roperty.
Accordingly, respondent filed the contentious ex parte motion for a writ of
possession to eject petitioners therefrom and take possession of the subject
properties.
Further, respondent may rightfully take possession of the subject properties through
a writ of possession, even if he was not the actual buyer thereof at the public
auction sale, in consonance with our ruling in Ermitao v. Paglas.48 In the said case,
therein respondent was petitioners lessee in a residential property owned by the
latter. During the lifetime of the lease, respondent learned that petitioner
mortgaged the subject property in favor of Charlie Yap (Yap) who eventually
foreclosed the same. Yap was the purchaser thereof in an extrajudicial foreclosure
sale. Respondent ultimately bought the property from Yap. However, it was
stipulated in the deed of sale that the property was still subject to petitioners right
of redemption. Subsequently and despite written demands to pay the amounts
corresponding to her monthly rental of the subject property, respondent did not
anymore pay rents. Meanwhile, petitioners period to redeem the foreclosed
property expired on February 23, 2001. Several months after, petitioner filed a case
for unlawful detainer against respondent. When the case reached this Court, it ruled
that therein respondents basis for denying petitioners claim for rent was
insufficient as the latter, during the period for which payment of rent was being
demanded, was still the owner of the foreclosed property. This is because at that
time, the period of redemption has not yet expired. Thus, petitioner was still
entitled to the physical possession thereof subject, however, to the purchasers right
to petition the court to give him possession and to file a bond pursuant to the
provisions of Section 7 of Act No. 3135, as amended. However, after the expiration
of the redemption period without redemption having been made by petitioner,
respondent became the owner thereof and consolidation of title becomes a right.
Being already then the owner, respondent became entitled to possession.
Consequently, petitioners ejectment suit was held to have been rendered moot by
the expiration of the period of redemption without petitioner redeeming the
properties. This is considering that petitioner already lost his possessory right over
the property after the expiration of the said period.
Although the main issue in Ermitao was whether respondent was correct in
refusing to pay rent to petitioner on the basis of her having bought the latters
foreclosed property from whom it was mortgaged, the case is enlightening as it
acknowledged respondents right, as a subsequent buyer of the properties from the
actual purchaser of the same in the public auction sale, to possess the property after
the expiration of the period to redeem sans any redemption. Verily, Ermitao
demonstrates the applicability of the provisions of Section 7 of Act No. 3135 to such
a subsequent purchaser like respondent in the present case.
All told, the Court affirms the RTCs issuance of the Writ of Possession in favor of
respondent.chanrobleslaw
WHEREFORE, the Petition is hereby DENIED. The December 8, 2009 and February
26, 2010 Orders of the Regional Trial Court of Bacolod City, Branch 49 in Cad. Case
No. 09-2802 are AFFIRMED.
SO ORDERED.cralawl
FIRST DIVISION
G.R. No. 204672, February 18, 2015
SPOUSES RODOLFO AND MARCELINA GUEVARRA, Petitioners, v. THE COMMONER
LENDING CORPORATION, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1are the Decision2 dated October 3,
2011 and the Resolution3 dated October 17, 2012 of the Court of Appeals (CA) in
CA-G.R. CV No. 02895,which affirmed with modification the Order4 dated October
20, 2008 of the Regional Trial Court of Guimbal, Iloilo, Branch 67 (RTC) in Cadastral
Case Nos. 118 and 122, allowing petitioners-spouses Rodolfo and Marcelina
Guevarra (Sps. Guevarra) to exercise their right to repurchase the mortgaged
property subject of this case, conditioned upon the payment of the purchase price
fixed by respondent The Commoner Lending Corporation, Inc.
(TCLC).chanroblesvirtuallawlibrary
CRED TRANS Pledge, Mortgage Antichresis Fulltext
The Facts
On December 16, 1996,5Sps. Guevarra obtained a P320,000.00 loan from TCLC,
which was secured by a real estate mortgage6 over a 5,532- square meter parcel of
land situated in Guimbal, Iloilo, covered by Original Certificate of Title (OCT) No. F-
319007 (subject property), emanating from a free patent granted to Sps. Guevarraon
February 25, 1986.8cralawred
Sps. Guevarra, however, defaulted in the payment of their loan, promptingTCLC to
extra-judicially foreclose the mortgage on the subject property9 in accordance with
Act No. 3135,10 as amended.In the process, TCLCemerged as the highest bidder at
the public auction sale held on June 15, 2000 for the bid amount of
P150,000.00,11and on August 25, 2000, the certificate of sale was registered with
the Registry of Deeds of Iloilo.12cralawred
Eventually, Sps. Guevarrafailed to redeem the subject property within the one-year
reglementary period, which led to the cancellation of OCT No. F-31900 and the
issuance of Transfer Certificate of Title No.T-1618713 in the name of TCLC.
Thereafter, TCLCdemanded that Sps. Guevarra vacate the property, but to no
avail.14cralawred
The RTC Proceedings
On June 10, 2005, TCLC applied for a writ of possession15 before the RTC, docketed
as Cadastral Case No. 118.Sps. Guevarraopposed16 the samebychallenging the
validity of the foreclosure proceedingsdue tothe purported failure of TCLC to
comply with the notice, posting and publication requirements, and lack of authority,
as a corporation,to acquire the subject property. Sps. Guevarra also assailed the
issuance by the Sheriff of Iloilo of a Final Deed of Sale17 to be premature, as they
were still entitled to redeem the subject property within five (5) yearsfrom the
expiration of the one-year period to repurchase.18cralawred
Subsequently, or on September 8, 2005, Sps. Guevarra filed before the RTC a
petition for redemption,19 docketed as Cadastral Case No. 122, maintaining that the
redemption period did not expire on August 25, 2001, or one (1) year from the
registration of the certificate of sale, but will still expire five (5) years therefrom, or
on August 25, 2006.20 They further averred that they pleaded to be allowed to
redeem the subject property but TCLC unjustifiably refused the same, constraining
them to file said petition, offering to redeem the subject property at P150,000.00,
plus one percent (1%) interest per month for five (5) years from August 25, 2000, or
in the amount of P240,000.00,21 which they consigned22 to the RTC.
Cadastral Case Nos. 118 and 122 werelater consolidated.23cralawred
Inan Order24 dated July 12, 2006, the RTC granted TCLCs petition in Cadastral Case
No. 118, resulting in the issuance of the corresponding Writ of Possession25
andNotice to Vacate26which were duly served uponSps. Guevarra.27Accordingly,
the latterfiled a motion for reconsideration28 andMotion to Hold in Abeyance the
Implementation of the Writ of Possession.29cralawred
In an Order30 dated October 20, 2008, the RTC denied the motion for
reconsideration in Cadastral Case No. 118, but granted Sps. Guevarraspetition in
Cadastral Case No. 122. In so doing, the RTC recognizedSps. Guevarras right to
repurchase the subject property, pointing out that they were able to file their
petition within the five-yearperiod provided under Section 119 of Commonwealth
Act No. 141,31 otherwise known as the Public Land Act (Public Land Act).32As a
consequence, the RTC directed TCLC to reconvey the subject propertyto Sps.
Guevarraand execute the corresponding deed of reconveyance upon payment of
the purchase price of ?150,000.00, plus one percent(1%) interest per month from
the date of the auction sale on June 15, 2000upto August 8, 2006,as well as the
corresponding tax assessments and foreclosure expenses.33cralawred
Dissatisfied, TCLC filed a motion for reconsideration34 which was, however, denied
in an Order35 dated January 6, 2009; thus, itfiled an appeal36 before the
CA.chanroblesvirtuallawlibrary
The CA Proceedings
In a Decision37 dated October 3, 2011, the CA affirmed the RTCs October 20, 2008
Order, upholding Sps. Guevarras right to repurchase the subject property pursuant
to Section 119 of the Public Land Act, with modification that the same be
conditioned upon the payment of the purchase price fixed by TCLC. It ruled that
after the expiration of the redemption period, the present owner, i.e., TCLC,has the
discretion to set a higher price.38cralawred
Aggrieved, Sps. Guevarra filed a motion for reconsideration39 which was, however,
denied in a Resolution40 dated October 17, 2012, hence, this petition.
The Issue Before the Court
The essential issue in this case is whether or not the CA committed a reversible error
in ruling that the repurchase price for the subject property should be fixed by TCLC.
The Courts Ruling
In an extra-judicial foreclosure of registered land acquired under a free patent, the
mortgagor may redeem the property within two (2) years from the date of
foreclosure if the land is mortgaged to a rural bank under Republic Act No. (RA)
Page 98 of 152
720,41 as amended, otherwise known as the Rural Banks Act, or within one (1) year
from the registration of the certificate of sale if the land is mortgaged to parties
other than rural banks pursuant to Act No. 3135.42 If the mortgagor fails to exercise
such right, he or his heirs may still repurchase the property within five (5) years from
the expiration of the aforementioned redemption period43 pursuant to Section 119
of the Public Land Act, which states:chanRoblesvirtualLawlibrary
SEC. 119. Every conveyance of land acquired under the free patent or homestead
provisions, when proper, shall be subject to repurchase by the applicant, his widow,
or legal heirs, within a period of five years from the date of the
conveyance.cralawlawlibrary
In this case, the subject property was mortgaged to and foreclosed by TCLC, which
is a lending or credit institution, and not a rural bank; hence, the redemption period
is one (1) year from the registration of the certificate of sale on August 25, 2000, or
until August 25, 2001. Given that Sps. Guevarra failed to redeem the subject
property within the aforestated redemption period, TCLC was entitled, as a matter
of right, to consolidate its ownership and to possess the same.44 Nonetheless, such
right should not negate Sps. Guevarras right to repurchase said property within five
(5) years from the expiration of the redemption period on August 25, 2001, or until
August 25, 2006, in view of Section 119 of the Public Land Act as above-cited.
In this relation, it is apt to clarify that contrary to TCLCs claim,45the tender of the
repurchase price is not necessary for the preservation of the right of repurchase,
because the filing of a judicial action for such purpose within the five-year period
under Section 119 of the Public Land Actis already equivalent to a formal offer to
redeem. On this premise, consignation of the redemption price is equally
unnecessary.46cralawred
Thus, the RTC and CAboth correctly ruled that Sps. Guevarras right to repurchase
the subject property had not yet expiredwhen Cadastral Case No. 122 was filed on
September 8, 2005. That being said, the Court now proceeds to determine the
proper amount of the repurchase price.
Sps. Guevarrainsist that the repurchase price should be the purchase price at the
auction sale plus interest of one percent (1%) per month and other assessment
fees,47citing the rulings in the cases of Belisario v. Intermediate Appellate Court48
(Belisario) and Salenillas v. CA49 (Salenillas). On the other hand, TCLC maintains that
it is entitled to its total claims under the promissory note and the mortgage
contract50in accordance with Section 4751 of the General Banking Law of
2000.52cralawred
TCLCs argument is partly correct.
To resolve the matter, it must first be pointed out that case law has equated a right
of repurchase of foreclosed properties under Section 119 of the Public Land Act as a
right of redemption53 and the repurchase price as a redemption price.54 Thus,
in Salenillas, the Court applied then Section 30, now Section 28, Rule 39 of the Rules
of Court (Rules) in the redemption of the foreclosed property covered by a free
patent:chanRoblesvirtualLawlibrary
Now, as regards the redemption price, applying Sec. 30 of Rule 39 of the [Rules], the
petitioners should reimburse the private respondent the amount of the purchase
price at the public auction plus interest at the rate of one per centum per month up
to November 17, 1983, together with the amounts of assessments and taxes on the
property that the private respondent might have paid after purchase and interest on
the last named amount at the same rate as that on the purchase price. (Emphases
supplied)55cralawlawlibrary
The Court has,however, ruled56 that redemptions from lending or credit institutions,
like TCLC, are governed by Section 7857 of the General Banking Act (now Section 47
of the General Banking Law of 2000), which amended Section 6 of Act No. 3135 in
relation to the proper redemption price when the mortgagee is a bank, or a banking
or credit institution.58cralawred
Nonetheless, the Court cannot subscribe to TCLCs contention that it is entitled to
its total claims under the promissory note and the mortgage contract59in view of
the settled rule that an action to foreclose must be limited to the amount
mentioned in the mortgage.60Hence, amounts not stated therein must be excluded,
like the penalty charges of three percent (3%) per month included in TCLCs
claim.61A penalty charge is likened to a compensation for damages in case of
breach of the obligation. Being penal in nature,it must be specific and fixed by the
contracting parties.62cralawred
Moreover, the Court notes that the stipulated three percent (3%) monthly interest is
excessive and unconscionable.In a plethora of cases, the Court has affirmed that
stipulated interest rates of three percent (3%) per month and higher are excessive,
iniquitous, unconscionable, and exorbitant,63hence, illegal64and void for being
contrary to morals.65 In Agner v. BPI Family Savings Bank, Inc.,66 the Court had the
occasion to rule:chanRoblesvirtualLawlibrary
Settled is the principle which this Court has affirmed in a number of cases that
stipulated interest rates of three percent (3%) per month and higher are excessive,
iniquitous, unconscionable, and exorbitant. While Central Bank Circular No. 905-82,
which took effect on January 1, 1983, effectively removed the ceiling on interest
rates for both secured and unsecured loans, regardless of maturity, nothing in the
said circular could possibly be read as granting carte blanche authority to lenders to
raise interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets. Since the stipulation on the interest rate is void for
being contrary to morals, if not against the law, it is as if there was no express
CRED TRANS Pledge, Mortgage Antichresis Fulltext
contract on said interest rate; thus, the interest rate may be reduced as reason and
equity demand. (Emphases supplied)67cralawlawlibrary
As such, the stipulated three percent (3%) monthly interest should be equitably
reduced to one percent (1%) per month or twelve percent (12%) per annum
reckoned from the execution of the real estate mortgage on December 12, 1996,68
until the filing of the petition in Cadastral Case No. 122 on September 8, 2005.
In addition to the principal and interest, the repurchase price should also include all
the expenses of foreclosure, i.e., Judicial Commission, Publication Fee, and Sheriffs
Fee, in accordance with Section 4769 of the General Banking Law of 2000.
Considering further that Sps. Guevarra failed to redeem the subject property within
the one-year reglementary period, they are liable to reimburse TCLC for the
corresponding Documentary Stamp Tax (DST) and Capital Gains Tax (CGT) it paid
pursuant to Bureau of Internal Revenue (BIR) Revenue Regulations No. 4-99,70which
requires the payment of DST on extra-judicial foreclosure sales of capital assets
initiated by banks, finance and insurance companies, as well as CGT in cases of non-
redemption. CGT and DST are expenses incident to TCLCs custody of the subject
property, hence, likewise due, under the above provision of law.
Accordingly, the repurchase price is hereby computed as follows:
Principal
P320,000.00
Add: Interest from 12/12/1996 to 09/05/2005
from 12/12/1996 to 12/12/2004: (P320,000.00 x 12% x 8 years)
P307,200.00
from 12/13/2004 to 09/08/2005: (P320,000.00 x 12% x 270/365)
28,405.48
335,605.48
Total Amount due under the mortgage
P655,605.48
Add:
Capital Gains Tax
18,203.17
Documentary Stamp Tax
4,501.46
Judicial Commission
4,150.00
Publication Fee
4,000.00
Sheriffs Fee
3,000.00
Repurchase Price
P689,460.11
==============
From this repurchase priceshall be deducted the amount consigned to the RTC, or
P240,000.00. Sps. Guevarramay repurchase the subject property within thirty (30)
days from finality of this Decision upon payment of the net amount of P449,460.11.
WHEREFORE, the petition is DENIED. The Decision dated October 3, 2011 and the
Resolution dated October 17, 2012 of the Court of Appeals in CA-G.R. CV No. 02895
are hereby AFFIRMED with MODIFICATION allowing petitioners-spouses Rodolfo
and MarcelinaGuevarra to repurchase the subject property from respondent The
Commoner Lending Corporation, Inc. (TCLC) within thirty (30) days from the finality
of this Decision for the price of P689,460.11, less the amount of P240,000.00
previously consigned to the court a quo, or the net amount of P449,460.11, for
which the corresponding deed of absolute conveyance shall be executed by TCLC.
SO ORDERED.cralawlawlibrary
FIRST DIVISION
G.R. No. 189061 August 6, 2014
MIDWAY MARITIME AND TECHNOLOGICAL FOUNDATION, represented by its
Chairman/President PhD in Education DR. SABINO M. MANGLICMOT, Petitioner,
vs.
MARISSA E. CASTRO, ET AL., Respondents.
DECISION
REYES, J.:
The petitioner Midway Maritime and Technological Foundation (petitioner) is the
lessee of two parcels of land in Cabanatuan City. Its president, Dr. Sabino
Manglicmot (Manglicmot), is married to Adoracion Cloma (Adoracion), who is the
registered owner of the property under Transfer Certificate of Title (TCT) Nos. T-
71321 and T-71322. Inside said property stands a residential building, which is now
the subject matter of the dispute, owned by the respondents.
The two parcels of land, on a portion of which the residential building stand, were
originally owned by the respondents father Louis Castro, Sr. The elder Castro was
also the president of Cabanatuan City Colleges (CCC). On August 15, 1974, Castro
mortgaged the property to Bancom Development Corporation (Bancom) to secure a
loan. During the subsistence of the mortgage, CCCs board of directors agreed to a
15-year lease of a portion of the property to the Castrochildren, herein respondents,
who subsequently built the residential house nowin dispute. The lease was to expire
in 1992.
Page 99 of 152

When CCC failed to pay its obligation, Bancom foreclosed the mortgage and the
property was sold at public auction in 1979, with Bancom as the highest bidder.
Bancom thereafter assigned the credit to Union Bank of the Philippines (Union
Bank), and later on, Union Bank consolidated its ownership over the properties in
1984 due to CCCs failure to redeem the property. When Union Bank sought the
issuance of a writ of possession over the properties, which included the residential
building, respondents opposed the same. The case reached the Court in G.R. No.
97401 entitled, Castro, Jr. v. CA,1 and in a Decision dated December 6, 1995, the
Court ruled that the residential house owned by the respondents should not have
been included in the writ of possession issued by the trial court as CCC has no title
over it.
In the meantime, Adoracions father, Tomas Cloma (Tomas), bought the two parcels
of land from Union Bank in an auction sale conducted on July 13, 1993. Tomas
subsequently leased the property to the petitioner and thereafter, sold the same to
Adoracion.Several suits were brought by the respondents against the petitioner,
including the case at bench, which is an action for Ownership, Recovery of
Possession and Damages, docketed as Civil Case No. 3700 (AF).
In their Amended Complaint2 dated April 19, 2000, the respondents alleged that: (1)
they are the owners ofthe residential building subject of the dispute, which they
used from 1977 to 1985 when they left for the United States of America and
instituted their uncle, Josefino C. Castro (Josefino), as the caretaker; (2) Manglicmot,
who was the President of the petitioner Midway Maritime and Technological
Foundation, leased the building (except for the portion occupied by Josefino) from
Lourdes Castro, mother of the respondents, in June 1993 withmonthly rent of
P6,000.00, which was later to be increased to P10,000.00 in October 1995 after
Josefino vacates his occupied portion; (3) the petitioner failed to pay rent starting
August 1995, thus prompting the respondents to file the action. The respondents
prayed that they be declared as the owners of the residential building, and that the
petitioner be ordered to vacate the same and pay rent arrearages and damages.3
The petitioner, however, denied respondents ownership of the residential building
and claimed that Adoracion owns the building, having bought the same together
with the land on which it stands.4
In a Decision5 dated July 2, 2001, the Regional Trial Court (RTC) of Cabanatuan City,
Branch 28, rendered judgment in favor of the respondents, declared them as the
absolute owners of the residential building and ordered petitioner to pay the
respondents unpaidrentals from August 1995 until fully paid. The dispositive portion
of the RTC decision reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the [respondents] asthe absolute owners of the building in question
described as follows:
xxxx
2. Ordering the [petitioner] topay the [respondents] the sum of [P]672,000.00 by
way of unpaid rentals from August 1995 at [P]6,000.00 and from October 1995 at
[P]10,000.00 until fully paid.
3. The claim for moral damages,other litigation expenses and attorneys fees are
dismissed for lack of merit.
SO ORDERED.6
The Court of Appeals (CA) dismissed the petitioners appeal and affirmed the RTC
decision in the assailed Decision7 dated October 29, 2008 and Resolution8 dated
August 3, 2009. Hence, this petition.
The petitioner contests the award ofrentals made by the RTC, which was affirmed by
the CA, contending that when Tomas bought the two parcels of land from Union
Bank in 1993, the sale included the improvements thereon, one of which was the
residential house in dispute. The petitioner also argues that the lease between CCC
and the respondents already expired at the time of the sale and they are now the
current lessees of the property, albeit the residential house is still standing inside
the school compound.9 The petitioner relies on a decision rendered by the RTC of
Cabanatuan City, Branch 26, in Civil Case No. 2939 (AF),which was an appeal from
the trial courts dismissal of the complaint for Ejectment with Damages filed by the
respondents against the petitioner. In said decision, the RTC stated that "in the
advertised sale of the lots covered by TCT Nos. T-45816 and [T-45817] of the land
records of Cabanatuan City, all improvements were included, hence, the instant case
has no factual and legal basis."10 Ruling of the Court
The first issue to be resolved iswhether there was a lease agreement between the
petitioner and the respondents as regards the residential building. Such issue, it
must beemphasized, is a question of fact11 that has been resolved by the RTC in the
affirmative, towit: "from June 1993 to July 25, 1995 or for a period of 26 months, the
[petitioner] has been paying rentals for the building in question and paid a rental of
[P]156,000.00 which rental was increasedto P10,000.00 beginning October 1995
when the caretaker of the [respondents] Mr. Josefino Castro was ejected therefrom
and the entire building was leased to the [petitioner], represented by Dr. Sabino
Manglicmot."12 Such finding is borne by the records of this case. Exhibit "J"13 for
the respondents is a cash disbursement voucher issued by the petitioner to Mrs.
Lourdes Castro. The voucher contained the statement "payment of building rentals x
x x from June 01 to December 01, 1993" in the total amount of P36,000.00. The
petitioners payment of the foregoing rentals confirms the existence of its
agreement to lease the residential building from the respondents.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Given the existence of the lease,the petitioners claim denying the respondents
ownership of the residential house must be rejected.1wphi1 According to the
petitioner, it is Adoracion who actually owns the residential building having bought
the same, together withthe two parcels of land, from her father Tomas, who, in turn,
bought it in an auction sale.
It is settled that "[o]nce a contact of lease is shown to exist between the parties, the
lessee cannot by any proof, however strong, overturn the conclusive presumption
that the lessor has a valid title to or a better right of possession to the subject
premises than the lessee."14 Section 2(b), Rule 131 of the Rules of Court prohibits a
tenant from denying the title of his landlord at the time of the commencement of
the relation of landlord and tenant between them.15 In Santos v. National Statistics
Office,16 the Court expounded on the rule on estoppel against a tenant and further
clarified that what a tenant is estopped from denying is the title of his landlord at
the time of the commencement of the landlord-tenant relation. If the title asserted
is one that is alleged to have been acquired subsequent to the commencement of
that relation, the presumption will not apply.17
In this case, the petitioners basis for insisting on Adoracions ownership dates back
to the latters purchase of the two parcels of land from her father, Tomas. It was
Tomas who bought the property in an auction sale by Union Bank in 1993 and
leased the same to the petitioner in the same year. Note must be madethat the
petitioners president, Manglicmot, is the husband of Adoracion and son-in-law of
Tomas. It is not improbable that at the time the petitioner leased the residential
building from the respondents mother in 1993, it was aware of the circumstances
surrounding the sale of the two parcels of land and the natureof the respondents
claim over the residential house. Yet, the petitioner still chose to lease the building.
Consequently, the petitioner is now estopped from denying the respondents title
over the residential building.
More importantly, the respondentsownership of the residential building is already
an established fact.
"Nemo dat quod non habet. One can sell only what one owns or is authorized to
sell, and the buyer can acquire no more right than what the seller can transfer
legally."18 It must be pointed out that what Tomas bought from Union Bank in the
auction sale werethe two parcels of land originally owned and mortgaged by CCC to
Bancom, and which mortgage was later assigned by Bancom to Union Bank.
Contrary to the petitioners assertion, the property subject of the mortgage and
consequently the auction sale pertains only to these two parcels of land and did not
include the residential house. This was precisely the tenor of Castro, Jr. v. CA19
where the Court nullified the writ of possession issued by the trial court insofar as it
affected the residential house constructed by the respondents on the mortgaged
property as it was not owned by CCC, which was the mortgagor. The Court ruled:
[Article 2127 of the Civil Code] extends the effects of the real estate mortgage to
accessions and accessories found on the hypothecated property when the secured
obligation becomes due. The law is predicated on an assumption that the
ownership of such accessions and accessories also belongs to the mortgagor as the
owner of the principal. The provision has thus been seen by the Court, x x x, to
mean that all improvements subsequently introduced or owned by the mortgagor
on the encumbered property are deemed to form part of the mortgage. That the
improvements are to be considered so incorporated only if so owned by the
mortgagor is a rule that can hardly be debated since a contract of security, whether
real or personal, needs as an indispensable element thereof the ownership by the
pledgor ormortgagor of the property pledged or mortgaged. The rationale
shouldbe clear enough in the event of default on the secured obligation, the
foreclosure sale of the property would naturally be the next step that can expectedly
follow. A sale would result in the transmission of title to the buyer which is feasible
only if the seller can be in a position to convey ownership of the thing sold (Article
1458, Civil Code). It is to say, in the instant case, that a foreclosure would be
ineffective unless the mortgagor has title to the property to be foreclosed.20
(Citations omitted and emphasis ours) The rule is that "when a decision becomes
final and executory, it becomes valid and binding upon the parties and their
successors in interest."21 Such being the case, Castro, which already determined
with finality the respondents ownership of the residential house in question, is
applicable and binding in this case and the petitioner cannotbe allowed to
challenge the same. Thus, as correctlyruled by the CA, "[t]o our mind, the
pronouncement resolving the said issue necessarily touches also the issue on the
ownership of the building. x x x The finding of the Court [in Castro], now being final
and executory, is no longer open for inquiry and therefore, has attained its
immutability."22
As regards the ruling of the RTC of Cabanatuan City, Branch 26, in Civil Case No.
2939 (AF) that the advertised sale of the property included allthe improvements
thereon,23 suffice it to say that said case involved an action for ejectment and any
resolution by the RTC on the matter of the ownership of the improvements of the
property is merely provisional and cannot surpass the Courts pronouncement in
Castro and in the present case. The petitioner should be reminded that "in
ejectment suits, the only issue for resolution is the physical or materialpossession of
the property involved, independent of any claim of ownership by any of the party
litigants. However, the issue of ownership may be provisionally ruled upon for the
sole purpose of determining who is entitled to possession de facto."24 The MTC
and RTCs adjudication of ownership is merely provisionaland would not bar or
prejudice an action between the same parties involving title to the property.25
Also, Adoracions subsequent acquisition of the two parcels of land from her father
does not necessarily entail the acquisition of the residential building. "A building by
itself is a realor immovable property distinct from the land on which it is constructed
and therefore can be a separate subject of contracts."26 Whatever Adoracion
acquired from her father is still subject to the limitation pronounced by the Court in
Castro, and the sale between Adoracion and Tomas is confined only to the two
Page 100 of 152
parcels of land and excluded the residential building owned by the respondents. It is
beyond question that Tomas, and subsequently, Adoracion, could nothave acquired
a right greater than what their predecessors-in-interest CCC and later, Union Bank
had.27
The petitioner also insists thatthe lease between CCC and the respondents already
expired whenAdoracion bought the property from Tomas. The foregoing issue,
however, cannot be considered in the present action. As established from the facts
ofthis case, the residential house is located on a portion of the property that was
leased by CCC to the respondents. Disputing the lease between CCC and the
respondents, in effect, goes into the right of the respondents to maintain the
residential house in question and eventually, their right to have the same leased to
the petitioner. Such argument, obviously, is a disguised effort to contest the title of
the respondents over the residential house leased to the petitioner, which, as the
Court previously discussed, cannot be allowed since they are estopped from
denying the same.
There is also nothing on record that will prove the petitioners claim that the lease
between CCC and the respondents already expired. The fact that Adoracion
subsequently bought the property did not ipso facto terminate the lease. While the
lease between CCC and the respondents contained a 15-year period, to end in 1992,
the petitioner failed to show that the subsequent transferors/purchasers of the two
parcels of land opted to terminate the lease or instituted any action for its
termination. Bancom bought the property at an auction sale in 1979; Union Bank, in
1984; Tomas, and later, Adoracion, acquired the property in 1993.
Article 1676 of the Civil Code provides:
The purchaser of a piece of land which is under a lease that is not recorded in the
Registry of property may terminate the lease, save when there is a stipulation to the
contrary in the contract of sale, or when the purchaser knows of the existence of the
lease.
x x x x.
It cannot be denied that the transferors/purchasers of the property all had
knowledge of the lease between CCC and the respondents; yet, not any of the
transferors/purchasers moved to terminate the lease. In Bernabe v. Judge Luna,28
the Court stated:
[P]etitioners are in error when they say that because they are the buyers of the lot
involved herein, they ipso facto have the right to terminate an existing lease. They
can do so but only if the lease itself is not recorded, and they, as buyers, are not
aware of the lease's existence and duration, thus Art. 1676 of the Civil Code says:
xxxx
In the present case, the lease is not recorded, and although petitioner knew of its
existence, there was no fixed period for its duration - hence the lease was generally
terminable at the will of the buyerspetitioners. But of course they had to make a
demand for its termination. x x x.29 (Citation omitted and emphasis ours)
This was, in fact, the significance of the Court's statement in Castro, that
[I]n respect of the lease on the foreclosed property, the buyer at the foreclosure sale
merely succeeds to the rights and obligations of the pledgor-mortgagor subject,
however, to the fcrovisions of Article 1676 of the Civil Code on its possible
termination.30 (Citation omitted, emphasis and underscoring ours)
Given, however, the lack of substantiation, the petitioner's insistence on the expiry
of the lease between CCC and the respondents, at this point, must fail.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
SECOND DIVISION
G.R. No. 195889 September 24, 2014
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
SPOUSES EDUARDO AND MA. ROSARIO TAJONERA and EDUAROSA REALTY
DEVELOPMENT, INC., Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure seeking to reverse and set aside the November 30, 2010 Decision1 of the
Court of Appeals (CA), and its March 2, 2011 Resolution,2 in CA-G.R. CV No. 85458,
entitled "Spouses Eduardo & Ma. Rosario Tajonera and Eduarosa Realty &
Development, Inc. v. Philippine National Bank," which affirmed with modification the
December 8, 2003 Decision3 of the Regional Trial Court, Branch 71, Pasig City (RTC),
in a case for annulment of sale, cancellation of title, cancellation of mortgage and
damages.
The Facts
Respondent Eduarosa Realty Development, Inc. (ERDI) was engaged in realty
construction and sale of condominium buildings. Respondent Ma. Rosario Tajonera
CRED TRANS Pledge, Mortgage Antichresis Fulltext
(Rosario),as the Vice President ofERDI, also performed the duties of president and
marketing director dealing with banks, suppliers and contractors. ERDI, through
Rosario, obtained loans from petitioner Philippine National Bank (PNB)and entered
into several credit agreements to finance the completion of the construction of their
20-storey Eduarosa Tower Condominium located in Roxas Boulevard, Paranaque
City.
Pursuant to the Credit Agreement,4 dated March 5, 1991, the principal amount of
loan extended by PNB to ERDI was Sixty Million Pesos (60,000,000.00). As security
for the initial loan, ERDI executed the Real Estate Mortgage (REM) consisting of
three (3) parcels of land covered by Transfer Certificate of Title (TCT) Nos. 38845,
38846 and 38847 with an aggregate area of 1,352 square meters situated in Roxas
Boulevard, Tambo, Paranaque, Metro Manila, registered in the name of ERDI
(Paranaque properties).In addition, the loan was secured by the assignment of
proceeds of contract receivables arising from the sale of condominium units to be
constructed on the mortgaged Paranaque properties.
On January 31, 1992, ERDI executed an amendment to the Credit Agreement5 (First
Amendment)and obtained an additional loan of Forty Million Pesos
(P40,000,000.00). As additional security to the increased amounts of loan, the
respondent spouses 958-square meter lot and the improvements thereon, situated
in Greenhills, San Juan, Metro Manila (Greenhills property)and covered by TCT No.
29733, was mortgaged in favor of PNB as evidencedby the Supplement to REM.6 On
October 28, 1992, a Second Amendment to Credit Agreement7 (Second
Amendment)was executed by the parties to extend the repayment dates of the loan
and the additional loan subject to the terms set forth in the said agreement.
The following year, or on November 3, 1993, a Third Amendment to the Credit
Agreement8 (Third Agreement)was entered into by the parties wherein PNB granted
an additional loan of Fifty Five Million Pesos (P55,000,000.00) to ERDI, subject to
several conditions stated in the said agreement.
As of September 30, 1994, ERDIs outstanding loan obligation with PNB amounted
to P211,935,067.40.9
ERDI failed to settle its obligation.As a consequence, PNB filed an application for
foreclosure of the Greenhills property. As the highest bidder, PNB was issued the
Certificate of Sale,10 dated October 9, 1997. Upon ERDIs failure to redeem the
property, PNB consolidated its title and caused the cancellation of TCT No. 29733.11
A new title, TCT No. 9424-R, was issued in the name of PNB.12
The Complaint
This prompted the respondents to file a complaint against PNB for annulment of
sale, cancellation oftitle, cancellation of mortgage, and damages before the RTC. In
the complaint, the respondents alleged that: the title to the mortgaged property
that was transferred to PNB as a consequence of the foreclosure proceedings was
null and void as their mortgage obligation had been novated and no new loans
were released to them, in violation of the provisions of the Supplement to REM; the
foreclosure proceedings were defective due to PNBs failure to send personal notice
to the respondent spouses; PNBs delay in the release of loan proceeds under the
credit agreements caused the non-completion of the condominium project; and the
properties mortgaged under the original mortgage contract covering the
respondents condominium titles should now be discharged, as the property of the
respondent spouses had already been foreclosed.13
PNBs Answer
In its Answer with Counterclaim, PNB denied the respondents allegations and raised
the following defenses: 1) the mortgage contract was supported by valuable
consideration asthe loan proceeds under the credit agreements were fully released
to them; 2) there was no novation of the contract; 3) demand letters were given to
and duly received by the respondents; and 4) the sufficiency of the mortgage over
the condominium titles cannot be determined because the court has no jurisdiction
over such issue.14
The RTC Decision
On December 8, 2003, the RTC rendered its judgment in favor of the respondents
and disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against the
defendant:
1. NULLIFYING and CANCELLING the Supplement to Real Estate Mortgage dated
January 28, 1992 and the Certificate of Sale dated October 9, 1997.
2. NULLIFYING and CANCELLING the Transfer Certificate of Title No. 9424-R,
Registry of Deeds for San Juan, Metro Manila, and REINSTATING Transfer Certificate
of Title No. 29733, Registry of Deeds for San Juan, Metro Manila.
3. ORDERING the defendant to pay the plaintiffs the amount of P500,000.00 as
moral damages.
4. ORDERING the defendant to pay the plaintiffs the amount of P200,000.00 as
exemplary damages.
5. ORDERING the defendant to pay the plaintiffs the amount of P100,000.00 as and
by way of attorneys fees.
6. Costs of suit.
Page 101 of 152
Counterclaims are hereby DISMISSED for lack of merit.
SO ORDERED.15
The RTC annulled the mortgage contract constituted over the Greenhills property
on the ground of breach of contract on the part of PNB by violating the credit
agreements.
The CA Decision
Aggrieved, PNB elevated the matter to the CA. In its Decision, dated November 30,
2010, the CA affirmed the decision of the RTC, but deleted the award of moral and
exemplary damages. In the dispositive portion of its assailed decision, the CA
declared:
WHEREFORE, the challenged Decision dated 08 December 2003 is AFFIRMED with
Modification in that the awards for moral and exemplary damages are deleted.
SO ORDERED.16
The CA agreed with the RTC ruling that inasmuch as PNB did not release the
remaining balance of the approved loan amounting to P39,503,088.84 under the
Third Amendment, there was no sufficient valuable consideration in the execution of
the Supplement to REM that secured the said credit agreement. There was,
according to the CA, breach of contract on the part of PNB that warranted the
annulment and cancellation of the Supplement to REM covering the Greenhills
property. Further, the CA rejected PNBs claim that its refusal to release the balance
of the last loan was due to the respondents failureto comply with the undertaking
of bringing new investors with additional collaterals to secure the additional loan as
such requirement was not categorically stated in the terms of the credit agreement.
Also, such claim was belied by PNBs own witness who testified that the reason for
its refusal to release was simply the respondents failure to settle their amortization.
PNB filed a motion for reconsideration of the said decision, but the same was
denied by the CA in its assailed Resolution, dated March 2, 2011.
Hence, this petition.
The Issues:
In its Memorandum,17 PNB submits the following issues for consideration:
Whether or not the CA decided in accordance with the applicable laws and
jurisprudence when:
(1) it ruled that the Supplement to Real Estate Mortgage, dated 28 January 1992,
lacked sufficient valuable consideration even when the loan proceeds secured by it
under the Third Amendment, dated 03 November 1993, had been substantially
released by PNB, and the Credit Agreement, dated 05 March 1991, as well as the
First and Second Amendments thereto, dated 31 January 1992 and 28 October
1992, respectively, upon which the same Supplement to Real Estate Mortgagewas
similarly constituted as additional security, had all been duly executed and
consummated;
(2) it ruled that PNB breached its contractual obligation when it supposedly failed to
release the remaining balance of the approved loan in the amount of
P39,503,088.84 to the respondents even when the latterhad not had a single history
of payment and did not need the entire amount for the purpose-specific loan grant
under the Credit Agreement and its Amendments;
(3) upon a finding of breach of contractual obligation on the part of PNB due to its
supposed unjustified release of a portion of the loan proceeds, it ruled for the
annulment and cancellation of supplement to real mortgage (the accessory
contract) yet ratiocinated that the Third Amendment (the principal contract) became
unenforceable only to the extent of unreleased portion of the loan proceeds.18
The Courts Ruling
PNBs assignment of errors boils down to the sole issue of whether the CA erred in
annulling the mortgage contract constituted over the Greenhills property of the
respondents.
PNB contends that the Supplement to REM was supported by sufficient and
valuable consideration because the loan proceeds secured by it under the Third
Amendment had been substantially released to the respondents. It avers that had it
not been for the additional collateral over the Greenhills property, PNB would not
have made the respondents loan account current under the First Amendment. This
consideration, according to it, must be deemed valuable and sufficient enough to
uphold the validity of the Supplement to the REM.
PNB insists that there was no breach, substantial or otherwise, of its contractual
obligation when it did not release the remaining balance of the approved loan to
the respondents considering that the latter had no history of any payment either on
interest or principal of the loan. PNB, thus, asserts that the CA erred when it
affirmed the RTC in ordering the annulment and cancellation of the supplement
REM covering the Greenhills property.
PNBs arguments fail to persuade.
Record shows that ERDI obtained loans from, and entered into, several credit
agreements with PNB to finance the completion of the construction of its 20-storey
CRED TRANS Pledge, Mortgage Antichresis Fulltext
condominium project, the Eduarosa Towers. Pertinent details of the said credit
agreements are summarized as follows:
Amount of Loan ( ) Grant Date of Execution
Credit Agreement P60,000,000.00
P5,000,000.00 Loan
Domestic Bills
Purchased (DBP) March 5, 1991
Amendment to
Credit Agreement P40,000,000.00 Additional Loan January 31,
1992
2nd Amendment to
Credit Agreement None Extension of
repayment dates
of the loan and
additional loan October 28, 1992
3rd Amendment to
Credit Agreement P55,000,000.00 Additional Loan November 3,
1993
As recited earlier, on March 5, 1991, ERDI obtained from PNB a loan in the amount
of P60,000,000.00 plus P5,000,000.00 Domestic Bills. To secure this initial loan, ERDI
mortgaged in favor of PNB its Paranaque properties together with the 20-storey
condominium building to be erected thereon.
Thereafter or on January 31, 1992,ERDI and PNB entered into The First Amendment
wherein the former obtained an additional loan of P40,000,000.00. As security for
the additional loan, the respondents Greenhills property was mortgaged as
evidenced by the Supplement to REM executed by the parties on January 28,1992.
The Second Amendment was likewise entered into by the parties for the purpose of
extending the repayment dates of the loan and the additional loan.
On November 3, 1993, the Third Amendment was entered into by the parties
wherein the respondents were granted a second additional loan of P55,000,000.00.
The agreement between PNB and the respondents was one of a loan. Under the law,
a loan requires the delivery of money or any other consumable object by one party
to another who acquires ownership thereof, on the condition that the same amount
orquality shall be paid. Loan is a reciprocal obligation, as it arises from the same
causewhere one party is the creditor, and the other the debtor. The obligation of
one party in a reciprocal obligation is dependent upon the obligation of the other,
and the performance should ideally be simultaneous. This means that in a loan, the
creditor should release the full loan amountand the debtor repays it when it
becomes due and demandable.19
PNB, not having released the balance of the last loan proceeds in accordance with
the Third Amendment had no right to demand from the respondents compliance
with their own obligation under the loan. Indeed, if a party in a reciprocal contract
like a loan does not perform its obligation, the other party cannot be obliged to
perform what is expected of them while the other's obligation remains unfulfilled.20
When PNB and the respondents entered into the First, Second and Third
Amendments on January 31, 1992, October 28,1992 and November 3, 1993,
respectively, they undertook reciprocal obligations. In reciprocal obligations, the
obligation or promise ofeach party is the consideration for that of the other; and
when one party has performed or is ready and willing to perform his part of the
contract, the other party who has not performed or is not ready and willing to
perform incurs in delay.21 The promise of the respondents to pay was the
consideration for the obligation of PNB to furnish the P40,000,000.00 additional
loan under the First Amendment as well as the P55,000,000.00 the second additional
loan under the Third Amendment. When the respondents executed the Supplement
to REM covering their Greenhills property, they signified their willingness to pay the
additional loans. It should be noted, as correctly found by the CA, that the
Supplement to REM was constituted not only as security for the execution of the
First Amendment but also in consideration of the Second and Third Amendments.
The provisions of the Third Amendment read in part:
SECTION 2. THE AMENDMENTS
xxx
2.05 The full payment of the Loans and any and all sums payable by the Borrower
hereunder and under the Notes and the other documents contemplated hereby and
the faithful compliance by the Borrower with the terms and conditions hereof and
thereof and the Notes shall be secured by the following collaterals:
xxx
b) Existing real estate mortgageon a parcel of land with an area of 958 sq. m., more
or less, together with the improvements thereon, situated in San Juan, Metro
Manila, covered by TCT No. 29733 of the land records for Metro Manila (D-11) and
registered in the name of Rosario M. Mendoza married to Eduardo Tajonera (the
"Accommodation Mortgagors"), as evidenced by that Supplement to Real Estate
Mortgage dated January 28, 1992 and acknowledged before Notary Public for the
City ofManila, Rowena Fe N. Suarez as Doc. No. 300, Page No. 61, Book No. II Series
of 1992;22
xxx
The obligation of PNB was to furnish the P55,000,000.00 additional loan accrued on
November 3, 1993, the date the parties entered into the Third Amendment. Thus,
PNBs delay in furnishing the entire additional loan started from the said date.
Page 102 of 152
Considering that PNB refused to release the total amount of the additional loan
granted to ERDI under the Third Amendment amounting to P39,503,088.84, the CA
was correct in affirming the RTCs conclusion that there was no sufficient valuable
consideration in the execution of the Supplement to REM. In the assailed decision,
the CA wrote:
Indeed, the execution of the subject Supplement to Real Estate Mortgage dated
January 28, 1992 lacks sufficient valuable consideration since PNB did not release
the balance of the Php160,000,000.00 approved loan in the amount of
Php39,503,038.54, pursuant to the Third Amendment to Credit Agreement of the
parties. As the records would show, the subject Supplement to Real Estate
Mortgage, supra, was constituted by Appellees as additional security for the
execution of the 1st, 2nd as well as the 3rd Amendment to Credit Agreements.
To elucidate, the Greenhills property was first mortgaged by Appellees in favor of
PNB as collateral security to the additional loan of Php40,000,000.00, evidenced by
the provisions of the 1st Amendment to Credit Agreement, reading as follows:
xxx
We agree with the court a quowhen it correctly ruled that the subject supplement
mortgage over Appellees Greenhills property was likewise constituted in
consideration of the Third Amendment to Credit Agreement, supra, as evidenced by
2.05 (b), Section 2 thereof which provides, to wit: xxx
In view of the foregoing,We hold that the court a quoaptly ruled that the refusal of
PNB to release portion of the additional loan granted under the Third Amendment
to Credit Transaction is not justified. In this jurisdiction, breach of contract is defined
as follows:
xxx
[It] is the "failure without legal reason to comply with the terms of a contract." Itis
also defined as the "[f]ailure, without legal excuse, to perform any promise which
forms the whole or part of the contract."
xxx
Undoubtedly, PNB breached its contractual obligation when it failed to release to
Appellees the remaining balance of the approved loan amounting to
Php39,503,088.84.23
The RTC found that PNB was guilty of breach of contract as the credit agreements
had been violated. For its failure to release the balance of the approved loan, the
construction of the Eduarosa Towers Condominium project was not finished,
transgressing the very purpose of the credit agreements, that is, to finance the
completion of the construction of Eduarosa Towers. This factual findingwas affirmed
by the CA. Thus, the Court is bound to uphold such finding. "The settled rule is that
conclusions and findings of fact of the trial court are entitled to great weight on
appeal and should not be disturbed unless for strong and cogent reasons because
the trial court is in a better position to examine real evidence, as well as observe the
demeanor of the witnesses while testifying in the case. The fact that the CA adopted
the findings of fact of the trial court makes the same binding upon this Court."24
At any rate, the Court finds no merit in PNBs claim that its refusal to release the
balance of the approved additional loan was justified on the ground of the
respondentsfailure to settle their amortization. PNBs own witness, Mr. Mallari,
testified, thus:
Cross Examination
xxx
ATTY. LLAUDER:
Q. Now, what happened to the balance of the loan that was yet to be released to
plaintiff corporation?
A: The bank did not allow further availments because of the failure of the borrower
to pay the maturing obligation.
xxx
Redirect Examination
xxx
ATTY. BALDONO:
xxx
Q: What was the reason, Mr. Witness, why the PNB withheld the release of the
additional loan?
A: Because the borrower failed to settle the quarterly amortization June 30, 1994.
Even the June 30, the amortization were never settled by the borrower.
COURT:
What year?
A: June 30, 1994, your Honor.25
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Evidently and as aptly observed by the CA, PNB cannot justify its failure to release
the balance of the last loan executed with the respondents under the Third
Amendment on November 3, 1993 considering that the latters liability to pay their
first amortization arose only on June 30, 1994.
As expressly provided in the terms ofthe second additional loan embodied in the
Third Amendment, to wit:
SECTION 1. TERMS OF THE SECOND ADDITIONAL LOAN
xxx
1.05 Repayment Dates. The Borrower agrees to repay the Second Additional Loan in
full in eleven (11) equal (or as nearly equal as possible) consecutive quarterly
installments ("Repayment Dates"), the first installment to commence on June 30,
1994 and every quarter thereafter up to December 31, 1996.
SECTION 2. THE AMENDMENTS
2.01 The Interest Payment Dates and Repayment Dates of the Loan, the Additional
Loan and the Second Additional Loan (Collectively the "Loans") shall be the same.
Accordingly, the Credit Documents are hereby amended to change the Interest
Payment Dates and Repayment Dates in the following manner:
xxx
First principal payment on the Loans shall commence on June 30, 1994 and every
quarter thereafter until maturity of all the loans on December 31, 1996.26
[Underscoring Supplied] Equally without merit is PNBs reliance on the case of Sps.
Omengan v. Philippine National Bank.27 The said case finds no application
inasmuch as the circumstances in that case are not in all fours with the present case.
In Omengancase, there was no actual meeting of the minds with respect to the
conditionally approved additional loan as the condition attached to the increase in
borrowers credit line was not acknowledged and accepted by them. Hence, there
being no perfectedcontract over the increase in credit line, it was held that no
breach of contract could be attributed to PNB in not releasing the additional loan. In
the present case, there was a perfected contract in so far as the Third Amendment
was concerned. Thus, PNBs action in not releasing the entire amount of the
additional loan was not justified.
Still in the said case, atthe time the original loan was approved, the title to the
property offered as collateral appeared topertain exclusively to Spouses Omengan.
By the time the application for increase was considered, PNB had acquired
information that the said property, although in the name of spouses petitioners was
owned in co-ownership. The Court justified PNBs act of withholding the release of
the additional loan because it already had reason to suspect the spouses claim of
exclusive ownership over the mortgaged collateral. Inthis case, the respondents
were unquestionably the exclusive owners ofthe mortgaged property (Greenhills
property) at the time the initial and the additional loans were approved.
For said reasons, the Court holds that PNB was indeed guilty of breach of contract
of its reciprocal obligation under the credit agreements.
Considering that there was no sufficient valuable consideration in the execution of
the Supplement to REM on the Third Amendment as the balance of the last
approved additional loan in the amount of P39,503,088.54 remained unreleased, the
cancellation of the Supplement to REM constituted over the respondents Greenhills
property was in order.
It is true that loans are often secured by a mortgage constituted on real or personal
property to protect the creditor's interest in case of the default of the debtor. By its
nature, however, a mortgage remains an accessory contract dependent on the
principal obligation, such that enforcement of the mortgage contract depends on
whether or not there has been a violation of the principal obligation. While a
creditor and a debtor could regulate the order in which they should comply with
their reciprocal obligations, it is presupposed that in a loan the lender should
perform its obligation the release of the full loan amount.28
In this case, to repeat, PNB did not fulfill its principal obligation under the Third
Amendment by failing torelease the amount of the last additional loan in full.
Consequently, the Supplement to REM covering the Greenhills property became
unenforceable, as the said property could not be entirely foreclosed to satisfy the
respondents total debts to PNB. Moreover, the Supplement to REM was no longer
necessary because PNBs interest was amply protected as the loans had been
sufficiently secured by the Paranaque properties. As aptly found by the RTC, the
Paranaque properties together with the 20-storey condominium building to be
erected thereon would have been sufficient security in the execution of the REM
even without the Greenhills property as additional collateral. Thus, under the
circumstances, PNBs actuation in foreclosing the Greenhills property was legally
unfounded.
Being a banking institution, PNB owes it to the respondents to observe the high
standards of integrity and performance in all its transactions because its business is
imbued with public interest. The high standards are also necessary to ensure public
confidence in the banking system, for, according to Philippine National Bank v.
Pike,29 "[t]he stability of banks largely depends on the confidence of the people in
the honesty and efficiency of banks."30 Thus, PNB was duty bound tocomply with
the terms and stipulations under its credit agreements with the respondents,
specifically the release of the amount ofthe additional loan in its entirety, lest it
erodes public confidence.1wphi1 Yet, PNB failed in this regard.
Page 103 of 152
Regarding the award of damages, the CA ruled that the RTC erred in awarding
moral and exemplary damages for failure of the respondents to prove with
convincing evidence malice or bad faith on the part of PNB. The Court finds no
reason to overturn this finding.
Moral damages are explicitly authorized in breaches of contract when the defendant
has acted fraudulently or in bad faith.31 Exemplary damages, on the other hand, are
intended to serve as an example or a correction for the public good. Courts may
award them if the defendant is found to have acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.32 Concededly, PNB was remiss in its
obligation to release the balance of the additional loan it extended to the
respondents. Nothing in the records or findings of the RTC and the CA, however,
would show that PNB acted with a deliberate intent to maliciously cause damage or
harm to the respondents. And, inasmuch as the respondents were also found to
h;we been remiss in their obligation to pay their loan amortization, the CA was
correct in deleting the award for moral and exemplary damages in favor of the
respondents.
Finally, the Court sustains the award for attorney's fees because the same is just and
equitable under the circumstances.33 Considering PNB 's failure to release the
remaining balance of the approved loan, the Court agrees that the respondents
were compelled to litigate for the purpose of recovering their property and to
protect their interest, making the awmd or attorney's fees proper.
WHEREFORE, the petition is DENIED. The November 30, 2010 Decision and the
March 2, 2011 Resolution of the Court of Appeals in CAG.R. CV No. 85458 are
AFFIRMED.
SO ORDERED.
SECOND DIVISION
G.R. No. 196950 June 18, 2014
HELEN E. CABLING, assisted by her husband ARIEL CABLING, Petitioner,
vs.
JOSELIN TAN LUMAPAS, as represented by NORY ABELLANES, Respondent.
DECISION
BRION, J.:
We review the present petition for review on certiorari1 that assails the May 12,
2011 decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 110865. The CA
dismissed the petition for certiorari, prohibition and mandamus filed by petitioner
Helen E. Cabling, assisted by her husband Ariel Cabling, which questioned the July
14, 20093 and September 10, 20094 orders of the Regional Trial Court (RTC) 3rd
Judicial Region, Branch 75, Olongapo City, in Other Case No. 16-0-09.
The Facts
The petitioner was the highest bidder in an extrajudicial foreclosure sale conducted
on December 21, 2007 over a 216-square meter property situated in the Barrio of
Sta. Rita, Olongapo City and covered by Transfer Certificate of Title (TCT) No. T-
14852.5 The Final Deed of Sale6 was issued by the Sheriff of Olongapo City on
February 14, 2009 and the title to the property was duly transferred. TCT No. T-
14853 was issued to the petitioner on March 23, 2009.7
On May 6, 2009, the petitioner filed an Application8 for the Issuance of a Writ of
Possession with the RTC.
On May 19, 2009, the RTC issued an order9 granting the petitioners application,
and subsequently issued a Writ of Possession10 and Notice to Vacate11 dated May
20, 2009 and May 25, 2009, respectively.
On May 29, 2009, respondent Joselin Tan Lumapas, through counsel, filed a Motion
for Leave of Court for Intervention as Party Defendant (with Urgent Motion to Hold
in Abeyance Implementation of Writ of Possession)12 and an Answer in
Intervention,13 as a third party in actual possession of the foreclosed property. She
claimed that the property had previously been sold to her by Aida Ibabao, the
propertys registered owner and the judgment debtor/mortgagor in the extrajudicial
foreclosure sale, pursuant to a Deed of Conditional Sale.14
On June 1, 2009, the RTC issued an order15 holding in abeyance the
implementation of the petitioners writ of possession until after the resolution of the
respondents motion. The following day, the RTC denied the respondents motion
for intervention.16 The respondent promptly filed a motion for reconsideration.17
The RTCs Orders
On July 14, 2009, the RTC issued the 1st assailed order18 granting the respondents
motion for reconsideration. It recalled and rendered ineffective the writ of
possession issued to the petitioner, stating that "an ex-parte writ of possession
issued pursuant to Act No. 335 (sic), as amended, cannot be enforced against a third
person who is in actual possession of the foreclosed property and who is not in
privity with the debtor/mortgagor."19 Considering that the respondent was not a
party to the extrajudicial foreclosure, the RTC held that she cannot be ousted of her
possession by a mere ex-parte motion for the issuance of a possessory writ, and
that the petitioner must now resort to the appropriate judicial process in order to
recover the foreclosed property.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
This time, the petitioner moved to reconsider the RTCs July 14, 2009 order, but the
RTC denied the petitioners motion in an order dated September 10, 2009 - the 2nd
assailed order.20
The CA Ruling
Before the CA, the petitioner filed a petition for certiorari, prohibition and
mandamus, under Rule 65 of the Rules of Court, assailing the July 14, 2009 and
September 10, 2009 orders of the RTC.
In a decision dated May 12, 2011, the CA dismissed the petitioners Rule 65 petition
and affirmed in toto the RTCs assailed orders. It ruled that, while the issuance of a
writ of possession is generally a ministerial act, the RTC committed no grave abuse
of discretion in recalling the petitioners writ of possession because "the obligation
of the trial court to issue a writ of possession ceases to be ministerial once it
appears that there is a third party in possession of the property claiming a right
adverse to that of the debtor/mortgagor[; and where] such third party exists, the
trial court should conduct a hearing to determine the nature of his adverse
possession."21
The Petition
The petitioner argues that the present case is not an exception to the ministerial
issuance of a writ of possession.
While recognizing the respondents actual possession of the subject property, the
petitioner contends that such possession is not adverse to that of the judgment
debtor/mortgagor. Neither is possession in the concept of an owner because in a
conditional sale, ownership is retained by the seller until the fulfillment of a positive
suspensive condition, that is, the full payment of the purchase price.
Our Ruling
We find merit in the petitioners arguments.
The well-settled rule is that in the extrajudicial foreclosure of real estate mortgages
under Act No. 313522 (as amended), the issuance of a writ of possession23 is
ministerial upon the court after the foreclosure sale and during the redemption
period when the court may issue the order for a writ of possession upon the mere
filing of an ex parte motion and the approval of the corresponding bond.24
The writ of possession also issues as a matter of course, without need of a bond or
of a separate and independent action, after the lapse of the period of
redemption,25 and after the consolidation of ownership and the issuance of a new
TCT in the purchasers name.26
There is, however, an exception to the rule.
Under Section 33,27 Rule 39 of the Rules of Court, which is made applicable to
extrajudicial foreclosures of real estate mortgages, the possession of the property
shall be given to the purchaser or last redemptioner unless a third party is actually
holding the property in a capacity adverse to the judgment obligor.28 Thus, the
courts obligation to issue an ex parte writ of possession in favor of the purchaser in
an extrajudicial foreclosure sale ceases to be ministerial when there is a third party
in possession of the property claiming a right adverse to that of the judgment
debtor/mortgagor.
We emphasize that the exception provided under Section 33, Rule 39 of the Rules of
Court contemplates a situation in which a third party holds the property by adverse
title or right, such as that of a co-owner, tenant or usufructuary, who possesses the
property in his own right, and is not merely the successor or transferee of the right
of possession of another co-owner or the owner of the property.29
In the present case, the respondent cannot be said to possess the subject property
by adverse title or right as her possession is merely premised on the alleged
conditional sale of the property to her by the judgment debtor/mortgagor.
The execution of a contract of conditional sale does not immediately transfer title to
the property to be sold from seller to buyer.1wphi1 In such contract, ownership or
title to the property is retained by the seller until the fulfillment of a positive
suspensive condition which is normally the payment of the purchase price in the
manner agreed upon.30
In the present case, the Deed of Conditional Sale between the respondent (buyer)
and the subject propertys registered owner (seller) expressly reserved to the latter
ownership over the property until full payment of the purchase price, despite the
delivery of the subject property to the respondent. It is provided in paragraph 6 of
the parties contract that only upon full payment of the total sale value of P2.2
million that the seller shall execute a deed of absolute sale in favor of the
respondent.31
It likewise appears from the records that no deed of absolute sale over the subject
property has been executed in the respondent's favor. Thus, the respondent's
possession from the time the subject property was "delivered" to her by the seller
cannot be claimed as possession in the concept of an owner, as the ownership and
title to the subject property still then remained with the seller until the title to the
property was transferred to the petitioner in March 2009. In order for the
respondent not to be ousted by the ex parte issuance of a writ of possession, her
possession of the property must be adverse in that she must prove a right
independent of and even superior to that of the judgment debtor/mortgagor.
Under these circumstances, the general rule, and not the exception, applies.
Page 104 of 152
WHEREFORE, premises considered, we GRANT the petition for review on certiorari
and REVERSE and SET ASIDE the May 12, 2011 decision of the Court of Appeals in
CA-G.R. SP No. 110865.
Accordingly, we ORDER the Regional Trial Court, 3rd Judicial Region, Branch 75,
Olongapo City, to issue a Writ of Possession in favor of petitioner Helen E. Cabling.
SO ORDERED.
FIRST DIVISION
G.R. No. 192304 August 13, 2014
ANCHOR SAVINGS BANK (now Equicom Savings Bank), Petitioner,
vs.
PINZMAN REALTY AND DEVELOPMENT CORPORATION, MARYLIN MANALAC AND
RENATO GONZALES, Respondents.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari assailing the Decision1 dated
September 11, 2009 and Resolution2 dated May 1 7, 2010 of the Court of Appeals
(CA) in CA-G.R. CV No. 89420. The CA had reversed and set aside the Decision3
dated March 16, 2007 of the Regional Trial Court (RTC), Branch 147 ofMakati City, in
Civil Case No. 00-1094.
The facts, as culled from the records, follow:
Sometime in December 1997, the private respondents obtained a loan from the
petitioner in the amount of P3,000,000 secured by a real estate mortgage over
parcels of land located in Cubao, Quezon City which were registered in the name of
herein private respondent Marylin Mafialac. Private respondent Mafialac executed a
Promissory Note4 and Disclosure Statement5 in favor of the petitioner in the total
amount of P3,308,447.74 which amount already included payment for three months
interest. The loan documents stipulated that the first installment shall be for
P148,640 and will be due on December 26, 1997, the second installment will be for
the same amount and shall be due on January 26, 1998, and the third installment
will be for P3,011,167.74 and will be due on February 26, 1998. Moreover, the
Promissory Note and Disclosure Statement imposed a monthly 5% latepayment
charge, 25% attorneys fees, and 25% liquidated damages in case of unpaid
installments on the part of private respondent Maalac. On December 3, 1997, the
proceeds of the loan were released to private respondent Maalac who then issued
three checks for the payment of monthly installments to the petitioner.The first
check was for P144,000 and was for the first installment due on December 26, 1997.
The second check in the same amount was for the second installment due on
January 26, 1998. Finally, the third check in the amount ofP3,300,000 corresponded
to the last installment due on February 26, 1998.However, among the three checks,
only the first one was cleared for payment, and the private respondents incurred an
outstanding balance of P3,012,252.32 which they failed to settle. Private respondent
Maalac continued her correspondence with the petitioner through its Vice
President toask for an update on their account.6
Subsequently, the private respondents received a Second Notice of Extrajudicial
Sale7 for the satisfaction of an obligation, which as of October 15, 1998 amounted
to P4,577,269.42, excluding penalties, charges, attorneys fees and costs of
foreclosure. On June 1,1999, the assailed foreclosure sale was held where the
petitioner emerged as the highest bidder of the disputed properties, and a
Certificate of Sale8 was issued in favor of the petitioner. Still, private respondent
Maalac allegedly tried to settle the loan but was surprised when petitioner issued a
Statement of Account9 stating that as of October 29, 1999, Pinzman Realty owed
the petitioner P12,525,673.44 computed as follows:
STATEMENT OF ACCOUNT
AS OF OCTOBER 29, 1999
PARTICULAR PAYSYS METHOD
Principal Balance 3,012,525.32
Interest 2,026,062.38
Penalty Interest @ 60% 3,129,879.85
Forfeited Rebate 8,620.00
Litigation Expenses 158,595.41
Others 14,766.00
Sub-total 8,350,448.96
Attorney's fees 2,087,612.24
Liquidated Damages 2,087,612.24
Total Amount Due 12,525,673.44
As private respondent Maalac failed to redeem the properties, ownership of the
foreclosed properties was eventually consolidated in petitioners name. Petitioner
later succeeded in acquiring certificates of title over the disputed properties.
On September 6, 2000, private respondents filed a Complaint for the Annulment of
Extrajudicial Foreclosure of Mortgaged Properties, Auction Sale, Certificate ofSale
and Damages10 against the petitioner before the RTC. The private respondents
prayed for the nullification of the foreclosure sale alleging that the amount
demanded in the Notice of Extrajudicial Sale was exorbitant and excessive.
Specifically, instead of the amount of P4,577,269.42 as demanded therein, the
private respondents contended that the proper amount should only be
P3,825,907.16 if the balance of the loan is computed with interest at the rate of 3%
reckoned from the date of last payment.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
In its Decision dated March 16,2007, the RTC dismissed the complaint and found
that the private respondents did not question the compliance of the petitioner with
the procedural requirements for extrajudicial foreclosure. Moreover, the RTC ruled
that the private respondents did not take any measures toenjoin the foreclosure
sale despite their knowledge of the alleged usurious interest charges.
On appeal, the CA reversed and set aside the court a quo, and held as follows:
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTEDand
the assailed Decision dated 16 March 2007 is REVERSEDand SET ASIDE. Accordingly,
the present complaint is hereby GRANTEDand the Extra-judicial Foreclosure, Auction
Sale, Certificate of Sale and Certificates of Title issued in favor of appellee bank are
hereby ANNULLED, without prejudice to the right of the latter to re-institute
foreclosure proceedings based on the recomputed amount of the unpaid loan as
herein provided. No costs.
SO ORDERED.11
The CA declared that the loan agreement as embodied in the Promissory Note and
Disclosure Statement failed to stipulate a rate of interest. Petitioner bank likewise
admitted that there is no written agreement to prove that the parties agreed to the
interest rate of 30.33% per annum on the loan. Thus, the CA held that petitioner
erred in unilaterally imposing an interest rate of 30.33% on the unpaid portion of
the loan. The CA held that said rate was excessive, iniquitous, unconscionable and
blatantly contrary to law and morals. Further, the CA ruled that the imposition of
such unlawful interest rate will nullify the foreclosure sale arising therefrom.
However, this was without prejudice to the lenders right to recover the principal of
the loan and the validity of the terms of the real estate mortgage. In particular, the
CA affirmed the subsistence of the principal amount due without the unlawful
interest rate. In its place, the CA imposed a legal interest rate of 12% per annum.
Moreover, the CA annulled the previously held foreclosure sale, but upheld the right
of the mortgagee to institute another foreclosure proceedings upon default of the
mortgagor.
Thus, the petitioner filed the instant petition for review on certiorari raising the
following issues:
I
WHETHER OR NOT ARTICLE 195612 OF THE CIVIL CODE REQUIRES THE RATE OF
INTEREST TO BE STIPULATED; and
II
WHETHER OR NOT FORECLOSURE OF MORTGAGE WAS VALID.13
Essentially, the sole issue for our resolution is whether the imposition of usurious
interest rates on a loan obligation secured by a real estate mortgage will result in
the invalidity of the subsequent foreclosure sale of the mortgage.
Petitioner argues that the CA was under the mistaken belief that the failure to
stipulate a rate of interest was equivalent to the failure to provide for the payment
of interest. Thus, petitioner establishes a distinction between stipulation of interest
rate and stipulation of interest. Petitioner further contends that while the Promissory
Note and Disclosure Statement did not provide a specific interest rate, the parties
still agreed to the payment of interest based on the tenor of the language used
therein. This, petitioner stresses, militates against the ruling ofthe CA that there was
a unilateral imposition of interest rate.
Petitioner further claims that the defect in the Second Notice of Extrajudicial Sale
cannot affect the validity of the foreclosure sale. Based on case law, petitioner
argues that discrepancies between the Notice of Foreclosure Sale and the actual
indebtedness of the mortgagor will not result in the annulment of the foreclosure
sale as long as the objectives of the notice are attained. Petitioner likewise argues
that the action of the private respondents which was filed after the redemption
period, was barred by laches.
On the other hand, private respondents claim that the imposition of interest rates
and penalty charges by petitioner should be struck down as these were manifestly
excessive, unreasonable, and unconscionable. Private respondents maintain that the
CA correctly ruled that the foreclosure sale which arose from the enforcement of
usurious interest rates and penalty charges should be nullified.
The petition lacks merit.
It is jurisprudential axiom that a foreclosure sale arising from a usurious mortgage
cannot be given legal effect.14 Relevantly, in Heirs of Zoilo Espiritu v. Sps.
Landrito,15 we struck down a foreclosure sale where the amount declared as
mortgageindebtedness involved excessive, unreasonable, and unconscionable
interestcharges. In no uncertain terms, we ruled that a mortgagor cannot be legally
compelled to pay for a grossly inflated loan:
Since the Spouses Landrito, the debtors in this case, were not given an opportunity
to settle their debt, at the correctamount and without the iniquitous interest
imposed, no foreclosure proceedings may be instituted. A judgment ordering a
foreclosure sale is conditioned upon a finding on the correct amount of the unpaid
obligation and the failure of the debtor to pay the said amount. In this case, ithas
not yet beenshown that the Spouses Landrito had already failed to pay the correct
amount of the debt and, therefore, a foreclosure sale cannotbe conducted in order
to answer for the unpaid debt. The foreclosure sale conducted upon their failure to
pay P874,125 in 1990 should be nullified since the amount demanded as the
Page 105 of 152
outstanding loan was overstated; consequently it has not been shown that the
mortgagors the Spouses Landrito, have failed to pay their outstanding obligation.
Moreover, if the proceeds of the sale together with its reasonable rates of interest
were applied to the obligation, only a small part of its original loans would actually
remain outstanding, but because of the unconscionable interest rates, the larger
part corresponded to said excessive and iniquitous interest.16
Recently, in Castro v. Tan,17 we affirmed the above doctrinal pronouncements as we
also nullified a foreclosure proceeding where the amount demanded as outstanding
loanwas clearly overstated due to exorbitant interest rates.
In the case at bar, the unlawful interest charge which led to the demand for
P4,577,269.42 as stated in the Notice of Extrajudicial Sale resulted in the invalidity of
the subsequent foreclosure sale held on June 1, 1999.1wphi1 The private
respondents cannot beobliged to pay an inflated or overstated mortgage
indebtedness on account of excessive interest charges without offending the basic
tenetsof due process and equity.
The argument of the petitioner that defects in the Notice of Sale cannot affect the
validity of the foreclosure sale cannot be given credence. In relying on a long litany
of cases, the petitioner failed to realize that the issue in those cases was the validity
of the Notice of Sale per se. Meanwhile, in the present case, the issue is the validity
of the foreclosure sale in view of the presence of usurious interest charges.
WHEREFORE, the petition for review on certiorari is hereby DENIED. The Decision
dated September 11, 2009 and Resolution dated May 17, 2010 of the Court of
Appeals in CA-G.R. CV No. 89420 are AFFIRMED.
With costs against petitioner.
SO ORDERED.
FIRST DIVISION
G.R. No. 195272, January 14, 2015
BANK OF THE PHILIPPINE ISLANDS (FORMERLY PRUDENTIAL BANK), Petitioner, v.
SPOUSES DAVID M. CASTRO AND CONSUELO B. CASTRO, Respondents.
DECISION
PEREZ, J.:
For resolution is the petition for review on certiorari assailing the Decision1 dated
26 November 2009 of the Court of Appeals, Special Sixth Division in CA-G.R. CV No.
88870 and the Resolution2 dated 14 January 2011 of the Court of Appeals, Second
Division denying the motion for reconsideration, which reversed and set aside the
judgment3 rendered by the Regional Trial Court of Quezon City, Branch 97 (RTC)
dismissing the complaint for Declaration of Nullity of Sheriffs Certificate of Sale and
Damages against Prudential Bank.
The Complaint has its origins from the two loans contracted by respondent Spouses
David M. Castro (David)4 and Consuelo B. Castro (Consuelo) from Prudential Bank in
the amounts of P100,000.00 and P55,000.00 in July and August 1987. The first
loans maturity date was on 18 January 1988 while the second loan had a maturity
date of 23 February 1988. The P100,000.00 loan was secured by a Real Estate
Mortgage (REM) over petitioners' property located in Quezon City and covered by
Transfer Certificate of Title (TCT) No. 364277 while the P55,000.00 loan was secured
by another REM over two parcels of land located in Alaminos, Laguna covered by
TCT Nos. T-2225 and T-2226, registered in the name of Davids mother, Guellerma
Malabanan.
The loans remained unpaid as of 30 April 1996 and the balances ballooned to
P290,205.05 on the P100,000.00 loan and P96,870.20 on the P55,000.00 loan.
Prudential Bank, through counsel, filed two separate petitions for foreclosure of the
mortgage. In their first petition, Prudential Bank admitted that through
inadvertence, the photocopies of the first two pages of the REM covering the
properties in Laguna were mixed and attached to the photocopies of the last two
pages of the REM covering the Quezon City property.5 Thus, in the Notice of
Sheriffs Sale, the name Guellerma Malabanan rep. by her AIF David M. Castro
appeared as mortgagor while the amount of mortgaged indebtedness is P96,870.20.
The real property described therein however is the Quezon City property.
On 26 August 1996, the Quezon City property was sold at a public auction in favor
of Prudential Bank whose winning bid was P396,000.00.
In their Complaint, Spouses Castro alleged that the extrajudicial foreclosure and sale
of the Quezon City property is null and void for lack of notice and publication of the
extrajudicial foreclosure sale. Spouses Castro proffered that the property foreclosed
is not one of the properties covered by the REM executed by Guellerma Malabanan
which was the basis of the Notice of Sheriffs Sale which was posted and published.
Spouses Castro prayed for the declaration of the Sheriffs Certificate of Sale as null
and void and for award of damages.6chanRoblesvirtualLawlibrary
In their Answer, Prudential Bank asserted that Spouses Castro were fully aware that
the Quezon City property was to be foreclosed considering that the obligation
secured by it remained unpaid as of the date of the foreclosure sale. Prudential
Bank cited a clerical and harmless inadvertence in the preparation of the petition for
extrajudicial foreclosure but nonetheless, it claimed that Spouses Castro, having
been notified of the scheduled foreclosure of the mortgage of the Quezon City
property, should have noticed the inadvertence and alerted the sheriff. Their failure
CRED TRANS Pledge, Mortgage Antichresis Fulltext
to do so, Prudential Bank added, clearly amounted to
laches.7chanRoblesvirtualLawlibrary
The issue before the RTC was whether Prudential Bank legally complied with the
jurisdictional requirement of due notice prior to the extrajudicial sale of the property
in question. The trial court ruled in favor of Prudential Bank and dismissed the
complaint. It found that:chanroblesvirtuallawlibrary
x x x there was no substantial defect on the published and posted notice of Sheriffs
sale. The public had been sufficiently informed of the identity of the property to be
sold, identity of the mortgagor-borrower whose unpaid loan is secured by the
mortgage and the identity of the mortgagee. The notice did not render plaintiffs
themselves uninformed of the nature of the property to be sold.8
The trial court further held that the objective of notice was attained since there was
sufficient publicity of the sale through newspaper publication and that there was no
showing that the property was sold for a price far below its value, an intimation of
collusion between the sheriff who conducted the sale and the
bank.9chanRoblesvirtualLawlibrary
On appeal, the Court of Appeals reversed the ruling of the trial court. The appellate
court stressed the importance of notice in a foreclosure sale and ruled that failure to
advertise a mortgage foreclosure sale in compliance with statutory requirements
constitutes a jurisdictional defect invalidating the sale.10chanRoblesvirtualLawlibrary
Prudential Bank filed a motion for reconsideration. In a Resolution dated 14 January
2011, the Court of Appeals, Second Division, expounded on the previous Decision.
The appellate court clarified that the erroneous designation of Guellerma
Malabanan as mortgagor, instead of David, did not affect the validity of the notice.
With respect to the amount of the mortgaged indebtedness however, the appellate
court noted that the discrepancy vis-a-vis the actual amount owed by Spouses
Castro is so huge that it can hardly be considered immaterial. The appellate court
opined that declaring a small amount of indebtedness in the petition for
extrajudicial foreclosure and in the notice of sheriffs sale would effectively
depreciate the value of the property. The appellate court then concluded that
statutory provisions governing publication of notice of mortgage foreclosure sales
must be strictly complied with and that even slight deviations will invalidate the
notice.11chanRoblesvirtualLawlibrary
Petitioner Bank of the Philippine Islands (BPI), being the successor-in-interest of
Prudential Bank, by virtue of the merger of the two banking institutions with BPI as
the surviving entity, filed the instant petition for review defending the ruling of the
trial court and reiterating that the published Notice of Sheriffs Sale would show that
the subject of the sale, the Quezon City property, was sufficiently and properly
described and identified. Petitioner refuted the appellate courts finding that by
indicating a lower amount of indebtedness, the notice depreciated the value of the
property subject of sale. Petitioner cited Olizon v. Court of Appeals,12 wherein the
court declared that immaterial errors and mistakes cannot affect the sufficiency of
the notice. Petitioner reiterated Prudential Banks right to foreclose the mortgage
constituted over the Quezon City property because the loan secured by the
mortgage had not been paid when it fell due and remained so when the mortgage
was scheduled for foreclosure.13chanRoblesvirtualLawlibrary
In her Comment, Consuelo points out as glaringly erroneous the Notice of Sheriffs
Sale which named the mortgagor as Guellerma Malabanan and the mortgage
indebtedness as P96,870.20. Consuelo avers that the properties, the foreclosure of
which Prudential Bank appears to seek in its petition, were situated in Laguna, thus,
the Sheriff of Quezon City had no jurisdiction to issue a Notice for Sale of said
property. Consuelo insists that even if the property was sold for more than the
mortgage indebtedness, such would not render the sale valid because public policy
is involved in the need for strict compliance with the requirements of notice in
extrajudicial foreclosures of mortgage. It was posited that a lesser amount of
indebtedness as stated in the notice would mislead a potential bidder in public
auction and subject the value of the property to risk of unwarranted diminution.
Finally, Consuelo counters that petitioners reliance on Olizon is misplaced because
the alleged failure of notice in said case lay in the fact that the notice was published
in a newspaper in lieu of being posted. Consuelo argues that in this case the
property itself was misidentified in the petition for
foreclosure.14chanRoblesvirtualLawlibrary
The submissions of the parties indicate the basic issue to be whether the errors in
the Notice of Sheriffs Sale invalidate the notice and render the sale and the
certificate of such sale void.
We find merit in the petition.
At the outset, it bears emphasis that foreclosure proceedings have in their favor the
presumption of regularity and the party who seeks to challenge the proceedings has
the burden of evidence to rebut the same.15 In this case, respondent failed to
prove that Prudential Bank has not complied with the notice requirement of the law.
Sections 2, 3, and 4 of Act No. 3135 laid down the procedure regarding foreclosure
sale:chanroblesvirtuallawlibrary
Sec. 2. Said sale cannot be made legally outside of the province in which the
property sold is situated; and in case the place within said province in which the sale
is to be made is subject to stipulation, such sale shall be made in said place or in the
municipal building of the municipality in which the property or part thereof is
situated.
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
Page 106 of 152
situated, and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city.
Sec. 4. The sale shall be made at public auction, between the hours of nine in the
morning and four in the afternoon; and shall be under the direction of the sheriff of
the province, the justice or auxiliary justice of the peace of the municipality in which
such sale has to be made, or a notary public of said municipality, who shall be
entitled to collect a fee of five pesos each day of actual work performed, in addition
to his expenses.
In Philippine National Bank v. Maraya, Jr.,16 we elucidated that one of the most
important requirements of Act No. 3135 is that the notice of the time and place of
sale shall be given. If the sheriff acts without notice, or at a time and place other
than that designated in the notice, the sheriff acts without warrant of law.17 In this
case, the property sold in the public auction is located in Quezon City and the
foreclosure sale proceeded as scheduled at 10:00 oclock in the morning on 26
August 1996 at the Hall of Justice in Quezon City with Prudential Bank as the
winning bidder, registering the highest bid of P396,000.00.
In Century Savings Bank v. Samonte18 citing Olizon v. Court of Appeals,19 the Court
reiterated the purpose of the rule on notice, to wit:chanroblesvirtuallawlibrary
The object of a notice of sale is to inform the public of the nature and condition of
the property to be sold, and of the time, place and terms of the sale. Notices are
given for the purpose of securing bidders and to prevent a sacrifice of the property.
If these objects are attained, immaterial errors and mistakes will not affect the
sufficiency of the notice; but if mistakes or omissions occur in the notices of sale,
which are calculated to deter or mislead bidders, to depreciate the value of the
property, or to prevent it from bringing a fair price, such mistakes or omissions will
be fatal to the validity of the notice, and also to the sale made pursuant thereto.20
The mistakes and omissions referred to in the above-cited ruling which would
invalidate notice pertain to those which: 1) are calculated to deter or mislead
bidders, 2) to depreciate the value of the property, or 3) to prevent it from bringing
a fair price.
In this case, the Notice of Sheriffs Sale21 states:chanroblesvirtuallawlibrary
NOTICE OF SHERIFFS SALE
Upon extra-judicial petition for sale under Act 3135, as amended by Act 4118, filed
Prudential Bank, mortgage[e]/s, against Guellerma Malabanan rep. by her AIF David
M. Castro mortgagor/s, with residence and postal address at Sta. Rosa, Alaminos,
Laguna to satisfy the mortgaged indebtedness, which as of July 1996 amounts to
NINETY SIX THOUSAND EIGHT HUNDRED SEVENTY PESOS & 20/100 (P96,870.20)
excluding penalties[,] charges, attorneys fees and all the legal fees and expenses for
the foreclosure and sale, the Ex-Officio Sheriff of Quezon City or her duly authorized
Deputy, will sell at PUBLIC AUCTION to the highest bidder FOR CASH and in
Philippine Currency, on the 26th day of AUGUST, 1996, at 10:00 oclock in the
morning, or soon thereafter, infront of the main entrance of the Hall of Justice
(beside the Quezon City Hall) Elliptical Road, Diliman, Quezon City, the following
described real estate property, together with all the improvements existing thereon
to wit:chanroblesvirtuallawlibrary
TRANSFER CERTIFICATE OF TITLE
NO. 364277
Registry of Deeds Quezon City
A parcel of land (Lot 5-B of the subd. Plan (LRC) Psd-339863, approved as a
nonsubdn. project, being a portion of Lot 5, Blk. 1, (LRC) Psd-45612, LRC Rec. No.
5975), situated in the Dist. of Tandang Sora, Quezon City. Bounded on the NE.,
points 4 to 1 by Road Lot 1 (LRC) Psd-45612; on the SE., points 1 to 2 by Lot 5-C; on
the SW., points 2-3 by Lot 5-A, both of the subdn. plan; and on the NW., points 3-4
by Lot 371- New Psd- 36060. x x x x containing an area of ONE HUDNRED (100)
SQUARE METERS, more or less.
Prospective bidders or buyers are hereby enjoined to investigate for themselves the
title of the said real estate property and the encumbrances thereon, if any there be.
With jurisprudence as the measure, the errors pointed out by respondents appear to
be harmless. The evils that can result from an erroneous notice did not arise. There
was no intention to mislead, as the errors in fact did not mislead the bidders as
shown by the fact that the winning registered bid of P396,000.00 is over and above
the real amount of indebtedness of P209,205.05. As correctly observed by the trial
court, the amount mentioned in the notice did not indicate a collusion between the
sheriff who conducted the sale and the respondent bank. Notably, the mentioned
amount of P96,870.20 refers to the mortgage indebtedness not the value of the
property. Equally notable is the announcement in the notice that the amount
excludes penalties, charges, attorneys fees and all legal fees and expenses for the
foreclosure and sale.
As regards the designation of Guellerma Malabanan as the mortgagor, we agree
with the reference made by the Court of Appeals to the case of Langkaan Realty
Devt Inc. v. UCPB which ruled that the erroneous designation of an entity as the
mortgagor does not invalidate the notice of sale.22chanRoblesvirtualLawlibrary
The notice rule was complied with when the Notice of Sheriffs Sale was published in
Philippine Recorder, a national newspaper of general circulation once a week for
three consecutive weeks or on 29 July, 5 and 12 August 1996. As a matter of fact,
the foreclosure procedure undertaken by Prudential Bank was supported by the
following documents: Affidavit of Publication,23 Notice of Sheriffs Sale,24 Sheriffs
Certificate of Sale,25 Affidavit of Posting,26 and Minutes of the Auction Sale.27
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Indubitably, these documents evidenced the regular and lawful conduct of the
foreclosure proceedings.
There is much significance in the fact that David admitted on the witness stand that
he knew that there was an application for foreclosure on their Quezon City property
but the REM used as basis of the foreclosure covered the Laguna properties. Upon
learning this information, he should have registered his objection or sought
clarification from the sheriffs office. Instead, he let the public auction run its course
and belatedly objected to the sale.
For failure to overcome the burden of showing that the foreclosure proceedings is
tainted with irregularity, the Certificate of Sale should be upheld.chanrobleslaw
WHEREFORE, the petition is GRANTED. The 26 November 2009 Decision and 14
January 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 88870 is
REVERSED and SET ASIDE. The 24 January 2007 Decision of the Regional Trial Court
of Quezon City, Branch 97 in Civil Case No. Q-97-32018 is REINSTATED.
SO ORDERED.cralawlawlibrary
THIRD DIVISION
G.R. No. 174581 February 4, 2015
ATTY. LEO N. CAUBANG, Petitioner,
vs.
JESUS G. CRISOLOGO and NANETTE B. CRISOLOGO, Respondents.
DECISION
PERALTA, J.:
For the Court's resolution is a Petition for Review under Rule 45 of the Rules of
Court which petitioner Atty. Leo N. Caubang filed, questioning the Decision1 of the
Court of Appeals (CA), dated May 22, 2006, and its Resolution2 dated August 16,
2006 in CA-G.R. CV. No. 68365. The CA affirmed the Decision3 of the Regional Trial
Court (RTC) of Davao City, Branch 12, dated August 1, 2000, with modifications, in
Civil Case No. 27168-99.
The facts, as gathered from the records, are as follows:
On December 17, 1993, respondents spouses Jesus and Nannette Crisologo (the
Spouses Crisologo) obtained an Express Loan in the amount of P200,000.00 from
PDCP Development Bank Inc. (PDCP Bank). On January 26, 1994, the Spouses
Crisologo acquired another loan from the same bank, this time a Term Loan of
P1,500,000.00 covered by a Loan Agreement. As security for both loans,the spouses
mortgaged their property covered by Transfer Certificate of Title (TCT) No. T-
181103. Upon release of the Term Loan, they were given two (2) promissory notes,
for the amount of P500,000.00 on February 9, 1994 and P1,000,000.00 on February
21, 1994.
Under the promissory notes, the Spouses Crisologo agreed to pay the principal
amount of the loan over a periodof three (3) years in twelve (12) equal quarterly
amortizations. Although they were able to pay the Express Loan, starting August 22,
1994, however, or after payment of the first few installments on the other loans, the
spouses defaulted in the amortizations. Despite several demands made by the
bank,the spouses still failed to pay.
On May 31, 1996, the spouses received a detailed breakdown of their outstanding
obligation. Finding the charges to be excessive, they wrote a letter to the bank
proposing to pay their loan in full with a request that the interest and penalty
charges be waived. The manager of PDCP Bank, Davao Branch, advised them to
deposit their P1,500,000.00 obligation as manifestation of their intent to pay the
loan. As a counter-offer, the spouses agreed to deposit the amount but on the
condition that the bank should first return to them the title over the mortgaged
property. The bank did not reply until July 7, 1997, where they senta letter denying
the spouses counteroffer and demanding payment of the loan already amounting
to P2,822,469.90. By October 20, 1997, the debt had ballooned to P3,041,287.00. For
failure to settle the account, the Davao branch of the bank recommended the
foreclosure of the mortgage to its head office. On March 20, 1998, PDCP Bank filed
a Petition for the Extrajudicial Foreclosure of the Mortgage.
On June 8, 1998, petitioner Leo Caubang, as Notary Public, prepared the Notices of
Sale, announcing the foreclosure of the real estate mortgage and the sale of the
mortgaged property at public auction on July 15, 1998. He caused the posting of
said notices in three (3) public places: the Barangay Hall of Matina, City Hall of
Davao,and Bangkerohan Public Market. Publication was, likewise, made in the
Oriental Daily Examiner, one of the local newspapers in Davao City.
On July 15, 1998, Caubang conducted the auction sale of the mortgaged property,
with the bank as the only bidder.1wphi1 The bank bidded for P1,331,460.00,
leaving a deficiencyof P2,207,349.97. Thereafter, a Certificate of Sale in favor of the
bank was issued.
Later, the Spouses Crisologo were surprised to learn that their mortgaged property
had already been soldto the bank. Thus, they filed a Complaint for Nullity of
Extrajudicial Foreclosure and Auction Sale and Damages against PDCP Bank and
Caubang.
On August 1, 2000, the Davao RTC rendered a Decision nullifying the extrajudicial
foreclosure of the real estate mortgage for failure to comply with the publication
requirement, the dispositive portion of which reads:
Page 107 of 152

