Real Mortgage: proceedings on the mortgaged property.
proceedings on the mortgaged property. After the
Ros vs. PNB
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 trial court declared the Deed of Real Estate
Mortgage executed by spouses Jose A. Ros3 (Ros)
and Estrella Aguete (Aguete) (collectively, petitioners),
as well as the subsequent foreclosure proceedings,
void. Aside from payment of attorneys fees, the trial
court also ordered PNB to vacate the subject property
to give way to petitioners possession.
The Facts
The appellate court narrated the facts as follows:
On January 13, 1983, spouses Jose
A. Ros and Estrella Aguete filed a complaint for the
annulment of the Real Estate Mortgage and all legal
proceedings taken thereunder against
PNB, Laoag Branch before the Court of First
Instance, Ilocos Norte docketed as Civil Case No. 7803.
The complaint was later amended and was raffled to
the Regional Trial Court, Branch 15, Laoag City.
The averments in the complaint disclosed that
plaintiff-appellee Joe A. Ros obtained a loan
of P115,000.00 from PNB Laoag Branch on October
14, 1974 and as security for the loan, plaintiff-
appellee Ros executed a real estate mortgage involving
a parcel of land Lot No. 9161 of the Cadastral Survey
of Laoag, with all the improvements thereon described
under Transfer Certificate of Title No. T-9646.
Upon maturity, the loan remained outstanding. As a
result, PNB instituted extrajudicial foreclosure
action of PNB to recover the amount of the loan and its
extrajudicial sale thereof, a Certificate of Sale was
issued in favor of PNB, Laoag as the highest bidder.
After the lapse of one (1) year without the property
being redeemed, the property was consolidated and
registered in the name of PNB, Laoag Branch on
August 10, 1978.
Claiming that she (plaintiff-appellee Estrella Aguete)
has no knowledge of the loan obtained by her husband
nor she consented to the mortgage instituted on the
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 redound to the benefit
of the family.
In its answer, PNB prays for the dismissal of the
complaint for lack of cause of action, and insists that it
was plaintiffs-appellees own acts [of]
omission/connivance that bar them from recovering
the subject property on the ground of estoppel, laches,
abandonment and prescription.4
The Trial Courts Ruling
On 29 June 2001, the trial court rendered its
Decision5 in favor of petitioners. The trial court
declared that Aguete did not sign the loan documents,
did not appear before the Notary Public to acknowledge
the execution of the loan documents, did not receive
the loan proceeds from PNB, and was not aware of the
loan until PNB notified her in 14 August 1978 that she
and her family should vacate the mortgaged property
because of the expiration of the redemption period.
Under the Civil Code, the effective law at the time of
the transaction, Ros could not encumber any real
property of the conjugal partnership
without Aguetes consent. Aguete may, during their
marriage and within ten years from the transaction
questioned, ask the courts for the annulment of the
contract her husband entered into without her
consent, 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
interests from Ros.
The dispositive portion reads:
WHEREFORE, premises considered, judgment is
hereby rendered:
1. DECLARING the Deed of Real Estate
Mortgage (Exhibit C) and the subsequent foreclosure
proceedings conducted thereon NULL and VOID;
2. ORDERING the Register of Deeds of the
City of Laoag to cancel TCT No. T-15276 in the name
of defendant PNB and revert the same in the name of
plaintiffs spouses Joe Ros and Estrella Aguete;
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
1
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;
(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 wer
e married on 16 January 1954, while the subject
2
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.20 Petitioners did not present any
corroborating witness, such as a handwriting expert,
who could authoritatively declare
that Aguetes signatures were really forged.
A notarized document carries the evidentiary weight
conferred upon it with respect to its due execution,
and it has in its favor the presumption of regularity
which may only be rebutted by evidence so clear,
strong and convincing as to exclude all controversy as
to the falsity of the certificate. Absent such, the
presumption must be upheld. The burden of proof to
overcome the presumption of due execution of
a notarial document lies on the one contesting the
same. Furthermore, an allegation of forgery must be
proved by clear and convincing evidence, and whoever contract of loan or services, the family stands to
alleges it has the burden of proving the same.21 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
Ros himself cannot bring action against PNB, for no
obligation will redound to the benefit of the conjugal
one can come before the courts with unclean hands. In
partnership.26
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 For this reason, we rule that Ros loan from PNB
documents are forged, incriminating himself to redounded to the benefit of the conjugal partnership.
criminal prosecution. If he were alive today, he would Hence, the debt is chargeable to the conjugal
be prosecuted for forgery. This strengthens the
partnership.
testimony of his wife that her signatures on the
questioned documents are not hers.
WHEREFORE, we DENY the petition. The Decision of
In filing the complaint, it must have been a remorse of
the Court of Appeals in CA-G.R. CV No. 76845
conscience for having wronged his family; in forging
promulgated on 17 October 2005 is AFFIRMED. Costs
the signature of his wife on the questioned documents;
against petitioners.
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, Agueteconfirmed 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
3

