to him by private respondents son Mike Abella to answer for the latters monetary
I. Provisions Common to Pledge ad Mortgage obligations to petitioner. In the alternative, petitioner asserts that the tractor was
left with him, in the concept of an innkeeper, on deposit and that he may validly
SECOND DIVISION hold on thereto until Mike Abella pays his obligations.
[G.R. No. 120528. January 29, 2001]
ATTY. DIONISIO CALIBO, JR., petitioner, vs. COURT OF APPEALS and DR. Petitioner maintains that even if Mike Abella were not the owner of the
PABLO U. ABELLA, respondents. tractor, a principal-agent relationship may be implied between Mike Abella and
DECISION private respondent. He contends that the latter failed to repudiate the alleged
agency, knowing that his son is acting on his behalf without authority when he
QUISUMBING, J.: pledged the tractor to petitioner. Petitioner argues that, under Article 1911 of the
Civil Code, private respondent is bound by the pledge, even if it were beyond the
authority of his son to pledge the tractor, since he allowed his son to act as though
Before us is the petition for review on certiorari by petitioner Dionisio Calibo,
he had full powers.
Jr., assailing the decision of the Court of Appeals in CA-G.R. CV No. 39705, which
affirmed the decision of the Regional Trial Court of Cebu, Branch 11, declaring On the other hand, private respondent asserts that respondent court had
private respondent as the lawful possessor of a tractor subject of a replevin suit and correctly ruled on the matter.
ordering petitioner to pay private respondent actual damages and attorneys fees.
In a contract of pledge, the creditor is given the right to retain his debtors
The facts of the case, as summarized by respondent court, are undisputed. movable property in his possession, or in that of a third person to whom it has been
delivered, until the debt is paid. For the contract to be valid, it is necessary that: (1)
on January 25, 1979, plaintiff-appellee [herein petitioner] Pablo U. Abella purchased the pledge is constituted to secure the fulfillment of a principal obligation; (2) the
an MF 210 agricultural tractor with Serial No. 00105 and Engine No. P126M00199 pledgor be the absolute owner of the thing pledged; and (3) the person constituting
(Exhibit A; Record, p.5) which he used in his farm in Dagohoy, Bohol. the pledge has the free disposal of his property, and in the absence thereof, that he
be legally authorized for the purpose.[2]
Sometime in October or November 1985, Pablo Abellas son, Mike Abella rented for As found by the trial court and affirmed by respondent court, the pledgor in
residential purposes the house of defendant-appellant Dionisio R. Calibo, Jr., in this case, Mike Abella, was not the absolute owner of the tractor that was allegedly
Tagbilaran City. pledged to petitioner. The tractor was owned by his father, private respondent, who
left the equipment with him for safekeeping. Clearly, the second requisite for a valid
pledge, that the pledgor be the absolute owner of the property, is absent in this
In October 1986, Pablo Abella pulled out his aforementioned tractor from his farm
case. Hence, there is no valid pledge.
in Dagohoy, Bohol, and left it in the safekeeping of his son, Mike Abella, in
Tagbilaran City. Mike kept the tractor in the garage of the house he was leasing
from Calibo. He who is not the owner or proprietor of the property pledged or mortgaged to
guarantee the fulfillment of a principal obligation, cannot legally constitute such a
guaranty as may validly bind the property in favor of his creditor, and the pledgee
Since he started renting Calibos house, Mike had been religiously paying the
or mortgagee in such a case acquires no right whatsoever in the property pledged
monthly rentals therefor, but beginning November of 1986, he stopped doing
or mortgaged.[3]
so. The following month, Calibo learned that Mike had never paid the charges for
electric and water consumption in the leased premises which the latter was duty-
bound to shoulder. Thus, Calibo confronted Mike about his rental arrears and the There also does not appear to be any agency in this case. We agree with the
unpaid electric and water bills. During this confrontation, Mike informed Calibo that Court of Appeals that:
he (Mike) would be staying in the leased property only until the end of December
1986. Mike also assured Calibo that he would be settling his account with the latter,
As indicated in Article 1869, for an agency relationship to be deemed as implied, the
offering the tractor as security. Mike even asked Calibo to help him find a buyer for
principal must know that another person is acting on his behalf without
the tractor so he could sooner pay his outstanding obligation.
authority. Here, appellee categorically stated that the only purpose for his leaving
the subject tractor in the care and custody of Mike Abella was for safekeeping, and
In January 1987 when a new tenant moved into the house formerly leased to Mike, definitely not for him to pledge or alienate the same. If it were true that Mike
Calibo had the tractor moved to the garage of his fathers house, also in Tagbilaran pledged appellees tractor to appellant, then Mike was acting not only without
City. appellees authority but without the latters knowledge as well.
Apprehensive over Mikes unsettled account, Calibo visited him in his Cebu City Article 1911, on the other hand, mandates that the principal is solidarily liable with
address in January, February and March, 1987 and tried to collect payment. On all the agent if the former allowed the latter to act as though he had full powers. Again,
three occasions, Calibo was unable to talk to Mike as the latter was reportedly out in view of appellees lack of knowledge of Mikes pledging the tractor without any
of town. On his third trip to Cebu City, Calibo left word with the occupants of the authority from him, it stands to reason that the former could not have allowed the
Abella residence thereat that there was a prospective buyer for the tractor.The latter to pledge the tractor as if he had full powers to do so. [4]
following week, Mike saw Calibo in Tagbilaran City to inquire about the possible
tractor buyer. The sale, however, did not push through as the buyer did not come
There is likewise no valid deposit in this case. In a contract of deposit, a
back anymore. When again confronted with his outstanding obligation, Mike
person receives an object belonging to another with the obligation of safely
reassured Calibo that the tractor would stand as a guarantee for its payment. That
keeping it and of returning the same.[5] Petitioner himself states that he received the
was the last time Calibo saw or heard from Mike.
tractor not to safely keep it but as a form of security for the payment of Mike
Abellas obligations. There is no deposit where the principal purpose for receiving
After a long while, or on November 22, 1988, Mikes father, Pablo Abella, came to the object is not safekeeping.[6]
Tagbilaran City to claim and take possession of the tractor. Calibo, however,
informed Pablo that Mike left the tractor with him as security for the payment of Consequently, petitioner had no right to refuse delivery of the tractor to its
Mikes obligation to him. Pablo offered to write Mike a check for P2,000.00 in lawful owner. On the other hand, private respondent, as owner, had every right to
payment of Mikes unpaid lease rentals, in addition to issuing postdated checks to seek to repossess the tractor, including the institution of the instant action for
cover the unpaid electric and water bills the correctness of which Pablo said he still replevin.
had to verify with Mike. Calibo told Pablo that he would accept the P2,000.00-check
We do not here pass upon the other assignment of errors made by petitioner
only if the latter would execute a promissory note in his favor to cover the amount
concerning alleged irregularities in the raffle and disposition of the case at the trial
of the unpaid electric and water bills. Pablo was not amenable to this proposal. The
court. A petition for review on certiorari is not the proper vehicle for such
two of them having failed to come to an agreement, Pablo left and went back to
allegations.
Cebu City, unsuccessful in his attempt to take possession of the tractor. [1]
WHEREFORE, the instant petition is DENIED for lack of merit, and the
On November 25, 1988, private respondent instituted an action for replevin, decision of the Court of Appeals in CA-G.R. CV No. 39705 is AFFIRMED. Costs
claiming ownership of the tractor and seeking to recover possession thereof from against petitioner.
petitioner. As adverted to above, the trial court ruled in favor of private respondent;
SO ORDERED.
so did the Court of Appeals when petitioner appealed.
The Court of Appeals sustained the ruling of the trial court that Mike Abella
could not have validly pledged the subject tractor to petitioner since he was not the
THIRD DIVISION
owner thereof, nor was he authorized by its owner to pledge the
tractor. Respondent court also rejected petitioners contention that, if not a pledge,
DEVELOPMENT BANK OF G.R. No. 143772
then a deposit was created. The Court of Appeals said that under the Civil Code, the
THE PHILIPPINES,
primary purpose of a deposit is only safekeeping and not, as in this case, securing
Petitioner,
payment of a debt.
Present:
The Court of Appeals reduced the amount of actual damages payable to
private respondent, deducting therefrom the cost of transporting the tractor from PANGANIBAN, J., Chairman,
Tagbilaran, Bohol, to Cebu City. - v e r s u s - CORONA,
CARPIO MORALES and
Hence, this petition.
DECISION
CORONA, J.: The dispositive portion of the decision read:
WHEREFORE, judgment is hereby rendered
ordering defendant DEVELOPMENT BANK OF THE
Development Bank of the Philippines (DBP) assails in this petition for PHILIPPINES to pay plaintiff PRUDENTIAL BANK:
review on certiorari under Rule 45 of the Rules of Court the December 14, 1999
decision[1] and the June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV No. a) P3,261,834.00, as actual damages, with interest
45783. The challenged decision dismissed DBPs appeal and affirmed the February thereon computed from 10 August 1985 until the
12, 1991 decision of the Regional Trial Court of Makati, Branch 137 in Civil Case No. entire amount shall have been fully paid;
88-931 in toto, while the impugned resolution denied DBPs motion for
reconsideration for being pro forma. b) P50,000.00 as exemplary damages; and
In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of
credit with respondent Prudential Bank for US$498,000. This was in connection with c) 10% of the total amount due as and for attorneys
its importation of 5,000 spindles for spinning machinery with drawing frame, fees.
simplex fly frame, ring spinning frame and various accessories, spare parts and tool
gauge. These were released to Litex under covering trust receipts it executed in SO ORDERED.
favor of Prudential Bank. Litex installed and used the items in its textile mill located
in Montalban, Rizal. Aggrieved, DBP filed an appeal with the Court of Appeals. However, the
appellate court dismissed the appeal and affirmed the decision of the trial court in
On October 10, 1980, DBP granted a foreign currency loan in the toto. It applied the provisions of PD 115 and held that ownership over the contested
amount of US$4,807,551 to Litex. To secure the loan, Litex executed real estate and articles belonged to Prudential Bank as entrustor, not to Litex. Consequently, even if
chattel mortgages on its plant site in Montalban, Rizal, including the buildings and Litex mortgaged the items to DBP and the latter foreclosed on such mortgage, DBP
other improvements, machineries and equipments there. Among the machineries was duty-bound to turn over the proceeds to Prudential Bank, being the party that
and equipments mortgaged in favor of DBP were the articles covered by the trust advanced the payment for them.
receipts. On DBPs argument that the disputed articles were not proper objects of
a trust receipt agreement, the Court of Appeals ruled that the items were part of the
Sometime in June 1982, Prudential Bank learned about DBPs plan for the trust agreement entered into by and between Prudential Bank and Litex. Since the
overall rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank notified DBP agreement was not contrary to law, morals, public policy, customs and good order,
of its claim over the various items covered by the trust receipts which had been it was binding on the parties.
installed and used by Litex in the textile mill. Prudential Bank informed DBP that it Moreover, the appellate court found that DBP was not a mortgagee in
was the absolute and juridical owner of the said items and they were thus not part good faith. It also upheld the finding of the trial court that DBP was a trustee ex
of the mortgaged assets that could be legally ceded to DBP. maleficio of Prudential Bank over the articles covered by the trust receipts.
For the failure of Litex to pay its obligation, DBP extra-judicially DBP filed a motion for reconsideration but the appellate court denied it
foreclosed on the real estate and chattel mortgages, including the articles claimed for being pro forma. Hence, this petition.
by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP acquired
the foreclosed properties as the highest bidder. Trust receipt transactions are governed by the provisions of PD 115
which defines such a transaction as follows:
Subsequently, DBP caused to be published in the September 2, 1984
issue of the Times Journal an invitation to bid in the public sale to be held on Section 4. What constitutes a trust receipt transaction. A trust
September 10, 1984. It called on interested parties to submit bids for the sale of the receipt transaction, within the meaning of this Decree, is any
textile mill formerly owned by Litex, the land on which it was built, as well as the transaction by and between a person referred to in this
machineries and equipments therein. Learning of the intended public auction, Decree as the entruster, and another person referred to in
Prudential Bank wrote a letter dated September 6, 1984 to DBP reasserting its claim this Decree as entrustee, whereby the entruster, who owns
over the items covered by trust receipts in its name and advising DBP not to include or holds absolute title or security interests over certain
them in the auction. It also demanded the turn-over of the articles or alternatively, specified goods, documents or instruments, releases the
the payment of their value. same to the possession of the entrustee upon the latters
execution and delivery to the entruster of a signed
An exchange of correspondences ensued between Prudential Bank and document called a trust receipt wherein the entrustee binds
DBP. In reply to Prudential Banks September 6, 1984 letter, DBP requested himself to hold the designated goods, documents or
documents to enable it to evaluate Prudential Banks claim. On September 28, 1994, instruments in trust for the entruster and to sell or otherwise
Prudential Bank provided DBP the requested documents. Two months later, dispose of the goods, documents or instruments with the
Prudential Bank followed up the status of its claim. In a letter dated December 3, obligation to turn over to the entruster the proceeds thereof
1984, DBP informed Prudential Bank that its claim had been referred to DBPs legal to the extent of the amount owing to the entruster or as
department and instructed Prudential Bank to get in touch with its chief legal appears in the trust receipt or the goods, documents or
counsel. There being no concrete action on DBPs part, Prudential Bank, in a letter instruments themselves if they are unsold or not otherwise
dated July 30, 1985, made a final demand on DBP for the turn-over of the contested disposed of, in accordance with the terms and conditions
articles or the payment of their value. Without the knowledge of Prudential Bank, specified in the trust receipt, or for other purposes
however, DBP sold the Litex textile mill, as well as the machineries and equipments substantially equivalent to any of the following:
therein, to Lyon Textile Mills, Inc. (Lyon) on June 8, 1987.
1. In the case of goods or documents, (a) to sell
Since its demands remained unheeded, Prudential Bank filed a the goods or procure their sale; or (b) to
complaint for a sum of money with damages against DBP with the Regional Trial manufacture or process the goods with the
Court of Makati, Branch 137, on May 24, 1988. The complaint was docketed as Civil purpose of ultimate sale: Provided, That, in the
Case No. 88-931. case of goods delivered under trust receipt for
On February 12, 1991, the trial court decided [2] in favor of Prudential the purpose of manufacturing or processing
Bank. Applying the provisions of PD 115, otherwise known as the Trust Receipts Law, before its ultimate sale, the entruster shall retain
it ruled: its title over the goods whether in its original or
processed form until the entrustee has complied
When PRUDENTIAL BANK released possession of fully with his obligation under the trust receipt;
the subject properties, over which it holds absolute title to or (c) to load, unload, ship or tranship or
LITEX upon the latters execution of the trust receipts, the otherwise deal with them in a manner
latter was bound to hold said properties in trust for the preliminary or necessary to their sale; or
former, and (a) to sell or otherwise dispose of the same and
to turn over to PRUDENTIAL BANK the amount still owing; or 2. In the case of instruments, (a) to sell or
(b) to return the goods if unsold. Since LITEX was allowed to procure their sale or exchange; or (b) to deliver
sell the properties being claimed by PRUDENTIAL BANK, all them to a principal; or (c) to effect the
the more was it authorized to mortgage the same, provided consummation of some transactions involving
of course LITEX turns over to PRUDENTIAL BANK all amounts delivery to a depository or register; or (d) to
owing. When DBP, well aware of the status of the properties, effect their presentation, collection or renewal.
acquired the same in the public auction, it was bound by the xxxxxxxxx
terms of the trust receipts of which LITEX was the entrustee.
Simply stated, DBP held no better right than LITEX, and is In a trust receipt transaction, the goods are released by the entruster
thus bound to turn over whatever amount was due (who owns or holds absolute title or security interests over the said goods) to the
PRUDENTIAL BANK. Being a trustee ex maleficio of entrustee on the latters execution and delivery to the entruster of a trust receipt.
PRUDENTIAL BANK, DBP is necessarily liable therefor. In fact, The trust receipt evidences the absolute title or security interest of the entruster
Amount of Bill Description of Marks & Nos. Vessel [G.R. No. 131679. February 1, 2000]
Security
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST
COMPANY, petitioners, vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and
and in consideration thereof, I/We hereby agree to hold COURT OF APPEALS, respondents.
said goods in trust for the BANK and as its property with
liberty to sell the same for its account but without authority
to make any other disposition whatsoever of the said goods DECISION
or any part thereof (or the proceeds thereof) either by way
of conditional sale, pledge, or otherwise. MENDOZA, J.:
xxxxxxxxx [6]
(Emphasis supplied)
This is a petition for review on certiorari of the decision[1] of the Court of Appeals in
C.A. GR CV No. 42315 and the order dated December 9, 1997 denying petitioners
The articles were owned by Prudential Bank and they were only held by motion for reconsideration.
Litex in trust. While it was allowed to sell the items, Litex had no authority to dispose
of them or any part thereof or their proceeds through conditional sale, pledge or The following facts are not in dispute.
any other means.
Article 2085 (2) of the Civil Code requires that, in a contract of pledge or mortgage, Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company
it is essential that the pledgor or mortgagor should be the absolute owner of the (FEBTC) are banking institutions duly organized and existing under Philippine laws.
thing pledged or mortgaged. Article 2085 (3) further mandates that the person On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the
constituting the pledge or mortgage must have the free disposal of his property, amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land
and in the absence thereof, that he be legally authorized for the purpose. situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No.