WHEREFORE, judgment is hereby rendered:
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs property, covered by TCT
No. T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. 113255
on TCT No. T-181103, the entry relative to the Certificate of Sale executed by Atty.
Leo Caubang on August 5, 1998, and if a new title has been issued to defendant
PDCP, to cancel the same, and to reinstate TCT No. T-181103 in the name of
Nannette B. Crisologo, of legal age, Filipino, married to Jesus Crisologo, and a
resident of Davao City, Philippines.
All the other claims of the parties are disallowed.
No pronouncement as to costs.
SO ORDERED.4
The Spouses Crisologo appealed before the CA, seeking a partial modification of the
RTC Decision, insofar as their claims for moral and exemplary damages, attorneys
fees, and costs of suit were concerned. On May 22, 2006, the appellate court
modified the decretal portion to read: WHEREFORE, judgment is hereby rendered:
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs property, covered by TCT
# T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. T-
181103, the entry relative to the Certificate of Sale executed by Atty. Leo Caubang
on August 5, 1998, and if a new title has been issued to defendant PDCP, to cancel
the same, and to reinstate TCT No. T-181103 in the name of Nannette B. Crisologo,
of legal age, Filipino, married to Jesus Crisologo, and a resident of Davao City,
Philippines; and
3. Atty. Caubang is ordered to pay appellants the sum of P41,500.00 as attorneys
fees and P30,248.50 as litigation expenses.
All other claims of the parties are disallowed.
SO ORDERED.5
Caubang filed a Motion for Reconsideration, but the same was denied. Hence, he
filed the present petition.
Caubang mainly assails the CAs ruling on the publication of the notices in the
Oriental Daily Examiner. He firmly contends that the CAs finding was based on
assumptions and speculations.
The petition lacks merit.
Under Section 3 of Act No. 3135:6
Section 3. Notice of sale; posting; when publication required. Notice shall be given
by posting notices ofthe sale for not less than twenty days in at least three public
places ofthe municipality or city where the property is situated, and if such property
is worth more than four hundred pesos, such notices shall also be published once a
week for at least three consecutive weeksin a newspaper of general circulation in
the municipality or city.7
Caubang never made an effort toinquire as to whether the Oriental Daily
Examinerwas indeed a newspaper of general circulation, as required by law. It was
shown that the Oriental Daily Examineris not even on the list of newspapers
accredited to publish legal notices, as recorded in the Davao RTCs Office of the
Clerk of Court. It also has no paying subscribers and it would only publish whenever
there are customers. Since there was no proper publication of the notice of sale, the
Spouses Crisologo, as well as the rest of the general public, were never informed
thatthe mortgaged property was about to be foreclosed and auctioned. As a
result,PDCP Bank became the sole bidder. This allowed the bank to bid for a very
low price (P1,331,460.00) and go after the spouses for a bigger amount as
deficiency.1wphi1
The principal object of a notice of sale in a foreclosure of mortgage is not so much
to notify the mortgagor as to inform the public generally of the nature and
condition of the property to be sold, and of the time, place, and terms of the sale.
Notices are given to secure bidders and prevent a sacrifice of the property.
Therefore, statutory provisions governing publication of notice of mortgage
foreclosure sales must be strictly complied with and slight deviations therefrom will
invalidate the notice and render the sale, at the very least, voidable. Certainly, the
statutory requirements of posting and publication are mandated and imbued with
public policy considerations. Failure to advertise a mortgage foreclosure sale in
compliance with the statutory requirements constitutes a jurisdictional defect, and
any substantial error in a notice of sale will render the notice insufficient and will
consequently vitiate the sale.8
Since it was Caubang who caused the improper publication of the notices which, in
turn, compelled the Spouses Crisologo to litigate and incur expenses involving the
declaration of nullity of the auction sale for the protection of their interest on the
property, the CA aptly held that Caubang shall be the one liable for the spouses'
claim for litigation expenses and attorney's fees.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, dated
May 22, 2006, and its Resolution dated August 16, 2006, in CA-G.R. CV. No. 68365,
are hereby AFFIRMED.
SO ORDERED.
FIRST DIVISION
G.R. No. 212689 August 6, 2014
ECE REALTY and DEVELOPMENT, INC., Petitioner,
vs.
HAYDYN HERNANDEZ, Respondent.
RESOLUTION
REYES, J.:
This is a Petition for Review on Certiorari1 from the Decision2 dated November 4,
2013 of the Court of Appeals (CA) in CA-G.R. SP No. 120738, which affirmed with
modification the Decision3 dated January 10, 2011 of the Office of the President
(OP) in O.P. Case Number 09-D-152, entitled, "The Housing and Land Use
Regulatory Board and Haydyn Hernandez v. ECE Realty and Development
Corporation." The fallo of the appellate court's decision reads:
We AFFIRM the assailed Decision of the Office of the President in O.P. Case Number
09-D-152, with MODIFICATION: We DIRECT petitioner ECE REALTY AND
DEVELOPMENT INC., to pay respondent Haydyn Hernandez, the amount of
[P]452,551.65 (representing the total amount respondent Hernandez paid petitioner
ECE), plus 6% interest per annum starting 07 September 2006, and 12% interest per
annum from the time the judgment becomes final and executor[y], until fully paid.
IT IS SO ORDERED.4
On September 7, 2006, Haydyn Hernandez (respondent) filed a Complaint for
specific performance, with damages, against Emir Realty and Development
Corporation (EMIR) and ECE Realty and Development Incorporated (ECE) before the
Housing and Land Use Regulatory Board Expanded National Capital Region Field
Office (HLURB-Regional Office). The respondent alleged that ECE and EMIR,
engaged in condominium development and marketing,respectively, sold tohim a
30-square meter condominium unit in the "Harrison Mansion" described as Unit
808, Building B, Phase 1 (Unit 808). On July 22, 1997 the respondent paid the
reservation fee of P35,000.00, and on August 2, 1997 he paid P104,063.65 to
complete the downpayment.5 In the parties Contract to Sell6 dated November 5,
1997, EMIR and ECE promised that Unit 808 would be ready for occupancy by
December 31, 1999.
EMIR and ECE failed to deliver Unit 808 to the respondent on December 31, 1999,
by which date he had already paid a total of P452,551.65. Moreover, the
respondentdiscovered that Unit 808 contained only 26 sq m, not 30 sq m as
contracted, thus, he asked for a corresponding reduction in the price by
P120,000.00, based on the price per sq m of P30,000.00. Instead, EMIR and ECE
demanded that he settle all his amortizations in arrears with interest. Sometime in
2005, the respondent learned that EMIR and ECE had sold Unit 808 to a third party.7
The respondent in his complaint inthe HLURB asked that EMIR and ECE be ordered
to accept his payment of the balance of the price of Unit 808, less P120,000.00,
without interest; and to pay him moral damages of P500,000.00, actual damages of
P100,000.00, exemplary damages of P100,000.00, and attorneys fees of P50,000.00
plus P2,000.00 per appearance fee. If Unit 808 is no longer available, the respondent
asked that EMIR and ECE reimburse him the amountof P452,551.65 he paid, plus
legal interest.8
In their Answer with Counterclaim, EMIR and ECE sought to dismiss the complaint
for lack of cause of action, and to drop EMIR as defendant because it has no
contractual relations with the respondent.9 They alleged that the respondent
unjustifiably refused to accept the turn-over of Unit 808, that he was duly given a
Grace Period Notice10 that he was in arrears in his monthly amortizations, but the
respondentlet the said period lapse without settling his past-due amortizations.
Thus, ECE was compelled to cancel his contract to sell, invoking RepublicAct No.
6552 (An Act to provide protection to buyers of Real Estate on Installment
Payments). EMIR and ECE also sought exemplary damages, attorneys fees, and
litigation expenses.
On May 12, 2008, the HLURB-Regional Office ordered EMIR and ECE to reimburse
the respondent the amount of P452,551.65, plus legal interest, from the filing of the
complaint, and to pay the respondent P50,000.00 as moral damages, P50,000.00 as
attorneys fees, and P50,000.00 as exemplary damages.11
EMIR and ECE appealed to the HLURB Board of Commissioners, which in its
Decision12 dated January 23, 2009 upheld the HLURB-Regional Office but dropped
EMIR as defendant. ECE appealed to the OP, but the OP in its Decision13 dated
January 10, 2011 dismissed ECEs appeal. On July 5, 2011, the OP denied ECEs
motion for reconsideration.
On petition for review to the CA, ECE argued that the OP erred in affirming the
rescission of the parties contract to sell and the order to refund the respondents
payments with legal interest from filing of the complaint, along with the award of
moral and exemplary damages and attorneys fees to the respondent. ECE pointed
out that the respondent did not ask for rescission and refund on account of the
delay in the delivery of Unit 808, but only for a reduction in the price. It further
Page 108 of 152
argued that interest may be imposed only from finality of judgment.Insisting that it
was not in bad faith, ECE sought the deletion of the award for damages and
attorneys fees, saying also that they are excessive.
In upholding the OP, the CA cited Section 23 of Presidential Decree (P.D.) No. 957
(Regulating the Sale of Subdivision Lots and Condominiums, Providing for Penalties
for Violations Thereof), which reads:
Sec. 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the
owner or developer, desists from further payment due to the failure of the owner or
developer to develop the subdivision or condominium project according to the
approved plans and within the time limit for complying with the same. Such buyer
may, at his option, be reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with interest thereon at the legal rate.
The CA found that the respondent duly notified ECE that he was suspending his
subsequent amortizationsbecause of the delayed delivery of Unit 808. The CA then
ruled that under P.D. No. 957, when the owner of the subdivision or condominium
fails to develop the same according to the plan within the period agreed, the buyer,
after notifying the owner, may desist from paying the balance, and may demand the
reimbursement of all that he has paid. ECE failed to deliver Unit 808 on or before
December 31, 1999, even as the said unit measured only 26 sq m, not 30 sqm as
agreed. As also found by the CA, by ECEs own evidence Unit 808 was ready for
inspection only on June 28, 2002, or two and a half years after the agreed date of
delivery. But the CA deleted the award of moral and exemplary damages, finding
that ECE did not act in bad faith, while sustaining the award of P50,000.00 as
attorneys fees pursuant to Article 2208 (2) of the Civil Code, since ECEs act or
omission compelled the respondent to litigate.
On the imposition of six percent (6%)interest, the appellate court cites Eastern
Shipping Lines, Inc. v. Court of Appeals14 and in Fil-Estate Properties, Inc. v. Spouses
Go,15 the amount to be refunded being neither a loan nor a forbearance of money,
goods or credit.
On petition to this Court, the petitioner ECE reiterated all the arguments it proffered
before the CA.
Our Ruling
We resolve to affirm the CA decision with modification, by reducing the interest
imposable after finality fromtwelve percent (12%) to six percent (6%).
Article 2209 of the New Civil Code provides that "If the obligation consists in the
payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is
six per cent per annum." There is no doubt that ECE incurred in delay in delivering
the subject condominium unit, for which reason the trial court was justified
inawarding interest to the respondent from the filing of his complaint. There being
no stipulation as to interest, under Article 2209 the imposable rate is six percent
(6%) by way of damages, following the guidelines laid down in the landmark case of
Eastern Shipping Lines v. Court of Appeals:16
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, notconstituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion
of the courtat the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially(Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged. 3. When the judgment of the court awarding a
sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.17
As further clarified in Sunga-Chan, et al. v. Court of Appeals, et al.:18
In Reformina v. Judge Tomol, Jr., the Court held that the legal interest at 12% per
annumunder Central Bank (CB) Circular No. 416 shall be adjudged only in cases
involving the loan or forbearance of money. And for transactions involving payment
of indemnities in the concept of damages arising from default in the performance of
obligations in general and/or for money judgment not involving a loan or
forbearance of money, goods, or credit, the governing provision is Art. 2209 of the
Civil Code prescribing a yearly6% interest. Art. 2209 pertinently provides: Art. 2209.
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If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum.
The term "forbearance," within the context of usury law, has been described as a
contractual obligation ofa lender or creditor to refrain, during a given period of
time, from requiring the borrower or debtor to repay the loan or debt then due and
payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if
proper, and the applicable rate, as follows: The 12% per annum rate under CB
CircularNo. 416 shall apply only to loans or forbearance of money, goods, or credits,
as well as to judgments involving such loan or forbearance of money, goods, or
credit, while the 6%per annumunder Art. 2209 of the Civil Code applies "when the
transaction involves the payment ofindemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general," with the
application ofboth rates reckoned "from the time the complaint was filed until the
[adjudged] amount is fully paid." In either instance, the reckoning period for the
commencement of the running of the legal interest shall besubject to the condition
"that the courts are vested with discretion, depending on the equities of each case,
on the award of interest."19 (Emphasis ours)
Thus, from the finality of the judgment awarding a sum of money until it is satisfied,
the award shall beconsidered a forbearance of credit, regardless of whether the
award in fact pertained to one.20 Pursuant to Central Bank Circular No. 416 issued
on July 29, 1974, in the absence of written stipulation the interest rate to be
imposed in judgments involving a forbearance of credit was twelve percent (12%)
per annum, up from six percent (6%) under Article 2209 of the Civil Code.1wphi1
This was reiterated in Central Bank Circular No. 905, which suspended the effectivity
of the Usury Law beginning on January 1, 1983.
But since July 1, 2013, the rate of twelve percent (12%) per annum from finality of
the judgment until satisfaction has been brought back to six percent (6%). Section 1
of Resolution No. 796 of the Monetary Board of the Bangko Sentral ng Pilipinas
dated May 16, 2013 provides: "The rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per annum."
Thus, the rate of interest to be imposed from finality of judgments is now back at six
percent (6%), the rate provided in Article 2209 of the Civil Code.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 120738 is
AFFIRMED with MODIFICATION. Petitioner ECE Realty and Development, Inc. is
hereby ordered to pay respondent Haydyn Hernandez the amount of P452,551.65
representing the total amount he paid to petitioner ECE Realty and Development
Incorporated, plus six percent (6%) interest per annum from September 7, 2006 until
finality hereof by way of actual and compensatory damages. From finality until full
satisfaction, the total amount due now compounded with interest due from
September 7, 2006 up to finality, shall likewise earn interest at six percent (6%) per
annum until fully paid.
SO ORDERED.
EN BANC
G.R. No. L-27084 December 31, 1927
AMBROSIO T. ALOJADO, as administrator of the intestate estate of the deceased
Juana Mabaquiao, plaintiff-appellant,
vs.
M. J. LIM SIONGCO, ET AL., defendant-appellees.
Araneta and Zaragoza for appellant.
Soriano and Nepomuceno for appellees.
AVANCEA, C. J.:
On October 12, 1907 Juana Mabaquiao sold the land described in the complaint to
Nicolas Alegata for the sum of P7,744. After the death of Nicolas Alegata,
proceeding for the settlement of his estate was instituted, and on October 23, 1913
his property, which included that purchased from Juana Mabaquiao, was
adjudicated to Lim Kang Sang and Lim Eng Teeng, his only heirs. On November 11,
1913 they sold this land to Lim Ponso & Co., with the right to repurchase for the
period of one year, which period expired without this right having exercised. On
February 15, 1918 Lim Ponso & Co. transferred this land unconditionally to Lim
Siongco and Lim Kingko.
Upon the death of Juana Mabaquiao, proceeding for the settlement of her intestate
estate were also instituted in which Ambrosio T. Alojado was appointed
administrator. The latter, in said capacity, now brings this action against Lim Sionco,
Lim Kingko and Lim Ponso & Co. and prays that he be declared the absolute owner
of this land with the improvements thereon, and that the defendants be ordered to
restore and respect his right of ownership, possession and usufruct of the property;
and, moreover, that other pronouncements be made as prayed for in his complaint.
The court absolved the defendants from the complaint and plaintiff appealed from
this judgment.
The plaintiff contends that the contract executed by Juana Mabaquiao with Nicolas
Alegata on October 12, 1907 was not a contract of sale with the right to repurchase,
Page 109 of 152
but a contract or antichrises. This contention is untenable. From the terms of the
contract it is clearly a sale with the right to repurchase. It speaks in unequivocal
terms of a sale and the conveyance of land with the right to repurchase, and the
character of the contract is that of a sale with the right to repurchase. The contract is
very defective in its wording, especially so where it refers to the period within which
to excercise the right to repurchase. But examining it as a whole, it clearly appears
that it was the parties' intention that the vendor could repurchase the land without
delay when he had the means to pay the purchase price. What characterizes a
contract or antichresis is that the creditor acquires the right to receive the fruits of
the property of his debtor with the obligation to apply them to the payment of
interests, if any is due, and then to the principal of his credit. Nowhere in the
contract in question does this character of a contract of antichresis appear. The only
substantial thing agreed upon between the parties was that Juana Mabaquiao could
repurchase the land when she had the means. The decision of this court in the case
of De la Vega vs. Ballilos (34 Phil., 683), which the appellant invokes in support of his
contention, is in no way applicable. The case dealt with a contract called mortgage
by the parties and the court held that in reality it was contract of antichresis. But in
the contract in that case it was agreed that the debtor assigned and transfer the
ownership and possession of the land to the creditor for his management and
enjoyment as a profit from the amount for which it had been mortgaged. This
agreement, which characterizes the contract of antichresis, does not exist in the
instant case.lawphi1.net
An attempt was made, by the testimony of Eulogia Espanola, Juana Mabaquio's
granddaughter, to prove that the contract entered into between Juana Mabaquiao
and Nicolas Alegata, was that Mabaquiao, or any of her heirs, might recover
possession of the land any time upon the payment of P7,744, and that while this
remained unpaid the land would continue in the possession of Nicolas Alegata, with
the obligation to deliver one-fifth of the products therefrom to Mabaquiao. Eulogia
Espanola testified having been present when the contract was entered into. Against
this declaration the witness Vicente Gomez was presented, who also stated that he
was present at the time the contract was entered into and contradicted Eulogia
Espanola's testimony and, furthermore, stated that the latter was not present then.
The evidence is of such a character as not to justify in any manner the alteration of
the clear terms of the document in the sentence that it expresses a contract of sale.
This action was brought in January, 1922, fifteen years after the contract was
entered into. This being a sale with the right to repurchase, the question, after this
lapse of time, is reduced to whether or not the title to the land conveyed by Juana
Mabaquiao has been consolidated. The contract, as been noted, fixes the period for
the exercise of the right of redemption until Juana Mabaquiao, or her heirs has the
means. Whether or not this is considered a period, it is clear that the title
transmitted to Nicolas Alegata has been consolidated. According to article 1508 of
the Civil Code, when no period of redemption is fixed it shall last four years, and it is
fixed, it shall not exceed ten years. The right of redemption not having been
exercised the period of ten years, the title of Nicolas Alegata, or his heirs, has by this
fact alone been consolidated any events.
Considering the case from this point of view, the appellant argues that, as it was
never intention of the parties that, after a certain period, the land could not be
repurchased by the vendor, the contract cannot be one of sale with the right to
repurchase, because it conflicts with the nature of this contract, essential of which is
the right of the purchaser to consolidate his title immediately after the period of
redemption has passed.
Another contention of the appellant is that if the right of redemption in this case is
considered null after ten years, this nullity must likewise affect the sale itself. These
questions have been resolved by this court in the case of Yadao vs. Yadao (20 Phil.,
260). In that case the contract contained a stipulation that the vendor repurchase
the land any time he had the money, it being understood that he could not exercise
this right of redemption after ten years, and not having done so within that period,
the court held that the vendor irrevocably acquired title to the land. In that case,
notwithstanding the fact that the right of redemption after ten years had been
declared null, the sale itself however, was considered valid and the title acquired
thereunder consolidated; and that is because the stipulation to repurchase is
accidental to a sale and may be made at the will of the parties. A contract of
absolute sale may be made without this stipulation. It seems logical that if this
stipulation is made and it is declared, null, its nullity cannot affect the sale first since
the latter might be entered into without said stipulation.
The judgment appealed from is affirmed, with the costs against the appellant. So
ordered.
EN BANC
G.R. No. L-11933 December 1, 1917
ALBERTO BARRETTO, plaintiff-appellee,
vs.
LEONARDO F. BARRETTO, ET AL., objector-appellant.
Modesto Reyes and Eliseo Ymzon for appellants.
Williams, Ferrier and Sycip for interveners.
Delgado and Delgado for appellee.
TORRES, J.:
This case was begun in the Court of First Instance of Zambales by Alberto Barretto,
who claimed delivery to him of a piece of land which was a part of the hacienda
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named "Balintagac" together with its fruits or their value, and also of a lot situated
in the same hacienda together with the rents thereof, and was brought to this court
on appeal, by the bill of exceptions, presented by the counsel for the defendants
and the defendant interveners from the judgment entered on July 2, 1915, in the
office of the clerk of the said Court of First Instance, by which, after declaring that
the said Alberto Barretto y Blanco is the owner of the hacienda of Balintagac
described in the complaint, it was ordered that the defendant Leonardo F. Barretto
deliver to the plaintiff the possession of the piece of land and the lot withheld, and
pay, together with the other defendants, the costs of the action.
In his complaint of November 11, 1913, filed in the Court of First Instance of
Zambales, Alberto Barretto alleges as his first cause of action that he is the owner of
the whole hacienda called Balintagac, situated in the barrio of the same name, in the
municipality of San Felipe of said province, having an area of about 200 qui__ones
antiguos, and bounded on the north by the Anonang River; on the south by the
Carmen Mountain; on the east by the corner of the Balintagac; and on the west by
the Tectec Mountain. That he was in possession of the said hacienda quietly,
peacefully, and continuously, as were his predecessors since the year 1884 until
May, 1912; that on a certain day of the latter month and year, the defendant
Leonardo F. Barretto alleging himself to be the owner of a certain part of said
hacienda illegally and unduly usurped a portion of land of the said hacienda on the
eastern part situated in Ilum-Ilog, Santa Maria and Inubo-grande y pequeo, Santa
Maria and Carupisan, bounded on the north by the Anonang River, on the east by
the Golongoro River and the corner of Balintagac, on the south by the Balintagac
and Inbo mountains, and on the west by the rest of the hacienda which the plaintiff
at present holds; that since that time the defendant had been receiving two-thirds
of the fruits which the usurped portion annually produced, which amounted to 33
uyones and 145 and 33 per cent cavanes of rice at P8 per upon and P2 a cavan, and
whose value amounts to the sum P554; that the defendant refused to return that
portion of land usurped together with the fruits received, or their value, in spite of
the fact that he has been required to do so in writing by the plaintiff.
That, as a second cause of action, the defendant, on the said month of May, 1912,
illegally took possession of a lot situated in the same hacienda and barrio of
Balintagac, bounded on the front by the provincial road, on its right, left, and rear
sides by lands of the hacienda belonging to the plaintiff, measuring 18 meters in
front by 48 meters deep, that is, an area of 864 square meters, which lot should
reasonably produce for its use a monthly rent of P1, and that in spite of the fact that
the plaintiff had requested the defendant to vacate and to deliver the said lot to him
with its rents, he (defendant) refused to return the said lot or pay the rents therefor,
for which reason the plaintiff prayed judgment in his favor ordering the delivery or
restitution of the said portion of land and lot, claimed in his first and second causes
of action, together with the products of rice said to have been received, and those
which in the future may be obtained, or their value, and the sum of P18 for the
reasonable use of the lot since May, 1912, to October, 1913, and the rent that it
should produce at the rate of P1 a month until the actual delivery of the lot shall
have been made, with the costs of the action.
The demurrer to the said complaint having been overruled, the counsel for the
defendant in an answer dated May 23, 1914, denied each and every one of the
allegations contained in the complaint and alleged that the defendant is in
possession of the land and lot claimed in the first and second causes of action of
the complaint, as well as of the rest of the hacienda, that is, that he is in possession
of all the hacienda of Balintagac as the true owner thereof since 1881.
Upon the permission of the Court, the attorney for Angelica Barretto, Beatriz
Barretto West and her husband, J. C. West, Maria Teresa Barretto York and her
husband Archibald C. York, Carlos Alejandro Barretto, Bernardo O. Barretto, and
Ernesto E. Barretto, filed a complaint of intervention in this case, alleging among
other things that the hacienda of Balintagac in controversy was owned and
possessed by Juan Antonio Barretto, Sr.; that on his death in Zambales on
November 21, 1881, he left seven children called Juan Antonio Barretto, domiciled
in Macao, Angelica Maria Barretto, a resident of Manila, Leonardo F. Barretto, a
resident of San Felipe, Zambales, Francisca Barretto also domiciled in Macao,
Bartolome Barretto, a resident of Kow Loon, China, and now deceased Jose A.
Barretto and Leopoldo Barretto, and these seven children of the deceased Juan
Antonio Barretto, Sr., were his only heirs who succeeded him in all his rights and
actions and for this reason they became owners with the right of possession of the
said hacienda of Balintagac, as in fact they are at present in possession of the same
through their agents and representatives; that one of his children, Jose A. Barretto
on his death in 1893 left three children, Beatriz Barretto, Amalia Barretto, and Jose
Conde Barretto, who succeeded in all rights of their father Jose A. Barretto and in
the possession of the said hacienda, as well as the four children of Leopoldo F.
Barretto, who died in 1894, named Maria Teresa Barretto, Carlos Alejandro Barretto,
Ernesto E. Barretto, and Bernardo O. Barretto, coowners and copossessors of the
said hacienda; that the interveners deny that the plaintiff Alberto Barretto is the
owner of any part of the said hacienda and the lot mentioned in the complaint, or
that the said plaintiff was in possession of them, or any portion of the same, and
that the defendant Leonardo F. Barretto is in possession of the said hacienda
Balintagac and the lot described in the complaint as the representative of the
interveners and the other coheirs, of the estate of the deceased Juan Antonio
Barretto Sr., since the said Leonardo F. Barretto being one of the coheirs, is not the
only owner of the said hacienda, nor of any part of the same except that portion
which belongs to him as one of the heirs of the original owner, but without any
right to withhold the possession of the hacienda as against the interveners, and
concluded by asking that they be declared owners as the heirs of their deceased
ascendant Juan Antonio Barretto, Sr., of their respective undivided shares in the
hacienda and lot mentioned in the complaint, adjudging to them the possession of
the same, with the costs. lawphi1.net
The counsel for Amalia Barretto Moore and her husband, J. B. Moore, residents of
San Francisco, California, with the permission of the court filed a complaint of
Page 110 of 152
intervention proclaiming their intention to unite, take part and reproduced the
application for intervention formerly asked by Angelica Maria Barretto and others,
adopting all the allegations contained in the former complaint of intervention with
the prayers therein made.
The demurrer interposed by the plaintiff having been overruled and the court
having ordered Juan Antonio Barretto, Jr., Amalia Barretto, Jose Conde Barretto,
Francisco Barretto, and Bartolome Barretto to appear and become parties to this
action, with the exception of the plaintiff, the latter in answer to the complaint of
intervention alleged: that he admits the first three paragraphs of said complaint and
denies generally and specifically those following, up to paragraph 13, except the last
of these in which it is alleged that Leonardo F. Barretto was the representative of the
interveners and of the other heirs of Juan Antonio Barretto, Sr., which part is
admitted. As a special defense he alleged that by a notarial document executed May
16, 1882, Juan Antonio Barretto Grandpre, Jr., then executor of his deceased father
Juan Antonio Barretto, Sr., declaring himself to be the absolute owner of all the
hacienda of Balintagac the boundary of which is expressed and its area is 200
quiones borrowed money in the sum of P11,000 from Antonio Vicente Barretto
for the expenses of the said hacienda with the obligation to pay P1,000 for
delinquency and other causes and interests at 8 per cent per annum, payable
quarterly in advance, and as guaranty for said loan he mortgaged specifically the
cultivated half of the hacienda and other properties mentioned in the instrument
and to this effect the brothers of said Juan Antonio Barretto Grandpre intervened
and procured the granting of the loan for the indicated purpose, inducing the
creditor to grant said loan on the security of the mortgage above mentioned; that
for the failure of the debtor to pay his debt, the creditor Antonio Vicente Barretto,
on April, 1885, brought an action to foreclose the mortgage in order to recover the
money loaned, against Juan Antonio Barretto Grandpre in his own behalf and as
executor of his father. The trial was at first conducted against himself and then
against Leonardo F. Barretto as attorney in fact of said Juan Antonio Barretto
Grandpre. Half of the mortgaged hacienda was levied upon and a judgment to sell
the property was rendered, but said half of the attached hacienda could not be sold
in spite of the fact that it was placed at auction three times, its price in the last two
having been reduced; then the creditor, about May, 1888, prayed for the
adjudication of all the property attached to the payment of his credit of P7,648 to
which adjudication and conveyance in part payment the defendant Leonardo F.
Barretto voluntarily agreed and consented as attorney in fact of Juan Antonio
Barretto Grandpre. The Juan Antonio Barretto, Jr., and his brothers, not being able to
pay the debt, interests, and costs delivered and conveyed all the hacienda of
Balintagac to the creditor about the year 1889 or 1890. That from these years the
brothers of Juan Antonio Barretto Grandpre named Leonardo F. Barretto, Jose
Barretto, Leopoldo Barretto, and Bartolome Barretto administered, by the
appointment and exclusive account of Antonio Vicente Barretto, the entire hacienda,
acknowledging him as the owner of all of it and delivering to him all its products till
April, 1896. That in this month of that year Antonio Vicente Barretto leased the
whole hacienda for P900 annually to Luis Bonifacio Barretto who administered it till
his death in 1902 with the knowledge and without the objection of Leonardo F.
Barretto, the attorney in fact and representative of his brothers and coheirs. That on
the death of Antonio Vicente Barretto and his children Antonio Maria Barretto y
Rocha, Ricardo Esteban Barretto y Rocha and Guadalupe Barretto y Rocha
succeeded him, about the year 1902 they appointed Antonio T. Barretto y Blanco as
administrator of the entire hacienda with its annual rent of P225 and he
administered it continuously without any interruption whatsoever till May or June,
1912, when Leonardo F. Barretto illegally took possession of two portions of the
said hacienda the area and boundaries of which are described in the complaint. That
on March 31, 1913, Antonio and Ricardo Barretto y Rocha by means of a notarial
document, sold to the plaintiff Alberto Barretto y Blanco the two-thirds part which
belonged to them as heirs of the creditor Antonio Vicente Barretto. That about June,
1902, Guadalupe Barretto y Rocha with the consent of her husband donated all her
rights and interests as heir of Antonio Vicente Barretto, on condition that the donee
should deliver to every one of his brothers or the latter's children one eight part of
what the donation consisted, and Alberto Barretto, having acquired the rights which
Ricardo, Antonio Barretto having acquired the rights which Ricardo, Antonio Maria,
and Guadalupe Barretto y Rocha had as successors of Antonio Vicente Barretto over
the whole of the said hacienda, the plaintiff has possessed the same quietly,
publicly, and peacefully as its owner until May or June, 1912, when Leonardo F.
Barretto usurped and retained certain portions of the property and its land tax (with
the sworn declaration of ownership since it was introduced up to the present) as
been paid by him in the name and on the account of the heirs of Antonio Vicente
Barretto.
As a special defense and as an estoppel he (plaintiff) alleged that Juan Antonio
Barretto, Jr., and his brothers Leonardo F. Barretto, Bartolome Barretto, Jose
Barretto, and Leopoldo Barretto by their own acts induced Antonio Vicente Barretto
intentionally and deliberately to believe that Juan Antonio Barretto, Jr., had full and
absolute power to dispose of all the hacienda of Balintagac, by reason of which the
creditor executed the loan on the security of the said property and then his brothers
by their own acts acknowledged Antonio Vicente Barretto as the owner of the whole
hacienda, and Leonardo F. Barretto, on his part, as attorney in fact of Juan Antonio
Grandpre, Jr., and as representative of his coheirs agreed to the adjudication of the
attached and cultivated half of the hacienda in favor of Antonio Vicente Barretto in
payment of the sum of P7,648. Lastly and likewise as a special defense he (plaintiff)
alleged prescription for the reason that Antonio Vicente Barretto in his own behalf
and in that of his successors and through his representatives, administrators, lessees
and grantees, since 1889 and 1890 had been in possession of the hacienda publicly,
quietly and peacefully till May or June, 1912, without any interruption and as owner
of the whole of said hacienda by means of which possession they had acquired the
dominion and ownership of all the said hacienda by acquisitive prescription, and at
the same time all rights and actions which Leonardo F. Barretto and the interveners
could have or might allege as to all part of it, have prescribed; and, therefore,
Alberto Barretto asked the court to dismiss the complaint of intervention, declaring
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him the owner of all the hacienda of Balintagac, with costs to the defendants and
interveners.
The counsel for the interveners in answer to the special defenses alleged in the
preceding pleading, said that he denies generally and specifically all that was
alleged in it by the plaintiff, defendant in the intervention.
After the trial and the introduction of evidence on both sides, the exhibits being
attached to the record, the court by judgment recorded in the office of the clerk of
the Court of First Instance of Zambales July 2, 1915, rendered the decision above
mentioned, against which the defendants and the interveners excepted and asked
for a new trial, which was denied and exception was taken to the ruling by them.
The corresponding bill of exceptions having been presented, the same was
approved and forwarded to this court together with the document and transcript of
the stenographic notes and other proceedings which constitute the evidence
adduced by the parties in the action.
The fact is uncontroverted and fully proved in the record that Antonio Vicente
Barretto as creditor not being able to collect his credit of P11,000 and interest at
8 per cent, nor obtain the adjudication in his favor of half of hacienda of Balintagac
which was mortgaged for the security of the debt, and there having been no
bidders on the three occasions in which it was offered for public auction took
possession, in 1888 or 1889, of all the hacienda and from that time on received
through his administrators the products of the same for the purpose of collecting
his credit interests, and on the lack of proof to contrary it may be established that
he took possession of said hacienda by virtue of voluntary assignment with the
express consent of heirs of the deceased Juan Antonio Barretto, Sr., owner of one-
half of the hacienda and of Juan Antonio Barretto Grandpre, Jr., owner of the other
half.
It does not fully appear which contract has been entered into between the creditor
and the said heirs of the deceased Juan Antonio Barretto, Sr., and his son Juan
Antonio Barretto Grandpre; but from the facts that have been fully established it is
inferred that since the years 1888-1889, once the foreclosure proceedings brought
by the creditor Antonio Vicente Barretto, against Juan Antonio Barretto Jr., were
suspended, because the creditor had not been able to obtain the adjudication of
the hacienda in his favor, the creditor took possession of the hacienda of Balintagac,
and held it in usufruct with the knowledge and express consent of its legitimate
owners; thenceforth there has not been any opposition or protest against the
possession which by usufruct the creditor and his successors enjoyed, aside from
the usurpation of two small portions of that property effected by the defendant
Leonardo F. Barretto in 1912.
Considering that from the facts proved, which refer to the possession and usufruct
enjoyed by Antonio Vicente Barretto while living, and then by his successors among
whom was the plaintiff, Alberto Barretto y Blanco, it is logically deduced that such
facts were accomplished by virtue of a verbal contract, and not by written one,
entered into between the owners of the hacienda and the creditor Antonio Vicente
Barretto. Since from the documentary and oral evidence on record it is not shown
that the debtors have delivered the whole hacienda to the creditor by assignment of
the property, in payment of the debt that weighed down, as it were, the half which
secures the payment of the debt it is to be presumed with founded and just reason
that the debtors delivered not only one half, but the whole hacienda with a view
that the creditor might collect by usufruct his credit with the accrued interests.
Even when it cannot possibly be doubted that the assignment of the hacienda to
Antonio Vicente Barretto was not made in payment of his credit, as shown by the
evidence adduced at the trial, nevertheless, in spite of the fact that the agreement
between the creditor and the debtors was not set down in any document, due to
the relationship which exists between them, it may safely be asserted, assuming the
facts that took place, that the debtors have limited themselves to give to the
creditor the right to collect his credit from the fruits of the hacienda of Balintagac,
conferring upon him the possession of the property, but not transferring to him the
dominion of the same, since such transfer does not in any way appear to be proved
in the present action.
The agreement or verbal stipulation which lead to the facts proved deserves in law
the name of antichresis as defined by the Civil Code in its article 1881, which says:
By the antichresis a creditor acquires a right to receive the fruits of real property of
his debtor, with the obligation to apply them to the payment of the interest, if due,
and afterwards to the principal of his credit.
The perusal of the following articles, 1882 to 1886, of the Code, shows in a
convincing way that the possession of the hacienda enjoyed by the creditor Antonio
Vicente Barretto while living and later on by his successors up to the present time
was conferred to them by virtue of the stated contract or agreement in antichresis;
thus, one of the administrators of the hacienda, Luis Barretto, was the one who
presented the sworn declaration of ownership of the same for the purposes of the
assessment tax and paid the land tax in the name of the creditor who possessed and
held the hacienda in usufruct, as it is duly established in the record.
Although article 1884 of the same Code states that the creditor does not acquire
through possession the ownership of the real property delivered by virtue of an
antichresis, for failure to pay the debt within the stipulated time any agreement
to the contrary being void nevertheless, the debtor according to the preceding
article 1883 cannot recover the use of the real property given in antichresis to the
creditor, without previously fully paying the creditor, who in case of insolvency may
ask for the sale of the real property which he possesses by virtue of the covenant in
antichresis, unless the pending debt be paid.
Page 111 of 152
It appears to be duly proved in the record that in 1912 the defendant Leonardo F.
Barretto, by himself and for himself and without the consent of the present
possessor now the plaintiff, took over and usurped a portion of land of the hacienda
and a lot included in it, withholding and refusing to deliver them to the creditor in
antichresis on the pretext that he is the owner of the whole hacienda; and as it does
appear in any way that the debt, for the payment of which the whole hacienda of
Balintagac was delivered in antichresis, has been paid, it is doubtless that the
defendant Leonardo F. Barretto, when he effected the usurpation, acted without just
reason and in contravention of the provisions of the said article 1883 of the Civil
Code. It is known that the action to recover a thing, where a legitimate possessor
has been deprived of his possession, takes place in accordance with the law, even
against the owner himself, who wrested the possession, since the despoiler can
never be protected by the law even on his right of ownership, without first restoring
what he acquired through his authority by an illegal act of dispossession.
It is to be inferred from the facts and the foregoing statements that though the
plaintiff Alberto Barretto has no title of ownership over the hacienda of Balintagac,
and therefore, he can not be declared owner of the same, nevertheless, his claim
that a judgment be rendered ordering the return to him of the portion usurped by
the defendant Leonardo F. Barretto which refers to the first cause of action of his
complaint, as well as the lot described in the second cause of the action of the
same, which is withheld by said defendant, is in conformity with the law and is in
accordance with the merits of the present action. The plaintiff being in the
legitimate possession and use of all the hacienda of Balintagac which was
voluntarily delivered to him by Juan Antonio Barretto Grandpre, Jr., and his coheirs
as the successors of the deceased Juan Antonio Barretto, Sr., with the object that the
creditor Antonio Vicente Barretto might collect the capital and interests which they
owed and still owe him a lawful contractual act called by law a covenant or
agreement in antichresis the debtors, or any of them, can under no
circumstances while the debt exists and is not fully paid, recover or reacquire, as the
mentioned article 1883 provides, the possession and use of the real property
delivered to the creditor, without the latter giving his consent; consequently, the
defendant Leonardo F. Barretto without the knowledge or consent of the plaintiff
Alberto Barretto who succeeded by singular title in the possession and use of the
hacienda in question, could not have recovered by usurpation the possession and
use of a portion of the same.
Although the plaintiff affirms in his complaint that he is the sole owner of the said
hacienda and as such he claims in his complaint the delivery of the portion of the
land and the lot withheld by the defendant, his complaint is not, even then, explicit
enough to affirm that the action brought thereby is a technical one and precisely
that of recovery of possession (reivindicatoria). In a complaint whereby the "accion
publiciana" is brought, also called in law a plenary action of possession, the
restitution and delivery of the thing or real property of the possession of which the
plaintiff has been illegally deprived is equally asked for. Therefore, it should not be
understood that, because the plaintiff Barretto asks for the delivery of the portion of
land and lot claimed in his complaint, the action brought is that of recovery of
ownership and possession (reivindicatoria): it should be understood, instead, that he
seeks to recover the portion of land, of the legal possession of which he has been
improperly deprived by the usurper, Leonardo F. Barretto; since the facts should be
established in the suit as grounds for decision in accordance with the results of the
evidence adduced at the trial. When the defendants denied the ownership which the
plaintiff pretends to have over the said hacienda, they have not denied nor could
they deny the existence and the certainty of the debt guaranteed by the mortgage
of one-half of the hacienda of Balintagac in favor of the creditor, now deceased,
Antonio Vicente Barretto; nor could they allege and prove that the debt has been
entirely paid, so that they may reacquire and recover the possession and use of the
hacienda which was delivered to the original creditor, the predecessor of the
plaintiff.
The preceding facts in this case are beyond discussion, since it appears duly proved
in the record that the original owner of the hacienda of Balintagac, according to the
composition title issued by the State, Exhibit A, on July 9, 1858, was Antonio Lorenzo
Barretto, now deceased, from whom Juan Antonio Barretto, Sr., acquired one-half of
said hacienda, on March, 1881 (Exhibit C), and Juan Antonio Barretto Jr., had
acquired the other half from the said original owner Antonio Lorenzo Barretto, on
November, 1881.
After the death of Juan Antonio Barretto, Sr., his son Juan Antonio Grandpre, in his
own behalf and as the executor of his father, mortgaged, on May 16,1882, the
cultivated half of said hacienda in favor of Antonio Vicente Barretto as security for
the amount of P11,000 which the latter loaned to him, according to the document,
Exhibit F, recorded in the registry.
In order to show how and in what manner the plaintiff Alberto Barretto succeeded
to the rights acquired by the creditor Antonio Vicente Barretto to whom the
hacienda was delivered in 1888 or 1889, that he might collect his credit from the
products of the property, it is stated that on the death of the said creditor his three
children and heirs Antonio Ma Barretto, Ricardo Esteban Barretto, and Guadalupe
Barretto came to succeed him. The last one by means of a document, Exhibit 1,
executed July 5, 1902, made a donation inter vivos in favor of the plaintiff Alberto
Barretto of the undivided one-third part of the hypothecary credit and of the rights
belonging to her deceased father Antonio Vicente Barretto, assigning to the donee
all the rights and actions which she might have in the foreclosure proceedings
exhibited at the trial of the present action, on the condition that as soon as the
donee Alberto Barretto could collect the said one-third part of the credit or should
obtain the assignment of the property of the debtor, he would divide what was
donated, into nine equal parts among the donee himself and six living brothers and
the heirs of their two brothers now dead, each receiving one-ninth part.
In the public documents, Exhibits J, J-1, J-2, J-3, J-4, J-5, and J-6, it appears to be
established that the plaintiff Alberto Barretto, complying with the condition
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imposed in said document of the donation executed by the donor Guadalupe
Barretto, paid to each of his brothers and nephews, the latter by right of the
representation, the sum of P875 as the price of one-eight part of one third of the
said hacienda and in exchange for the sums received as such price his co-donees
assigned and conveyed to him one-eight part of the third of the said hacienda and
whatever rights and interests the grantors might have by virtue of the said donation
in favor of the plaintiff Barretto. It is to be noted that the plaintiff bought one-eight
undivided part of the third of the whole hacienda of Balintagac and paid to every
claimant P875 as the price of the eight part sold to him, and, without these
statements appearing in the said seven documents Exhibit 1, it may be understood
that the third part of the ownership of the hacienda was transferred to the plaintiff
by the donor Guadalupe Barretto.
In fact, with the mutual purpose on the part of the brothers Antonio M.a Barretto
and Ricardo Esteban Barretto and of that of Alberto Barretto of transferring to the
latter the rest of the two-thirds part of the hypothecary credit and of the right to
collect its value from the fruits of the hacienda of Balintagac, the notarial document,
Exhibit K, was executed and after reciting in it that one undivided half of said
hacienda was in May, 1882, mortgaged to secure the sum of P11,000, at 8 per cent
per annum, which Juan Vicente Barretto Grandpre received from his uncle Antonio
Vicente Barretto, and for neither having paid the debt nor having sold the said half
of the mortgaged hacienda on the three occasions in which it was offered for public
auction, the whole hacienda was delivered to the creditor in order that he might
collect his credit and interests. From that time on the said Antonio Vicente Barretto
and later on his successors have been in possession of the hacienda, receiving the
fruits of the property, paying the expenses and the corresponding taxes, the
outcome being that the debt, capital and interests, up to March 31, 1813, according
to the liquidation, amounted to about one hundred thousand pesos. It is further
stated that by virtue of the same, the grantors, the brothers Antonio M.a Barretto
and Ricardo Esteban Barretto, sold and conveyed all their rights and actions
included and derived from the said hypothecary credit for the price of P14,000
which would be paid by the grantee and vendee by installments and in the manner
prescribed in the said deed, assigning to him, besides, all the rights which the said
brothers had over the two-third parts of the said hacienda.
The contents of this documents, which is public in nature, as well as those of
another deed, Exhibit 1, conclusively prove that the plaintiff did not obtain by
assignment, sale, or transfer, as expressed in said deeds, the ownership of the said
hacienda of Balintagac, but only the hypothecary credit which the heirs of the
deceased creditor Antonio Vicente Barretto had inherited from the latter, after the
plaintiff had obtained from his other brothers the conveyance of their respective
rights to the donation.
The rights acquired by the creditor were transmitted by hereditary title through
operation of law to the heirs of the same Antonio M.a, Ricardo Esteban, and
Guadalupe, Barretto y Rocha and these in turn assigned, sold and transferred the
credit with all their rights as hypothecary creditors, as well as the right to the
usufruct of all the hacienda of Balintagac to the plaintiff Alberto Barretto, without it
being ever understood that the right of ownership over the same was transferred
for the reason that neither the original creditor Antonio Vicente Barretto nor his
three heirs had acquired such right of ownership but merely the right to receive the
products of the hacienda in order to cover the credit which the owners of the
hacienda owed.
If the fact were not certain that the hacienda was delivered by its owners to the
creditor Antonio Vicente Barretto, it cannot be understood why it is that in the long
course of this action the defendant and the interveners could not explain how and
in what manner Antonio Vicente Barretto took possession of the hacienda in 1888
or 1889 after the termination of the said foreclosure proceedings, nor could they
explain how and why several of the coowners of the said hacienda had acted as
administrators of the same in the name and representation of the creditor Antonio
Vicente Barretto.
It appears from the record without any contradiction whatsoever that the first who
administered the said hacienda in the name and by direction of Antonio Vicente
Barretto was the defendant Leonardo F. Barretto himself till the year 1890 in which
year the latter voluntarily left by the direction of the creditor and was succeeded by
his brother Jose Barretto till 1893, when Leopoldo Barretto entered as administrator
relieving Jose Barretto by order of Antonio Vicente Barretto himself, till 1894. In this
year the defendant Leonardo F. Barretto himself returned to act as administrator by
direction and in the name of the creditor Antonio Vicente Barretto, till the year 1895,
when according to the letter of Leonardo, Exhibit L, and the letter, Exhibit M, of
Antonio Vicente Barretto by direction of the latter the defendant Leonardo F.
Barretto delivered the hacienda to his brother Bartolome Barretto. It is to be noted
that in the said letter, Exhibit M, Antonio Vicente Barretto advised the defendant
Leonardo to tell the tenants of the hacienda to transact their business with
Bartolome as the administrator. In 1896, because of the death of Bartolome Antonio
Barretto, Luis Bonifacio Barretto succeeded him as administrator, who managed the
hacienda in the name of the same creditor. After the death of the latter, he (Luis)
dealt with Antonio M.a Barretto, one of the heirs of the deceased creditor. On
August, 1902 because of the death of the above-mentioned Luis Bonifacio Barretto,
his brother Antonio T. Barretto succeeded him in the administration of the hacienda
in the name and account of the heirs of the deceased Antonio Vicente Barretto and
the said Antonio T. Barretto continued to act as administrator of the hacienda in the
name of the plaintiff Barretto, who acquired the rights of the heirs of the deceased
creditor Antonio Vicente Barretto, until the beginning of the present action.
These facts which have been fully established show that the whole hacienda was
delivered to Antonio Vicente Barretto so that he might collect his credit, and this is
corroborated by the letters which have been exchanged between Juan Antonio
Barretto Grandpre, Jr., residing abroad and Antonio Vicente Barretto, as well as by
the account, Exhibit 3, rendered to Juan Antonio Barretto, Jr., by Antonio Vicente
Page 112 of 152
Barretto up to December 31, 1888, in which the hypothecary credit of P11,000 with
its interests amounting to P16,255.70 still appear existing and complete. Such facts
cannot in any way prove that Antonio Vicente Barretto took possession of the
hacienda in the character of the owner although he had been appointing
administrators until his death in 1897 and the administrators had dealt with him
while living for the determination of the rent of the hacienda and other particulars,
as well as the fact that the declaration of ownership of the assessment of the
property was made in his name and the payment of the land tax due was made on
his account, for the reason that he acted as creditor in antichresis, and not as a
owner and proprietor of the hacienda, which fact does not appear to be proved by
the oral evidence, whole the contrary has been fully established by the documentary
evidence attached in the record.
That the said verbal contract of antichresis was not set out in some document is not
contrary to what has been said, since the same, being a consensual contract, has the
elements enumerated in article 1261 of the Civil Code and was complied with and
carried into effect without any difficulty whatsoever from the year 1888 until 1912,
that is, during more than 24 years, without any protest or objection on the part of
any of those who could and probably had the right to impugn it; but, on the
contrary, several of the coowners of the hacienda usufructed by the creditor
submitted themselves to the discretional orders of the latter in the exercise of his
right as creditor in antichresis, the former acting successively as administrators of
the very hacienda of which they were coowners; and they only dared to oppose and
to overlook the facts whose realization many of them have helped, from the time
the defendant Leonardo F. Barretto, who on two occasions administered the
hacienda in the name and on the account of the creditor Antonio Vicente Barretto,
dared to usurp a portion of the hacienda and to deny the unquestioned rights of
the plaintiff which were directly derived from the said creditor, now dead, taking
possession of two portions of the hacienda in usufruct, in his own behalf, while the
whole debt, or part of it, still exists for the payment of which the right of usufruct is
at present exercised.
In other respects, the proceedings in the present action do not offer any legal cause
or reason by virtue of which it can be established that the plaintiff has acquired the
ownership of the said hacienda by prescription, since the original possessor entered
into possession of the same with the consent of the owners and not as owner, but
as a creditor with the right only to collect his credit on the fruits of the said
hacienda, and the plaintiff could not acquire better rights than those which had
been conferred upon him by his predecessors in possession. Thus, article 1884 of
the Civil Code declares that the creditor cannot acquire the ownership of the real
property for failure to pay the debt within the time agreed upon. Any stipulation to
the to the contrary shall be void.
It is, therefore, clear and beyond all discussion that the possession enjoyed by the
predecessors of the plaintiff has not been conferred by the owners of the hacienda
to the creditor that the latter might acquire the ownership of the property, but
merely that from its products he might collect the existing debt. Consequently, the
possession exercised by the creditor Antonio Vicente Barretto, not being under title
of ownership because no right of ownership could have taken place, the present
possession of the hacienda can not possibly turn into title of acquisitive prescription
of the property.
Furthermore, it does not appear that the donation made by Guadalupe Barretto and
the sales or assignment made by Antonio M.a Barretto and Ricardo Esteban Barretto
were that of the ownership or dominion of the hacienda, but the hypothecary credit
and whatever right the donor and the assignor and vendors had against the owners
of the hacienda, as it is clearly expressed in the documents Exhibit 1, and K above
referred to. The rights acquired by the plaintiff Alberto Barretto consist, without any
doubt whatsoever, of what the said three brothers of the creditor Antonio Vicente
Barretto had transferred to him and under no circumstance could it be understood
that they transferred the dominion and the ownership of the said hacienda.
As the extinguishment of the right of the creditor and the termination of the use
and possession of the real property depend upon the entire payment of the debt
and its interest, it is proper the liquidation of accounts having been made to
fix definitely the sums of the amount which the debtors had paid on account of the
capital and interests and which had been really received by the creditor.
For these considerations, whereby some of the errors, assigned against the sentence
appealed from as notoriously opposed to the foundation of right and justice laid
down in this decision, are deemed to have been refuted, holding the plaintiff to be
in legitimate possession of the said hacienda, the defendant Leonardo F. Barretto
should be sentenced and we sentence him to vacate and release immediately
otherwise subject to an order of ejectment the portion of land and lot included
within the boundary of the hacienda Balintagac, and place same at the disposal of
the plaintiff Alberto Barretto, or of his representatives; it being understood that
before liquidation, the actual amount of the debt be fixed, which debt, in the form
of capital and interest, is collectible from the products of the hacienda, by the
adjustment of the amounts paid and received on their account to cover the debt.
There is no special finding as to costs in both instances; thus, that part of the
judgment appealed from, which is in conformity with this decision is affirmed and
that contrary to it is reversed. So ordered.
THIRD DIVISION
ANICETO BANGIS substituted by his heirs, namely: RODOLFO B. BANGIS, RONNIE B.
BANGIS, ROGELIO B. BANGIS, RAQUEL B. QUILLO, ROMULO B. BANGIS, ROSALINA
B. PARAN, ROSARIO B. REDDY, REYNALDO B. BANGIS, and REMEDIOS B. LASTRE,
Petitioners,
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-versus-
HEIRS OF SERAFIN AND SALUD ADOLFO, namely: LUZ A. BANNISTER, SERAFIN
ADOLFO, JR., and ELEUTERIO ADOLFO rep. by his Heirs, namely: MILAGROS, JOEL,
MELCHOR, LEA, MILA, NELSON, JIMMY and MARISSA, all surnamed ADOLFO,
Respondents.
G.R. No. 190875
Present:
PERALTA, J., *Acting Chairperson,
ABAD,
VILLARAMA, JR.,**
MENDOZA, and
PERLAS-BERNABE, JJ.
Promulgated:
June 13, 2012
x-----------------------------------------------------------------------------------------x
DECISION
PERLAS-BERNABE, J.:
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court
is the March 30, 2009 Decision[1]of the Court of Appeals Mindanao Station (CA) and
its December 2, 2009 Resolution[2] in CA-G.R. CV No. 00722-MIN which declared
that the transaction between the parties was a mortgage, not a sale, and ordered
petitioners to surrender the possession of the disputed lot upon respondents' full
payment of their indebtedness.
THE ANTECEDENT FACTS
The spouses Serafin, Sr. and Saludada[3]Adolfo were the original registered owners
of a 126,622 square meter lot covered by Original Certificate of Title (OCT) No. P-
489 issued on December 15, 1954 (derived from Homestead Patent No. V-34974),
located in Valencia, Malaybalay, Bukidnon. This property was mortgaged to the then
Rehabilitation Finance Corporation (now Development Bank of the Philippines or
DBP) on August 18, 1955,[4]and upon default in the payment of the loan obligation,
was foreclosed and ownership was consolidated in DBP's name under Transfer
Certificate of Title (TCT) No. T-1152.[5]Serafin Adolfo, Sr., however, repurchased the
same and was issued TCT No. 6313[6]on December 1, 1971, a year after his wife
died in 1970.
Sometime in 1975, Serafin Adolfo, Sr. (Adolfo) allegedly mortgaged the subject
property for the sum of P12,500.00 to Aniceto Bangis (Bangis) who immediately
took possession of the land.[7]The said transaction was, however, not reduced into
writing.[8]
When Adolfo died, his heirs, namely, Luz Adolfo Bannister, Serafin Adolfo, Jr. and
Eleuterio Adolfo (Heirs of Adolfo), executed a Deed of Extrajudicial Partition dated
December 24, 1997 covering the subject property and TCT No. T-65152[9]was
issued to them. On May 26, 1998, the said property was subdivided and separate
titles were issued in names of the Heirs of Adolfo, as follows: TCT Nos. T-66562 and
T-66563 for Luz Adolfo Banester[10]; TCT Nos. T-66560 and T-66561 in the name of
Serafin Adolfo, Jr.; and TCT Nos. T-66564 and T-66565 in favor of Eleuterio
Adolfo.[11]
In June 1998, the Heirs of Adolfo expressed their intention to redeem the
mortgaged property from Bangis but the latter refused, claiming that the
transaction between him and Adolfo was one of sale. During the conciliation
meetings in the barangay, Bangis' son, Rudy Bangis, showed them a copy of a deed
of sale and a certificate of title to the disputed lot.[12]The parties having failed to
amicably settle their differences, a certificate to file action[13]was issued by the
barangay.
THE PROCEEDINGS BEFORE THE RTC
On July 26, 2000, the Heirs of Adolfo filed a complaint[14]before the Regional Trial
Court (RTC) for annulment of deed of sale and declaration of the purported contract
of sale as antichresis, accounting and redemption of property and damages against
Bangis, docketed as Civil Case No. 2993-00. The complaint was amended on
September 11, 2001 to include a prayer for the cancellation of TCT No. T-10567 and
the tax declarations in the name of Bangis in view of the manifestation[15]filed by
Ex-Officio Register of Deeds, Atty. Phoebe Loyola Toribio of the Registry of Deeds,
Malaybalay City which states that the said title was of "dubious" origin since there
was no deed of conveyance upon which the said transfer certificate of title was
based and that its derivative title, TCT No. T-10566, does not exist in the files of the
Page 113 of 152
Registry of Deeds.[16] On November 12, 2001, the complaint was again amended to
reflect the other certificates of titles issued in the names of the Heirs of Adolfo and
the amount of P12,500.00 representing the mortgage debt,[17]followed by another
amendment on October 13, 2003 to include the allegation that they have
partitioned the subject lot on December 24, 1997 and that no copy of the supposed
deed of sale in favor of Bangis can be found in the records of the Provincial
Assessor's Office and the Registrar of Deeds. They further prayed, in the alternative,
to be allowed to redeem the subject lot under the Homestead Law and that Bangis
be ordered to indemnify them: (a) P50,000.00 each as moral damages; (b) 20% of
the value of the property as attorney's fees; and (c) P50,000.00 as litigation expenses
as well as the costs of suit.[18]
In his Answer with Counterclaim,[19]Bangis claimed to have bought the subject
property from Adolfo for which TCT No. T-10567[20]was issued. He also alleged to
have been in open and adverse possession of the property since 1972 and that the
cause of action of the Heirs of Adolfo has prescribed. On November 11, 2001,
Bangis died and was substituted in this suit by his heirs, namely, Rodolfo B. Bangis,
Ronie B. Bangis, Rogelio B. Bangis, Raquel B. Quillo, Romulo B. Bangis, Rosalina B.
Paran, Rosario B. Reddy, Reynaldo B. Bangis and Remedios B. Lastre (Heirs of
Bangis).[21]
During the trial, one of the Heirs of Bangis, Rodolfo Bangis, presented a photocopy
of an Extra-Judicial Settlement with Absolute Deed of Sale dated December 30,
1971[22]for the purpose of proving the sale of the subject lot by Adolfo and his
heirs in favor of his predecessors-in-interest, Aniceto Bangis and Segundino Cortel,
for the sum of P13,000.00. He also presented a Promissory Note[23]of even date
purportedly executed by Bangis and Segundino Cortel undertaking to pay the
balance of the purchase price in the amount of P1,050.00.[24] Both documents were
notarized by Atty. Valentin Murillo who testified to the fact of their
execution.[25]Rodolfo Bangis likewise testified that they have been paying the taxes
due on the property and had even used the same as collateral for a loan with a
bank.[26]
On rebuttal, one of the Heirs of Adolfo, Luz Adolfo Bannister, denied the due
execution and genuineness of the foregoing Extra-Judicial Settlement with Absolute
Deed of Sale alleging forgery.[27]
On December 29, 2005, the RTC rendered a Decision[28]in favor of the Heirs of
Adolfo, the dispositive portion of which reads:
WHEREFORE, the preponderance of evidence being strongly in favor of the plaintiffs
and against the defendants, decision is hereby rendered:
1. Declaring the contract between the plaintiffs and defendants as a mere mortgage
or antichresis and since the defendants have been in the possession of the property
in 1975 up to the present time enjoying all its fruits or income, the mortgaged loan
of P12,000.00 is deemed fully paid;
2. Ordering the defendants to deliver the possession of the property in question and
all the improvements thereon to the plaintiffs peacefully;
3. Declaring TCT No. 10567 in the name of Aniceto Bangis as NULL AND VOID AB
INITIO and directing the Office of the Register of Deeds to cause its cancellation
from its record to avoid confusion regarding the ownership thereof; and
4. Declaring all the transfer certificates of title issued in favor of the plaintiffs
namely, Luz Adolfo-Bannister, Serafin Adolfo, Jr. and Eleuterio Adolfo, as above-
mentioned as the ones valid and issued in accordance with PD 1529.
SO ORDERED.
Aggrieved, the Heirs of Bangis appealed the foregoing disquisition to the Court of
Appeals (CA).
THE CA RULING
In its assailed Decision, the CA affirmed the RTC finding that the contract between
the parties was a mortgage, not a sale. It noted that while Bangis was given
possession of the subject property, the certificate of title remained in the custody of
Adolfo and was never cancelled. The CA also ordered the Heirs of Adolfo to pay the
Heirs of Bangis the mortgage debt of P12,500.00[29]with twelve (12%) percent
interest reckoned from 1975 until 1998 and to deliver to them the possession of the
property upon full payment.[30]It, however, deleted the RTC order directing the
Register of Deeds to cancel TCT No. T-10567 in the name of Bangis for being a
collateral attack proscribed under PD 1529.[31]
Dissatisfied, the Heirs of Bangis filed a Motion for Reconsideration[32]arguing that
the CA erred in disregarding their testimonial and documentary evidence,
particularly, the Extra-Judicial Settlement with Absolute Deed of Sale (Exh. 2) which
purportedly established the sale in favor of their predecessor-in-interest, Aniceto
Bangis. The said motion was, however, denied in the Resolution[33]dated December
2, 2009.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
THE ISSUE BEFORE THE COURT
Hence, the instant petition for review on certiorari based on the lone assignment of
error[34]that the transaction between the parties was one of sale and not a
mortgage or antichresis. In support, petitioner Heirs of Bangis maintain that the CA
erred in not giving probative weight to the Extra-Judicial Settlement with Absolute
Deed of Sale[35]which supposedly bolsters their claim that their father, Aniceto
Bangis, bought the subject parcel of land from Adolfo. Hence, the corresponding
title, TCT No. T-10567, issued as a consequence should be respected.
On their part, respondent Heirs of Adolfo averred that no reversible error was
committed by the CA in upholding that no sale transpired between the parties'
predecessors-in-interest. Moreover, petitioners' TCT No. T-10567 was not offered in
evidence and worse, certified as of dubious origin per the Manifestation of the
Registrar of Deeds.[36]
THE COURT'S RULING
The petition must fail.
At the outset, it should be emphasized that a petition for review on certiorari under
Rule 45 of the Rules of Court involves only questions of law and not of facts. A
question of law exists when there is doubt as to what the law is on a given set of
facts while a question of fact arises when there is doubt as to the truth or falsity of
the alleged facts.[37]
The Heirs of Bangis, in insisting that both the RTC and the CA erroneously
disregarded the evidence of sale they presented, are effectively asking the Court to
re-evaluate factual issues which is proscribed under Rule 45. "Such questions as to
whether certain items of evidence should be accorded probative value or weight, or
rejected as feeble or spurious, or whether or not the proofs on one side or the other
are clear and convincing and adequate to establish a proposition in issue, are
without doubt questions of fact."[38]
Nonetheless, the Court perused the records and found substantial evidence
supporting the factual findings of the RTC, as affirmed by the CA, that the nature of
the transaction between the parties' predecessors-in-interest was a mortgage and
not a sale. Thus, the maxim that factual findings of the trial court when affirmed by
the CA are final and conclusive on the Court[39]obtains in this case.
THERE WAS NEITHER AN
ANTICHRESIS NOR SALE
For the contract of antichresis to be valid, Article 2134 of the Civil Code requires that
"the amount of the principal and of the interest shall be specified in writing;
otherwise the contract of antichresis shall be void." In this case, the Heirs of Adolfo
were indisputably unable to produce any document in support of their claim that
the contract between Adolfo and Bangis was an antichresis, hence, the CA properly
held that no such relationship existed between the parties. [40]
On the other hand, the Heirs of Bangis presented an Extra-Judicial Settlement with
Absolute Deed of Sale dated December 30, 1971[41]to justify their claimed
ownership and possession of the subject land. However, notwithstanding that the
subject of inquiry is the very contents of the said document, only its
photocopy[42]was presented at the trial without providing sufficient justification for
the production of secondary evidence, in violation of the best evidence rule
embodied under Section 3 in relation to Section 5 of Rule 130 of the Rules of Court,
to wit:
SEC. 3. Original document must be produced; exceptions. - When the subject of
inquiry is the contents of a document, no evidence shall be admissible other than
the original document itself, except in the following cases:
(1) When the original has been lost or destroyed, or cannot be produced in court,
without bad faith on the part of the offeror;
(2) When the original is in the custody or under the control of the party against
whom the evidence is offered, and the latter fails to produce it after reasonable
notice;
(3) When the original consists of numerous accounts or other documents which
cannot be examined in court without great loss of time and the fact sought to be
established from them is only the general result of the whole; and
(4) When the original is a public record in the custody of a public officer or is
recorded in a public office.
SEC. 5. When original document is unavailable. - When the original document has
been lost or destroyed, or cannot be produced in court, the offeror, upon proof of
its execution or existence and the cause of its unavailability without bad faith on his
Page 114 of 152
part, may prove its contents by a copy, or by a recital of its content in some
authentic document, or by the testimony of witnesses in the order stated.
The bare testimony of one of the Heirs of Bangis, Rodolfo Bangis, that the subject
document was only handed[43]to him by his father, Aniceto, with the information
that the original thereof "could not be found"[44]was insufficient to justify its
admissibility. Moreover, the identification made by Notary Public Atty. Valentin
Murillo[45]that he notarized such document cannot be given credence as his
conclusion was not verified against his own notarial records.[46]Besides, the Heirs of
Bangis could have secured a certified copy of the deed of sale from the Assessor's
Office[47]that purportedly had its custody in compliance with Section 7, Rule
130[48]of the Rules of Court.
In sum, the Heirs of Bangis failed to establish the existence and due execution of the
subject deed on which their claim of ownership was founded. Consequently, the
RTC and CA were correct in affording no probative value to the said document.[49]
TCT NO. T-10567 IN THE NAME OF
ANICETO BANGIS CANNOT PREVAIL
OVER THE TITLES OF THE HEIRS OF
ADOLFO
Records reveal that TCT No. T-10567 purportedly secured as a consequence of the
deed of sale executed by Adolfo and his heirs in favor of Bangis was not offered in
evidence. A perusal of its copy, however, shows that it was a transfer from TCT No.
T-10566,[50]which title the Heirs of Bangis unfortunately failed to account for, and
bore no relation at all to either OCT No. P-489 (the original title of the Spouses
Adolfo) or TCT No. T-6313 (issued to Adolfo when he repurchased the same
property from DBP). The Manifestation[51]of the Register of Deeds of Malaybalay
City regarding the doubtful origin of TCT No. T-10567 and the regularity of the titles
of the Heirs of Adolfo are insightful, thus:
That the verification from the office of the original copy of Transfer Certificate of
Title No. T-10567 in the name of Anecito Bangis is existing in the office. Machine
copy of the said title is hereto attached as annex "A" but nothing in the title whether
annotated or attached, any Deed of Conveyance or other Documents by which said
title was issued or transferred in the name of Anecito Bangis.
That for the information and guidance of the court attached herewith is a machine
copies [sic] Original Certificate of Title No. P-489 in the name of Serafin Adolfo,
marked as annex "B" which supposedly the mother title of Transfer Certificate of
Title No. T-10567 as to how this title was transferred in the name of Anecito Bangis.
Nothing will show which will validly supports [sic] the said transfer, in other words
the said title is dubious.
This Original Certificate of Title No. P-489 in the name of Serafin Adolfo was
mortgage to the Development Bank of the Philippines and then it was consolidated
and Transfer Certificate of Title No. T-1152 was issued in the name of Development
Bank of the Philippines. From the Development Bank of the Philippines a Deed of
Sale was executed by the Development Bank of the Philippines in favor of Serafin
Adolfo and Transfer Certificate of Title No. T-6313 marked annex "B-1" was issued in
the name of Serafin Adolfo.
An Extrajudicial Settlement was now [sic] by the Heirs of Serafin Adolfo and Transfer
Certificate of Title Nos. T-65152 annex "B-2", T-66560 annex "B-3", T-66561 annex
"B-4", T-66562 annex "B-5", T-66563 annex "B-6", T-66564 annex "B-7", and T-66565
annex "B-8" were issued to the Heirs.
The titles issued to the Heirs of Serafin Adolfo were legitimately issued by this office
after all its [sic] requirements and supporting documents were submitted and
proper annotations were reflected at the back of the title of Serafin Adolfo.
Transfer Certificate of Title No. T-10567 as shown on the title was derived from
Transfer Certificate of Title No. T-10566 but [sic] title is not existing in this office.
As held in the case of Top Management Programs Corporation v. Luis Fajardo and
the Register of Deeds of Las Pias City:[52]"if two certificates of title purport to
include the same land, whether wholly or partly, the better approach is to trace the
original certificates from which the certificates of titles were derived."
Having, thus, traced the roots of the parties' respective titles supported by the
records of the Register of Deeds of Malaybalay City, the courts a quo[53]were
correct in upholding the title of the Heirs of Adolfo as against TCT No. T-10567 of
Bangis, notwithstanding its earlier issuance on August 18, 1976[54]or long before
the Heirs of Adolfo secured their own titles on May 26, 1998. To paraphrase the
Court's ruling in Mathay v. Court of Appeals:[55]where two (2) transfer certificates of
title have been issued on different dates, the one who holds the earlier title may
prevail only in the absence of any anomaly or irregularity in the process of its
registration, which circumstance does not obtain in this case.
CANCELLATION OF
TCT NO. T-10567
The Court cannot sustain the CA's ruling[56]that TCT No. T-10567 cannot be
invalidated because it constitutes as a collateral attack which is contrary to the
principle of indefeasibility of titles.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
It must be noted that Bangis interposed a counterclaim in his Answer seeking to be
declared as the true and lawful owner of the disputed property and that his TCT No.
T-10567 be declared as superior over the titles of the Heirs of Adolfo.[57]Since a
counterclaim is essentially a complaint[58]then, a determination of the validity of
TCT No. T-10567 vis-a-vis the titles of the Heirs of Adolfo can be considered as a
direct, not collateral, attack on the subject titles.[59]
In Pasio v. Monterroyo, the Court has ruled, thus:
It is already settled that a counterclaim is considered an original complaint and as
such, the attack on the title in a case originally for recovery of possession cannot be
considered as a collateral attack on the title. Development Bank of the Philippines v.
Court of Appeals is similar to the case before us insofar as petitioner in that case
filed an action for recovery of possession against respondent who, in turn, filed a
counterclaim claiming ownership of the land. In that case, the Court ruled:
Nor is there any obstacle to the determination of the validity of TCT No. 10101. It is
true that the indefeasibility of torrens title cannot be collaterally attacked. In the
instant case, the original complaint is for recovery of possession filed by petitioner
against private respondent, not an original action filed by the latter to question the
validity of TCT No. 10101 on which petitioner bases its right. To rule on the issue of
validity in a case for recovery of possession is tantamount to a collateral attack.
However, it should not [b]e overlooked that private respondent filed a counterclaim
against petitioner, claiming ownership over the land and seeking damages. Hence,
we could rule on the question of the validity of TCT No. 10101 for the counterclaim
can be considered a direct attack on the same. A counterclaim is considered a
complaint, only this time, it is the original defendant who becomes the plaintiff... It
stands on the same footing and is to be tested by the same rules as if it were an
independent action. x x x (Citations omitted) [60]
Besides, the prohibition against collateral attack does not apply to spurious or non-
existent titles, which are not accorded indefeasibility,[61]as in this case.
THE PRESENT ACTION
HAS NOT PRESCRIBED
The claim of the Heirs of Bangis that since they have been in possession of the
subject land since 1972 or for 28 years reckoned from the filing of the complaint in
2000 then, the present action has prescribed is untenable. It bears to note that while
Bangis indeed took possession of the land upon its alleged mortgage, the certificate
of title (TCT No. 6313) remained with Adolfo and upon his demise, transferred to his
heirs, thereby negating any contemplated transfer of ownership. Settled is the rule
that no title in derogation of that of the registered owner can be acquired by
prescription or adverse possession.[62]Moreover, even if acquisitive prescription can
be appreciated in this case, the Heirs of Bangis' possession being in bad faith is two
years shy of the requisite 30-year uninterrupted adverse possession required under
Article 1137 of the Civil Code.
Consequently, the Heirs of Bangis cannot validly claim the rights of a builder in
good faith as provided for under Article 449 in relation to Article 448 of the Civil
Code. Thus, the order for them to surrender the possession of the disputed land
together with all its improvements was properly made.
LIABILITY FOR THE PAYMENT
OF INTEREST
Finally, it is undisputed that the Heirs of Bangis made no judicial or extrajudicial
demand on the Heirs of Adolfo to pay the mortgage debt. Instead, it was the latter
who signified their intent to pay their father's loan obligation, admittedly in the
amount of P12,500.00,[63]which was refused. The mortgage contract therefore
continued to subsist despite the lapse of a considerable number of years from the
time it was constituted in 1975 because the mortgage debt has not been satisfied.
Following the Court's ruling in the iconic case of Eastern Shipping Lines, Inc. v. Court
of Appeals,[64]the foregoing liability, which is based on a loan or forbearance of
money, shall be subject to legal interest of 12% per annum from the date it was
judicially determined by the CA on March 30, 2009 until the finality of this Decision,
and not from 1975 (the date of the constitution of the mortgage); nor from 1998
(when an attempt to pay was made) or in 2000 at the time the complaint was filed,
because it was the Heirs of Adolfo and not Bangis who filed the instant suit[65]to
collect the indebtedness. Thereafter, the judgment award inclusive of interest shall
bear interest at 12% per annum until its full satisfaction.[66]
WHEREFORE, premises considered, the instant petition for review on certiorari is
DENIED and the assailed Decision dated March 30, 2009 of the Court of Appeals
Mindanao Station (CA) and its Resolution dated December 2, 2009 in CA-G.R. CV
No. 00722-MIN are AFFIRMED with MODIFICATION: (1) cancelling TCT No. T-10567;
and (2) ordering respondent Heirs of Adolfo to pay petitioner Heirs of Bangis the
sum of P12,500.00 with legal interest of 12% per annum reckoned from March 30,
2009 until the finality of this Decision and thereafter, 12% annual interest until its
full satisfaction.
Page 115 of 152