PNB vs. Reyes
A spouse's consent is indispensable for the disposition
or encumbrance of conjugal properties.
This resolves a dispute between petitioner Philippine
National Bank and respondent Venancio C. Reyes, Jr.
(Venancio). Philippine National Bank filed a Petition for
Review on Certiorari1 assailing the Decision2dated
August 22, 2013 and the Resolution3 dated May 5,
2014 of the Court of Appeals. The assailed Court of
Appeals Decision affirmed the Decision and Order of
Branch 81 of the Regional Trial Court of Malolos,
Bulacan, which annulled the real estate mortgage and
the certificate of sale issued under the extrajudicial
foreclosure conducted, and ordered Lilia Reyes (Lilia)
to reimburse to Philippine National Bank the total loan
amount she borrowed from the bank.4chanrobleslaw
Venancio is married to Lilia since 1973. During their
union, they acquired three (3) parcels of land in
Malolos, Bulacan. Transfer Certificates of Title (TCT)
Nos. T-52812 and T-52813 were registered under
"Felicidad Pascual and Lilia C. Reyes, married to
Venancio Reyes[,]"5 while TCT No. 53994 was
registered under "Lilia C. Reyes, married to Venancio
Reyes."6chanrobleslaw
The properties were mortgaged to Philippine National
Bank on August 25, 1994 to secure a loan worth
P1,100,000.00,7 which on October 6, 1994 was
increased to P3,000,000.00.8 According to Philippine
National Bank, the Reyes Spouses contracted and duly
consented to the loan.9chanrobleslaw
When the Reyes Spouses failed to pay the loan
obligations, Philippine National Bank foreclosed the
mortgaged real properties.10 The auction sale was held
on September 19, 1997. Philippine National Bank
emerged as the highest bidder, and a certificate of sale
was issued in its favor.11chanrobleslaw
On September 22, 1998, Venancio filed before the
Regional Trial Court a Complaint (or Annulment of
Certificate of Sale and Real Estate Mortgage against
Philippine National Bank.12 Upon order of the trial
court, Venancio amended his Complaint to include
Lilia and the Provincial Sheriff ofBulacan as
defendants.13chanrobleslaw
In assailing the validity of the real estate mortgage,
Venancio claimed that his wife undertook the loan and
the mortgage without his consent and his signature
was falsified on the promissory notes and the of the Regional Trial Court of Malolos, Bulacan,
mortgage.14chanrobleslaw Branch 81 dated May 27, 2009 and August 4, 2009,
respectively, are hereby AFFIRMED.19 (Emphasis in
Since the three (3) lots involved were conjugal the original)
properties, he argued that the mortgage constituted
over them was void.15chanrobleslaw Philippine National Bank moved for reconsideration,
but the Motion was denied in the Resolution20 dated
On May 27, 2009, Branch 81 of the Regional Trial May 5, 2014.
Court of Malolos, Bulacan ordered the annulment of
the real estate mortgage and directed Lilia to Petitioner Philippine National Bank insists that the
reimburse Philippine National Bank the loan amount Court of Appeals erred in affirming the ruling of the
with interest.16 The dispositive portion reads: trial court. It argues that the real estate mortgage is
valid, that the conjugal partnership should be held
chanRoblesvirtualLawlibrary liable for the loan, and that respondent Venancio C.
Reyes, Jr.'s cause of action should be deemed barred
by laches.21chanrobleslaw
WHEREFORE, judgment is hereby rendered:
Petitioner claims that respondent and his wife both
chanRoblesvirtualLawlibrary1. Annulling in its entirety
duly consented to the loan and the mortgage.22 It
the Real Estate Mortgage Contract and the
points to respondent's testimony during cross
Amendment thereto, the Certificate of Sale issued
examination where he admitted that he had actual
pursuant to the extra judicial foreclosure and the
knowledge of the loan as early as 1996, but only filed
foreclosure proceedings on the subject properties
the Complaint in 1998.23 Petitioner further claims that
covered by Transfer Certificates of Title Nos. T-53994,
it is impossible for respondent to have no knowledge of
T-
the transaction since the ·Reyes Spouses live together
in the same house where the notices and demand
52812 and T-52813 of the Registry of Deeds of
letters were sent.24 It contends that the Court of
Bulacan for want of consent on the part of the plaintiff;
Appeals should not have relied heavily on the
testimony of the handwriting expert since
2. Making the writ of preliminary injunction
jurisprudence show these experts are not
permanent and perpetual conditioned on plaintiffs
indispensable in determining a
posting within an inextendible period of five (5) days
forgery.25cralawredchanrobleslaw
from receipt thereof of the injunctive bond in the
amount Eight Hundred Thousand (P800,000.00) pesos
Respondent, in his Comment,26 alleges that his wife
as contained in the Order dated November 3, 1998;
hid the transaction from him. Even if they lived under
the same roof, he was not aware of everything
3. Ordering defendant Lilia C. Reyes to reimburse the
happening in their home because as a practicing
defendant Philippine National Bank the total loan
lawyer, he was always away at work from 8 a.m. to 7
account of P3,324,771.18 with interest at 6% per
p.m.27 He likewise points out that since both the
annum from the date of the foreclosure sale until
Regional Trial Court and the Court of Appeals made a
finality of this decision. After this decision has attained
factual finding of forgery, this Court should respect
finality interest at the rate of 12% per annum on the
this finding.28 Respondent contends that the conjugal
principal and interest (or any part thereof) shall be
partnership cannot be held liable because a void
imposed until full payment.
contract has no legal existence from which an
obligation may stem.29chanrobleslaw
SO ORDERED.17
The issues for resolution are:
Aggrieved, Philippine National Bank appealed to the
Court of Appeals. On August 22, 2013, the Court of
chanRoblesvirtualLawlibraryFirst, whether the Court
Appeals denied the appeal18 and affirmed the ruling of
of Appeals erred in declaring the real estate mortgage
the Regional Trial Court. The dispositive portion of the
void;
Court of Appeals Decision reads:
Second, whether the conjugal partnership can be held
chanRoblesvirtualLawlibrary
liable for the loan contracted unilaterally by Lilia C.
WHEREFORE, premises considered, the present
Reyes; and cralawlawlibrary
appeal is DENIED. The challenged Decision and Order
4
Lastly, whether respondent is guilty of laches and
whether his claim is now barred by estoppel.
I Appeals both agreed that respondent presented clear
The real estate mortgage over a conjugal property is
void if the noncontracting spouse did not give consent.
The Court of Appeals committed no reversible error in
affirming the ruling of the Regional Trial Court. The
real estate mortgage over the conjugal properties is
void for want of consent from respondent. The Family
Code is clear: the written consent of the spouse who
did not encumber the property is necessary before any
disposition or encumbrance of a conjugal property can
be valid.30
It is not disputed that the Reyes Spouses were married
in 1973,31 before the Family Code took effect. Under
the Family Code, their property regime is Conjugal
Partnership of Gains; thus, Article 124 is the
applicable provision regarding te administration of
their conjugal property. It states:
chanRoblesvirtualLawlibrary
Art. 124. The administration and enjoyment of the
conjugal partnership shall belong to both spouses
jointly. In case of disagreement, the husband's
decision shall prevail, subject to recourse to the court
by the wife for proper remedy, which must be availed
of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or
otherwise unable to participate in the administration
of the conjugal properties, the other spouse may
assume sole powers of administration. These powers
do not include disposition or encumbrance without
authority of the court or the written consent of the
other spouse. In the absence of such authority or
consent, the disposition or encumbrance shall be void.
However, the transaction shall be construed as a
continuing offer on the part of the consenting spouse
and the third person, and may be perfected as a
binding contract upon the acceptance by the other
spouse or authorization by the court before the offer is
withdrawn by either or both offerors.
Any disposition or encumbrance of a conjugal property
by one spouse must be consented to by the other;
otherwise, it is void.32chanrobleslaw
Petitioner points to respondent's signature on the
Promissory Notes and Deed of Mortgage to prove that
he consented to the transactions.33 For his part,
respondent alleges that his signature was forged and
offers testimony from a handwriting expert to prove
that his signature on the bank documents were
falsified.34 The Regional Trial Court and the Court of
and convincing evidence that his signature, as it
appeared on the mortgage contract, was forged.
Respondent offered the expert testimony of Efren B.
Flores (Flores) of the Questioned Document Section of
the National Bureau of Investigation. Flores, a
handwriting expert, compared the signature on the
loan documents with the standard signatures of
respondent.35 He concluded that they were not written
by the same person through the following
observations:
chanRoblesvirtualLawlibraryFirst, the signatures on
the loan documents were executed in a slowly drawn
motion of a pen. This can be observed in the hidden
portion of the signature because the changes in pen
pressure were abrupt.36chanrobleslaw
Second, respondent's standard signature is written
with free and wellcoordinated strokes.37chanrobleslaw
Lastly, there were discrepancies in the structural
pattern of letter formation of the two (2) sets of
signatures. With the signatures in the loan documents,
both the upper and lower loops were elongated. On the
standard signatures, the upper loop was shorter while
the lower loop was bigger.38chanrobleslaw
Flores was convinced that the variations he noted is
"due to the operation of a different personality and not
merely an expected and inevitable variation found in
genuine handwriting of the same
writer."39chanrobleslaw
Likewise telling was petitioner's inability to prove that
respondent took part in the transactions. Efren
Agustin (Agustin), Loan and Discount Division Chief of
Philippine National Bank, admitted that he merely
relied on the documents presented to him,40 and that
he never actually saw respondent sign the documents,
follow up, or inquire about the loan's status or the
mortgage. Agustin only testified to seeing Lilia, but not
respondent, within the bank's
premises.41chanrobleslaw
This Court is not a trier of facts. In Manotok Realty,
Inc. v CLT Realty Development Corp.,42 "[w]here ... the
findings of fact of the trial courts are affirmed by the
Court of Appeals, the same are accorded the highest
degree of respect and, generally, will not be disturbed
on appeal. Such findings are binding and conclusive
on this Court."43chanrobleslaw
We see no compelling reason to overturn the lower
couris' factual findings that the forgery was proven
with clear and convincing evidence. Having established
that his signature was forged, respondent proved that
he did not consent to the real estate mortgage. The
mortgage unilaterally made by his wife over their
conjugal property is void and legally inexistent.
II
The lower courts may have declared the mortgage void,
but the principal obligation is not affected. It remains
valid.
Petitioner contends that the conjugal partnership
should be made liable to the extent that it redounded
to the benefit of the family under Article 122 of the
Family Code.
Petitioner's reliance on Article 122 to support the
validity of the mortgage is misplaced.
Article 122 provides:
chanRoblesvirtualLawlibrary
ARTICLE 122. The payment of personal debts
contracted by the husband or the wife before or during
the marriage shall not be charged to the conjugal
partnership except insofar as they redounded to the
benefit of the family.
Neither shall the fines and pecuniary indemnities
imposed upon them be charged to the partnership.
However, the payment of personal debts contracted by
either spouse before the marriage, that of fines and
indemnities imposed upon them, as well as the
support of illegitimate children of either spouse, may
be enforced against the partnership assets after the
responsibilities enumerated in the preceding Article
have been covered, if the spouse who is bound should
have no exclusive property or if it should be
insufficient; but at the time of the liquidation of the
partnership, such spouse shall be charged for what
has been paid for the purposes above-mentioned.
Article 122 applies to debts that were contracted by a
spouse and redounded to the benefit of the family. It
applies specifically to the loan that respondent's wife
Lilia contracted, but not to the mortgage.
To be clear, nowhere in the Decision did the Court of
Appeals state that the principal obligation secured by
5
the mortgage was void. The Court of Appeals affirmed
the May 27, 2009 Decision of the Regional Trial Court
ordering, respondent's wife to reimburse the petitioner
the total loan amount44 "of P3,324,771.18 with interest
at 6% per annum from the date of the foreclosure sale
until finality of this decision."45 The Regional Trial
Court further imposed interest at 12% per annum on
the principal and interest, or any part thereof, after the
decision had attained finality and until full
payment.46chanrobleslaw
Ayala Investment & Development Corp. v. Court of
Appeals47 has explained how Article 121 should be
applied:
chanRoblesvirtualLawlibrary
From the foregoing jurisprudential rulings of this
Court, we can derive the following conclusions:
chanRoblesvirtualLawlibrary(A) If the husband himself
is the principal obligor in the contract, i.e., he directly
received the money and services to be used in or for his
own business or his own profession, that contract falls
within the term "x x x obligations for the benefit of the
conjugal partnership. " Here, no actual benefit may be
proved. It is enough that the benefit to the family is
apparent at the time of the signing of the contract.
From the very nature of the contract of loan or
services, the family stands to benefit from the loan
facility or services to be rendered to the business or
profession of the husband. It is immaterial, if in the
end, his business or profession fails or does not
succeed. Simply stated, where the husband contracts
obligations on behalf of the family business, the law
presumes, and rightly so, that such obligation will
redound to the benefit of the conjugal partnership.
(B) On the other hand, if the money or services are
given to another person or entity, and the husband
acted only as a surety or guarantor, that contract
cannot, by itself, alone be categorized as falling within
the context of "obligations for the benefit of the
conjugal partnership." The contract of loan or services
is clearly for the benefit of the principal debtor and not
for the surety or his family. No presumption can be
inferred that, when a husband enters into a contract of
surety or accommodation agreement, it is "for the
benefit of the conjugal partnership." Proof must be
presented to establish benefit redounding to the
conjugal partnership.48 (Emphasis supplied)
There are two scenarios considered: one is when the
husband, or in this case, the wife, contracts a loan to
be used for the family business and the other is when
she acts as a surety or guarantor. If she is a mere
surety or guarantor, evidence that the family benefited
from the loan need to be presented before the conjugal
partnership can be held liable. On the other hand, if
the loan was taken out to be used for the family
business, there is no need to prove actual benefit. The
law presumes the family benefited from the loan and
the conjugal partnership is held liable.
According to petitioner, the Regional Trial Court
found49 that the loan was used as additional working
capital for respondent's printing business. As held
in Ayala Investment, since the loaned money is used in
the husband's business, there is a presumption that it
redounded to the benefit of the family; hence, the
conjugal partnership may be held liable for the loan
amount.50 Since there is a legal presumption to this
effect, there is no need to prove actual benefit to the
family.
What the lower courts declared void was the real estate
mortgage attached to the conjugal property of the
Reyes Spouses. Since the real estate mortgage was an
encumbrance attached to a conjugal property without
the consent of the other spouse, it is void and legally
inexistent. Although petitioner cannot foreclose the
mortgage over the conjugal property in question, it can
still recover the loan amount from the conjugal
partnership.
In Philippine National Bank v. Banatao,51 "a mortgage
is merely an accessory agreement and does not affect
the principal contract of loan. The mortgages, while
void, can still be considered as instruments evidencing
the indebtedness[.]"52chanrobleslaw
III
Laches does not apply where the delay is within the
period prescribed by law.
Petitioner contends that respondent's action to annul
the Deed of Real Estate Mortgage is already barred by
latches.53 This is erroneous.
As found by the trial court, records show that upon
learning about the mortgage, respondent immediately
informed the bank about his forged signature.54 He
filed the Complaint for Annulment of Certificate of Sale
and Real Estate Mortgage against petitioner on
September 22, 1998, which was still within the
prescribed period to redeem a mortgaged
property.55chanrobleslaw
In Torbela v. Rosario:56chanrobleslaw
Laches means the failure or neglect, for an
unreasonable and unexplained length of time, to do
that which by exercising due diligence could or should
have been done earlier. It is negligence or omission to
assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either
has abandoned it or declined to assert it. As the Court
explained in the preceding paragraphs, the Torbela
siblings instituted Civil Case No. U-4359 five years
after Dr. Rosario's repudiation of the express trust,
still within the 10-year prescriptive period for
enforcement of such trusts. This does not constitute
an unreasonable delay in asserting one's right. A delay
within the prescriptive period is sanctioned by law and
is not considered to be a delay that would bar relief
Laches apply only in the absence of a statutory
prescriptive period.57 (Emphasis supplied)
Since respondent filed the Complaint for Annulment of
Certificate of Sale and Real Estate Mortgage within the
period of redemption prescribed by law, petitioner fails
to convince that respondent slept on his right.
The mortgage over the conjugal property is void and
cannot be foreclosed. However, petitioner can still hold
the conjugal partnership liable for the principal
obligation since the loan is presumed to have
redounded to the benefit of the family. If the conjugal
partnership is insufficient to cover the liability, the
husband is solidarity liable with the wife for the
unpaid balance.58chanrobleslaw
The last paragraph of Article 121 of the Family Code is
instructive:
chanRoblesvirtualLawlibrary
Art. 121. The conjugal partnership shall be liable for:
chanRoblesvirtualLawlibrary
(1) The support of the spouse, their common
children, and the legitimate children of either
spouse; however, the support of illegitimate
children shall be governed by the provisions of
this Code on Support;
(2) All debts and obligations contracted during the
marriage by the designated administrator-
spouse for the benefit of the conjugal
partnership of gains, or by both spouses or by
one of them with the consent of the other;
(3) Debts and obligations contracted by either
spouse without the consent of the other to the
6

extent that the family may have benefited;
(4) All taxes, liens, charges, and expenses,
including major or minor repairs upon the
conjugal partnership property;
Spouses Venancio C. Reyes, Jr. and Lilia Reyes are
declared jointly and solidarity liable with each other
with their separate properties if their conjugal
partnership is insufficient to fully pay for the loan.
SO ORDERED.

(5) All taxes and expenses for mere preservation

made during the marriage upon the separate
property of either spouse;

(6) Expenses to enable either spouse to commence

or complete a professional, vocational, or other
activity for self-improvement;

(7) Ante-nuptial debts of either spouse insofar as

they have redounded to the benefit of the family;

(8) The value of what is donated or promised by

both spouses in favor of their common legitimate
children for the exclusive purpose of
commencing or completing a professional or
vocational course or other activity for self-
improvement; and

(9) Expenses of litigation between the spouses

unless the suit is found to groundless.

If the conjugal partnership is insufficient to cover the

foregoing liabilities, the spouses shall be solidarily
liable for the unpaid balance with their separaie
properties. (Emphasis supplied)

The last paragraph points to the "subsidiary but

solidary liability of the separate properties"59 of the
spouses for liabilities enumerated in the Article. This
Article, similar to Article 94 of the Family Code
governing the Absolute Community of Property regime,
explicitly holds the spouses solidarity liable with each
other if the conjugal properties are not enough to
answer for the liabilities. In this case, if the conjugal
properties of the Reyes Spouses are not enough to
answer for the loan, petitioner can recover the
remaining unpaid balance from the separate properties
of either respondent or his wife Lilia.