300809 registered in his name. As Guansing defaulted in the payment of his loan,
Litex had neither absolute ownership, free disposal nor the authority to freely CDB foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the
dispose of the articles. Litex could not have subjected them to a chattel mortgage. mortgaged property was sold to CDB as the highest bidder. Guansing failed to
Their inclusion in the mortgage was void[7] and had no legal effect.[8] There being no redeem, and on March 2, 1987, CDB consolidated title to the property in its name.
valid mortgage, there could also be no valid foreclosure or valid auction sale. [9] Thus, TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No.
DBP could not be considered either as a mortgagee or as a purchaser in good 355588 was issued in the name of CDB.
faith.[10]
On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named
No one can transfer a right to another greater than what he himself has. [11] Nemo Remedios Gatpandan, offered to purchase the property from CDB. The written Offer
dat quod non habet. Hence, Litex could not transfer a right that it did not have over to Purchase, signed by Lim and Gatpandan, states in part:
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what
Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997,
one does not have. In applying this precept to a contract of sale, a distinction must
affirmed in toto the decision of the Regional Trial Court. Petitioners moved for
be kept in mind between the "perfection" and "consummation" stages of the
reconsideration, but their motion was denied by the appellate court on December 9,
contract.
1997. Hence, this petition. Petitioners contend that - Jjlex
A contract of sale is perfected at the moment there is a meeting of minds upon the
1. The Honorable Court of Appeals erred when it held that
thing which is the object of the contract and upon the price. [10] It is, therefore, not
petitioners CDB and FEBTC were aware of the decision dated
required that, at the perfection stage, the seller be the owner of the thing sold or
March 23, 1984 of the Regional Trial Court of Quezon City in
even that such subject matter of the sale exists at that point in time. [11] Thus, under
Civil Case No. Q-39732.
Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that
time, was not his, but later acquires title thereto, such title passes by operation of
2. The Honorable Court of Appeals erred in ordering law to the buyer or grantee. This is the same principle behind the sale of "future
petitioners to pay interest on the deposit of THIRTY goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of
THOUSAND PESOS (P30,000.00) by applying Article 2209 of delivery or consummation stage of the sale, it is required that the seller be the
the New Civil Code. owner of the thing sold. Otherwise, he will not be able to comply with his obligation
to transfer ownership to the buyer. It is at the consummation stage where the
principle of nemo dat quod non habet applies.
3. The Honorable Court of Appeals erred in ordering
petitioners to pay moral damages, exemplary damages,
attorneys fees and costs of suit. In Dignos v. Court of Appeals,[12] the subject contract of sale was held void as the
sellers of the subject land were no longer the owners of the same because of a prior
sale.[13] Again, in Nool v. Court of Appeals,[14] we ruled that a contract of repurchase,
I.
in which the seller does not have any title to the property sold, is invalid:
At the outset, it is necessary to determine the legal relation, if any, of the parties.
We cannot sustain petitioners view. Article 1370 of the Civil Code is
applicable only to valid and enforceable contracts. The Regional Trial
Petitioners deny that a contract of sale was ever perfected between them and Court and the Court of Appeals ruled that the principal contract of sale
private respondent Lolita Chan Lim. They contend that Lims letter-offer clearly states contained in Exhibit C and the auxiliary contract of repurchase in Exhibit
that the sum of P30,000.00 was given as option money, not as earnest D are both void. This conclusion of the two lower courts appears to find
money.[5] They thus conclude that the contract between CDB and Lim was merely an support in Dignos v. Court of Appeals, where the Court held:
option contract, not a contract of sale.
"Be that as it may, it is evident that when petitioners
The contention has no merit. Contracts are not defined by the parties thereto but by sold said land to the Cabigas spouses, they were no
principles of law.[6] In determining the nature of a contract, the courts are not bound longer owners of the same and the sale is null and
by the name or title given to it by the contracting parties. [7] In the case at bar, the void."
sum of P30,000.00, although denominated in the offer to purchase as "option
money," is actually in the nature of earnest money or down payment when
In this case, there is no evidence that CDB observed its duty of diligence in
We should however add that Dignos did not cite its basis for ruling ascertaining the validity of Rodolfo Guansings title. It appears that Rodolfo
that a "sale is null and void" where the sellers "were no longer the Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of
owners" of the property. Such a situation (where the sellers were no the Estate With Waiver where he made it appear that he and Perfecto Guansing
longer owners) does not appear to be one of the void contracts were the only surviving heirs entitled to the property, and that Perfecto had waived
enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code all his rights thereto. This self-executed deed should have placed CDB on guard
itself recognizes a sale where the goods are to be acquired x x x by the against any possible defect in or question as to the mortgagors title. Moreover, the
seller after the perfection of the contract of sale, clearly implying that a alleged ocular inspection report[20] by CDBs representative was never formally
sale is possible even if the seller was not the owner at the time of sale, offered in evidence. Indeed, petitioners admit that they are aware that the subject
provided he acquires title to the property later on. Misact land was being occupied by persons other than Rodolfo Guansing and that said
persons, who are the heirs of Perfecto Guansing, contest the title of
Rodolfo.[21] Sppedsc
In the present case, however, it is likewise clear that the sellers can no
longer deliver the object of the sale to the buyers, as the buyers
themselves have already acquired title and delivery thereof from the II.
rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative and may thus fall, by analogy, under item No. 5 of Article
The sale by CDB to Lim being void, the question now arises as to who, if any, among
1409 of the Civil Code: Those which contemplate an impossible service.
the parties was at fault for the nullity of the contract. Both the trial court and the
Article 1459 of the Civil Code provides that "the vendor must have a
appellate court found petitioners guilty of fraud, because on June 16, 1988, when
right to transfer the ownership thereof [subject of the sale] at the time
Lim was asked by CDB to pay the 10% option money, CDB already knew that it was
it is delivered." Here, delivery of ownership is no longer possible. It has
no longer the owner of the said property, its title having been
become impossible.[15]
cancelled.[22] Petitioners contend that: (1) such finding of the appellate court is
founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was a
In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo party in the case where the mortgagors title was cancelled; (3) CDB is not privy to
Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to any problem among the Guansings; and (4) the final decision cancelling the
the said property. To be sure, CDB never acquired a valid title to the property mortgagors title was not annotated in the latters title.
because the foreclosure sale, by virtue of which the property had been awarded to
CDB as highest bidder, is likewise void since the mortgagor was not the owner of
As a rule, only questions of law may be raised in a petition for review, except in
the property foreclosed.
circumstances where questions of fact may be properly raised. [23] Here, while
petitioners raise these factual issues, they have not sufficiently shown that the
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with instant case falls under any of the exceptions to the above rule. We are thus bound
Art. 1458 of the Civil Code, under which the mortgagor in default, the forced seller, by the findings of fact of the appellate court. In any case, we are convinced of
becomes obliged to transfer the ownership of the thing sold to the highest bidder petitioners negligence in approving the mortgage application of Rodolfo Guansing.
who, in turn, is obliged to pay therefor the bid price in money or its equivalent.
Being a sale, the rule that the seller must be the owner of the thing sold also applies
III.
in a foreclosure sale. This is the reason Art. 2085[16] of the Civil Code, in providing for
the essential requisites of the contract of mortgage and pledge, requires, among
other things, that the mortgagor or pledgor be the absolute owner of the thing We now come to the civil effects of the void contract of sale between the parties.
pledged or mortgaged, in anticipation of a possible foreclosure sale should the Article 1412(2) of the Civil Code provides:
mortgagor default in the payment of the loan.
If the act in which the unlawful or forbidden cause consists does not
There is, however, a situation where, despite the fact that the mortgagor is not the constitute a criminal offense, the following rules shall be observed:
owner of the mortgaged property, his title being fraudulent, the mortgage contract
and any foreclosure sale arising therefrom are given effect by reason of public
....
policy. This is the doctrine of "the mortgagee in good faith" based on the rule that
all persons dealing with property covered by a Torrens Certificate of Title, as buyers
or mortgagees, are not required to go beyond what appears on the face of the (2).......When only one of the contracting parties is at
title.[17] The public interest in upholding the indefeasibility of a certificate of title, as fault, he cannot recover what he has given by reason
evidence of the lawful ownership of the land or of any encumbrance thereon, of the contract, or ask for the fulfillment of what has
protects a buyer or mortgagee who, in good faith, relied upon what appears on the been promised him. The other, who is not at fault,
face of the certificate of title. Sdjad may demand the return of what he has given without
any obligation to comply with his promise.
This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not
required to make a detailed investigation of the history of the title of the property Private respondents are thus entitled to recover the P30,000.00 option money paid
given as security before accepting a mortgage. by them. Moreover, since the filing of the action for damages against petitioners
amounted to a demand by respondents for the return of their money, interest
thereon at the legal rate should be computed from August 29, 1989, the date of
We are not convinced, however, that under the circumstances of this case, CDB can
filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners accepted the
be considered a mortgagee in good faith. While petitioners are not expected to
payment. This is in accord with our ruling in Castillo v. Abalayan[24] that in case of a
conduct an exhaustive investigation on the history of the mortgagors title, they
void sale, the seller has no right whatsoever to keep the money paid by virtue
cannot be excused from the duty of exercising the due diligence required of
thereof and should refund it, with interest at the legal rate, computed from the date
banking institutions. In Tomas v. Tomas,[18] we noted that it is standard practice for
of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that
banks, before approving a loan, to send representatives to the premises of the land
the non-guilty party "may demand the return of what he has given" clearly implies
offered as collateral and to investigate who are the real owners thereof, noting that
that without such prior demand, the obligation to return what was given does not
banks are expected to exercise more care and prudence than private individuals in
become legally demandable. Sccalr
their dealings, even those involving registered lands, for their business is affected
with public interest. We held thus:
Considering CDBs negligence, we sustain the award of moral damages on the basis
of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of
We, indeed, find more weight and vigor in a doctrine which recognizes
Appeals[25] that moral damages may be recovered even if a banks negligence is not
a better right for the innocent original registered owner who obtained
attended with malice and bad faith. We find, however, that the sum of P250,000.00
his certificate of title through perfectly legal and regular proceedings,
awarded by the trial court is excessive. Moral damages are only intended to alleviate
than one who obtains his certificate from a totally void one, as to
the moral suffering undergone by private respondents, not to enrich them at the
prevail over judicial pronouncements to the effect that one dealing
expense of the petitioners.[26] Accordingly, the award of moral damages must be
with a registered land, such as a purchaser, is under no obligation to
reduced to P50,000.00.
look beyond the certificate of title of the vendor, for in the latter case,
good faith has yet to be established by the vendee or transferee, being
the most essential condition, coupled with valuable consideration, to Likewise, the award of P50,000.00 as exemplary damages, although justified under
entitle him to respect for his newly acquired title even as against the Art. 2232 of the Civil Code, is excessive and should be reduced to P30,000.00. The
holder of an earlier and perfectly valid title. There might be award of P30,000.00 attorneys fees based on Art. 2208, pars. 1, 2, 5 and 11 of the
circumstances apparent on the face of the certificate of title which Civil Code should similarly be reduced to P20,000.00.
could excite suspicion as to prompt inquiry, such as when the transfer
is not by virtue of a voluntary act of the original registered owner, as in
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
the instant case, where it was by means of a self-executed deed of
MODIFICATION as to the award of damages as above stated.
extra-judicial settlement, a fact which should be noted on the face of
To assure the Jayme spouses, Neri and the other officers of Asiancars, namely 2. Declaring valid the foreclosure of the mortgage and the foreclosure
Benny Liongben Lee, William Leong Koc Lee, Connie U. Neri, Edward James Lee, sale;
Roberto Uykim and Charles P. Uykim, executed an undertaking [10] dated November
7, 1977. In it they promised, in their personal capacities and/or in representation of 3. Declaring that the period to redeem Lot 2700 had expired on
Cebu Asiancars, Inc., to compensate Mr. & Mrs. Graciano Jayme for any and all or February 23, 1982 without plaintiffs redeeming it;
whatever damage they may sustain or suffer by virtue and arising out of the
4. Ordering the Sheriff of Mandaue City to issue a definite Deed of
mortgage to MBTC of the aforestated parcel of land. [11] In addition, Neri wrote a
Sale covering Lot 2700 in favor of defendant MBTC;
letter dated September 1, 1981 [12] addressed to Mamerta Jayme acknowledging her
confidence and help extended to him, his family and Asiancars. He promised to pay 5. Declaring valid and binding the dacion en pago executed by
their indebtedness to MBTC before the loan was due. defendant Asiancars in favor of defendant MBTC;
Meeting financial difficulties and incurring an outstanding balance on the 6. Declaring defendant MBTC as owner of the building on Lot 2700;
loan, Asiancars conveyed ownership of the building on the leased premises to
MBTC, by way of dacion en pago.[13] The building was valued at P980,000 and the 7. Ordering defendant MBTC to pay to plaintiffs the amount of
amount was applied as partial payment for the loan. There still remained a balance P92,083.33 for the use of the land from December 18, 1981 to
of P2,942,449.66, which Asiancars failed to pay. February 23, 1982, with six percent (6%) interest per annum until
paid;
Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction
was held on February 4, 1981. MBTC was the highest bidder for P1,067,344.35. A 8. Ordering defendant Asiancars, Neris, Uykims, Lee and Koc to pay
certificate of sale was issued and was registered with the Register of Deeds on jointly and severally the plaintiffs the (a) actual value of the lot in
February 23, 1981. the amount of P3,852,000.00; (b) P400,000.00 moral damages; (c)
P150,000.00 exemplary damages and P100,000.00 attorneys fee,
Meanwhile, Graciano Jayme died, survived by his widow Mamerta and their all with six percent (6%) interest per annum until fully paid;
children. As a result of the foreclosure, Gracianos heirs filed a civil complaint, [14] in
January of 1982, for Annulment of Contract with Damages with Prayer for Issuance 9. Cost against defendants Asiancars, Neris, Uykims, Lee and Koc.
of Preliminary Injunction, against respondent Asiancars, its officers and
incorporators and MBTC. Later, in 1999, Mamerta Jayme also passed away. SO ORDERED.[16]
Petitioners claim that Neri and Asiancars did not tell them that the Petitioners filed a motion for reconsideration, which the CA denied. Hence,
indebtedness secured by the mortgage was for P6,000,000 and that the security was this petition which assigns the following errors:
the whole of Lot 2700. Petitioners allege that the deed presented to the Jayme
We also find that the Court of Appeals did not err in considering MBTC as a
purchaser in good faith. MBTC had no knowledge of the stipulation in the lease I further certify that in case I fail to redeem the said properties within the
contract. Although the same lease was registered and duly annotated on the period stated above, my cousin Pio Servando, shall become the sole
certificate of title of Lot 2700, MBTC was charged with constructive knowledge only owner thereof.
of the fact of lease of the land and not of the specific provision stipulating transfer
of ownership of the building to the Jaymes upon termination of the lease. There was
(SGD.) JOSE YUSAY SERVANDO
no annotation on the title of any encumbrance. [30] While the alienation was in
violation of the stipulation in the lease contract between the Jaymes and Asiancars,
MBTCs own rights could not be prejudiced by Asiancars actions unbeknownst to WITNESSES:
MBTC. Thus, the transfer of the building in favor of MBTC was properly held valid
and binding by respondent Court of Appeals.
(Sgd) Ernesto G. Jeruta
One point, however, has to be cleared. The appellate court ordered MBTC to
pay rentals to petitioners at the rate of P25.00 monthly per square meter. For the (Sgd) Francisco B. Villanueva
Asiancars building stood on the lot owned by the petitioners, until the time MBTC
also consolidated its ownership over the lot. Rentals would have to be paid starting
on December 18, 1980, when the buildings ownership was transferred to MBTC, The defendants moved to dismiss the complaint on the grounds that it did not state
until February 23, 1982, when MBTC finally consolidated its ownership over Lot a cause of action, the alleged mortgage being invalid and unenforceable since it was
2700. Hence, we agree that there was error in the computation of rentals by the a mere private document and was not recorded in the Registry of Deeds; and that
CA.[31] From December 18, 1980 until February 23, 1982, is a period of 1 year, 2 the plaintiff was not the real party in interest and, as a mere mortgagee, had no
months and 5 days. Thus, MBTC should pay to petitioners rentals for the use of the standing to question the validity of the sale. The motion was denied by the
occupied lot,[32] consisting of 1,700 sq. m. at the monthly rate of P25.00 per sq. m. respondent Judge, in its order dated June 20, 1978, "on the ground that this action
for that period, in the total amount of P602,083.33, with six (6) percent interest per is actually one for collection."
annum until fully paid.
On June 23, 1978, defendant Jose Y. Servando died. The defendants filed a
Finally, we are in agreement that bad faith attended Asiancars transfer of the
Manifestation and Motion, informing the trial court accordingly, and moving for the
building to MBTC. Asiancars was well aware of its covenant with the Jaymes that the
dismissal of the complaint pursuant to Section 21 of Rule 3 of the Rules of Court,
buildings ownership was to be transferred to the Jaymes upon termination of the
pointing out that the action was for. recovery of money based on an actionable
lease. Indeed, petitioners suffered mental anxiety and nervous shock upon learning
document to which only the deceased defendant was a party. The motion to dismiss
that the ownership of the building standing on their property had already been
was denied on July 25, 1978, "it appearing from the face of the complaint that the
transferred to MBTC. The apparent disregard of petitioners right by Asiancars and
instant action is not purely a money claim, it being only incidental, the main action
other private respondents provides enough basis for an award of moral as well as
being one for annulment and damages."
exemplary damages [33] by the appellate court.