The rest of the Decision stands.
SO ORDERED.
EN BANC
G.R. No. 18574 September 20, 1922
JOSE C. MACAPINLAC, plaintiff-appellant,
vs.
FRANCISCO GUTIERREZ REPIDE, ET AL., defendants
FRANCISCO GUTIERREZ REPIDE, defendant-appellee.
J. F. BOOMER, defendant-appellant.
J. F. Boomer in his own behalf.
Ramon Diokno and Jose Varela Calderon for appellant.
Eduardo Gutierrez Repide for appellee.
STREET, J.:
This action was instituted on June 27, 1921, in the Court of First Instance of the
Province of Pampanga by Jose C. Macapinlac, for the purpose of securing a decree
declaratory of the rights of the plaintiff as owner of a valuable estate located in the
municipality of Porac, Pampanga, known as the Hacienda Dolores; to nullify a
transfer of the Torrens certificate now appearing in the name of the Torrens
certificate now appearing in the name of the defendant Francisco Gutierrez Repide,
with certain remedial measure incident to said to said relief; and to recover said
estate from the possession of said defendant, with damages; and to secure general
relief. In addition to Francisco Gutierrez Repide several other parties are named as
defendants in the complaint, for the alleged reason that they have been at one time
or another holders of liens , now cancelled, upon said property, and it was deemed
proper to join them as defendants in order to give them an opportunity to show
cause, if any they have, whey their respective liens should not be cancelled in the
registry. Soon after the action was instituted Francisco Gutierrez Repide died; and
his executrix, Da. Maria Sanz, was admitted as defendant in his stead.
To the original complaint the attorneys for the executrix in due time demurred,
while the defendant J. F. Boomer interposed an answer and a cross-complaint
directed mainly against Jose C. Macapinlac and his codefendant Repide. To this
cross-complaint Jose C. Macapinlac answered with a general denial, while the
representation of Repide merely demurred. By this means the case, as it reaches this
court, presents itself in two branches, namely, first, that which has relation to the
controversy between the plaintiff and Francisco Gutierrez Repide and, secondly, that
which has relation to the controversy between the defendant Boomer and the two
principal litigants. For convenience of treatment in this opinion, we first give
attention to the controversy between the plaintiff and the defendant Repide, a
course which is the more proper for the reason that cause of action stated in
Boomer's cross-bill in great measure depends upon the questions arising upon the
other controversy.
By an order of October 29, 1921, entered in the lower court the demurrer interposed
to the complaint in behalf of the defendant Repide was sustained, and at the same
time the complaint was dismissed with costs against the plaintiff. From this order
the plaintiff appealed.
A preliminary point arises with respect to the conditions under which the appeal has
been prosecuted, which must be disposed of before we enter into a consideration
of the legal questions involved in the allowance of the demurrer; and in this
connection it is suggested by the attorneys for the appellee that the appeal is
premature.
The point is clearly not well taken. While it is of course undeniable that an order
merely sustaining a demurrer is not forthwith appealable, and an appeal in such
case is premature (Serrano vs. Serrano, 9 Phil., 142), the same cannot be said of an
order sustaining a demurrer and at the same time actually dismissing the complaint.
Such an order is definitive and "final" in the sense necessary to justify the taking of
an appeal, and if an appeal had not in fact been prosecuted from the order in this
case, the plaintiff would have been completely and forever out of court. This is self-
evident.
On the other hand, the trial court committed manifest error when it entered the
order dismissing the complaint at the same time that it sustained the demurer,
without allowing the plaintiff an opportunity to amend his complaint, if he had
elected to amend. Section 101 of the Code of Civil Procedure expressly provides
that the plaintiff shall have this election; and it has been repeatedly held to be
reversible error on the part of a Court of First Instance to dismiss a cause
immediately upon sustaining a demurrer, without giving the plaintiff an opportunity
to amend, it he so desires. (Molina vs. La electricista, 6 Phil., 519; Ibaez de Aldecoa
vs. Fortis, 17 Phil., 82.) To the action thus taken by the trial court the plaintiff has
duly assigned error, and said error (No. VIII, in the appellant's assignment of errors)
is without doubt well taken.
As to the extent of the review which may be had at the instance of the appellant in
this court, it should be noted that by the express terms of section 143 of the Code
of Civil Procedure a party appealing by bill of exceptions to this court is entitled to a
review of all rulings, orders, and judgments made in the action to which he has duly
excepted; and this means, as applied to the present case, that the appellant is
entitled to a review of the decision of the lower court not only upon the error
committed in peremptorily dismissing the cause demurrer, without giving the
appellant opportunity to amend, but upon any error that may have been committed
CRED TRANS Pledge, Mortgage Antichresis Fulltext
by said court in sustaining the demurrer. (Cancino vs. Valdez, 3 Phil., 429;
Balderrama vs. Compaia General de Tabacos, 13 Phil., 609.) Of course if the only
point subject to exception had been that which relates to the right to amend, and
the plaintiff had not here insisted upon the sufficiency of his complaint in point of
law, the appealed judgment would merely be reversed and the cause would be
remanded by us with direction that the plaintiff be allowed to amend, as was done
in Molina vs. La Electricista, supra. But such is not the situation now before us; and
we accordingly proceed to consider the question whether the trial judge erred in
sustaining the demurrer.
Turning then to the complaint and assuming, for the purposes of this decision only,
that all material facts stated therein, and well pleaded, are true, we find that the case
made in the complaint is substantially this:
On and prior to August 22, 1916, the plaintiff was the owner of the Hacienda
Dolores, a property located in the municipality of Porac, Pampanga, and assessed
upon the tax books at P288,000, but having an actual value of no less than P800,00,
encumbered, however, with certain debts and charges which need not be here
enumerated. This property had been registered under Act No. 496, as amended, and
upon May 13, 1916, a Torrens certificate of title covering the same had been issued
to the plaintiff.
On the date above stated, or August 22, 1916, the said plaintiff was indebted to the
Bachrach Garage & Taxicab Company, of Manila, later organized under the name of
Bacharch Motor Company, for the price of an automobile, previously purchased
upon credit, and certain automobile accessories; and as evidence of this
indebtedness the plaintiff executed on said dated a series of fourteen promissory
notes payable to the Bachrach Garage & Taxicab Company, and amounting in all to
the sum of P12,960, falling due respectively upon the second of each month
beginning on September 2, 1916, and ending on October 2, 1917. Each of these
notes was drawn in the amount of P1,000, except the last two which together
amounted to P960. On September 1, 1916, eleven of these notes were discounted
by the Bachrach Garage & Taxicab Company, through its manager E. M. Bachrach, at
the Philippine National Bank. The other three votes, amounting to P2,277.70,
remained in the hands of the payee corporation and were subsequently paid in full
by the plaintiff.
Contemporaneously with the delivery of said notes, or on August 16, 1916, and as a
security or guaranty for the payment of said notes, the plaintiff executed what on its
face purports to be a deed of sale, with privilege of repurchase, to be exercised on
or before October 2, 1917. This transfer comprises all the property covered by
Torrens certificate No. 427 (which includes the Hacienda Dolores), subjects to the
encumbrances noted thereon; and the conveyance to which reference is now made
was itself extended on the back of said certificate. In this conveyance E. M. Bachrach
is named as transferee, instead of the alleged real creditor, the Bachrach Garage &
Taxicab Company. Upon the circumstance of the nonconformity of the promissory
notes and the deed of sale as regards creditor and beneficiary, the complaint alleges
that the deed of sale is void for lack of consideration as between the plaintiff and E.
M. Bachrach, the nominal beneficiary; but to this suggestion, for obvious reasons,
we attach little importance.
On November 8, 1917, Francisco Gutierrez Repide acquired, for the sum of P5,000,
all the rights of E. M. Bachrach in the property which had been thus conveyed to the
later; and at this time Francisco Gutierrez Repide, so that complaint alleges, was well
aware that the transfer to Bachrach had been made by the plaintiff for the purpose
of securing a debt owing to the Bachrach Company, and he was furthermore aware
that part of said debt has been paid and that the balance really due from the
plaintiff to said company was less than one-half of the sum of P12,960, expressed in
the fourteen promissory notes.
After Francisco Gutierrez Repide had acquired the interest above described in the
hacienda in question, he addressed himself to the problem of procuring the
certificate of title to be transferred to this own name. To accomplish this is was
necessary to make it appear that the contract of sale with pacto de retro noted in
the original Torrens certificate was really and truly what it appeared to be, that is, a
contract of sale, not a mere mortgage, and that the ownership had consolidated in
the purchaser by reason of the failure of the seller to repurchase the property
before the expiration of the time allowed for redemption. When this question was
raised, it was referred for decision to the judge of the Court of First Instance of
Pampanga, who was of the opinion that the conveyance to Bachrach was a straight
contract of sale with pacto de retro; and inasmuch as it appeared that the ownership
had then consolidated in the purchaser, he directed the register of deeds of
Pampanga to register the property in the name of Francisco Gutierrez Repide and to
issue to him a new certificate of transfer, which was accordingly done. The order
here referred to was in fact entered in case No. 104 of the Court of First Instance of
Pampanga, this being the same land registration proceedings in which the title had
been registered in the name of the plaintiff, and in which judicial proceedings had
already been terminated.
Though not plainly so stated in the complaint, it is to be inferred that one of the
decisive considerations that operated upon the mind of the judge of the Court of
First Instance in making the order above alluded to was the fact that the plaintiff
himself had made an affidavit which directly sustained the contention of Repide,
and this affidavit was submitted to the court in support of Repide's contention.
Certain it is that the inscription of the property in the name of Francisco Gutierrez
Repide was accomplished with the external approval of the plaintiff and by means
of his assistance or collusion.
In the complaint now before us the plaintiff alleges that his apparent acquiescence
in the transfer of title to Francisco Gutierrez Repide, under the circumstances above
set forth, was due to fraudulent practices on the part of said Repide and to the
undue influence exerted over the plaintiff by that person. In this respect the
Page 116 of 152
complaint contains a very full and complete narrative of facts, which, if true as
they must here be taken to be would undoubtedly justify any court in relieving a
party from the effects of fraudulent practices, duress, or undue influence; and it
seems unnecessary for us here to recount these charges in detail, more especially
for the reason that the sufficiency of these allegations, considered as stating a case
of fraud, has not bee questioned, the defense at this point being rested on the
ground that the Torrens certificate is unimpeachable in the hands of Repide and
that the plaintiff's remedy to obtain relief, supposing the transfer of title to have
been procured by fraud, has prescribed.
It appears from the complaint that, at the time of the filing of this complaint, the
defendant Repide was in actual possession of the property in question, and that he
had in effect been enjoying possession since august 24, 1917, to the alleged
prejudice of the plaintiff in the sum of no less than P200,000 per annum.
The sketch above given contains, we believe, the substance of the essential
allegations of the lengthy complaint in this cause, and it will at least serve as the
necessary basis for a discussion of the legal problems here requiring solution. In
taking up these problems we begin with the situation created by the execution of
the contract of sale with pacto de retro between the plaintiff, Jose C. Macapinlac,
and E. M. Bachrach Company, assuming, as we do, that the personality of the
second party to that contract is a matter of indifference. In this connection the first
and most obvious proposition to be laid down is that inasmuch as said conveyance
is alleged to have been executed as security for a debt owing by the plaintiff to the
Bachrach Company, it follows that in equity said conveyance must be treated as a
mere security or substantially as a mortgage, that is, as creating a mere equitable
charge in favor of the creditor or person named as the purchaser therein. This
conclusion is fully supported by the decision in Cuyugan vs. Santos (34 Phil., 100),
where this court held that a conveyance in the form of a contract of sale with pacto
de retro will be treated as a ere mortgage, if really executed as security for a debt,
and that this fact can be shown by oral evidence apart from the instrument of
conveyance, a doctrine which has been followed in the later cases of Villa vs.
Santiago (38 Phil., 157), and Cuyugan vs. Santos (39 Phil., 970).
In view of the lengthy discussion contained in the first decision of Cuyugan vs.
Santos, supra, it might seem superfluous to add to what is there said, but the
importance of the subject and the paucity of our own jurisprudence on this topic
apart from that case and its two successors, must serve as our justification for
here collating a few additional passages relative to the same subject, taken from Mr.
Pomeroy's treatise on Equity Jurisprudence, recognized as the leading work on this
subject in all jurisdiction where the common law prevails.
Speaking then with referrence to the conditions under which a conveyance absolute
on its face may be treated as a mortgage, this distinguished writer says:
Any conveyance of land absolute on its face, without anything in its terms to
indicate that it is otherwise than an absolute conveyance, and without any
accompanying written defeasance, contract of repurchase, or other agreement, may,
in equity, by means of extrinsic and parol evidence, be shown to be in a reality a
mortgage as between the original parties, and as against all those deriving title from
or under the grantee, who are not bona fide purchasers for value and without
notice. The principle which underlies this doctrine is the fruitful source of any other
equitable rules; that it would be a virtual fraud for the grantee to insist upon the
deed as an absolute conveyance of the title, which had been intentionally given to
him, and which he had knowingly accepted, merely as a security, and therefore in
reality as a mortgage. The general doctrine is fully established, and certainly prevails
in a great majority of the states, that the granter and his representatives are always
allowed in equity to show, by parol evidence, that a deed absolute on its face was
only intended to be a security for the payment of a debt, and thus to be a
mortgage, although the parties deliberately and knowingly executed the instrument
in its existing form, and without any allegations of fraud, mistake, or accident in its
mode of execution. As in the last preceding case, the sure test and the essential
requisite are the continued existence of a debt. (3 Pom. Eq. Jur., sec. 1196.)
And, Speaking particularly of the contract of sale with pacto de retro, he adds:
Whether any particular transaction does thus amount to a mortgage or to a sale
with a contract of repurchase must, to a large extent, depend upon its own special
circumstances; for the question finally turns, in all cases, upon the real intention of
the parties as shown upon the face of the writings, or as disclosed by extrinsic
evidence. A general criterion, however, has been established by an overwhelming
consensus of authorities, which furnishes a sufficient test in the great majority of
cases; and whenever the application of this test still leaves a doubt, the American
courts, from obvious motives of policy, have generally leaned in favor of the
mortgage. This criterion is the continued existence of a debt or liability between the
parties, so that the conveyance is in reality intended as a security for the debt or
indemnity against the liability. If there is an indebtedness or liability between the
parties, either a debt existing prior to the conveyance, or a debt arising from a loan
made at the time of the conveyance, or from any other cause, and this debt is still
left subsisting, not being discharged or satisfied by the conveyance, but the granter
is regarded as still owing and bound to pay it at some future time, so that the
payment stipulated for in the agreement to reconvey is in reality the payment of this
existing debt, then the whole transaction amount to a mortgage, whatever language
the parties may have used, and whatever stipulations they may have inserted in the
instruments. (3 Pom. Eq. Jur., sec. 1195.)
Again says he:
. . . The doctrine has been firmly established from an early day that when the
character of a mortgage has attached at the commencement of the transaction, so
that the instrument, whatever be its form, is regarded in equity as a mortgage, that
character of mortgage must and will always continue. If the instrument is in its
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essence a mortgage, the parties cannot by any stipulations, however express and
positive, render it anything but a mortgage, or deprive it of the essential attributes
belonging to a mortgage in equity. The debtor or mortgagor cannot, in the
inception of the instrument, as a part of or collateral to its execution, in any manner
deprive himself of his equitable right to come in after a default in paying the money
at the stipulated time, and to pay the debt and interest, and thereby to redeem the
land from the lien and encumbrance of the mortgage; the equitable right of
redemption, after a default is preserved, remains in full force, and will be protected
and enforced by a court of equity, no matter what stipulations the parties may have
made in the original transaction purporting to cut off this right. (3 Pom. Eq. Jur., sec.
1193.)
And finally, concerning the legal effects of such contracts, the same author
observes:
. . . Whenever a deed absolute on its face is thus treated as a mortgage, the parties
are clothed with all the rights, are subject to all the liabilities, and are entitled to all
the remedies of ordinary mortgagors and mortgagees. The grantee may maintain an
action for the foreclosure of the grantor's equity of redemption; the grantor may
maintain an action to redeem and to compel a reconveyance upon his payment of
the debt secured. If the grantee goes into possession, he is in reality a mortgagee in
possession, and as such is liable to account for the rents and profits. (3 Pom. Eq. Jur.,
sec. 1196.)
In Cuyugan vs. Santos, supra, the action to enforce the right of redemption was
brought was brought directly against the immediate grantee in the conveyance
there held to be a mortgage, and no account had to be there taken of the situation
resulting from a transfer of the property to a stranger. In the present case the rights
of the immediate grantee (E. M. Bachrach) passed by transfer for a valuable
consideration to Francisco Gutierrez Repide and this transfer had been effected
before the action in this case was began. But is obvious that this circumstance
cannot be any obstacle to the enforcement of any rights that the plaintiff my have
had as against Bachrach (or the Bachrach Company) since it is alleged that at the
time Repide acquired the interest of Bachrach, he was fully aware of the nature of
the transaction between Bachrach and the plaintiff and knew that part of the debt
secured by the conveyance of August 22, 1916, had been paid.
In this connection the cardinal rule is that a party who acquires any interest in
property with notice of an existing equity takes subject to that equity. "The full
meaning of this most just rule," says Mr. Pomeroy, "is, that the purchaser of an
estate or interest, legal or equitable, even for a valuable consideration, wit notice of
any existing equitable estate, interest, claim, or right, in or to the same subject-
mater, held by a third person, is liable in equity to the same extend and in the same
manner as the person from whom he made the purchase; his conscience is equally
bound with that of his vendor, and he acquires only what his vendor can honestly
transfer." (2 Pom. Eq. Jur., sec. 688.)
In other words, having acquired the interest of Bachrach in the Hacienda Dolores,
with knowledge that the contract of August 22, 1916, has been executed as security
for a debt, Francisco Gutierrez Repide or his estate, now that Repide is a dead
must be understood to stand towards the present plaintiff in exactly the same
position that would have been occupied by Bachrach, if the transfer to Repide had
never been effected.
But it is insisted that the title of Repide has become indefeasible, owing to the fact
that the conveyance of the land to him has been followed by the issuance of a
transfer certificate of title in his name, and the original certificate in the name of the
plaintiff has been cancelled, all of which had been accomplished more than one
year before the present action was begun. The unsoundness of this contention can
be easily demonstrated from several different points of view.
In the first place, it must be borne in mind that the equitable doctrine which has
been so fully stated above, to the effect that any conveyance intended as security
for a debt will be held in effect to be a mortgage, whether so actually expressed in
the instrument or not, operates regardless of the form of the agreement chosen by
the contracting parties as the repository of their will. Equity looks through the form
and considers the substance; and no kind of engagement can be adopted which will
enable the parties to escape from the equitable doctrine to which reference is made.
In other words, a conveyance of land, accompanied by registration in the name of
the transferee and the issuance of a new certificate, is no more secured from the
operation of this equitable doctrine than the most informal conveyance that could
be devised.
In the second place, the circumstance that the land has been judicially registered
under the Torrens system does not change or affect civil rights and liabilities with
respect thereto except as expressly provided in the Land Registration Act (see sec.
70); and as between the immediate parties to any contract affecting such lands their
rights will generally be determined by the same rules of law that are applicable to
unregistered land. A judicial decree of registration admittedly has the effect of
binding the land and quieting the title thereto, to the extent and with the
exceptions stated in section 38 of the Land Registration Act. But an ordinary transfer
of land, effected in any of the ways allowed by law, even when followed by
registration and that issuance of a new certificate, as contemplated in sections 50 to
55, inclusive, of the Land Registration Act, has a different character.
One of the differences between an original decree of registration and the
subsequent registration by transfer of the certificate of title, pertinent to the present
controversy, is that which may be noted in regard to the period within which relief
may be obtained from fraud. Thus, under section 38 of Act No. 496, any person
deprived of land by a decree of registration procured by fraud is limited to the
period of one year after the entry of the decree within which to file a petition for
review, and even this remedy is unavailable if any innocent purchaser for value has
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acquired the property; while under section 55, if a subsequent transfer is infected
with fraud or the title is procured by any fraudulent means to be registered in the
name of the transferee, the injured party may pursue all his legal and equitable
remedies against the party, or parties, to such fraud, saving the rights of any
innocent holder of the tittle for value. This means of course that the person thus
defrauded may bring any appropriate action to be relieved within the ordinary
period of limitation applicable in other cases of fraud, or within the four-year period
prescribed in subsection 4, of section 43 of the Code of Civil Procedure.
Applying said provision to the facts of the present case it must follow that the cause
of action of the present plaintiff to annul the registration of this property in the
name of Francisco Gutierrez Repide did not prescribe at one year, as the trial judge
erroneously supposed, and the plaintiff's cause of action upon this branch of the
case had not in fact been barred at all when the present action was begun.
Before leaving the topic of this alleged fraud committed by Repide in procuring a
Torrens certificate to be issued in his own name, thereby making it appear that the
absolute and indefeasible title had become vested in himself, it will be well to point
out that the complaint reflect a mistaken point of view as to the consequences of
that act. Upon perusal of the compliant it will be noted that it proceeds upon the
assumption that, if the alleged fraud should be proved, the plaintiff will be entitled
to have the premises at once restored to himself, with an accounting for profits, and
an award of damages adequate to compensate the plaintiff for the wrong supposed
to have been done. But the circumstance must not be overlooked that the supposed
fraud relates only to the registration of the title in the name of Repide, and even
supposing that this act had never been accomplished, the Repide estate would
merely be in the position occupied by Repide after he had acquired the interest of
Bachrach in the property, without prejudice to the rights acquired by that purchase.
But of course in the case supposed the plaintiff would be entitled to have the
certificate of title cancelled and other issued in such form as to show the correct
state of facts with respect to the ownership and incumbrance of the property.
The preceding discussion conducts us to the conclusion that, so far as this case is
concerned, the estate of Francisco Gutierrez Repide occupies substantially the
position of a mortgagee in possession. The question then arises as to what are the
legal rights of the plaintiff as against the Repide estate, judged by the facts alleged
and relief sought in the complaint as at present framed, and in this connection the
circumstances is not to be ignored that the complaint contains in usual form the
prayer for general.
The solution of this problem is to be found in the application of the doctrine
formulated by this court in Barretto vs. Barretto (37 Phil., 234). In that case the heirs
of a mortgagee of an estate were found in possession of mortgaged property more
than thirty years after the mortgage had been executed; and it was shown that the
mortgage had never been foreclosed. Upon this state of facts it was in effect held
that the rights of the parties, heirs respectively of the mortgagor and mortgagee,
were essentially the same as under the contract of antichresis.
By reference to the appropriate provisions of the Civil Code (arts. 1881-1884), in the
chapter dealing with antichresis, it will be at once seen that while non-payment of
the debt does not vest the ownership of the property in the creditor, nevertheless
the debtor cannot recover the enjoyment of the property without first paying in full
what he owes to his creditor. At the same time, however, the creditor is under
obligation to apply the fruits derived from the estate in satisfaction, first, of the
interest on the debt, if any, and, secondly, to the payment of the principal. From this
is necessarily deduced the obligation of the creditor to account to the debtor for
said fruits and the corresponding right of the debtor to have the same applied in
satisfaction of the mortgage debt, as recognized in Barretto vs. Barretto, supra.
The respective rights and obligations of the parties to a contract of antichresis,
under the Civil Code, appear to be similar and in many respects identical with those
recognized in the equity jurisprudence of England and American as incident to the
position of a mortgagee in possession, in reference to which the following
propositions may be taken to be established, namely, that if the mortgagee acquires
possession in any lawful manner, he is entitled to retain such possession until the
indebtedness is satisfied and the property redeemed; that the non-payment of the
debt within the term agreed does not vest the ownership of the property in the
creditor; that the general duty of the mortgagee in possession towards the premises
is that of the ordinary prudent owner' that the mortgagee must account for the
rents and profits of the land, or its value for purposes of use and occupation, any
amount thus realized going towards the discharge of the mortgage debt; that if the
mortgagee remains in possession after the mortgage debt has been satisfied, he
becomes a trustee for the mortgagor as to the excess of the rents and profits over
such debt; and, lastly, that the mortgagor can only enforce his rights to the land by
an equitable action for an account and to redeem. (3 Pom. Eq. Jur., sex. 1215-1218.)
From the complaint it appears that, even before acquiring the interest of Bachrach
in the Hacienda Dolores, the defendant Francisco Gutierrez Repide had taken over
from the Archbishop of Manila a mortgage on the property in favor of said
Archbishop, paying therefor the sum of P35,000; and we infer from the complaint
that Repide had probably discharged other liens on the property either before or
after he acquired the interest of Bachrach. If so, his executrix will be entitled to
charge the plaintiff with the amount paid to free the property from such liens, and
to retain possession until all valid claims against the estate are satisfied, in
obedience to the maxim that he who seeks equity must do equity.
A question has been made as to whether, in an action like this, it is necessary for the
plaintiff to tender the amount necessary to effect the redemption of the property;
and we note that in paragraph XII of the complaint it is alleged that the plaintiff had
made a written offer to the defendant Repide to pay all debts and charges held by
Repide against the property, which offer said defendant had refused to accept. this
paragraph of the complaint was doubtless inserted in view of section 347 of the
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Code of Civil Procedure which declares that a written offer to pay a particular sum of
money is, if rejected, equivalent to the actual tender of the money. The allegation
contained in paragraph XII of the complaint is not sufficient to comply with the
provisions of the section cited, for the reason that it does not appear that the
written offer mentioned a particular sum as the amount to be paid. There was
therefore no valid tender.
But the case is not one where a tender is necessary, because the amount actually
due cannot be known until an accounting is had and the extent of the plaintiff's
indebtedness reduced to certainty. When this had been accomplished, it will
become the duty of the court, upon such amendment of the complaint as may
appear desirable, to make the proper decree, allowing the plaintiff to redeem and
requiring the executrix of Francisco Gutierrez Repide to surrender the property in
question to the plaintiff.
In what has preceded we have demonstrated the error of the trial judge in
sustaining the demurrer interposed to the original complaint on behalf of the
Repide estate, and we have at the same time indicated the character of the relief to
which the plaintiff appears to be entitled on the showing made in the complaint. It
is hardly necessary to add that we must not be understood as defining the rights of
the parties further than is necessary to dispose of the case as presented to us upon
demurrer; and it is obvious that if the litigation proceeds further, many questions
will be presented which cannot and should not here be anticipated.
Directing our attention now to the appeal of the defendant Boomer, we not that this
litigant by way of cross-complaint a right to the Hacienda Dolores hostile to both
Jose C. Macapinlac and Francisco Gutierrez Repide, basing his claim upon a contract
(Exhibit 1) between Macapinlac and Boomer, of a date anterior to the contract of
sale with pacto de retro of August 22, 1916. It is unnecessary her to enter into the
details of Boomers contention. Suffice it to say that, if the allegations of the cross-
complaint are true, as is to be assumed upon demurrer, it shows a cause of action
proper to be ventilated in this suit. The trial judge, however, sustained the demurrer
to the cross-complaint, apparently for the reason that this Honor believed that the
transfer of certificate of title to the name of Repide constituted an insuperable
obstacle to the cross-action. This point has been fully discussed by us in connection
with the controversy between the two principal litigants, and for the rest it may be
said that the action of the trial judge in sustaining the demurrer to Boomer's cross-
complaint involves the same errors that were committed in the other branch of the
case.
From what has been said it follows that the action of the trial judge in sustaining the
two demurrers interposes in behalf of Francisco Gutierrez Repide to the original
complaint and to Boomer's cross-complaint must be reversed and said demurrers
are hereby overruled, with costs; and the cause will be returned to the lower court
with directions to require the appellee to answer within the time allowed by the
rules. So ordered.
SECOND DIVISION
G.R. No. L-38185 September 24, 1986
HILARIO RAMIREZ and VALENTINA BONIFACIO, petitioners,
vs.
HONORABLE COURT OF APPEALS, FRANCISCA MEDINA, MATILDE MARTIN, EMILIO
MARTIN, DELFIN GUINTO, TEOFILO GUINTO, PRUDENCIO GUINTO and MARGARITA
GUINTO, respondents.
Castro, Makalintal, Mendoza & Associates for petitioner.
Flores, Ocampo, Dizon & Domingo Law Office for respondents.
GUTIERREZ, JR., J.:
This is an appeal from the decision of the Court of Appeals which affirmed in toto
the decision of the then Court of First instance of Rizal rendered in the petition for
review of the decree of registration issued in Land Registration Case No. N-2597,
L.R.C. Record No. N-17939.
On September 15,1959, petitioners-spouses Hilario Ramirez and Valentina Bonifacio
filed an application for registration of a parcel of riceland in Pamplona, Las Pinas
Rizal. After notice and publication nobody appeared to oppose the application. An
order of general default was issued and the court allowed the petitioners to present
evidence in support of their claim. Thereafter, the petitioners presented parol
evidence that they acquired the land in question by purchase from Gregorio Pascual
during the early part of the American regime but the corresponding contract of sale
was lost and no copy or record of the same was available.
On January 30, 1960, the court ordered the issuance of the decree of registration
and consequently: Original Certificate of Title No. 2273 of the Registry of Deeds of
Rizal was issued in the petitioners names.
On March 30, 1960, the private respondents Francisca Medina, Basilio Martin,
Matilde Martin, Delfin Guinto, Teofilo Guinto, Prudencio Guinto and Margarita
Guinto, petitioners' nephews and nieces, filed a petition to review the decree of
registration on the ground of fraud. The private respondents based their claim to
the land on the following allegations: that they are the legal heirs of the deceased
Agapita Bonifacio who died intestate on March 11, 1936; that Valentina Bonifacio is
a sister of the deceased Agapita Bonifacio, they being the children of one Gregoria
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Pascual; that Gregoria Pascual previously owned the land in question as evidenced
by Tax Declaration No. 6611 of Las Pinas Rizal issued on December 8, 1920; that
Agapita Bonifacio acquired the property in question by purchase from Gregoria
Pascual for which reason Tax Declaration No. 8777 was issued in her name on May
21, 1928; that Gregoria Pascual during her lifetime, from 1916, possessed the said
property in the concept of owner, publicly and uninterruptedly, which possession
was continued by Agapita Bonifacio in 1928; that in 1938 respondents obtained a
loan of P400.00 from the petitioners which they secured with a mortgage on the
land in question by way of antichresis; that for this reason, Tax Declaration No. 8777
was cancelled and substituted by Tax Declaration Nos. 9522 and 2385 issued in the
names of the petitioners; that, thereafter, the petitioners began paying taxes on the
land; that after several attempts to redeem the land were refused by the petitioners,
the respondents filed a complaint in the Court of First Instance of Pasay City
docketed as Civil Case No. 272-R for the recovery of the possession and ownership
of the said property; that when they learned of the issuance of the certificate of title
to the land in the petitioners' names, they also filed the instant petition for review.
The previous complaint, Civil Case No. 272-R, was subsequently dismissed on a joint
petition filed by the parties after they agreed to have the determination of the
question of ownership resolved in the registration proceedings.
In their answer, the spouses Ramirez denied the material allegations of the petition,
they based their claim to the land on two deeds of sale allegedly executed on April
15, 1937 and April 23, 1937 which they allegedly found accidentally in March 1960.
After trial, the court found that deeds of sale spurious. It further found that the
respondents took possession of the land as owners after the death of Agapita
Bonifacio and in 1938, mortgaged it to the spouses Ramirez to secure the payment
of a loan in the amount of P400.00. It was agreed that the respondents could not
redeem the property within a period of five years and that the petitioners would
take possession of the land, enjoy its fruits, and pay the land taxes thereon. The
written agreement was kept by the petitioners as creditors. The trial court
appreciated the fact of the petitioners' failure, despite formal request, to produce
the document in court in favor of the respondents. Finding the claims of the herein
respondents sustained by the evidence, it ordered the reconveyance of the property
in the following manner:
WHEREFORE, judgment is hereby rendered in favor of petitioners and against
applicants as follows:
1) Setting aside its decision dated December 28, 1959 insofar as it found
and declared applicants to be the owners of the parcel of land described in Exhibits
A, B and C and insofar as it ordered the registration thereof in their names;
2) Declaring the petitioners, all Filipinos, all of legal age, and all residents of
Ligas Bacoor, Cavite, to be the true and absolute owners pro indiviso of the said
parcel of land described in Exhibits A, B and C in the following proportions:
a. Francisca Medina, married to Tomas de Leon, one-third (1/3) thereof;
b. Emilio Martin, married to Dolores Antonio, and Matilde Martin, married
to Federico Torres, one-third (1/3) thereof-,
c. Teofilo Guinto, married to Rocila de la Cruz, Delfin Guinto, married to
Gregoria Pamaran, Prudencio Guinto, married to Ana Guinto, and Margarita Guinto,
married to Felix Calacala one- third (1/3) thereof;
3) Ordering the registration of the said parcel of land described in Exhibits
A, B and C in the names of petitioners;
4) Setting aside its order for the issuance of the decree of registration in
favor of applicants dated January 30, 1959, and ordering the issuance of the decree
of registration in the names of petitioners;
5) Cancelling Original Certificate of Title No. 2273 of the Register of Deeds
of Rizal in the names of applicants and the issuance in lieu thereof of another
original certificate of title in the names of petitioners in the proportion of their
ownership of the property as stated in paragraph 2 above;
6) Ordering applicants to pay P3,000.00 to petitioners as and for attorney's
fees;
7) Ordering applicants to pay the costs of this suit.
The decision was affirmed by the Court of Appeals. On a motion for reconsideration
filed by the petitioners, the same appellate court, but with a new member,
promulgated a resolution setting aside the original decision. On a motion for
reconsideration filed by the private respondents, this resolution was set aside and
the original decision was reinstated.
The petitioners went to this Court in a petition for review on certiorari with the
following questions:
ONE-HAS THE COURT OF FIRST INSTANCE, ACTING AS A LAND REGISTRATION
COURT, THE JURISDICTION TO GIVE DUE COURSE TO A PETITION FOR REVIEW OF
DECREE UNDER SEC. 38 OF ACT 496 AND TO RE-OPEN THE ORIGINAL
PROCEEDINGS WHEN THE PETITION IS ACTUALLY ONE OF RECONVEYANCE AND
NOT BASED ON ACTUAL OR EXTRINSIC FRAUD?
TWO-DOES SEC. 38 OF ACT NO. 496 APPLY ON ALL FORES (SIC) TO ORIGINAL
LAND REGISTRATION PROCEEDINGS HAD UNDER PARAGRAPH B, SECTION 48 OF
COM. ACT NO. 141 AS AMENDED BY REP. ACT NO. 1942 WHEREIN THE LAND
INVOLVED IS PUBLIC AGRICULTURAL LAND?
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THREE-HAS THE COURT OF FIRST INSTANCE, ACTING AS A LAND REGISTRATION
COURT, THE POWER AND AUTHORITY TO VEST TITLE ON THE LAND INVOLVED TO
HEREIN PRIVATE RESPONDENTS AND ORDER EVEN ITS PARTITION AMONGST
THEM IN THE FACE OF THE ADMITTED FACT THAT THE LAND IS IN ACTUAL
POSSESSION OF PETITIONERS WHILE PRIVATE RESPONDENTS HAD NOT
POSSESSED THE SAME AT ALL?
FOUR-DO THE PRIVATE RESPONDENTS HAVE THE LEGAL CAPACITY AND
QUALIFICATION TO ACQUIRE AND BE VESTED BY THE COURT WITH TITLE TO THE
LAND IN QUESTION?
We find the petition without merit.
The first question does not warrant favorable consideration. The issue was
submitted to the appellate court and in our opinion, correctly resolved therein. The
Court of Appeals stated:
... The petition alleged that 'the applicants Hilario Ramirez and Valentina Bonifacio
willfully and fraudulently suppressed the facts that the petitioners are the legal and
rightful owners of the ricefield in question and that they possess the said ricefield
merely as antichretic creditors as security for the loan of P400.00; that the applicants
are guilty of fraudulent misrepresentation and concealment when they declared in
their application, in the case at bar, that no other person had any claim or interest in
the said land.' These we believe are sufficient allegations of extrinsic fraud.
In the applicant's application for registration, which followed the form required by
the Land Registration Act, the applicants alleged that 'to the best of our knowledge
and belief, there is no mortgage or incumbrance of any kind whatsoever affecting
said land, nor any other person having any estate or interest therein, legal or
equitable, in possession, remainder, reversion or expectancy.' This allegation is false
and made in bad faith, for, as We have found, the applicants are not the owners of
the land sought to be registered and they are in possession thereof only as
antichretic creditors.
The averments in the petition for review of the decree of registration constitute
specific and not mere general allegations of actual and extrinsic fraud. Competent
proof to support these allegations was adduced. We find no compelling reason to
disturb the findings of the two courts below.
The petitioners in this case did not merely omit a statement of the respondents'
interest in the land. They positively attested to the absence of any adverse claim
therein. This is clear misrepresentation. The omission and concealment, knowingly
and intentionally made, of an act or of a fact which the law requires to be performed
or recorded is fraud, when such omission or concealment secures a benefit to the
prejudice of a third person (Estiva v. Alvero, 37 Phil. 497).
In the case of Libundan v. Palma Gil (45 SCRA 17), this Court held:
The purpose of the law in giving aggrieved parties, deprived of land or any interest
therein, through fraud in the registration proceedings, the opportunity to review the
decree is to insure fair and honest dealing in the registration of land. But the action
to annul a judgment, upon the ground of fraud, would be unavailing unless the
fraud be extrinsic or collateral and the facts upon which it is based have not been
controverted or resolved in the case where the judgment sought to be annulled was
rendered. Extrinsic or collateral fraud, as distinguished from intrinsic fraud, connotes
any fraudulent scheme executed by a prevailing litigant 'outside the trial of a case
against the defeated party, or his agents, attorneys or witnesses, whereby said
defeated party is prevented from presenting fully and fairly his side of the case.' But
intrinsic fraud takes the form of 'acts of a party in a litigation during the trial, such as
the use of forged instruments or perjured testimony, which did not affect the
presentation of the case, but did prevent a fair and just determination of the case.
Thus, relief is granted to a party deprived of his interest in land where the fraud
consists in a deliberate misrepresentation that the lots are not contested when in
fact they are, or in applying for and obtaining adjudication and registration in the
name of a co-owner of land which he knows had not been alloted to him in the
partition, or in intentionally concealing facts, and conniving with the land inspector
to include in the survey plan the bed of a navigable stream, or in willfully
misrepresenting that there are no other claims, or in deliberately failing to notify the
party entitled to notice, or in inducing him not to oppose an application, or in
misrepresenting about the indentity of the lot to the true owner by the applicant
causing the former to withdraw his opposition. In all these examples the overriding
consideration is that the fraudulent scheme of the prevailing litigant prevented a
party from having his day in court or from presenting his case, The fraud, therefore,
is one that affects and goes into the jurisdiction of the court.
The second question assigned as an error must also be resolved against the
petitioners.
Section 122 of Act No. 496 otherwise known as the Land Registration Act provides:
SEC. 122. Whenever public lands in the Philippine Islands belonging to the
Government of the United States or to the Government of the Philippine Islands are
alienated, granted, or conveyed to persons or the public or private corporations, the
same shall be brought forthwith under the operation of this Act and shall become
registered lands. It shall be the duty of the official issuing the instrument of
alienation, grant, or conveyance in behalf of the Government to cause such
instrument before its delivery to the grantee, to be filed with the register of deeds
for the province where the land lies and to be there registered like other deeds and
conveyances, whereupon a certificate shall be entered as in other cases of
registered land, and an owner's duplicate certificate issued to the grantee. The deed,
Page 119 of 152
grant, or instrument of conveyance from the Government to the grantee shall not
take effect as a conveyance or bind the land, but shall operate only as contract
between the Government and the grantee and as evidence of authority to the clerk
or register of deeds to make registration. The act of registration shall be the
operative act to convey and affect the land, and in all cases under this Act,
registration shall be made in the office of the register of deeds for the province
where the land lies. The fees for registration shall be paid by the grantee. After due
registration and issue of the certificate and owner's duplicate, such land shall be
registered land for all purposes under this Act.
The law is clear. We can apply it to the facts without need for judicial interpretation.
Once the deed, grant, or instrument of conveyance of public land is registered with
the Register of Deeds and the corresponding certificate and owner's duplicate title
is issued, such land is deemed registered land. It is brought within the scope and
operation of the Land Registration Law. This is the doctrine laid down by this Court
in a long line of cases. (See Heirs of Deogracias Ramos v. Court of Appeals, 139
SCRA 293; Lahora v. Dayanghirang 37 SCRA 346; Ramirez v. Court of Appeals, 30
SCRA 297; Director of Lands v. Jugado 2 SCRA 32; Nelayan v. Nelayan, 109 Phil. 183;
Republic v. Heirs of Carle 105 Phil. 1227; El Hogar Filipino v. Olviga, 60 Phil. 17;
Manolo v. Lukban, 48 Phil. 973). The land in this case having been registered and
covered by an original certificate of title issued by the Register of Deeds of Rizal, it is
within the provisions of the Land Registration Act. Thus, the decree of registration
granted by the lower court in favor of the petitioners may be reviewed on the
ground of actual and extrinsic fraud pursuant to Section 38 of the same Act.
There is likewise no merit in the third assigned error. While there was an admission
that the petitioners have been in actual possession of the disputed land since 1938,
it was made to show and prove the fact that the petitioners are only antichretic
creditors. The respondents never admitted that they have not possessed the land at
all. On the contrary, they alleged that they and their predecessors-in-interest namely
Gregoria Pascual and Agapita Bonifacio have been in possession of the land since
time immemorial and that the petitioners were placed in possession of the land
pursuant to a contract of antichresis.
The court below found that the petitioners are merely antichretic creditors. This
finding and its factual bases were affirmed by the Court of Appeals. On the basis of
the evidence supporting this conclusion, this finding is binding on us as it is not our
duty to weigh evidence on this point all over again. This court has on several
occasions held that the antichretic creditor cannot ordinarily acquire by prescription
the land surrendered to him by the debtor (Trillana v. Manansala, et al., 96 Phil. 865;
Valencia v. Acala, 42 Phil. 177; Barreto v. Barreto, 3 Phil. 234). The petitioners are not
possessors in the concept of owner but mere holders placed in possession of the
land by its owners. Thus, their possession cannot serve as a title for acquiring
dominion (See Art. 540, Civil Code).
The fourth issue raised by the petitioners is answered by a referral to the detailed
factual findings and conclusions of the trial court. Ten pages of the record on appeal
(Record on Appeal, CA-G.R. No. 40425-R, pp. 56-66) state in convincing detail the
portion of the trial court's decision which support its conclusion that Hilario Ramirez
and Valentina Bonifacio are not the owners of the disputed land and have no
registrable right over it and that the respondents herein have established their
ownership by a strong preponderance of evidence. The respondents were declared
the true and real owners and entitled to registration in their names. The final
resolution of the Court of Appeals affirmed the trial court's decision in toto. We see
no reversible error in this finding.
The argument of laches is explained and countered by the close relationship of the
parties and the nature of a contract of antichresis. The private respondents are
nephews and nieces, with their spouses, of the petitioners. Moreover, there is
evidence to show that long before the filing of the cases, there had been attempts
to recover the property.
In view of the foregoing, we are constrained to affirm the appellate court's decision.
We note, however, that in spite of the finding of an existing contract of antichresis
between the parties, the two courts below did not order the payment of the
principal amount of mortgage. Under Article 2136 of the Civil Code, the debtor
cannot reacquire the enjoyment of the immovable without first having totally paid
what he owes the creditor.
WHEREFORE, the decision appealed from is hereby AFFIRMED with a modification
that the respondents are ordered to pay the petitioners the amount of P 400.00 as
principal for the contract of antichresis, the fruits obtained from the possession of
the land having been applied to the interests on the loan.
SO ORDERED.
EN BANC
G.R. No. L-9451 March 29, 1957
OLAF N. BORLOUGH, petitioner,
vs.
FORTUNE ENTERPRISES, INC. and THE HONORABLE COURT OF APPEALS (2nd
DIVISION), respondents.
Arturo M. del Rosario and Alfredo G. Fernando for petitioner.
Laurel & Salonga for respondents.
LABRADOR, J.:
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Appeal by certiorari against a judgment of the Court of Appeals, Second Division.
The facts of the case have been briefly stated as follows:
On March 8, 1952, the United Car Exchange sold to the Fortune Enterprises, Inc., the
following described car
Make: Chevrolet (1947); Plate No. 34-1465
Type : Sedan; Motor No. EAA-20834 (Exhibit D).
The same car was sold by the Fortune Enterprises, Inc. to one Salvador Aguinaldo,
and for not having paid it in full, the latter executed on the same date a promissory
note in the amount of P2,400 payable in 20 installments including interest thereon
at 12 per cent per annum, the last of which installments fell due on January 9, 1953
(Exhibit "A").
To secure the payment of this note, Aguinaldo executed a deed of chattel mortgage
over said car. The deed was duly registered in the office of the Register of Deeds of
Manila at 1:12 p.m. on March 11, 1952 (Exhibit "B"). As the buyer-mortgagor
defaulted in the payment of the installments due, counsel for Fortune Enterprises
Inc. addressed a letter on May 16, 1952 (Exhibit "C"), requesting him to make the
necessary payment and to keep his account up to date, to that no court action
would be resorted to.
It further appears that the above-described car found its way again into the United
Car Exchange which sold the same in cash for P4,000 to one O. N. Borlough on April
6, 1952. Accordingly, he registered it on the following day with the Motor Vehicles
Office. (Decision, Court of Appeal.).
It also appears from the record that defendant 0. N. Borlough took possession of
the vehicle from the time he purchased it, On July 10, 1952, Fortune Enterprises, Inc.
brought action against Salvador Aguinaldo to recover the balance of the purchase
price. Borlough filed a third-party complaint, claiming the vehicle. Thereupon,
Fortune Enterprises, Inc. amended its complaint, including Borlough as a defendant
and alleging that he was in connivance with Salvador Aguinaldo and was unlawfully
hiding and concealing the vehicle in order to evade seizure by judicial process.
Borlough answered alleging that he was in legal possession thereof, having
purchased it in good faith and for the full price of P4,000, and that he had a
certificate of registration of the vehicle issued by the Motor Vehicles Office, and he
prayed for the dismissal of the complaint, the return of the vehicle and for damages
against the plaintiff.
The vehicle was seized by the sheriff of Manila on August 4, 1952 and was later sold
at public auction. The Court of First Instance rendered judgment in favor of
Borlough, and against plaintiff, ordering the latter to pay Borlough the sum of
P4,000, with interest at 6 per cent per annum, from the date of the seizure of the car
on August 4, 1952, and in addition thereto, attorney's fees in the sum of P1,000.
Upon appeal to the Court of Appeals, this court rendered judgment ordering that
Emil B. Fajardo pay Borlough P4,000 plus attorney's fees and that plaintiff pay to
Borlough any amount received by it in excess of its credits and judicial expenses.
The reason for the modification of the judgment is that the mortgage was superior,
being prior in point of time, to whatever rights may have been acquired by
Borlough by reason of his possession and by the registration of his title in the Motor
Vehicle Office.
The question involved in the appeal in this case is one of law and may be stated
thus: As between a prior mortgage executed over a motor vehicle, registered under
the Chattel Mortgage Law only, without annotation thereof in the Motor Vehicles
Office, and a subsequent registration of the vehicle in the Motor Vehicles Office
accompanied by actual possession of the motor vehicle, which should prevail. While
the question can be resolved by the general principles found in the Civil Code and
expressly stated in Article 559, there is no need resorting thereto (the general
principles) in view of the express provisions of the Revised Motor Vehicles Law,
which expressly and specifically regulate the registration, sale or transfer and
mortgage of motor vehicles. The following provisions of said law may help decide
the legal question now under consideration:
SEC. 5 (c) Reports of motor vehicle sales. On the first day of each month, every
dealer in motor vehicles shall furnish the Chief of the Motor Vehicles Office a true
report showing the name and address of each purchase of a motor vehicle during
the previous month and the manufacturer's serial number and motor number; a
brief description of the vehicle, and such other information as the Chief of the
Motor Vehicles Office may require.
SEC. 5 (e) Report of mortgages. Whenever any owner hypothecates or mortgage
any motor vehicle as surety for a debt or other obligation, the creditor or person in
whose favor the mortgage is made shall, within seven days, notify the Chief of the
Motor Vehicles Office in writing to the effect, stating the registration number of the
motor vehicle, date of mortgage, names and addresses of both parties, and such
other information as the Chief of the Motor Vehicles Office may require. This notice
shall be signed jointly by the parties to the mortgage.
On termination, cancellation or foreclosure of the mortgage, a similar written notice
signed by both parties, shall be forwarded to the Chief of the Motor Vehicles Office
by the owner.
These notice shall be filed by the Chief of the Motor Vehicles Office in the motor
records, and in the absence of more specific information, shall be deemed evidence
of the true status of ownership of the motor vehicle. (Revised Motor Vehicles Law.)
It is to be noted that under section 4 (b) of the Revised Motor Vehicles Law the
Chief of the Motor Vehicles Office is required to enter or record, among other
Page 120 of 152
things, transfers of motor vehicles "with a view of making and keeping the same and
each all of them as accessible as possible to and for persons and officers properly
interested in the same," and to "issue such reasonable regulations governing the
search and examination of the documents and records . . . as will be consistent with
their availability to the public and their safe and secure prevention."
Two recording laws are here being invoked, one by each contending party the
Chattel Mortgage Law (Act No. 1508), by the mortgagor and the Revised Motor
Vehicles Law (Act No. 3992), by a purchaser in possession. What effect did the
passenger of the Revised Motor Vehicles Law have on the previous enactment?
The Revised Motor Vehicles Law is a special legislation enacted to "amend and
compile the laws relative to motor vehicles," whereas the Chattel Mortgage Law is a
general law covering mortgages of all kinds of personal property. The former is the
latest attempt to assemble and compile the motor vehicle laws of the Philippines, all
the earlier laws on the subject having been found to be very deficient in form as
well as in substance (Villar and De Vega, Revised Motor Vehicles Law, p. 1); it had
been designed primarily to control the registration and operation of motor vehicles
(section 2, Act No. 3992).
Counsel for petitioner contends that the passage of the Revised Motor Vehicles Law
had the effect of repealing the Chattel Mortgage Law, as regards registration of
motor vehicles and of the recording of transaction affecting the same. We do not
believe that it could have been the intention of the legislature to bring about such a
repeal. In the first place, the provisions of the Revised Motor Vehicles Law on
registration are not inconsistent with does of the Chattel Mortgage Law. In the
second place, implied repeals are not favored; implied repeals are permitted only in
cases of clear and positive inconsistency. The first paragraph of section 5 indicates
that the provisions of the Revised Motor Vehicles Law regarding registration and
recording of mortgage are not incompatible with a mortgage under the Chattel
Mortgage Law. The section merely requires report to the Motor Vehicles Office of a
mortgage; it does not state that the registration of the mortgage under the Chattel
Mortgage Law is to be dispensed with. We have, therefore, an additional
requirements in the Revised Motor Vehicles Law, aside from the registration of a
chattel mortgage, which is to report a mortgage to the Motor Vehicles Office, if the
subject of the mortgage is a motor vehicle; the report merely supplements or
complements the registration.
The recording provisions of the Revised Motor Vehicles Law, therefore, are merely
complementary to those of the Chattel Mortgage Law. A mortgage in order to affect
third persons should not only be registered in the Chattel Mortgage Registry, but
the same should also be recorded in the motor Vehicles Office as required by
section 5 (e) of the Revised Motor Vehicles Law. And the failure of the respondent
mortgage to report the mortgage executed in its favor had the effect of making said
mortgage ineffective against Borlough, who had his purchase registered in the said
Motor Vehicles Office.
On failure to comply with the statute, the transferee's title is rendered invalid as
against a subsequent purchaser from the transferor, who is enabled by such failure
of compliance to retain the indicia of ownership, such as a subsequent purchaser in
good faith, or a purchaser from a conditional buyer in possession; and the lien of a
chattel mortgage given by the buyer to secure a purchase money loan never
becomes effective in such case as against an innocent purchaser. (60 Corpus Juris
Secundum, p. 171.)
One holding a lien on a motor vehicle, in so far as he can reasonably do so, must
protect himself and others thereafter dealing in good faith by complying and
requiring compliance with the provisions of the laws concerning certificates of title
to motor vehicles, such as statutes providing for the notation of liens or claims
against the motor vehicle certificate of title or manufacturer's certificate, or for the
issuance to the mortgagee of a new certificate of ownership. Where the lien holder
has satisfied himself that the existence of the lien is recited in the certificate of title,
he has done all that the law contemplates that he should do, and there is notice to
the public of the existing lien, which continues valid until the record shows that it
has been satisfied and a new certificate issued on legal authority, even through
another certificate which does not disclose the lien is procured as the result of false
statements made in the application therefore, and the vehicle is purchased by a
bona fide purchaser.
The holder of a lien who is derelict in his duty to comply and require compliance
with the statutory provisions acts at his own peril, and must suffer the consequence
of his own negligence; and accordingly, he is not entitled to the lien as against a
subsequent innocent purchaser filed as provided by other chattel mortgage
statutes. The rule is otherwise, however, as against claimants not occupying the
position of innocent purchaser, such as a judgment creditor, or one acquiring title
with actual notice of an unregistered lien, and the statutes do not protect a
purchaser holding under registered title if a link in the title is forgery. Moreover,
such statute will not impair vested rights of a mortgage under a chattel mortgage
duly recorded. (60 C.J.S., pp. 181-182.)
The above authorities leave no room for doubt that purchaser O. N. Borlough's right
to the vehicle as against the previous and prior mortgage Fortune Enterprises, Inc.,
which failed to record its lien in accordance with the Revised Motor Vehicles Law,
should be upheld.
For the foregoing consideration, the judgment of the Court of Appeals is hereby
reversed and that of the Court of First Instance affirmed, with costs against
respondent.
EN BANC
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G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila, respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent, Joaquin
Jaramillo, register of deeds of the City of Manila, to an original petition of the
Standard Oil Company of New York, seeking a peremptory mandamus to compel
the respondent to record in the proper register a document purporting to be a
chattel mortgage executed in the City of Manila by Gervasia de la Rosa, Vda. de
Vera, in favor of the Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de la Rosa, Vda.
de Vera, was the lessee of a parcel of land situated in the City of Manila and owner
of the house of strong materials built thereon, upon which date she executed a
document in the form of a chattel mortgage, purporting to convey to the petitioner
by way of mortgage both the leasehold interest in said lot and the building which
stands thereon.
The clauses in said document describing the property intended to be thus mortgage
are expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the mortgage, by
way of mortgage, the following described personal property, situated in the City of
Manila, and now in possession of the mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the contract of lease
hereinabove referred to, and in and to the premises the subject of the said lease;
(2) The building, property of the mortgagor, situated on the aforesaid leased
premises.
After said document had been duly acknowledge and delivered, the petitioner
caused the same to be presented to the respondent, Joaquin Jaramillo, as register of
deeds of the City of Manila, for the purpose of having the same recorded in the
book of record of chattel mortgages. Upon examination of the instrument, the
respondent was of the opinion that it was not a chattel mortgage, for the reason
that the interest therein mortgaged did not appear to be personal property, within
the meaning of the Chattel Mortgage Law, and registration was refused on this
ground only.
We are of the opinion that the position taken by the respondent is untenable; and it
is his duty to accept the proper fee and place the instrument on record. The duties
of a register of deeds in respect to the registration of chattel mortgage are of a
purely ministerial character; and no provision of law can be cited which confers
upon him any judicial or quasi-judicial power to determine the nature of any
document of which registration is sought as a chattel mortgage.
The original provisions touching this matter are contained in section 15 of the
Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496; but these have
been transferred to section 198 of the Administrative Code, where they are now
found. There is nothing in any of these provisions conferring upon the register of
deeds any authority whatever in respect to the "qualification," as the term is used in
Spanish law, of chattel mortgage. His duties in respect to such instruments are
ministerial only. The efficacy of the act of recording a chattel mortgage consists in
the fact that it operates as constructive notice of the existence of the contract, and
the legal effects of the contract must be discovered in the instrument itself in
relation with the fact of notice. Registration adds nothing to the instrument,
considered as a source of title, and affects nobody's rights except as a specifies of
notice.
Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating
between real property and personal property for purpose of the application of the
Chattel Mortgage Law. Those articles state rules which, considered as a general
doctrine, are law in this jurisdiction; but it must not be forgotten that under given
conditions property may have character different from that imputed to it in said
articles. It is undeniable that the parties to a contract may by agreement treat as
personal property that which by nature would be real property; and it is a familiar
phenomenon to see things classed as real property for purposes of taxation which
on general principle might be considered personal property. Other situations are
constantly arising, and from time to time are presented to this court, in which the
proper classification of one thing or another as real or personal property may be
said to be doubtful.
The point submitted to us in this case was determined on September 8, 1914, in an
administrative ruling promulgated by the Honorable James A. Ostrand, now a
Justice of this Court, but acting at that time in the capacity of Judge of the fourth
branch of the Court of First Instance of the Ninth Judicial District, in the City of
Manila; and little of value can be here added to the observations contained in said
ruling. We accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the property described in the
document in question is real or personal; the discussion may be confined to the
point as to whether a register of deeds has authority to deny the registration of a
Page 121 of 152
document purporting to be a chattel mortgage and executed in the manner and
form prescribed by the Chattel Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor
continued:
Based principally upon the provisions of section quoted the Attorney-General of the
Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds
has no authority to pass upon the capacity of the parties to a chattel mortgage
which is presented to him for record. A fortiori a register of deeds can have no
authority to pass upon the character of the property sought to be encumbered by a
chattel mortgage. Of course, if the mortgaged property is real instead of personal
the chattel mortgage would no doubt be held ineffective as against third parties,
but this is a question to be determined by the courts of justice and not by the
register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this
court held that where the interest conveyed is of the nature of real, property, the
placing of the document on record in the chattel mortgage register is a futile act;
but that decision is not decisive of the question now before us, which has reference
to the function of the register of deeds in placing the document on record.
In the light of what has been said it becomes unnecessary for us to pass upon the
point whether the interests conveyed in the instrument now in question are real or
personal; and we declare it to be the duty of the register of deeds to accept the
estimate placed upon the document by the petitioner and to register it, upon
payment of the proper fee.
The demurrer is overruled; and unless within the period of five days from the date of
the notification hereof, the respondent shall interpose a sufficient answer to the
petition, the writ of mandamus will be issued, as prayed, but without costs. So
ordered.
EN BANC
G.R. No. 42551 September 4, 1935
ALEKO E. LILIUS, for himself and as guardian ad litem of his minor child, Brita
Marianne Lilius, and SONJA MARIA LILIUS, plaintiffs-appellees,
vs.
MANILA RAILROAD COMPANY, defendant.
LAURA LINDLEY SHUMAN, MANILA WINE MERCHANTS, LTD., BANK OF THE
PHILIPPINE ISLANDS AND MANILA MOTOR CO., INC., intervenors-appellants, and
W.H. WATEROUS, M. MARFORI, JOHN R. MCFIE, JR., ERLANGER & GALINGER, INC.,
PHILIPPINE EDUCATION CO., INC., HAMILTON BROWN SHOE CO., ESTRELLA DEL
NORTE and EASTERN & PHILIPPINE SHIPPING AGENCIES, LTD., intervenors-
appellees.
J.W. Ferrier for intervenor-appellant Shuman.
Franco and Reinoso for intervenor-appellant Manila Wine Merchants, Ltd.
Feria and La O for intervenor-appellant Bank of the Philippine Islands.
Gibbs and McDonough for intervenor-appellant Manila Motor Co.
Harvey and O'Brien for plaintiffs-appellees.
John R. Mcfie, Jr., in his behalf and for the intervenors-appellees.
GODDARD, J.:
In this case Laura Lindley Shuman, the Manila Wine Merchants, Ltd., the Bank of the
Philippine Islands and the Manila Motor Co., Inc., have appealed from an order of
the Court of First Instance of Manila fixing the degree of preference of the claimants
and distributing the proceeds of the judgment of this court in the case of Lilius vs.
Manila Railroad Co. (59 Phil., 758), the amount of which judgment in the sum of
P33,525.03, including interest and costs, was deposited by the railroad company
with the clerk of the lower court in that case. After deducting the attorneys' fees in
the sum of P8,016.88, which is not questioned, the net amount in the hands of the
clerk of the lower court pertaining to each of the plaintiffs in the original action is
follows:
Aleko E. Lilius
P13,181.33
Sonja Maria Lilius
8,218.54
Brita Marianne Lilius
4,109.28
There was a total of twenty-eight claimants to these funds, whose claims were
presented and decided without objection in the original case in the lower court.
The trial court in its order from which these appeals are taken, allowed:
(a) As against the sum of P8,218.54, separately awarded to the plaintiff
Sonja Lilius, the following claims or portions thereof in the order stated:
One-half of the claim of Dr. W.H. Waterous by virtue of a written assignment of
March 9, 1933, by the said Sonja Maria Lilius to him
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P1,500.00
One-third of the claim of the appellant Laura Lindley
Shuman by virtue of a joint judgement obtained by her on August 10, 1933, in the
Case No. 44254 of the Court of First Instance of Manila, against the said Sonja Maria
Lilius, Aleko E. Lilius and Brita Marianne Lilius
661.13
One-third of the claim of the St. Paul's Hospital by
virtue of a joint written assignment of September 21, 1933, by the said Sonja Maria
Lilius, Aleko E. Lilius and Brita Marianne Lilius to it
518.19
and the balance of the award was ordered paid to the said Brita Marianne Lilius, and
(b) As against the sum of P4,109.28, separately awarded to the plaintiff Brita
Marriane Lilius, the following claims or portions thereof in the order stated:
One-third of the claim of Laura Lindley Shuman by virtue of a joint judgment
obtained by her on August 10, 1933, in Case No. 44254 of the Court of First Instance
of Manila, against the said Brita Marianne Lilius, Sonja Maria Lilius and Aleko E. Lilius
P661.13
One-third of the claim of St. Paul's Hospital by virtue
of a joint written assignment of September 21, 1933, by the
said Brita Marianne Lilius, Sonia Maria Lilius and Aleko
E. Lilius
518.18
and the balance of the award was ordered paid to the said Brita Marianne Lilius, and
(c) As against the sum of P13,181.33, awarded to the plaintiff Aleko E. Lilius,
the following claims or portions thereof in the order stated:
The other half of the claim of Dr. W.H. Waterous by virtue of the final judgement in
the original case, G.R. No. 39587
P1,500.00
The claim of Dr. M. Marfori, by virtue of the final judgment in the original case, G.R.
No. 39587
250.00
The claim of John R. McFie, Jr., by virtue of a written assignment to him by the said
Aleko E. Lilius of November 13, 1931
500.00
The balance of P10, 931.33 of the judgment pertaining to the said Aleko E. Lilius was
allowed and distributed by the lower court proportionately among the following
claimants by virtue of their written assignment of January 27, 1932:
Erlanger & Galinger, Inc.
3,374.50
Philippine Education Co., Inc.,
3,394.94
Hamilton Brown Shoe Co.
1,878.98
Estrella del Norte
1,850.76
Eastern & Philippine Shipping Agencies, Ltd.
432.15
APPEAL OF LAURA LINDLEY SHUMAN
First assignments of error: "The lower court erred in holding that Dr. W.H. Waterous
and Dr. M. Marfori had a claim against the plaintiff, Aleko E. Lilius superior to the
claim of the appellant, Laura Lindley Shuman, against him."
One of the contentions of this appellant under this assignment of error is that her
claim, having been made the basis of the plaintiffs' action and of the award for
damages, as shown in the original decision herein, should constitute, and does
constitute a superior lien against the funds awarded said plaintiffs, to those of any
other claimants, except the two doctors, the hospital and the other nurse, and that
as to the claims of the two doctors, the hospital and the other nurse the claim of
this appellant has equal preference with their claims.
Page 122 of 152
The following items were made the basis of a part of the judgment for damages
awarded to the plaintiffs in the original action against the Manila Railroad Company:
Por honorarios del Dr. Waterous (Exhibit N-2)
P3,000.00
Por la primera cura hecha en el Hospital de Calauang (Exhibit N-5)
250.00
Por el alquiler de la ambulancia del Hospital General (Exhibit N-4)
10.00
Por la estancia en el Hospital Saint Paul (Exhibit N-3)
3,355.00
Por los servicios prestados por la enfermera Laura Shuman (Exhibit N-6)
2,156.00
Por los servisios prestados por la enfermera Alejandra Alcayaga (Exhibit N-9)
1,450.00
Porlos servicios prestados por la enfermera Carmen Villanueva (Exhibit N-11)
240.00
Por la perdida de la camara fotografica, pluma fuente y lapiz (Exhibit N-1)
43.00
Por trajes daados en el choque
131.00
Total
10,635.00
The trial court in that case directed the defendant Railroad Company to pay P3,000
to Dr. Waterous and to pay to Dr. Marfori P250, but failed to direct the defendant to
pay the corresponding sums to the other persons and entities mentioned in the
portion of the decision copied above.
It must be admitted that the amounts due Dr. Waterous and the others mentioned
is the original decision, including the appellant Shuman, were all used as a basis for
a part of the judgment which plaintiffs secured against the defendants Railroad
Company.
From the foregoing it is clear that the claim of this appellant rests upon the same
ground as those of Doctors Waterous and Marfori. She was also among those who
rendered services to plaintiffs in aid of their recover from the injuries received by
them in the accident for which damages were awarded them in the case against the
Railroad Company. The fact that the trial court did not direct the defendant Railroad
Company to pay directly to this appellant the amount of her claim does not modify
or do away with her equitable right to the same status as that given to the two
doctors mentioned above. The inevitable conclusion is that the claims of Waterous
and Marfori have no preference over her claim for her services as a nurse. This
assignment of error should be and is hereby sustained.
This appellant in her second assignment of error contends that the trial court erred
in failing to allow her claim in the sum of P61.94 as costs in the case in which
judgment was rendered in her favor against the herein plaintiffs-appellees. The
record shows that the reason for the disallowance of this item was because no proof
was offered as to the amount of such costs. The only thing appearing in the
transcript on this point is the statement of counsel that the amount of costs in case
No. 44254, as shown by the bill of costs, was P6l.94. Rule 38 of the Revised Rules of
Courts of First Instance requires that ". . . costs shall be taxed by the clerk on five
days' written notice given by the prevailing party to the adverse party, with which
notice given by the prevailing party, verified by his oath or that of his attorney, shall
be served. . . ." The proper evidence, therefore, of the costs in that case would have
been the bill of costs and the taxation of such costs by the clerk. In order to recover
such costs in a separate proceeding, such as this, evidence must be presented as to
the amount of the same. As there was no evidence offered in this case as to the
amount of said costs, the lower court was correct in disallowing that item. This
assignment of error is overruled.
Under her third assignment of error this appellant contends (1) that the funds
separately awarded the wife, Sonja Maria Lilius, partake of the nature of conjugal
property, at least to the extent of the sum of P800 awarded to her as interest on the
principal award of P10,000 made in her favor by the trial court, and as such should
respond for the support of the family, including medical expenses and (2) that even
assuming that the sums awarded separately to Sonja Maria Lilius are not conjugal
property, but her own paraphernal property, still under the provisions of the Civil
Code payment may be required out of said funds, her husband being insolvent,
under her liability for the medical expenses incurred by her husband, one of the
obligations imposed by law upon the wife.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
The second contention under this assignment of error can be disposed of by calling
attention to the fact that there is no proof in this case that her husband is insolvent.
It has not been proved that Aleko E. Lilius had no other property outside of the sum
awarded to him in the case against the Railroad Company.
APPEAL OF THE MANILA WINE MERCHANTS, LTD., AND THE BANK OF THE
PHILIPPINE ISLANDS.
The appellants, the Manila Wine Merchants. Ltd., and the Bank of the Philippine
islands also contend that the sum separately awarded Sonja Maria Lilius is conjugal
property and therefore liable for the payment of the private debts of her husband,
Aleko E. Lilius, contracted during her marriage.
it is contended that the damages awarded for personal injury are not classified as
separate property of each of the spouses in article 1396 of the Civil Code and they
should therefore be resumed conjugal. In answer to this, article 1401 of the same
Code, in enumerating the property belonging to the conjugal partnership, does not
mention damages for personal injury.
The question raised by these appellants is one of first impression in this jurisdiction
and apparently has never been passed upon by the Supreme Court of Spain.
The following comment is found in Colin y Capitant, Vol. 6, pages 217 and 218:
"No esta resuelta expresamente en la legislacion espa__ola la cuestion de si las
indemnizaciones debidas por accidentes del trabajo tienen la consideracion de
gananciales o son bienes particulares de los conyuges.
"Inclinan a la solucion de que estas indemnizaciones deben ser consideradas como
gananciales, el hecho de que la sociedad pierde la capacidad de trabajo con el
accidente, que a ella le pertenece, puesto que de la sociedad son los frutos de ese
trabajo; en cambio, la consideracion de que de igual manera que los bienes que
sustituyen a los que cada conyuge lleva al matrimonio como propios tienen el
caracter de propios, hace pensar que las indemnizaciones que vengan a suplir la
capacidad de trabajo aportada por cada conyuge a la sociedad, deben ser
juridicamente reputadas como bienes propios del conyuge que haya sufrido el
accidente. Asi se Ilega a la misma solucion aportada por la jurisprudencia francesa.".
From the above it appears that there are two distinct theories as to whether
damages rising from an injury suffered by one of the spouses should be considered
conjugal or separate property of the injured spouse. The theory holding that such
damages should form part of the conjugal partnership property is based wholly on
the proposition, also advanced by the Manila Wine Merchants, Ltd., that by the
injury the earning capacity of the injured spouse is diminished to the consequent
prejudice of the conjugal partnership.
Assuming the correctness of this theory, a reading of the decision of this court in G.
R. No. 39587 will show that the sum of P10,000 was awarded to Sonja Maria Lilius
"by way of indemnity for patrimonial and moral damages." The pertinent part of
that decision on this point reads:
"Taking into consideration the fact that the plaintiff Sonja Maria Lilius, wife of the
plaintiff Aleko E. Lilius is-in the language of the court, which saw her at the trial
"young and beautiful and the big scar, which she has on her forehead caused by the
lacerated wound received by her from the accident, disfigures her face and that the
fracture of her left leg has caused a permanent deformity which renders it very
difficult for her to walk', and taking into further consideration her social standing,
neither is the sum of P10,000, adjudicated to her by the said trial court by way, of
indemnity for patrimonial and moral damages, excessive.".
It should be added that the interest on that sum is part of the damages "patrimonial
and moral" awarded to Sonja Maria Lilius.
Furthermore it appears in the decision of the trial court in G. R. No. 39587 that Aleko
E. Lilius claimed the sum of P10,000 as damages on account of the loss of the
services of Sonja Maria Lilius as secretary and translator, her particular work as a
member of the conjugal partnership. The trial court disallowed this claim and
neither of the plaintiffs in that case appealed to this court.
In view of the foregoing it is held that the sum of P10,000 with interest thereon
awarded to Sonja Maria Lilius as damages is paraphernal property.
The third assignment of error of the appellant Shuman, the second assignment of
error of the appellant Bank of the Philippine Islands and the sole assignment of
error of the appellant Manila Wine Merchants, Ltd., are overruled.
In its first assignment of error it is contended by the Bank of the Philippines Islands
that by virtue of its writ of garnishment served on the Manila Railroad Company of
February 8, 1933, it acquired a lilen superior to the preference granted by article
1924 of the Civil Code to prior judgments. This error, if at all, is however non-
prejudicial as the record shows that all the creditors declared by the court as having
a right to participate in the proceeds of the judgment in favor of Aleko E. Lilius were
so held by virtue of deeds of assignment executed prior to the date of the service of
notice of the bank's writ of garnishment on the Manila Railroad Company. These
creditors are John R. McFie, jr., whose claim is based on a deed of assignment dated
November 13, 1931, and Erlanger & Galinger, Philippine Education Co., Inc.,
Hamilton Brown Shoe Co., Estrella del Norte and Eastern & Philippine Shipping
Agencies, Ltd., whose claims are based on a deed of assignment dated November
17, 1931. As the record shows that whatever was left of the judgment in favor of
Aleko E. Lilius is not sufficient to pay in full the credits of the above mentioned
creditors and furthermore, in view of the fact that strictly speaking, there was no
existing credit in favor of Aleko E. Lilius to be garnished on February 3, 1933, as it
Page 123 of 152
had been assigned, before that date, to his creditors, this assignment of error,
therefore, must be overruled.
APPEAL OF THE THE MANILA MOTOR CO., INC.
The two error assigned by this appellant read as follows:
"I. The lower court erred in considering the date of the date judgment, Exhibit A,
Manila Motor Co., Inc., instead of the date of the public document upon which it
was based in determining the preference among the several claims filed and
litigated in this proceeding.
"ll. The lower court erred in not holding the claim of the claimant-appellant, Manila
Motor Co., Inc., preferred over all other claims against Aleko E. Lilius evidenced by
public instruments and final judgments.".
The claimant has not proven that its credit is evidenced by a public document within
the meaning of article 1924 of the Civil Code. The only evidence offered by the
Manila Motor Co., Inc., in support of its claim of preference against the fund of
Aleko E. Lilius was a certified copy of its judgment against him in civil case No.
41159 of the Court of First Instance of Manila, together with a certified copy of the
writ of execution and the garnishment issued by virtue of said judgment. These
documents appear in the record as Exhibits A, B and C. The alleged public document
evidencing its claim was not offered in evidence and counsel of the Manila Motor
Co., Inc., merely stated at the hearing in the lower court that its judgment was based
on a public document dated May 10, 1931. There is no explanation as to why it was
not presented as evidence along with Exhibits A, B, and C. In their brief in this court,
counsel for the Motor Co., Inc., merely assume that its credit is evidenced by a
public document dated may 10, 1931, because the court, in its judgment in said civil
case No. 41159, refers to a mortgage appearing in the evidence as Exhibit A, as the
basis of its judgment, without mentioning the date of the execution of the exhibit.
This reference in said judgment to a mortgage is not competent or satisfactory
evidence as against third persons upon which to base a finding that the Manila
Motor Company's credit evidenced by a public document within the meaning of
article 1924 of the Civil Code. This court is not authorized to make use of that
judgment as a basis for its findings of fact in this proceeding. This is shown by the
decision of this court in the case of Martinez vs. Diza 920 Phil., 498). In that syllabus
of that decision it is stated:
"1. COURTS OF FIRST INSTANCE; JUDGMENT IN FORMER CIVIL ACTION AS BASIC
FOR FINDINGS OF FACT; ERROR.-A person who was not a party to a former civil
action, or who did not acquire his rights from one of the parties thereto after the
entry of judgment therein, is not bound by such judgment; nor can it be used
against him as a basis for the findings of fact in a judgment rendered in a
subsequent action.".
But even if the court is authorized to accept the statement in that judgment as a
basis for its finding of fact in relation to this claim, still it would not establish the
claim of preference of the Manila Motor Co., Inc. Granting that a mortgage existed
between the Manila Motor Co., Inc., and Aleko E. Lilius, this does not warrant the
conclusion that the instrument evidencing that mortgage is a public document
entitled to preference under article 1924 of the Civil Code. Under section 5 of Act
No. 1507 as amended by Act No. 2496, a chattel does not have to be acknowledge
before a notary public. As against creditors and subsequent encumbrances, the law
does require an affidavit of good faith appended to the mortgage and recorded
with it. (See Giberson vs. A. N. Jureidini Bros., 44 Phil., 216, and Betita vs. Ganzon, 49
Phil., 87.) A chattel mortgage may, however, be valid as between the parties without
such an affidavit of good faith. In 11 Corpus Juris, 482, the rule is expressly stated
that as between the parties and as to third persons who have no rights against the
mortgagor, no affidavit of good faith is necessary. It will thus be seen that under the
law, a valid mortgage may exist between the parties without its being evidenced by
a public document. This court would not be justified, merely from the reference by
the lower court in that case to a mortgage, in assuming that its date appears in a
public document. if the Manila motor Co., Inc., desired to rely upon a public
document in the form of a mortgagor as establishing its preference in this case, it
should have offered that document in evidence, so that the court might satisfy itself
as to its nature and unquestionably fix the date of its execution. There is nothing
either in the judgment relied upon or in the evidence to show the date of said
mortgage. The burden was upon the claimant to prove that it actually had a public
Code. It is essential that the nature and the date of the document be established by
competent evidence before the court can allow a preference as against the other
parties to this proceeding. Inasmuch as the claimant failed to establish its
preference, based on a public document, the lower court properly held that its claim
against the said Aleko E. Lilius was based on the final judgment in civil case No.
41159 of the Court of First Instance of Manila of May 3, 1932. The court, therefore,
committed no error in holding that the claim of the Manila Motor Co., Inc., was
inferior in preference to those of the appellees in this case.
This appellant's assignments of error are overulled.
In view of the foregoing the following portion of the dispositive part of the decision
of the trial court is affirmed.
"Por estas consideraciones, se ordena y se decreta (a) que del saldo de P8,219.54,
que pertenece a Sonja Maria LIllius y que se halla depositado en la Escribana del
Juzgado, se pague po el Escribano al Dr. W. H. Waterous la suma de mil quinientos
pesos (P1,500), a Laura L. Shuman, seiscientos sesenta y un pesos con trece
centavos (P661.13, y al St. Paul's Hospital, quinientos diez y ocho pesos con diez y
ocho centavos (P518.18), y el remanente de cinco mil cuatrocientos setenta y siete
pesos con veinticuatro centavos (P5,477.24), a Sonja Maria Lililus, o su apoderado;
(b) que del saldo de P4,109.28 que pretence a Brita Marianne Lilius y que se halla
deposito en la Escribania del Juzgado, se pague por el Escribano a Laura Shuman, la
CRED TRANS Pledge, Mortgage Antichresis Fulltext
suma de seicientos sesenta y un pesos con trece centavos (P661.13); y al St. Paul's
Hospital, quinientos diez y ocho pesos con diez y ocho centavos (P518.18)y, y el
sado de dos mil ochocientos sesenta y siete pesos con noventa y siete centavos
(P2,867.97), a Brita Marianne Lilius, por conducto de su tutor;".
The remaining portion of the dispositive part of the decision of the trial court is
modified as follows:
"That from the sum of P13,181.33 pertaining to Aleko E. Lilius, which is deposited
with the clerk of the trial court, the following claims shall first be paid:
Dr. W.H. Waterous
P1,500.00
Dr. M. Marfori
250.00
Laura Lindley Shuman
661.13
John R. McFie, Jr.
500.00
and the balance of the sum pertaining to Aleko E. Lilius shall be divided among the
following entities in proportion to their respective claims:
Amount of claim
Erlanger & Galinger, Inc.
P3,672.76
Philippine Education Co., Inc.
3,695.20
Hamilton-Brown Shoe Co.
2045.00
Estrella del Norte
2,014.45
Eastern and Philippine Shipping Agencies, Ltd.
470.38
So ordered without special pronouncement as to costs.
FIRST DIVISION
[G.R. No. 107554. February 13, 1997]
CEBU INTERNATIONAL FINANCE CORPORATION, petitioner, vs. COURT OF
APPEALS, ROBERT ONG and ANG TAY, respondents.
DECISION
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Revised Rules of Court,
petitioner seeks to set aside the decision of the Court of Appeals in CA-G.R. C.V. No.
26257 dated 2 July 1992 which affirmed the decision of the Regional Trial Court in
Civil Case No. CEB-6919, declaring the chattel mortgage void and ordering
petitioner and private respondent Robert Ong to pay damages to private
respondent Ang Tay. The Court of Appeals' resolution dated 30 September 1992 is
similarly impugned for denying petitioner's motion for reconsideration.
Gleaned from the records are the following facts:
On 4 March 1987, Jacinto Dy executed a Special Power of Attorney[1] in favor of
private respondent Ang Tay, authorizing the latter to sell the cargo vessel owned by
Dy and christened LCT "Asiatic."
On 28 April 1987, through a Deed of Absolute Sale,[2] Ang Tay sold the subject
vessel to private respondent Robert Ong (Ong) for P900,000.00. Ong paid the
purchase price by issuing three (3) checks in the following amounts: P150,000.00,
P600,000.00 and P150,000.00. However, since the payment was not made in cash, it
was specifically stipulated in the deed of sale that the "LCT Asiatic shall not be
registered or transferred to Robert Ong until complete payment."[3] Thereafter, Ong
obtained possession of the subject vessel so he could begin deriving economic
benefits therefrom. He, likewise, obtained copies of the unnotarized deed of sale
allegedly to be shown to the banks to enable him to acquire a loan to replenish his
(Ong's) capital. The aforequoted condition, however, which was handwritten on the
original deed of sale does not appear on Ong's copies.
Contrary to the aforementioned agreements and without the knowledge of Ang Tay,
Ong had his copies of the deed of sale (on which the aforementioned prohibition
Page 124 of 152
does not appear) notarized on 18 May 1987.[4] Ong presented the notarized deed
to the Philippine Coast Guard which subsequently issued him a Certificate of
Ownership[5] and a Certificate of Philippine Register[6] over the subject vessel on 27
May 1987. Ong also succeeded in having the name of the vessel changed to LCT
"Orient Hope." Scslx
On 29 October 1987, Ong acquired a loan from petitioner in the amount of
P496,008.00 to be paid in installments as evidenced by a promissory note of even
date.[7]
As security for the loan, Ong executed a chattel mortgage over the subject vessel,[8]
which mortgage was registered with the Philippine Coast Guard and annotated on
the Certificate of Ownership.[9] In paragraph 3 of the Deed of Chattel Mortgage, it
was stated that:
3. The said sum of FOUR HUNDRED NINETY SIX THOUSAND EIGHT ONLY Pesos
(P496 008.00) represents the balance due on the purchase price of the above-
described property purchased by the MORTGAGOR(S) from the MORTGAGEE and is
payable in the office of the MORTGAGEE at Cebu City or in the office of the latter's
assignee, in case the rights and interests of the MORTGAGEE in the foregoing
mortgage are assigned to a third person, under the terms of said promissory note,
as follows: (a) TWENTY THOUSAND SIX HUNDRED SIXTY SEVEN ONLY** Pesos
(P20,667.00) on or before . . . and (b) the balance in Twenty Four (24) equal
successive monthly installments on the . . . day of each and every succeeding month
thereafter until the amount is fully paid. The interest on the foregoing installments
shall be paid on the same date that the installments become payable and additional
interest at the rate of fourteen (14%) per cent per annum will be charged on all
amounts, principal and interest, not paid on due date.[10] (Underscoring ours.)
Ong defaulted in the payment of the monthly installments. Consequently, on 11
May 1988, petitioner sent him a letter[11] demanding delivery of the mortgaged
vessel for foreclosure or in the alternative to pay the balance of P437,802.00
pursuant to paragraph 11 of the deed of chattel mortgage.[12]
Meanwhile, the two checks (worth P600,000.00 and P150,000.00) paid by Ong to
Ang Tay for the Purchase of the subject vessel bounced. Ang Tay's search for the
elusive Ong and all attempts to confer with him proved to be futile. A subsequent
investigation and inquiry with the Office of the Coast Guard revealed that the
subject vessel was already in the name of Ong, in violation of the express
undertaking contained in the original deed of sale.
As a result thereof, on 13 January 1988, Ang Tay and Jacinto Dy filed a civil case for
rescission and replevin with damages against Ong and his wife (docketed as Civil
Case No. CEB-6565) with the Regional Trial Court of Cebu City, Branch 10. The trial
court issued a writ of replevin and the subject vessel was seized and subsequently
delivered to Ang Tay.
On 9 March 1988, petitioner filed a motion for intervention but withdrew the same
on 29 April 1988. Instead, on 26 May 1988, petitioner filed a separate case for
replevin and damages against Ong and "John Doe" (Ang Tay) with the same trial
court, docketed as Civil Case No. CEB-6919.
The trial court granted petitioner's prayer for replevin. The vessel was seized and
placed in the custody of the trial court. However, Ang Tay posted a counterbond
and the vessel was returned to his possession.
On 3 October 1990 in CEB-6565, the trial court rendered a decision in favor of Ang
Tay and Jacinto Dy. The sale of the subject vessel was rescinded, the registration of
the vessel with the Office of the Coast Guard and other government agencies in
Ong's name nullified and the vessel's registration in Dy's name revived. Ong was,
likewise, ordered to pay Jacinto Dy and Ang Tay actual damages for lost income,
moral damages, attorney's fees and litigation expenses.[13]
The Court of Appeals affirmed the trial court's decision and Ong's petition for
review before this Court was dismissed for lack of merit in a resolution dated 15
March 1993.
On the other hand, in CEB-6919, the subject of the present appeal, the trial court in
a decision dated 14 February 1990, declared the chattel mortgage on the subject
vessel null and void and ordered petitioner and Ong to pay Ang Tay damages. The
dispositive portion states, thus:
WHEREFORE, in view of all the foregoing, the chattel mortgage on the vessel LCT
ORIENT HOPE is declared null and void, rendering its annotation and registration at
the back of the Certificate of Ownership and Certificate of Philippine Registry
respectively, to be of no force and effect.
Plaintiff CIFC and defendant Robert Ong are hereby ordered to pay jointly and
severally to defendant Ang Tay the following amounts: P50,000.00 as unrealized
income during the five-day period when the vessel was taken from Ang Tay's
possession; P100,000.00, representing the premiums Ang Tay paid for the redelivery
of the vessel to him and other expenses; P10,000.00 as actual expenses for the
recovery of the vessel; P100,000.00 as moral damages; P50,000.00 as exemplary
damages; P40,000.00 as actual expenses in attending trials and litigation expenses;
and P30,000.00 as attorney's fees.
SO ORDERED.[14]
On 2 July 1992, the Court of Appeals affirmed in toto the abovementioned
decision.[15] Hence, the present petition for review on certiorari.
Petitioner enumerates the alleged errors of the Court of Appeals as follows:
CRED TRANS Pledge, Mortgage Antichresis Fulltext
I
THE COURT OF APPEALS ERRED IN BASING ITS DECISION ON SPECULATION,
CONJECTURE, AND SURMISE, WHEN IT DECLARED THAT THE CONTRACT BETWEEN
CIFC AND ROBERT ONG WAS ONE OF SALE, AND NOT LOAN (MUTUUM) WITH
MORTGAGE.
II
THE RULING OF THE COURT OF APPEALS IS CONTRARY TO EXISTING AND WELL-
SETTLED JURISPRUDENCE THAT A MORTGAGEE HAS THE RIGHT TO RELY ON WHAT
APPEARS IN THE CERTIFICATE OF OWNERSHIP (TITLE).
III
THE DECISION OF THE COURT OF APPEALS IS REPUGNANT TO THE CLEAR RULING
OF THE HONORABLE COURT THAT BETWEEN TWO INNOCENT PERSONS, THE ONE
WHO MADE THE DAMAGE POSSIBLE BY HIS ACT OF CONFIDENCE MUST BEAR THE
LOSS.[16]
We grant the petition.
In upholding the nullity of the chattel mortgage on the subject vessel, the Court of
Appeals declared thus:
In Par. 3 of the Chattel Mortgage Contract executed between appellants CIFC and
Robert Ong, it was made to appear that the subject vessel was sold by the plaintiff
Cebu International Finance Corporation to Robert Ong on installment. However,
there is no showing that appellant CIFC acquired the vessel in question from either
Jacinto Dy or Ang Tay, the owner of such vessel. Since, CIFC appears to have sold
the vessel in question to Ong on installment basis, the said contract is null and void,
because CIFC was never the owner of the vessel.
Moreover, Robert Ong, CIFC's mortgagor, did not acquire ownership of the vessel
because of an express stipulation in the Deed of Sale that the vessel "shall not be
registered or transferred to Robert Ong until complete payment." (Exh. "7-C-1".)
Since Ong clearly was not the owner of the vessel at the time of the execution of the
mortgage, the said mortgage is null and void on that ground.
Furthermore, the evidence on record shows the chattel mortgage in question did
not comply with the requirements of P.D. 1521, The Ship Mortgage Decree of 1978 .
. . [17]
The Court of Appeals nullified the chattel mortgage contract between petitioner and
Ong because paragraph 3 of the said contract (where it appeared that petitioner
sold the subject vessel to Ong on installment basis and that the amount supposedly
loaned to Ong represented the balance due on the purchase price) seemed to
indicate that the owner of the vessel mortgaged was petitioner although it had
been duly established that another party (Jacinto Dy) was the true owner
thereof.[18]
We disagree with the aforequoted ruling of the Court of Appeals. The chattel
mortgage contract should not be viewed in such a myopic context. The key lies in
the certificate of ownership issued in Ong's name (which, along with the deed of
sale, he submitted to petitioner as proof that he is the owner of the ship he gave as
security for his loan). It was plainly stated therein that the ship LCT "Orient Hope" ex
"Asiatic," by means of a Deed of Absolute Sale dated 28 April 1987, was "sold and
transferred by Jacinto Dy to Robert Ong."[19] There can be no dispute then that it
was Dy who was the seller and Ong the buyer of the subject vessel. Coupled with
the fact that there is no evidence of any transaction between Jacinto Dy or Ang Tay
and petitioner, it follows, therefore, that petitioner's role in the picture is properly
and logically that of a creditor-mortgagee and not owner-seller. It is paragraph 2 of
the mortgage contract[20] which accurately expresses the true nature of the
transaction between petitioner and Ong -- that it is a simple loan with chattel
mortgage. The amount petitioner loaned to Ong does not represent the balance of
any purchase price since, as we have previously discussed, the aforementioned
documents state that Ong is already the absolute owner of the subject vessel.
Obviously, therefore, paragraph 3 of the said contract was filled up by mistake.
Considering that petitioner used a form contract, it is not improbable that such an
oversight may have been committed -- negligently but unintentionally and without
malice. As testified to by Mr. Benjamin C. Alfaro, petitioner's Senior Vice President
for Operations they only use one form for several kinds of transaction:
ATTY. UY: (TO WITNESS)
Q: Mr. Alfaro, as a financing institution, Cebu International Finance Corporation, how
many kinds of lending transaction do you have in a firm? Do you have financing,
leasing, discounting or whatever? Can you explain briefly to the Honorable Court?
WITNESS:
A: We have direct loan transaction. We have financing transaction and we have
leasing transaction. Now, in the leasing transaction, the document will show that we
are the owner of the equipment and we leased it out. In the financing transaction,
where we used the same Chattel Mortgage instrument, there are three parties
involved, the seller of the equipment. And then, the seller of the equipment would
sell or assign the contract with the financing company. That is the financing
transaction. And in the simple loan transaction, there appears only two parties
involved, the borrower and the lender.
ATTY. UY: (TO WITNESS)
Page 125 of 152
Q: Now, Mr. Alfaro, the same document, Chattel Mortgage will apply also to
financing transaction, leasing transaction and simple loan transaction?
WITNESS:
A: Simple loan and financing transactions.
ATTY. UY: (TO WITNESS)
Q: Now, Mr. Alfaro, this paragraph 2 of Chattel Mortgage, can this apply to a
financing transaction?
WITNESS:
A: No, the paragraph 3 will be the one that is applicable to a financing transaction.
(Witness reading the document and after reading continued) Paragraph 2 applies to
both financing and simple loan transaction.Scslx
ATTY. UY:
Q: And paragraph 3?
WITNESS:
A: Paragraph 3 applies to both financing and lending transactions but paragraph 3
does not apply to simple lending transaction.
xxx [21]
ATTY. LOGRONIO: (TO WITNESS)
Q: You do not affirm the assertion made by your counsel that paragraph 3 arise only
in case that your rights to a mortgage were assigned by you to a third person, do
you agree that also?
WITNESS:
A: This form of chattel mortgage, in fact, you will notice that the portion for
mortgagor and mortgagee are all blank because this is the same form which is used
by the company, used for the parties when there is a dealer involved, when there is
installment buyer involved and when we come in as third party purchaser of the
document because as practiced by the different dealer, this is the same form used
between the buyer and the dealer of the motor vehicle. After this is being
consummated already, it is assigned to a finance company and these are the same
documents used. Now, in this particular case, this becomes already . . . this is a
direct transaction between the finance company and the borrower. We, the finance
company becomes the direct lender and Mr. Ong became the direct borrower. As I
explained earlier, this document is also the form used between a dealer of a motor
vehicle and an installment buyer wherein after paying the down payment, the
unpaid balance which is secured by the chattel mortgage, the promissory note, and
the disclosure statement and this document is sold to a third party and that is the
finance company by the dealer.Scslx
ATTY. LOGRONIO:
Q: Up to this point, when you had the transaction with Mr. Ong, this form that you
executed, the Chattel Mortgage was in what kind of form that was already used by
the company?
WITNESS:
A: These are forms available to us.
ATTY. LOGRONIO:
Q: This is a form used when there is a buyer and a . . .
WITNESS:
A: Third party or direct borrowing lender.
ATTY. LOGRONIO:
Q: And this refers to a direct borrower or lending transaction?
WITNESS:
A: Yes.
ATTY. LOGRONIO:
Q: No third party assignment has been involved so far?
WITNESS:
A: No.
xxx [22]
Accordingly, the chattel mortgage contract between petitioner and Ong is valid and
subsisting.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
The next issue for our determination is whether or not petitioner is a mortgagee in
good faith whose lien over the mortgaged vessel should be respected.
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 or transferee
in good faith is nonetheless entitled to protection.[23] Although this rule generally
pertains to real property, particularly registered land, it may also be applied by
analogy to personal property, in this case specifically, since shipowners are, likewise,
required by law to register their vessels with the Philippine Coast Guard.
Private respondent Ang Tay, however, contends that the aforementioned rule does
not apply in the case at bar in the face of the numerous "badges of bad faith" on
the part of petitioner.
Capitalizing on paragraph 3 of the chattel mortgage contract, Ang Tay argues as
follows:
. . . The fraud and conspiracy by Robert Ong and some responsible employees of
CIFC against Jacinto Dy and Ang Tay are thus brought to the open by this
stipulation. Since CIFC appears in the registered chattel mortgage to have sold the
vessel in question to Robert Ong, the said contract is null and void because CIFC
never for a second or a moment became the owner of the vessel. CIFC was the one
who prepared the chattel mortgage and the one who registered the same without
contemporaneous or subsequent correction or modification; it cannot, after it
notified the public by means of registration that it acquired the vessel and became
its owner, now shy away from a stipulation which is the heart and nerve-center of
the contract and which it made and registered. This is both the essence and
consequence of estoppel. Applicable is Article 1459 of the Civil Code which provides
inter alia: ". . . the vendor must have a right to transfer the ownership thereof (the
thing sold) at the time it is delivered."
2. Robert Ong, CIFC's mortgagor, did not acquire ownership of the vessel because
of an express stipulation which he signed that the vessel "shall not be registered or
transferred to Robert Ong until complete payment." (Exh. "7-C-1".) This stipulation is
expressly covered by Article 1478 of the Civil Code: "The parties may stipulate that
ownership in the thing shall not pass to the purchaser until he has fully paid the
price." Since Ong clearly was not the owner of the vessel at the time of the
execution of the mortgage, the said mortgage is null and void on that ground.[24]
Scslx
Ang Tay's contentions are unmeritorious. As previously discussed, paragraph 3 of
the chattel mortgage contract was erroneously but unintentionally filled up. The
failure of petitioner to exercise due care in filling up the necessary provisions in the
chattel mortgage contract does not, however, amount to bad faith. It was a mere
oversight and not a deliberate and malicious act.
Petitioner's bad faith is further demonstrated, Ang Tay avers, by its failure to comply
with the following requirements of P.D. No. 1521 or the Ship Mortgage Decree of
1978:
1) The loan secured by the mortgaged vessel was not for any of purposes specified
in Sec. 2 of P.D. No. 1521, i.e., "financing the construction, acquisition, purchase of
vessels or initial operation of vessels"[25] and that petitioner failed to furnish the
Central Bank a copy of the mortgage;[26]
2) The special affidavit of good faith required in Sec. 4 of P.D. No. 1521 was lacking;
and
3) Ong failed to disclose his creditors and lienors as provided in Sec. 6 of P.D. No.
1521.
There is no merit in private respondent's allegations. In the 9 November 1989
hearing, Ang Tay confirmed his statement in his affidavit, executed in Civil Case No.
CEB-6565, that Ong wanted to obtain a loan to replenish his capital because he had
used up his money in the purchase of the subject vessel[27] and that the ship was
delivered to Ong so that he could begin deriving economic benefits therefrom.[28]
Mr. Randolph Veloso, petitioner's collector, processing clerk, credit investigator and
appraiser, further testified as follows:
xxx
Q: Do you know the purpose for that loan
A: Yes.
Q: What was his purpose?
A: He was going to mortgage the vessel to us.
Q: What was the purpose of the loan?
A: We don't usually ask our client what they will do with it.
Q: You don't ask the purpose?
A: It is understood that whenever a client approach the institution he usually has a
purpose for the money.
Page 126 of 152
Q: Did not the corporation was what need has he for the money?
A: He is going to use it for his business in the boat.
Q: And that is his only statement? What was his specific statement?
ATTY. UY:
Already answered. He will use it in the business of his boat.
ATTY. LOGRONIO:
What was the purpose.
ATTY. UY:
Already answered Your Honor and besides it is immaterial.
ATTY. LOGRONIO:
Very material and it is important Your Honor as there is a violation of the law. I am
entitled to insist for the answer.
COURT:
Witness may answer, if he knows.
(TO WITNESS)
Q: Did he tell you what was the purpose?
A: For the business of the boat.
ATTY. LOGRONIO: (TO WITNESS)
Q: That's all, that he is going to use the money for the business of the boat?
A: Yes.
xxx [29]
From the foregoing, therefore, it can be readily deduced that the loan was for the
initial operation of the subject vessel and thus falls under the purposes laid down in
the Ship Mortgage Decree.
The special affidavit of good faith, on the other hand, is required only for the
purpose of transforming an already valid mortgage into a "preferred mortgage."[30]
Thus, the abovementioned affidavit is not necessary for the validity of the chattel
mortgage itself but only to give it a preferred status.
As to the disclosure requirement in Sec. 6 of the Ship Mortgage Decree,[31] it was
intentional on Ong's part not to inform petitioner that he had yet to pay in full the
purchase price of the subject vessel. Ong presented himself to petitioner as the
absolute owner of the LCT "Orient Hope" ex "Asiatic." The Certificate of Ownership
in Ong's name showed that the ship was conveyed to him by means of a Deed of
Absolute Sale which gave the idea that the purchase price had been fully paid and
the sale completed.
Petitioner had every right to rely on the Certificate of Ownership and Certificate of
Philippine Register duly issued by the Philippine Coast Guard in Ong's name.
Petitioner had no reason to doubt Ong's ownership over the subject vessel. The
documents presented by Ong, upon petitioner's insistence before accepting the
said vessel as loan security, were all in order and properly issued by the duly
constituted authorities. There was no circumstance that might have aroused
petitioner's suspicion or alerted it to any infirmity committed by Ong. It had no
participation in and was not privy to the sale transaction between Jacinto Dy
(through Ang Tay) and Ong. Petitioner, thus, had no obligation to undertake further
investigation since it had the necessary documents to prove Ong's ownership. In
addition, petitioner even took pains to inspect the subject vessel which was in Ong's
possession. Mr. Benjamin C. Alfaro testified thus:
xxx
ATTY. LOGRONIO:
Q: In your credit investigation of Mr. Robert Ong, did you have a chance yourself or
any of your employees to verify the condition and the location of the vessel at the
very time?
WITNESS:
A: Yes.
ATTY. LOGRONIO:
Q: Will you tell the Court where was the vessel at the time that he applied for a loan
with your bank?
WITNESS:
A: It was under finishing touches in the drydock in . . . I think in Lapulapu or
Mandaue.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
ATTY. LOGRONIO:
Q: So, more or less, you are sure that at the time that he applied for a loan and you
approved the same, this vessel was still at the drydock?
WITNESS:
A: Yes, finishing touches. In fact, it had pictures to support the application. I don't
know if we have it now.
ATTY. UY:
We have. (Counsel producing a picture of a vessel and handing it to the witness).
WITNESS: (Cont.)
This is the picture of the vessel because we required him to submit.
ATTY. LOGRONIO
Q: You are referring to the picture which you asked the Court to mark as Exhibit . . .
ATTY. UY:
No, we are requesting now Your Honor. This has not been marked yet. We asked
that the picture showing the back portion of the vessel, Orient Hope be marked as
Exhibit 'I' and the picture showing the front portion of the vessel as Exhibit 'I-1"
COURT: (TO INTERPRETER)
Mark it.
ATTY. LOGRONIO: (TO WITNESS)
Q: So, at the time that the vessel was submitted to you as collateral for the loan, the
condition of the vessel was as it is reflected in this exhibit? (Cross-examiner referring
to the picture).
WITNESS:
A: Yes.
xxx [32]
Anent the last issue, although Ang Tay may also be an innocent person, a similar
victim of Ong's fraudulent machinations, it was his act of confidence which led to
the present fiasco. Ang Tay readily agreed to execute a deed of absolute sale in
Ong's favor even though Ong had yet to make a complete payment of the purchase
price. It is true that in the copy of the said deed submitted in evidence by Ang Tay
there was an undertaking that ownership will not vest in Ong until full payment.[33]
However, Ong was able to obtain several copies of the deed[34] with Ang Tay's
signature and had these notarized without the aforementioned undertaking, as
evidenced by the copy of the deed of sale presented by petitioner.[35] The Deed of
Absolute Sale consisted of two (2) pages. The signatures of Ang Tay and Ong
appeared only on the first page of the deed. The second page contained the
continuation of the acknowledgment and the undertaking. Ong could have easily
reproduced the second page without the undertaking since this page was not
signed by the contracting parties. To complete the deception, Ang Tay unwittingly
allowed Ong to have possession of the ship. Hence, in consonance with our ruling
that:
. . . as between two innocent persons, the mortgagee and the owner of the
mortgaged property, one of whom must suffer the consequence of a breach of
trust, the one who made it possible by his act of confidence must bear the loss.[36]
it is Ang Tay and his principal Jacinto Dy, who must, unfortunately, suffer the
consequences thereof. They are considered bound by the chattel mortgage on the
subject vessel.
WHEREFORE, this Court GRANTS the Petition for Review and REVERSES the
questioned decision and resolution of the Court of Appeals. The validity of the
chattel mortgage on the vessel LCT ORIENT HOPE is hereby upheld without
prejudice to whatever legal remedies private respondent Ang Tay may have against
private respondent Robert Ong in the premises.
SO ORDERED.
EN BANC
G.R. No. L-13194 January 29, 1960
BUENAVENTURA T. SALDANA, plaintiff-appellant,
vs.
PHILIPPINE GUARANTY COMPANY, INC., et al., defendants-appellees.
Gatchalian & Padilla for appellant.
Emiliano Tabasondra for appellee Company.Teodoro Padilla for the other appellees.
REYES, J.B.L., J.:
Page 127 of 152