WHEREFORE, the Petition is DENIED for failure to

show the Court of Appeals committed a reversible error
in the assailed Decision. The Decision of the Court of
Appeals dated August 22, 2013 in CA-G.R. CV No.
94018 is AFFIRMED with MODIFICATION, in that

7

Producers Bank vs. Excelsa
This is a petition for review on certiorari[1] under Rule
43 of the 1997 Rules of Civil Procedure, assailing the
decision[2] and resolution[3] of the Court of Appeals in
CA-G.R. CV No. 59931. The Court of Appeals
decision[4] reversed the decision of the Regional Trial
Court (RTC), Branch 73, Antipolo, Rizal, upholding the
extrajudicial foreclosure of the mortgage on
respondents properties, while the resolution denied
petitioners motion for reconsideration.[5]
As borne by the records of the case, the
following factual antecedents appear:
Respondent Excelsa Industries, Inc. is a manufacturer
and exporter of fuel products, particularly charcoal
briquettes, as an alternative fuel source. Sometime in
January 1987, respondent applied for a packing credit
line or a credit export advance with petitioner
Producers Bank of the Philippines, a banking
institution duly organized and existing under
Philippines laws.[6]
The application was supported by Letter of
Credit No. M3411610NS2970 dated 14 October 1986.
Kwang Ju Bank, Ltd. of Seoul, Korea issued the letter
of credit through its correspondent bank, the Bank of
the Philippine Islands, in the amount of US$23,000.00
for the account of Shin Sung Commercial Co., Ltd.,
also located in Seoul, Korea. T.L. World Development
Corporation was the original beneficiary of the letter of
credit. On 05 December 1986, for value received, T.L.
World transferred to respondent all its rights and
obligations under the said letter of credit. Petitioner
approved respondents application for a packing credit
line in the amount of P300,000.00, of which
about P96,000.00 in principal remained
outstanding.[7] Respondent executed the corresponding
promissory notes evidencing the indebtedness.[8]
Prior to the application for the packing credit
line, respondent had obtained a loan from petitioner in
the form of a bill discounted and secured credit
accommodation in the amount of P200,000.00, of
which P110,000.00 was outstanding at the time of the
approval of the packing credit line. The loan was
secured by a real estate mortgage dated 05 December
1986 over respondents properties covered by Transfer
Certificates of Titles (TCT) No. N-68661, N-68662, N-
68663, N-68664, N-68665 and N-68666, all issued by
the Register of Deeds of Marikina.[9]
Significantly, the real estate mortgage
contained the following clause:
For and in consideration of
those certain loans, overdraft
and/or other credit accommodations
on this date obtained from the
MORTGAGEE, and to secure the
payment of the same, the principal
of all of which is hereby fixed at
FIVE HUNDRED THOUSAND
PESOS ONLY (P500,000.00) Pesos,
Philippine Currency, as well as
those that the MORTGAGEE may
hereafter extend to the
MORTGAGOR, including interest
and expenses or any other obligation
owing to the MORTGAGEE, the
MORTGAGOR does hereby transfer
and convey by way of mortgage unto
the MORTGAGEE, its successors or
assigns, the parcel(s) of land which
is/are described in the list inserted
on the back of this document,
and/or appended hereto, together
with all the buildings and
improvements now existing or which
may hereafter be erected or
constructed thereon, of which the
MORTGAGOR declares that he/it is
the absolute owner, free from all
liens and encumbrances.[10]
On 17 March 1987, respondent presented for
negotiation to petitioner drafts drawn under the letter
of credit and the corresponding export documents in
consideration for its drawings in the amounts
of US$5,739.76 and US$4,585.79. Petitioner
purchased the drafts and export documents by paying
respondent the peso equivalent of the drawings. The
purchase was subject to the conditions laid down in
two separate undertakings by respondent dated 17
March 1987 and 10 April 1987.[11]
On 24 April 1987, Kwang Ju Bank, Ltd.
notified petitioner through cable that the Korean buyer
refused to pay respondents export documents on
account of typographical discrepancies. Kwang Ju
Bank, Ltd. returned to petitioner the export
documents.[12]
Upon learning about the Korean importers
non-payment, respondent sent petitioner a letter dated
27 July 1987, informing the latter that respondent had
brought the matter before the Korea Trade Court and
that it was ready to liquidate its past due account with
petitioner. Respondent sent another letter dated 08
September 1987, reiterating the same assurance. In a
letter 05 October 1987, Kwang Ju Bank, Ltd. informed
petitioner that it would be returning the export
documents on account of the non-acceptance by the
importer.[13]
Petitioner demanded from respondent the
payment of the peso equivalent of the export
documents, plus interest and other charges, and also
of the other due and unpaid loans. Due to respondents
failure to heed the demand, petitioner moved for the
extrajudicial foreclosure on the real estate mortgage
over respondents properties.
Per petitioners computation, aside from
charges for attorneys fees and sheriffs fees, respondent
had a total due and demandable obligation
of P573,225.60, including interest, in six different
accounts, namely:
1) EBP-PHO-87-1121 (US$4,585.97 x
21.212) = P119,165.06
2) EBP-PHO-87-1095 (US$ 5,739.76 x
21.212) = 151,580.97
3) BDS-001-87 = 61,777.78
4) BDS-030/86 A = 123,555.55
5) BDS-PC-002-/87 = 55,822.91
6) BDS-005/87 = 61,323.33
P573,225.60[14]
The total approved bid price, which included
the attorneys fees and sheriff fees, was pegged
at P752,074.63. At the public auction held on 05
January 1988, the Sheriff of Antipolo, Rizal issued a
Certificate of Sale in favor of petitioner as the highest
bidder.[15] The certificate of sale was registered on 24
March 1988.[16]
On 12 June 1989, petitioner executed an
affidavit of consolidation over the foreclosed properties
after respondent failed to redeem the same. As a
result, the Register of Deeds of Marikina issued new
certificates of title in the name of petitioner.[17]
On 17 November 1989, respondent instituted
an action for the annulment of the extrajudicial
foreclosure with prayer for preliminary injunction and
damages against petitioner and the Register of Deeds
of Marikina. Docketed as Civil Case No. 1587-A, the
complaint was raffled to Branch 73 of the RTC of
Antipolo, Rizal. The complaint prayed, among others,
that the defendants be enjoined from causing the
8
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 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,
9
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]
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
10
 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 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.
11
G.R. No. 173171 July 11, 2012
PHILIPPINE CHARITY SWEEPSTAKES OFFICE
(PCSO), Petitioner,
vs.
NEW DAGUPAN METRO GAS CORPORATION,
PURITA E. PERALTA and PATRICIA P.
GALANG, Respondents.
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules
of Court, assailing the Decision1 dated September 29,
2005 and Resolution2 dated June 9, 2006 of the Court
of Appeals (CA) in CA-G.R. CV No. 59590.
In the assailed Decision, the CA Affirmed the
Decision3 dated January 28, 1998 of the Regional Trial
Court (RTC), Branch 42 of Dagupan City in Civil Case
No. 94-00200-D, ordering petitioner Philippine Charity
Sweepstakes Office (PCSO) to surrender the owner’s
duplicate of Transfer
Certificate of Title (TCT) No. 52135 to the Register of
Deeds of Dagupan City for cancellation and issuance
of a new certificate of title in the name of respondent
New Dagupan Metro Gas Corporation (New Dagupan).
In its Resolution4 dated June 9, 2006, the CA denied
PCSO’s motion for reconsideration.
The Factual Antecedents
Respondent Purita E. Peralta (Peralta) is the registered
owner of a parcel of land located at Bonuan Blue
Beach Subdivision, Dagupan City under TCT No.
52135. On March 8, 1989, a real estate mortgage was
constituted over such property in favor of PCSO to
secure the payment of the sweepstakes tickets
purchased by one of its provincial distributors, Patricia
P. Galang (Galang). The salient provisions of the Deed
of Undertaking with First Real Estate Mortgage,5 where
Galang, PCSO and Peralta were respectively designated
as "principal", "mortgagee" and "mortgagor", are as
follows:
WHEREAS, the PRINCIPAL acknowledges that he/she
has an outstanding and unpaid account with the
MORTGAGEE in the amount of FOUR HUNDRED
FIFTY THOUSAND (P450,000.00), representing the
balance of his/her accountabilities for all draws;
WHEREAS, the PRINCIPAL agrees to liquidate or pay
said account ten (10) days after each draw with
interest at the rate of 14% per annum.
xxxx
The PRINCIPAL shall settle or pay his/her account of
FOUR HUNDRED FIFTY THOUSAND PESOS
(P450,000.00) PESOS with the MORTGAGEE, provided
that the said balance shall bear interest thereon at the
rate of 14% per annum;
To secure the faithful compliance and as security to
the obligation of the PRINCIPAL stated in the next
preceding paragraph hereof, the MORTGAGOR hereby
convey unto and in favor of the MORTGAGEE, its
successor and assigns by way of its first real estate
mortgage, a parcel/s of land together with all the
improvements now or hereafter existing thereon
located at BOQUIG, DAGUPAN CITY, covered by TCT
No. 52135, of the Register of Deeds of DAGUPAN CITY,
and more particularly described as follows:
xxxx
4. During the lifetime of this mortgage, the
MORTGAGOR shall not alienate, sell, or in any manner
dispose of or encumber the above-mentioned property,
without the prior written consent of the MORTGAGEE;
xxxx
15. Upon payment of the principal amount together
with interest and other expenses legally incurred by
the MORTGAGEE, the above undertaking is considered
terminated.6
On July 31, 1990, Peralta sold, under a conditional
sale, the subject property to New Dagupan, the
conveyance to be absolute upon the latter’s full
payment of the price of P800,000.00. New Dagupan
obliged to pay Peralta P200,000.00 upon the execution
of the corresponding deed and the balance of
P600,000.00 by monthly instalments of P70,000.00,
the first instalment falling due on August 31, 1990.
Peralta showed to New Dagupan a photocopy of TCT
No. 52135, which bore no liens and encumbrances,
and undertook to deliver the owner’s duplicate within
three (3) months from the execution of the contract.7
New Dagupan withheld payment of the last instalment,
which was intended to cover the payment of the capital
gains tax, in view of Peralta’s failure to deliver the
owner’s duplicate of TCT No. 52135 and to execute a
deed of absolute sale in its favor. Further, New
Dagupan, through its President, Julian Ong Cuña
(Cuña), executed an affidavit of adverse claim, which
was annotated on TCT No. 52135 on October 1, 1991
as Entry No. 14826.8
In view of Peralta’s continued failure to deliver a deed
of absolute sale and the owner’s duplicate of the title,
New Dagupan filed a complaint for specific
performance against her with the RTC on February 28,
1992. New Dagupan’s complaint was raffled to Branch
43 and docketed as Civil Case No. D-10160.
On May 20, 1992, during the pendency of New
Dagupan’s complaint against Peralta, PCSO caused
the registration of the mortgage.9
On February 10, 1993, PCSO filed an application for
the extrajudicial foreclosure sale of the subject
property in view of Galang’s failure to fully pay the
sweepstakes she purchased in 1992.10 A public auction
took place on June 15, 1993 where PCSO was the
highest bidder. A certificate of sale was
correspondingly issued to PCSO.11
The certified true copy of TCT No. 52135 that New
Dagupan obtained from the Register of Deeds of
Dagupan City for its use in Civil Case No. D-10160
reflected PCSO’s mortgage lien. New Dagupan,
claiming that it is only then that it was informed of the
subject mortgage, sent a letter to PCSO on October 28,
1993, notifying the latter of its complaint against
Peralta and its claim over the subject property and
suggesting that PCSO intervene and participate in the
case.
On January 21, 1994, the RTC Branch 43 rendered a
Decision, approving the compromise agreement
between Peralta and New Dagupan. Some of the
stipulations made are as follows:
3. For her failure to execute, sign and deliver
a Deed of Absolute Sale to plaintiff by way of
transferring TCT No. 52135 in the name of
the latter, defendant hereby waives and
12
 quitclaims the remaining balance of the
purchase price in the amount of P60,000.00
in favor of the plaintiff, it being understood
that the said amount shall be treated as a
penalty for such failure;
xxxx
6. Upon the signing of this compromise
agreement, possession and ownership of the
above described property, together with all
the improvements existing thereon, are
hereby vested absolutely upon, and
transferred to the plaintiff whom the
defendant hereby declares and acknowledges
to be the absolute owner thereof, now and
hereafter;
7. This compromise agreement shall be
without prejudice to whatever rights and
remedies, if any, that the Philippine Charity
Sweepstakes Office has against the herein
defendant and Patricia P. Galang under the
Deed of Undertaking adverted to under par.
2(f) hereof.12
As the RTC Branch 43 Decision dated January 21,
1994 became final and executory, New Dagupan once
again demanded Peralta’s delivery of the owner’s
duplicate of TCT No. 52135. Also, in a letter dated
March 29, 1994, New Dagupan made a similar
demand from PCSO, who in response, stated that it
had already foreclosed the mortgage on the subject
property and it has in its name a certificate of sale for
being the highest bidder in the public auction that
took place on June 15, 1993.
Thus, on June 1, 1994, New Dagupan filed with the
RTC a petition against PCSO for the annulment of TCT
No. 52135 or surrender of the owner’s duplicate
thereof.13 The petition was docketed as Civil Case No.
94-00200-D and raffled to Branch 43.
In an Answer14 dated March 7, 1995, PCSO alleged
that: (a) New Dagupan was a buyer in bad faith; (b)
New Dagupan and Peralta colluded to deprive PCSO of
its rights under the subject mortgage; (c) New
Dagupan is estopped from questioning the superior
right of PCSO to the subject property when it entered
into the compromise agreement subject of the RTC
Branch 43 Decision dated January 21, 1994; and (d)
New Dagupan is bound by the foreclosure proceedings
where PCSO obtained title to the subject property.
In a Motion for Leave to File Third-Party
Complaint15 dated April 17, 1995, PCSO sought the
inclusion of Peralta and Galang who are allegedly
indispensable parties. In its Third-Party
Complaint,16 PCSO reiterated its allegations in its
Answer dated March 7, 1995 and made the further
claim that the sale of the subject property to New
Dagupan is void for being expressly prohibited under
the Deed of Undertaking with First Real Estate
Mortgage.
In their Answer to Third-Party Complaint with
Counterclaims17 dated January 2, 1996, Peralta and
Galang claimed that: (a) the provision in the Deed of
Undertaking with First Real Estate Mortgage
prohibiting the sale of the subject property is void
under Article 2130 of the Civil Code; (b) PCSO’s failure
to intervene in Civil Case No. D-10160 despite notice
barred it from questioning the sale of the subject