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED On August 1, 1978, plaintiff filed a motion to declare defendants in default, and on
with the MODIFICATION that private respondent MBTC is ordered to pay the very next day, August 2, the respondent Judge granted the motion and set the
petitioners rentals in the total amount of P602,083.33, with six (6) percent interest hearing for presentation of plaintiff's evidence ex-parte on August 24, 1978.
per annum until fully paid. In all other respects, the assailed decision and resolution
of the Court of Appeals are AFFIRMED.
On August 2, 1978, or the same day that the default order was issued, defendants
SO ORDERED. Hechanova and Masa filed their Answers, denying the allegations of the complaint
and repeating, by way of special and affirmative defenses, the grounds stated in
their motions to dismiss.
FIRST DIVISION On August 25, 1978, a judgment by default was rendered against the defendants,
annulling the deed of sale in question and ordering the Register of Deeds of Iloilo
to cancel the titles issued to Priscilla Masa and Gemma Hechanova, and to revive
G.R. No. L-49940 September 25, 1986
the title issued in the name of Jose Y. Servando and to deliver the same to the
plaintiff.
GEMMA R. HECHANOVA, accompanied by her husband, NICANOR
HECHANOVA, JR., and PRESCILLA R. MASA, accompanied by her husband,
The defendants took timely steps to appeal the decision to the Court of Appeals by
FRANCISCO MASA, petitioners,
filing a notice of appeal, an appeal bond, and a record on appeal. However, the trial
vs.
court disapproved the record on appeal due to the failure of defendants to comply
HON. MIDPANTAO L. ADIL, Presiding Judge, Branch II, Court of First Instance
with its order to eliminate therefrom the answer filed on August 2, 1978 and
of Iloilo, THE PROVINCIAL SHERIFF OF ILOILO, and PIO
accordingly, dismissed the appeal, and on February 2, 1978, issued an order
SERVANDO, respondents.
granting the writ of execution prayed for by plaintiff.
We find the petition meritorious, and the same is hereby given due course.
YAP, J.:
It is clear from the records of this case that the plaintiff has no cause of action.
Plaintiff has no standing to question the validity of the deed of sale executed by the
Petitioners seek the annulment of various orders issued by the respondent Presiding deceased defendant Jose Servando in favor of his co-defendants Hechanova and
Judge of Branch II, Court of First Instance of Iloilo, in Civil Case No. 12312 Masa. No valid mortgage has been constituted plaintiff's favor, the alleged deed of
entitled "Pio Servando versus Jose Y. Servando et al." A temporary restraining order mortgage being a mere private document and not registered; moreover, it contains
was issued by this Court on May 9, 1979, staying until further orders the execution a stipulation (pacto comisorio) which is null and void under Article 2088 of the Civil
of the decision rendered by the respondent Judge in said case. Code. Even assuming that the property was validly mortgaged to the plaintiff, his
recourse was to foreclose the mortgage, not to seek annulment of the sale.
This is an appeal from the decision* of the Court of First Instance of Manila, Branch In their stipulations of Fact, it is admitted by the parties that plaintiff
XVII in Civil Case No. 78178 for collection of sum of money based on promissory extended loans to defendants on the basis and by reason of certain
notes executed by the defendants-appellants in favor of plaintiff-appellee bank. The contracts entered into by the defunct Emergency Employment
dispositive portion of the appealed decision (Record on Appeal, p. 33) reads as Administration (EEA) with defendants for the fabrication of fishing boats,
follows: and that the Philippine Fisheries Commission succeeded the EEA after its
abolition; that non-payment of the notes was due to the failure of the
Commission to pay defendants after the latter had complied with their
WHEREFORE judgment is hereby rendered (a) sentencing defendants,
contractual obligations; and that the President of plaintiff Bank took steps
Anastacio Teodoro, Jr. and Grace Anna Teodoro jointly and severally, to
to collect from the Commission, but no collection was effected.
pay plaintiff the sum of P15,037.11 plus 12% interest per annum from
September 30, 1969 until fully paid, in payment of Promissory Notes No.
11487, plus the sum of P1,000.00 as attorney's fees; and (b) sentencing For failure of defendants to pay the sums due on the Promissory Note,
defendant Anastacio Teodoro, Jr. to pay plaintiff the sum of P8,934.74, this action was instituted on November 13, 1969, originally against the
plus interest at 12% per annum from September 30, 1969 until fully paid, Father, Son, and the latter's wife. Because the Father died, however,
in payment of Promissory Notes Nos. 11515 and 11699, plus the sum of during the pendency of the suit, the case as against him was dismiss
P500.00 an attorney's fees. under the provisions of Section 21, Rule 3 of the Rules of Court. The
action, then is against defendants Son and his wife for the collection of
the sum of P 15,037.11 on Promissory Note No. 14487; and against
With Costs against defendants.
defendant Son for the recovery of P 8,394.7.4 on Promissory Notes Nos.
11515 and 11699, plus interest on both amounts at 12% per annum from
The facts of the case as found by the trial court are as follows: September 30, 1969 until fully paid, and 10% of the amounts due as
attorney's fees.
The Deed of Assignment provided that it was for and in consideration of certain
As to whether or not appellee bank must have to exhaust all legal remedies against
credits, loans, overdrafts, and their credit accommodations in the sum of P10,000.00
the Philippine Fisheries Commission before it can proceed against appellants for
extended to appellants by appellee bank, and as security for the payment of said
collection of loans under their promissory notes, must also be answered in the
sum and the interest thereon; that appellants as assignors, remise, release, and
negative.
quitclaim to assignee bank all their rights, title and interest in and to the accounts
receivable assigned (lst paragraph). It was further stipulated that the assignment will
also stand as a continuing guaranty for future loans of appellants to appellee bank The obligation of appellants under the promissory notes not having been released
and correspondingly the assignment shall also extend to all the accounts receivable; by the assignment of receivables, appellants remain as the principal debtors of
appellants shall also obtain in the future, until the consideration on the loans appellee bank rather than mere guarantors. The deed of assignment merely
secured by appellants from appellee bank shall have been fully paid by them (No. guarantees said obligations. That the guarantor cannot be compelled to pay the
9). creditor unless the latter has exhausted all the property of the debtor, and has
resorted to all the legal remedies against the debtor, under Article 2058 of the New
Civil Code does not therefore apply to them. It is of course of the essence of a
The position of appellants, however, is that the deed of assignment is a quitclaim in
contract of pledge or mortgage that when the principal obligation becomes due,
consideration of their indebtedness to appellee bank, not mere guaranty, in view of
the things in which the pledge or mortgage consists may be alienated for the
the following provisions of the deed of assignment:
payment to the creditor (Article 2087, New Civil Code). In the instant case,
appellants are both the principal debtors and the pledgors or mortgagors. Resort to
... the Assignor do hereby remise, release and quit-claim unto said one is, therefore, resort to the other.
assignee all its rights, title and interest in the accounts receivable
described hereunder. (Emphasis supplied by appellants, first par., Deed
Appellee bank did try to collect on the pledged receivables. As the Emergency
of Assignment).
Employment Agency (EEA) which issued the receivables had been abolished, the
collection had to be coursed through the Office of the President which disapproved
... that the title and right of possession to said account receivable is to the same (Record on Appeal, p. 16). The receivable became virtually worthless
remain in said assignee and it shall have the right to collect directly from leaving appellants' loans from appellee bank unsecured. It is but proper that after
the debtor, and whatever the Assignor does in connection with the their repeated demands made on appellants for the settlement of their obligations,
collection of said accounts, it agrees to do so as agent and appellee bank should proceed against appellants. It would be an exercise in futility
representative of the Assignee and it trust for said Assignee ...(Ibid. par. 2 to proceed against a defunct office for the collection of the receivables pledged.
of Deed of Assignment).' (Record on Appeal, p. 27)
WHEREFORE, the appeal is Dismissed for lack of merit and the appealed decision of
The character of the transactions between the parties is not, however, determined the trial court is affirmed in toto.
by the language used in the document but by their intention. Thus, the Court,
quoting from the American Jurisprudence (68 2d, Secured Transaction, Section 50)
SO ORDERED.
said:
EN BANC
The characters of the transaction between the parties is to be
determined by their intention, regardless of what language was used or
what the form of the transfer was. If it was intended to secure the G.R. No. 3227 March 22, 1907
payment of money, it must be construed as a pledge. However, even
though a transfer, if regarded by itself, appellate to have been absolute,
PEDRO ALCANTARA, plaintiff-appellee,
its object and character might still be qualified and explained by a
vs.
contemporaneous writing declaring it to have been a deposit of the
AMBROSIO ALINEA, ET AL., defendants-appellants.
property as collateral security. It has been Id that a transfer of property
by the debtor to a creditor, even if sufficient on its farm to make an
absolute conveyance, should be treated as a pledge if the debt S.D. Reyes for appellants.
continues in existence and is not discharged by the transfer, and that J. Gerona for appellee.
accordingly, the use of the terms ordinarily exporting conveyance, of
absolute ownership will not be given that effect in such a transaction if
TORRES, J.:
they are also commonly used in pledges and mortgages and therefore
do not unqualifiedly indicate a transfer of absolute ownership, in the
absence of clear and ambiguous language or other circumstances On the 13th day of March, 1905, the plaintiff filed a complaint in the Court of First
excluding an intent to pledge. (Lopez v. Court of Appeals, 114 SCRA 671 Instance of La Laguna, praying that judgment be rendered in his behalf ordering the
[1982]). defendants to de liver to him the house and lot claimed, and to pay him in addition
The contract ( pactum commissorium) referred to in Law 41, title 5, and law 12, title CORTES, J.:
12, of the fifth Partida, and perhaps included in the prohibition and declaration of
nullity expressed in articles 1859 and 1884 of the Civil Code, indicates the existence
II. The genuineness and due Prosecution of the deed of assignment was
After making a downpayment of P7,700.00, the SPOUSES failed to pay the balance
not deemed admitted by petitioner.
of P40,000.00. Due to these unpaid balances, BAYANIHAN filed an action for specific
performance against the SPOUSES docketed as Civil Case No. 80420 with the Court
of First Instance of Manila. III. The deed of assignment is unenforceable because the condition for
its execution was not complied with.
On October 28, 1978, after hearing, judgment was rendered in favor of BAYANIHAN
in a decision the dispositive portion of which reads: IV. The refusal of petitioners to vacate and surrender the premises in
question to private respondent is justified and warranted by the
circumstances obtaining in the instant case.
WHEREFORE, judgment is hereby rendered, ordering the defendants,
jointly and severally, to pay the plaintiffs, the sum of P40,000.00, with
interest at the legal rate from July 1, 1970 until full payment. In the event I. In support of the first argument, petitioners bring to the fore the contract entered
of their failure to do so within thirty (30) days from notice of this into by the parties whereby petitioner Kho Po Giok agreed that the apartment in
judgment, they are hereby ordered to execute the corresponding deed of question will automatically become the property of private respondent BAYANIHAN
absolute sale in favor of the plaintiff and/or the assignment of leasehold upon her mere failure to pay her obligation. This agreement, according to the
rights over the defendant's apartment located at 307 Ligaya Building, petitioners is in the nature of a pactum commissorium which is null and void, hence,
Alvarado Street, Binondo, Manila, upon the payment by the plaintiff to the the deed of assignment which was borne out of the same agreement suffers the
defendants of the sum of P3,535.00. [emphasis supplied]. same fate.
Pursuant to said judgment, an order for execution pending appeal was issued by the The prohibition on pactum commissorium stipulations is provided for by Article
trial court and a deed of assignment dated May 27, 1972, was executed by the 2088 of the Civil Code:
SPOUSES [Exhibit "B", CFI Records, p. 127] over Apartment No. 307 of the Ligaya
Building together with the leasehold right over the land on which the building
Art. 2088. The creditor cannot appropriate the things given
stands. The SPOUSES acknowledged receipt of the sum of P3,000.00 more or less,
by way of pledge or mortgage, or dispose of the same. Any
paid by BAYANIHAN pursuant to the said judgment.
stipulation to the contrary is null and void.
III. The SPOUSES also question the enforceability of the deed of assignment. They
This deed made and entered into by Uy Tiong also known as Henry Uy
contend that the deed is unenforceable because the condition for its execution was
and Kho Po Giok, both of legal age, husband and wife, respectively,
not complied with. What petitioners SPOUSES refer to is that portion of the
and presently residing at 307 Ligaya Bldg., Alvarado St., Binondo,
disposition in Civil Case No. 80420 requiring BAYANIHAN to pay the former the sum
Manila, and hereinafter to be known and called as the ASSIGNORS, in
of P 3,535.00. To buttress their claim of non- compliance, they invoke the following
favor of Bayanihan Automotive Corporation, an entity duly organized
receipt issued by the SPOUSES to show that BAYANIHAN was P535.00 short of the
and existing under the laws of the Philippines, with principal business
complete payment.
address at 1690 Otis St., Paco, Manila and hereinafter to be known and
called the ASSIGNEE;
RECEIPT
-witnesseth-
This is to acknowledge the fact that the amount of THREE THOUSAND
(P3,000.00) PESOS, more or less as indicated in the judgment of the Hon.
WHEREAS, the ASSIGNEE has filed a civil complaint for "Specific
Conrado Vasquez, Presiding Judge of the Court of First Instance of Manila,
Performance with Damages" against the ASSIGNORS in the Court of
Branch V, in Civil Case entitled "Bayanihan Automotive Corp. v. Pho (sic)
First Instance of Manila, Branch V, said case having been docketed as
Po Giok, etc." and docketed as Civil Case No. 80420 has been applied for
Civil Case No. 80420;
the payment of the previous rentals of the property which is the subject
matter of the aforesaid judgment. [emphasis supplied.]
WHEREAS, the ASSIGNEE was able to obtain a judgment against the
ASSIGNOR wherein the latter was ordered by the court as follows, to
(Sgd.) Pho (sic) Po Glok
wit:
(Sgd.) Henry Uy
WHEREFORE, judgment is hereby rendered ordering the
defendants, jointly and severally to pay the plaintiff the sum
of P40,000.00, with interest at the legal rate from July 31, August 21, 1971
1970 until full payment. In the event of their failure to do so
within thirty (30) days from notice of this judgment, they are
The issue presented involves a question of fact which is not within this Court's
hereby ordered to execute the corresponding deed of
competence to look into. Suffice it to say that this Court is of the view that findings
absolute sale in favor of the plaintiff and/or the assignment
and conclusion of the trial court and the Court of Appeals on the question of
of leasehold, rights over the defendants' apartment located
whether there was compliance by BAYANIHAN of its obligation under the decision
at No. 307 Ligaya Building, Alvarado Street, Binondo, Manila,
in Civil Case No. 80420 to pay the SPOUSES the sum of P3,535.00 is borne by the
upon the payment by the plaintiff to the defendants the sum
evidence on record. The Court finds merit in the following findings of the trial court:
of P 3,535.00. The defendants shall pay the costs.
(b) There was no full compliance by private respondent of the Petitioners alleged that the loans extended to them from July 14, 1999
condition imposed in the deed of assignment. to March 20, 2000 were founded on several uniform promissory notes, which
provided for 3.5% monthly interest rates, 5% penalty per month on the total amount
due and demandable, and a further sum of 25% attorneys fees thereon, [8] and in
(c) Proof that petitioners have been allowed to stay in the premises, is
addition, respondent exacted certain sums denominated as EVAT/AR. [9] Petitioners
the very admission of private respondent who declared that petitioners
decried these additional charges as illegal, iniquitous, unconscionable, and revolting
were allowed to stay in the premises until November 20, 1972. This
to the conscience as they hardly allow any borrower any chance of survival in case
admission is very significant. Private respondent merely stated that
of default.[10]
there was a term-until November 30, 1972-in order to give a
semblance of validity to its attempt to dispossess herein petitioners of
Petitioners further alleged that they had previously made payments on
the subject premises. In short, this is one way of rendering seemingly
their loan accounts, but because of the illegal exactions thereon, the total balance
illegal petitioners 'possession of the premises after November 30,
appears not to have moved at all, hence, accounting was in order. [11]
1972.
CARPIO MORALES, J.: The Dacion in Payment Agreement is lawful and valid as it is
On different dates from July 14, 1999 to March 20, 2000, petitioner- recognized x x x under Art. 1245 of the Civil Code as a special form of
spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several loans from payment whereby the debtor-Plaintiffs alienates their property to the
Roban Lending Corporation (respondent) in the total amount creditor-Defendant in satisfaction of their monetary obligation;
of P4,000,000.00. These loans were secured by a real estate mortgage on petitioners
parcels of land located in Binauganan, Tarlac City and covered by TCT No. 297840.[1] The accumulated interest and other charges which were
computed for more than two (2) years would stand reasonable and
On February 12, 2001, petitioners and respondent executed an valid taking into consideration [that] the principal loan is P4,000,000
Amendment to Amended Real Estate Mortgage[2] consolidating their loans inclusive and if indeed it became beyond the Plaintiffs capacity to pay then the
of charges thereon which totaled P5,916,117.50. On even date, the parties executed fault is attributed to them and not the Defendant[.] [14]
a Dacion in Payment Agreement [3] wherein petitioners assigned the properties
covered by TCT No. 297840 to respondent in settlement of their total obligation, After pre-trial, the initial hearing of the case, originally set on December
and a Memorandum of Agreement[4] reading: 11, 2002, was reset several times due to, among other things, the parties efforts to
settle the case amicably.[15]
That the FIRST PARTY [Roban Lending Corporation] and the
SECOND PARTY [the petitioners] agreed to consolidate and During the scheduled initial hearing of May 7, 2003, the RTC issued the
restructure all aforementioned loans, which have been all past due following order:
and delinquent since April 19, 2000, and outstanding obligations
totaling P5,916,117.50. The SECOND PARTY hereby sign [sic] another Considering that the plaintiff Wilfredo Ong is not around
promissory note in the amount of P5,916,117.50 (a copy of which is on the ground that he is in Manila and he is attending to a very sick
hereto attached and forms xxx an integral part of this document), relative, without objection on the part of the defendants counsel,
with a promise to pay the FIRST PARTY in full within one year from the initial hearing of this case is reset to June 18, 2003 at 10:00
the date of the consolidation and restructuring, otherwise the oclock in the morning.