This case arose from a complaint for damages filed by Buenaventura Saldana
(docketed as Civil Case No. 32703 of the Court of First Instance of Manila) that was
dismissed by order of the Court dated August 20, 1957, for lack of sufficient cause
of action. In another order of September 30, 1957 of the same court, plaintiff's
motion for reconsideration was denied, and the case was appealed to this Court.
The facts are that on May 8, 1953, in order to secure an indebtedness of P15,000.00,
Josefina Vda. de Aleazar executed in favor of the plaintiff-appellant Buenaventura
Saldana a chattel mortgage covering properties described as follows:
A building of strong materials, used for restaurant business, located in front of the
San Juan de Dios Hospital at Dewey Boulevard, Pasay City, and the following
personal properties therein contained:
1 Radio, Zenith, cabinet type.
1 Cooler.
1 Electric range, stateside, 4 burners.
1 Frigidaire, 8 cubic feet.
1 G.E. Deepfreezer.
8 Tables, stateside.
32 Chromium chairs, stateside.
1 Sala set upholstered, 6 pieces.
1 Bedroom set, 6 pieces.
And all other furniture's, fixtures or equipment found in the said premises.
Subsequent to the execution of said mortgage and while the same was still in force,
the defendant Hospital de San Juan de Dios, Inc. obtained, in Civil Case No. 1930 of
the Municipal Court of Pasay City, a judgment was duly Josewfina Vda. de Eleazar. A
writ of execution was duly issued and, on January 28, 1957, the same was served on
the judgment debtor by the sheriff of Pasay City; whereupon the following
properties of Josefina Eleazar were levied upon:
8 Tables with 4 (upholstered) chairs each.
1 Table with 4 (wooden) chairs.
1 Table (large) with 5 chairs.
1 Radio-phono (Zenith, 8 tubes).
2 Showcases (big, with mirrors).
1 Rattan sala set with 4 chairs, 1 table and 3 sidetables .
1 Wooden drawer.
1 Tocador (brown with mirror).
1 Aparador .
2 Beds (single type).
1 Freezer (deep freeze).
1 Gas range (magic chef, with 4 burners).
1 Freezer (G.E.).
On January 31, 1957, the plaintiff-appellant Saldana filed a third-party claim
asserting that the above-described properties levied are subject to his chattel
mortgage of May 8, 1953. In virtue thereof, the sheriff released only some of the
property originally included in the levy of January 28, 1957, to wit:
1 Radio, Zenith, cabinet type.
8 Tables, stateside.
32 Chromiun chairs, stateside.
1 G.E. Deep freezer.
To proceed with the execution sale of the rest of the properties still under levy, the
defendants-appellees Hospital de San Juan de Dios, Inc. and the Philippine Guaranty
Co., Inc., executed an indemnity bond to answer for any damages that plaintiff
might suffer. Accordingly, on February 13, 1957, the said properties were sold to the
defendant hospital as the highest bidder, for P1,500.00.
Appellants claims that the phrase in the chattel mortgage contract "and all other
furnitures, fixtures and equipment found in the said premises", validly and
sufficiently covered within its terms the personal properties disposed of in the
auction sale, as to warrant an action for damages by the plaintiff mortgagee.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
There is merit in appellant's contention. Section 7 of Act No. 1508, commonly and
better known as the Chattel Mortgage Law, does not demand a minute and specific
description of every chattel mortgaged in the deal of mortgage but only requires
that the description of the properties be such "as to enable the parties in the
mortgage, or any other person, after reasonable inquiry and investigation to identify
the same". Gauged by this standard, general description have been held by this
Court. (See Stockholder vs. Ramirez, 44 Phil., 993; Pedro de Jesus vs. Guam Bee Co.,
Inc., 72 Phil., 464).
A similar rule obtains in the United States courts and decisions there have
repeatedly upheld clauses of general import in mortgages of chattels other than
goods for trade, and containing expressions similar to that of the contract now
before us. Thus, "and all other stones belonging to me and all other goods and
chattels" (Russel vs. Winne, 97 Am. Dec. 755); "all of the property of the said W.W.
Allen used or situated upon the leased premises" (Dorman vs. Crooks State Bank, 64
A.L.R. 614); "all goods in the store where they are doing business in E. City, N.C."
(Davis vs. Turner, 120 Fed. 605); "all and singular the goods, wares, stock, iron tools
manufactured articles and property of every description, being situated in or about
the shop or building now occupied by me in Howley Stree" (Winslow vs. Merchants
Ins. Co., 38 Am. Dec. 368,) were held sufficient description, on the theory that parol
evidence could supplement it to render identification rule is expressed in Walker vs.
Johnson (Mont.) 1254 A.L.R. 937:
The courts and textbook writers have developed several rules for determination of
the sufficiency of the description in a chattel mortgage. The rules are general in
nature and are different where the controversy is between the parties to the
mortgage from the situation where third parties with out actual notice come in. In
11 C.J. 457, it is said: "Ad against third persons the description in the mortgage must
point out its subject matter so that such person may identify the chattels observed,
but it is not essential that the description be so specific that the property may be
identified by it alone, if such description or means of identification which, if pursued
will disclose the property conveyed." In 5 R.C.L. 423 the rule is stated that a
description which will enable a third person, aided by inquires which the instrument
itself suggest to identify the property is sufficiently definite." In 1 Jones on Chattel
Mortgages and Conditional Sales, Bowers Edition, at page 95 the writer says: "As to
them (third persons), the description is sufficient if it points to evidence whereby the
precise thing mortgaged may be ascertained with certainty." Here there is nothing
in the description "873 head of sheep" from which anyone, the mortgagee or third
persons, could ascertain with any certainty what chattels were covered by the
mortgage.
In many instances the courts have held the description good where, though
otherwise faulty, the mortgage explicity states that the property is in the possession
of the mortgagor, and especially where it is the only property of that kind owned by
him.
The specifications in the chattel mortgage contract in the instant case, we believe, in
substantial compliance with the "reasonable description rule" fixed by the chattel
Mortgage Act. We may notice in the agreement, moreover, that the phrase in
question is found after an enumeration of other specific articles. It can thus be
reasonably inferred therefrom that the "furnitures, fixture and equipment" referred
to are properties of like nature, similarly situated or similarly used in the restaurant
of the mortgagor located in front of the San Juan de Dos Hospital at Dewey
Boulevard, Pasay City, which articles can be definitely pointed out or ascertain by
simple inquiry at or about the premises. Note that the limitation found in the last
paragraph of section 7 of the Chattel Mortgage Law1 on "like or subsituated
properties" make reference to those "thereafter acquired by the mortgagor and
placed in the same depository as the property originally mortgaged", not to those
already existing and originally included at the date of the constitution of the chattel
mortgage. A contrary view would unduly impose a more rigid condition than what
the law prescribes, which is that the description be only such as to enable
identification after a reasonable inquiry and investigation.
The case of Giberson vs. A.N. Jureidini Bros., 44 Phil., 216, 219, cited by the appellees
and the lower court, cannot be likened to the case at bar, for there, what were
sought to be mortgaged included two stores wit all its merchandise, effects, wares,
and other bazar goods which were being constantly disposed of and replaced with
new supplies in connection with the business, thereby making any particular or
definite identification either impractical or impossible under the circumstances.
Here, the properties deemed overed were more or less fixed, or at least permanently
situated or used in the premises of the mortgagor's restaurant.
The rule in the Jureidini case is further weakened by the court's observation that (44
Phil., p. 220)
Moreover, if there should exist any doubts on the questions we have just discussed,
they should be treshed out in the insolvency proceedings,
which appears inconsistent with the definitive character of the rulings invoked.
We find that the ground for the appealed order (lack of cause of action) does not
appear so indubitable as to warrant a dismissal of the action without inquiry into the
merits and without the description in the deed of mortgage (Nico vs. Blanco, 81
Phil., 213; Zobel vs. Abreau, 52 Off. Gaz., 3592).
Wherefore, the orders appealed from are set aside and the case remanded to the
lower court for further proceedings. Costs against appellee.
THIRD DIVISION
Page 128 of 152