property to New Dagupan and the compromise
agreement approved by the RTC Branch 43; (c) it was
due to PCSO’s very own neglect in registering its
mortgage lien that preference is accorded to New
Dagupan’s rights as a buyer of the subject property;
and (d) PCSO no longer has any cause of action
against them following its decision to foreclose the
subject mortgage.
On March 6, 1996, Civil Case No. 94-00200-D was
transferred to Branch 42, after the presiding judge of
Branch 43 inhibited himself.
On January 28, 1998, the RTC Branch 42 rendered a
Decision18 in New Dagupan’s favor, the dispositive
portion of which states:
WHEREFORE, judgment is hereby rendered in favor of
the petitioner and against the defendant, ordering
PCSO to deliver the owner’s duplicate copy of TCT No.
52135 in its possession to the Registry of Deeds of
Dagupan City for the purpose of having the decision in
favor of the petitioner annotated at the back thereof.
Should said defendant fail to deliver the said title
within 30 days from the date this decision becomes
final and executory, the said owner’s duplicate
certificate of title is hereby cancelled and the Register
of Deeds can issue a new one carrying all the
encumbrances of the original owner’s duplicate subject
of this case. Further, the defendant is ordered to pay
to petitioner the sum of Ten Thousand Pesos
(P10,000.00) as attorney’s fees. It is also ordered to
pay costs.
SO ORDERED.19
The RTC Branch 42 ruled that New Dagupan is a
buyer in good faith, ratiocinating that:
In other words, the evidence of the petitioner would
show that although the Deed of Undertaking with First
Real Estate Mortgage was executed on March 8, 1989
its annotation was made long after the conditional sale
in favor of the petitioner was executed and annotated
at the back of the title in question. Because of the said
exhibits, petitioner contended that it was a buyer in
good faith and for value.
Defendant, to controvert the aforementioned evidence
of the plaintiff, alleged that Exhibits C, C-1 to C-1-C
was contrary to the testimony of Mr. Julian Ong Cuña
to the effect that when defendants sold the property to
petitioner only the xerox copy of the title was shown
and petitioner should have verified the original as it
was a buyer in bad faith. Defendant also alleged that
the decision in Civil Case D-10160 dated January 21,
1994 would show that there was a collusion between
the petitioner and the third-party defendants.
The Court cannot go along with the reasoning of the
defendant because what was shown to Mr. Cuña by
the third-party defendants was Exhibit "C" which did
not carry any encumbrance at the back of the subject
title and the annotation made on May 20, 1992 in
favor of the PCSO. Mr. Cuña verified the title x x x but
the encumbrance on the title was not still there at
[that] time. One thing more, there was nothing
indicated in the decision in Civil Case No. D-10160
that petitioner already knew that there was already a
mortgage in favor of the PCSO. Worst, defendant did
not even introduce any oral evidence to show that
petitioner was in bad faith except the manifestations of
counsel. Unfortunately, manifestations could not be
considered evidence.
xxxx
Defendant should not be allowed to profit from its
negligence of not registering the Deed of Undertaking
with First Real Estate Mortgage in its favor.20
Also, the RTC Branch 42 ruled that the prohibition on
the sale of the subject property is void. Specifically:
Suffice it to say that there is no law prohibiting a
mortgagor from encumbering or alienating the
13
property mortgaged. On the contrary, there is a law
prohibiting an agreement forbidding the owner from
alienating a mortgaged property. We are referring to
Article 2130 of the New Civil Code which provides as
follows:
"A stipulation forbidding the owner from alienating the
immovable mortgage shall be void."21
Moreover, the RTC Branch 42 ruled that PCSO had no
right to foreclose the subject mortgage as the land in
question had already been disencumbered after
Galang’s full payment of all the sweepstakes tickets
she purchased in 1989 and 1990.
It should be recalled that Amparo Abrigo, OIC Chief of
the Credit Accounts Division of the PCSO, admitted
not only once but twice that Patricia Galang has no
more liability with the PCSO for the years 1989 and
1990 x x x. Another witness, Carlos Castillo who is the
OIC of the Sales Department of the PCSO, joined
Amparo Abrigo in saying that Patricia Galang has
already paid her liability with the PCSO for the years
1989 and 1990 x x x. Thus, the undertaking was
already discharged. Both of the said witnesses of the
PCSO alleged that the undertaking has been re-used
by Patricia Galang for the years 1991 to 1992 yet there
is no proof whatsoever showing that Purita Peralta
consented to the use of the undertaking by Patricia
Galang for 1991 to 1992. Incidentally, it is not far-
fetched to say that Purita Peralta might have thought
that the undertaking was already discharged which
was the reason she executed the Deed of Conditional
Sale x x x in favor of petitioner in 1990. That being the
case, the foreclosure sale in favor of the PCSO has no
legal leg to stand as the Deed of Undertaking with First
Real Estate Mortgage has already been discharged
before the foreclosure sale was conducted.22
According to the RTC Branch 42, the intent to use the
subject property as security for Galang’s purchases for
the years after 1989, as PCSO claimed, is not clear
from the Deed of Undertaking with First Real Estate
Mortgage:
Was it not provided in the deed that the undertaking
would be for "all draws". That might be true but the
terms of the Contract should be understood to mean
only to cover the draws relative to the current
liabilities of Patricia Galang at the time of the
execution of the undertaking in 1989. It could have
not been agreed upon that it should also cover her
liability for 1991 up to 1992 because if that was the
intention of the parties, the undertaking should have
so provided expressly. The term of the undertaking
with respect to the period was ambiguous but any
ambiguity in the Contract should be resolved against
PCSO because the form used was a standard form of
the defendant and it appeared that it was its lawyers
who prepared it, therefore, it was the latter which
caused the ambiguity.23
PCSO’s appeal from the foregoing adverse decision was
dismissed. By way of its assailed decision, the CA did
not agree with PCSO’s claim that the subject mortgage
is in the nature of a continuing guaranty, holding that
Peralta’s undertaking to secure Galang’s liability to
PCSO is only for a period of one year and was
extinguished when Peralta completed payment on the
sweepstakes tickets she purchased in 1989.
The instant appeal must fail. There is nothing in the
Deed of Undertaking with First Real Estate Mortgage,
expressly or impliedly, that would indicate that Peralta
agreed to let her property be burdened as long as the
contract of undertaking with real estate mortgage was
not cancelled or revoked. x x x
xxxx
A perusal of the deed of undertaking between the
PCSO and Peralta would reveal nothing but the
undertaking of Peralta to guarantee the payment of the
pre-existing obligation of Galang, constituting the
unpaid sweepstakes tickets issued to the latter before
the deed of undertaking was executed, with the PCSO
in the amount of P450,000.00. No words were added
therein to show the intention of the parties to regard it
as a contract of continuing guaranty. In other
jurisdictions, it has been held that the use of the
particular words and expressions such as payment of
"any debt", "any indebtedness", "any deficiency", or
"any sum", or the guaranty of "any transaction" or
money to be furnished the principal debtor "at any
time", or "on such time" that the principal debtor may
require, have been construed to indicate a continuing
guaranty. Similar phrases or words of the same import
or tenor are not extant in the deed of undertaking. The
deed of undertaking states:
"WHEREAS, the PRINCIPAL acknowledges that he/she
has an outstanding and unpaid account with the
MORTGAGEE in the amount of FOUR HUNDRED
FIFTY THOUSAND (P450,000.00), representing the
balance of his/her ticket accountabilities for all
draws."
xxxx
Upon full payment of the principal obligation, which
from the testimonies of the officers of the PCSO had
been paid as early as 1990, the subsidiary contract of
guaranty was automatically terminated. The parties
have not executed another contract of guaranty to
secure the subsequent obligations of Galang for the
tickets issued thereafter. It must be noted that a
contract of guaranty is not presumed; it must be
express and cannot extend to more than what is
stipulated therein.
xxxx
The arguments of PCSO fail to persuade us. The
phrase "for all draws" is limited to the draws covered
by the original transaction. In its pleadings, the PCSO
asserted that the contract of undertaking was renewed
and the collateral was re-used by Galang to obtain
again tickets from the PCSO after she had settled her
account under the original contract. From such
admission, it is thus clear that the contract is not in
the nature of a continuing guaranty. For a contract of
continuing guaranty is not renewed as it is understood
to be of a continuing nature without the necessity of
renewing the same every time a new transaction
contemplated under the original contract is entered
into. x x x 24 (Citations omitted)
In this petition, PCSO claims that the CA erred in
holding that the subject mortgage had been
extinguished by Galang’s payment of P450,000.00,
representing the amount of the sweepstakes tickets
she purchased in 1989. According to PCSO, the said
amount is actually the credit line granted to Galang
and the phrase "all draws" refers to her ticket
purchases for subsequent years drawn against such
credit line. Consequently, PCSO posits, the subject
mortgage had not been extinguished by Peralta’s
payment of her ticket purchases in 1989 and its
coverage extends to her purchases after 1989, which
she made against the credit line that was granted to
her. That when Galang failed to pay her ticket
purchases in 1992, PCSO’s right to foreclose the
subject mortgage arose.
PCSO also maintains that its rights over the subject
property are superior to those of New Dagupan.
Considering that the contract between New Dagupan is
a conditional sale, there was no conveyance of
ownership at the time of the execution thereof on July
31, 1989. It was only on January 21, 1994, or when
14
the RTC Branch 43 approved the compromise
agreement, that a supposed transfer of title between
Peralta and New Dagupan took place. However, since
PCSO had earlier foreclosed the subject mortgage and
obtained title to the subject property as evidenced by
the certificate of sale dated June 15, 1993, Peralta had
nothing to cede or assign to New Dagupan.
PCSO likewise attributes bad faith to New Dagupan,
claiming that Peralta’s presentation of a mere
photocopy of TCT No. 52135, albeit without any
annotation of a lien or encumbrance, sufficed to raise
reasonable suspicions against Peralta’s claim of a
clean title and should have prompted it to conduct an
investigation that went beyond the face of TCT No.
52135.
PCSO even assails the validity of the subject sale for
being against the prohibition contained in the Deed of
Undertaking with First Real Estate Mortgage.
New Dagupan, in its Comment,25 avers that it was a
purchaser in good faith and it has a superior right to
the subject property, considering that PCSO’s
mortgage lien was annotated only on May 20, 1992 or
long after the execution of the conditional sale on July
31, 1990 and the annotation of New Dagupan’s
adverse claim on October 1, 1991. While the subject
mortgage antedated the subject sale, PCSO was
already aware of the latter at the time of its belated
registration of its mortgage lien. PCSO’s registration
was therefore in bad faith, rendering its claim over the
subject property defeasible by New Dagupan’s adverse
claim.
New Dagupan also claims that the subject property
had already been discharged from the mortgage,
hence, PCSO had nothing to foreclose when it filed its
application for extra-judicial foreclosure on February
10, 1993. The subject mortgage was intended to
secure Galang’s ticket purchases that were
outstanding at the time of the execution of the same,
the amount of which has been specified to be
P450,000.00 and does not extend to Galang’s future
purchases. Thus, upon Galang’s full payment of
P450,000.00, which PCSO admits, the subject
mortgage had been automatically terminated as
expressly provided under Section 15 of the Deed of
Undertaking with First Real Estate Mortgage quoted
above.
Issue
The rise and fall of this recourse is dependent on the
resolution of the issue who between New Dagupan and
PCSO has a better right to the property in question.
Our Ruling
PCSO is undeterred by the denial of its appeal to the
CA and now seeks to convince this Court that it has a
superior right over the subject property. However,
PCSO’s resolve fails to move this Court and the
ineluctability of the denial of this petition is owing to
the following:
a. At the time of PCSO’s registration of its
mortgage lien on May 20, 1992, the subject
mortgage had already been discharged by
Galang’s full payment of P450,000.00, the
amount specified in the Deed of Undertaking
with First Real Estate Mortgage;
b. There is nothing in the Deed of
Undertaking with First Real Estate Mortgage
that would indicate that it is a continuing
security or that there is an intent to secure
Galang’s future debts;
c. Assuming the contrary, New Dagupan is
not bound by PCSO’s mortgage lien and was
a purchaser in good faith and for value; and
d. While the subject mortgage predated the
sale of the subject property to New Dagupan,
the absence of any evidence that the latter
had knowledge of PCSO’s mortgage lien at the
time of the sale and its prior registration of an
adverse claim created a preference in its
favor.
I certain limits, and contemplates a succession of
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
liabilities, for which, as they accrue, the guarantor
becomes liable. In other words, a continuing guaranty
is one that covers all transactions, including those
arising in the future, which are within the description
or contemplation of the contract of guaranty, until the
expiration or termination thereof.30
In this case, PCSO claims the subject mortgage is a
continuing guaranty. According to PCSO, the intent
was to secure Galang’s ticket purchases other than
those outstanding at the time of the execution of the
Deed of Undertaking with First Real Estate Mortgage
on March 8, 1989 such that it can foreclose the
15
subject mortgage for Galang’s non-payment of her
ticket purchases in 1992. PCSO does not deny and
even admits that Galang had already settled the
amount of P450,000.00. However, PCSO refuses to
concede that the subject mortgage had already been
discharged, claiming that Galang had unpaid ticket
purchases in 1992 and these are likewise secured as
evidenced by the following clause in the Deed of
Undertaking with First Real Estate Mortgage:
WHEREAS, the PRINCIPAL agrees to liquidate or pay
said account ten (10) days after each draw with
interest at the rate of 14% per annum;31
This Court has to disagree with PCSO in view of the
principles quoted above. A reading of the other