SECOND PARTY agree to have their DACION IN PAYMENT
agreement, which they have executed and signed today in favor of Just in case [plaintiffs counsel] Atty. Concepcion cannot
the FIRST PARTY be enforced[.][5] present his witness in the person of Mr. Wilfredo Ong in the next
scheduled hearing, the counsel manifested that he will submit the
case for summary judgment.[16] (Underscoring supplied)
At the scheduled April 14, 2004 hearing, both counsels appeared but That the questioned contracts were freely and voluntarily executed by
only the counsel of respondent filed a memorandum. [19] petitioners and respondent is of no moment, pactum commissorium being void for
being prohibited by law.[39]
By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding
on the basis of the pleadings that there was no pactum commissorium, dismissed Respecting the charges on the loans, courts may reduce interest rates,
the complaint.[20] penalty charges, and attorneys fees if they are iniquitous or unconscionable. [40]
On appeal,[21] the Court of Appeals[22] noted that This Court, based on existing jurisprudence, [41] finds the monthly interest
rate of 3.5%, or 42% per annum unconscionable and thus reduces it to 12% per
x x x [W]hile the trial court in its decision stated that it annum. This Court finds too the penalty fee at the monthly rate of 5% (60% per
was rendering judgment on the pleadings, x x x what it actually annum) of the total amount due and demandable principal plus interest, with
rendered was a summary judgment. A judgment on the pleadings interest not paid when due added to and becoming part of the principal and
is proper when the answer fails to tender an issue, or otherwise likewise bearing interest at the same rate, compounded monthly [42] unconscionable
admits the material allegations of the adverse partys and reduces it to a yearly rate of 12% of the amount due, to be computed from the
pleading. However, a judgment on the pleadings would not have time of demand.[43] This Court finds the attorneys fees of 25% of the principal,
been proper in this case as the answer tendered an issue, i.e. the interests and interests thereon, and the penalty fees unconscionable, and thus
validity of the MOA and DPA. On the other hand, a summary reduces the attorneys fees to 25% of the principal amount only. [44]
judgment may be rendered by the court if the pleadings,
supporting affidavits, and other documents show that, except as to The prayer for accounting in petitioners complaint requires presentation
the amount of damages, there is no genuine issue as to any of evidence, they claiming to have made partial payments on their loans, vis a
material fact.[23] vis respondents denial thereof.[45] A remand of the case is thus in order.
Prescinding from the above disquisition, the trial court and the Court of
Nevertheless, finding the error in nomenclature to be mere semantics Appeals erred in holding that a summary judgment is proper. A summary judgment
with no bearing on the merits of the case, [24] the Court of Appeals upheld the RTC is permitted only if there is no genuine issue as to any material fact and a moving
decision that there was no pactum commissorium.[25] party is entitled to a judgment as a matter of law. [46] A summary judgment is proper
if, while the pleadings on their face appear to raise issues, the affidavits, depositions,
Their Motion for Reconsideration[26] having been denied,[27] petitioners and admissions presented by the moving party show that such issues are not
filed the instant Petition for Review on Certiorari, [28] faulting the Court of Appeals for genuine.[47] A genuine issue, as opposed to a fictitious or contrived one, is an issue
having committed a clear and reversible error of fact that requires the presentation of evidence. [48] As mentioned above,
petitioners prayer for accounting requires the presentation of evidence on the issue
I. . . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL REQUISITES of partial payment.
WHICH WOULD WARRANT THE SETTING ASIDE OF THE SUMMARY
JUDGMENT IN VIOLATION OF APPELLANTS RIGHT TO DUE PROCESS; But neither is a judgment on the pleadings proper. A judgment on the
pleadings may be rendered only when an answer fails to tender an issue or
II. . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS CASE IS otherwise admits the material allegations of the adverse partys pleadings. [49] In the
NECESSARY BECAUSE THE FACTS ARE VERY MUCH IN DISPUTE; case at bar, respondents Answer with Counterclaim disputed petitioners claims that
the Memorandum of Agreement and Dation in Payment are illegal and that the
III. . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE MEMORANDUM extra charges on the loans are unconscionable. [50] Respondent disputed too
OF AGREEMENT (MOA) AND THE DACION EN PAGO AGREEMENT (DPA) petitioners allegation of bad faith.[51]
WERE DESIGNED TO CIRCUMVENT THE LAW AGAINST PACTUM
COMMISSORIUM; and WHEREFORE, the challenged Court of Appeals Decision
is REVERSED and SET ASIDE. The Memorandum of Agreement and the Dacion in
IV. . . . WHEN IT FAILED TO CONSIDER THAT THE MEMORANDUM OF Payment executed by petitioner- spouses Wilfredo N. Ong and Edna Sheila Paguio-
AGREEMENT (MOA) AND THE DACION EN PAGO (DPA) ARE NULL AND Ong and respondent Roban Lending Corporation on February 12, 2001 are declared
VOID FOR BEING CONTRARY TO LAW AND PUBLIC POLICY. [29] NULL AND VOID for being pactum commissorium.
The petition is meritorious. In line with the foregoing findings, the following terms of the loan
contracts between the parties are MODIFIED as follows:
Both parties admit the execution and contents of the Memorandum of
Agreement and Dacion in Payment. They differ, however, on whether both contracts 1. The monthly interest rate of 3.5%, or 42% per annum, is
constitute pactum commissorium or dacion en pago. reduced to 12% per annum;
This Court finds that the Memorandum of Agreement and Dacion in 2. The monthly penalty fee of 5% of the total amount due and
Payment constitute pactum commissorium, which is prohibited under Article 2088 of demandable is reduced to 12% per annum, to be computed
the Civil Code which provides: from the time of demand; and
The creditor cannot appropriate the things 3. The attorneys fees are reduced to 25% of the principal
given by way of pledge or mortgage, or dispose of amount only.
them. Any stipulation to the contrary is null and void.
Civil Case No. 9322 is REMANDED to the court of origin only for the
The elements of pactum commissorium, which enables the mortgagee to purpose of receiving evidence on petitioners prayer for accounting.
acquire ownership of the mortgaged property without the need of any foreclosure
proceedings,[30] are: (1) there should be a property mortgaged by way of security for SO ORDERED.
the payment of the principal obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in case of non- FIRST DIVISION
payment of the principal obligation within the stipulated period. [31] G.R. No. 199420 August 27, 2014
PHILNICO INDUSTRIAL CORPORATION, Petitioner,
In the case at bar, the Memorandum of Agreement and the Dacion in vs.
Payment contain no provisions for foreclosure proceedings nor redemption. Under PRIVATIZATION AND MANAGEMENT OFFICE, Respondent.
the Memorandum of Agreement, the failure by the petitioners to pay their debt x-----------------------x
within the one-year period gives respondent the right to enforce the Dacion in G.R. No. 199432
Payment transferring to it ownership of the properties covered by TCT No. 297840. PRIVATIZATION AND MANAGEMENT OFFICE, Petitioner,
Respondent, in effect, automatically acquires ownership of the properties upon vs.
petitioners failure to pay their debt within the stipulated period. PHILNICO INDUSTRIAL CORPORATION, Respondent.
DECISION
Before the Court are the consolidated Petitions for Review on Certiorari under Rule (b) From and after the Closing Date, the Buyer shall exercise all the
45 of the Rules of Court involving the Decision1 dated January 31, 2011 and rights (including the right to vote) of a shareholder in respect of the
Resolution2 dated November 18, 2011 of the Court of Appeals in CA-G.R. SP. No. Shares (subject to the negative covenants contained in the Pledge
111108, which affirmed the Order3 dated August 25, 2009 of the Regional Trial Agreement).8
Court (R TC), Branch 64 of Makati City in Civil Case No. 03-114.
Also worthy of note herein is Section 8 of the ARDA on default, which states:
THE PARTIES
(a) The Buyer shall, subject tothe provisions of Section 2.03(b), fail to pay
The Petition in G.R. No. 199432 was filed by the Privatization and Management any two consecutive installments on the Purchase Price in accordance
Office (PMO), an attached agency of the Department of Finance. PMO succeeded with the terms of Section 2.03.
the Asset Privatization Trust (APT), when the latters life ended on December 31,
2000.5 The PMO serves as the marketing arm of the Government with respect to
(b) The Buyer shall fail to complywith or observe any other material
Transferred Assets, Government Corporations and other properties assigned to it by
term, obligation or covenant contained in this Agreement or in the
the Privatization Council (PrC) for disposition. Together, the mission of the PMO and
Pledge Agreement.
PrC is to take title to and possession of, conserve, provisionally manage, and
dispose of assets previouslyidentified for privatization; and, in the process, reduce
the Governments maintenance expense on nonperforming assets, generating (c) The Buyer shall commit any act of bankruptcy or insolvency, or shall
maximum cash recovery for the National Government. 6 file any petition or action for relief under any bankruptcy,
reorganization, insolvency or moratorium law or other law or laws for
the relief of debtors.
ANTECEDENT FACTS
WHEREAS, to secure the obligation of [PIC] to pay the purchase price and all other
xxxx amounts due the [PMO] under the aforesaid Definitive Agreement and the
performance by [PIC] of its other obligations thereunder and under this Pledge
Agreement, the [PIC and PNPI] have agreed to execute and deliver thisPledge
2.07 Closing
Agreement, giving unto the [PMO] a good and valid pledge over the pledge[d]
shares[.]11
(a) The closing of the sale and purchase of the Shares and the Tranche B
Receivables under this Agreement shall take place on the Closing Date
Sections 3.01 and 3.02 of the Pledge Agreement expressly acknowledged that PIC
and at such place as may be agreed between the Buyer and the Seller
delivered its certificates of shares of stock in PPC and that PMO received said
upon the fulfillment of all of the conditions precedent specified in
certificates.12 Section 5 of the same Agreement covered default and the available
Sections 4.01 and 4.02 (unless any such condition precedent shall have
remedies in case thereof, thus: SECTION [5]. DEFAULT REMEDIES, ETC.
been waived by the Buyer or the Seller, as the case may be). At the
closing, the following transactions shall take place:
5.01 Events of Default
(1) the Seller shall execute and deliver to the Buyer the
necessary deed of sale transferring to the Buyer all of the The following shall be considered Events of Default under this Pledge Agreement:
Sellers right, title and interest in and to the Shares and deliver
to the Buyer the stock certificates representing such shares,
(a) [PIC] shall fail to pay when duethe obligations after giving effect to
each duly endorsed, or with separatestock transfer powers
any applicable period of grace; or
attached, in favor of the Buyer together with the duly executed
resignations of the directors of the Company named in
Schedule 6; (b) [PIC] or PNPI shall fail to comply with or observe any other material
term, obligation or covenant contained in this Pledge Agreement or the
Definitive Agreement; or
(2) the Company shall issue in the name of, and deliver to, the
Buyer new stock certificates representing the Shares;
(c) [PIC] or PNPI shall commit any act of bankruptcy or insolvency, or
shall file any petition or action for relief under any bankruptcy,
(3) the Buyer shall execute and deliver the Pledge Agreement
reorganization, insolvency or moratorium law or other x x x laws for the
covering the Shares and deliver to the Seller the stock
relief of debtors; or
certificates representing such shares;
5.02 Consequences of Default [PIC] prays for such further and equitable relief as may be just and equitable in the
premises.15
If an Event of Default shall have occurred, then at any time thereafter, if any such
event shall then be continuing after the applicable grace period, if any, the [PMO] is After the summary hearing held on February 7, 2003, the RTC issued a temporary
hereby authorized: restraining order (TRO), effective for 20 days, restraining PMO, PPC, and the PPC
Corporate Secretary from effecting the reversion of the 22,500,000 shares of stock
of PPC.
(a) To sell in one or more sales, either public or private, at any time the
whole or any part of the Pledged Shares in such order and number as
the [PMO] may elect at its place of business or elsewhere and the [PMO] The RTC then conducted hearings on the prayer of PIC for the issuance of a writ of
may, in all allowable cases, be the purchaser of any or all Pledged Shares preliminary injunction. The RTC subsequently issued an Order16 on February 27,
so sold and hold the same thereafter in its own right free from any claim 2003 finding PIC entitled to the issuance of such a writ for the following reasons:
of [PIC] or any right of redemption;
While the failure of [PIC] to meet its amortization with respect to the smaller portion
(b) To issue receipts and to execute and deliver any instrument or of the purchase price cannot be denied, said default cannot automatically result in
document or do any act necessary for the transferand assignment of all the reversion of the shares of stocks to PMO. The provision in the ARDA providing
rights, title and interest of [PIC] in the Pledged Shares to the purchaser for ipso facto reversion of the shares of stock is null and void for being a pactum
or purchasers thereof; and commissorium. x x x.
(c) To apply, at the [PMOs] option, the proceeds of any said sale, as well xxxx
as all sums received orcollected by the [PMO] from or on account of
such Pledged Shares to (i) the payment of expenses incurred or paid by
The automatic reversion of the shares of stock is by itself automatic appropriation of
the [PMO] in connection with any sale, transfer or delivery of the
the thing pledged, which is contrary to good morals and public policy. It would
Pledged Shares and (ii) the payment of the Obligations or any part
alsoresult in unjust enrichment on the part of defendant PMO. Even in case of
thereof.13
rescission, mutual restitution is allowed so as not to enrich one party to the
prejudice of the other. It would be tantamount to confiscation ofproperty without
In the meantime, the nickel refinery complex of PPC, which last operated in the due process. The seller had the option of foreclosing the property pledged. The
1980s, had become obsolete and much of the facilities therein were already scrap. seller cannot automatically appropriate the same to himself when the ownership is
The estimated cost in 2003 for building an entirely new refinery plant based on new already transferred to [PIC]. Thus, even for the time being when foreclosure of the
technology was about US$1 Billion. The Philnico Group, which had already invested shares pledge[d] isbeing considered, and the question of rescission is being
at least US$60 Million, was inviting and negotiating withprospective foreign deliberated, [PIC] has a right to be protected and therefore entitled to the relief of
investors who could assist in its business. preliminary injunction.
On account of the huge financial cost of building a new nickel refinery plant, Regarding the provision on referral to arbitration, granting that the case is proper
coupled with the economic problems then affecting the AsiaPacific Region, PMO, for arbitration, [PIC] isnonetheless entitled to the writ of preliminary injunction
PIC, and PPC executed an Amendment Agreement 14 on September 27, 1999 which pending the arbitration proceeding.
provided for the restructuring of the payment terms of the entire obligation under
the ARDA, the repayment of advances, the conditions for borrowings or financing, a
xxxx
new cash break-even formula, and the adoption of an investment plan.
One of the requirements for the issuance of the writ of preliminary injunction is
Three years later, in a letter dated November 6, 2002, PMO notified PIC that the
when there is an urgent and paramount necessity for the writ to prevent an
latter had defaulted in the payment of its obligations and demanded that PIC settle
irreparable damage. Irreparable means one that can not be rectified. [PIC] is in
its unpaid amortizations in the total amount of US$275,000.00 within 90 days, or on
danger of losingits investment in the project without any recourse if PMO will be
or about February 5, 2003, or else the PMO would enforce the automatic reversion
allowed the automatic reversion of the ownership of the 22,500,000 shares. The
of the PPC shares of stock under Section 8.02 of the ARDA. PIC replied in a letter
right of [PIC] will be prejudiced if the writ of preliminary injunction will not be issued
dated January 7, 2003 requesting PMO to set aside its notice of default; to not
in the meantime.17
rescind the sale of the PPC shares of stock; and to give PIC an opportunity to
conclude its fund-raising efforts for its business, particularly with a group of
investors from China. In another letter dated January 22, 2003 to PIC, PMO clearly The RTC thus decreed:
indicated its intention to enforce Section 8.02 of the ARDA should PIC fail to settle
its outstanding obligations after February 5, 2003.
WHEREFORE, premises considered, the Writ of Preliminary Injunction is GRANTED.
On February 4, 2003, a day before the deadline for payment set by PMO in its
Until further Order from this Court,and subject to [PICs] filing of a bond in the
letters, PIC filed beforethe RTC a Complaint for Prohibition against Reversion of
amount of P100,000,000.00 to pay for all the damages which [PMO, PPC, and the
Shares with Prayer for Writ of Preliminary Injunction and/or Temporary Restraining
PPC Corporate Secretary] may sustain by reason of the injunction if the Court will
Order, Suspension of Payment and Fixing of Period of Payment, against PMO, PPC,
finally decide that [PIC] is not entitled thereto, defendants Privatization and
and the PPC Corporate Secretary.