G.R. No. 106435 July 14, 1999
PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES
and HIRAM DIDAY R. PULIDO, petitioners,
vs.
HON. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES,
respondents.
GONZAGA-REYES, J.:
Before Us for review on certiorari is the decision of the respondent Court of Appeals
in C.A. G.R. C.V. No. 27861, promulgated on April 23, 1992, 1 affirming in toto the
decision of the Regional Trial Court of Makati 2 to a award respondent bank's
deficiency claim, arising from a loan secured by chattel mortgage.
The antecedents of the case are as follows:
On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA)
obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00 from
respondent Bank. By virtue of this loan, petitioner PAMECA, through its President,
petitioner Herminio C. Teves, executed a promissory note for the said amount,
promising to pay the loan by installment. As security for the said loan, a chattel
mortgage was also executed over PAMECA's properties in Dumaguete City,
consisting of inventories, furniture and equipment, to cover the whole value of the
loan.
On January 18, 1984, and upon petitioner PAMECA's failure to pay, respondent bank
extrajudicially foreclosed the chattel mortgage, and, as sole bidder in the public
auction, purchased the foreclosed properties for a sum of P322,350.00. On June 29,
1984, respondent bank filed a complaint for the collection of the balance of
P4,366,332.46 3 with Branch 132 of the Regional Trial Court of Makati City against
petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA
under the promissory note.
On February 8, 1990, the RTC of Makati rendered a decision on the case, the
dispositive portion of which we reproduce as follows:
WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly
and severally plaintiff the (1) sum of P4,366,332.46 representing the deficiency claim
of the latter as of March 31, 1984, plus 21% interest per annum and other charges
from April 1, 1984 until the whole amount is fully paid and (2) the costs of the suit.
SO ORDERED." 4
The Court of Appeals affirmed the RTC decision. Hence, this Petition.
The petition raises the following grounds:
1. Respondent appellate court gravely erred in not reversing the decision
of the trial court, and in not holding that the public auction sale of petitioner
PAMECA's chattels were tainted with fraud, as the chattels of the said petitioner
were bought by private respondent as sole bidder in only 1/6 of the market value of
the property, hence unconscionable and inequitable, and therefore null and void.
2. Respondent appellate court gravely erred in not applying by analogy
Article 1484 and Article 2115 of the Civil Code by reading the spirit of the law, and
taking into consideration the fact that the contract of loan was a contract of
adhesion.
3. The appellate court gravely erred in holding the petitioners Herminio
Teves, Victoria Teves and Hiram Diday R. Pulido solidarily liable with PAMECA Wood
Treatment Plant, Inc. when the intention of the parties was that the loan is only for
the corporation's benefit.
Relative to the first ground, petitioners contend that the amount of P322,350.00 at
which respondent bank bid for and purchased the mortgaged properties was
unconscionable and inequitable considering that, at the time of the public sale, the
mortgaged properties had a total value of more than P2,000,000.00. According to
petitioners, this is evident from an inventory dated March 31, 1980 5, which valued
the properties at P2,518,621.00, in accordance with the terms of the chattel
mortgage contract 6 between the parties that required that the inventories "be
maintained at a level no less than P2 million". Petitioners argue that respondent
bank's act of bidding and purchasing the mortgaged properties for P322,350.00 or
only about 1/6 of their actual value in a public sale in which it was the sole bidder
was fraudulent, unconscionable and inequitable, and constitutes sufficient ground
for the annulment of the auction sale.
To this, respondent bank contends that the above-cited inventory and chattel
mortgage contract were not in fact submitted as evidence before the RTC of Makati,
and that these documents were first produced by petitioners only when the case
was brought to the Court of Appeals. 7 The Court of Appeals, in turn, disregarded
these documents for petitioners' failure to present them in evidence, or to even
allude to them in their testimonies before the lower courtr. 8 Instead, respondent
court declared that it is not at all unlikely for the chattels to have sufficiently
deteriorated as to have fetched such a low price at the time of the auction sale. 9
Neither did respondent court find anything irregular or fraudulent in the
circumstance that respondent bank was the sole bidder in the sale, as all the legal
procedures for the conduct of a foreclosure sale have been complied with, thus
giving rise to the presumption of regularity in the performance of public duties. 10
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Petitioners also question the ruling of respondent court, affirming the RTC, to hold
private petitioners, officers and stockholders of petitioner PAMECA, liable with
PAMECA for the obligation under the loan obtained from respondent bank, contrary
to the doctrine of separate and distinct corporate personality. 11 Private petitioners
contend that they became signatories to the promissory note "only as a matter of
practice by the respondent bank", that the promissory note was in the nature of a
contract of adhesion, and that the loan was for the benefit of the corporation,
PAMECA, alone. 12
Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that
Articles 1484 13 and 2115 14 of the Civil Code be applied in analogy to the instant
case to preclude the recovery of a deficiency claim. 15
Petitioners are not the first to posit the theory of the applicability of Article 2115 to
foreclosures of chattel mortgage. In the leading case of Ablaza vs. Ignacio 16, the
lower court dismissed the complaint for collection of deficiency judgment in view of
Article 2141 of the Civil Code, which provides that the provisions of the Civil Code
on pledge shall also apply to chattel mortgages, insofar as they are not in conflict
with the Chattel Mortgage Law. It was the lower court's opinion that, by virtue of
Article 2141, the provisions of Article 2115 which deny the creditor-pledgee the
right to recover deficiency in case the proceeds of the foreclosire sale are less than
the amount of the principal obligation, will apply.
This Court reversed the ruling of the lower court and held that the provisions of the
Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage,
being contrary to the provisions of Article 2115, Article 2115, in relation to Article
2141, may not be applied to the case.
Sec. 14 of Act No. 1508, as amended, or the chattel Mortgage Law, states:
xxx xxx xxx
The officer making the sale shall, within thirty days thereafter, make in writing a
return of his doings and file the same in the office of the Registry of Deeds where
the mortgage is recorded, and the Register of Deeds shall record the same. The fees
of the officer for selling the property shall be the same as the case of sale on
execution as provided in Act Numbered One Hundred and Ninety, and the
amendments thereto, and the fees of the Register of Deeds for registering the
officer's return shall be taxed as a part of the costs of sale, which the officer shall
pay to the Register of Deeds. The return shall particularly describe the articles sold,
and state the amount received for each article, and shall operate as a discharge of
the lien thereon created by the mortgage. The proceeds of such sale shall be
applied to the payment, first, of the costs and expenses of keeping and sale, and
then to the payment of the demand or obligation secured by such mortgage, and
the residue shall be paid to persons holding subsequent mortgages in their order,
and the balance, after paying the mortgage, shall be paid to the mortgagor or
persons holding under him on demand. (Emphasis supplied).
It is clear from the above provision that the effects of foreclosure under the Chattel
Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas, in
pledge, the sale of the thing pledged extinguishes the entire principal obligation,
such that the pledgor may no longer recover proceeds of the sale in excess of the
amount of the principal obligation, Section 14 of the Chattel Mortgage Law
expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction
of the principal obligation and costs.
Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the
excess of the sale proceeds there is a corollary obligation on the part of the debtor-
mortgagee to pay the deficiency in case of a reduction in the price at public auction.
As explained in Manila Trading and Supply Co. vs. Tamaraw Plantation Co. 17, cited
in Ablaza vs. Ignacio, supra:
While it is true that section 3 of Act No. 1508 provides that "a chattel mortgage is a
conditional sale", it further provides that it "is a conditional sale of personal property
as security for the payment of a debt, or for the performance of some other
obligation specified therein." The lower court overlooked the fact that the chattels
included in the chattel mortgage are only given as security and not as a payment of
the debt, in case of a failure of payment.
The theory of the lower court would lead to the absurd conclusion that if the
chattels mentioned in the mortgage, given as security, should sell for more than the
amount of the indebtedness secured, that the creditor would be entitled to the full
amount for which it might be sold, even though that amount was greatly in excess
of the indebtedness. Such a result certainly was not contemplated by the legislature
when it adopted Act No. 1508. There seems to be no reason supporting that theory
under the provision of the law. The value of the chattels changes greatly from time
to time, and sometimes very rapidly. If for example, the chattels should greatly
increase in value and a sale under that condition should result in largely overpaying
the indebtedness, and if the creditor is not permitted to retain the excess, then the
same token would require the debtor to pay the deficiency in case of a reduction in
the price of the chattels between the date of the contract and a breach of the
condition.
Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors
on the question of chattel mortgages, have said, that "in case of a sale under a
foreclosure of a chattel mortgage, there is no question that the mortgagee or
creditor may maintain an action for the deficiency, if any should occur." And the.
fact that Act No. 1508 permits a private sale, such sale is not, in fact, a satisfaction of
the debt, to any greater extent than the value of the property at the time of the sale.
The amount received at the time of the sale, of course, always requiring good faith
Page 129 of 152
and honesty in the sale, is only a payment, pro tanto, and an action may be
maintained for a deficiency in the debt.
We find no reason to disturb the ruling in Ablaza vs Ignacio, and the cases
reiterating it. 18
Neither do We find tenable the application by analogy of Article 1484 of the Civil
Code to the instant case. As correctly pointed out by the trial court, the said article
applies clearly and solely to the sale of personal property the price of which is
payable in installments. Although Article 1484, paragraph (3) expressly bars any
further action against the purchaser to recover an unpaid balance of the price,
where the vendor opts to foreclose the chattel mortgage on the thing sold, should
the vendee's failure to pay cover two or more installments, this provision is
specifically applicable to a sale on installments.
To accommodate petitioners' prayer even on the basis of equity would be to
expand the application of the provisions of Article 1484 to situations beyond its
specific purview, and ignore the language and intent of the Chattel Mortgage Law.
Equity, which has been aptly described as "justice outside legality", is applied only in
the absence of, and never against, statutory law or judicial rules of procedure. 19
We are also unable to find merit in petitioners' submission that the public auction
sale is void on grounds of fraud and inadequacy of price. Petitioners never assailed
the validity of the sale in the RTC, and only in the Court of Appeals did they attempt
to prove inadequacy of price through the documents, i.e., the "Open-End Mortgage
on Inventory" and inventory dated March 31, 1980, likewise attached to their
Petition before this Court. Basic is the rule that parties may not bring on appeal
issues that were not raised on trial.
Having nonetheless examined the inventory and chattel mortgage document as part
of the records, We are not convinced that they effectively prove that the mortgaged
properties had a market value of at least P2,000,000.00 on January 18, 1984, the
date of the foreclosure sale. At best, the chattel mortgage contract only indicates
the obligation of the mortgagor to maintain the inventory at a value of at least
P2,000,000.00, but does not evidence compliance therewith. The inventory, in turn,
was as of March 31, 1980, or even prior to April 17, 1980, the date when the parties
entered into the contracts of loan and chattel mortgage, and is far from being an
accurate estimate of the market value of the properties at the time of the
foreclosure sale four years thereafter. Thus, even assuming that the inventory and
chattel mortgage contract were duly submitted as evidence before the trial court, it
is clear that they cannot suffice to substantiate petitioners' allegation of inadequacy
of price.1wphi1.nt
Furthermore, the mere fact that respondent bank was the sole bidder for the
mortgaged properties in the public sale does not warrant the conclusion that the
transaction was attended with fraud. Fraud is a serious allegation that requires full
and convincing evidence, 20 and may not be inferred from the lone circumstance
that it was only respondent bank that bid in the sale of the foreclosed properties.
The sparseness of petitioners' evidence in this regard leaves Us no discretion but to
uphold the presumption of regularity in the conduct of the public sale.
We likewise affirm private petitioners' joint and several liability with petitioner
corporation in the loan. As found by the trial court and the Court of Appeals, the
terms of the promissory note unmistakably set forth the solidary nature of private
petitioners' commitment. Thus:
On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT PLANT,
INC., a corporation organized and existing under the laws of the Philippines, with
principal office at 304 El Hogar Filipina Building, San Juan, Manila, promise to pay to
the order of DEVELOPMENT BANK OF THE PHILIPPINES at its office located at
corner Buendia and Makati Avenues, Makati, Metro Manila, the principal sum of
TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY ONE &
67/100 US DOLLARS (US$ 267,881.67) with interest at the rate of three per cent (3%)
per annum over DBP's borrowing rate for these funds. Before the date of maturity,
we hereby bind ourselves, jointly and severally, to make partial payments as follows:
xxx xxx xxx
In case of default in the payment of any installment above, we bind ourselves to pay
DBP for advances . . .
xxx xxx xxx
We further bind ourselves to pay additional interest and penalty charges on loan
amortizations or portion thereof in arrears as follows:
xxx xxx xxx
In addition to the above, we also bind ourselves to pay for bank advances for
insurance premiums, taxes . . .
xxx xxx xxx
We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred
by DBP on the foreign currency borrowings from where the loan shall be drawn . . .
xxx xxx xxx
In case of non-payment of the amount of this note or any portion of it on demand,
when due, or any other amount or amounts due on account of this note, the entire
obligation shall become due and demandable, and if, for the enforcement of the
payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES is constrained to
CRED TRANS Pledge, Mortgage Antichresis Fulltext
entrust the case to its attorneys, we jointly and severally bind ourselves to pay for
attorney's fees as provided for in the mortgage contract, in addition to the legal
fees and other incidental expenses. In the event of foreclosure of the mortgage
securing this note, we further bind ourselves jointly and severally to pay the
deficiency, if any. (Emphasis supplied) 21
The promissory note was signed by private petitioners in the following manner:
PAMECA WOOD TREATMENT PLANT, INC.
By:
(Sgd) HERMINIO G. TEVES
(For himself & as President of above-named corporation)
(Sgd) HIRAM DIDAY PULIDO
(Sgd) VICTORIA V. TEVES 22
From the foregoing, it is clear that private petitioners intended to bind themselves
solidarily with petitioner PAMECA in the loan. As correctly submitted by respondent
bank, private petitioners are not made to answer for the corporate act of petitioner
PAMECA, but are made liable because they made themselves co-makers with
PAMECA under the promissory note.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court
of Appeals dated April 23, 1992 in CA G.R. CV No. 27861 is hereby AFFIRMED. Costs
against petitioners.
SO ORDERED.
EN BANC
G.R. No. L-26860 July 30, 1969
ALBERTA B. CABRAL and RENATO CABRAL, plaintiffs-appellees,
vs.
TEODORA EVANGELISTA, and JUAN N. EVANGELISTA, defendants-appellants,
and GEORGE L. TUNAYA, defendant.
Emilio D. Castellanes for plaintiffs-appellees.
Manuel E. Reyes for defendants-appellants.
TEEHANKEE, J.:
In this appeal from a decision of the Court of First Instance, and certified by the
Court of Appeals to this Court upon agreement of the parties as involving only
questions of law, we reaffirm the well settled principle that the rights of a mortgage
creditor over the mortgaged properties are superior to those of a subsequent
attaching creditor.
On December 12, 1959, defendant George L. Tunaya had executed in favor of
plaintiffs-appellees a chattel mortgage covering a "MORRISON" English piano,
made in England, Concert model, Serial No. 6079 and a Frigidaire General Motors
Electric Stove with four burners and double oven bearing Serial No. 21009298, as
security for payment to the plaintiffs-mortgagees of a promissory note in the sum
of P1,000.00 executed on the same date by said defendant Tunaya with his wife,
Esperanza N. Angeles. The chattel mortgage deed was duly inscribed in the Chattel
Mortgage Register of Rizal province on December 14, 1959. The promissory note,
which provided for payment of 12% interest per annum and of an additional 15% of
the total amount due for attorney's fees and cost of collection was not paid within
the two-month maturity period therein provided.
Meanwhile, defendants-appellants, the Evangelista spouses, obtained on January 4,
1960, a final money judgment against defendant Tunaya in Civil Case No. 5550 of
the Court of First Instance of Rizal. They caused the levy in execution on personal
properties of said defendant Tunaya, including the piano and stove mortgaged to
plaintiffs. The said mortgaged chattels, together with other personal properties of
the judgment debtor, were sold at public auction on June 24, 1960, after the
corresponding notice of sheriff's sale, to the defendants-appellants as the highest
bidders for the total sum of P2,373.00. The judgment credit of defendants-
appellants, as judgment creditors in said Civil Case No. 5550, was considered paid
up to the said amount and the Sheriff of Rizal issued the corresponding certificate
of sale in their favor.
Subsequently, on October 11, 1960, or 8 months after the maturity of Tunaya's
promissory note and his having defaulted in the payment thereof, plaintiffs filed
their complaint in the City Court of Manila against Tunaya and the Evangelista
spouses, alleging the above facts and that the Evangelista spouses had refused their
demands to pay the amount due on Tunaya's promissory note or to exercise their
right of redemption and praying for judgment, ordering the defendants, jointly and
solidarity, to pay them the amounts stipulated on the note, and in case of the failure
to make such payment, to order defendants to deliver to the Sheriff of Manila the
mortgaged chattels for sale at public auction to satisfy their mortgage credit.
The City Court, on November 29, 1960, rendered judgment in favor of plaintiffs
against the mortgage debtor, Tunaya, on confession of the latter, but granted the
motion to dismiss of the defendants Evangelista spouses on the ground of failure to
state a cause of action and dismissed the complaint as against said spouses.
Page 130 of 152