pertinent clauses of the subject mortgage, not only of
the provision invoked by PCSO, does not show that the
security provided in the subject mortgage is continuing
in nature. That the subject mortgage shall only secure
Galang’s liability in the amount of P450,000.00 is
evident from the following:
WHEREAS, the PRINCIPAL acknowledges that he/she
has an outstanding and unpaid account with the
MORTGAGEE in the amount of FOUR HUNDRED
FIFTY THOUSAND (P450,000.00), representing the
balance of his/her ticket accountabilities for all draws;
xxxx
The PRINCIPAL shall settle or pay his/her account of
FOUR HUNDRED FIFTY THOUSAND PESOS
(P450,000.00) PESOS with the MORTGAGEE, provided
that the said balance shall bear interest thereon at the
rate of 14% per annum;
To secure the faithful compliance and as security to
the obligation of the PRINCIPAL stated in the next
preceding paragraph hereof, the MORTGAGOR hereby
convey unto and in favor of the MORTGAGEE, its
successor and assigns by way of its first real estate
mortgage, a parcel/s of land together with all the
improvements now or hereafter existing thereon,
located at BOQUIG, DAGUPAN CITY, covered by TCT
No. 52135, of the Register of Deeds of DAGUPAN CITY,
and more particularly described as follows:32
As the CA correctly observed, the use of the terms
"outstanding" and "unpaid" militates against PCSO’s
claim that future ticket purchases are likewise
secured. That there is a seeming ambiguity between
the provision relied upon by PCSO containing the
phrase "after each draw" and the other provisions,
which mention with particularity the amount of
P450,000.00 as Galang’s unpaid and outstanding
account and secured by the subject mortgage, should
be construed against PCSO. The subject mortgage is a
contract of adhesion as it was prepared solely by PCSO
and the only participation of Galang and Peralta was
the act of affixing their signatures thereto.
Considering that the debt secured had already been
fully paid, the subject mortgage had already been
discharged and there is no necessity for any act or
document to be executed for the purpose. As provided
in the Deed of Undertaking with First Real Estate
Mortgage:
15. Upon payment of the principal amount together
with interest and other expenses legally incurred by
the MORTGAGEE, the above-undertaking is
considered terminated.33
Section 6234 of Presidential Decree (P.D.) No. 1529
appears to require the execution of an instrument in
order for a mortgage to be cancelled or discharged.
However, this rule presupposes that there has been a
prior registration of the mortgage lien prior to its
discharge. In this case, the subject mortgage had
already been cancelled or terminated upon Galang’s
full payment before PCSO availed of registration in
1992. As the subject mortgage was not annotated on
TCT No. 52135 at the time it was terminated, there
was no need for Peralta to secure a deed of
cancellation in order for such discharge to be fully
effective and duly reflected on the face of her title.
Therefore, since the subject mortgage is not in the
nature of a continuing guaranty and given the
automatic termination thereof, PCSO cannot claim
that Galang’s ticket purchases in 1992 are also
secured. From the time the amount of P450,000.00
was fully settled, the subject mortgage had already
been cancelled such that Galang’s subsequent ticket
purchases are unsecured. Simply put, PCSO had
nothing to register, much less, foreclose.
Consequently, PCSO’s registration of its non-existent
mortgage lien and subsequent foreclosure of a
mortgage that was no longer extant cannot defeat New
Dagupan’s title over the subject property.
II
Sections 51 and 53 of P.D. No. 1529 provide:
Section 51. Conveyance and other dealings by
registered owner. An owner of registered land may
convey, mortgage, lease, charge or otherwise deal with
the same in accordance with existing laws. He may use
such forms of deeds, mortgages, leases or other
voluntary instrument, except a will purporting to
convey or affect registered land, but shall operate only
as a contract between the parties and as evidence of
authority to the Register of Deeds to make registration.
The act of registration shall be the operative act to
convey or affect the land insofar as third persons are
concerned, and in all cases under this Decree, the
registration shall be made in the office of the Register
of Deeds for the province or city where the land lies.
Section 52. Constructive notice upon registration.
Every conveyance, mortgage, lease, lien, attachment,
order, judgment, instrument or entry affecting
registered land shall, if registered, filed or entered in
the office of the Register of Deeds for the province or
city where the land to which it relates lies, be
constructive notice to all persons from the time of such
registering, filing or entering.
On the other hand, Article 2125 of the Civil Code
states:
Article 2125. In addition to the requisites stated in
Article 2085, it is indispensable, in order that a
mortgage may be validly constituted, that the
document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded,
the mortgage is nevertheless binding between the
parties.
The persons in whose favor the law establishes a
mortgage have no other right than to demand the
execution and the recording of the document in which
the mortgage is formalized.
Construing the foregoing conjunctively, as to third
persons, a property registered under the Torrens
system is, for all legal purposes, unencumbered or
remains to be the property of the person in whose
name it is registered, notwithstanding the execution of
any conveyance, mortgage, lease, lien, order or
judgment unless the corresponding deed is registered.
16
The law does not require a person dealing with the
owner of registered land to go beyond the certificate of
title as he may rely on the notices of the
encumbrances on the property annotated on the
certificate of title or absence of any
annotation.35 Registration affords legal protection such
that the claim of an innocent purchaser for value is
recognized as valid despite a defect in the title of the
vendor.36
In Cruz v. Bancom Finance Corporation,37 the
foregoing principle was applied as follows:
Second, respondent was already aware that there was
an adverse claim and notice of lis pendens annotated
on the Certificate of Title when it registered the
mortgage on March 14, 1980. Unless duly registered, a
mortgage does not affect third parties like herein
petitioners, as provided under Section 51 of PD NO.
1529, which we reproduce hereunder:
xxxx
True, registration is not the operative act for a
mortgage to be binding between the parties. But to
third persons, it is indispensible. In the present case,
the adverse claim and the notice of lis pendens were
annotated on the title on October 30, 1979 and
December 10, 1979, respectively; the real estate
mortgage over the subject property was registered by
respondent only on March 14, 1980. Settled in this
jurisdiction is the doctrine that a prior registration of a
lien creates a preference. Even a subsequent
registration of the prior mortgage will not diminish this
preference, which retroacts to the date of the
annotation of the notice of lis pendens and the adverse
claim. Thus, respondent’s failure to register the real
estate mortgage prior to these annotations, resulted in
the mortgage being binding only between it and the
mortgagor, Sulit. Petitioners, being third parties to the
mortgage, were not bound by it. Contrary to
respondent’s claim that petitioners were in bad faith
because they already had knowledge of the existence of
the mortgage in favor of respondent when they caused
the aforesaid annotations, petitioner Edilberto Cruz
said that they only knew of this mortgage when
respondent intervened in the RTC
proceedings.38 (Citations omitted)
It is undisputed that it was only on May 20, 1992 that
PCSO registered its mortgage lien. By that time, New
Dagupan had already purchased the subject property,
albeit under a conditional sale. In fact, PCSO’s
mortgage lien was yet to be registered at the time New
Dagupan filed its adverse claim on October 1, 1991
and its complaint against Peralta for the surrender of
the owner’s duplicate of TCT No. 52135 on February
28, 1992. It was only during the pendency of Civil
Case No. D-10160, or sometime in 1993, that New
Dagupan was informed of PCSO’s mortgage lien. On
the other hand, PCSO was already charged with
knowledge of New Dagupan’s adverse claim at the time
of the annotation of the subject mortgage. PCSO’s
attempt to conceal these damning facts is palpable.
However, they are patent from the records such that
there is no gainsaying that New Dagupan is a
purchaser in good faith and for value and is not bound
by PCSO’s mortgage lien.
A purchaser in good faith and for value is one who
buys property of another, without notice that some
other person has a right to, or interest in, such
property, and pays a full and fair price for the same, at
the time of such purchase, or before he has notice of
the claim or interest of some other person in the
property.39 Good faith is the opposite of fraud and of
bad faith, and its non-existence must be established
by competent proof.40 Sans such proof, a buyer is
deemed to be in good faith and his interest in the
subject property will not be disturbed. A purchaser of
a registered property can rely on the guarantee
afforded by pertinent laws on registration that he can
take and hold it free from any and all prior liens and
claims except those set forth in or preserved against
the certificate of title.41
This Court cannot give credence to PCSO’s claim to the
contrary. PCSO did not present evidence, showing that
New Dagupan had knowledge of the mortgage despite
its being unregistered at the time the subject sale was
entered into. Peralta, in the compromise agreement,
even admitted that she did not inform New Dagupan of
the subject mortgage.42 PCSO’s only basis for claiming
that New Dagupan was a buyer in bad faith was the
latter’s reliance on a mere photocopy of TCT No.
52135. However, apart from the fact that the facsimile
bore no annotation of a lien or encumbrance, PCSO
failed to refute the testimony of Cuña that his
verification of TCT No. 52135 with the Register of
Deeds of Dagupan City confirmed Peralta’s claim of a
clean title.
Since PCSO had notice of New Dagupan’s adverse
claim prior to the registration of its mortgage lien, it is
bound thereby and thus legally compelled to respect
the proceedings on the validity of such adverse claim.
It is therefore of no moment if PCSO’s foreclosure of
the subject mortgage and purchase of the subject
property at the auction sale took place prior to New
Dagupan’s acquisition of title as decreed in the
Decision dated January 21, 1994 of RTC Branch 43.
The effects of a foreclosure sale retroact to the date the
mortgage was registered.43 Hence, while PCSO may be
deemed to have acquired title over the subject property
on May 20, 1992, such title is rendered inferior by New
Dagupan’s adverse claim, the validity of which was
confirmed per the Decision dated January 21, 1994 of
RTC Branch 43.
Otherwise, if PCSO’s mortgage lien is allowed to prevail
by the mere expediency of registration over an adverse
claim that was registered ahead of time, the object of
an adverse claim – to apprise third persons that any
transaction regarding the disputed property is subject
to the outcome of the dispute – would be rendered
naught. A different conclusion would remove the
primary motivation for the public to rely on and
respect the Torrens system of registration. Such would
be inconsistent with the well-settled, even axiomatic,
rule that a person dealing with registered property
need not go beyond the title and is not required to
explore outside the four (4) corners thereof in search
for any hidden defect or inchoate right that may turn
out to be superior.
Worthy of extrapolation is the fact that there is no
conflict between the disposition of this case and
Garbin v. CA44where this Court decided the
controversy between a buyer with an earlier registered
adverse claim and a subsequent buyer, who is charged
with notice of such adverse claim at the time of the
registration of her title, in favor of the latter. As to why
the adverse claim cannot prevail against the rights of
the later buyer notwithstanding its prior registration
was discussed by this Court in this wise:
It is undisputed that the adverse claim of private
respondents was registered pursuant to Sec. 110 of
Act No. 496, the same having been accomplished by
the filing of a sworn statement with the Register of
Deeds of the province where the property was located.
However, what was registered was merely the adverse
claim and not the Deed of Sale, which supposedly
conveyed the northern half portion of the subject
property. Therefore, there is still need to resolve the
validity of the adverse claim in separate proceedings,
as there is an absence of registration of the actual
conveyance of the portion of land herein claimed by
private respondents.
17
From the provisions of the law, it is clear that mere which it is founded, the same does not obtain in this
registration of an adverse claim does not make such case. The existence and due execution of the
claim valid, nor is it permanent in character. More conditional sale and Peralta’s absolute and complete
importantly, such registration does not confer instant cession of her title over the subject property to New
title of ownership since judicial determination on the Dagupan are undisputed. These are matters covered
issue of the ownership is still necessary.45 (Citation by the Decision dated January 21, 1994 of RTC
omitted) Branch 43, which had long become final and
executory.
Apart from the foregoing, the more important
consideration was the improper resort to an adverse At any rate, in Sajonas v.CA,47 this Court clarified that
claim.1âwphi1 In L.P. Leviste & Co. v. Noblejas,46 this there is no necessity for a prior judicial determination
Court emphasized that the availability of the special of the validity of an adverse claim for it to be
remedy of an adverse claim is subject to the absence of considered a flaw in the vendor’s title as that would be
any other statutory provision for the registration of the repugnant to the very purpose thereof.48
claimant’s alleged right or interest in the property.
That if the claimant’s interest is based on a perfected
WHEREFORE, premises considered, the petition is
contract of sale or any voluntary instrument executed
DISMISSED and the Decision dated September 29,
by the registered owner of the land, the procedure that
2005 and Resolution dated June9, 2006 of the Court
should be followed is that prescribed under Section 51
of Appeals in CA-G.R. CV No. 59590 are hereby
in relation to Section 52 of P.D. No. 1529. Specifically,
AFFIRMED.
the owner’s duplicate certificate must be presented to
the Register of Deeds for the inscription of the
corresponding memorandum thereon and in the entry
day book. It is only when the owner refuses or fails to
surrender the duplicate certificate for annotation that
a statement setting forth an adverse claim may be filed
with the Register of Deeds. Otherwise, the adverse
claim filed will not have the effect of a conveyance of
any right or interest on the disputed property that
could prejudice the rights that have been subsequently
acquired by third persons.