Management Office (PMO), Philnico Processing Corporation (PPC), and the
Corporation Secretary of PPC are enjoined from effecting the reversion to PMO of
On February 7, 2003, PIC filed an Amended Complaint raising, among other the 22,500,000 shares purchased by plaintiff Philnico Industrial Corporation and
arguments, the need for mutual restitution in case the ARDAis rescinded by the RTC. from selling the same to any third party.18
Ultimately, PIC prayed of the RTC that:
PMO filed a Motion for Reconsideration of the RTC Order dated February 27, 2003,
(a) Upon the filing of this complaint, a temporary restraining order be insisting that the provision on ipso factoreversion in the ARDA did not constitute
issued under Sec. 5 of Rule 58 of [the] 1997 Rules of Civil Procedure pactum commissoriumand would not result in unjust enrichment on the part of
prohibiting [PMO, PPC, and the PPC Corporate Secretary] from reverting PMO. PMO likewise filed a Motion to Dismiss on the ground that the complaint of
the 22,500,000 shares covered by Stock Certificate Nos. 018, 022, 024, PIC did not state a cause of action. In its Order19 dated June 19, 2003, the RTC found
025, 026, 027, 028, 030 and 031 x x x in the name of [PIC] to defendant no merit in both Motions and held that:
PMO.
1. The Motion for Reconsideration is DENIED. This Court maintains that [PIC] is
(b) After hearing entitled to the issuance of the Writ of Preliminary Injunction.
(i) A writ of preliminary injunction be issued prohibiting [PMO, PPC, and [PIC] has already acquired ownership of the 22,500,000 shares when the ARDA was
the PPC Corporate Secretary] from effecting the reversion of the executed between the parties. The ARDA merely provides for the transfer of the
aforementioned shares in favor of defendant PMO until further orders subject shares to [PIC]. As a matter of fact, [PIC] has executed a Pledge Agreement
from the Court; and thereafter, as a security for the payment of [PICs] obligation with defendant PMO.
(i) Making the injunction permanent and ordering the suspension of the Under the ARDA, the relationship of [PIC] and defendant PMO is that of a pledgor
payment of the amortizations as provided for in the ARDA and fixing a and pledgee and no longer as a buyer and seller. As such, the ipso facto reversion of
reasonable period within which said payment should be due; and the shares in the ARDA constitutes pactum commissorium. The execution of the
Pledge Agreement is precisely made to secure the payment of [PICs] obligation
In the same Order, the RTC directed PMO, PPC, and the PPC Secretary to file their
answer to the complaint of PIC. PMO no longer challenged the RTC Orders dated National Government. PMO sought several reliefs from the RTC in its Omnibus
February 27, 2003 and June 19, 2003 before the appellate courts. Instead, PMO Motion, quoted as follows:
complied with the RTC directive and already filed with the said trial court its Answer
and Amended Answer to the complaint of PIC. The RTC proceeded to pre-trial when
(1) That the Writ of Preliminary Injunction be dissolved;
the parties failed to arrive at an amicable settlement. On February 6,2009, the RTC
issued its Pre-trial Order21 in which it enumerated the respective issues for
resolution submitted by PIC and PMO, to wit: (2) That a representative of defendant PMO be appointed to the PPCs
and PNPIs board of directors or management; and
ISSUES ([PIC])
(3) That [PIC] be required to submit an accounting of its books and
financial reports from the year 2003 to 2008.
1. Whether or not the ipso facto reversion clause in the ARDA is valid,
and, whether or not it is a specie[s] of pactum commissoriumwhich is
outlawed. Other just and equitable reliefs are also prayed for. 23
2. Whether or not [PIC] is in default under the terms of the ARDA which Following hearings and exchange ofpleadings by the parties, the RTC collectively
clearly contemplates the actual operation of the plant before the resolved the pending motions of PIC and PMO in its Order dated August 25, 2009.
subsequent installments after the third year will be due, as it even
recognizes deferment of payment of installment if the Nonoc mining
The RTC determined that there was sufficient basis to grant the Manifestation and
plant and refinery is not yet in full operation and has not produced
Motion of PIC to delete two issues from the Pre-Trial Order dated February 6, 2009:
sufficient cash equivalent for payment to seller.
The Court will not disturb the earlier findings of the previous judge that the ipso
3. Even assuming that the schedule of payment is not modified by the
factoreversion clause in the ARDA is invalid and that it constitute[s] pactum
other terms of the ARDA (as actual operation of the plant and refinery),
commissorium. The Court finds no legal and factual reasons to change the previous
whether or not [PIC] may be considered as in default considering the
findings of the Honorable Delia H. Panganiban that [PIC] has already acquired
fortuitous events which are unforeseen and beyond the control of [PIC]
ownership of the 22,500,000 shares sold to it and that the ARDA is merely a scheme
which had prevented [PIC] from complying with its obligation under the
for the transfer of the said share to the latter. As such, the relation between [PIC]
scheduled amortization. 4. Whether or not [PIC] is entitled to be
and defendant PMO has become that ofa mortgagor and mortgagee. Accordingly,
reimbursed what it had already paid and spent to implement the
the proviso in the ARDA for the ipso factoreversion constitutes pactum
contract, in the remote event that APT/PMO may be allowed to exercise
commissorium.
right [of] rescission.
The Court disagrees with [PMO] that the said finding is merely initiatory as it was a
5. Whether or not plaintiff [PIC] is required to resort to arbitration to
finding on a legal issue. No other evidence is needed to change the same. In fact,
enforce its cause of action in the complaint.
said issue was extensively and exhaustively argued by the parties in their respective
pleadings in relation thereto. It is presumed that the previous Presiding Judge of
ISSUES ([PMO]) this Court has considered all the arguments raised by the parties.Section 3(o) of
Rule 131 of the Revised Rules of Court provides: that all matters within an issue
raised in a case were laid before the court and passed upon by it. In addition, based
1. Whether or not defendant PMO may be prohibited from ipso facto
on the personal analysis of its new Presiding Judge, the Court is judiciously
reverting the shares pursuant to the ARDA considering that [PIC]
convinced of the soundness of its earlier findings. More importantly, it appears from
defaulted in its payment and there is an express provision in the ARDA
the records that defendant PMO never challenged such finding in a higher judicial
providing for the said provision.
arena. Thus, this Court deems its resolution to be incontestable at this stage.
Consequently, since the said finding has attained finality, any error that thisCourt
2. Whether or not the terms and modes of payments as provided in the may have committed in resolving the said issue may only be raised in an appeal to
ARDA may be suspended or fixed anew by reason of unforeseen events be made by the adverse party.
cited by [PIC].
This Court also finds merit [i]n plaintiffs prayer for the deletion of the fifth issue
3. Whether or not defendant PMO may be enjoined by this Honorable raised during the pre-trial of this case. The denial of the motion to dismiss
Court in the performance of its functions and duties in connection with previously filed by defendant PMO also [constitutes] as an adjudication on the issue
the sale or disposition of assets transferred to it pursuant to as to whether or not the subject matter of this case is a proper subject of arbitration
Proclamation No. 50-A.22 (Emphases supplied.) proceedings as provided for in ARDA. The Court reached the said conclusion based
on jurisprudential law which up to this date is unchanged. Said conclusionhas also
In the instant case, the subject ARDA basically pertains to the contract of sale of
On defendant PMOs omnibus motion and its supplemental thereto, the Court
shares of stock. There was nothing given by way of pledge or mortgage in said
resolves the first motion in the negative. As stated above[,] this instant case does
contract, through which [PMO] could have appropriated the shares to itself should
not involve matters which can be adjudicated through arbitration. It involves the
default in the payment thereof arise.
interpretation of contract which falls within the jurisdiction of this Court. This Court
agrees with [PIC] that there can be no damage whenwhat is being restrained is an
illegal act. It need not be said that no right can emanate from an illegal act. In this At this point, We have to agree with [PMO] that the ARDA is separate and distinct
instant case, what is being restrained by the Writ is the enforcement by defendant from the Pledge Agreement. The two agreements have separate terms and
PMO of the reversion clause in the ARDA. Having unequivocally declared such conditions, especially concerning the consequences of default. Under the ARDA,
reversion clause illegal, the Court has no reason to terminate the efficacy of the Writ [PMO] may effect the ipso factoreversion of the title over the sharesof stock of [PIC],
it issued. The Court notes that defendant PMO did not lift a finger during the time without need of demand. On the other hand, under the Pledge Agreement, [PMO]
that it should have done so. Thus, the delay, if there be any, is not solely attributable may conduct a public or private sale of the shares of stock of [PIC], wherein it may
to [PIC]. Having impliedly consented thereto, defendant PMO must suffer the opt to buy the same.
consequences of its inaction. The same is true on the allegation of insufficiency of
the injunction bond filed by [PIC]. The defendant PMOs failure to question the
Furthermore, the first element of pactum commissoriumonly holds true under the
same withinreasonable time the amount of the injunction bond posted by [PIC] is
Pledge Agreement whilethe second element with respect to the stipulation for
fatal to its cause as it galvanized the resolution of the Court on the matter.
automatic appropriation can be found under the ARDA. Thus, it is plainly
irreconcilable how pactum commissoriumcan be made to apply in the present case,
The Court will not act on defendant PMOs prayer for the appointment of a absentthe two elements concurring in one contract. 28
representative in [PICs] Board of Director[s]. As stated by [PIC] in its opposition to
the pending incident, that it is not preventing defendant PMO to appoint a
Notwithstanding its aforequotedpronouncements, the Court of Appeals still
representative [in the] former, the Court will no longer discuss the said motion. The
declared the ipso factoreversion clause in the ARDA invalid:
parties, however, are directed to notify this Court of the appointmentby [PMO] of a
representative in [PICs] Board of Director[s]. Ondefendant PMOs motion to submit
accounting report, while it may be true that [PIC] is submitting its financial Nevertheless, the questioned provision on automatic reversion of shares still cannot
statements to the Bureau ofInternal Revenue and the Securities and Exchange be held valid. While the contracting parties may establish such stipulations, clauses,
Commission, the Court finds no legal obstacle not to direct [PIC] to submit a copy of terms and conditions as they may deem convenient, they should, however, be not
the said documents to [PMO]. Lastly, on the motion of [PMO] to post counter bond, contrary to law, morals, good customs, public order, or public policy.
the Court finds the same to [be] without merit.The Court cannot allow, even if a
bond is posted, [PMO] to commit an act which it has declared to be illegal. There is
In a contract of sale involving shares of stock, ownership is deemed transferred
no premium for an illegal act.25
upon the issuance ofcertificate of stock. Section 63 of the Corporation Code
provides that "shares of stock so issued are personal property and may be
The dispositive portion of the RTC Order dated August 25, 2009 reads: transferred by delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer."
According to the Court of Appeals, Section 8.02 of the ARDA does not constitute I
pactum commissorium:
II In Blas v. Angeles-Hutalla,35 the Court recognized that the agreement of the parties
may be embodied in only one contract or in two or more separate writings. In case
of the latter, the writings of the parties should be read and interpreted together in
THE HONORABLE COURT OF APPEALS COMMITTED GROSS ERROR, ACTED WITH
sucha way as to render their intention effective.
GRAVE ABUSE OF DISCRETION AND NOT IN ACCORD WITH LAW AND
ESTABLISHED JURISPRUDENCE WHEN IT GAVE DUE COURSE AND RULED ON
[PMOS] PETITION FOR CERTIORARI ASSAILING THE ORDER ISSUED BY THE TRIAL The agreement between PMO and PIC isthe sale of the PPC shares of stock by the
COURT ON FEBRUARY 27, 2003 HOLDING THAT THE IPSO FACTOOR AUTOMATIC former to the latter, to besecured by a pledge on the very same shares of stock. The
REVERSION TO PMO OF THE PLEDGED SHARES OF STOCK UNDER SECTION 8.02 OF ARDA and the Pledge Agreement herein, although executed in separate written
THE ARDA IS PACTUM COMMISSORIUMWHEN SAID ORDER HAD LONG BECOME instruments, are integral to one another. On one hand, Section 2.04 of the ARDA
FINAL AND THEREFORE THE PETITION ASSAILING IT IS TIME-BARRED AND SHOULD explicitly requires the execution of a pledge agreement as security for the payment
HAVE BEEN DISMISSED OUTRIGHT.31 by PIC of the purchase price for the PPC shares of stock and receivables, and even
provides the form for said pledge agreement in Annex A thereof. Section 2.07 of the
ARDA also states that the closing of the sale and purchase of the PPCshares of stock
On the other hand, PMO raised the following arguments in its Petition in G.R. No.
and receivables shall take place on the same date that PIC shall execute and deliver
199432:
the pledge agreement, together with the certificates of shares of stock, to PMO. On
the other hand, the "Whereas Clauses" of the Pledge Agreement expressly mentions
I the ARDA and explains that the Pledge Agreement is being executed to
securepayment by PIC of the purchase price and all other amounts due to PMO
under the ARDA, aswell as the performance by PIC of its other obligations under the
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE IPSO
ARDA and the Pledge Agreement itself. Clearly, itwas the intention of the parties to
FACTOREVERSION CLAUSE OF THE ARDA IS CONTRARY TO LAW IN THE ABSENCE
enter into and execute both contracts for a complete effectuation of their
OF ANY LAW ALLEGEDLY VIOLATED BYTHE SAID CLAUSE.
agreement.
II
To reiterate, the Pledge Agreement secures, for the benefit of PMO, the
performance by PIC of its obligations under both the ARDA and the Pledge
THE HONORABLE COURT OF APPEALS ERRED IN DENYING [PMOS] PRAYER FOR Agreement itself. It is withthe execution of the Pledge Agreement that PIC turned
THE DISSOLUTION OF THE WRIT OF PRELIMINARY INJUNCTION EVEN IF THE over possession of its certificates of shares of stock in PPC to PMO. As the RTC
PURPOSE FOR WHICH IT WAS ISSUED HAD ALREADY BEEN MET AND ITS pertinently observed in its Order dated June 19, 2003, there had already been a shift
CONTINUED IMPLEMENTATION DEPRIVED [PMO] OF REMEDIES UNDER THE LAW in the relations of PMO and PIC, from mere seller and buyer, to creditor-pledgee
AND THE ARDA. and debtor-pledgor. Having enjoyed the security and benefits of the Pledge
Agreement, PMO cannot now insist on applying Section 8.02 of the ARDAand
conveniently and arbitrarily exclude and/or ignore the Pledge Agreement so as to
III
evade the prohibition against pactum commissorium.
THE DISSOLUTION OF THE WRIT AFTER THE LAPSE OF ALMOST NINE (9) YEARS IS
More importantly, the Court, in determining the existence of pactum commissorium,
IN ORDER AND IN THE INTEREST OF EQUITABLE JUSTICE. 32
had focused more on the evident intention of the parties, rather than the formal or
written form. In A. Francisco Realty and Development Corporation v. Court of
RULING OF THE COURT Appeals,36 therein petitioner similarly denied the existence of pactum
commissoriumbecause the proscribed stipulation was found in the promissory note
and not in the mortgage deed. The Court held that:
The allegations and arguments of PIC and PMO in their respective Petitions
essentially boil down to two fundamental issues: (1) Whether Section 8.02 of the
ARDA on ipso factoor automatic reversion of the PPC shares of stock to PMO in The contention is patently without merit. To sustain the theory of petitioner would
case of default by PIC constitutes pactum commissorium; and (2) Whether the Writ be to allow a subversion of the prohibition in Art. 2088.
of Preliminary Injunction should be dissolved. The Court resolves the first issue in
the positive and the second issue in the negative.
In Nakpil v. Intermediate Appellate Court, which involved the violation of a
constructive trust, nodeed of mortgage was expressly executed between the parties
Section 8.02 of the ARDA constitutes pactum commissorium and, thus, null and void in that case. Nevertheless, this Court ruled that an agreement whereby property
for being contrary to Article 2088 of the Civil Code. held in trust was ceded to the trustee upon failure of the beneficiary to pay his debt
to the former as secured by the said property was void for being a pactum
commissorium. It was there held:
Article 1305 of the Civil Code allowscontracting parties to establish such stipulation,
clauses, terms,and conditions asthey may deem convenient, provided, however, that
theyare not contrary to law, morals, good customs, public order, or public policy. The arrangement entered into between the parties, whereby Pulong Maulapwas to
be "considered sold to him (respondent) x x x" incase petitioner fails to reimburse
Valdes, must then be construed as tantamount to a pactum commissoriumwhich is
Pactum commissoriumis among the contractual stipulations that are deemed
expressly prohibited by Art. 2088 of the Civil Code. For, there was to be automatic
contrary to law. It is defined as "a stipulation empowering the creditor to
appropriation of the property by Valdez in the event of failure of petitioner to pay
appropriate the thing given as guaranty for the fulfillment of the obligation in the
the value of the advances. Thus, contrary to respondents manifestations, all the
event the obligor fails to live up to his undertakings, without further formality, such
elements of a pactum commissoriumwere present: there was a creditordebtor
as foreclosure proceedings, and a public sale."33 It is explicitly prohibited under
relationship between the parties; the property was used as security for the loan; and,
Article 2088 of the Civil Code which provides:
there was automatic appropriation by respondent of Pulong Maulap in case of
default of petitioner.
ART. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
Similarly, the Court has struck down such stipulations as contained in deeds of sale
purporting to be pacto de retrosales but found actually to be equitable mortgages.
There are two elements for pactum commissoriumto exist: (1) that there should be a
pledge or mortgage wherein a property is pledged or mortgaged by way of security
It has been consistently held that the presence of even one of the
for the payment of the principal obligation; and (2) that there should be a
circumstancesenumerated in Art. 1602 of the New Civil Code is sufficient to declare
stipulation for an automatic appropriation by the creditor of the thing pledged or
a contract of sale with right to repurchase an equitable mortgage. This is so because
mortgaged in the event of nonpayment of the principal obligation within the
pacto de retrosales with the stringent and onerous effects that accompany them are
stipulated period.34
not favored. In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage.