On appeal from the City Court's adverse decision, the court a quo upheld the
superior rights of plaintiffs-appellees as mortgage creditors to the personal
properties in question, holding that defendants-appellants, "being subsequent
judgment creditors in another case, have only the right of redemption." 1 It
therefore rendered the following judgment:
(1) Ordering defendant George L. Tunaya and spouses Teodora Evangelista and
Juan Evangelista, jointly and solidarily, to pay to plaintiff Alberta B. Cabral and
Renato Cabral the sum of P1,000.00, with interest at 12% per annum, plus the costs
of suit and attorney's fees at 15% of the whole amount due conformably to the
provisions of the chattel mortgage deed; and
(2) In the event of their failure to pay, ordering defendants to deliver to the Sheriff
of Manila the properties mortgaged to plaintiffs, for the sheriff to sell the same at
public auction to satisfy the judgment debt.
The counterclaim 2 of defendant Teodora Evangelista and Juan Evangelista is
dismissed.31wph1.t plaintiffs' superior right to foreclose the mortgage and collect the amount due
It should be noted that the lower Court rendered its above-quoted judgment only
on February 22, 1965, since defendants-appellants, after the lower court denied
their motion to affirm the judgment of the City Court and to dismiss plaintiffs'
appeal therefrom, moved further for the remand of the case to the City Court and
contested the lower court's jurisdiction to try the case as in contravention of Rule
40, section 10, of the Rules of Court. Upon denial by the lower court of their motion
for the remand of the case, defendants-appellants filed a petition for certiorari and
prohibition with this Court, docketed as Case L-20416, which writs this Court denied
in its decision of January 30, 1964, holding that "once (defendants-appellants) had
assented to the exercise of the court's jurisdiction, (they) are not permitted
thereafter to alter the position thus voluntarily chosen, and to insist once that the
case be returned to the Municipal Court. Any other rule would allow the parties to
confuse and delay at will the course of litigation." 4
Defendants-appellants' appeal from the lower courts above-quoted judgment is
now before us. In their first four assignments of error, defendants-appellants claim
that their right over the mortgaged chattels as purchasers at the public sale in
execution of their judgment against their debtor, defendant Tunaya, should not be
held subordinate to the mortgage lien of plaintiffs-appellees as mortgagees, by
virtue of prescription and laches on the part of said mortgagees as well as of their
having purchased the chattels at a public sheriffs sale. We find no merit in these
contentions. Appellants' contention of prescription is based on a patent reading of
the provisions of section 14 of the Chattel Mortgage Law (Act No. 1508) that "the
mortgagee ... may after thirty days from the time of condition broken, cause the
mortgaged property, or any part thereof, to be sold at public auction." It does not
follow from this provision, as wrongly contended by appellants, that failure on the
part of plaintiff to immediately foreclose their chattel mortgage within the 30-day
period from February 12, 1960 (when the promisory note matured) to March 12,
1960, resulted in the prescription of plaintiff's mortgage right and action. This thirty-
day period is the minimum period after violation of the mortgage condition for the
mortgage creditor to cause the sale at public auction of the mortgaged chattels,
with at least ten days notice to the mortgagor and posting of public notice of the
time, place and purpose of such sale, and is a period of grace for the mortgagor,
who has no right of redemption after the sale is held, to discharge the mortgage
obligation. 5 The prescription period for recovery of movables for foreclosure
purposes such as in the present case is eight years as provided in Article 1140 of the
Civil Code, 6 and here plaintiffs had timely filed their action within 8 months from
the mortgage debtor's default. By the same token, neither could laches properly be
imputed against plaintiffs, who filed their action promptly after they had been
advised by their debtor, defendant Tunaya, of the public auction sale on June 24,
1960 of the chattels at the instance of defendants-appellants as his judgment
creditors. 7
Defendants-appellants' purchase of the mortgaged chattels at the public sheriff's
sale and the delivery of the chattels to them with a certificate of sale did not give
them a superior right to the chattels as against plaintiffs-mortgagees. Rule 39,
section 22 of the old Rules of Court (now Rule 39, section 25 of the Revised Rules),
cited by appellants precisely provides that "the sale conveys to the purchaser all the
right which the debtor had in such property on the day the execution or attachment
was levied." It has long been settled by this Court that "The right of those who so
acquire said properties should not and cannot be superior to that of the creditor
who has in his favor an instrument of mortgage executed with the formalities of the
law, in good faith, and without the least indication of fraud. This is all the more true
in the present case, because, when the plaintiff purchased the automobile in
question on August 22, 1933, he knew, or at least, it is presumed that he knew, by
the mere fact that the instrument of mortgage, Exhibit 2, was registered in the office
of the register of deeds of Manila, that said automobile was subject to a mortgage
lien. In purchasing it, with full knowledge that such circumstances existed, it should
be presumed that he did so, very much willing to respect the lien existing thereon,
since he should not have expected that with the purchase, he would acquire a better
right than that which the vendor then had." 8 In another case between two
mortgagees, we held that "As between the first and second mortgagees, therefore,
the second mortgagee has at most only he right to redeem, and even when the
second mortgagee goes through the formality of an extrajudicial foreclosure, the
purchaser acquires no more than the right of redemption from the first mortgagee."
9 The superiority of the mortgagee's lien over that of a subsequent judgment
creditor is now expressly provided in Rule 39, section 16 of the Revised Rules of
Court, which states with regard to the effect of levy on execution as to third persons
that "The levy on execution shall create a lien in favor of the judgment creditor over
the right, title and interest of the judgment debtor in such property at the time of
the levy, subject to liens or incumbrances then existing."
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In the fifth assignment of error, appellants contend that the lower court erred in
ordering them to pay solidarity with defendant Tunaya the amount due on Tunaya's
note in favor of plaintiffs, and in the event of their failure to pay, to deliver the
chattels to the Sheriff for sale at public auction. Article 559 of the Civil Code
providing that "If the possessor of a movable lost or of which the owner has been
unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid therefor..." cited by appellants
has no application in the present case, for as pointed above, they acquired the
chattels subject to the existing mortgage lien of plaintiffs thereon. Appellants state
in their brief that they paid for the chattels the amount of P2,373.00. 10 As pointed
out by appellees, the record shows that defendants-appellants had disposed of the
mortgaged chattels "to other persons at a discounted rate" 11 and had, therefore,
appropriated the same as if the chattels were of their absolute ownership, in
complete derogation of plaintiffs' superior mortgage lien and in disregard of
plaintiffs' demands to them prior to the filing of their complaint on October 11,
1960, to pay or exercise their right of redemption. Appellants by their act of
disposition of the mortgaged chattels, whose value were admittedly more than
adequate to secure Tunaya's mortgage obligation, have thus practically nullified
them. Considering the long period that has elapsed since October 11, 1960 when
plaintiffs tried to enforce their claim and defendants-appellants' adamant resistance
thereof and unjust refusal to recognize plaintiffs' clearly superior right to the
chattels, which appellants admittedly disposed of without lawful right to other
unknown persons obviously to defeat plaintiffs' right over the same, we are satisfied
that justice and equity justify the lower court's judgment holding the defendants-
appellants solidarily liable for the amount due plaintiffs-appellees.
WHEREFORE, the lower Court's judgment ordering defendant Tunaya and the
defendants-appellants Teodora Evangelista, jointly and solidarity, to pay plaintiffs
the sum of P1,000.00 with interest at 12% per annum, plus the costs of suit and
attorney's fees at 15% of the whole amount due, conformably to the provisions of
the chattel mortgage deed, modified so as to expressly provide that the interest
accrues from the date of the execution of the promissory note on December 12,
1959, is hereby affirmed. As the chattels have been disposed of to unknown
persons, Paragraph 2 of the dispositive part of the judgment providing for the
delivery to the Sheriff of the mortgaged chattels in the event of defendants' failure
to pay the judgment is eliminated. No pronouncement as to costs.
SECOND DIVISION
G.R. No. L-40018 August 29, 1975
NORTHERN MOTORS, INC., petitioner,
vs.
THE HONORABLE JORGE R. COQUIA, Executive Judge of the Court of First Instance
of Manila, HONESTO ONG, THE SHERIFF OF MANILA, DOMINADOR Q. CACPAL, The
Acting Executive Sheriff of Manila, and/or his duly authorized deputy sheriff or
representative, FILINVEST CREDIT CORPORATION, intervenor.
RESOLUTION
AQUINO, J.:
Northern Motors, Inc., in its motion for the reconsideration of this Court's decision
promulgated on March 21, 1975, raised anew the issue of whether its chattel
mortgage lien over certain taxicabs, which were levied upon by the mortgagor's
unsecured judgment creditor, could be asserted in the case where the judgment
was rendered or should be ventilated in an independent action, as held in that
decision. It invoked the additional ground that it has an unpaid vendor's lien on the
mortgaged taxicabs.
As set forth in the decision, the factual background of that issue is as follows:
Manila Yellow Taxicab Co., Inc. in May and June, 1974 purchased on the installment
plan from Northern Motors, Inc, two hundred Holden Torana cars at the price of
P28,250 for each car. It made a down payment of P1,000 on each car. It executed
chattel mortgages on the cars in favor of Northern Motors, Inc. as security for the
promissory notes covering the balance of the price. The notes and the chattel
mortgages for 172 cars were assigned to Filinvest Credit Corporation.
Tropical Commercial Co., Inc. obtained a judgment for P167,311.27 against Manila
Yellow Taxicab Co., Inc. in Civil Case No. 71584 of the Court of First Instance of
Manila. Part of that judgment or the sum of P110,000 was eventually assigned to
Honesto Ong for an unspecified valuable consideration.
To satisfy the judgment credit, the sheriff on December 12, 1974 levied upon twenty
taxicabs of which eight were mortgaged to Northern Motors, Inc. and twelve to
Filinvest Credit Corporation under the assignment already mentioned.
Northern Motors, Inc. and Filinvest Credit Corporation filed the corresponding third-
party claims with the sheriff. On December 18, 1974 Tropical Commercial Co., Inc.
posted indemnity bonds. On that same day, at two-thirty in the afternoon, the cars
were sold at public auction although there was an alleged agreement that the cars
would be sold at four o'clock. Later, the lower court cancelled the indemnity bonds
without notice to the third-party claimants.
Page 131 of 152
The sheriff made an additional levy on thirty-five mortgaged taxicabs to satisfy the
unpaid balance of the judgment. Of those thirty-five taxicabs, seven were
mortgaged to Northern Motors, Inc. while twenty-eight were mortgaged to Filinvest
Credit Corporation. Again, Northern Motors, Inc. and Filinvest Credit Corporation
filed third-party claims. The auction sale was scheduled on January 23, 1975.
The lower court in its resolution of January 17, 1975 refused to reinstate the
indemnity bonds. It ruled that the chattel mortgagee was not entitled to the
possession of the mortgaged taxicabs by the mere fact of the execution of the
mortgage and that the mortgage lien followed the chattel whoever might be its
actual possessor.
On January 23, 1975 Northern Motors, Inc. filed its certiorari petition in this case to
annul the resolution of January 17, 1975 and to stop the second auction sale. This
Court issued a restraining order against the scheduled auction sale, the writ of
execution and the disposition of the proceeds of the first execution sale. Filinvest
Credit Corporation was allowed to intervene in the action.
In the decision sought to be reconsidered, the petition was denied and the
restraining order was dissolved. We ruled that the mortgagee's remedy is to
vindicate its claim in a proper action as provided in section 17, Rule 39 of the Rules
of Court, and that its mortgage lien attached to the taxicabs wherever they might
be.
Upon motion of Northern Motors, Inc. on the ground that the decision had not yet
become final, the restraining order was maintained. (Filinvest Credit Corporation did
not file any motion for reconsideration because it had entered into a compromise
with Ong. It agreed to pay Ong, through his counsel, P145,000 for the release of
twenty-eight taxicabs. It realized that an independent action would be illusory).
Northern Motors, Inc. contends in its motion for reconsideration that as chattel
mortgagee and unpaid vendor it has the better right to the possession of the
mortgaged taxicabs and that claims should be resolved in the case where the writ of
execution was issued and not in a separate action which allegedly would be an
ineffective remedy. It further contends that the lower court gravely abused its
discretion in cancelling the indemnity bonds posted by the judgment creditor of the
chattel mortgagor.
It insists that it is entitled to the possession of the taxicabs because the condition of
the chattel mortgages had already been broken and, for that reason, the Serra
ruling (infra) does not apply to this case. It alleges that some of the buyers at the
auction sale were fictitious and that the cars valued at P28,250 each were sold for
less than P3,000 each.
The judgment creditor and the sheriff, in their opposition to the motion for
reconsideration, reiterate their contention that the chattel mortgagee's remedy is in
an independent action, as held in Serra vs. Rodriguez, L-25546, April 22, 1974, 56
SCRA 538, per Makasiar, J. It was ruled in the Serra case that a chattel mortgagee
could not be regarded as a third-party claimant within the meaning of section 14,
Rule 57 of the Rules of Court (similar to section 17, Rule 39, the rule involved in the
instant case) "because a chattel mortgage is merely a security for a loan and does
not transfer title of the property mortgaged to the chattel mortgagee".
As a corollary, the judgment creditor and the sheriff argue that, since Northern
Motors, Inc., the chattel mortgagee, was not a proper third-party claimant, there
was no necessity for an indemnity bond.
We hold, under the facts of this case, that Northern Motors, Inc., as chattel
mortgagee and unpaid vendor, should not be required to vindicate in a separate
action its claims for the seven mortgaged taxicabs and for the proceeds of the
execution sale of the other eight mortgaged taxicabs.
Inasmuch as the condition of the chattel mortgages had already been broken and
Northern Motors, Inc. had in fact instituted an action for replevin so that it could
take possession of the mortgaged taxicabs (Civil Case No. 20536, Rizal CFI), it has a
superior, preferential and paramount right to have possession of the mortgaged
taxicabs and to claim the proceeds of the execution sale (See Bachrach Motor Co.
vs. Summers, 42 Phil. 3;, Northern Motors, Inc. vs. Herrera, L-32674, February 22,
1973, 49 SCRA 392).
Respondent sheriff wrongfully levied upon the mortgaged taxicabs and erroneously
took possession of them. He could have levied only upon the right or equity of
redemption pertaining to the Manila Yellow Taxicab Co., Inc . as chattel mortgagor
and judgment debtor, because that was the only leviable or attachable property
right of the company in the mortgaged taxicabs (Manila Mercantile Co. vs. Flores, 50
Phil. 759; Levy Hermanos, Inc. vs. Ramirez and Casimiro, 60 Phil. 978, 981). "After a
chattel mortgage is executed, there remains in the mortgagor a mere right of
redemption" (Tizon vs. Valdez and Morales, 48 Phil. 910, 916).
To levy upon the mortgagor's incorporeal right or equity of redemption, it was not
necessary for the sheriff to have taken physical possession of the mortgaged
taxicabs. It would have sufficed if he furnished the chattel mortgagor, Manila Yellow
Taxicab Co., Inc., with a copy of the writ of execution and served upon it a notice
that its right or equity of redemption in the mortgaged taxicabs was being levied
upon pursuant to that writ (Sec. 15, 2nd par., Rule 39 and see. 7[e], Rule 57 of the
Rules of Court). Levying upon the property itself is distinguishable from levying on
the judgment debtor's interest in it (McCullough & Co. vs. Taylor, 25 Phil. 110, 115).
Justice Imperial, in a concurring opinion, noted that if the only attachable interest of
a chattel mortgagor in a mortgaged car was his right of redemption and if the
purchaser at the execution sale could not acquire anything except such right of
redemption, then the purchaser was "not entitled to the actual possession and
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delivery of the automobile without first paying" the mortgage debt (Levy Hermanos,
Inc. vs. Ramirez and Casimiro, 60 Phil. 978, 984, 985).
In this case what the sheriff could have sold at public auction was merely the
mortgagor's right or equity of redemption. The sheriff and the judgment creditor
are deemed to have constructive notice of the chattel mortgages on the taxicabs
(Ong Liong Tiak vs. Luneta Motor Co., 66 Phil. 459). As a consequence of the
registration of the mortgages, Northern Motors, Inc. had the symbolical possession
of the taxicabs (Meyers vs. Thein, 15 Phil. 303).
If the judgment creditor, Tropical Commercial Co., Inc., or the assignee, Ong, bought
the mortgagor's equity of redemption at the auction sale, then it would step into
the shoes of the mortgagor, Manila Yellow Taxicab Co., Inc. and be able to redeem
the vehicles from Northern Motors, Inc., the mortgagee, by paying the mortgage
debt. 1
Originally, the chattel mortgage was regarded as a conditional sale of personal
property (See. 3, Act No. 1508). As such, it was similar to a pacto de retro sale of
personality.
As clarified in Bachrach Motor Co. vs. Summers, 42 Phil. 3," there is no real analogy
between the chattel mortgage contract and a conditional sale as understood in the
civil law." The prevailing equitable conception of the chattel mortgage is that it is
merely a security. To regard it as a conditional sale is to rattle" the bones of an
antiquated skeleton from which all semblance of animate life has long since
departed".
Article 2140 of the Civil Code, in defining a chattel mortgage as the recording of
personal property in the Chattel Mortgage Register as security for the performance
of an obligation, has adhered to the equitable conception of that contract. At the
same time, article 2140 has preserved the distinction between pledge and chattel
mortgage which was blurred by section 4 of the Chattel Mortgage Law when it
provided that in a chattel mortgage" the possession of the property is delivered to
and retained by the mortgagee" or, if no such possession is delivered, the mortgage
should be recorded in the proper registry of deeds.
Historically, it is not proper that the contract of pledge (pignus), as one of the four
real contracts of the jus civile (the others being mutuum, commodatum and
depositum should be absorbed by the chattel mortgage contract.
Under section 4 of the Chattel Mortgage Law, it was held that the registration of the
chattel mortgage was tantamount to the symbolical delivery of the possession of
the mortgaged chattel to the mortgagee, a symbolical delivery which was equivalent
to actual delivery (Meyers vs. Thein, 15 Phil. 303, 306, per Arellano, C.J.)
Act No. 1508 provides:
SEC. 13. When the condition of a chattel mortgage is broken a mortgagor or
person holding a subsequent mortgage, or a subsequent attaching creditor may
redeem the same by paying or delivering to the mortgagee the amount due on
such mortgage and the reasonable costs and expenses incurred by such breach of
condition before the sale thereof. An attaching creditor who so redeems shall be
subrogated to the rights of the mortgagee and entitled to foreclose the mortgage
in the same manner that the mortgagee could foreclose it by the terms of this Act.
The equity of redemption of the mortgagor will pass to the purchaser at an
execution sale (Tizon vs. Valdez and Morales, 48 Phil. 910, 914).
Inasmuch as what remains to the mortgagor is only the equity of redemption, it
follows that the right of the judgment or attaching creditor, who purchased the
mortgaged chattel at an execution sale, is subordinate to the lien of the mortgagee
who has in his favor a valid chattel mortgage (Cabral vs. Evangelista, L-26860, July
30, 1969, 28 SCRA 1000, 1006; Ong Liong Tiak vs. Luneta Motor Co., 66 Phil. 459
462.
Justice Moreland, in his concurring opinion in the case of In re Du Tec Chuan, 34
Phil. 488, observed that "no one can take the title away from the mortgagee except
the mortgagor and he only in the manner prescribed by the mortgage itself and
that the general statement is therefore correct that after the execution of a chattel
mortgage and its registry as required by law, nobody can obtain an interest in that
property adverse to that of the mortgagee".
That the chattel mortgagee has the symbolical possession and that he has the
preferential right to have physical possession is inferable from article 319 of the
Revised Penal Code which penalizes any person who knowingly removes the
mortgaged chattel to any province or city other than the one in which it was located
at the time of the execution of the mortgage, without the written consent of the
mortgagee or his executors, administrators or assigns. It penalizes also any
mortgagor who sells or pledges the mortgaged chattel without the consent of the
mortgagee written on the back of the register of deeds of the province where such
chattel is located. (Article 319 was taken from sections 9 to 12 of the Chattel
Mortgage.
2 A third person with actual or constructive notice who wrongfully interferes with a
mortgaged chattel may be liable for damages or for a conversion. A seizure and sale
of the mortgaged property under a writ of attachment or execution in derogation of
the mortgagee's rights constitutes a conversion. (14 C.J.S. 822-824).
In the Cabral case the unsecured judgment creditor (of the chattel mortgagor) who
bought the mortgaged chattels at the execution sale was held solidarily liable with
the mortgagor to the chattel mortgagee for the mortgage obligation. 2
Page 132 of 152
Our ruling in this case is in consonance with the purpose of the Chattel Mortgage
Law to promote business and trade and to give impetus to the country's economic
development (Torres vs. Limjap, 56 Phil. 141, 145). In the business world the chattel
mortgage has greatly facilitated sales of goods and merchandise. Dealers of cars,
trucks, appliances and machinery, who resort to installment sales, have relied on the
chattel mortgage as an effective security. Sales of merchandise would be sluggish
and insubstantial if the Chattel Mortgage Law could not protect dealers against the
defaults and delinquencies of their customers and if the mortgagee's lien could be
nullified by the maneuvers of an unsecured judgment creditor of the chattel
mortgagor. It is not right nor just that the lien of a secured creditor should be
rendered nugatory by a wrongful execution engineered by an unsecured creditor.
Northern Motors, Inc. prayed in its motion that the two indemnity bonds for
P480,000 filed on December 18, 1974 by Filriters Guaranty Assurance Corporation
for Tropical Commercial Co., Inc. be reinstated. The lower court cancelled ex parte
said bonds in its order of January 3, 1975 and reaffirmed the cancellation in its order
of January 17, 1975.
We hold that there was grave abuse of discretion in cancelling the said bonds
without notice to Northern Motors, Inc. and Filinvest Credit Corporation. A chattel
mortgagee, as a third-party claimant, comes within the purview of the following
provisions of Rule 39:
SEC. 17. Proceedings where property claimed by third person. If property
levied on be claimed by any other person than the judgment debtor or his agent,
and such person make an affidavit of his title thereto or right to the possession
thereof, stating the grounds of such right or title, and serve the same upon the
officer making the levy, and a copy thereof upon the judgment creditor, the officer
shall not be bound to keep the property, unless such judgment creditor or his
agent, on demand of the officer, indemnify the officer against such claim by a bond
in a sum not greater than the value of the property, levied on. In case of
disagreement as to such value, the same shall be determined by the court issuing
the writ of execution.
The officer is not liable for damages, for the taking or keeping of the property, to
any third-party claimant unless a claim is made by the latter and unless an action for
damages is brought by him against the officer within one hundred twenty (120)
days from the date of the filing of the bond. But nothing herein contained shall
prevent such claimant or any third person from vindicating his claim to the property
by any proper action ....
The chattel mortgagee may file a third-party claim, even before there is a breach of
the mortgage because, as already noted, the recording of the mortgage gives him
the symbolical possession of the mortgaged chattel which was construed as
"equivalent to the actual delivery of possession to the creditor" (Meyers vs. Thein,
supra on page 306), and because what a judgment creditor of the chattel mortgagor
can attach is only the equity or right of redemption and, to effectuate the
attachment levy it is not requisite that the mortgaged chattel itself be seized by the
sheriff. The Chattel Mortgage Law, in relation to article 319 of the Revised Penal
Code, contemplates that the mortgagor should always have the physical possession
of the mortgaged chattel until there is a breach, in which case the mortgagee
become entitled to take possession of the chattel so that the mortgage can be
foreclosed.
However, inasmuch as the one hundred twenty-day period for filing an action
against the sheriff had already expired, and since Tropical Commercial Co., Inc. and
the surety have not been impleaded in this case, the propriety and justice of
ordering them to re-file the indemnity bonds appear to be doubtful.
Northern Motors, Inc. is entitled to bring the appropriate action to recover the
damages which it might have suffered in consequence of the wrongful execution.
WHEREFORE, the decision of March 21, 1975 is reconsidered and set aside.
Respondent Sheriff is directed to deliver to Northern Motors, Inc. (a) the proceeds
of the execution sale held on December 18, 1974 for the eight taxicabs mortgaged
to it less the expenses of execution and (b) the seven taxicabs which were levied
upon by him and which are also mortgaged to the corporation.
Following the ruling the Cabral case, respondent Honesto Ong is held solidarity
liable with Manila Yellow Taxicab Co., Inc. for the mortgage obligations secured by
the eight mortgaged taxicabs which were sold at the execution sale, less the net
proceeds of the sale. Costs against respondent Ong.
SO ORDERED.
SECOND DIVISION
G.R. No. L-68010 May 30, 1986
FILIPINAS MABLE CORPORATION, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, THE HONORABLE CANDIDO
VILLANUEVA, Presiding Judge of Br. 144, RTC, Makati, DEVELOPMENT BANK OF THE
PHILIPPINES (DBP), BANCOM SYSTEMS CONTROL, INC. (Bancom), DON FERRY,
CASIMERO TANEDO, EUGENIO PALILEO, ALVARO TORIO, JOSE T. PARDO,
ROLANDO ATIENZA, SIMON A. MENDOZA, Sheriff NORVELL R. LIM, respondents.
Vicente Millora for petitioner.
Jesus A. Avencena and Bonifacio M. Abad for respondents.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
GUTIERREZ, JR., J.:
This petition for review seeks to annul the decision and resolution of the appellate
court which upheld the trial court's decision denying the petitioner's prayer to
enjoin the respondent from foreclosing on its properties.
On January 19, 1983, petitioner Filipinas Marble Corporation filed an action for
nullification of deeds and damages with prayer for a restraining order and a writ of
preliminary injunction against the private respondents. In its complaint, the
petitioner alleged in substance that it applied for a loan in the amount of
$5,000,000.00 with respondent Development Bank of the Philippines (DBP) in its
desire to develop the fun potentials of its mining claims and deposits; that DBP
granted the loan subject, however, to sixty onerous conditions, among which are: (a)
petitioner shall have to enter into a management contract with respondent Bancom
Systems Control, Inc. [Bancom]; (b) DBP shall be represented by no less than six (6)
regular directors, three (3) to be nominated by Bancom and three (3) by DBP, in
Filipinos Marble's board, one of whom shall continue to be the chairman of the
board; (c) the key officers/executives [the President and the officers for finance,
marketing and purchasing] to be chosen by Bancom for the corporation shall be
appointed only with DBP's prior approval and all these officers are to be made
directly responsible to DBP; DBP shall immediately designate Mr. Alvaro Torio,
Assistant Manager of DBP's Accounting Department as DBP's Comptroller in the
firm whose compensation shall be borne by Filipinas Marble; and (d) the $5 Million
loan shall be secured by: 1) a final mortgage on the following assets with a total
approved value of P48,630,756.00 ... ; 2) the joint and several signatures with
Filipinas Marble of Mr. Pelagio M. Villegas, Sr., Trinidad Villegas, and Jose E.
Montelibano and 3) assignment to DBP of the borrower firm's right over its mining
claims; that pursuant to these above- mentioned and other "take it or leave it"
conditions, the petitioner entered into a management contract with Bancom
whereby the latter agreed to manage the plaintiff company for a period of three
years; that under the management agreement, the affairs of the petitioner were
placed under the complete control of DBP and Bancom including the disposition
and disbursement of the $5,000,000 or P37,600,000 loan; that the respondents and
their directors/officers mismanaged and misspent the loan, after which Bancom
resigned with the approval of DBP even before the expiration date of the
management contract, leaving petitioner desolate and devastated; that among the
acts and omissions of the respondents are the following. (a) failure to purchase all
the necessary machinery and equipment needed by the petitioner's project for
which the approved loan was intended; (b) failure to construct a processing plant;
(c) abandonment of imported machinery and equipment at the pier, (d) purchase of
unsuitable lot for the processing plant at Binan; (e) failure to develop even a square
meter of the quarries in Romblon or Cebu; and (f) nearly causing the loss of
petitioner's rights over its Cebu claims; and that instead of helping petitioner get
back on its feet, DBP completely abandoned the petitioner's project and proceeded
to foreclose the properties mortgaged to it by petitioner without previous demand
or notice.
In essence, the petitioner in its complaint seeks the annulment of the deeds of
mortgage and deed of assignment which it executed in favor of DBP in order to
secure the $5,000,000.00 loan because it is petitioner's contention that there was no
loan at all to secure since what DBP "lent" to petitioner with its right hand, it also
got back with its left hand; and that, there was failure of consideration with regard
to the execution of said deeds as the loan was never delivered to the petitioner. The
petitioner further prayed that pending the trial on the merits of the case, the trial
court immediately issue a restraining order and then a writ of preliminary injunction
against the sheriffs to enjoin the latter from proceeding with the foreclosure and
sale of the petitioner's properties in Metro Manila and in Romblon.
Respondent DBP opposed the issuance of a writ of preliminary injunction stating
that under Presidential Decree No. 385, DBP's right to foreclose is mandatory as the
arrearages of petitioner had already amounted to P123,801,265.82 as against its
total obligation of P151,957,641.72; that under the same decree, no court can issue
any restraining order or injunction against it to stop the foreclosure since Filipinas
Marble's arrearages had already reached at least twenty percent of its total
obligations; that the alleged non-receipt of the loan proceeds by the petitioner
could, at best, be accepted only in a technical sense because the money was
received by the officers of the petitioner acting in such capacity and, therefore,
irrespective of whoever is responsible for placing them in their positions, their
receipt of the money was receipt by the petitioner corporation and that the
complaint does not raise any substantial controversy as to the amount due under
the mortgage as the issues raised therein refer to the propriety of the manner by
which the proceeds of the loan were expended by the petitioner's management, the
allegedly precipitate manner with which DBP proceeded with the foreclosure, and
the capacity of the DBP to be an assignee of the mining lease rights.
After a hearing on the preliminary injunction, the trial court issued an order stating:
The Court has carefully gone over the evidence presented by both parties, and while
it sympathizes with the plight of the plaintiff and of the pitiful condition it now has
found itself, it cannot but adhere to the mandatory provisions of P.D. 385. While the
evidence so far presented by the plaintiff corporation appears to be persuasive, the
same may be considered material and relevant to the case. Hence, despite the
impressive testimony of the plaintiff's witnesses, the Court believes that it cannot
enjoin the defendant Development Bank of the Philippines from complying with the
mandatory provisions of the said Presidential Decree. It having been shown that
plaintiff's outstanding obligation as of December 31, 1982 amounted to
P151,957,641.72 and with arrearages reaching up to 81 % against said total
obligation, the Court finds the provisions of P.D. 385 applicable to the instant case.
Page 133 of 152
It is a settled rule that when the statute is clear and unambiguous, there is no room
for interpretation, and all that it has to do is to apply the same.
On appeal, the Intermediate Appellate Court upheld the trial court's decision and
held:
While petitioner concedes 'that Presidential Decree No. 385 applies only where it is
clear that there was a loan or where the loan is not denied' (p. 14-petition), it
disclaims receipt of the $5 million loan nor benefits derived therefrom and bewails
the onerous conditions imposed by DBP Resolution No. 385 dated December 7,
1977, which allegedly placed the petitioner under the complete control of the
private respondents DBP and Bancom Systems Control Inc. (Bancom, for short). The
plausibility of petitioner's statement that it did Dot receive the $5 million loan is
more apparent than real. At the hearing for injunction before the counsel for DBP
stressed that $2,625,316.83 of the $5 million loan was earmarked to finance the
acquisition of machinery, equipment and spare parts for petitioner's Diamond
gangsaw which machineries were actually imported by petitioner Filipinas Marble
Corporation and arrived in the Philippines. Indeed, a summary of releases to
petitioner covering the period June 1978 to October 1979 (Exh. 2, Injunction)
showed disbursements amounting to millions of pesos for working capital and
opening of letter of credits for the acquisition of its machineries and equipment.
Petitioner does not dispute that releases were made for the purchase of machineries
and equipment but claims that such imported machineries were left to the mercy of
the elements as they were never delivered to it.
xxx xxxxxx
Apart from the foregoing, petitioner is patently not entitled to a writ of preliminary
injunction for it has not demonstrated that at least 20% of its outstanding
arrearages has been paid after the foreclosure proceedings were initiated. Nowhere
in the record is it shown or alleged that petitioner has paid in order that it may fall
within the exception prescribed on Section 2, Presidential Decree No. 385.
Dissatisfied with the appellate court's decision, the petitioner filed this instant
petition with the following assignments of errors:
1. There being 'persuasive' evidence that the $5 million proceeds of the
loan were not received and did not benefit the petitioner per finding of the lower
court which should not be disturbed unless there is grave abuse of discretion, it
must follow that PD 385 does not and cannot apply;
2. If there was no valid loan contract for failure of consideration, the
mortgage cannot exist or stand by itself being a mere accessory contract.
Additionally, the chattel mortgage has not been registered. Therefore, the same is
null and void under Article 2125 of the New Civil Code; and
3. PD 385 is unconstitutional as a 'class legislation', and violative of the due
process clause.
With regard to the first assignment of error, the petitioner maintains that since the
trial court found "persuasive evidence" that there might have been a failure of
consideration on the contract of loan due to the manner in which the amount of $5
million was spent, said court committed grave abuse of discretion in holding that it
had no recourse but to apply P.D. 385 because the application of this decree
requires the existence of a valid loan which, however, is not present in petitioner's
case. It likewise faults the appellate court for upholding the applicability of the said
decree.
Sections 1 and 2 of P.D. No. 385 respectively provide:
Section 1. It shall be mandatory for government financial institutions after the lapse
of sixty (60) days from the issuance of this Decree, to foreclose the collaterals and/or
securities for any loan, credit accommodation, and/or guarantees granted by them
whenever the arrearages on such account, including accrued interest and other
charges, amount to at least twenty (20%) of the total outstanding obligations,
including interest and other charges, as appearing in the book of accounts and/or
related records of the financial institution concerned. This shall be without prejudice
to the exercise by the government financial institution of such rights and/or
remedies available to them under their respective contracts with their debtors,
including the right to foreclose on loans, credits, accommodations, and/or
guarantees on which the arrearages are less than twenty percent (20%).
Section 2. No restraining order, temporary or permanent injunction shall be issued
by the court against any government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided in Section 1
hereof, whether such restraining order, temporary or permanent injunction is
sought by the borrower(s) or any third party or parties, except after due hearing in
which it is established by the borrower, and admitted by the government financial
institution concerned that twenty percent (20%) of the outstanding arrearages has
been paid after the filing of foreclosure proceedings.
Presidential Decree No. 385 was issued primarily to see to it that government
financial institutions are not denied substantial cash inflows, which are necessary to
finance development projects all over the country, by large borrowers who, when
they become delinquent, resort to court actions in order to prevent or delay the
government's collection of their debts and loans.
The government, however, is bound by basic principles of fairness and decency
under the due process clause of the Bill of Rights. P.D. 385 was never meant to
protect officials of government lending institutions who take over the management
of a borrower corporation, lead that corporation to bankruptcy through
CRED TRANS Pledge, Mortgage Antichresis Fulltext
mismanagement or misappropriation of its funds, and who, after ruining it, use the
mandatory provisions of the decree to avoid the consequences of their misdeeds.
The designated officers of the government financing institution cannot simply walk
away and then state that since the loans were obtained in the corporation's name,
then P.D. 385 must be peremptorily applied and that there is no way the borrower
corporation can prevent the automatic foreclosure of the mortgage on its properties
once the arrearages reach twenty percent (20%) of the total obligation no matter
who was responsible.
In the case at bar, the respondents try to impress upon this Court that the
$5,000,000.00 loan was actually granted and released to the petitioner corporation
and whatever the composition of the management which received the loan is of no
moment because this management was acting in behalf of the corporation. The
respondents also argue that since the loan was extended to the corporation, the
releases had to be made to the then officers of that borrower corporation.
Precisely, what the petitioner is trying to point out is that the DBP and Bancom
people who managed Filipinas Marble misspent the proceeds of the loan by taking
advantage of the positions that they were occupying in the corporation which
resulted in the latter's devastation instead of its rehabilitation. The petitioner does
not question the authority under which the loan was delivered but stresses that it is
precisely this authority which enabled the DBP and Bancom people to misspend and
misappropriate the proceeds of the loan thereby defeating its very purpose, that is,
to develop the projects of the corporation. Therefore, it is as if the loan was never
delivered to it and thus, there was failure on the part of the respondent DBP to
deliver the consideration for which the mortgage and the assignment of deed were
executed.
We cannot, at this point, conclude that respondent DBP together with the Bancom
people actually misappropriated and misspent the $5 million loan in whole or in
part although the trial court found that there is "persuasive" evidence that such acts
were committed by the respondent. This matter should rightfully be litigated below
in the main action. Pending the outcome of such litigation, P.D. 385 cannot
automatically be applied for if it is really proven that respondent DBP is responsible
for the misappropriation of the loan, even if only in part, then the foreclosure of the
petitioner's properties under the provisions of P.D. 385 to satisfy the whole amount
of the loan would be a gross mistake. It would unduly prejudice the petitioner, its
employees and their families.
Only after trial on the merits of the main case can the true amount of the loan which
was applied wisely or not, for the benefit of the petitioner be determined.
Consequently, the extent of the loan where there was no failure of consideration
and which may be properly satisfied by foreclosure proceedings under P.D. 385 will
have to await the presentation of evidence in a trial on the merits. As we have ruled
in the case of Central Bank of the Philippines vs. Court of Appeals, (1 39 SCRA 46,
5253; 56):
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00
loan agreement on April 28, 1965, they undertook reciprocal obligations, the
obligation or promise of each party is the consideration for that of the othe.
(Penacio vs. Ruaya, 110 SCRA 46 [1981]; ...
xxxxxxxxx
The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no
consideration was then in existence, as there was no debt yet because Island
Savings Bank had not made any release on the loan, does not make the real estate
mortgage void for lack of consideration. It is not necessary that any consideration
should pass at the time of the execution of the contract of real mortgage (Bonnevie
vs. Court of Appeals, 125 SCRA 122 [1983]. It may either be a prior or subsequent
matter. But when the consideration is subsequent to the mortgage, the mortgage
can take effect only when the debt secured by it is created as a binding contract to
pay (Parks vs. Sherman, Vol. 2, pp. 5-6). And, when there is partial failure of
consideration, the mortgage becomes unenforceable to the extent of such failure
(Dow, et al. vs. Poore Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. C.J.S. p. 138). ...
Under the admitted circumstances of this petition, we, therefore, hold that until the
trial on the merits of the main case, P.D. 385 cannot be applied and thus, this Court
can restrain the respondents from foreclosing on petitioner's properties pending
such litigation.
The respondents, in addition, assert that even if the $5 million loan were not
existing, the mortgage on the properties sought to be foreclosed was made to
secure previous loans of the petitioner with respondent and therefore, the
foreclosure is still justified.
This contention is untenable. Two of the conditions imposed by respondent DBP for
the release of the $5 million loan embodied in its letter to petitioner dated
December 21, 1977 state:
A. The interim loan of $289,917.32 plus interest due thereon which was used for the
importation of one Savage Diamond Gangsaw shall be liquidated out of the
proceeds of this $5 million loan. In addition, FMC shall also pay DBP, out of the
proceeds of above foreign currency loan, the past due amounts on obligation with
DBP.
xxxxxxxxx
B. Conversion into preferred shares of P 2 million of FMCs total obligations with DBP
as of the date the legal documents for this refinancing shall have been exempted or
not later than 90 days from date of advice of approval of this accommodation.
Page 134 of 152
The above conditions lend credence to the petitioner's contention that the "original
loan had been converted into 'equity shares', or preferred shares; therefore, to all
intents and purposes, the only 'loan' which is the subject of the foreclosure
proceedings is the $5 million loan in 1978. "
As regards the second assignment of error, we agree with the petitioner that a
mortgage is a mere accessory contract and, thus, its validity would depend on the
validity of the loan secured by it. We, however, reject the petitioner's argument that
since the chattel mortgage involved was not registered, the same is null and void.
Article 2125 of the Civil Code clearly provides that the non-registration of the
mortgage does not affect the immediate parties. It states:
Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in
order that a mortgage may be validly constituted that the document in which it
appears be recorded in the Registry of Property. If the instrument is not recorded,
the mortgage is nevertheless binding between the parties.
xxx xxxxxx
The petitioner cannot invoke the above provision to nullify the chattel mortgage it
executed in favor of respondent DBP.
We find no need to pass upon the constitutional issue raised in the third assignment
of error. We follow the rule started in Alger Electric, Inc. vs. Court of Appeals, (135
SCRA 37, 45).
We see no necessity of passing upon the constitutional issues raised by respondent
Northern. This Court does not decide questions of a constitutional nature unless
absolutely necessary to a decision of a case. If there exists some other grounds of
construction, we decide the case on a non- constitutional determination. (See
Burton vs. United States, 196 U.S. 283; Siler vs. Luisville & Nashville R. Co., 123 U.S.
175; Berta College vs. Kentucky, 211 U.S. 45).
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The orders of
the Intermediate Appellate Court dated April 17, 1984 and July 3, 1984 are hereby
ANNULLED and SET ASIDE. The trial court is ordered to proceed with the trial on the
merits of the main case. In the meantime, the temporary restraining order issued by
this Court on July 23, 1984 shall remain in force until the merits of the main case are
resolved.
SO ORDERED.
FIRST DIVISION
G.R. No. 103576 August 22, 1996
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs.
HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY, respondents.
VITUG, J.:p
Would it be valid and effective to have a clause in a chattel mortgage that purports
to likewise extend its coverage to obligations yet to be contracted or incurred? This
question is the core issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner "Acme
Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for and in behalf of
the company, a chattel mortgage in favor of private respondent Producers Bank of
the Philippines. The mortgage stood by way of security for petitioner's corporate
loan of three million pesos (P3,000,000.00). A provision in the chattel mortgage
agreement was to this effect
(c) If the MORTGAGOR, his heirs, executors or administrators shall well and
truly perform the full obligation or obligations above-stated according to the terms
thereof, then this mortgage shall be null and void. . . .
In case the MORTGAGOR executes subsequent promissory note or notes either as a
renewal of the former note, as an extension thereof, or as a new loan, or is given any
other kind of accommodations such as overdrafts, letters of credit, acceptances and
bills of exchange, releases of import shipments on Trust Receipts, etc., this
mortgage shall also stand as security for the payment of the said promissory note or
notes and/or accommodations without the necessity of executing a new contract
and this mortgage shall have the same force and effect as if the said promissory
note or notes and/or accommodations were existing on the date thereof. This
mortgage shall also stand as security for said obligations and any and all other
obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature,
whether such obligations have been contracted before, during or after the
constitution of this mortgage. 1
In due time, the loan of P3,000,000.00 was paid by petitioner corporation.
Subsequently, in 1981, it obtained from respondent bank additional financial
accommodations totalling P2,700,000.00. 2 These borrowings were on due date also
fully paid.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a
loan of one million pesos (P1,000,000.00) covered by four promissory notes for
P250,000.00 each. Due to financial constraints, the loan was not settled at maturity.
3 Respondent bank thereupon applied for an extra judicial foreclosure of the chattel
mortgage, herein before cited, with the Sheriff of Caloocan City, prompting
petitioner corporation to forthwith file an action for injunction, with damages and a
prayer for a writ of preliminary injunction, before the Regional Trial Court of
Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed the
complaint and ordered the foreclosure of the chattel mortgage. It held petitioner
corporation bound by the stipulations, aforequoted, of the chattel mortgage.
Petitioner corporation appealed to the Court of Appeals 4 which, on 14 August
1991, affirmed, "in all respects," the decision of the court a quo. The motion for
reconsideration was denied on 24 January 1992.
The instant petition interposed by petitioner corporation was initially dinied on 04
March 1992 by this Court for having been insufficient in form and substance. Private
respondent filed a motion to dismiss the petition while petitioner corporation filed a
compliance and an opposition to private respondent's motion to dismiss. The Court
denied petitioner's first motion for reconsideration but granted a second motion for
reconsideration, thereby reinstating the petition and requiring private respondent to
comment thereon. 5
Except in criminal cases where the penalty of reclusion perpetua or death is
imposed 6 which the Court so reviews as a matter of course, an appeal from
judgments of lower courts is not a matter of right but of sound judicial discretion.
The circulars of the Court prescribing technical and other procedural requirements
are meant to weed out unmeritorious petitions that can unnecessarily clog the
docket and needlessly consume the time of the Court. These technical and
procedural rules, however, are intended to help secure, not suppress, substantial
justice. A deviation from the rigid enforcement of the rules may thus be allowed to
attain the prime objective for, after all, the dispensation of justice is the core reason
for the existence of courts. In this instance, once again, the Court is constrained to
relax the rules in order to give way to and uphold the paramount and overriding
interest of justice.
Contracts of security are either personal or real. In contracts of personal security,
such as a guaranty or a suretyship, the faithful performance of the obligation by the
principal debt or is secured by the personal commitment of another (the guarantor
or surety). In contracts of real security, such as a pledge, a mortgage or an
antichresis, that fulfillment is secured by an encumbrance of property in pledge,
the placing of movable property in the possession of the creditor; in chattel
mortgage, by the execution of the corresponding deed substantially in the form
prescribed by law; in real estate mortgage, by the execution of a public instrument
encumbering the real property covered thereby; and in antichresis, by a written
instrument granting to the creditor the right to receive the fruits of an immovable
property with the obligation to apply such fruits to the payment of interest, if owing,
and thereafter to the principal of his credit upon the essential condition that if
the obligation becomes due and the debtor defaults, then the property encumbered
can be alienated for the payment of the obligation, 7 but that should the obligation
be duly paid, then the contract is automatically extinguished proceeding from the
accessory character 8 of the agreement. As the law so puts it, once the obligation is
complied with, then the contract of security becomes, ipso facto, null and void. 9
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-
incurred obligations so long as these future debts are accurately described, 10 a
chattel mortgage, however, can only cover obligations existing at the time the
mortgage is constituted. Although a promise expressed in a chattel mortgage to
include debts that are yet to be contracted can be a binding commitment that can
be compelled upon, the security itself, however, does not come into existence or
arise until after a chattel mortgage agreement covering the newly contracted debt is
executed either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel Mortgage Law. 11
Refusal on the part of the borrower to execute the agreement so as to cover the
after-incurred obligation can constitute an act of default on the part of the borrower
of the financing agreement whereon the promise is written but, of course, the
remedy of foreclosure can only cover the debts extant at the time of constitution
and during the life of the chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with
the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under
Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an
affidavit is not appended to the agreement, the chattel mortgage would still be
valid between the parties (not against third persons acting in good faith 12), the
fact, however, that the statute has provided that the parties to the contract must
execute an oath that
. . . (the) mortgage is made for the purpose of securing the obligation specified in
the conditions thereof, and for no other purpose, and that the same is a just and
valid obligation, and one not entered into for the purpose of fraud. 13
makes it obvious that the debt referred to in the law is a current, not an obligation
that is yet merely contemplated. In the chattel mortgage here involved, the only
obligation specified in the chattel mortgage contract was the P3,000,000.00 loan
which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel
Mortgage Law, the payment of the obligation automatically rendered the chattel
mortgage void or terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes
Press, Inc., et al., 14 the Court
said
Page 135 of 152
. . . A mortgage that contains a stipulation in regard to future advances in the credit
will take effect only from the date the same are made and not from the date of the
mortgage. 15
The significance of the ruling to the instant problem would be that since the 1978
chattel mortgage had ceased to exist coincidentally with the full payment of the
P3,000,000.00 loan, 16 there no longer was any chattel mortgage that could cover
the new loans that were concluded thereafter.
We find no merit in petitioner corporation's other prayer that the case should be
remanded to the trial court for a specific finding on the amount of damages it has
sustained "as a result of the unlawful action taken by respondent bank against it."
17 This prayer is not reflected in its complaint which has merely asked for the
amount of P3,000,000.00 by way of moral damages. 18 In LBC Express, Inc. vs. Court
of Appeals, 19 we have said:
Moral damages are granted in recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental anguish. Mental
suffering can be experienced only by one having a nervous system and it flows from
real ills, sorrows, and griefs of life all of which cannot be suffered by respondent
bank as an artificial person. 20
While Chua Pac is included in the case, the complaint, however, clearly states that he
has merely been so named as a party in representation of petitioner corporation.
Petitioner corporation's counsel could be commended for his zeal in pursuing his
client's cause. It instead turned out to be, however, a source of disappointment for
this Court to read in petitioner's reply to private respondent's comment on the
petition his so-called "One Final Word;" viz:
In simply quoting in toto the patently erroneous decision of the trial court,
respondent Court of Appeals should be required to justify its decision which
completely disregarded the basic laws on obligations and contracts, as well as the
clear provisions of the Chattel Mortgage Law and well-settled jurisprudence of this
Honorable Court; that in the event that its explanation is wholly unacceptable, this
Honorable Court should impose appropriate sanctions on the erring justices. This is
one positive step in ridding our courts of law of incompetent and dishonest
magistrates especially members of a superior court of appellate jurisdiction. 21
(Emphasis supplied.)
The statement is not called for. The Court invites counsel's attention to the
admonition in Guerrero vs. Villamor; 22 thus:
(L)awyers . . . should bear in mind their basic duty "to observe and maintain the
respect due to the courts of justice and judicial officers and . . . (to) insist on similar
conduct by others." This respectful attitude towards the court is to be observed,
"not for the sake of the temporary incumbent of the judicial office, but for the
maintenance of its supreme importance." And it is through a scrupulous preference
for respectful language that a lawyer best demonstrates his observance of the
respect due to the courts and judicial officers . . . 23
The virtues of humility and of respect and concern for others must still live on even
in an age of materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower court
are set aside without prejudice to the appropriate legal recourse by private
respondent as may still be warranted as an unsecured creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in
dealing with the courts.
SO ORDERED.
FIRST DIVISION
JOSE C. CORDOVA, G.R. No. 146555
Petitioner,
Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,*
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ. **
REYES DAWAY LIM BERNARDO
LINDO ROSALES LAW OFFICES,
ATTY. WENDELL CORONEL and
the SECURITIES AND EXCHANGE
COMMISSION,***
Respondents. Promulgated:
July 3, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CRED TRANS Pledge, Mortgage Antichresis Fulltext
CORONA, J.:
This is a petition for review on certiorari[1] of a decision[2] and resolution[3] of the
Court of Appeals (CA) dated July 31, 2000 and December 27, 2000, respectively, in
CA-G.R. SP No. 55311.
Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from Philippine
Underwriters Finance Corporation (Philfinance) certificates of stock of Celebrity
Sports Plaza Incorporated (CSPI) and shares of stock of various other corporations.
He was issued a confirmation of sale.[4] The CSPI shares were physically delivered by
Philfinance to the former Filmanbank[5] and Philtrust Bank, as custodian banks, to
hold these shares in behalf of and for the benefit of petitioner.[6]
On June 18, 1981, Philfinance was placed under receivership by public respondent
Securities and Exchange Commission (SEC). Thereafter, private respondents Reyes
Daway Lim Bernardo Lindo Rosales Law Offices and Atty. Wendell Coronel (private
respondents) were appointed as liquidators.[7] Sometime in 1991, without the
knowledge and consent of petitioner and without authority from the SEC, private
respondents withdrew the CSPI shares from the custodian banks.[8] On May 27,
1996, they sold the shares to Northeast Corporation and included the proceeds
thereof in the funds of Philfinance. Petitioner learned about the unauthorized sale of
his shares only on September 10, 1996.[9] He lodged a complaint with private
respondents but the latter ignored it[10] prompting him to file, on May 6, 1997,[11]
a formal complaint against private respondents in the receivership proceedings with
the SEC, for the return of the shares.
Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for
Philfinances creditors and investors.[12] On May 13, 1997, the liquidators began the
process of settling the claims against Philfinance, from its assets.[13]
On April 14, 1998, the SEC rendered judgment dismissing the petition. However, it
reconsidered this decision in a resolution dated September 24, 1999 and granted
the claims of petitioner. It held that petitioner was the owner of the CSPI shares by
virtue of a confirmation of sale (which was considered as a deed of assignment)
issued to him by Philfinance. But since the shares had already been sold and the
proceeds commingled with the other assets of Philfinance, petitioners status was
converted into that of an ordinary creditor for the value of such shares. Thus, it
ordered private respondents to pay petitioner the amount of P5,062,500
representing 15% of the monetary value of his CSPI shares plus interest at the legal
rate from the time of their unauthorized sale.
On October 27, 1999, the SEC issued an order clarifying its September 24, 1999
resolution. While it reiterated its earlier order to pay petitioner the amount of
P5,062,500, it deleted the award of legal interest. It clarified that it never meant to
award interest since this would be unfair to the other claimants.
On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the owner
of the CSPI shares but the recovery of such shares had become impossible. It also
declared that the clarificatory order merely harmonized the dispositive portion with
the body of the resolution. Petitioners motion for reconsideration was denied.
Hence this petition raising the following issues:
1) whether petitioner should be considered as a preferred (and secured)
creditor of Philfinance;
2) whether petitioner can recover the full value of his CSPI shares or
merely 15% thereof like all other ordinary creditors of Philfinance and
3) whether petitioner is entitled to legal interest.[14]
To resolve these issues, we first have to determine if petitioner was indeed a creditor
of Philfinance.
There is no dispute that petitioner was the owner of the CSPI shares. However,
private respondents, as liquidators of Philfinance, illegally withdrew said certificates
of stock without the knowledge and consent of petitioner and authority of the
SEC.[15] After selling the CSPI shares, private respondents added the proceeds of
the sale to the assets of Philfinance.[16] Under these circumstances, did the
petitioner become a creditor of Philfinance? We rule in the affirmative.
The SEC, after holding that petitioner was the owner of the shares, stated:
Petitioner is seeking the return of his CSPI shares which, for the present, is no longer
possible, considering that the same had already been sold by the respondents, the
proceeds of which are ADMITTEDLY commingled with the assets of PHILFINANCE.
This being the case, [petitioner] is now but a claimant for the value of those shares.
As a claimant, he shall be treated as an ordinary creditor in so far as the value of
those certificates is concerned.[17]
The CA agreed with this and elaborated:
Much as we find both detestable and reprehensible the grossly abusive and illicit
contrivance employed by private respondents against petitioner, we, nevertheless,
concur with public respondent that the return of petitioners CSPI shares is well-nigh
impossible, if not already an utter impossibility, inasmuch as the certificates of
stocks have already been alienated or transferred in favor of Northeast Corporation,
as early as May 27, 1996, in consequence whereof the proceeds of the sale have
been transmuted into corporate assets of Philfinance, under custodia legis, ready for
distribution to its creditors and/or investors. Case law holds that the assets of an
institution under receivership or liquidation shall be deemed in custodia legis in the
hands of the receiver or liquidator, and shall from the moment of such receivership
Page 136 of 152
or liquidation, be exempt from any order, garnishment, levy, attachment, or
execution.
Concomitantly, petitioners filing of his claim over the subject CSPI shares before the
SEC in the liquidation proceedings bound him to the terms and conditions thereof.
He cannot demand any special treatment [from] the liquidator, for this flies in the
face of, and will contravene, the Supreme Court dictum that when a corporation
threatened by bankruptcy is taken over by a receiver, all the creditors shall stand on
equal footing. Not one of them should be given preference by paying one or some
[of] them ahead of the others. This is precisely the philosophy underlying the
suspension of all pending claims against the corporation under receivership. The
rule of thumb is equality in equity.[18]
We agree with both the SEC and the CA that petitioner had become an ordinary
creditor of Philfinance.
Certainly, petitioner had the right to demand the return of his CSPI shares.[19] He in
fact filed a complaint in the liquidation proceedings in the SEC to get them back but
was confronted by an impossible situation as they had already been sold.
Consequently, he sought instead to recover their monetary value.
Petitioners CSPI shares were specific or determinate movable properties.[20] But
after they were sold, the money raised from the sale became generic[21] and were
commingled with the cash and other assets of Philfinance. Unlike shares of stock,
money is a generic thing. It is designated merely by its class or genus without any
particular designation or physical segregation from all others of the same class.[22]
This means that once a certain amount is added to the cash balance, one can no
longer pinpoint the specific amount included which then becomes part of a whole
mass of money.
It thus became impossible to identify the exact proceeds of the sale of the CSPI
shares since they could no longer be particularly designated nor distinctly
segregated from the assets of Philfinance. Petitioners only remedy was to file a
claim on the whole mass of these assets, to which unfortunately all of the other
creditors and investors of Philfinance also had a claim.
Petitioners right of action against Philfinance was a claim properly to be litigated in
the liquidation proceedings.[23] In Finasia Investments and Finance Corporation v.
CA,[24] we discussed the definition of claims in the context of liquidation
proceedings:
We agree with the public respondent that the word claim as used in Sec. 6(c) of P.D.
902-A,[25] as amended, refers to debts or demands of a pecuniary nature. It means
"the assertion of a right to have money paid. It is used in special proceedings like
those before [the administrative court] on insolvency."
The word "claim" is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, unsecured.[26]
Undoubtedly, petitioner had a right to the payment of the value of his shares. His
demand was of a pecuniary nature since he was claiming the monetary value of his
shares. It was in this sense (i.e. as a claimant) that he was a creditor of Philfinance.
The Civil Code provisions on concurrence and preference of credits are applicable to
the liquidation proceedings.[27] The next question is, was petitioner a preferred or
ordinary creditor under these provisions?
Petitioner argues that he was a preferred creditor because private respondents
illegally withdrew his CSPI shares from the custodian banks and sold them without
his knowledge and consent and without authority from the SEC. He quotes Article
2241 (2) of the Civil Code:
With reference to specific movable property of the debtor, the following claims or
liens shall be preferred:
xxx xxx xxx
(2) Claims arising from misappropriation, breach of trust, or malfeasance by public
officials committed in the performance of their duties, on the movables, money or
securities obtained by them;
xxx xxx xxx
(Emphasis supplied)
He asserts that, as a preferred creditor, he was entitled to the entire monetary value
of his shares.
Petitioners argument is incorrect. Article 2241 refers only to specific movable
property. His claim was for the payment of money, which, as already discussed, is
generic property and not specific or determinate.
Considering that petitioner did not fall under any of the provisions applicable to
preferred creditors, he was deemed an ordinary creditor under Article 2245:
Credits of any other kind or class, or by any other right or title not comprised in the
four preceding articles, shall enjoy no preference.
This being so, Article 2251 (2) states that:
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Common credits referred to in Article 2245 shall be paid pro rata regardless of
dates.
Like all the other ordinary creditors or claimants against Philfinance, he was entitled
to a rate of recovery of only 15% of his money claim.
One final issue: was petitioner entitled to interest?
The SEC argues that awarding interest to petitioner would have given petitioner an
unfair advantage or preference over the other creditors.[28] Petitioner counters that
he was entitled to 12% legal interest per annum under Article 2209 of the Civil Code
from the time he was deprived of the shares until fully paid.
The guidelines for awarding interest were laid down in Eastern Shipping Lines, Inc. v.
CA:[29]
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can
be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run only from the date of
the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount of finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.[30] (Emphasis supplied)
Under this ruling, petitioner was not entitled to legal interest of 12% per annum
(from demand) because the amount owing to him was not a loan[31] or forbearance
of money.[32]
Neither was he entitled to legal interest of 6% per annum under Article 2209 of the
Civil Code[33] since this provision applies only when there is a delay in the payment
of a sum of money.[34] This was not the case here. In fact, petitioner himself
manifested before the CA that the SEC (as liquidator) had already paid him
P5,062,500 representing 15% of P33,750,000.[35]
Accordingly, petitioner was not entitled to interest under the law and current
jurisprudence.
Considering that petitioner had already received the amount of P5,062,500, the
obligation of the SEC as liquidator of Philfinance was totally extinguished.[36]
We note that there is an undisputed finding by the SEC and CA that private
respondents sold the subject shares without authority from the SEC. Petitioner
evidently has a cause of action against private respondents for their bad faith and
unauthorized acts, and the resulting damage caused to him.[37]
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.
EN BANC
G.R. No. L-14938 January 28, 1961
MAGDALENA C. DE BARRETO, ET AL., plaintiffs-appellants,
vs.
JOSE G. VILLANUEVA, ET AL., defendants-appellees.
Bausa, Ampil & Suarez for plaintiffs-appellants.
Esteban Ocampo for defendants-appellees.
Page 137 of 152
GUTIERREZ DAVID, J.:
On May 10, 1948, Rosario Cruzado, for herself and as administratix of the intestate
estate of her deceased husband Pedro Cruzado in Special Proceedings No. 4959 of
the Court of First Instance of Manila, obtained from the defunct Rehabilitation
Finance Corporation (hereinafter referred to as the RFC a loan in the amount of
P11,000.00. To secure payment thereof, she mortgaged the land then covered by
Transfer Certificate of Title No. 61358 issued in her name and that of her deceased.
husband. As she failed to pay certain installments on the loan, the mortgage was
foreclosed and the RFC acquired the property for P11,000.00, subject to her rights
as mortgagor to re-purchase the same. On July 26, 1951, upon her application, the
land was sold back to her conditionally for the amount of P14,269.03, payable in
seven years.
About two years thereafter, or on February 13, 1953 Rosario Cruzado, as guardian of
her minor children in Special Proceedings No. 14198 of the Court of First Instance of
Manila, was authorized by the court, to sell with the previous consent of the RFC the
land in question together with the improvements thereon for a sum not less than
P19,000. Pursuant to such authority and with the consent of the RFC, she sold to
Pura L. Villanueva for P19,000.00 "all their rights, interest,' title and dominion and
over the herein described parcel of land together with the existing improvements
thereon, including one use and an annex thereon; free from all charges and
encumbrances, , with the exception of the sum of P11,009.52, is stipulated interest
thereon, which the vendor, is still presently obligated to the RFC and which the
vendee herein now assumes to pay to the RFC under the same terms and conditions
specified in that deed of sale dated July 26, 1951." Having paid in advance the sum
of P500.00, Pura L. Villanueva, the vendee, in consideration of the aforesaid sale,
executed in favor of the vendor Rosario Cruzado a promissory note dated March 9,
1953, undertaking to pay the balance of P17,500.00 in monthly installments. On
April 22, 1953, she made an additional payment of P5,500.00 on the promissory
note. She was, subsequently, able to secure in her name Transfer Certificate of Title
No. 32526 covering the house and lot above referred to, and on July 10, 1953, she
mortgaged the said property to Magdalena C. Barretto as security for a loan the
amount of P30,000.00.
As said Pura L. Villanueva had failed to pay the remaining installments on the
unpaid balance of P12,000.00 her promissory note for the sale of the property in
question, a complaint for the recovery of the same from her and her husband was
filed on September 21, 1963 by Rosario Cruzado in her own right and in her
capacity as judicial guardian of her minor children. Pending trial of the case, a lien
was constituted upon the property in the nature of a levy in attachment in favor of
the Cruzados said lien being annotated at the back of Transfer Certificate of Title
No. 32526. After trial, decision was rendered ordering Pura Villanueva and her
husband, jointly and severally, to pay Rosario Cruzado the sum of P12,000.00, with
legal interest thereon from the date of the filing of the complaint until fully paid
plus the sum of P1,500.00 as attorney's fees.
Pura Villanueva having, likewise, failed to pay her indebtedness of P30,000.00 to
Magdalena C. Barretto, the latter, jointly with her husband, instituted against the
Villanueva spouses an action for foreclosure of mortgage, impleading Rosario
Cruzado and her children as parties defendants. On November 11, 1956, decision
was rendered in the case absolving the Cruzados from the complaint and
sentencing the Villanuevas to pay the Barrettos, jointly and severally, the sum of
P30,000.00, with interest thereon at the rate of 12% per annum from January 11,
1954 plus the sum of P4,000.00 as attorney's fees. Upon the finality of this decision,
the Barrettos filed a motion for the issuance of a writ of execution which was
granted by the lower court on July 31, 1958. On August 14, 1958, the Cruzados filed
their "Vendor's Lien" in the amount of P12,000.00, plus legal interest, over the real
property subject of the foreclosure suit, the said amount representing the unpaid
balance of the purchase price of the said property. Giving due course to the line, the
court on August 18, 1958 ordered the same annotated in Transfer Certificate of Title
No. 32526 of the Registry of Deeds of Manila, decreeing that should the realty in
question be sold at public auction in the foreclosure proceedings, the Cruzados
shall be credited with their pro-rata share in the proceeds thereof, "pursuant to the
provision of articles 2248 and 2249 of the new Civil Code in relation to Article 2242,
paragraph 2 of the same Code." The Barrettos filed a motion for reconsideration on
September 12, 1958, but on that same date, the sheriff of Manila, acting in
pursuance of the order of the court granting the writ of execution, sold at public
auction the property in question. As highest bidder, the Barrettos themselves
acquired the properties for the sum of P49,000.00.
On October 4, 1958, 'the Court of First Instance issued an order confirming the
aforesaid sale and directing the Register of Deeds of the City of Manila to issue to
the Barrettos the corresponding certificate of title, subject, however, to the order of
August 18, 1958 concerning,. the vendor's lien. On the same date, the motion of the
Barettos seeking reconsideration of the order of the court giving due course to the
said vendor's lien was denied. From this last order, the Barretto spouses interposed
the present appeal.
The appeal is devoid of merit.
In claiming that the decision of the Court, of First Instance of Manila in Civil Case
No. 20075 . awarding the amount of P12,000.00 in favor of Rosario Cruzado and her
minor children . cannot constitute a basis for the vendor's lien filed by the appellee
Rosario Cruzado, appellants allege that the action in said civil case was merely to
recover the balance of a promissory note. But while, apparently, the action was to
recover the remaining obligation of promissor Pura Villanueva on the note, the fact
remains that Rosario P. Cruzado as guardian of her minor children, was an unpaid
vendor., of the realty in question, and the promissory note, was, precisely, for the
unpaid balance of the price of the property bought by, said Pura Villanueva.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Article 2242 of the new Civil, Code enumerates the claims, mortgage and liens that
constitute an encumbrance on specific immovable property, and among them are: .
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with
respect to the same specific real property or real rights, they shall be satisfied pro-
rata after the payment of the taxes and assessment upon the immovable property
or real rights.
Application of the above-quoted provisions to the case at bar would mean that the
herein appellee Rosario Cruzado as an unpaid vendor of the property in question
has the right to share pro-rata with the appellants the proceeds of the foreclosure
sale.
The appellants, however, argue that inasmuch as the unpaid vendor's lien in this
case was not registered, it should not prejudice the said appellants' registered rights
over the property. There is nothing to this argument. Note must be taken of the fact
that article 2242 of the new Civil Code enumerating the preferred claims, mortgages
and liens on immovables, specifically requires that . unlike the unpaid price of real
property sold . mortgage credits, in order to be given preference, should be
recorded in the Registry of Property. If the legislative intent was to impose the same
requirement in the case of the vendor's lien, or the unpaid price of real property
sold, the lawmakers could have easily inserted the same qualification which now
modifies the mortgage credits. The law, however, does not make any distinction
between registered and unregistered vendor's lien, which only goes to show that
any lien of that kind enjoys the preferred credit status.
Appellants also argue that to give the unrecorded vendor's lien the same standing
as the registered mortgage credit would be to nullify the principle in land
registration system that prior unrecorded interests cannot prejudice persons who
subsequently acquire interests over the same property. The Land Registration Act
itself, however, respects without reserve or qualification the paramount rights of lien
holders on real property. Thus, section 70 of that Act provides that .
Registered land, and ownership therein shall in all respects be subject to the same
burdens and incidents attached by law to unregistered land. Nothing contained in
this Act shall in any way be construed to relieve registered land or the owners
thereof from any rights incident to the relation of husband and wife, or from liability
to attachment on mesne process or levy, on execution, or from liability to any lien of
any description established by law on land and the buildings thereon, or the interest
of the owners of such land or buildings, or to change the laws of descent, or the
rights of partition between co-owners, joint tenants and other co-tenants or the
right to take the same by eminent domain, or to relieve such land from liability to
be appropriated in any lawful manner for the payment of debts, or to change or
affect in any other way any other rights or liabilities created by law and applicable to
unregistered land, except as otherwise expressly provided in this Act or in the
amendments thereof, (Emphasis supplied)
As to the point made that the articles of the Civil Code on concurrence and
preference of credits are applicable only to the insolvent debtor, suffice it to say that
nothing in the law shows any such limitation. If we are to interpret this portion of
the Code as intended only for insolvency cases, then other creditor-debtor
relationships where there are concurrence of credits would be left without any rules
to govern them, and it would render purposeless the special laws an insolvency.
Premises considered, the order appealed from is hereby affirmed. Costs against the
appellants.
Bengzon, Padilla, Bautista Angelo, Labrador, Paredes and Dizon, JJ., concur.
Concepcion, Reyes, J.B.L. and Barrera, JJ., concur in the result.
RESOLUTION ON MOTION TO RECONSIDER
December 29, 1962
REYES, J.B.L., J.:
Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be
discussed in the course of this resolution, that our decision of 28 January 1961 be
reconsidered and set aside, and a new one entered declaring that their right as
mortgagees remain superior to the unrecorded claim of herein appellee for the
balance of the purchase price of her rights, title, and interests in the mortgaged
property.
It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title,
and interest and that of her children in the house and lot herein involved to Pura I.
Villanueva for P19,000.00. The purchaser paid Pl,500 in advance, and executed a
promissory note for the balance of P17,506.00. However, the buyer could only pay
P5,500 On account of the note, for which reason the vendor obtained judgment for
the unpaid balance. In the meantime, the buyer Villanueva was able to secure a
clean certificate of title (No. 32626), and mortgaged the property to appellant
Magdalena C. Barretto, married to Jose C. Barretto, to secure a loan of P30,000.03,
said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
foreclosed the mortgage in her favor, obtained judgment, and upon its becoming
final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a
motion for recognition for her "vendor's lien" in the amount of Pl2,000.00, plus legal
Page 138 of 152
interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing,
the court below ordered the "lien" annotated on the back of Certificate of Title No.
32526, with the proviso that in case of sale under the foreclosure decree the
vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata
from the proceeds. Our original decision affirmed this order of the Court of First
Instance of Manila.
Appellants insist that:
(1) The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the
Philippines, can only become effective in the event of insolvency of the vendee,
which has not been proved to exist in the instant case; and .
(2) That the appellee Cruzado is not a true vendor of the foreclosed property. We
have given protracted and mature consideration to the facts and law of this case,
and have reached the conclusion that our original decision must be reconsidered
and set aside, for the following reasons:
A. The previous decision failed to take fully into account the radical changes
introduced by the Civil Code of the Philippines into the system of priorities among
creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to
specific real property under Article 1923 were to be resolved according to an order
of priorities established by Article 1927, whereby one class of creditors could
exclude the creditors of lower order until the claims of the former were fully
satisfied out of the proceeds of the sale of the real property subject of the
preference, and could even exhaust proceeds if necessary.
Under the system of the Civil Code of the Philippines however, only taxes enjoy a
similar absolute preference. All the remaining thirteen classes of preferred creditors
under Article 2242 enjoy no priority among themselves, but must be paid pro-rata
i.e., in proportion to the amount of the respective credits. Thus, Article 2249
provides:
If there are two or more credits with respect to the same specific real property or
real rights, they, shall be satisfied pro-rata after the payment of the taxes and
assessments upon the immovable property or real rights."
But in order to make this prorating fully effective, the preferred creditors
enumerated in Nos. 2 to 14 of Article 2242 (or such of their, as have credits
outstanding) must necessarily be convened, and the import of their claims
ascertained. It is thus apparent that the full, application (of Articles 2249 and 2242
demands that there must be first some proceedings where the claims of all the
preferred creditors may be bindingly adjudicated, such as insolvency, the settlement
of decedents estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that
The claims or credits enumerated in the two preceding articles" shall be considered
as mortgages or pledges of real or personal property, or liens within the purview of
legal provisions governing insolvency . . . (Emphasis supplied),
And the rule is further clarified in he Report of the Code Commission, as follows:
The question as to whether the Civil Code and the insolvency Law can be
harmonized is settled by this Article (2243). The preferences named in Articles 2261
and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency
Law." (Emphasis supplied) .
Thus, it becomes evident that one preferred creditor's third-party claim to the
proceeds of a foreclosure sale (as in the case now before us) is not the proceeding
contemplated by law for the enforcement of preferences under Article 2242, unless
the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of
the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain the pro-rata dividend corresponding to each, because the rights of the
other creditors likewise" enjoying preference under Article 2242 can not be
ascertained. Wherefore, the order of the Court of First Instance of Manila now
appealed from, decreeing that the proceeds of the foreclosure sale be apportioned
only between appellant and appellee, is incorrect, and must be reversed.
In the absence of insolvency proceedings (or other equivalent general liquidation of
the debtor's estate), the conflict between the parties now before us must be decided
pursuant to the well established principle concerning registered lands; that a
purchaser in good faith and for value (as the appellant concededly is) takes
registered property free from liens and encumbrances other than statutory liens and
those recorded in the certificate of title. There being no insolvency or liquidation,
the claim of the appellee, as unpaid vendor, did not require the character and rank
of a statutory lien co-equal to the mortgagee's recorded encumbrance, and must
remain subordinate to the latter.
We are understandably loathed (absent a clear precept of law so commanding) to
adopt a rule that would undermine the faith and credit to be accorded to registered
Torrens titles and nullify the beneficient objectives sought to be obtained by the
Land Registration Act. No argument is needed to stress that if a person dealing with
registered land were to be held to take it in every instance subject to all the
fourteen preferred claims enumerate in Article 2242 of the new Civil Code, even if
the existence and import thereof can not be ascertained from the records, all
confidence in Torrens titles would be destroyed, and credit transactions on the faith
of such titles would be hampered, if not prevented, with incalculable results. Loans
on real estate security would become aleatory and risky transactions, for no,
CRED TRANS Pledge, Mortgage Antichresis Fulltext
prospective lender could accurately estimate the hidden liens on the property
offered as security, unless he indulged in complicated, tedious investigations, . The
logical result might well be a contraction of credit unforeseeable proportions that
could lead to economic disaster.
Upon the other hand, it does not appear excessively burdensome to require the
privileged creditors to cause their claims to be recorded in the books of the Register
of deeds should they desire to protect their rights even outside of insolvency or
liquidation proceedings.
B. The close study of the facts disclosed by the records lasts strong doubt on the
proposition that appellees Cruzados should be regarded as unpaid vendors of the
property( land, buildings, and improvements ) involved in the case at bar so as to be
entitled to preference under Article 2242. The record on appeal, specially the final
decision of the Court of First Instance of Manila in the suit of the ,Cruzados against
Villanueva, clearly establishes that after her husband's death, and with due court
authority, Rosario Cruzado, for herself and as administratrix of her husband's state,
mortgaged the property to the Rehabilitation Finance Corporation (RFC) to secure
payment of a loan of P11,000, installments, but that the debtor failed to pay some
of the installments; wherefore the RFC, on 24 August 1949, foreclosed the
mortgage, and acquired the property, subject to the debtor's right to redeem or
repurchase the said property; and that on 25 September 1950, the RFC consolidated
its ownership, and the certificate of title of the Cruzados was cancelled and a new
certificate issued in the name of the RFC.
While on 26 July 1951 the RFC did execute a deed selling back the property to the
erstwhile mortgagors and former owners Cruzados in installments, subject to the
condition (among others) that the title to the property and its improvements "shall
remain in the name of Corporation (RFC) until after said purchase price, advances
and interests shall have been fully paid", as of 27 September 1952, Cruzado had
only paid a total of P1,360, and had defaulted on six monthly amortizations; for
which reason the RFC rescinded the sale, and forfeited the payments made, in
accordance with the terms of the contract of 26 July 1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all "their
rights, title, interest and dominion on and over" the property, lot, house, and
improvements for P19,000.00, the buyer undertaking to assume payment of the
obligation to the RFC, and by resolution of 30 April 1953, the RFC approved "the
transfer of the rights and interest of Rosario P. Cruzado and her children in their
property herein above-described in favor of Pura L. Villanueva"; and on 7 May 1953
the RFC executed a deed of absolute sale of the property to said party, who had
fully paid the price of P14,269.03. Thereupon, the spouses Villanueva obtained a
new Transfer Certificate of Title No. 32526 in their name.
On 10 July 1953, the Villanuevas mortgaged the property to the spouses Barretto,
appellants herein.
It is clear from the facts above-stated that ownership of the property had passed to
the Rehabilitation Finance Corporation since 1950, when it consolidated its purchase
at the foreclosure sale and obtained a certificate of title in its corporate name. The
subsequent contract of resale in favor of the Cruzados did not revest ownership in
them, since they failed to comply with its terms and conditions, and the contract
itself provided that the title should remain in the name of the RFC until the price
was fully paid.
Therefore, when after defaulting in their payments due under the resale contract
with the RFC the appellants Cruzados sold to Villanueva "their rights, title, interest
and dominion" to the property, they merely assigned whatever rights or claims they
might still have thereto; the ownership of the property rested with the RFC. The sale
from Cruzado to Villanueva, therefore, was not so much a sale of the land and its
improvements as it was a quit-claim deed in favor of Villanueva. In law, the
operative sale was that from the RFC to the latter, and it was the RFC that should be
regarded as the true vendor of the property. At the most, the Cruzados transferred
to Villanueva an option to acquire the property, but not the property itself, and their
credit, therefore, can not legally constitute a vendor's lien on the corpus of that
property that should stand on an equal footing with the mortgaged credit held by
appellant Barretto.
In view of the foregoing, the previous decision of this Court, promulgated on 28
January 1961, is hereby reconsidered and set aside, and a new one entered
reversing the judgment appealed from and declaring the appellants Barretto
entitled to full satisfaction of their mortgaged credit out of the proceeds of the
foreclosure sale in the hands of the Sheriff of the City of Manila. No costs.
FIRST DIVISION
[G.R. No. L-33929. September 2, 1983.]
PHILIPPINE SAVINGS BANK, Petitioner, v. HON. GREGORIO T. LANTIN, Presiding
Judge, Court of First Instance of Manila, Branch VII, and CANDIDO RAMOS,
Respondents.
Jose Diokno for Petitioner.
Romeo C . Carlos for Private Respondent.
SYLLABUS
Page 139 of 152
1. CIVIL LAW; CREDIT TRANSACTION; CONCURRENCE AND PREFERENCE
OF CREDITS; INSUFFICIENT ASSETS OF DEBTOR RAISES QUESTION OF PREFERENCE
AS WELL AS QUESTION OF CONSEQUENCE IN CONCURRENCE OF CREDITS.
Concurrence of credits occurs when the same specific property of the debtor or all
of his property is subjected to the claims of several creditors. The concurrence of
credits raises no questions of consequence were the value of the property or the
value of all assets of the debtor is sufficient to pay in fall all the creditors. However,
it becomes material when said assets are insufficient for then some creditors of
necessity will not be paid or some creditors will not obtain the full satisfaction of
their claims. In this situation, the question of preference will then arise, that is to say
who of the creditors will be paid the all of the others (Caguioa, Comments and
Cases on Civil Law, 1970 ed., Vol. VI, p. 472).
2. ID.; ID.; PREFERENCE OF CREDITS; ARTICLES 2249 AND 2242 OF THE
NEW CIVIL CODE OF THE PHILIPPINES; CONSTRUED. Under the system
established by Article 2249 of the civil Code of the Philippines, only taxes and
assessments upon immovable property enjoy absolute preference. All the remaining
specified classes of preferred creditors under Article 2242 enjoy no priority among
themselves. Their credits shall be satisfied pro-rata, i.e., in proportion to the amount
of the respective credits.
3. ID.; ID.; ARTICLE 2249 AND 2242 OF THE NEW CIVIL CODE; PAIL
REQUISITE TO THEIR FULL APPLICATION UNDER THE DE BARRETO CASE. Under
the De Barreto decision, the full application of Articles 2242 and 2249 demands that
there must first be some proceeding where the class of all the preferred creditors
may be bindingly adjudicated, such as insolvency, the settlement of a decedents
estate under Rule 87 of the Rules of Court, or other liquidation proceedings of
similar import.
4. REMEDIAL LAW; INSOLVENCY PROCEEDINGS AND SETTLEMENT OF A
DECEDENTS ESTATE; BOTH PROCEEDINGS IN REM, OTHER EQUIVALENT GENERAL
LIQUIDATION OF SIMILAR NATURE. Insolvency proceedings end settlement of a
decedents estate are both proceedings in rem which are binding the whole world.
All persons having interest in the subject matter involved, whether they were
notified or not, are equally bound. Consequently, a liquidation of similar import or
other equivalent general liquidation must also necessarily be a proceeding in rem so
that all interested persons whether known to the parties or not may be bound by
such proceeding.
3. ID.; ACTION FOR COLLECTION OF UNPAID CONTRACTORS FEE; NOT
AN ACTION IN REM. The proceedings in the court below do not partake of the
insure of insolvency proceedings or settlement of a decedents estate. The action
filed by Ramos was only to collect the unpaid cost of the construction of the duplex
apartment. It is far from being a general liquidation of the estate of the Tabligan
spouses.
6. CIVIL LAW; CREDIT TRANSACTION; ANNOTATION OF CLAIMS AND
CREDITS AS STATUTORY LIENS; RELEVANCE TO THE STABILITY OF THE TORRENS
SYSTEM. In the case at bar, although the lower court found that "there were no
known creditors other than the plaintiff and the defendant herein," this cannot be
conclusive. It will not bar other creditors in the event they show up and present their
claims State petitioner bank, claiming that they also have preferred liens against the
property involved. Consequently, Transfer Certificate of Title No. 101864 issued in
favor of the bank which is supposed to be indefeasible would remain constantly
unstable and questionable. Such could not have been the intention of Article 2243
of the Civil Code although it considers claims and credits under Article 2242 as
statutory liens. Neither does the De Barreto case sanction such instability. In fact, an
annotation, as suggested above, would insure to the benefit of the public,
particularly those who may subsequently wish to buy the property in question or
who have a business transaction in connection therewith. It would facilitate the
enforcement of a legal statutory right which cannot be barred by laches (See Manila
Railroad Co. v. Luzon Stevedoring Co., 100 Phil. 135).
7. ID.; SALE; BUYER IN GOOD FAITH OF REALTY; TAKES IT FEE FROM LIENS
AND ENCUMBRANCES OTHER THAN STATUTORY LIENS AND THOSE ANNOTATED
IN THE TITLE; CASE AT BAR. Since the action filed by the private respondent is
not one which can be considered as "equivalent general liquidation" having the
same import as an insolvency or settlement of the decedents estate proceeding, the
well established principle must be applied that a purchaser in good faith and for
value takes register land free from liens and encumbrances other than statutory
liens and those recorded in the Certificate of Title. It Is an limited fact that at the
time the deeds of real estate mortgage in favor of the petitioner bank were
constituted, the transfer certificate of title of the spouses Tabligan was free from any
recorded lien and encumbrances, so that the only registered liens in the title were
deeds in favor of the petitioner.
DECISION
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Court of First Instance of Manila,
Branch VII, presided over by respondent Judge Gregorio T. Lantin, in Civil Case No.
79914 entitled Candido Ramos v. Philippine Savings Bank and of the order denying
a motion for its reconsideration. The dispositive portion of the decision
reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the defendant to pay the plaintiff the sum of P15,000.00 as his
pro-rata share in the value of the duplex-apartment house which was built by the
CRED TRANS Pledge, Mortgage Antichresis Fulltext
plaintiff for the spouses likewise Filomeno Tabligan and Socorro Espiritu, which is
now registered in the name of the defendant under Transfer Certificate of Title No.
101864 issued by the Register of Deeds of the City of Manila, on August 6, 1970,
with legal interest from the date of the filing of the complaint until fully paid; to pay
the sum of P500.00 as attorneys fees; and to pay the costs.
"The counterclaim interposed by the defendant is hereby dismissed."cralaw
virtua1aw library
Involved in this case is a duplex-apartment house on a lot covered by TCT No.
86195 situated at San Diego Street, Sampaloc, Manila, and owned by the spouses
Filomeno and Socorro Tabligan.
The duplex-apartment house was built for the spouses by private respondent
Candido Ramos, a duly licensed architect and building contractor, at a total cost of
P32,927.00. The spouses paid private respondent the sum of P7,139.00 only. Hence,
the latter used his own money, P25,788.50 in all, to finish the construction of the
duplex-apartment.chanrobles.com:cralaw:red
Meanwhile, on December 16, 1966, February 1, 1967, and February 28, 1967, the
spouses Tabligan obtained from petitioner Philippine Savings Bank three (3) loans in
the total amount of P35,000.00, the purpose of which was to complete the
construction of the duplex-apartment. To secure payment of the l2oans, the
spouses executed in favor of the petitioner three (3) promissory notes and three (3)
deeds of real estate mortgages over the property subject matter of this litigation.
On December 19, 1966, the petitioner registered the December 16, 1966 deed of
real estate mortgage with the Register of Deeds of Manila. The subsequent
mortgages of February 1, 1967, and February 28, 1967, were registered with the
Register of Deeds of Manila on February 2, 1967 and March 1, 1967, respectively. At
the time of the registration of these mortgages, Transfer Certificate of Title No.
86195 was free from all liens and encumbrances.
The spouses failed to pay their monthly amortizations. As a result thereof, the
petitioner bank foreclosed the mortgages, and at the public auction held on July 23,
1969, was the highest bidder.
On August 5, 1969, the petitioner bank registered the certificate of sale issued in its
favor. On August 9, 1970, the bank consolidated its ownership over the property in
question, and Transfer Certificate of Title No. 101864 was issued by the Register of
Deeds of Manila in the name of the petitioner bank.
Upon the other hand, the private respondent filed an action against the spouses to
collect the unpaid cost of the construction of the duplex-apartment before the
Court of First Instance of Manila, Branch I, which case was docketed therein as Civil
Case No. 69228. During its pendency, the private respondent succeeded in
obtaining the issuance of a writ of preliminary attachment, and pursuant thereto,
had the property in question attached. Consequently, a notice of adverse claim was
annotated at the back of Transfer Certificate of Title No. 86195.
On August 26, 1968, a decision was rendered in Civil Case No. 69228 in favor of the
private respondent and against the spouses. A writ of execution was accordingly
issued but was returned unsatisfied.
As the spouses did not have any properties to satisfy the judgment in Civil Case No.
69228, the private respondent addressed a letter to the petitioner for the delivery to
him (private respondent) of his pro-rata share in the value of the duplex-apartment
in accordance with Article 2242 of the Civil Code. The petitioner refused to pay the
pro-rata value prompting the private respondent to file the instant action. As earlier
stated, a decision was rendered in favor of the private Respondent.chanrobles
virtual lawlibrary
The parties are agreed that the only issue is whether or not the private respondent
is entitled to claim a pro-rata share in the value of the property in question. The
applicable provision, Article 2242 of the Civil Code, reads as
follows:jgc:chanrobles.com.ph
"ART. 2242. With reference to specific immovable property and real rights of the
debtor, the following claims, mortgages and liens shall be preferred, and shall
constitute an encumbrance on the immovable or real right:jgc:chanrobles.com.ph
"(1) Taxes due upon the land or building;
"(2) For the unpaid price of real property sold, upon the immovable sold;
"(3) Claims of laborers, masons, mechanics and other workmen, as well as of
architects, engineers and contractors, engaged in the construction, reconstruction or
repair of buildings, canals or other works, upon said buildings, canals or other
works;
"(4) Claims of furnishers of materials used in the construction reconstruction,
or repair of buildings, canals or other works upon said buildings, canals or other
works;
"(5) Mortgage credits recorded in the Registry of Property, upon the real
estate mortgaged;
"(6) Expenses for the preservation or improvement of real property when the
law authorizes reimbursement, upon the immovable preserved or improved;
Page 140 of 152
"(7) Credits annotated in the Registry of Property, in virtue of a judicial order,
by attachments or executions, upon the property affected, and only as to later
credits;
"(8) Claims of co-heirs for warranty in the partition of an immovable among
them, upon the real property thus divided;
"(9) Claims of donors of real property for pecuniary charges or other
conditions imposed upon the donee, upon the immovable donated;
"(10) Credits of insurers upon the property insured, for the insurance
premium for two years."cralaw virtua1aw library
Both the petitioner bank and private respondent Ramos rely on the case of De
Barreto v. Villanueva (6 SCRA 928).
The petitioner bank would impress upon this Court that the proceedings had before
the court below is not one of the proceedings contemplated in the De Barreto case
that will sustain the authority of the respondent court to adjudicate the claims of all
preferred creditors under Article 2242 of the Civil Code. Petitioner argues that for
Article 2242 of the Civil Code to apply, there must have been an insolvency
proceeding or other liquidation proceedings of similar import. And under the facts
then obtaining, there could have been no insolvency proceeding as there were only
two known creditors. ** Consequently, it is argued that private respondents unpaid
contractors claim did not acquire the character of a statutory lien equal to the
petitioners registered mortgage.
Upon the other hand, private respondent Ramos maintains that the proceedings
had before the court below can qualify as a general liquidation of the estate of the
spouses Tabligan because the only existing property of said spouses is the property
subject matter of this litigation.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
Concurrence of credits occurs when the same specific property of the debtor or all
of his property is subjected to the claims of several creditors. The concurrence of
credits raises no questions of consequence where the value of the property or the
value of all assets of the debtor is sufficient to pay in full all the creditors. However,
it becomes material when said assets are insufficient for then some creditors of
necessity will not be paid or some creditors will not obtain the full satisfaction of
their claims. In this situation, the question of preference will then arise, that is to say
who of the creditors will be paid ahead of the others. (Caguioa, Comments and
Cases on Civil Law, 1970 ed., Vol. VI, p. 472.)
Under the system established by Article 2249 of the Civil Code of the Philippines,
only taxes and assessments upon immovable property enjoy absolute preference.
All the remaining specified classes of preferred creditors under Article 2242 enjoy no
priority among themselves. Their credits shall be satisfied pro-rata, i.e., in proportion
to the amount of the respective credits.
Under the De Barreto decision, the full application of Articles 2242 and 2249
demands that there must first be some proceeding where the claims of all the
preferred creditors may be bindingly adjudicated, such as insolvency, the settlement
of a decedents estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.
The pertinent ruling reads:jgc:chanrobles.com.ph
"Thus, it becomes evident that one preferred creditors third-party claim to the
proceeds of a foreclosure sale (as in the case now before us) is not the proceeding
contemplated by law for the enforcement of preferences under Article 2242, unless
the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of
the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain the pro rata dividend corresponding to each because the rights of the
other creditors likewise enjoying preference under Article 2242 can not be
ascertained. Wherefore, the order of the Court of First Instance of Manila now
appealed from, decreeing that the proceeds of the foreclosure sale be apportioned
only between appellant and appellee, is incorrect and must be reversed.
"In the absence of insolvency proceedings (or other equivalent general liquidation
of the debtors estate), the conflict between the parties now before us must be
decided pursuant to the well established principle concerning registered lands; that
a purchaser in good faith and for value (as the appellant concededly is) takes
registered property free from liens and encumbrances other then statutory liens and
those recorded in the certificate of title. There being no insolvency or liquidation,
the claim of the appellee, as unpaid vendor, did not acquire the character and rank
of a statutory lien co-equal to the mortgagees recorded encumbrance, and must
remain subordinate to the latter."cralaw virtua1aw library
The resolution of this petition, therefore, hinges on the determination of whether an
insolvency proceeding or other liquidation proceeding of similar import may be
considered to have been conducted in the court below.
The respondent court ruled in the affirmative holding that:jgc:chanrobles.com.ph
"There were no known creditors, other than the plaintiff and defendant herein, and
the proceedings in the present case may ascertain and bindingly adjudicate the
respective claims of the plaintiff and the defendant, serving as a substantial
compliance with what the Supreme Court stated:jgc:chanrobles.com.ph
". . . it is thus apparent that the full application of Articles 2242 and 2249 demands
that there must be first some proceeding where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency, the settlement of a
CRED TRANS Pledge, Mortgage Antichresis Fulltext
decedents estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import. (de Barretto v. Villanueva, Et Al., G.R. No. L-14938,
December 29, 1962)."
A careful considering of this petition leads us to agree with the petitioner. The
conclusions of the lower court are not supported by the law and the facts.
The proceedings in the court below do not partake of the nature of the insolvency
proceedings or settlement of a decedents estate. The action filed by Ramos was
only to collect the unpaid cost of the construction of the duplex apartment. It is far
from being a general liquidation of the estate of the Tabligan spouses.
Insolvency proceedings and settlement of a decedents estate are both proceedings
in rem which are binding against the whole world. All persons having interest in the
subject matter involved, whether they were notified or not, are equally bound.
Consequently, a liquidation of similar import or "other equivalent general
liquidation must also necessarily be a proceeding in rem so that all interested
persons whether known to the parties or not may be bound by such proceeding.
In the case at bar, although the lower court found that "there were no known
creditors other than the plaintiff and the defendant herein", this can not be
conclusive. It will not bar other creditors in the event they show up and present their
claims against the petitioner bank, claiming that they also have preferred liens
against the property involved. Consequently, Transfer Certificate of Title No. 101864
issued in favor of the bank which is supposed to be indefeasible would remain
constantly unstable and questionable. Such could not have been the intention of
Article 2243 of the Civil Code although it considers claims and credits under Article
2242 as statutory liens. Neither does the De Barretto case sanction such instability. It
emphasized the following:jgc:chanrobles.com.ph
"We are understandably loath (absent a clear precept of law so commanding) to
adopt a rule that would undermine the faith and credit to be accorded to registered
Torrens titles and nullify the beneficient objectives sought to be obtained by the
Land Registration Act. No argument is needed to stress that if a person dealing with
registered land were to be held to take it in every instance subject to all the
fourteen preferred claims enumerated in Article 2242 of the new Civil Code, even if
the existence and import thereof can not be ascertained from the records, all
confidence in Torrens titles would be destroyed, and credit transactions on the faith
of such titles would be hampered, if not prevented, with incalculable results. Loans
on real estate security would become aleatory and risky transactions, for no
prospective lender could accurately estimate the hidden liens on the property
offered as security, unless he indulged in complicated, tedious investigations. The
logical result might well be a contraction of credit to unforeseable proportions that
could lead to economic disaster.
"Upon the other hand, it does not appear excessively burdensome to require the
privileged creditors to cause their claims to be recorded in the books of the Register
of Deeds should they desire to protect their rights even outside of insolvency or
liquidation proceedings.
In fact, an annotation, as suggested above, would inure to the benefit of the public,
particularly those who may subsequently wish to buy the property in question or
who have a business transaction in connection therewith. It would facilitate the
enforcement of a legal statutory right which cannot be barred by laches. (See Manila
Railroad Co. v. Luzon Stevedoring Co., 100 Phil. 135).chanrobles law library
Respondent Ramos admitted in the partial stipulation of facts submitted by both
parties that at the time of the loans to the spouses, the petitioners bank had no
actual or constructive knowledge of any lien against the property in question. The
duplex apartment house was built for P32,927.00. The spouses Tabligan borrowed
P35,000.00 for the construction of the apartment house. The bank could not have
known of any contractors lien because, as far as it was concerned, it financed the
entire construction even if the stated purpose of the loans was only to "complete"
the construction.
Since the action filed by the private respondent is not one which can be considered
as "equivalent general liquidation" having the same import as an insolvency or
settlement of the decedents estate proceeding, the well established principle must
be applied that a purchaser in good faith and for value takes registered land free
from liens and encumbrances other than statutory liens and those recorded in the
Certificate of Title. It is an admitted fact that at the time the deeds of real estate
mortgage in favor of the petitioner bank were constituted, the transfer certificate of
title of the spouses Tabligan was free from any recorded lien and encumbrances, so
that the only registered liens in the title were deeds in favor of the petitioner.
Prescinding from the foregoing, the private respondents claim must remain
subordinate to the petitioner banks title over the property evidenced by TCT No.
101864.
WHEREFORE, the petition is granted. The decision of the Court of First Instance of
Manila, Branch VII is, hereby, reversed and set aside. The complaint and the
counterclaim are dismissed.
SO ORDERED.
THIRD DIVISION
[G.R. No. 105827. January 31, 2000]
Page 141 of 152
J.L. BERNARDO CONSTRUCTION, represented by attorneys-in-fact Santiago R.
Sugay, Edwin A. Sugay and Fernando S.A. Erana, SANTIAGO R. SUGAY, EDWIN A.
SUGAY and FERNANDO S. A. ERANA, petitioners, vs. COURT OF APPEALS and
MAYOR JOSE L. SALONGA, respondents.
DECISION
GONZAGA-REYES, J.:
This petition for certiorari under Rule 65 seeks to annul and set aside the following:
1. Decision dated February 6, 1992 issued by the Eleventh Division of the Court of
Appeals in CA-G.R. No. 26336 which nullified the order of the Regional Trial Court of
Cabanatuan City in Civil Case No. 1016-AF granting plaintiffs (petitioners herein) a
writ of attachment and a contractors lien upon the San Antonio Public Market; and
2. Resolution dated June 10, 1992 issued by the former Eleventh Division of the
Court of Appeals in CA-G.R. No. 26336 denying the motions for reconsideration
filed by both parties.
The factual antecedents of this case, as culled from the pleadings, are as follows:
Sometime in 1990, the municipal government of San Antonio, Nueva Ecija approved
the construction of the San Antonio Public Market. The construction of the market
was to be funded by the Economic Support Fund Secretariat (ESFS), a government
agency working with the USAID. Under ESFS "grant-loan-equity" financing program,
the funding for the market would be composed of a (a) grant from ESFS, (b) loan
extended by ESFS to the Municipality of San Antonio, and (c) equity or counterpart
funds from the Municipality.
It is claimed by petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana
and J.L. Bernardo Construction, a single proprietorship owned by Juanito L.
Bernardo, that they entered into a business venture for the purpose of participating
in the bidding for the public market. It was agreed by petitioners that Santiago
Sugay would take the lead role and be responsible for the preparation and
submission of the bid documents, financing the entire project, providing and
utilizing his own equipment, providing the necessary labor, supplies and materials
and making the necessary representations and doing the liaison work with the
concerned government agencies.
On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay,
submitted its bid together with other qualified bidders. After evaluating the bids,
the municipal pre-qualification bids and awards committee, headed by respondent
Jose L. Salonga (then incumbent municipal mayor of San Antonio) as Chairman,
awarded the contract to petitioners. On June 8, 1990, a Construction Agreement was
entered into by the Municipality of San Antonio thru respondent Salonga and
petitioner J.L. Bernardo Construction.
It is claimed by petitioners that under this Construction Agreement, the Municipality
agreed to assume the expenses for the demolition, clearing and site filling of the
construction site in the amount of P1,150,000 and, in addition, to provide cash
equity of P767,305.99 to be remitted directly to petitioners.
Petitioners allege that, although the whole amount of the cash equity became due,
the Municipality refused to pay the same, despite repeated demands and
notwithstanding that the public market was more than ninety-eight percent (98%)
complete as of July 20, 1991. Furthermore, petitioners maintain that Salonga
induced them to advance the expenses for the demolition, clearing and site filling
work by making representations that the Municipality had the financial capability to
reimburse them later on. However, petitioners claim that they have not been
reimbursed for their expenses.[1]
On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and
Fernando Erana, with the latter three bringing the case in their own personal
capacities and also in representation of J.L. Bernardo Construction, filed a complaint
for breach of contract, specific performance, and collection of a sum of money, with
prayer for preliminary attachment and enforcement of contractors lien against the
Municipality of San Antonio, Nueva Ecija and Salonga, in his personal and official
capacity as municipal mayor. After defendants filed their answer, the Regional Trial
Court held hearings on the ancillary remedies prayed for by plaintiffs.[2]
On September 5, 1991, the Regional Trial Court issued the writ of preliminary
attachment prayed for by plaintiffs. It also granted J.L. Bernardo Construction the
right to maintain possession of the public market and to operate the same. The
dispositive portion of the decision provides:
IN VIEW OF THE FOREGOING DISQUISITION, the Court finds the auxiliary reliefs of
attachment prayed for by the plaintiffs to be well-taken and the same is hereby
GRANTED. Conformably thereto, let a writ of preliminary attachment be issued upon
the filing by the plaintiffs of a bond in the amount of P2,653,576.84 to answer for
costs and damages which the defendants may suffer should the Court finally
adjudged (sic) that the plaintiffs are not entitled to the said attachment, and
thereafter, the Deputy Sheriff of this court is hereby ordered to attach the properties
of the defendants JOSE LAPUZ SALONGA and the MUNICIPALITY OF SAN
ANTONIO, NUEVA ECIJA which are not exempt from execution.
CORROLARILY, the Court grants the plaintiffs J.L. BERNARDO CONSTRUCTION,
represented by SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S.A.
ERANA, the authority to hold on to the possession of the public market in question
and to open and operate the same based on fair and reasonable guidelines and
other mechanics of operation to be submitted by plaintiffs within fifteen (15) days
from their receipt of this Order which shall be subject to Courts approval and to
CRED TRANS Pledge, Mortgage Antichresis Fulltext
deposit the income they may derive therefrom to the Provincial Treasurer of Nueva
Ecija after deducting the necessary expenses for the operation and management of
said market, subject to further orders from this Court.
SO ORDERED.
The trial court gave credence to plaintiffs claims that defendants were guilty of
fraud in incurring their contractual obligations as evidenced by the complaint and
the affidavits of plaintiffs Santiago Sugay and Erana. The court ruled that defendants
acts of "obtaining property, credit or services by false representations as to material
facts made by the defendant to the plaintiff with intent to deceive constitutes fraud
warranting attachment" and that " a debt is considered fradulently contracted if at
the time of contracting it, the debtor entertained an intention not to pay."
With regards to the contractors lien, the trial court held that since plaintiffs have not
been reimbursed for the cash equity and for the demolition, clearing and site filling
expenses, they stand in the position of an unpaid contractor and as such are
entitled, pursuant to articles 2242 and 2243 of the Civil Code, to a lien in the
amount of P2,653,576.84 (as of August 1, 1991), excluding the other claimed
damages, attorneys fees and litigation expenses, upon the public market which they
constructed. It was explained that, although the usual way of enforcing a lien is by a
decree for the sale of the property and the application of the proceeds to the
payment of the debt secured by it, it is more practical and reasonable to permit
plaintiffs to operate the public market and to apply to their claims the income
derived therefrom, in the form of rentals and goodwill from the prospective
stallholders of the market, as prayed for by plaintiffs.
The trial court made short shrift of defendants argument that the case was not
instituted in the name of the real parties-in-interest. It explained that the plaintiff in
the cause of action for money claims for unpaid cash equity and demolition and site
filling expenses is J.L. Bernardo Construction, while the plaintiffs in the claim for
damages for violation of their rights under the Civil Code provisions on human
relations are plaintiffs Santiago Sugay, Edwin Sugay and Erana.[3]
The defendants moved for reconsideration of the trial courts order, to which the
plaintiffs filed an opposition. On October 10, 1991 the motion was denied. The
following day, the trial court approved the guidelines for the operation of the San
Antonio Public Market filed by plaintiffs.
Respondent Salonga filed a motion for the approval of his counterbond which was
treated by the trial court in its October 29, 1991 order as a motion to fix
counterbond and for which it scheduled a hearing on November 19, 1991.
On October 21, 1991, during the pendency of his motion, respondent Salonga filed
with the Court of Appeals a petition for certiorari under Rule 65 with prayer for a
writ of preliminary injunction and temporary restraining order which case was
docketed as CA-G.R. SP No. 26336.[4] Petitioners opposed the petition, claming that
respondent had in fact a plain, speedy and adequate remedy as evidenced by the
filing of a motion to approve counter-bond with the trial court.[5]
On February 6, 1992, the Court of Appeals reversed the trial courts decision and
ruled in favor of Salonga. The dispositive portion of its decision states
FOR ALL THE FOREGOING, the petition is hereby granted as follows:
1. The respondent judges ORDER dated September 5, 1991 for the issuance of a writ
of attachment and for the enforcement of a contractors lien, is hereby NULLIFIED
and SET ASIDE; the writ of attachment issued pursuant thereto and the proceedings
conducted by the Sheriffs assigned to implement the same are, as a consequence,
also hereby NULLIFIED and SET ASIDE;
2. The respondent judges ORDER dated October 11, 1991 further enforcing the
contractors lien and approving the guidelines for the operation of the San Antonio
Public Market is also NULLIFIED and SET ASIDE.
Petitioners prayers for the dismissal of Civil Case No. 1016 (now pending before
respondent judge) and for his deletion from said case as defendant in his private
capacity are, however, DENIED.
The respondent judge may now proceed to hearing of Civil Case No. 1016 on the
merits.
SO ORDERED.
The appellate court reasoned that since the Construction Agreement was only
between Juanito Bernardo and the Municipality of San Antonio, and since there is
no sworn statement by Juanito Bernardo alleging that he had been deceived or
misled by Mayor Salonga or the Municipality of San Antonio, it is apparent that the
applicant has not proven that the defendants are guilty of inceptive fraud in
contracting the debt or incurring the obligation, pursuant to Rule 57 of the Rules of
Court, and therefore, the writ of attachment should be struck down for having been
improvidently and irregularly issued.
The filing of a motion for the approval of counter-bond by defendants did not,
according to the Court of Appeals, render the petition for certiorari premature. The
appellate court held that such motion could not cure the defect in the issuance of
the writ of attachment and that, moreover, the defendants motion was filed by them
"without prejudice to the petition for certiorari."
As to the contractors lien, the appellate court ruled that Articles 2242 of the Civil
Code finds application only in the context of insolvency proceedings, as expressly
stated in Article 2243. Even if it is conceded that plaintiffs are entitled to retain
Page 142 of 152
possession of the market under its contractors lien, the appellate court held that the
same right cannot be expanded to include the right to use the building. Therefore,
the trial courts grant of authority to plaintiffs to operate the San Antonio Public
Market amounts to a grave abuse of discretion.
With regard to the allegations of defendants that plaintiffs are not the proper
parties, the Court of Appeals ruled that such issue should be assigned as an error by
defendants later on should the outcome of the case be adverse to the latter.[6]
Petitioners are now before this Court assailing the appellate courts decision. In their
petition, they make the following assignment of errors:
1. THE DECISION IS CONTRARY TO LAW IN THAT THE COURT OF APPEALS
OVERLOOKED AND/OR DISREGARDED THE FUNDAMENTAL REQUIREMENT AND
ESTABLISHED SUPREME COURT DECISIONS IN ACTIONS FOR CERTIORARI
CONSIDERING THAT THE FILING OF THE PETITION BY RESPONDENT SALONGA
WITH THE COURT OF APPEALS IS OBVIOUSLY PREMATURE AND IMPROPER SINCE
THERE ADMITTEDLY EXISTS A PLAIN, SPEEDY AND ADEQUATE REMEDY AVAILABLE
TO RESPONDENT SALONGA WHICH IS HIS UNRESOLVED "MOTION TO APPROVE
COUNTERBOND" PENDING WITH THE TRIAL COURT.
2. IN COMPLETE DISREGARD OF ESTABLISHED JURISPRUDENCE, THE COURT OF
APPEALS HAS SKIRTED AND/OR FAILED TO CONSIDER/DISREGARDED THE
EQUALLY CRUCIAL ISSUE THAT THE QUESTIONED ORDERS ARE CLEARLY AND
ADMITTEDLY INTERLOCUTORY IN NATURE AND THEREFORE THEY CANNOT BE THE
PROPER SUBJECT OF AN ACTION FOR CERTIORARI; PROOF THAT THE ORDERS
ASSAILED BY RESPONDENT SALONGA ARE INTERLOCUTORY IN CHARACTER IS THE
DISPOSITIVE PORTION OF THE DECISION WHEN THE COURT OF APPEALS SAID
"THE RESPONDENT JUDGE MAY NOW PROCEED TO HEARING OF SAID CIVIL CASE
NO. 1016 ON THE MERITS"; PETITION FILED BY RESPONDENT SALONGA WITH THE
COURT OF APPEALS SHOULD HAVE BEEN DISMISSED OUTRIGHTLY AS SOUGHT BY
HEREIN PETITIONERS IN THEIR VARIOUS UNACTED PLEADINGS.
3. THE DECISION IS BASED ON FINDINGS OF FACTS AND CONCLUSIONS WHICH
ARE NOT ONLY GROSSLY ERRONEOUS BUT ARE SQUARELY CONTRADICTED BY
THE EVIDENCE ON RECORD.
4. THE COURT OF APPEALS HAS CLEARLY MISAPPRECIATED, MISREAD AND
DISREGARDED HEREIN PETITIONERS CAUSES OF ACTION AGAINST RESPONDENT
SALONGA AND HIS CO-RESPONDENT MUNICIPALITY OF SAN ANTONIO, NUEVA
ECIJA.
5. THE COURT OF APPEALS HAS MADE ERRONEOUS AND CONTRADICTORY
CONCLUSIONS AND FINDINGS ON THE ISSUE OF "REAL PARTY IN INTEREST" IN
COMPLETE DISREGARD OF THE POWERS AND AUTHORITY GRANTED BY JUANITO
L. BERNARDO CONSTRUCTION TO HEREIN PETITIONERS.
6. THE COURT OF APPEALS HAS SKIRTED THE IMPORTANT ISSUE OF "AGENCY
COUPLED WITH AN INTEREST."
7. THE COURT OF APPEALS WENT BEYOND THE ISSUES OF THE CERTIORARI CASE
AND ITS FINDINGS AND CONCLUSIONS ON ISSUES NOT RELATED TO THE CASE
FOR CERTIORARI ARE CONTRARY TO THE PLEADINGS AND DO NOT CONFORM TO
THE EVIDENCE ON RECORD.
8. THE COURT OF APPEALS HAS LIKEWISE DISREGARDED THE PRECEPT THAT
CONCLUSIONS AND FINDINGS OF FACT OF THE TRIAL COURT ARE ENTITLED TO
GREAT WEIGHT ON APPEAL AND SHOULD NOT BE DISTURBED SINCE THERE IS NO
STRONG AND COGENT REASON WHATSOVER TO OVERCOME THE WELL-WRITTEN
AND DETAILED AND ESTABLISHED FACTUAL FINDINGS OF THE TRIAL COURT.
9. PETITIONERS HAVE STRONG REASONS TO BELIEVE THAT THE DECISION OF THE
COURT OF APPEALS WAS ISSUED WITH SERIOUS INJUSTICE AND AGAINST THE
TENETS OF FAIR PLAY SINCE THE DECISION HAD BEEN KNOWN TO AS IT WAS
OPENLY AND PUBLICLY ANNOUNCED BY RESPONDENT SALONGA LONG BEFORE IT
WAS "PROMULGATED" BY THE COURT OF APPEALS.
The various issues raised by petitioners may be restated in a more summary manner
as -
1. Whether or not the Court of Appeals correctly assumed jurisdiction over the
petition for certiorari filed by respondents herein assailing the trial courts
interlocutory orders granting the writ of attachment and the contractors lien?
2. Whether or not the Court of Appeals committed reversible errors of law in its
decision?
A petition for certiorari may be filed in case a tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction, and there
is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of
law.[7]
The office of a writ of certiorari is restricted to truly extraordinary cases wherein the
act of the lower court or quasi-judicial body is wholly void.[8] We held in a recent
case that certiorari may be issued "only where it is clearly shown that there is a
patent and gross abuse of discretion as to amount to an evasion of positive duty or
to virtual refusal to perform a duty enjoined by law, or to act at all in contemplation
of law, as where the power is exercised in an arbitrary and despotic manner by
reason of passion or personal hostility."[9]
CRED TRANS Pledge, Mortgage Antichresis Fulltext
As a general rule, an interlocutory order is not appealable until after the rendition of
the judgment on the merits for a contrary rule would delay the administration of
justice and unduly burden the courts.[10] However, we have held that certiorari is an
appropriate remedy to assail an interlocutory order (1) when the tribunal issued
such order without or in excess of jurisdiction or with grave abuse of discretion and
(2) when the assailed interlocutory order is patently erroneous and the remedy of
appeal would not afford adequate and expeditious relief.[11]
We hold that the petition for certiorari filed by Salonga and the Municipality with
the Court of Appeals questioning the writ of attachment issued by the trial court
should not have been given due course for they still had recourse to a plain, speedy
and adequate remedy - the filing of a motion to fix the counter-bond, which they in
fact filed with the trial court, the grant of which would effectively prevent the
issuance of the writ of attachment. Moreover, they could also have filed a motion to
discharge the attachment for having been improperly or irregularly issued or
enforced, or that the bond is insufficient, or that the attachment is excessive.[12]
With such remedies still available to the Municipality and Salonga, the filing of a
petition for certiorari with the Court of Appeals insofar as it questions the order of
attachment was clearly premature.
However, with regards to the contractors lien, we uphold the appellate courts ruling
reversing the trial courts grant of a contractors lien in favor of petitioners.
Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy
preference with respect to specific personal or real property of the debtor.
Specifically, the contractors lien claimed by petitioners is granted under the third
paragraph of Article 2242 which provides that the claims of contractors engaged in
the construction, reconstruction or repair of buildings or other works shall be
preferred with respect to the specific building or other immovable property
constructed.[13]
However, Article 2242 only finds application when there is a concurrence of credits,
i.e. when the same specific property of the debtor is subjected to the claims of
several creditors and the value of such property of the debtor is insufficient to pay
in full all the creditors. In such a situation, the question of preference will arise, that
is, there will be a need to determine which of the creditors will be paid ahead of the
others.[14] Fundamental tenets of due process will dictate that this statutory lien
should then only be enforced in the context of some kind of a proceeding where
the claims of all the preferred creditors may be bindingly adjudicated, such as
insolvency proceedings.[15]
This is made explicit by Article 2243 which states that the claims and liens
enumerated in articles 2241 and 2242 shall be considered as mortgages or pledges
of real or personal property, or liens within the purview of legal provisions
governing insolvency.[16]
The action filed by petitioners in the trial court does not partake of the nature of an
insolvency proceeding. It is basically for specific performance and damages.[17]
Thus, even if it is finally adjudicated that petitioners herein actually stand in the
position of unpaid contractors and are entitled to invoke the contractors lien
granted under Article 2242, such lien cannot be enforced in the present action for
there is no way of determining whether or not there exist other preferred creditors
with claims over the San Antonio Public Market. The records do not contain any
allegation that petitioners are the only creditors with respect to such property. The
fact that no third party claims have been filed in the trial court will not bar other
creditors from subsequently bringing actions and claiming that they also have
preferred liens against the property involved.[18]
Our decision herein is consistent with our ruling in Philippine Savings Bank v.
Lantin,[19] wherein we also disallowed the contractor from enforcing his lien
pursuant to Article 2242 of the Civil Code in an action filed by him for the collection
of unpaid construction costs.
It not having been alleged in their pleadings that they have any rights as a
mortgagee under the contracts, petitioners may only obtain possession and use of
the public market by means of a preliminary attachment upon such property, in the
event that they obtain a favorable judgment in the trial court. Under our rules of
procedure, a writ of attachment over registered real property is enforced by the
sheriff by filing with the registry of deeds a copy of the order of attachment,
together with a description of the property attached, and a notice that it is attached,
and by leaving a copy of such order, description, and notice with the occupant of
the property, if any.[20] If judgment be recovered by the attaching party and
execution issue thereon, the sheriff may cause the judgment to be satisfied by
selling so much of the property as may be necessary to satisfy the judgment.[21]
Only in the event that petitioners are able to purchase the property will they then
acquire possession and use of the same.
Clearly, the trial courts order of September 5, 1991 granting possession and use of
the public market to petitioners does not adhere to the procedure for attachment
laid out in the Rules of Court. In issuing such an order, the trial court gravely abused
its discretion and the appellate courts nullification of the same should be sustained.
At this stage of the case, there is no need to pass upon the question of whether or
not petitioners herein are the real parties-in-interest. In the event that judgment is
rendered against Salonga and the Municipality, this issue may be assigned as an
error in their appeal from such judgment.
WHEREFORE, we UPHOLD the Court of Appeals Decision dated February 6, 1992 in
CA-G.R. SP No. 26336 insofar as it nullifies the contractors lien granted by the trial
court in favor of petitioners in its September 5, 1991 Order. Consequently, we also
UPHOLD the appellate courts nullification of the trial courts October 11, 1991 Order
approving the guidelines for the operation of the San Antonio Public Market.
Page 143 of 152
However, we REVERSE the appellate courts order nullifying the writ of attachment
granted by the trial court.
No pronouncement as to costs.
SO ORDERED.
THIRD DIVISION
[G.R. No. 148568. March 20, 2003]
ATLANTIC ERECTORS, INC., petitioner, vs. HERBAL COVE REALTY CORPORATION,
respondent.
DECISION
PANGANIBAN, J.:
The pendency of a simple collection suit arising from the alleged nonpayment of
construction services, materials, unrealized income and damages does not justify
the annotation of a notice of lis pendens on the title to a property where
construction has been done.
Statement of the Case
Before the Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules
of Court, challenging the May 30, 2000 Decision[2] of the Court of Appeals (CA) in
CA-GR SP No. 56432. The dispositive portion of the Decision is reproduced as
follows:
WHEREFORE, the petition is granted and the assailed November 4, 1998 and
October 22, 1999 orders annulled and set aside. The July 30, 1998 order of
respondent judge is reinstated granting the cancellation of the notices of lis
pendens subject of this petition.[3]
In its July 21, 2001 Resolution,[4] the CA denied petitioners Motion for
Reconsideration.
The Facts
The factual antecedents of the case are summarized by the CA in this wise:
On June 20, 1996, [respondent] and [petitioner] entered into a Construction
Contract whereby the former agreed to construct four (4) units of [townhouses]
designated as 16-A, 16-B, 17-A and 17-B and one (1) single detached unit for an
original contract price of P15,726,745.19 which was late[r] adjusted to
P16,726,745.19 as a result of additional works. The contract period is 180 days
commencing [on] July 7, 1996 and to terminate on January 7, 1997. [Petitioner]
claimed that the said period was not followed due to reasons attributable to
[respondent], namely: suspension orders, additional works, force majeure, and
unjustifiable acts of omission or delay on the part of said [respondent].
[Respondent], however, denied such claim and instead pointed to [petitioner] as
having exceeded the 180 day contract period aggravated by defective workmanship
and utilization of materials which are not in compliance with specifications.
xxxxxxxxx
On November 21, 1997, [petitioner] filed a complaint for sum of money with
damages (Civil Case No. 97-2707) with the Regional Trial Court of Makati entitled
Atlantic Erectors, Incorporated vs. Herbal Cove Realty Corp. and Ernest C. Escal[e]r.
This case was raffled to Branch 137, x x x Judge Santiago J. Ranada presiding. In said
initiatory pleading, [petitioner] AEI asked for the following reliefs:
AFTER DUE NOTICE AND HEARING, to order x x x defendant to:
1. Pay plaintiff the sum of P4,854,229.94 for the unpaid construction services already
rendered;
2. To x x x pay plaintiff the sum of P1,595,551.00 for the construction materials,
equipment and tools of plaintiff held by defendant;
3. To x x x pay plaintiff the sum of P2,250,000.00 for the [loss] x x x of expected
income from the construction project;
4. [T]o x x x pay plaintiff the sum of P800,000.00 for the cost of income by way of
rental from the equipment of plaintiff held by defendants;
5. To x x x pay plaintiff the sum of P5,000,000.00 for moral damages;
6. To x x x pay plaintiff the sum of P5,000,000.00 for exemplary damages;
7. To x x x pay plaintiff the sum equivalent of 25% of the total money claim plus
P200,000.00 acceptance fee and P2,500.00 per court appearance;
8. To x x x pay the cost of suit.
On the same day of November 21, 1997, [petitioner] filed a notice of lis pendens for
annotation of the pendency of Civil Case No. 97-707 on titles TCTs nos. T-30228,
30229, 30230, 30231 and 30232. When the lots covered by said titles were
subsequently subdivided into 50 lots, the notices of lis pendens were carried over to
the titles of the subdivided lots, i.e., Transfer Certificate of Title Nos. T-36179 to T-
36226 and T-36245 to T-36246 of the Register of Deeds of Tagaytay City.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
On January 30, 1998, [respondent] and x x x Ernest L. Escaler, filed a Motion to
Dismiss [petitioners] Complaint for lack of jurisdiction and for failure to state a cause
of action. They claimed [that] the Makati RTC has no jurisdiction over the subject
matter of the case because the parties Construction Contract contained a clause
requiring them to submit their dispute to arbitration.
xxxxxxxxx
On March 17, 1998, [RTC Judge Ranada] dismissed the Complaint as against
[respondent] for [petitioners] failure to comply with a condition precedent to the
filing of a court action which is the prior resort to arbitration and as against x x x
Escaler for failure of the Complaint to state a cause of action x x x.
[Petitioner] filed a Motion for Reconsideration of the March 17, 1998 dismissal
order. [Respondent] filed its Opposition thereto.
On April 24, 1998, [respondent] filed a Motion to Cancel Notice of Lis Pendens. It
argued that the notices of lis pendens are without basis because [petitioners] action
is a purely personal action to collect a sum of money and recover damages and x x x
does not directly affect title to, use or possession of real property.
In his July 30, 1998 Order, [Judge Ranada] granted [respondents] Motion to Cancel
Notice of Lis Pendens x x x:
[Petitioner] filed a Motion for Reconsideration of the aforesaid July 30, 1998 Order
to which [respondent] filed an Opposition.
In a November 4, 1998 Order, [Judge Ranada,] while finding no merit in the grounds
raised by [petitioner] in its Motion for Reconsideration, reversed his July 30, 1998
Order and reinstated the notices of lis pendens, as follows:
1. The Court finds no merit in plaintiffs contention that in dismissing the above-
entitled case for lack of jurisdiction, and at the same time granting defendant Herbal
Coves motion to cancel notice of lis pendens, the Court [took] an inconsistent
posture. The Rules provide that prior to the transmittal of the original record on
appeal, the court may issue orders for the protection and preservation of the rights
of the parties which do not involve any matter litigated by the appeal (3rd par., Sec.
10, Rule 41). Even as it declared itself without jurisdiction, this Court still has power
to act on incidents in this case, such as acting on motions for reconsideration, for
correction, for lifting of lis pendens, or approving appeals, etc.
As correctly argued by defendant Herbal Cove, a notice of lis pendens serves only as
a precautionary measure or warning to prospective buyers of a property that there
is a pending litigation involving the same.
The Court notes that when it issued the Order of 30 July 1998 lifting the notice of lis
pendens, there was as yet no appeal filed by plaintiff. Subsequently, on 10
September 1998, after a notice of appeal was filed by plaintiff on 4 September 1998,
the Branch Clerk of Court was ordered by the Court to elevate the entire records of
the above-entitled case to the Court of Appeals. It therefore results that the above-
entitled case is still pending. After a careful consideration of all matters relevant to
the lis pendens, the Court believes that justice will be better served by setting aside
the Order of 30 July 1998.
On November 27, 1998, [respondent] filed a Motion for Reconsideration of the
November 4, 1998 Order arguing that allowing the notice of lis pendens to remain
annotated on the titles would defeat, not serve, the ends of justice and that
equitable considerations cannot be resorted to when there is an applicable
provision of law.
xxxxxxxxx
On October 22, 1999, [Judge Ranada] issued an order denying [respondents]
Motion for Reconsideration of the November 4, 1998 Order for lack of sufficient
merit.[5]
Thereafter, Respondent Herbal Cove filed with the CA a Petition for Certiorari.
Ruling of the Court of Appeals
Setting aside the Orders of the RTC dated November 4, 1998 and October 22, 1999,
the CA reinstated the formers July 30, 1998 Order[6] granting Herbal Coves Motion
to Cancel the Notice of Lis Pendens. According to the appellate court, the re-
annotation of those notices was improper for want of any legal basis. It specifically
cited Section 76 of Presidential Decree No. 1529 (the Property Registration Decree).
The decree provides that the registration of such notices is allowed only when court
proceedings directly affect the title to, or the use or the occupation of, the land or
any building thereon.
The CA opined that the Complaint filed by petitioner in Civil Case No. 97-2707 was
intended purely to collect a sum of money and to recover damages. The appellate
court ruled that the Complaint did not aver any ownership claim to the subject land
or any right of possession over the buildings constructed thereon. It further
declared that absent any claim on the title to the buildings or on the possession
thereof, the notices of lis pendens had no leg to stand on.
Likewise, the CA held that Judge Ranada should have maintained the notice
cancellations, which he had directed in his July 30, 1998 Order. Those notices were
no longer necessary to protect the rights of petitioner, inasmuch as it could have
procured protective relief from the Construction Industry Arbitral Commission
(CIAC), where provisional remedies were available. The CA also mentioned
Page 144 of 152
petitioners admission that there was already a pending case before the CIAC, which
in fact rendered a decision on March 11, 1999.
The appellate court further explained that the re-annotation of the Notice of Lis
Pendens was no longer warranted after the court a quo had ruled that the latter had
no jurisdiction over the case. The former held that the rationale behind the principle
of lis pendens -- to keep the subject matter of the litigation within the power of the
court until the entry of final judgment -- was no longer applicable. The reason for
such inapplicability was that the Makati RTC already declared that it had no
jurisdiction or power over the subject matter of the case.
Finally, the CA opined that petitioners Complaint had not alleged or claimed, as
basis for the continued annotation of the Notice of Lis Pendens, the lien of
contractors and laborers under Article 2242 of the New Civil Code. Moreover,
petitioner had not even referred to any lien of whatever nature. Verily, the CA ruled
that the failure to allege and claim the contractors lien did not warrant the
continued annotation on the property titles of Respondent Herbal Cove.
Hence, this Petition.[7]
The Issues
Petitioner raises the following issues for our consideration:
I. Whether or not money claims representing cost of materials [for] and labor [on]
the houses constructed on a property [are] a proper lien for annotation of lis
pendens on the property title[.]
II. Whether or not the trial court[,] after having declared itself without jurisdiction to
try the case[,] may still decide on [the] substantial issue of the case.[8]
This Courts Ruling
The Petition has no merit.
First Issue:
Proper Basis for a
Notice of Lis Pendens
Petitioner avers that its money claim on the cost of labor and materials for the
townhouses it constructed on the respondents land is a proper lien that justifies the
annotation of a notice of lis pendens on the land titles. According to petitioner, the
money claim constitutes a lien that can be enforced to secure payment for the said
obligations. It argues that, to preserve the alleged improvement it had made on the
subject land, such annotation on the property titles of respondent is necessary.
On the other hand, Respondent Herbal Cove argues that the annotation is bereft of
any factual or legal basis, because petitioners Complaint[9] does not directly affect
the title to the property, or the use or the possession thereof. It also claims that
petitioners Complaint did not assert ownership of the property or any right to
possess it. Moreover, respondent attacks as baseless the annotation of the Notice of
Lis Pendens through the enforcement of a contractors lien under Article 2242 of the
Civil Code. It points out that the said provision applies only to cases in which there
are several creditors carrying on a legal action against an insolvent debtor.
As a general rule, the only instances in which a notice of lis pendens may be availed
of are as follows: (a) an action to recover possession of real estate; (b) an action for
partition; and (c) any other court proceedings that directly affect the title to the land
or the building thereon or the use or the occupation thereof.[10] Additionally, this
Court has held that resorting to lis pendens is not necessarily confined to cases that
involve title to or possession of real property. This annotation also applies to suits
seeking to establish a right to, or an equitable estate or interest in, a specific real
property; or to enforce a lien, a charge or an encumbrance against it.[11]
Apparently, petitioner proceeds on the premise that its money claim involves the
enforcement of a lien. Since the money claim is for the nonpayment of materials
and labor used in the construction of townhouses, the lien referred to would have to
be that provided under Article 2242 of the Civil Code. This provision describes a
contractors lien over an immovable property as follows:
Art. 2242. With reference to specific immovable property and real rights of the
debtor, the following claims, mortgages and liens shall be preferred, and shall
constitute an encumbrance on the immovable or real right:
xxxxxxxxx
(3) Claims of laborers, masons, mechanics and other workmen, as well as of
architects, engineers and contractors, engaged in the construction, reconstruction or
repair of buildings, canals or other works, upon said buildings, canals or other
works;
(4) Claims of furnishers of materials used in the construction, reconstruction, or
repair of buildings, canals or other works, upon said buildings, canals or other
works[.] (Emphasis supplied)
However, a careful examination of petitioners Complaint, as well as the reliefs it
seeks, reveals that no such lien or interest over the property was ever alleged. The
Complaint merely asked for the payment of construction services and materials plus
damages, without mentioning -- much less asserting -- a lien or an encumbrance
over the property. Verily, it was a purely personal action and a simple collection
case. It did not contain any material averment of any enforceable right, interest or
lien in connection with the subject property.
CRED TRANS Pledge, Mortgage Antichresis Fulltext
As it is, petitioners money claim cannot be characterized as an action that involves
the enforcement of a lien or an encumbrance, one that would thus warrant the
annotation of the Notice of Lis Pendens. Indeed, the nature of an action is
determined by the allegations of the complaint.[12]
Even assuming that petitioner had sufficiently alleged such lien or encumbrance in
its Complaint, the annotation of the Notice of Lis Pendens would still be unjustified,
because a complaint for collection and damages is not the proper mode for the
enforcement of a contractors lien.
In J.L. Bernardo Construction v. Court of Appeals,[13] the Court explained the
concept of a contractors lien under Article 2242 of the Civil Code and the proper
mode for its enforcement as follows:
Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy
preference with respect to specific personal or real property of the debtor.
Specifically, the contractors lien claimed by the petitioners is granted under the
third paragraph of Article 2242 which provides that the claims of contractors
engaged in the construction, reconstruction or repair of buildings or other works
shall be preferred with respect to the specific building or other immovable property
constructed.
However, Article 2242 finds application when there is a concurrence of credits, i.e.,
when the same specific property of the debtor is subjected to the claims of several
creditors and the value of such property of the debtor is insufficient to pay in full all
the creditors. In such a situation, the question of preference will arise, that is, there
will be a need to determine which of the creditors will be paid ahead of the others.
Fundamental tenets of due process will dictate that this statutory lien should then
only be enforced in the context of some kind of a proceeding where the claims of all
the preferred creditors may be bindingly adjudicated, such as insolvency
proceedings.[14] (Emphasis supplied)
Clearly then, neither Article 2242 of the Civil Code nor the enforcement of the lien
thereunder is applicable here, because petitioners Complaint failed to satisfy the
foregoing requirements. Nowhere does it show that respondents property was
subject to the claims of other creditors or was insufficient to pay for all concurring
debts. Moreover, the Complaint did not pertain to insolvency proceedings or to any
other action in which the adjudication of claims of preferred creditors could be
ascertained.
Another factor negates the argument of petitioner that its money claim involves the
enforcement of a lien or the assertion of title to or possession of the subject
property: the fact that it filed its action with the RTC of Makati, which is
undisputedly bereft of any jurisdiction over respondents property in Tagaytay City.
Certainly, actions affecting title to or possession of real property or the assertion of
any interest therein should be commenced and tried in the proper court that has
jurisdiction over the area, where the real property involved or a portion thereof is
situated.[15] If petitioner really intended to assert its claim or enforce its supposed
lien, interest or right over respondents subject properties, it would have instituted
the proper proceedings or filed a real action with the RTC of Tagaytay City, which
clearly had jurisdiction over those properties.[16]
Narciso Pea, a leading authority on the subject of land titles and registration, gives
an explicit exposition on the inapplicability of the doctrine of lis pendens to certain
actions and proceedings that specifically include money claims. He explains in this
wise:
By express provision of law, the doctrine of lis pendens does not apply to
attachments, levies of execution, or to proceedings for the probate of wills, or for
administration of the estate of deceased persons in the Court of First Instance. Also,
it is held generally that the doctrine of lis pendens has no application to a
proceeding in which the only object sought is the recovery of a money judgment,
though the title or right of possession to property be incidentally affected. It is
essential that the property be directly affected, as where the relief sought in the
action or suit includes the recovery of possession, or the enforcement of a lien, or
an adjudication between conflicting claims of title, possession, or the right of
possession to specific property, or requiring its transfer or sale[17] (Emphasis
supplied)
Pea adds that even if a party initially avails itself of a notice of lis pendens upon the
filing of a case in court, such notice is rendered nugatory if the case turns out to be
a purely personal action. We quote him as follows:
It may be possible also that the case when commenced may justify a resort to lis
pendens, but during the progress thereof, it develops to be purely a personal action
for damages or otherwise. In such event, the notice of lis pendens has become
functus officio.[18] (Emphasis supplied)
Thus, when a complaint or an action is determined by the courts to be in personam,
the rationale for or purpose of the notice of lis pendens ceases to exist. To be sure,
this Court has expressly and categorically declared that the annotation of a notice of
lis pendens on titles to properties is not proper in cases wherein the proceedings
instituted are actions in personam.[19]
Second Issue:
Jurisdiction of the Trial Court
Petitioner argues that the RTC had no jurisdiction to issue the Order canceling the
Notice of Lis Pendens as well as the Order reinstating it. Supposedly, since both
Orders were issued by the trial court without jurisdiction, the annotation made by
the Register of Deeds of Tagaytay City must remain in force.
Page 145 of 152