What transpired in Gabin is similar to that in Leviste.

In Gabin, the basis of the claim on the property is a
deed of absolute sale. In Leviste, what is involved is a
contract to sell. Both are voluntary instruments that
should have been registered in accordance with
Sections 51 and 52 of P.D. No. 1529 as there was no
showing of an inability to present the owner’s
duplicate of title.

It is patent that the contrary appears in this case.

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

Moreover, while the validity of the adverse claim in

Gabin is not established as there was no separate
proceeding instituted that would determine the
existence and due execution of the deed of sale upon
18
PRUDENTIAL BANK vs. ALVIAR
Before us is a petition for review on certiorari under
Rule 45 of the Rules of Court. Petitioner Prudential
Bank seeks the reversal of the Decision[1] of the Court
of Appeals dated 27 September 2001 in CA-G.R. CV
No. 59543 affirming the Decision of the Regional Trial
Court (RTC) of Pasig City, Branch 160, in favor of
respondents.
Respondents, spouses Don A. Alviar and Georgia B.
Alviar, are the registered owners of a parcel of land in
San Juan, Metro Manila, covered by Transfer
Certificate of Title (TCT) No. 438157 of the Register of
Deeds of Rizal. On 10 July 1975, they executed a deed
of real estate mortgage in favor of petitioner Prudential
Bank to secure the payment of a loan
worth P250,000.00.[2] This mortgage was annotated at
the back of TCT No. 438157. On 4 August 1975,
respondents executed the corresponding promissory
note, PN BD#75/C-252, covering the said loan, which
provides that the loan matured on 4 August 1976 at
an interest rate of 12% per annum with a 2% service
charge, and that the note is secured by a real estate
mortgage as aforementioned.[3] Significantly, the real
estate mortgage contained the following clause:
That for and in consideration of
certain loans, overdraft and other
credit accommodations obtained
from the Mortgagee by the
Mortgagor and/or ________________
hereinafter referred to, irrespective
of number, as DEBTOR, and to
secure the payment of the same and
those that may hereafter be
obtained, the principal or all of
which is hereby fixed at Two
Hundred Fifty Thousand
(P250,000.00) Pesos, Philippine
Currency, as well as those that the
Mortgagee may extend to the
Mortgagor and/or DEBTOR,
including interest and expenses or
any other obligation owing to the
Mortgagee, whether direct or
indirect, principal or secondary as
appears in the accounts, books and
records of the Mortgagee, the
Mortgagor does hereby transfer and
convey by way of mortgage unto the
Mortgagee, its successors or
assigns, the parcels of land which
are described in the list inserted on
the back of this document, and/or
appended hereto, together with all
the buildings and improvements
now existing or which may hereafter
be erected or constructed thereon, of
which the Mortgagor declares that
he/it is the absolute owner free from
all liens and incumbrances. . . .[4]
On 22 October 1976, Don Alviar executed another
promissory note, PN BD#76/C-345 for P2,640,000.00,
secured by D/A SFDX #129, signifying that the loan
was secured by a hold-out on the mortgagors foreign
currency savings account with the bank under
Account No. 129, and that the mortgagors passbook is
to be surrendered to the bank until the amount
secured by the hold-out is settled.[5]
On 27 December 1976, respondent spouses executed
for Donalco Trading, Inc., of which the husband and
wife were President and Chairman of the Board and
Vice President,[6] respectively, PN BD#76/C-430
covering P545,000.000. As provided in the note, the
loan is secured by Clean-Phase out TOD CA 3923,
which means that the temporary overdraft incurred by
Donalco Trading, Inc. with petitioner is to be converted
into an ordinary loan in compliance with a Central
Bank circular directing the discontinuance of
overdrafts.[7]
On 16 March 1977, petitioner wrote Donalco Trading,
Inc., informing the latter of its approval of a straight
loan of P545,000.00, the proceeds of which shall be
used to liquidate the outstanding loan of P545,000.00
TOD. The letter likewise mentioned that the securities
for the loan were the deed of assignment on two
promissory notes executed by Bancom Realty
Corporation with Deed of Guarantee in favor of A.U.
Valencia and Co. and the chattel mortgage on various
heavy and transportation equipment.[8]
On 06 March 1979, respondents paid
petitioner P2,000,000.00, to be applied to the
obligations of G.B. Alviar Realty and Development, Inc.
and for the release of the real estate mortgage for
the P450,000.00 loan covering the two (2) lots located
at Vam Buren and Madison Streets, North Greenhills,
San Juan, Metro Manila. The payment was
acknowledged by petitioner who accordingly released
the mortgage over the two properties.[9]
On 15 January 1980, petitioner moved for the
extrajudicial foreclosure of the mortgage on the
property covered by TCT No. 438157. Per petitioners
computation, respondents had the total obligation
of P1,608,256.68, covering the three (3) promissory
notes, to wit: PN BD#75/C-252 for P250,000.00, PN
BD#76/C-345 for P382,680.83, and PN BD#76/C-340
for P545,000.00, plus assessed past due interests and
penalty charges. The public auction sale of the
mortgaged property was set on 15 January 1980.[10]
Respondents filed a complaint for damages with a
prayer for the issuance of a writ of preliminary
injunction with the RTC of Pasig,[11]claiming that they
have paid their principal loan secured by the
mortgaged property, and thus the mortgage should not
be foreclosed. For its part, petitioner averred that the
payment of P2,000,000.00 made on 6 March 1979 was
not a payment made by respondents, but by G.B.
Alviar Realty and Development Inc., which has a
separate loan with the bank secured by a separate
mortgage.[12]
On 15 March 1994, the trial court dismissed the
complaint and ordered the Sheriff to proceed with the
extra-judicial foreclosure.[13]Respondents sought
reconsideration of the decision.[14] On 24 August 1994,
the trial court issued an Order setting aside its earlier
decision and awarded attorneys fees to
respondents.[15] It found that only the P250,000.00
loan is secured by the mortgage on the land covered by
TCT No. 438157. On the other hand, the P382,680.83
loan is secured by the foreign currency deposit
account of Don A. Alviar, while the P545,000.00
obligation was an unsecured loan, being a mere
conversion of the temporary overdraft of Donalco
Trading, Inc. in compliance with a Central Bank
circular. According to the trial court, the blanket
mortgage clause relied upon by petitioner applies only
to future loans obtained by the mortgagors, and not by
parties other than the said mortgagors, such as
Donalco Trading, Inc., for which respondents merely
signed as officers thereof.
On appeal to the Court of Appeals, petitioner made the
following assignment of errors:
I. The trial
court erred in holding that
the real estate mortgage
covers only the promissory
note BD#75/C-252 for the
sum of P250,000.00.
19
 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 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,
20
should have insisted that the note be made in the
name of respondents themselves, and not to Donalco
Trading Inc., and that they sign the note in their
personal capacity and not as officers of the
corporation.
Now on the main issues.
A blanket mortgage clause, also known as a dragnet
clause in American jurisprudence, is one which is
specifically phrased to subsume all debts of past or
future origins. Such clauses are carefully scrutinized
and strictly construed.[38] Mortgages of this character
enable the parties to provide continuous dealings, the
nature or extent of which may not be known or
anticipated at the time, and they avoid the expense
and inconvenience of executing a new security on each
new transaction.[39] A dragnet clause operates as a
convenience and accommodation to the borrowers as it
makes available additional funds without their having
to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra
legal services, recording fees, et cetera.[40] Indeed, it
has been settled in a long line of decisions that
mortgages given to secure future advancements are
valid and legal contracts,[41] and the amounts named
as consideration in said contracts do not limit the
amount for which the mortgage may stand as security
if from the four corners of the instrument the intent to
secure future and other indebtedness can be
gathered.[42]
The blanket mortgage clause in the instant case states:
That for and in
consideration of certain loans,
overdraft and other credit
accommodations obtained from the
Mortgagee by the Mortgagor and/or
________________ hereinafter referred
to, irrespective of number, as
DEBTOR, and to secure the
payment of the same and those
that may hereafter be
obtained, the principal or all of
which is hereby fixed at Two
Hundred Fifty Thousand
(P250,000.00) Pesos, Philippine
Currency, as well as those that the
Mortgagee may extend to the
Mortgagor and/or DEBTOR,
including interest and expenses or
any other obligation owing to the
Mortgagee, whether direct or
indirect, principal or secondary as
appears in the accounts, books and
records of the Mortgagee, the
Mortgagor does hereby transfer and
convey by way of mortgage unto the
Mortgagee, its successors or
assigns, the parcels of land which
are described in the list inserted on
the back of this document, and/or
appended hereto, together with all
the buildings and improvements
now existing or which may hereafter
be erected or constructed thereon, of
which the Mortgagor declares that
he/it is the absolute owner free from
all liens and incumbrances. . .
.[43] (Emphasis supplied.)
Thus, contrary to the finding of the Court of Appeals,
petitioner and respondents intended the real estate
mortgage to secure not only the P250,000.00 loan from
the petitioner, but also future credit facilities and
advancements that may be obtained by the
respondents. The terms of the above provision being
clear and unambiguous, there is neither need nor
excuse to construe it otherwise.
The cases cited by petitioner, while affirming
the validity of dragnet clauses or blanket mortgage
clauses, are of a different factual milieu from the
instant case. There, the subsequent loans were not
covered by any security other than that for the
mortgage deeds which uniformly contained the dragnet
clause.
In the case at bar, the subsequent loans
obtained by respondents were secured by other
securities, thus: PN BD#76/C-345, executed by Don
Alviar was secured by a hold-out on his foreign
currency savings account, while PN BD#76/C-430,
executed by respondents for Donalco Trading, Inc.,
was secured by Clean-Phase out TOD CA 3923 and
eventually by a deed of assignment on two promissory
notes executed by Bancom Realty Corporation with
Deed of Guarantee in favor of A.U. Valencia and Co.,
and by a chattel mortgage on various heavy and
transportation equipment. The matter of PN BD#76/C-
430 has already been discussed. Thus, the critical
issue is whether the blanket 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
21
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]
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.