Both elements of pactum commissoriumare present in the instant case: (1) By virtue
of the Pledge Agreement dated May 2,1997, PIC pledged its PPC shares of stock in
Petitioner, to prove her claim, cannot rely on the stipulation in the contract
favor of PMO as security for the fulfillment of the formers obligations under the
providing that complete and absolute title shall be vested on the vendee should the
ARDA dated May 10, 1996 and the Pledge Agreement itself; and (2) There is
The act of applicant inregistering the property in his own name upon The Court emphasizes that the Writ of Preliminary Injunction was granted in the RTC
mortgagorsfailure to redeem the property would amount to a pactum Order dated February 27, 2003; and the Motion for Reconsideration of the issuance
commissoriumwhich is against good moralsand public policy. of saidWrit filed by the PMO was denied in the RTC Order dated June 19, 2003
both of which are interlocutory orders. Under Rule 65 of the Rules of Court,the PMO
only had 60 days from notice to file with the Court of Appeals a petition for
Thus, in the case at bar, the stipulations in the promissory notes providing that,
certiorariassailing said orders. However, PMO did not file such a petition and lost
upon failure of respondent spouses to pay interest, ownership of the property
the right to avail itself of the remedy.
would be automatically transferred to petitioner A. Francisco Realty and the deed of
sale in its favor would be registered, are in substance a pactum commissorium. They
embody the two elements of pactum commissoriumas laid down in Uy Tong v. PMO, in challenging the RTC Order dated August 25, 2009, cannot be allowed to
Court of Appeals, x x x. (Citations omitted.) revive the issues of pactum commissoriumand the arbitration clause, together with
its opposition to the Writ of Preliminary Injunction, which were already settled and
ruled upon six years before in the RTC Orders dated February 27, 2003 and June 19,
Appreciating the ARDA together with the Pledge Agreement, the Court can only
2003. The removal of said issues from those submitted for trial before the R TC is
conclude that Section 8.02 of the ARDA constitutes pactum commissoriumand,
thus justified. That the R TC issued the aforementioned Orders of 2003 based only
therefore, null and void.
on initial and incomplete evidence is incorrect. The issues of pactum commisorium
and arbitration clause are questions of law that do not require the review or
PMO though insists that there is no valid Pledge Agreement, arguing that PIC could evaluation of evidence. The RTC, before issuing said Orders of 2003, conducted
not have validly pledged the PPC shares of stock because it is not yet the absolute hearings and required the submission of pleadings, so the parties were given the
owner of said shares. According to PMO, the sale of the PPC shares of stock to PIC is opportunity to present their arguments on said questions of law. In particular, the
subject to the resolutory condition of nonpayment by PIC of the installmentsdue on ruling of the RTC that Section 8.02 of the ARDA constitutes pactum commissorium,
the purchase price. cannot be set aside and the Writ of Injunction issued based on such ruling cannot
be dissolved, even if there be changes in the factual circumstances of the parties, for
as long as the applicable law remains the same.
Again, the Court is unconvinced.
There are still several remaining issues in the Pre-Trial Order dated February 6, 2009
Among the requirements of a contract ofpledge is that the pledgor is the absolute
that the RTC needs to resolve, among others, the alleged default under the ARDA.
owner of the thing pledged.37Based on the provisions of the ARDA, ownership of
They involve both questions of fact and law, so their resolution requires further
the PPC shares ofstock had passed on to PIC, hence, enabling PIC to pledge the very
hearings for presentation of evidence by the parties. Hence, PMO cannot claim pre-
same shares to PMO. In accordance with Section 2.07(a)(1) and 2.07(a)(2) of the
judgment of its case with the issuance by the RTC of the Orders dated February 27,
ARDA, PMO had transferred to PIC all rights, title, and interests in and to the PPC
2003 and June 19, 2003. Despite the declaration that Section 8.02 of the ARDA is
sharesof stock, and delivered to PIC the certificates for said shares for cancellation
null and void as it constitutes pactum commissorium, PMO and PIC shall have the
and replacement of new certificates already in the name ofPIC. In addition, Section
opportunity to thresh-out other issues between them which are not resolved in
2.07(b) of the ARDA explicitly declares that PIC asbuyer shall exercise all the rights,
these cases, such as the issue of default, during the trial on the merits before the
including the right to vote, of a shareholder in respect of the PPC shares of stock.
RTC. WHEREFORE, premises considered, the Court:
PMO cannot maintain that the ownership of the PPC shares of stock did not pass on
(1) GRANTS the Petition for Review of PIC in G.R. No. 199420 by
to PIC, but in the same breath claim that non-payment by PIC of the installments
declaring that Section 8.02 of the ARDA constitutes pactum
due on the purchase price is a resolutory condition for the contract of sale these
commissorium and, thus, null and void;
two arguments are actually contradictory. As the Court clearly explained in Heirs of
Paulino Atienza v. Espidol38:
(2) DENIES the Petition for Review of PMO in G.R. No. 199432 for lack of
merit; and
Regarding the right to cancel the contract for nonpayment of an installment, there
is need to initially determine if what the parties had was a contract of sale or a
contract to sell. In a contract of sale, the title to the property passes to the buyer (3) DIRECTS the RTC to resolve Civil Case No. 03-114 with utmost
upon the delivery of the thing sold. In a contract to sell, on the other hand, the dispatch.
ownership is, by agreement, retained by the seller and is not to pass to the vendee
until full payment of the purchase price. In the contract of sale, the buyers
SO ORDERED.
nonpayment of the price is a negative resolutory condition;in the contract to sell,
the buyers full payment of the price is a positive suspensive condition to the
coming into effect of the agreement. In the first case, the seller has lost and cannot II. PROVISIONS APPLICABLE ONLY TO PLEDGE
recover the ownership of the property unless he takes action to set aside the
contract of sale.In the second case, the title simply remains in the seller if the buyer
EN BANC
does not comply with the condition precedent of making payment at the time
specified in the contract. x x x. (Emphases supplied, citation omitted.)
G.R. No. L-5219 February 15, 1910
So that it could invoke the resolutory condition of nonpayment of an installment,
PMO must necessarily concede that its contract with PIC was a one of sale and that JOSE McMICKING, sheriff of Manila, plaintiff-appellee,
ownership of the PPC shares of stock had indeed passed on to PIC. And even then, vs.
having lostownership of the shares, PMO cannot automatically recover the same PEDRO MARTINEZ and GO JUNA, defendants.
without taking steps to set aside the contract of sale. GO JUNA, appellant.
Moreover, the general rule is that in the absence of a stipulation, a party cannot M. Legazpi Florendo, for appellant.
unilaterally and extrajudicially rescind a contract. A party must invoke the right to Eugenio de Lara, for defendant Pedro Martinez.
rescind a contract judicially.39 It is also settled that the rescission of a contract based
on Article 1191 of the Civil Code requires mutual restitution to bring back the
MORELAND, J.:
The conclusion of the court below that the property was not delivered in accordance
4. On March 18, 1982, Angel dela Cruz executed and delivered to
with the provisions of article 1863 of the Civil Code is sustained by the proofs. His
defendant bank the required Affidavit of Loss (Defendant's Exhibit 281).
conclusion that the pledge was ineffective against Martinez is correct. It appears,
On the basis of said affidavit of loss, 280 replacement CTDs were issued
however, that the document of pledge is a public document which contains an
in favor of said depositor (Defendant's Exhibits 282-561).
admission of indebtedness. In other words, while it is intended to be a pledge, it is
also a credit which appears in a public document. Article 1924, paragraph 3, letter a,
is therefore applicable; and, said public document antedating the judgment of 5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan
defendant Martinez, takes preference thereover. The validity of that document in so from defendant bank in the amount of Eight Hundred Seventy Five
far as it shows an indebtedness against Maria Aniversario and its effectiveness Thousand Pesos (P875,000.00). On the same date, said depositor
against her have not, however, been determined. She is not a party to this action. executed a notarized Deed of Assignment of Time Deposit (Exhibit 562)
No judgment can be rendered affecting her rights or liabilities under said which stated, among others, that he (de la Cruz) surrenders to defendant
instrument. If said instrument is invalid or for any other cause unenforceable against bank "full control of the indicated time deposits from and after date" of
her, it would be wholly unjust, by declaring its preference over a debt acknowledged the assignment and further authorizes said bank to pre-terminate, set-
by and conclusive against her, to require that said funds be paid over to the holder off and "apply the said time deposits to the payment of whatever
of said document. That would be to require her to pay a debt which has not only amount or amounts may be due" on the loan upon its maturity (TSN,
not been shown to be enforceable against her but which, as a witness for the February 9, 1987, pp. 60-62).
defendant Martinez on the trial of this cause, she expressly and vehemently
repudiated as a valid claim against her.
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff
Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and
The judgement is, therefore, reversed; and it is ordered that the cause be returned presented for verification the CTDs declared lost by Angel dela Cruz
to the court below; that the plaintiff bring in Maria Aniversario as a party to this alleging that the same were delivered to herein plaintiff "as security for
action, and that she be given an opportunity to make her defense, if she have any, purchases made with Caltex Philippines, Inc." by said depositor (TSN,
to the document in question under proper procedure. No finding as to costs. So February 9, 1987, pp. 54-68).
ordered.
11. In April 1983, the loan of Angel dela Cruz with the defendant bank
This petition for review on certiorari impugns and seeks the reversal of the decision matured and fell due and on August 5, 1983, the latter set-off and
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No. applied the time deposits in question to the payment of the matured
23615 1 affirming with modifications, the earlier decision of the Regional Trial Court loan (TSN, February 9, 1987, pp. 130-131).
of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein
petitioner against respondent bank.
12. In view of the foregoing, plaintiff filed the instant complaint,
praying that defendant bank be ordered to pay it the aggregate
The undisputed background of this case, as found by the court a quo and adopted value of the certificates of time deposit of P1,120,000.00 plus
by respondent court, appears of record: accrued interest and compounded interest therein at 16% per
annum, moral and exemplary damages as well as attorney's fees.
1. On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit (CTDs) in After trial, the court a quo rendered its decision dismissing the
favor of one Angel dela Cruz who deposited with herein defendant the instant complaint. 3
aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation
of Facts and Statement of Issues, Original Records, p. 207; Defendant's
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of
Exhibits 1 to 280);
the complaint, hence this petition wherein petitioner faults respondent court in
ruling (1) that the subject certificates of deposit are non-negotiable despite being
CTD CTD clearly negotiable instruments; (2) that petitioner did not become a holder in due
Dates Serial Nos. Quantity Amount course of the said certificates of deposit; and (3) in disregarding the pertinent
provisions of the Code of Commerce relating to lost instruments payable to
bearer. 4
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000 The instant petition is bereft of merit.
Respondent court ruled that the CTDs in question are non-negotiable instruments, If it was really the intention of respondent bank to pay the amount to Angel de la
nationalizing as follows: Cruz only, it could have with facility so expressed that fact in clear and categorical
terms in the documents, instead of having the word "BEARER" stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the
. . . While it may be true that the word "bearer" appears rather
documents, therefore, the amounts deposited are repayable to whoever may be the
boldly in the CTDs issued, it is important to note that after the word
bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la
"BEARER" stamped on the space provided supposedly for the name of
Cruz is the depositor "insofar as the bank is concerned," but obviously other parties
the depositor, the words "has deposited" a certain amount follows. The
not privy to the transaction between them would not be in a position to know that
document further provides that the amount deposited shall be
the depositor is not the bearer stated in the CTDs. Hence, the situation would
"repayable to said depositor" on the period indicated. Therefore, the
require any party dealing with the CTDs to go behind the plain import of what is
text of the instrument(s) themselves manifest with clarity that they are
written thereon to unravel the agreement of the parties thereto through
payable, not to whoever purports to be the "bearer" but only to the
facts aliunde. This need for resort to extrinsic evidence is what is sought to be
specified person indicated therein, the depositor. In effect, the appellee
avoided by the Negotiable Instruments Law and calls for the application of the
bank acknowledges its depositor Angel dela Cruz as the person who
elementary rule that the interpretation of obscure words or stipulations in a contract
made the deposit and further engages itself to pay said depositor the
shall not favor the party who caused the obscurity. 12
amount indicated thereon at the stipulated date. 6
The next query is whether petitioner can rightfully recover on the CTDs. This time,
We disagree with these findings and conclusions, and hereby hold that the CTDs in
the answer is in the negative. The records reveal that Angel de la Cruz, whom
question are negotiable instruments. Section 1 Act No. 2031, otherwise known as
petitioner chose not to implead in this suit for reasons of its own, delivered the
the Negotiable Instruments Law, enumerates the requisites for an instrument to
CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank
become negotiable, viz:
thereof at any time. Unfortunately for petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement
(a) It must be in writing and signed by the maker or drawer; between it and De la Cruz, as ultimately ascertained, requires both delivery and
indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in
reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any
(b) Must contain an unconditional promise or order to pay a sum certain
doubt as to whether the CTDs were delivered as payment for the fuel products or as
in money;
a security has been dissipated and resolved in favor of the latter by petitioner's own
authorized and responsible representative himself.
(c) Must be payable on demand, or at a fixed or determinable future
time;
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q.
Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were
(d) Must be payable to order or to bearer; and negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"
(Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is
(e) Where the instrument is addressed to a drawee, he must be named
rendered conclusive upon the person making it, and cannot be denied or disproved
or otherwise indicated therein with reasonable certainty.
as against the person relying thereon. 14 A party may not go back on his own acts
and representations to the prejudice of the other party who relied upon them. 15 In
The CTDs in question undoubtedly meet the requirements of the law for the law of evidence, whenever a party has, by his own declaration, act, or omission,
negotiability. The parties' bone of contention is with regard to requisite (d) set forth intentionally and deliberately led another to believe a particular thing true, and to
above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way act upon such belief, he cannot, in any litigation arising out of such declaration, act,
back in 1982, testified in open court that the depositor reffered to in the CTDs is no or omission, be permitted to falsify it. 16
other than Mr. Angel de la Cruz.
If it were true that the CTDs were delivered as payment and not as security,
xxx xxx xxx petitioner's credit manager could have easily said so, instead of using the words "to
guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant
in the court below, moved for a bill of particularity therein 17 praying, among others,
Atty. Calida:q In other words Mr. Witness, you are saying that per books
that petitioner, as plaintiff, be required to aver with sufficient definiteness or
of the bank, the depositor referred (sic) in these certificates states that it
particularity (a) the due date or dates of payment of the alleged indebtedness of
was Angel dela Cruz?
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter's alleged
witness:a Yes, your Honor, and we have the record to show that Angel indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the
dela Cruz was the one who cause (sic) the amount. receipt prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion,
petitioner now labors under the presumption that evidence willfully suppressed
Atty. Calida: q And no other person or entity or company, Mr. Witness?
would be adverse if produced. 19
The character of the transaction between the parties is to be 1. Whether or not the CTDs as worded are negotiable instruments.
determined by their intention, regardless of what language was used
or what the form of the transfer was. If it was intended to secure the
2. Whether or not defendant could legally apply the amount covered by
payment of money, it must be construed as a pledge; but if there was
the CTDs against the depositor's loan by virtue of the assignment
some other intention, it is not a pledge. However, even though a
(Annex "C").
transfer, if regarded by itself, appears to have been absolute, its object
and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the 3. Whether or not there was legal compensation or set off involving the
property as collateral security. It has been said that a transfer of amount covered by the CTDs and the depositor's outstanding account
property by the debtor to a creditor, even if sufficient on its face to with defendant, if any.
make an absolute conveyance, should be treated as a pledge if the
debt continues in inexistence and is not discharged by the transfer,
4. Whether or not plaintiff could compel defendant to preterminate the
and that accordingly the use of the terms ordinarily importing
CTDs before the maturity date provided therein.
conveyance of absolute ownership will not be given that effect in such
a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of 5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.
6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under
the Negotiable Instruments Law, an instrument is negotiated when it is transferred
As respondent court correctly observed, with appropriate citation of some doctrinal
from one person to another in such a manner as to constitute the transferee the
authorities, the foregoing enumeration does not include the issue of negligence on
holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is
the part of respondent bank. An issue raised for the first time on appeal and not
in possession of it, or the bearer thereof. 22 In the present case, however, there was
raised timely in the proceedings in the lower court is barred by
no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
estoppel. 30 Questions raised on appeal must be within the issues framed by the
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs
parties and, consequently, issues not raised in the trial court cannot be raised for the
would have sufficed. Here, the delivery thereof only as security for the purchases of
first time on appeal. 31
Angel de la Cruz (and we even disregard the fact that the amount involved was not
disclosed) could at the most constitute petitioner only as a holder for value by
reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by Pre-trial is primarily intended to make certain that all issues necessary to the
mere delivery of the instrument since, necessarily, the terms thereof and the disposition of a case are properly raised. Thus, to obviate the element of surprise,
subsequent disposition of such security, in the event of non-payment of the parties are expected to disclose at a pre-trial conference all issues of law and fact
principal obligation, must be contractually provided for. which they intend to raise at the trial, except such as may involve privileged or
impeaching matters. The determination of issues at a pre-trial conference bars the
consideration of other questions on appeal. 32
The pertinent law on this point is that where the holder has a lien on the instrument
arising from contract, he is deemed a holder for value to the extent of his lien. 23 As
such holder of collateral security, he would be a pledgee but the requirements To accept petitioner's suggestion that respondent bank's supposed negligence may
therefor and the effects thereof, not being provided for by the Negotiable be considered encompassed by the issues on its right to preterminate and receive
Instruments Law, shall be governed by the Civil Code provisions on pledge of the proceeds of the CTDs would be tantamount to saying that petitioner could raise
incorporeal rights, 24 which inceptively provide: on appeal any issue. We agree with private respondent that the broad ultimate issue
of petitioner's entitlement to the proceeds of the questioned certificates can be
premised on a multitude of other legal reasons and causes of action, of which
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . .
respondent bank's supposed negligence is only one. Hence, petitioner's submission,
may also be pledged. The instrument proving the right pledged shall be
if accepted, would render a pre-trial delimitation of issues a useless exercise. 33
delivered to the creditor, and if negotiable, must be indorsed.