Petitioner avers that the trial court finally declared that the latter had no jurisdiction
over the case on July 27, 1998, in an Order denying the formers Motion for
Reconsideration of the March 17, 1998 Order dismissing the Complaint. Petitioner
insists that the subsequent July 30, 1998 Order cancelling the subject Notice of Lis
Pendens is void, because it was issued by a court that had no more jurisdiction over
the case.
Rule 41 of the 1997 Rules on Civil Procedure, which governs appeals from regional
trial courts, expressly provides that RTCs lose jurisdiction over a case when an
appeal is filed. The rule reads thus:
SEC. 9. Perfection of appeal; effect thereof. -- A partys appeal by notice of appeal is
deemed perfected as to him upon the filing of the notice of appeal in due time.
xxxxxxxxx
In appeals by notice of appeal, the court loses jurisdiction over the case upon the
perfection of the appeals filed in due time and the expiration of the time to appeal
of the other parties. (Emphasis supplied)
On the basis of the foregoing rule, the trial court lost jurisdiction over the case only
on August 31, 1998, when petitioner filed its Notice of Appeal.[20] Thus, any order
issued by the RTC prior to that date should be considered valid, because the court
still had jurisdiction over the case. Accordingly, it still had the authority or
jurisdiction to issue the July 30, 1998 Order canceling the Notice of Lis Pendens. On
the other hand, the November 4, 1998 Order that set aside the July 30, 1998 Order
and reinstated that Notice should be considered without force and effect, because it
was issued by the trial court after it had already lost jurisdiction.
In any case, even if we were to adopt petitioners theory that both the July 30, 1998
and the November 4, 1998 Orders were void for having been issued without
jurisdiction, the annotation is still improper for lack of factual and legal bases.
As discussed previously, erroneously misplaced is the reliance of petitioner on the
premise that its money claim is an action for the enforcement of a contractors lien.
Verily, the annotation of the Notice of Lis Pendens on the subject property titles
should not have been made in the first place. The Complaint filed before the Makati
RTC -- for the collection of a sum of money and for damages -- did not provide
sufficient legal basis for such annotation.
Finally, petitioner vehemently insists that the trial court had no jurisdiction to cancel
the Notice. Yet, the former filed before the CA an appeal, docketed as CA-GR CV
No. 65647,[21] questioning the RTCs dismissal of the Complaint for lack of
jurisdiction. Moreover, it must be remembered that it was petitioner which had
initially invoked the jurisdiction of the trial court when the former sought a
judgment for the recovery of money and damages against respondent. Yet again, it
was also petitioner which assailed that same jurisdiction for issuing an order
unfavorable to the formers cause. Indeed, parties cannot invoke the jurisdiction of a
court to secure affirmative relief, then repudiate or question that same jurisdiction
after obtaining or failing to obtain such relief.[22]
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.
Costs against petitioner.
SO ORDERED.
FIRST DIVISION
G.R. No. 126200 August 16, 2001
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES
CORPORATION, respondents.
KAPUNAN, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court, seeking a review of the Decision of the Court of Appeals dated October 6,
1995 and the Resolution of the same court dated August 29, 1996.
The facts are as follows:
Marinduque Mining-Industrial Corporation (Marinduque Mining), a corporation
engaged in the manufacture of pure and refined nickel, nickel and cobalt in mixed
sulfides; copper ore/concentrates, cement and pyrite conc., obtained from the
Philippine National Bank (PNB) various loan accommodations. To secure the loans,
Marinduque Mining executed on October 9, 1978 a Deed of Real Estate Mortgage
and Chattel Mortgage in favor of PNB. The mortgage covered all of Marinduque
Mining's real properties, located at Surigao del Norte, Sipalay, Negros Occidental,
and at Antipolo, Rizal, including the improvements thereon. As of November 20,
1980, the loans extended by PNB amounted to P4 Billion, exclusive of interest and
charges.1
On July 13, 1981, Marinduque Mining executed in favor of PNB and the
Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement. In
said agreement, Marinduque Mining mortgaged to PNB and DBP all its real
properties located at Surigao del Norte, Sipalay, Negros Occidental, and Antipolo,
Rizal, including the improvements thereon. The mortgage also covered all of
CRED TRANS Pledge, Mortgage Antichresis Fulltext
Marinduque Mining's chattels, as well as assets of whatever kind, nature and
description which Marinduque Mining may subsequently acquire in substitution or
replenishment or in addition to the properties covered by the previous Deed of Real
and Chattel Mortgage dated October 7, 1978. Apparently, Marinduque Mining had
also obtained loans totaling P2 Billion from DBP, exclusive of interest and charges.2
On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an
Amendment to Mortgage Trust Agreement by virtue of which Marinduque Mining
mortgaged in favor of PNB and DBP all other real and personal properties and other
real rights subsequently acquired by Marinduque Mining.3
For failure of Marinduque Mining to settle its loan obligations, PNB and DBP
instituted sometime on July and August 1984 extrajudicial foreclosure proceedings
over the mortgaged properties.
The events following the foreclosure are narrated by DBP in its petition, as follows:
In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP
emerged and were declared the highest bidders over the foreclosed real properties,
buildings, mining claims, leasehold rights together with the improvements thereon
as well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel
Refinery Plant at Surigao del Norte for a bid price of P14,238,048,150.00 [and] [o]ver
the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao del
Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00 (Exhs. "5" to "5-
A", "6", "7" to "7-AA-" PNB/DBP). For the foreclosed real properties together with all
the buildings, major machineries & equipment and other improvements of MMIC
located at Antipolo, Rizal, likewise held on August 31, 1984, were sold to PNB and
DBP as highest bidders in the sum of P1,107,167,950.00 (Exhs. "10" to "10-X"-PNB/
DBP).
At the auction sale conducted on September 7, 1984[,] over the foreclosed real
properties, buildings, & machineries/equipment of MMIC located at Sipalay, Negros
Occidental were sold to PNB and DBP, as highest bidders, in the amount of
P2,383,534,000.00 and P543,040.000.00 respectively (Exhs. "8" to "8-BB", "9" to "90-
GGGGGG"-PNB/DBP).
Finally, at the public auction sale conducted on September 18, 1984 on the
foreclosed personal properties of MMIC, the same were sold to PNB and DBP as the
highest bidder in the sum of P678,772,000.00 (Exhs. "11" and "12-QQQQQ"-PNB).
PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely,
in order to ensure the continued operation of the Nickel refinery plant and to
prevent the deterioration of the assets foreclosed, assigned and transferred to
Nonoc Mining and Industrial Corporation all their rights, interest and participation
over the foreclosed properties of MMIC located at Nonoc Island, Surigao del Norte
for an initial consideration of P14,361,000,000.00 (Exh. "13"-PNB).
Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned
and transferred in favor of Maricalum Mining Corp. all its rights, interest and
participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental
for an initial consideration of P325,800,000.00 (Exh. "14"-PNB/DBP).
On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended,
again assigned, transferred and conveyed to the National Government thru [sic] the
Asset Privatization Trust (APT) all its existing rights and interest over the assets of
MMIC, earlier assigned to Nonoc Mining and Industrial Corporation, Maricalum
Mining Corporation and Island Cement Corporation (Exh. "15" & "15-A" PNB/DBP).4
In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining
purchased and caused to be delivered construction materials and other
merchandise from Remington Industrial Sales Corporation (Remington) worth
P921,755.95. The purchases remained unpaid as of August 1, 1984 when Remington
filed a complaint for a sum of money and damages against Marinduque Mining for
the value of the unpaid construction materials and other merchandise purchased by
Marinduque Mining, as well as interest, attorney's fees and the costs of suit.
On September 7, 1984, Remington's original complaint was amended to include
PNB and DBP as co-defendants in view of the foreclosure by the latter of the real
and chattel mortgages on the real and personal properties, chattels, mining claims,
machinery, equipment and other assets of Marinduque Mining.5
On September 13, 1984, Remington filed a second amended complaint to include as
additional defendant, the Nonoc Mining and Industrial Corporation (Nonoc Mining).
Nonoc Mining is the assignee of all real and personal properties, chattels,
machinery, equipment and all other assets of Marinduque Mining at its Nonoc
Nickel Factory in Surigao del Norte.6
On March 26, 1986, Remington filed a third amended complaint including the
Maricalum Mining Corporation (Maricalum Mining) and Island Cement Corporation
(Island Cement) as co-defendants. Remington asserted that Marinduque Mining,
PNB, DBP, Nonoc Mining, Maricalum Mining and Island Cement must be treated in
law as one and the same entity by disregarding the veil of corporate fiction since:
1. Co-defendants NMIC, Maricalum and Island Cement which are newly
created entities are practically owned wholly by defendants PNB and DBP, and
managed by their officers, aside from the fact that the aforesaid co-defendants
NMIC, Maricalum and Island Cement were organized in such a hurry and in such
suspicious circumstances by co-defendants PNB and DBP after the supposed
extrajudicial foreclosure of MMIC's assets as to make their supposed projects assets,
machineries and equipment which were originally owned by co-defendant MMIC
beyond the reach of creditors of the latter.
Page 146 of 152
2. The personnel, key officers and rank-and-file workers and employees of
co-defendants NMIC, Maricalum and Island Cement creations of co-defendants PNB
and DBP were the personnel of co-defendant MMIC such that . . . practically there
has only been a change of name for all legal purpose and intents
3. The places of business not to mention the mining claims and project
premises of co-defendants NMIC, Maricalum and Island Cement likewise used to be
the places of business, mining claims and project premises of co-defendant MMIC
as to make the aforesaid co-defendants NMIC, Maricalum and Island Cement mere
adjuncts and subsidiaries of co-defendants PNB and DBP, and subject to their
control and management.
On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island Cement
being all corporations created by the government in the pursuit of business
ventures should not be allowed to ignore, x x x or obliterate with impunity nay
illegally, the financial obligations of x x x MMIC whose operations co-defendants
PNB and DBP had highly financed before the alleged extrajudicial foreclosure of
defendant MMIC's assets, machineries and equipment to the extent that major
policies of co-defendant MMIC were being decided upon by co-defendants PNB
and DBP as major financiers who were represented in its board of directors forming
part of the majority thereof which through the alleged extrajudicial foreclosure
culminated in a complete take-over by co-defendants PNB and DBP bringing about
the organization of their co-defendants NMIC, Maricalum and Island Cement to
which were transferred all the assets, machineries and pieces of equipment of co-
defendant MMIC used in its nickel mining project in Surigao del Norte, copper
mining operation in Sipalay, Negros Occidental and cement factory in Antipolo,
Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff
Remington Industrial Sales Corporation whose stockholders, officers and rank-and-
file workers in the legitimate pursuit of its business activities, invested considerable
time, sweat and private money to supply, among others, co-defendant MMIC with
some of its vital needs for its operation, which co-defendant MMIC during the time
of the transactions material to this case became x x x co-defendants PNB and DBP's
instrumentality, business conduit, alter ego, agency (sic), subsidiary or auxiliary
corporation, by virtue of which it becomes doubly necessary to disregard the
corporation fiction that co-defendants PNB, DBP, MMIC, NMIC, Maricalum and
Island Cement, six (6) distinct and separate entities, when in fact and in law, they
should be treated as one and the same at least as far as plaintiff's transactions with
co-defendant MMIC are concerned, so as not to defeat public convenience, justify
wrong, subvert justice, protect fraud or confuse legitimate issues involving creditors
such as plaintiff, a fact which all defendants were as (sic) still are aware of during all
the time material to the transactions subject of this case.7
On April 3, 1989, Remington filed a motion for leave to file a fourth amended
complaint impleading the Asset Privatization Trust (APT) as co-defendant. Said
fourth amended complaint was admitted by the lower court in its Order dated April
29, 1989.
On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of
Remington, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the
defendants Marinduque Mining & Industrial Corporation, Philippine National Bank,
Development Bank of the Philippines, Nonoc Mining and Industrial Corporation,
Maricalum Mining Corporation, Island Cement Corporation and Asset Privatization
Trust to pay, jointly and severally, the sum of P920,755.95, representing the principal
obligation, including the stipulated interest as of June 22, 1984, plus ten percent
(10%) surcharge per annum by way of penalty, until the amount is fully paid; the
sum equivalent to 10% of the amount due as and for attorney's fees; and to pay the
costs.8
Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and
APT, the Court of Appeals, in its Decision dated October 6, 1995, affirmed the
decision of the RTC. Petitioner filed a Motion for Reconsideration, which was denied
in the Resolution dated August 29, 1996.
Hence, this petition, DBP maintaining that Remington has no cause of action against
it or PNB, nor against their transferees, Nonoc Mining, Island Cement, Maricalum
Mining, and the APT.
On the other hand, private respondent Remington submits that the transfer of the
properties was made in fraud of creditors. The presence of fraud, according to
Remington, warrants the piercing of the corporate veil such that Marinduque
Mining and its transferees could be considered as one and the same corporation.
The transferees, therefore, are also liable for the value of Marinduque Mining's
purchases.
In Yutivo Sons Hardware vs. Court of Tax Appeals,9 cited by the Court of Appeals in
its decision,10 this Court declared:
It is an elementary and fundamental principle of corporation law that a corporation
is an entity separate and distinct from its stockholders and from other corporations
to which it may be connected. However, when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons or in case of two corporations,
merge them into one". (Koppel [Phils.], Inc., vs. Yatco, 71 Phil. 496, citing 1 Fletcher
Encyclopedia of Corporation, Permanent Ed., pp. 135-136; U.S. vs. Milwaukee
Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.). x x x.
In accordance with the foregoing rule, this Court has disregarded the separate
personality of the corporation where the corporate entity was used to escape
liability to third parties.11 In this case, however, we do not find any fraud on the part
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of Marinduque Mining and its transferees to warrant the piercing of the corporate
veil.
It bears stressing that PNB and DBP are mandated to foreclose on the mortgage
when the past due account had incurred arrearages of more than 20% of the total
outstanding obligation. Section 1 of Presidential Decree No. 385 (The Law on
Mandatory Foreclosure) provides:
It shall be mandatory for government financial institutions, after the lapse of sixty
(60) days from the issuance of this decree, to foreclose the collateral and/or
securities for any loan, credit accommodation, and/or guarantees granted by them
whenever the arrearages on such account, including accrued interest and other
charges, amount to at least twenty percent (20%) of the total outstanding
obligations, including interest and other charges, as appearing in the books of
account and/or related records of the financial institution concerned. This shall be
without prejudice to the exercise by the government financial institution of such
rights and/or remedies available to them under their respective contracts with their
debtors, including the right to foreclose on loans, credits, accommodations and/or
guarantees on which the arrearages are less than twenty (20%) percent.
Thus, PNB and DBP did not only have a right, but the duty under said law, to
foreclose upon the subject properties. The banks had no choice but to obey the
statutory command.
The import of this mandate was lost on the Court of Appeals, which reasoned that
under Article 19 of the Civil Code, "Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith." The appellate court, however, did not point to any
fact evidencing bad faith on the part of the Marinduque Mining and its transferees.
Indeed, it skirted the issue entirely by holding that the question of actual fraudulent
intent on the part of the interlocking directors of DBP and Marinduque Mining was
irrelevant because:
As aptly stated by the appellee in its brief, "x x x where the corporations have
directors and officers in common, there may be circumstances under which their
interest as officers in one company may disqualify them in equity from representing
both corporations in transactions between the two. Thus, where one corporation
was 'insolvent and indebted to another, it has been held that the directors of the
creditor corporation were disqualified, by reason of self-interest, from acting as
directors of the debtor corporation in the authorization of a mortgage or deed of
trust to the former to secure such indebtedness x x x" (page 105 of the Appellee's
Brief). In the same manner that "x x x when the corporation is insolvent, its directors
who are its creditors can not secure to themselves any advantage or preference over
other creditors. They can not thus take advantage of their fiduciary relation and deal
directly with themselves, to the injury of others in equal right. If they do, equity will
set aside the transaction at the suit of creditors of the corporation or their
representatives, without reference to the question of any actual fraudulent intent on
the part of the directors, for the right of the creditors does not depend upon fraud
in fact, but upon the violation of the fiduciary relation to the directors." x x x (page
106 of the Appellee's Brief)
We also concede that "x x x directors of insolvent corporation, who are creditors of
the company, can not secure to themselves any preference or advantage over other
creditors in the payment of their claims. It is not good morals or good law. The
governing body of officers thereof are charged with the duty of conducting its
affairs strictly in the interest of its existing creditors, and it would be a breach of
such trust for them to undertake to give any one of its members any advantage
over any other creditors in securing the payment of his debts in preference to all
others. When validity of these mortgages, to secure debts upon which the directors
were indorsers, was questioned by other creditors of the corporation, they should
have been classed as instruments rendered void by the legal principle which
prevents directors of an insolvent corporation from giving themselves a preference
over outside creditors. x x x" (page 106-107 of the Appellee's Brief.)12
The Court of Appeals made reference to two principles in corporation law. The first
pertains to transactions between corporations with interlocking directors resulting
in the prejudice to one of the corporations. This rule does not apply in this case,
however, since the corporation allegedly prejudiced (Remington) is a third party, not
one of the corporations with interlocking directors (Marinduque Mining and DBP).
The second principle invoked by respondent court involves "directors x x x who are
creditors" which is also inapplicable herein. Here, the creditor of Marinduque Mining
is DBP, not the directors of Marinduque Mining.
Neither do we discern any bad faith on the part of DBP by its creation of Nonoc
Mining, Maricalum and Island Cement. As Remington itself concedes, DBP is not
authorized by its charter to engage in the mining business.13 The creation of the
three corporations was necessary to manage and operate the assets acquired in the
foreclosure sale lest they deteriorate from non-use and lose their value. In the
absence of any entity willing to purchase these assets from the bank, what else
would it do with these properties in the meantime? Sound business practice
required that they be utilized for the purposes for which they were intended.
Remington also asserted in its third amended complaint that the use of Nonoc
Mining, Maricalum and Island Cement of the premises of Marinduque Mining and
the hiring of the latter's officers and personnel also constitute badges of bad faith.
Assuming that the premises of Marinduque Mining were not among those acquired
by DBP in the foreclosure sale, convenience and practicality dictated that the
corporations so created occupy the premises where these assets were found instead
of relocating them. No doubt, many of these assets are heavy equipment and it may
have been impossible to move them. The same reasons of convenience and
Page 147 of 152
practicality, not to mention efficiency, justified the hiring by Nonoc Mining,
Maricalum and Island Cement of Marinduque Mining's personnel to manage and
operate the properties and to maintain the continuity of the mining operations.
To reiterate, the doctrine of piercing the veil of corporate fiction applies only when
such corporate fiction is used to defeat public convenience, justify wrong, protect
fraud or defend crime.14 To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. It cannot
be presumed.15 In this case, the Court finds that Remington failed to discharge its
burden of proving bad faith on the part of Marinduque Mining and its transferees in
the mortgage and foreclosure of the subject properties to justify the piercing of the
corporate veil.
The Court of Appeals also held that there exists in Remington's favor a "lien" on the
unpaid purchases of Marinduque Mining, and as transferee of these purchases, DBP
should be held liable for the value thereof.
In the absence of liquidation proceedings, however, the claim of Remington cannot
be enforced against DBP. Article 2241 of the Civil Code provides:
ARTICLE 2241. With reference to specific movable property of the debtor,
the following claims or liens shall be preferred:
xxx xxx xxx
(3) Claims for the unpaid price of movables sold, on said movables, so long
as they are in the possession of the debtor, up to the value of the same; and if the
movable has been resold by the debtor and the price is still unpaid, the lien may be
enforced on the price; this right is not lost by the immobilization of the thing by
destination, provided it has not lost its form, substance and identity, neither is the
right lost by the sale of the thing together with other property for a lump sum,
when the price thereof can be determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in
the hands of the creditor, or those guaranteed by a chattel mortgage, upon the
things pledged or mortgaged, up to the value thereof;
xxx xxx xxx
In Barretto vs. Villanueva,16 the Court had occasion to construe Article 2242,
governing claims or liens over specific immovable property. The facts that gave rise
to the case were summarized by this Court in its resolution as follows:
x x x Rosario Cruzado sold all her right, title, and interest and that of her children in
the house and lot herein involved to Pura L. Villanueva for P19,000.00. The
purchaser paid P1,500 in advance, and executed a promissory note for the balance
of P17,500.00. However, the buyer could only pay P5,500 on account of the note, for
which reason the vendor obtained judgment for the unpaid balance. In the
meantime, the buyer Villanueva was able to secure a clean certificate of title (No.
32626), and mortgaged the property to appellant Magdalena C. Barretto, married to
Jose C. Baretto, to secure a loan of P30,000.03, said mortgage having been duly
recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
foreclosed the mortgage in her favor, obtained judgment, and upon its becoming
final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a
motion for recognition for her "vendor's lien" in the amount of P12,000.00, plus
legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After
hearing, the court below ordered the "lien" annotated on the back of Certificate of
Title No. 32526, with the proviso that in case of sale under the foreclosure decree
the vendor's lien and the mortgage credit of appellant Barretto should be paid pro
rata from the proceeds. Our original decision affirmed this order of the Court of First
Instance of Manila.
In its decision upholding the order of the lower court, the Court ratiocinated thus:
Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that
constitute an encumbrance on specific immovable property, and among them are:
"(2) For the unpaid price of real property sold, upon the immovable sold";
and
"(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with
respect to the same specific real property or real rights, they shall be satisfied pro-
rata, after the payment of the taxes and assessments upon the immovable property
or real rights."
Application of the above-quoted provisions to the case at bar would mean that the
herein appellee Rosario Cruzado as an unpaid vendor of the property in question
has the right to share pro-rata with the appellants the proceeds of the foreclosure
sale.
xxx xxx xxx
As to the point made that the articles of the Civil Code on concurrence and
preference of credits are applicable only to the insolvent debtor, suffice it to say that
nothing in the law shows any such limitation. If we are to interpret this portion of
the Code as intended only for insolvency cases, then other creditor-debtor
relationships where there are concurrence of credits would be left without any rules
to govern them, and it would render purposeless the special laws on insolvency.17
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Upon motion by appellants, however, the Court reconsidered its decision. Justice
J.B.L. Reyes, speaking for the Court, explained the reasons for the reversal:
A. The previous decision failed to take fully into account the radical
changes introduced by the Civil Code of the Philippines into the system of priorities
among creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to
specific real property under Article 1923 were to be resolved according to an order
of priorities established by Article 1927, whereby one class of creditors could
exclude the creditors of lower order until the claims of the former were fully
satisfied out of the proceeds of the sale of the real property subject of the
preference, and could even exhaust proceeds if necessary.
Under the system of the Civil Code of the Philippines, however, only taxes enjoy a
similar absolute preference. All the remaining thirteen classes of preferred creditors
under Article 2242 enjoy no priority among themselves, but must be paid pro rata,
i.e., in proportion to the amount of the respective credits. Thus, Article 2249
provides:
"If there are two or more credits with respect to the same specific real property or
real rights, they shall be satisfied pro rata, after the payment of the taxes and
assessments upon the immovable property or real rights."
But in order to make this prorating fully effective, the preferred creditors
enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits
outstanding) must necessarily be convened, and the import of their claims
ascertained. It is thus apparent that the full application of Articles 2249 and 2242
demands that there must be first some proceeding where the claims of all the
preferred creditors may be bindingly adjudicated, such as insolvency, the settlement
of decedent's estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that
"The claims or credits enumerated in the two preceding articles shall be considered
as mortgages or pledges of real or personal property, or liens within the purview of
legal provisions governing insolvency x x x (Italics supplied).
And the rule is further clarified in the Report of the Code Commission, as follows
"The question as to whether the Civil Code and the Insolvency Law can be
harmonized is settled by this Article (2243). The preferences named in Articles 2261
and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency
Law." (Italics supplied)
Thus, it becomes evident that one preferred creditor's third-party claim to the
proceeds of a foreclosure sale (as in the case now before us) is not the proceeding
contemplated by law for the enforcement of preferences under Article 2242, unless
the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of
the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain the pro rata dividend corresponding to each, because the rights of the
other creditors likewise enjoying preference under Article 2242 can not be
ascertained. Wherefore, the order of the Court of First Instance of Manila now
appealed from, decreeing that the proceeds of the foreclosure sale be apportioned
only between appellant and appellee, is incorrect, and must be reversed. [Emphasis
supplied]
The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et
al.,18 and in two cases both entitled Development Bank of the Philippines vs.
NLRC.19
Although Barretto involved specific immovable property, the ruling therein should
apply equally in this case where specific movable property is involved. As the
extrajudicial foreclosure instituted by PNB and DBP is not the liquidation proceeding
contemplated by the Civil Code, Remington cannot claim its pro rata share from
DBP.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated
October 6, 1995 and its Resolution promulgated on August 29, 1996 is REVERSED
and SET ASIDE. The original complaint filed in the Regional Trial Court in CV Case
No. 84-25858 is hereby DISMISSED.
SO ORDERED.
FIRST DIVISION
G.R. No. 108031 March 1, 1995
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and LEONOR A ANG, respondents.
BELLOSILLO, J.:
Page 148 of 152
Is declaration of bankruptcy or judicial liquidation required before the worker's
preference may be invoked under Art. 110 of the Labor Code?
On 21 March 1977 private respondent Leonor A. Ang started employment as
Executive Secretary with Tropical Philippines Wood Industries, Inc. (TPWII), a
corporation engaged in the manufacture and sale of veneer, plywood and sawdust
panel boards. In 1982 she was promoted to the position of Personnel Officer.
In September 1983 petitioner Development Bank of the Philippines, as mortgagee
of TPWII, foreclosed its plant facilities and equipment. Nevertheless TPWII continued
its business operations interrupted only by brief shutdowns for the purpose of
servicing its plant facilities and equipment. In January 1986 petitioner took
possession of the foreclosed properties. From then on the company ceased its
operations. As a consequence private respondent was on 15 April 1986 verbally
terminated from the service.
On 14 December 1987 aggrieved by the termination of her employment, private
respondent filed with the Labor Arbiter a complaint for separation pay, 13th month
pay, vacation and sick leave pay, salaries and allowances against TPWII, its General
Manager, and petitioner.
After hearing the Labor Arbiter found TPWII primarily liable to private respondent
but only for her separation pay and vacation and sick leave pay because her claims
for unpaid wages and 13th month pay were later paid after the complaint was filed.
1 The General Manager was absolved of any liability. But with respect to petitioner,
it was held subsidiarily liable in the event the company failed to satisfy the
judgment. The Labor Arbiter rationalized that the right of an employee to be paid
benefits due him from the properties of his employer is superior to the right of the
latter's mortgage, citing this Court's resolution in PNB v. Delta Motor Workers
Union. 2
On 16 November 1992 public respondent National Labor Relations Commission
affirmed the ruling of the Labor Arbiter. 3
The issue now before us is whether public respondent committed grave abuse of
discretion in holding that Art. 110 of the Labor Code, as amended, which refers to
worker preference in case of bankruptcy or liquidation of an employer's business is
applicable to the present case notwithstanding the absence of any formal
declaration of bankruptcy or judicial liquidation of TPWII.
Petitioner argues that the decision of public respondent runs counter to the
consistent rulings of this Court in a long line of cases emphasizing that the
application of Art. 110 of the Labor Code is contingent upon the institution of
bankruptcy or judicial liquidation proceedings against the employer.
We hold that public respondent gravely abused its discretion in affirming the
decision of the Labor Arbiter. Art. 110 should not be treated apart from other laws
but applied in conjunction with the pertinent provisions of the Civil Code and the
Insolvency Law to the extent that piece-meal distribution of the assets of the debtor
is avoided. Art. 110, then prevailing, provides:
Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy
or liquidation of an employer's business, his workers shall enjoy first preference as
regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision to the contrary notwithstanding. Unpaid
wages shall be paid in full before other creditors may establish any claim to a share
in the assets of the employer.
Complementing Art. 110, Sec. 10, Rule VIII, Book III, of the Revised Rules and
Regulations Implementing the Labor Code provides:
Sec. 10. Payment of wages in case of bankruptcy. Unpaid wages earned by
the employees before the declaration of bankruptcy or judicial liquidation of the
employer's business shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the assets of the employer.
We interpreted this provision in Development Bank of the Philippines v. Santos 4 to
mean that
. . . a declaration of bankruptcy or a judicial liquidation must be present before the
worker's preference may be enforced. Thus, Article 110 of the Labor Code and its
implementing rule cannot be invoked by the respondents in this case absent a
formal declaration of bankruptcy or a liquidation order . . . . (Emphasis supplied).
The rationale is that to hold Art. 110 to be applicable also to extrajudicial
proceedings would be putting the worker in a better position than the State which
could only assert its own prior preference in case of a judicial proceeding. 5 Art. 110,
which was amended by R.A. 6715 effective 21 March 1989, now reads:
Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy
or liquidation of an employer's business, his workers shall enjoy first preference as
regards their unpaid wages and other monetary claims, any provision of law to the
contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in
full before the claims of the Government and other creditors may be paid.
Obviously, the amendment expanded the concept of "worker preference" to cover
not only unpaid wages but also other monetary claims to which even claims of the
Government must be deemed subordinate. The Rules and Regulations
Implementing R.A. 6715, approved 24 May 1989, also amended the corresponding
implementing rule, and now reads:
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Sec. 10. Payment of wages and other monetary claims in case of bankruptcy.
In case of bankruptcy or liquidation of the employer's business, the unpaid wages
and other monetary claims of the employees shall be given first preference and shall
be paid in full before the claims of government and other creditors may be paid.
Although the terms "declaration" (of bankruptcy) or "judicial" (liquidation) have
been notably eliminated, still in Development Bank of the Philippines v. NLRC, 6 this
Court did not alter its original position that the right to preference given to workers
under Art. 110 cannot exist in any effective way prior to the time of its presentation
in distribution proceedings. In effect, we reiterated our previous interpretation in
Development Bank of the Philippines v. Santos where we said:
It (worker preference) will find application when, in proceedings such as insolvency,
such unpaid wages shall be paid in full before the "claims of the Government and
other creditors" may be paid. But, for an orderly settlement of a debtor's assets, all
creditors must be convened, their claims ascertained and inventoried, and thereafter
the preferences determined. In the course of judicial proceedings which have for
their object the subjection of the property of the debtor to the payment of his debts
or other lawful obligations. Thereby, an orderly determination of preference of
creditors' claims is assured (Philippine Savings Bank vs. Lantin, No. L-33929,
September 2, 1983, 124 SCRA 476); the adjudication made will be binding on all
parties-in-interest since those proceedings are proceedings in rem; and the legal
scheme of classification, concurrence and preference of credits in the Civil Code, the
Insolvency Law, and the Labor Code is preserved in harmony. 7
In ruling, as we did, in Development Bank of the Philippines v. Santos, we took into
account the following pronouncements:
In the event of insolvency, a principal objective should be to effect an equitable
distribution of the insolvents property among his creditors. To accomplish this there
must first be some proceeding where notice to all of the insolvent's creditors may
be given and where the claims of preferred creditors may be bindingly adjudicated.
(De Barreto v. Villanueva, No.
L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been
expressed in the recent case of DBP v. Secretary of Labor (G.R. No. 79351, 28
November 1989), which we quote:
A preference of credit bestows upon the preferred creditor an advantage of having
his credit satisfied first ahead of other claims which may be established against the
debtor. Logically, it becomes material only when the properties and assets of the
debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay
his various creditors in full, how can the necessity exist to determine which of his
creditors shall be paid first or whether they shall be paid out of the proceeds of the
sale (of) the debtor's specific property. Indubitably, the preferential right of credit
attains significance only after the properties of the debtor have been inventoried
and liquidated, and the claims held by his various creditors have been established
(Kuenzle & Sheriff (Ltd.) v. Villanueva, 41 Phil. 611 [1916]; Barretto v. Villanueva, G.R.
No. 14938, 29 December 1962, 6 SCRA 928; Philippine Savings Bank v. Lantin, G.R.
No. 33929, 2 September 1983, 124 SCRA 476).
In the present case, there is as yet no declaration of bankruptcy nor judicial
liquidation of TPWII. Hence, it would be premature to enforce the worker's
preference.
The additional ratiocination of public respondent that "under Article 110 of the
Labor Code complainant enjoys a preference of credit over the properties of TPWII
being held in possession by DBP," is a dismal misconception of the nature of
preference of credit, a subject matter which we have already discussed in clear and
simple terms and even distinguished from a lien in Development Bank of the
Philippines v. NLRC 8
. . . A preference applies only to claims which do not attach to specific properties. A
lien creates a charge on a particular property. The right of first preference as regards
unpaid wages recognized by Article 110 does not constitute a lien on the property
of the insolvent debtor in favor of workers. It is but a preference of credit in their
favor, a preference in application. It is a method adopted to determine and specify
the order in which credits should be paid in the final distribution of the proceeds of
the insolvent's assets. It is a right to a first preference in the discharge of the funds
of the judgment debtor . . . In the words of Republic v. Peralta, supra: Article 110 of
the Labor Code does not purport to create a lien in favor of workers or employees
for unpaid wages either upon all of the properties or upon any particular property
owned by their employer. Claims for unpaid wages do not therefore fall at all within
the category of specially preferred claims established under Articles 2241 and 2242
of the Civil Code, except to the extent that such claims for unpaid wages are already
covered by Article 2241, number 6: "claims for laborers: wages, on the goods
manufactured or the work done;" or by Article 2242, number 3, "claims of laborers
and other workers engaged in the construction reconstruction or repair of buildings,
canals and other works, upon said buildings, canals and other works . . . . To the
extent that claims for unpaid wages fall outside the scope of Article 2241, number 6,
and 22421 number 3, they would come within the ambit of the category of ordinary
preferred credits under Article 2244.
The DBP anchors its claim on a mortgage credit. A mortgage directly and
immediately subjects the property upon which it is imposed, whoever the possessor
may be, to the fulfillment of the obligation for whose security it was constituted
(Article 2176, Civil Code). It creates a real right which is enforceable against the
whole world. It is a lien on an identified immovable property, which a preference is
not. A recorded mortgage credit is a special preferred credit under Article 2242 (5)
of the Civil Code on classification of credits. The preference given by Article 1l0,
when not falling within Article 2241 (6) and Article 2242 (3), of the Civil Code and
not attached to any specific property, is all ordinary preferred credit although its
Page 149 of 152
impact is to move it from second priority to first priority in the order of preference
established by Article 2244 of the Civil Code.
The present controversy could have been easily settled by public respondent had it
referred to ample jurisprudence which already provides the solution. Stare decisions
et non quiet movere. Once a case is decided by this Court as the final arbiter of any
justifiable controversy one way, then another case involving exactly the same point
at issue should be decided in the same manner. Public respondent had no choice on
the matter. It could not have ruled any other way. This Court having spoken in a
string of cases against public respondent, its duty is simply to obey judicial
precedents. 9 Any further disregard, if not defiance, of our rulings will be considered
a ground to hold public respondent in contempt.
WHEREFORE, the petition is GRANTED. The decision of public respondent National
Labor Relations Commission affirming the decision of the Labor Arbiter insofar as it
held petitioner Development Bank of the Philippines liable for the monetary claims
of private respondent Leonor A. Ang is SET ASIDE. The temporary restraining order
we issued on 8 February 1993 10 enjoining the execution of the decision of public
respondent against petitioner is made PERMANENT.
SO ORDERED.
EN BANC
G.R. No. L-56568 May 20, 1987
REPUBLIC OF THE PHILIPPINES, represented by the Bureau of Customs and the
Bureau of Internal Revenue, petitioner,
vs.
HONORABLE E.L. PERALTA, PRESIDING JUDGE OF THE COURT OF FIRST INSTANCE
OF MANILA, BRANCH XVII, QUALITY TABACCO CORPORATION, FRANCISCO,
FEDERACION OBRERO DE LA INDUSTRIA TABAQUERA Y OTROS TRABAJADORES DE
FILIPINAS (FOITAF) USTC EMPLOYEES ASSOCIATION WORKERS UNION-PTGWO,
respondents.
Oscar A. Pascua for assignee F. Candelaria.
Teofilo C. Villarico for respondent Federation.
Pedro A. Lopez for respondent USTC.
FELICIANO, J.:
The Republic of the Philippines seeks the review on certiorari of the Order dated 17
November 1980 of the Court of First Instance of Manila in its Civil Case No. 108395
entitled "In the Matter of Voluntary Insolvency of Quality Tobacco Corporation,
Quality Tobacco Corporation, Petitioner," and of the Order dated 19 January 1981 of
the same court denying the motion for reconsideration of the earlier Order filed by
the Bureau of Internal Revenue and the Bureau of Customs for the Republic.
In the voluntary insolvency proceedings commenced in May 1977 by private
respondent Quality Tobacco Corporation (the "Insolvent"), the following claims of
creditors were filed:
(i) P2,806,729.92, by the USTC Association of Employees and workers
Union-PTGWO USTC as separation pay for their members. This amount plus an
additional sum of P280,672.99 as attorney's fees had been awarded by the National
Labor Relations Commission in NLRC Case No. RB-IV-9775-77. 1
(ii) P53,805.05 by the Federacion de la Industria Tabaquera y Otros
Trabajadores de Filipinas ("FOITAF), as separation pay for their members, an amount
similarly awarded by the NLRC in the same NLRC Case.
(iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection
fees covering the period 1 October 1967 to 28 February 1973;
(iv) P276,161.00 by the Bureau of Customs for customs duties and taxes
payable on various importations by the Insolvent. These obligations appear to be
secured by surety bonds. 2 Some of these imported items are apparently still in
customs custody so far as the record before this Court goes.
In its questioned Order of 17 November 1980, the trial court held that the above-
enumerated claims of USTC and FOITAF (hereafter collectively referred to as the
"Unions") for separation pay of their respective members embodied in final awards
of the National Labor Relations Commission were to be preferred over the claims of
the Bureau of Customs and the Bureau of Internal Revenue. The trial court, in so
ruling, relied primarily upon Article 110 of the Labor Code which reads thus:
Article 110. Worker preference in case of bankruptcy In the event of bankruptcy
or liquidation of an employer's business, his workers shall enjoy first preference as
regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the contrary notwithstanding.
Union paid wages shall be paid in full before other creditors may establish any claim
to a share in the assets of the employer.
The Solicitor General, in seeking the reversal of the questioned Orders, argues that
Article 110 of the Labor Code is not applicable as it speaks of "wages," a term which
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he asserts does not include the separation pay claimed by the Unions. "Separation
pay," the Solicitor General contends,
is given to a laborer for a separation from employment computed on the basis of
the number of years the laborer was employed by the employer; it is a form of
penalty or damage against the employer in favor of the employee for the latter's
dismissal or separation from service. 3
Article 97 (f) of the Labor Code defines "wages" in the following terms:
Wage' paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to be done, or for
services rendered or to be rendered, and includes the fair and reasonable value, as
determined by the Secretary of Labor, of board, lodging, or other facilities
customarily furnished by the employer to the employee. 'Fair and reasonable value'
shall not include any profit to the employer or to any person affiliated with the
employer.(emphasis supplied)
We are unable to subscribe to the view urged by the Solicitor General. We note, in
this connection, that in Philippine Commercial and Industrial Bank (PCIB) us.
National Mines and Allied Workers Union, 4 the Solicitor General took a different
view and there urged that the term "wages" under Article 110 of the Labor Code
may be regarded as embracing within its scope severance pay or termination or
separation pay. In PCIB, this Court agreed with the position advanced by the
Solicitor General. 5 We see no reason for overturning this particular position. We
continue to believe that, for the specific purposes of Article 110 and in the context
of insolvency termination or separation pay is reasonably regarded as forming part
of the remuneration or other money benefits accruing to employees or workers by
reason of their having previously rendered services to their employer; as such, they
fall within the scope of "remuneration or earnings for services rendered or to be
rendered ." Liability for separation pay might indeed have the effect of a penalty,
so far as the employer is concerned. So far as concerns the employees, however,
separation pay is additional remuneration to which they become entitled because,
having previously rendered services, they are separated from the employer's service.
The relationship between separation pay and services rendered is underscored by
the fact that separation pay is measured by the amount (i.e., length) of the services
rendered. This construction is sustained both by the specific terms of Article 110
and by the major purposes and basic policy embodied in the Labor Code. 6 It is also
the construction that is suggested by Article 4 of the Labor Code which directs that
doubts assuming that any substantial rather than merely frivolous doubts
remain-in the interpretation of the provisions of the labor Code and its
implementing rules and regulations shall be "resolved in favor of labor."
The resolution of the issue of priority among the several claims filed in the
insolvency proceedings instituted by the Insolvent cannot, however, rest on a
reading of Article 110 of the labor Code alone.
Article 110 of the Labor Code, in determining the reach of its terms, cannot be
viewed in isolation. Rather, Article 110 must be read in relation to the provisions of
the Civil Code concerning the classification, concurrence and preference of credits,
which provisions find particular application in insolvency proceedings where the
claims of all creditors, preferred or non-preferred, may be adjudicated in a binding
manner. 7 It is thus important to begin by outlining the scheme constituted by the
provisions of the Civil Code on this subject.
Those provisions may be seen to classify credits against a particular insolvent into
three general categories, namely:
(a) special preferred credits listed in Articles 2241 and 2242,
(b) ordinary preferred credits listed in Article 2244; and
(c) common credits under Article 2245.
Turning first to special preferred credits under Articles 2241 and 2242, it should be
noted at once that these credits constitute liens or encumbrances on the specific
movable or immovable property to which they relate. Article 2243 makes clear that
these credits "shall be considered as mortgages or pledges of real or personal
property, or liens within the purview of legal provisions governing insolvency." It
should be emphasized in this connection that "duties, taxes and fees due [on
specific movable property of the insolvent] to the State or any subdivision thereof"
(Article 2241 [1]) and "taxes due upon the [insolvent's] land or building (2242
[1])"stand first in preference in respect of the particular movable or immovable
property to which the tax liens have attached. Article 2243 is quite explicit: "[T]axes
mentioned in number 1, Article 2241 and number 1, Article 2242 shall first be
satisfied. " The claims listed in numbers 2 to 13 in Article 2241 and in numbers 2 to
10 in Articles 2242, all come after taxes in order of precedence; such claims enjoy
their privileged character as liens and may be paid only to the extent that taxes have
been paid from the proceeds of the specific property involved (or from any other
sources) and only in respect of the remaining balance of such proceeds. What is
more, these other (non-tax) credits, although constituting liens attaching to
particular property, are not preferred one over another inter se. Provided tax liens
shall have been satisfied, non-tax liens or special preferred credits which subsist in
respect of specific movable or immovable property are to be treated on an equal
basis and to be satisfied concurrently and proportionately. 8 Put succintly, Articles
2241 and 2242 jointly with Articles 2246 to 2249 establish a two-tier order of
preference. The first tier includes only taxes, duties and fees due on specific
movable or immovable property. All other special preferred credits stand on the
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same second tier to be satisfied, pari passu and pro rata, out of any residual value of
the specific property to which such other credits relate.
Credits which are specially preferred because they constitute liens (tax or non-tax) in
turn, take precedence over ordinary preferred credits so far as concerns the
property to which the liens have attached. The specially preferred credits must be
discharged first out of the proceeds of the property to which they relate, before
ordinary preferred creditors may lay claim to any part of such proceeds. 9
If the value of the specific property involved is greater than the sum total of the tax
liens and other specially preferred credits, the residual value will form part of the
"free property" of the insolvent i.e., property not impressed with liens by
operation of Articles 2241 and 2242. If, on the other hand, the value of the specific
movable or immovable is less than the aggregate of the tax liens and other specially
preferred credits, the unsatisfied balance of the tax liens and other such credits are
to the treated as ordinary credits under Article 2244 and to be paid in the order of
preference there set up. 10
In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate
property which follow such property. What Article 2244 creates are simply rights in
favor of certain creditors to have the cash and other assets of the insolvent applied
in a certain sequence or order of priority. 11
Only in respect of the insolvent's "free property" is an order of priority established
by Article 2244. In this sequence, certain taxes and assessments also figure but these
do not have the same kind of overriding preference that Articles 2241 No. 1 and
2242 No. I create for taxes which constituted liens on the taxpayer's property. Under
Article 2244,
(a) taxes and assessments due to the national government, excluding those
which result in tax liens under Articles 2241 No. 1 and 2242 No. 1 but including the
balance thereof not satisfied out of the movable or immovable property to which
such liens attached, are ninth in priority;
(b) taxes and assessments due any province, excluding those impressed as
tax liens under Articles 2241 No. 1 and 2242 No. 1, but including the balance
thereof not satisfied out of the movable or immovable property to which such liens
attached, are tenth in priority; and
(c) taxes and assessments due any city or municipality, excluding those
impressed as tax liens under Articles 2241 No. I and 2242 No. 2 but including the
balance thereof not satisfied out of the movable or immovable property to which
such liens attached, are eleventh in priority.
It is within the framework of the foregoing rules of the Civil Code that the question
of the relative priority of the claims of the Bureau of Customs and the Bureau of
Internal Revenue, on the one hand, and of the claims of the Unions for separation
pay of their members, on the other hand, is to be resolved. A related vital issue is
what impact Article 110 of the labor Code has had on those provisions of the Civil
Code.
A. Claim of the Bureau of Customs for Unpaid Customs Duties and Taxes-
Under Section 1204 of the Tariff and Customs Code, 12 the liability of an importer
for duties, taxes and fees and other charges attaching on importation constitute a
personal debt due from the importer to the government which can be discharged
only by payment in full of all duties, taxes, fees and other charges legally accruing It
also constitutes a lien upon the articles imported which may be enforced while such
articles are in the custody or subject to the control of the government. (emphasis
supplied)
Clearly, the claim of the Bureau of Customs for unpaid customs duties and taxes
enjoys the status of a specially preferred credit under Article 2241, No. 1, of the Civil
Code. only in respect of the articles importation of which by the Insolvent resulted
in the assessment of the unpaid taxes and duties, and which are still in the custody
or subject to the control of the Bureau of Customs. The goods imported on one
occasion are not subject to a lien for customs duties and taxes assessed upon other
importations though also effected by the Insolvent. Customs duties and taxes which
remain unsatisfied after levy upon the imported articles on which such duties and
taxes are due, would have to be paid out of the Insolvent's "free property" in
accordance with the order of preference embodied in Article 2244 of the Civil Code.
Such unsatisfied customs duties and taxes would fall within Article 2244, No. 9, of
the Civil Code and hence would be ninth in priority.
B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees
Under Section 315 of the National Internal Revenue Code ("old Tax Code"), 13 later
reenacted in Identical terms as Section 301 of the Tax Code of 1977, 14 an unpaid
"internal revenue tax," together with related interest, penalties and costs, constitutes
a lien in favor of the Government from the time an assessment therefor is made and
until paid, "upon all property and rights to property belonging to the taxpayer."
Tobacco inspection fees are specifically mentioned as one of the miscellaneous
taxes imposed under the National Internal Revenue Code, specifically Title VIII,
Chapter IX of the old Tax Code and little VIII, Chapter VII of the Tax Code of 1977.
15 Tobacco inspection fees are collected both for purposes of regulation and
control and for purposes of revenue generation: half of the said fees accrues to the
Tobacco Inspection Fund created by Section 12 of Act No. 2613, as amended by Act
No. 3179, while the other half accrues to the Cultural Center of the Philippines.
Tobacco inspection fees, in other words, are imposed both as a regulatory measure
and as a revenue-raising measure. In Commissioner of Internal Revenue us.
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Guerrero, et al 16 this Court held, through Mr. Chief Justice Concepcion, that the
term "tax" is used in Section 315 of the old Tax Code:
not in the limited sense [of burdens imposed upon persons and/or properties, by
way of contributions to the support of the Government, in consideration of general
benefits derived from its operation], but, in a broad sense, encompassing all
government revenues collectible by the Commissioner of Internal Revenue under
said Code, whether involving taxes, in the strict technical sense thereof, or not. x x x
As used in Title IX of said Code, the term 'tax' includes 'any national internal revenue
tax, fee or charge imposed by the Code. 17
It follows that the claim of the Bureau of Internal Revenue for unpaid tobacco
inspection fees constitutes a claim for unpaid internal revenue taxes 18 which gives
rise to a tax lien upon all the properties and assets, movable and immovable, of the
Insolvent as taxpayer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249
of the Civil Code, this tax claim must be given preference over any other claim of
any other creditor, in respect of any and all properties of the Insolvent. 19
C. Claims of the Unions for Separation Pay of Their Members
Article 110 of the Labor Code does not purport to create a lien in favor of workers
or employees for unpaid wages either upon all of the properties or upon any
particular property owned by their employer. Claims for unpaid wages do not
therefore fall at all within the category of specially preferred claims established
under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims
for unpaid wages are already covered by Article 2241, number 6. "claims for
laborers' wages, on the goods manufactured or the work done;" or by Article 2242,
number 3: "claims of laborers and other workers engaged in the construction,
reconstruction or repair of buildings, canals and other works, upon said buildings,
canals or other works." To the extent that claims for unpaid wages fall outside the
scope of Article 2241, number 6 and 2242, number 3, they would come within the
ambit of the category of ordinary preferred credits under Article 2244.
Applying Article 2241, number 6 to the instant case, the claims of the Unions for
separation pay of their members constitute liens attaching to the processed leaf
tobacco, cigars and cigarettes and other products produced or manufactured by the
Insolvent, but not to other assets owned by the Insolvent. And even in respect of
such tobacco and tobacco products produced by the Insolvent, the claims of the
Unions may be given effect only after the Bureau of Internal Revenue's claim for
unpaid tobacco inspection fees shall have been satisfied out of the products so
manufactured by the Insolvent.
Article 2242, number 3, also creates a lien or encumbrance upon a building or other
real property of the Insolvent in favor of workmen who constructed or repaired such
building or other real property. Article 2242, number 3, does not however appear
relevant in the instant case, since the members of the Unions to whom separation
pay is due rendered services to the Insolvent not (so far as the record of this case
would show) in the construction or repair of buildings or other real property, but
rather, in the regular course of the manufacturing operations of the Insolvent. The
Unions' claims do not therefore constitute a lien or encumbrance upon any
immovable property owned by the Insolvent, but rather, as already indicated, upon
the Insolvent's existing inventory (if any of processed tobacco and tobacco
products.
We come to the question of what impact Article 110 of the Labor Code has had
upon the complete scheme of classification, concurrence and preference of credits
in insolvency set out in the Civil Code. We believe and so hold that Article 110 of the
Labor Code did not sweep away the overriding preference accorded under the
scheme of the Civil Code to tax claims of the government or any subdivision thereof
which constitute a lien upon properties of the Insolvent. It is frequently said that
taxes are the very lifeblood of government. The effective collection of taxes is a task
of highest importance for the sovereign. It is critical indeed for its own survival. It
follows that language of a much higher degree of specificity than that exhibited in
Article 110 of the Labor Code is necessary to set aside the intent and purpose of the
legislator that shines through the precisely crafted provisions of the Civil Code. It
cannot be assumed simpliciter that the legislative authority, by using in Article 110
the words "first preference" and "any provision of law to the contrary
notwithstanding" intended to disrupt the elaborate and symmetrical structure set
up in the Civil Code. Neither can it be assumed casually that Article 110 intended to
subsume the sovereign itself within the term "other creditors" in stating that
"unpaid wages shall be paid in full before other creditors may establish any claim to
a share in the assets of employer." Insistent considerations of public policy prevent
us from giving to "other creditors" a linguistically unlimited scope that would
embrace the universe of creditors save only unpaid employees.
We, however, do not believe that Article 110 has had no impact at all upon the
provisions of the Civil Code. Bearing in mind the overriding precedence given to
taxes, duties and fees by the Civil Code and the fact that the Labor Code does not
impress any lien on the property of an employer, the use of the phrase "first
preference" in Article 110 indicates that what Article 110 intended to modify is the
order of preference found in Article 2244, which order relates, as we have seen, to
property of the Insolvent that is not burdened with the liens or encumbrances
created or recognized by Articles 2241 and 2242. We have noted that Article 2244,
number 2, establishes second priority for claims for wages for services rendered by
employees or laborers of the Insolvent "for one year preceding the commencement
of the proceedings in insolvency." Article 110 of the Labor Code establishes "first
preference" for services rendered "during the period prior to the bankruptcy or
liquidation, " a period not limited to the year immediately prior to the bankruptcy or
liquidation. Thus, very substantial effect may be given to the provisions of Article
110 without grievously distorting the framework established in the Civil Code by
holding, as we so hold, that Article 110 of the Labor Code has modified Article 2244
of the Civil Code in two respects: (a) firstly, by removing the one year limitation
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found in Article 2244, number 2; and (b) secondly, by moving up claims for unpaid
wages of laborers or workers of the Insolvent from second priority to first priority in
the order of preference established I by Article 2244.