The real estate mortgage in issue appears in a

standard form, drafted and prepared solely by
petitioner, and which, according to jurisprudence must
be strictly construed against the party responsible for
its preparation.[53] If the parties intended that the
blanket mortgage clause shall cover subsequent
advancement secured by separate securities, then the
same should have been indicated in the mortgage
contract. Consequently, any ambiguity is to be
taken contra proferentum, that is, construed against
the party who caused the ambiguity which could have
avoided it by the exercise of a little more care.[54] To be
more emphatic, any ambiguity in a contract whose
terms are susceptible of different interpretations must
22

PNB vs. SPS ALONDAY
The issue is whether the all-embracing or dragnet
clause contained in the first mortgage contract
executed between the parties for the security of the
first loan could authorize the foreclosure of the
property under the mortgage to secure a second loan
despite the full payment of the second loan.
Antecedents
On September 26, 1974, the Spouses Benedicto and
Azucena Alonday (Spouses Alonday) obtained an
agricultural loan of P28,000.00 from the petitioner at
its Digos, Davao del Sur Branch, and secured the
obligation by constituting a real estate mortgage on
their parcel of land situated in Sta. Cruz, Davao del
Sur registered under Original Certificate of Title (OCT)
No. P-3599 of the Registry of Deeds of Davao del
Sur.1chanrobleslaw
On June 11, 1980, the Spouses Alonday obtained a
commercial loan for P16,700.00 from the petitioner's
Davao City Branch, and constituted a real estate
mortgage over their 598 square meter residential lot
situated in Ulas, Davao City registered under Transfer
Certificate of Title (TCT) No. T-66139 of the Registry of
Deeds of Davao City.
It is noted that the mortgage contracts contained the
following identical provision, to
wit:ChanRoblesVirtualawlibrary
That for and in consideration of certain loans,
overdrafts, and other credit accommodations, obtained
from the Mortgagee, which is hereby fixed at _________,
Philippine Currency, and to secure the payment of the
same and those others that the Mortgagee may extend
to the Mortgagor, including interests and expenses,
and other obligations owing by the Mortgagor to the
Mortgagee, whether direct or indirect, principal or
secondary, as appearing 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 parcel of land
which is/are described in the list inserted at the back
of this document xxx. In case the Mortgagor executes
subsequent promissory note or notes either as renewal
of the former note, as an extension thereof, or as a new
loan, or is given any other kind of accommodation,
xxx, 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, notwithstanding full payments of any or all Judgment of the RTC
obligations of the Mortgagors. This mortgage shall also
stand as security for said obligations and any and all On July 8, 1994, therefore, the respondents instituted
other obligations of the Mortgagor to the Mortgagee of a complaint against the petitioner in the Regional Trial
whatever kind and nature, whether such obligations Court (RTC) in Davao City to recover damages and
have been contracted before, during or after the attorney's fees (Civil Case No. 23,021-94), averring that
constitution of this mortgage. However, if the the foreclosure and sale of the property covered by TCT
Mortgagor shall pay the Mortgagee, its successors or No. T-66139 was illegal.
assigns, the obligations secured by this mortgage,
together with interests, costs and other expenses, on On November 28, 1997, the RTC rendered judgment
or before the date they are due, and shall keep and finding in favor of the respondents,6 and disposed as
perform all the covenants and agreements herein follows:ChanRoblesVirtualawlibrary
contained for the Mortgagor to keep and perform, then
this mortgage shall be null and void, otherwise, it shall WHEREFORE, judgment is hereby rendered in favor of
remain in full force and the plaintiffs and against defendant bank, ordering
effect.2chanroblesvirtuallawlibrary said defendant bank:ChanRoblesVirtualawlibrary
The Spouses Alonday made partial payments on the
commercial loan, which they renewed on December 23,
1. To pay plaintiffs the sum of One Million
1983 for the balance of P15,950.00. The renewed
Seven Hundred Thousand (P1,700,000.00)
commercial loan, although due on December 25, 1984,
Pesos, representing the value of the land
was fully paid on July 5, 1984.3chanrobleslaw
covered by TCT No. T-66139;
On August 6, 1984, respondents Mercy and Alberto
Alonday, the children of the Spouses Alonday, 2. To pay plaintiffs the sum of P20,000.00 as
demanded the release of the mortgage over the attorney's fees; and cralawlawlibrary
property covered by TCT No. T-66139. The petitioner
informed them, however, that the mortgage could not 3. To pay the costs of this suit.
be released because the agricultural loan had not yet
been fully paid, and that as the consequence of the
SO ORDERED.7chanroblesvirtuallawlibrary
failure to pay, it had foreclosed the mortgage over the
The RTC observed that if the petitioner had intended to
property covered by OCT No. P-3599 on August 17,
have the second mortgage secure the pre-existing
1984.
agricultural loan, it should have made an express
reservation to that effect; that based on the all-
It appeared that notwithstanding such foreclosure, a
embracing clause, the mortgage was a contract of
deficiency balance of P91,525.22 remained.4 Hence,
adhesion, and the ambiguities therein should be
the petitioner applied for the extrajudicial foreclosure
construed strictly against the petitioner; that the last
of the mortgage on the property covered by TCT No. T-
sentence of the all-embracing clause provided that the
66139. A notice of extra-judicial sale was issued on
mortgage would be null and void upon the payment of
August 20, 1984, and the property covered by TCT No.
the obligations secured by the mortgage; and that the
T-66139 was sold on September 28, 1984 to the
petitioner was guilty of bad faith in refusing to nullify
petitioner in the amount of P29,900.00. Since the
the mortgage despite full payment of the commercial
Alondays were unable to redeem the property, the
loan prior to its maturity.
petitioner consolidated its ownership. Later on, the
property was sold for P48,000.00 to one Felix Malmis
The RTC also ruled that because the property had
on November 10, 1989.5chanrobleslaw
already been sold to Malmis, a third party not brought
within the trial court's jurisdiction, it could not order
According to the petitioner, the deed of mortgage
the return of the property; and that it was ordering the
relating to the property covered by TCT No. T-66139
petitioner instead to pay the respondents the value of
included an "all-embracing clause" whereby the
the property under its present market valuation.
mortgage secured not only the commercial loan
contracted with its Davao City Branch but also the
earlier agricultural loan contracted with its Digos
Decision of the CA
Branch.
23