Still, even assuming arguendo that said issue of negligence was raised in the court
Art. 2096. A pledge shall not take effect against third persons if a
below, petitioner still cannot have the odds in its favor. A close scrutiny of the
description of the thing pledged and the date of the pledge do not
provisions of the Code of Commerce laying down the rules to be followed in case of
appear in a public instrument.
lost instruments payable to bearer, which it invokes, will reveal that said provisions,
even assuming their applicability to the CTDs in the case at bar, are merely
Aside from the fact that the CTDs were only delivered but not indorsed, the factual permissive and not mandatory. The very first article cited by petitioner speaks for
findings of respondent court quoted at the start of this opinion show that petitioner itself.
failed to produce any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of
Art 548. The dispossessed owner, no matter for what cause it may
the CTDs did not legally vest in petitioner any right effective against and binding
be, may apply to the judge or court of competent jurisdiction, asking
upon respondent bank. The requirement under Article 2096 aforementioned is not a
that the principal, interest or dividends due or about to become due,
mere rule of adjective law prescribing the mode whereby proof may be made of the
be not paid a third person, as well as in order to prevent the ownership
date of a pledge contract, but a rule of substantive law prescribing a condition
of the instrument that a duplicate be issued him. (Emphasis ours.)
without which the execution of a pledge contract cannot affect third persons
adversely. 26
xxx xxx xxx
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor
of respondent bank was embodied in a public instrument. 27 With regard to this The use of the word "may" in said provision shows that it is not mandatory but
other mode of transfer, the Civil Code specifically declares: discretionary on the part of the "dispossessed owner" to apply to the judge or court
of competent jurisdiction for the issuance of a duplicate of the lost instrument.
Where the provision reads "may," this word shows that it is not mandatory but
Art. 1625. An assignment of credit, right or action shall produce no
discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an
effect as against third persons, unless it appears in a public instrument,
auxiliary verb indicating liberty, opportunity, permission and possibility. 36
or the instrument is recorded in the Registry of Property in case the
assignment involves real property.
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the
Code of Commerce, on which petitioner seeks to anchor respondent bank's
Respondent bank duly complied with this statutory requirement. Contrarily,
supposed negligence, merely established, on the one hand, a right of recourse in
petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved
favor of a dispossessed owner or holder of a bearer instrument so that he may
the amount of its credit or the extent of its lien nor the execution of any public
obtain a duplicate of the same, and, on the other, an option in favor of the party
instrument which could affect or bind private respondent. Necessarily, therefore, as
liable thereon who, for some valid ground, may elect to refuse to issue a
between petitioner and respondent bank, the latter has definitely the better right
replacement of the instrument. Significantly, none of the provisions cited by
over the CTDs in question.
petitioner categorically restricts or prohibits the issuance a duplicate or replacement
instrument sans compliance with the procedure outlined therein, and none
Finally, petitioner faults respondent court for refusing to delve into the question of establishes a mandatory precedent requirement therefor.
whether or not private respondent observed the requirements of the law in the case
of lost negotiable instruments and the issuance of replacement certificates therefor,
WHEREFORE, on the modified premises above set forth, the petition is DENIED and
on the ground that petitioner failed to raised that issue in the lower court. 28
the appealed decision is hereby AFFIRMED.
On this matter, we uphold respondent court's finding that the aspect of alleged
SO ORDERED.
negligence of private respondent was not included in the stipulation of the parties
On January 27, 1977, the Court of Appeals rendered a decision affirming in toto the
GANCAYCO, J.:
decision of the lower court. 11
This petition for review presents two (2) main issues, to wit: (1) Can a plaintiff in a
Meanwhile, on February 2, 1971, pending the resolution of the said appeal,
case, who had previously assigned in favor of his creditor his litigated credit in said
Mendoza entered into a compromise agreement with Tan wherein the latter
case, by a deed of assignment which was duly submitted to the court, validly enter
acknowledged that all his claims against Mendoza had been settled and that by
into a compromise agreement thereafter releasing the defendant therein from his
reason of said settlement both parties mutually waive, release and quit whatever
claim without notice to his assignee? and (2) Will such previous knowledge on the
claim, right or cause of action one may have against the other, with a provision that
part of the defendant of the assignment made by the plaintiff estop said defendant
the said compromise agreement shall not in any way affect the right of Tan to
from invoking said compromise as a ground for dismissal of the action against him?
enforce by appropriate action his claims against the Bernal spouses. 12
The present case stemmed from Civil Case No. Q-8303 1 entitled "Alfonso Tan vs.
On February 25, 1977, Mendoza filed a motion for reconsideration praying that the
Ciriaco B. Mendoza," an action for the collection of a sum of money representing
decision of January 27, 1977 be set aside, principally anchored upon the ground that
the value of two (2) checks which plaintiff Tan claims to have been delivered to him
a compromise agreement was entered into between him and Tan which in effect
by defendant Mendoza, private respondent herein, by way of guaranty with a
released Mendoza from liability. Tan filed an opposition to this motion claiming that
commission.
the compromise agreement is null and void as he was not properly represented by
his counsel of record Atty. Quiogue, and was instead represented by a certain Atty.
The record discloses that the Bernal spouses 2 are engaged in the manufacture of Laberinto, and principally because of the deed of assignment that he executed in
embroidery, garments and cotton materials. Sometime in September 1963, C.B.M. favor of George Litton, Sr. alleging that with such, he has no more right to alienate
Products, 3 with Mendoza as president, offered to sell to the Bernals textile cotton said credit.
materials and, for this purpose, Mendoza introduced the Bernals to Alfonso Tan.
Thus, the Bernals purchased on credit from Tan some cotton materials worth P
While the case was still pending reconsideration by the respondent court, Tan, the
80,796.62, payment of which was guaranteed by Mendoza. Thereupon, Tan
assignor, died leaving no properties whatever to satisfy the claim of the estate of
delivered the said cotton materials to the Bernals. In view of the said arrangement,
the late George Litton, Sr.
on November 1963, C.B.M. Products, through Mendoza, asked and received from
the Bernals PBTC Check No. 626405 for P 80,796.62 dated February 20, 1964 with
the understanding that the said check will remain in the possession of Mendoza In its Resolution dated August 30, 1977, 13 the respondent court set aside its
until the cotton materials are finally manufactured into garments after which time decision and approved the compromise agreement.
Mendoza will sell the finished products for the Bernals. Meanwhile, the said check
matured without having been cashed and Mendoza demanded the issuance of
As to the first ground invoked by Tan, now deceased, the respondent court ruled
another check 4 in the same amount without a date.
that the non-intervention of Tan's counsel of record in the compromise agreement
does not affect the validity of the settlement on the ground that the client had an
On the other hand, on February 28, 1964, defendant Mendoza issued two (2) PNB undoubted right to compromise a suit without the intervention of his lawyer,
checks 5 in favor of Tan in the total amount of P 80,796.62. He informed the Bernals citing Aro vs. Nanawa. 14
of the same and told them that they are indebted to him and asked the latter to
sign an instrument whereby Mendoza assigned the said amount to Insular Products
As to the second ground, respondent court ruled as follows:
Inc. Tan had the two checks issued by Mendoza discounted in a bank. However, the
said checks were later returned to Tan with the words stamped "stop payment"
which appears to have been ordered by Mendoza for failure of the Bernals to ... it is relevant to note that Paragraph 1of the deed of assignment states that
deposit sufficient funds for the check that the Bernals issued in favor of Mendoza. the cession,assignment, transfer, bond conveyance by Alfonso Tan was only
by way of securing, or guaranteeing his obligation to GEORGE LITTON, SR.
DEED OF ASSIGNMENT
Such alienation is subject to the remedies of Litton under Article 6 of the
Civil Code, whereby the waiver, release, or quit-claim made by plaintiff-
I, ALFONSO TAN, of age, Chinese, married to UY CHAY UA, residing at No. appellee Alfonso Tan in favor of defendant-appellant Ciriaco B. Mendoza, if
6 Kanlaon, Quezon City, doing business under the name and style ALTA proven prejudicial to George Litton, Sr. as assignee under the deed of
COMMERCIAL by way of securing or guaranteeing my obligation to Mr. assignment, may entitle Litton to pursue his remedies against Tan.
GEORGE LITTON, SR., do by these presents CEDE, ASSIGN, TRANSFER
AND CONVEY unto the said Mr. GEORGE LITTON, SR., my claim against
The alienation of a litigatious credit is further subject to the debtor's right of
C.B.M. Products, Inc., personally guaranteed by Mr. Ciriaco B. Mendoza, in
redemption under Article 1634 of the Civil Code.
the amount of Eighty-Thousand Seven Hundred Ninety Six Pesos and
Sixty-two centavos (P 80,796.62) the balance of which, in principal, and
excluding, interests, costs, damages and attorney's fees now stands at P As mentioned earlier, the assignor Tan died pending resolution of the motion for
76,000.00, P 4,796.62, having already been received by the assignor on reconsideration. The estate of George Litton, Sr., petitioner herein, as represented by
December 23, 1965, pursuant to the order of the court in Civil Case No. James Litton, son of George Litton, Sr. and administrator 15 of the former's estate, is
56850, C.F.I., Manila, authorizing Alfonso Tan to withdraw the amount of P now appealing the said resolution to this Court as assignee of the amount sued in
4,796.62 then on deposit with the court. All rights, and interests in said Civil Case No. Q-8303, in relation to Civil Case No. 56850.
net amount, plus interests and costs, and less attorney's fees, in case the
amount allowed therefor be less than the amounts claimed in the relief in
Before resolving the main issues aforementioned, the question of legal personality
Civil Case 56850 (C.F.I., Manila) and Q-8503 (C.F.I., Quezon City) are by
of herein petitioner to bring the instant petition for review, must be resolved.
these presents covered by this assignment.
As a rule, the parties in an appeal through a review on certiorari are the same
I further undertake to hold in trust any and all amounts which may
original parties to the case. 16 If after the rendition of judgment the original party
hereafter be realized from the aforementioned cases for the ASSIGNEE,
dies, he should be substituted by his successor-in-interest. In this case, it is not
Mr. GEORGE LITTON, SR., and to turn over to him such amounts in
disputed that no proper substitution of parties was done. This notwithstanding, the
application to my liability to him, as his interest may then show, and I
Court so holds that the same cannot and will not materially affect the legal right of
further undertake to cooperate towards the successful prosecution of the
herein petitioner in instituting the instant petition in view of the tenor of the deed
aforementioned cases making available myself, as witness or otherwise, as
of assignment, particularly paragraph two thereof 17 wherein the assignor, Tan,
well as any and all documents thereto appertaining. ... 9
assumed the responsibility to prosecute the case and to turn over to the assignee
whatever amounts may be realized in the prosecution of the suit.
After due trial, the lower court ruled that the said PNB checks were issued by
Mendoza in favor of Tan for a commission in the sum of P 4,847.79 and held
We note that private respondent moved for the dismissal of the appeal without
Mendoza liable as a drawer whose liability is primary and not merely as an indorser
notifying the estate of George Litton, Sr. whereas the former was fully aware of the
On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant
Hence, as the assignee and successor-in-interest of Tan, petitioner has the Philippine National Bank, Cebu Branch. To guarantee its payment, plaintiff pledged
personality to bring this petition in substitution of Tan. the M/S Surigao, M/S Don Dino and its equity in the FS-203 to the defendant bank,
as evidenced by the pledge contract, Exhibit "A" & "1-Bank", executed on the same
day and duly registered with the office of the Collector of Customs for the Port of
Now, the resolution of the main issues.
Cebu. 3
Since the defendant bank was, pursuant to the terms of pledge contract, in
full control of the vessels thru the plaintiff, the former could take actual possession
at any time during the life of the pledge to make more effective its security. Its These are the principles used by this Court in resolving this Petition for
taking of the vessels therefore on April 6, 1948, was not unlawful. Nor was it Review on Certiorari before us assailing the October 24, 1996 Decision [1] of the
unjustified considering that plaintiff had just defrauded the defendant bank in the Court of Appeals[2] in CA-GR SP No. 40832, the dispositive portion of which reads:
huge sum of P184,000.
IN THE LIGHT OF ALL THE FOREGOING, the Petition at bench is DENIED DUE
The stand We have taken is not without precedent. The Supreme Court of COURSE and is hereby DISMISSED. With costs against the [p]etitioner.[3]
Spain, in a similar case involving Art. 1863 of the old Civil Code, 13 has ruled: 14
By the foregoing disposition, the Court of Appeals effectively affirmed the
Que si bien la naturaleza del contrato de prenda consiste en pasar March 7, 1996 Decision[4] of the Securities and Exchange Commission (SEC) en banc:
las cosas a poder del acreedor o de un tercero y no quedar en la del
deudor, como ha sucedido en el caso de autos, es lo cierto que todas las WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing
partes interesadas, o sean acreedor, deudor y Sociedad, convinieron que the appeal on the ground that mandamus will only issue upon a clear showing of
continuaran los coches en poder del deudor para no suspender el ownership over the assailed shares of stock, [t]he determination of which, on the
trafico, y el derecho de no uso de la prenda pertenence al deudor, y el basis of the foregoing facts, is within the jurisdiction of the regular courts and not
de dejar la cosa bajo su responsabilidad al acreedor, y ambos with the SEC.[5]
convinieron por creerlo util para las partes contratantes, y estas no
reclaman perjuicios no se infringio, entre otros este articulo.
The SEC en banc upheld the August 16, 1993 Decision[6] of SEC Hearing
Officer Rolando C. Malabonga, which dismissed the action for mandamus filed by
In the second assignment of error imputed to the lower court plaintiff- petitioner.
appellant attacks the validity of the private sale of the pledged vessels in favor of
the defendant bank itself. It is contended first, that the cases holding that the The Facts
statutory requirements as to public sales with prior notice in connection with As found by the Court of Appeals, the facts of the case are as follows:
foreclosure proceedings are waivable, are no longer authoritative in view of the
passage of Act 3135, as amended; second, that the charter of defendant bank does
x x x On January 8, 1980, Respondent-Appellee Sy Guiok secured a loan from the
not allow it to buy the property object of foreclosure in case of private sales;
[p]etitioner in the amount of P40,000 payable within six (6) months. To secure the
and third, that the price obtained at the sale is unconscionable.
payment of the aforesaid loan and interest thereon, Respondent Guiok executed a
Contract of Pledge in favor of the [p]etitioner whereby he pledged his three
There is no merit in the claims. The rulings in Philippine National Bank v. De hundred (300) shares of stock in the Go Fay & Company Inc., Respondent
Poli, 44 Phil. 763 and El Hogar Filipino v. Paredes, 45 Phil. 178 are still authoritative Corporation, for brevitys sake. Respondent Guiok obliged himself to pay interest on
despite the passage of Act 3135. This law refers only, and is limited, to foreclosure said loan at the rate of 10% per annum from the date of said contract of pledge. On
of real estate mortgages. 15 So, whatever formalities there are in Act 3135 do not the same date, Alfonso Sy Lim secured a loan from the [p]etitioner in the amount of
apply to pledge. Regarding the bank's authority to be the purchaser in the P40,000 payable in six (6) months. To secure the payment of his loan, Sy Lim
foreclosure sale, Sec. 33 of Act 2612, as amended by Acts 2747 and 2938 only states executed a Contract of Pledge covering his three hundred (300) shares of stock in
that if the sale is public, the bank could purchase the whole or part of the property Respondent Corporation. Under said contract, Sy Lim obliged himself to pay interest
sold " free from any right of redemption on the part of the mortgagor or pledgor." on his loan at the rate of 10% per annum from the date of the execution of said
This even argues against plaintiff's case since the import thereof is this if the sale contract.
were private and the bank became the purchaser, the mortgagor or pledgor could
redeem the property. Hence, plaintiff could have recovered the vessels by exercising
Under said Contracts of Pledge, Respondent[s] Guiok and Sy Lim covenanted, inter
this right of redemption. He is the only one to blame for not doing so.
alia, that:
Regarding the third contention, on the assumption that the purchase price
3. In the event of the failure of the PLEDGOR to pay the amount within a period of
was unconscionable, plaintiff's remedy was to have set aside the sale. He did not
six (6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose
avail of this. Moreover, as pointed out by the lower court, plaintiff had at the time
the pledge upon the said shares of stock hereby created by selling the same at
an obligation to return the P184,000 fraudulently taken by him from defendant
public or private sale with or without notice to the PLEDGOR, at which sale the
bank.