Accordingly, and by way of recapitulating the application of Civil Code and Labor
Code provisions to the facts herein, the trial court should inventory the properties of
the Insolvent so as to determine specifically: (a) whether the assets of the Insolvent
before the trial court includes stocks of processed or manufactured tobacco
products; and (b) whether the Bureau of Customs still has in its custody or control
articles imported by the Insolvent and subject to the lien of the government for
unpaid customs duties and taxes.

In respect of (a), if the Insolvent has inventories of processed or manufactured

tobacco products, such inventories must be subjected firstly to the claim of the
Bureau of Internal Revenue for unpaid tobacco inspection fees. The remaining value
of such inventories after satisfaction of such fees (or should such inspection fees be
satisfied out of other properties of the Insolvent) will be subject to a lien in favor of
the Unions by virtue of Article 2241, number 6. In case, upon the other hand, the
Insolvent no longer has any inventory of processed or manufactured product, then
the claim of the Unions for separation pay would have to be satisfied out of the
"free property" of the Insolvent under Article 2244 of the Civil Code. as modified by
Article 110 of the Labor Code.

Turning to (b), should the Bureau of Customs no longer have any importations by
the Insolvent still within customs custody or control, or should the importations still
held by the Bureau of Customs be or have become insufficient in value for the
purpose, customs duties and taxes remaining unpaid would have only ninth priority
by virtue of Article 2244, number 9. In respect therefore of the Insolvent's "free
property, " the claims of the Unions will enjoy first priority under Article 2244 as
modified and will be paid ahead of the claims of the Bureau of Customs for any
customs duties and taxes still remaining unsatisfied.

It is understood that the claims of the Unions referred to above do not include the
10% claim for attorney's fees. Attorney's fees incurred by the Unions do not stand
on the same footing as the Unions' claims for separation pay of their members.

WHEREFORE, the petition for review is granted and the Orders dated 17 November
1980 and 19 January 1981 of the trial court are modified accordingly. This case is
hereby remanded to the trial court for further proceedings in insolvency compatible
with the rulings set forth above. No pronouncement as to costs.

SO ORDERED.

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