Dissatisfied, the petitioner appealed to the Court of
Appeals (CA). The appeal was docketed as C.A.-G.R.
CV No. 60625.
On August 31, 2005, the CA affirmed the
RTC,8 observing that the mortgage, being a contract of
adhesion, should be construed strictly against the
petitioner as the patty who had drafted the same; and
that although the petitioner had argued, citing Mojica
v. Court of Appeals,9 that all-embracing clauses were
valid to secure past, present and future loans, Mojica
v. Court of Appeals was not in point inasmuch as the
facts therein were different from the facts herein.
The petitioner filed a motion for reconsideration, but
the CA denied the motion on February 27,
2006.10chanrobleslaw
Hence, this appeal by petition for review on certiorari.
Issues
The petitioner assigns the following errors to the CA, to
wit:ChanRoblesVirtualawlibrary
I. The Court of Appeals grievously erred in
restricting and delimiting the scope and
validity of the standard "all-embracing
clause" in real estate mortgage contracts
solely to future indebtedness and not to prior
ones, contrary to leading Supreme Court
decisions on the matter.
II. Even assuming arguendo that the xxx
decisions are inapplicable to the case at bar,
the Court of Appeals grievously erred in
awarding the unsubstantiated amount of
P1.7 million in damages and P20,000.00 as
attorney's fees against PNB without factual
and legal basis.11
The petitioner submits that Mojica v. Court of
Appeals validates the use of an all-embracing clause in
a mortgage agreement to secure not only the amount
indicated on the mortgage instrument, but also the
mortgagor's future and past obligations; that by
denying the applicability to the case of Mojica v. Court
of Appeals and other similar rulings, the CA
disregarded the principle of stare decisis; and that the
CA in effect thereby regarded allembracing clauses
invalid as to prior obligations.
Ruling of the Court
The appeal lacks merit.
The CA opined as follows:ChanRoblesVirtualawlibrary
The real estate mortgage on the property covered by
TCT No. T-66139 was specifically constituted to secure
the payment of the commercial loan of the Spouses
ALONDAY. In the same manner, the real estate
mortgage on the property covered by OCT No. P-3599
was constituted to secure the payment of their
agricultural loan with the PNB. With the execution of
separate mortgage contracts for the two (2) loans, it is
clear that the intention of the parties was to limit the
mortgage to the loan for which it was constituted.
xxxx
The [Mojica] case is not in point since the facts therein
are different from the case at bench. In Mojica vs.
Court of Appeals, the mortgaged real estate property
was made to answer for future advancement or
renewal of the loan, whereas in the instant case, the
foreclosure sale included a property which was used as
a security for a commercial loan which was obtained
after the agricultural loan.
The mortgage provision relied upon by appellant is
known in American jurisprudence as a "dragnet"
clause, which is specifically phrased to subsume all
debts of past or future origin. Such clauses pursuant
to the pronouncement of the Supreme Court in DBP
vs. Mirang must be "carefully scrutinized and strictly
construed."12chanrobleslaw
The petitioner wrongly insists that the CA, thr ough
the foregoing ratiocination, held that the all-embracing
or dragnet clauses were altogether invalid as to prior
obligations. What the CA, although reiterating that the
Court upheld the validity of using real estate
mortgages to secure future advancements, only
thereby pointed out that it could not find similar
rulings as to mortgages executed to secure prior loans.
There is no question, indeed, that all-embracing or
dragnet clauses have been recognized as valid means
to secure debts of both future and past origins.13 Even
so, we have likewise emphasized that such clauses
were an exceptional mode of securing obligations, and
have held that obligations could only be deemed
secured by the mortgage if they came fairly within the
terms of the mortgage contract.14 For the all-embracing
or dragnet clauses to secure future loans, therefore,
such loans must be sufficiently described in the
mortgage contract.15 If the requirement could be
imposed on a future loan that was uncertain to
materialize, there is a greater reason that it should be
applicable to a past loan, which is already subsisting
and known to the parties.
Nonetheless, it was undeniable that the petitioner had
the opportunity to include some form of
acknowledgement of the previously subsisting
agricultural loan in the terms of the second mortgage
contract The mere fact that the mortgage constituted
on the property covered by TCT No. T-66139 made no
mention of the pre-existing loan could only strongly
indicate that each of the loans of the Spouses Alonday
had been treated separately by the parties themselves,
and this sufficiently explained why the loans had been
secured by different mortgages.
Another indication that the second mortgage did not
extend to the agricultural loan was the fact that the
second mortgage was entered into in connection only
with the commercial loan. Our ruling in Prudential
Bank v. Alviar16 is then relevant, to
wit:ChanRoblesVirtualawlibrary
xxx The parties having conformed to the "blanket
mortgage clause" or "dragnet clause," it is reasonable
to conclude that they also agreed to an implied
understanding that subsequent loans need not be
secured by other securities, as the subsequent loans
will be secured by the first mortgage. In other words,
the sufficiency of the first security is a corollary
component of the "dragnet clause." But of course,
there is no prohibition, as in the mortgage contract in
issue, against contractually requiring other securities
for the subsequent loans. Thus, when the mortgagor
takes another loan for which another security was
given it could not be inferred that such loan was made
in reliance solely on the original security with the
"dragnet clause," but rather, on the new security given.
This is the "reliance on the security test."
xxx Accordingly, finding a different security was taken
for the second loan no intent that the parties relied on
the security of the first loan could be inferred, so it
was held. The rationale involved, the court said, was
that the "dragnet clause" in the first security
instrument constituted a continuing offer by the
borrower to secure further loans under the security of
the first security instrument, and that when the lender
accepted a different security he did not accept the
offer.17chanroblesvirtuallawlibrary
Although the facts in Prudential Bank were not entirely
on all fours with those of this case because the prior
mortgage in Prudential Bank was sought to be enforced
against a subsequent loan already secured by other
24
securities, the logic in Prudential Bank is applicable
here. The execution of the subsequent mortgage by the
parties herein to secure the subsequenlloan was an
indication that they had intended to treat each loan as
distinct from the other, and that they had intended to
secure each of the loans individually and separately.
We further concur with the CA and the RTC in their
holding that the mortgage contracts executed by the
Spouses Alonday were contracts of adhesion
exclusively prep red by the petitioner. Under Article
1306 of the Civil Code, the contracting parties "may
establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public
order or public policy." This is an express recognition
by the law of the right of the people to enter into all
manner of lawful conventions as part of their
safeguarded liberties. The objection against a contract
of adhesion lies most often in its negation of the
autonomy of the will of the parties in contracts. A
contract of adhesion, albeit valid, becomes
objectionable only when it takes undue advantage of
one of the parties the weaker party- by having such
party just adhere to the terms of the contract. In such
situation, the courts go to the succor of the weaker
party by construing any obscurity in the contract
against the party who prepared the contract, the latter
being presumed as the stronger party to the
agreement, and as the party who caused the
obscurity.18chanrobleslaw
To reiterate, in order for the all-embracing or dragnet
clauses to secure future and other loans, the loans
thereby secured must be sufficiently described in the
mortgage contract. Considering that the agricultural
loan had been pre-existing when the mortgage was
constituted on the property covered by TCT No. T-
66139, it would have been easy for the petitioner to
have expressly incorporated the reference to such
agricultural loan in the mortgage contract covering the
commercial loan. But the petitioner did not. Being the
party that had prepared the contract of mortgage, its
failure to do so should be construed that it did not at
all contemplate the earlier loan when it entered into
the subsequent mortgage.
Anent the value of the property covered by TCT No. T-
66139, the findings of the RTC on the valuation were
as follows:ChanRoblesVirtualawlibrary
Considering that the property is located at the junction
of the roads leading to Toril and Calinan districts with
big establishments all around, plaintiffs claim that at
the time of the filing of this case which was in 1994,
the reasonable market value of the land was P1,200.00
per square meter. To date, the value could reasonably
be P3,000.00 per square
meter.19chanroblesvirtuallawlibrary
Opining that the respondents should be indemnified
the value of the loss suffered from the illegal
foreclosure of the property covered by TCT No. T-
66139, theCA adopted the valuation by the RTC on the
established fair market value of the property being
P3,000.00/square meter, for a total of P1,700,000.00
as damages to be awarded.20chanrobleslaw
The petitioner challenges the valuation as devoid of
basis. It points out that the complaint of the Spouses
Alonday had placed the value of the property at
P1,200.00/square meter; and that respondent Alberto
Alonday had testified during the trial that the value of
the property had been only P1,200.00/square meter.
We uphold the challenge by the petitioner.
We are at a loss at how the RTC had computed and
determined the valuation at P3,000.00/square meter.
Such determination was easily the product of
guesswork on the part of the trial court, for the
language employed in its judgment in reference to
such value was "could reasonably be."21 On its part,
the CA adverted to the valuation as "approximately
P3,000.00,"22 indicating that its own determination of
the fair market value was of similar tenor as that by
the RTC. Accordingly, the valuation by both lower
courts cannot be upheld, for it is basic enough that in
their determination of actual damages, the comis
should eschew mere assertions, speculations,
conjectures or guesswork;23 otherwise, they would be
guilty of arbitrariness and whimsicality.
Moreover, the courts cannot grant reliefs not prayed
for in the pleadings or in excess of what is being
sought by the party.24chanrobleslaw
To accord with what is fair, based on the records, we
reduce the basis of the actual damages to
P1,200.00/square meter. Such valuation is insulated
from arbitrariness because it was made by the
Spouses Alonday themselves in their complaint,
rendering a total of P717,600.00 as actual damages.
The lower courts did not impose interest on the
judgment obligation to be paid by the petitioner. Such
interest is in the nature of compensatory interest, as
distinguished from monetary interest. It is relevant to
elucidate on the distinctions between these kinds of
interest. In this regard, the Court has expounded
in Siga-an v. Villanueva:25cralawredcralawred
Interest is a compensation fixed by the parties for the
use or forbearance of money. This is referred to as
monetary interest. Interest may also be imposed by law
or by courts as penalty or indemnity for damages. This
is called compensatory interest. The right to interest
arises only by virtue of a contract or by virtue of
damages for delay or failure to pay the principal loan
on which interest is demanded.
Article 1956 of the Civil Code, which refers to
monetary interest, specifically mandates that no
interest shall be due unless it has been expressly
stipulated in writing. As can be gleaned from the
foregoing provision, payment of monetary interest is
allowed only if: (1) there was an express stipulation for
the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The
concurrence of the two conditions is required for the
payment of monetary interest. Thus, we have held that
collection of interest without any stipulation therefor
in writing is prohibited by law.
xxxx
There are instances in which an interest may be
imposed even in the absence of express stipulation,
verbal or written, regarding payment of interest. Article
2209 of the Civil Code states that if the obligation
consists in the payment of a sum of money, and the
debtor incurs delay, a legal interest of 12% per
annum may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed
upon. Likewise, Article 2212 of the Civil Code provides
that interest due shall earn legal interest from the time
it is judicially demanded, although the obligation may
be silent on this point.
All the same, the interest under these two instances
may be imposed only as a penalty or damages for
breach of contractual obligations. It cannot be charged
as a compensation for the use or forbearance of
money. In other words, the two instances apply only to
compensatory interest and not to monetary
interest.26 xxx
The petitioner should be held liable for interest on the
actual damages of P717,600.00 representing the value
of the propetiy with an area 598 square meters that
was lost to them through the unwarranted foreclosure,
the same to be reckoned from the date of judicial
demand (i.e., the filing of the action by the Spouses
Alonday). At the time thereof, the rate was 12% per
annum, and such rate shall run until June 30, 2013.
Thereafter, or starting on July 1, 2013, the rate of
interest shall be 6% per annum until full payment of
the obligation, pursuant to the ruling in Nacar v.
Gallery Frames,27 which took into consideration the
25
lowering of interest rates by the Monetary Board.

In addition, Article 221228 of the Civil Code requires

that interest due shall earn legal interest from the time
it is judicially demanded, although the obligation may
be silent upon this point. Accordingly, the interest due
shall itself earn legal interest of 6% per annum from
the date of finality of the judgment until its full
satisfaction, the interim period being deemed to be an
equivalent to a forbearance of credit.29chanrobleslaw

WHEREFORE, the Court AFFIRMS the decision

promulgated in C.A.-G.R. CV No. 60625 on August 31,
2005 in all respects subject to the
following MODIFICATIONS, namely: (1) the award of
P1,700,000.00 representing the value of the land
covered by Transfer Certificate of Title No. T-66139 of
the Registry of Deeds of Davao City is REDUCED to
P717,600.00, the same to be paid by petitioner
Philippine National Bank; (2) the principal amount of
P717,600.00 shall earn interest of 12% per
annum from the filing of the complaint until June 30,
2013, and interest of 6% per annum from July 1, 2013
until full payment; and (3) the interests thus earned
shall also earn interest of 6% per annum from the
finality of this decision until full payment.

26