PLEDGEE may be the purchaser at his option; and the PLEDGEE is hereby authorized
and empowered at his option to transfer the said shares of stock on the books of
The last assignment of error has to do with the damages allegedly suffered by the corporation to his own name and to hold the certificate issued in lieu thereof
plaintiff-appellant by virtue of the taking of the vessels. But in view of the results under the terms of this pledge, and to sell the said shares to issue to him and to
reached above, there is no more need to discuss the same. apply the proceeds of the sale to the payment of the said sum and interest, in the
manner hereinabove provided;
On the whole, We cannot say the lower court erred in disposing of the case as
it did. Plaintiff-appellant was not all-too-innocent as he would have Us believe. He 4. In the event of the foreclosure of this pledge and the sale of the pledged
did defraud the defendant bank first. If the latter countered with the seizure and certificate, any surplus remaining in the hands of the PLEDGEE after the payment of
sale of the pledged vessels pursuant to the pledge contract, it was only to protect the said sum and interest, and the expenses, if any, connected with the foreclosure
its interests after plaintiff had defaulted in the payment of the first promissory note. sale, shall be paid by the PLEDGEE to the PLEDGOR;
Plaintiff-appellant did not come to court with clean hands.
However, Respondent Guiok and Sy Lim failed to pay their respective loans Intervenors replead by way of reference all the foregoing allegations to form part of
and the accrued interests thereon to the [p]etitioner. In October, 1990, the the special affirmative defenses;
[p]etitioner filed a Petition for Mandamus against Respondent Corporation, with the
SEC entitled Lim Tay versus Go Fay & Company, Inc., SEC Case No. 03894, praying
that: 5. This Honorable Commission has no jurisdiction over the person of the respondent
and nature of the action, plaintiff having no personality at all to compel respondent
PRAYER by way of mandamus to perform certain corporate function[s];
WHEREFORE, premises considered, it is respectfully prayed that an order be issued 6. The complaint states no cause of action;
directing the corporate secretary of [R]espondent Go Fay & Co., Inc. to register the
stock transfers and issue new certificates in favor of Lim Tay. It is likewise prayed 7. That respondent is not [a] real party in interest;
that [R]espondent Go Fay & Co., Inc[.] be ordered to pay all dividends due and
unclaimed on the said certificates to [P]laintiff Lim Tay.
8. The appropriation of the subject shares of stocks by plaintiff, without compliance
with the formality of law, amounted to [p]actum commis[s]orium therefore, null and
Plaintiff further prays for such other relief just and equitable in the premises. (page void;
34, Rollo)
9. Granting for the sake of argument only that there was a valid foreclosure and sale
The [p]etitioner alleged, inter alia, in his Petition that the controversy between him of the subject st[o]cks in favor of the plaintiff -- which [i]ntervenors deny -- still
as stockholder and the Respondent Corporation was intra-corporate in view of the paragraph 5 of the contract allows redemption, for which intervenors are willing to
obstinate refusal of the corporate secretary of Respondent Corporation to record redeem the share of stocks pledged;
the transfer of the shares of stock of Respondent Guiok and Sy Lim in favor of and
under the name of the [p]etitioner and to issue new certificates of stock to the
[p]etitioner. 10. Even the Chattel Mortgage law allowed redemption of the [c]hattel foreclosed;
The Respondent Corporation filed its Answer to the Complaint and alleged, as 11. As a matter of fact, on several occasions, [i]ntervenors had made representations
Affirmative Defense, that: with the plaintiff for the compromise and settlement of all the obligations secured
by the subject pledges -- even offering to pay compensation over and above the
value of the obligations, interest[s] and dividends accruing to the share of stocks
but, plaintiff unjustly refused to accept the offer of payment; (pages 39-42, Rollo)
AFFIRMATIVE DEFENSE
The prescriptive period for the action of Respondent[s] Guiok and Sy Lim to recover
the shares of stock from the [p]etitioner accrued only from the time they paid their 3. On [J]anuary 8, 1990, under a Contract of Pledge, Lim Tay received three hundred
loans and the interests thereon and [made] a demand for their return. [10] (300) shares of stock of Go Fay & Co., Inc., from Sy Guiok as security for the
payment of a loan of [f]orty [t]housand [p]esos (P40,000.00) Philippine currency, the
sum of which was payable within six (6) months [with
Hence, the petitioner brought before us this Petition for Review interest] at ten percentum (10%) per annum from the date of the execution of the
on Certiorari in accordance with Rule 45 of the Rules of Court.[11] contract; a copy of this Contract of Pledge is attached as Annex A and made part
Assignment of Errors hereof;
Petitioner submits, for the consideration of this Court, these issues: [12] 4. On the same date January 8, 1980, under a similar Contract of Pledge, Lim Tay
received three hundred (300) shares of stock of Go Fay & Co., Inc. from Alfonso Sy
(a) Whether the Securities and Exchange Commission had jurisdiction over the Lim as security for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00)
complaint filed by the petitioner; and Philippine currency, the sum of which was payable within six (6) months [with
interest] at ten percentum (10%) per annum from the date of the execution of the
contract; a copy of this Contract of Pledge is attached as Annex B and made part
(b) Whether the petitioner is entitled to the relief of mandamus as against the hereof;
respondent Go Fay & Co., Inc.
5. By the express terms of the agreements, upon failure of the borrowers to pay the
In addition, petitioner contends that it has acquired ownership of the shares stated amounts within the contract period, the pledge is foreclosed and the shares
through extraordinary prescription, pursuant to Article 1132 of the Civil Code, and of stock are purchased by [p]laintiff, who is expressly authorized and empowered to
through respondents subsequent acts, which amounted to a novation of the transfer the duly endorsed shares of stock on the books of the corporation to his
contracts of pledge. Petitioner also claims that there was dacion en pago, in which own name; x x x[18](underscoring supplied)
the shares of stock were deemed sold to petitioner, the consideration for which was
the extinguishment of the loans and the interests thereon. Petitioner likewise claims
that laches bars respondents from recovering the subject shares. However , the contracts of pledge, which were made integral parts of the
Complaint, contain this common proviso:
The Courts Ruling
The petition has no merit. 3. In the event of the failure of the PLEDGOR to pay the amount within a period of
six (6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose
the pledge upon the said shares of stock hereby created by selling the same at
First Issue: Jurisdiction of the SEC
public or private sale with or without notice to the PLEDGOR, at which sale the
Claiming that the present controversy is intra-corporate and falls within the PLEDGEE may be the purchaser at his option; and the PLEDGEE is hereby authorized
exclusive jurisdiction of the SEC, petitioner relies heavily on Abejo v. De and empowered at his option, to transfer the said shares of stock on the books of
la Cruz,[13] which upheld the jurisdiction of the SEC over a suit filed by an the corporation to his own name and to hold the certificate issued in lieu thereof
unregistered stockholder seeking to enforce his rights. He also seeks support under the terms of this pledge, and to sell the said shares to issue to him and to
from Rural Bank of Salinas, Inc. v. Court of Appeals,[14] which ruled that the right of a apply the proceeds of the sale to the payment of the said sum and interest, in the
transferee or an assignee to have stocks transferred to his name was an inherent manner hereinabove provided;
right flowing from his ownership of the said stocks.
This contractual stipulation, which was part of the Complaint, shows that
The registration of shares in a stockholders name, the issuance of stock
plaintiff was merely authorized to foreclose the pledge upon maturity of the loans,
certificates, and the right to receive dividends which pertain to the said shares are all
not to own them. Such foreclosure is not automatic, for it must be done in a public
rights that flow from ownership. The determination of whether or not a shareholder
or private sale. Nowhere did the Complaint mention that petitioner had in fact
is entitled to exercise the above-mentioned rights falls within the jurisdiction of the
foreclosed the pledge and purchased the shares after such foreclosure. His status as
SEC. However, if ownership of the shares is not clearly established and is still
a mere pledgee does not, under civil law, entitle him to ownership of the subject
unresolved at the time the action for mandamus is filed, then jurisdiction lies with
shares. It is also noteworthy that petitioners Complaint did not aver that said shares
the regular courts.
were acquired through extraordinary prescription, novation or laches. Moreover,
Section 5 of Presidential Decree No. 902-A sets forth the jurisdiction of the petitioners claim, subsequent to the filing of the Complaint, that he acquired
SEC as follows: ownership of the said shares through these three modes is not indubitable and still
has to be resolved. In fact, as will be shown, such allegation has no merit. Manifestly,
the Complaint by itself did not contain any prima facie showing that petitioner was
SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and the owner of the shares of stocks. Quite the contrary, it demonstrated that he was
Exchange Commission over corporations, partnerships and other forms of merely a pledgee, not an owner.Accordingly, it failed to lay down a sufficient basis
associations registered with it as expressly granted under existing laws and decrees, for the SEC to exercise jurisdiction over the controversy. In fact, the very allegations
it shall have original and exclusive jurisdiction to hear and decide cases involving: of the Complaint and its annexes negated the jurisdiction of the SEC.
Petitioners reliance on the doctrines set forth in Abejo v. De la Cruz and Rural
(a) Devices or schemes employed by or any acts of the board of directors, business
Bank of Salinas, Inc. v. Court of Appeals is misplaced. In Abejo, the Abejo spouses
associates, its officers or partners, amounting to fraud and misrepresentation which
sold to Telectronic Systems, Inc. shares of stock in Pocket Bell Philippines,
may be detrimental to the interest of the public and/or of stockholders, partners,
Inc. Subsequent to such contract of sale, the corporate secretary, Norberto Braga,
members of associations or organizations registered with the Commission;
refused to record the transfer of the shares in the corporate books and instead
asked for the annulment of the sale, claiming that he and his wife had a preemptive
(b) Controversies arising out of intra-corporate or partnership relations, between right over some of the shares, and that his wifes shares were sold without
and among stockholders, members, or associates; between any or all of them and consideration or consent.
the corporation, partnership or association of which they are stockholders, members
or associates, respectively; and between such corporation, partnership or association At the time the Bragas questioned the validity of the sale, the contract had
and the State insofar as it concerns their individual franchise or right to exist as such already been perfected, thereby demonstrating that Telectronic Systems, Inc. was
entity; already the prima facieowner of the shares and, consequently, a stockholder
of Pocket Bell Philippines, Inc. Even if the sale were to be annulled later on,
Telectronic Systems, Inc. had, in the meantime, title over the shares from the time
(c) Controversies in the election or appointment of directors, trustees, officers or the sale was perfected until the time such sale was annulled. The effects of an
managers of such corporations, partnerships or associations. annulment operate prospectively and do not, as a rule retroact to the time the sale
were unpleaded and unresolved when herein petitioner asked the corporate by Prescription
secretary of Go Fay to effect the transfer, in his favor, of the shares pledged to him.
Petitioner did not acquire the shares by prescription either. The period of
In Rural Bank of Salinas, Melenia Guerrero executed deeds of assignment for prescription of any cause of action is reckoned only from the date the cause of
the shares in favor of the respondents in that case. When the corporate secretary action accrued.
refused to register the transfer, an action for mandamus was
instituted. Subsequently, a motion for intervention was filed, seeking the annulment Since a cause of action requires as an essential element not only a legal right
of the deeds of assignment on the grounds that the same were fictitious and of the plaintiff and a correlative obligation of the defendant, but also an act or
antedated, and that they were in fact donations because the considerations therefor omission of the defendant in violation of said legal right, the cause of action does
were below the book value of the shares. not accrue until the party obligated refuses, expressly or impliedly, to comply with
its duty.[23] Accordingly, a cause of action on a written contract accrues when a
Like the Abejo spouses, the respondents in Rural Bank of Salinas were breach or violation thereof occurs.
already prima facie shareholders when the deeds of assignment were questioned. If
the said deeds were to be annulled later on, respondents would still be considered Under the contracts of pledge, private respondents would have a right to ask
shareholders of the corporation from the time of the assignment until the for the redelivery of their certificates of stock upon payment of their debts to
annulment of such contracts. petitioner, consonant with Article 2105 of the Civil Code, which reads:
Issue to Establish a Right The debtor cannot ask for the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its interest, with expenses in a
Petitioner prays for the issuance of a writ of mandamus, directing the proper case.[24]
corporate secretary of respondent corporation to have the shares transferred to his
name in the corporate books, to issue new certificates of stock and to deliver the Thus, the right to recover the shares based on the written contract of pledge
corresponding dividends to him.[20] between petitioner and respondents would arise only upon payment of their
respective loans. Therefore, the prescriptive period within which to demand the
In order that a writ of mandamus may issue, it is essential that the person
return of the thing pledged should begin to run only after the payment of the loan
petitioning for the same has a clear legal right to the thing demanded and that it is
and a demand for the thing has been made, because it is only then that
the imperative duty of the respondent to perform
respondents acquire a cause of action for the return of the thing pledged.
the act required. It neither confers powers nor imposes duties and is never issued in
doubtful cases. It is simply a command to exercise a power already possessed and Prescription should not begin to run on the action to demand the return of
to perform a duty already imposed.[21] the thing pledged while the loan still exists. This is because the right to ask for the
return of the thing pledged will not arise so long as the loan subsists. In the present
In the present case, petitioner has failed to establish a clear legal
case, the prescriptive period did not begin to run when the loan became due. On
right. Petitioners contention that he is the owner of the said shares is completely
the other hand, it is petitioners right to demand payment that may be in danger of
without merit. Quite the contrary and as already shown, he does not have any
prescription.
ownership rights at all. At the time petitioner instituted his suit at the SEC, his
ownership claim had no prima facie leg to stand on. At best, his contention was Petitioner contends that he can be deemed to have acquired ownership over
disputable and uncertain. Mandamus will not issue to establish a legal right, but the certificates of stock through extraordinary prescription, as provided for in Article
only to enforce one that is already clearly established. 1132 of the Civil Code which states:
Without Foreclosure and
Purchase at Auction, Pledgee Art. 1132. The ownership of movables prescribes through uninterrupted possession
Is Not the Owner of Pledged Shares for four years in good faith.
Petitioner initially argued that ownership of the shares pledged had passed
to him, upon Respondents Sy Guiok and Sy Lims failure to pay their respective The ownership of personal property also prescribes through uninterrupted
loans. But on appeal, petitioner claimed that ownership over the shares had passed possession for eight years, without need of any other condition. x x x.
to him, not via the contracts of pledge, but by virtue of prescription and by
respondents subsequent acts which amounted to a novation of the contracts of Petitioners argument is untenable. What is required by Article 1132 is
pledge. We do not agree. possession in the concept of an owner. In the present case, petitioners possession of
the stock certificates came about because they were delivered to him pursuant to
At the outset, it must be underscored that petitioner did not acquire
the contracts of pledge. His possession as a pledgee cannot ripen into ownership by
ownership of the shares by virtue of the contracts of pledge. Article 2112 of the Civil
prescription. As aptly pointed out by Justice Jose C. Vitug:
Code states:
No Dacion en Pago On August 27, 1991, through the intervention of Asian Oceanic, Young and
in Favor of Petitioner Insular Life entered into a Credit Agreement. [5] Under its provisions, Insular Life
extended a loan to Young in the amount of P200,000,000.00. To secure the loan,
Neither can there be dacion en pago, in which the certificates of stock are Young, acting in his behalf and as attorney-in-fact of the other stockholders,
deemed sold to petitioner, the consideration for which is the extinguishment of the executed on the same day a Deed of Pledge[6] over 1,324,864 shares which
loans and the accrued interests thereon. Dacion en pago is a form of novation in represented 99.82% of the outstanding capital stock of the Bank. The next day, he
which a change takes place in the object involved in the original contract. Absent an also executed a promissory note[7] in favor of Insular Life in the same amount with
explicit agreement, petitioner cannot simply presume dacion en pago. an interest rate of 26% per annum to mature 120 days from execution. The Credit
Agreement further provides that Insular Life shall have the prior right to purchase
Laches Not
the Schedule I Shares (owned by Young) and the Schedule II Shares (owned by the
a Bar to Petitioner
other stockholders of the Bank), as well as the 250,000 shares which will be issued
after the additional capital of P25,000,000.00 (payable from the proceeds of the
Petitioner submits that the inaction of the individual respondents with
loan) shall have been infused.
respect to the recovery of the shares of stock serves to bar them from asserting
rights over said shares on the basis of laches.[31] On October 1, 1991, Insular Life and Insular Life Pension Fund formally
informed Young of their intention to acquire 30% and 12%, respectively, of the
Laches has been defined as the failure or neglect, for an unreasonable length
Bank's outstanding shares, subject to due diligence audit and proper
of time, to do that which by exercising due diligence could or should have been
documentation.[8] On October 9, 1991, Insular Life and Young, authorized to
done earlier; it is negligence or omission to assert a right within a reasonable time,
represent the other stockholders, entered into a Memorandum of Agreement
warranting a presumption that the party entitled to assert it either has abandoned it
(MOA),[9] wherein Insular Life and its Pension Fund agreed to purchase 830,860
or declined to assert it.[32]
common shares and 311,572 common shares, respectively, for a total consideration
In this case, it is in fact petitioner who may be guilty of laches. Petitioner had of P198,000,000.00. Under its terms, the MOA is subject to Young's representations
all the time to demand payment of the debt. More important, under the contracts of and warranties[10] that, as of September 30, 1991, the Bank has (a) a total
pledge, petitioner could have foreclosed the pledges as soon as the loans became outstanding paid-in capital of P157,714,900.00, (b) a total net worth
due. But for still unknown or unexplained reasons, he failed to do so, preferring of P114,801,539.00, and (c) total loans with doubtful recovery of P60,000,000.00. The
instead to pursue his baseless claim to ownership. MOA is also subject to these "condition precedents":[11](1) Young shall infuse
additional capital of P50,000,000.00 into the Bank, and (2) Insular Life and its
WHEREFORE, the petition is hereby DENIED and the assailed Decision Pension Fund shall undertake a due diligence audit on the Bank to determine
is AFFIRMED. Costs against petitioner. whether the provision for P60,000,000.00 doubtful account made by Young is
sufficient.
SO ORDERED.
On October 11, 1991, Insular Life, through a team of auditors led by Mr.
Wilfrido Patawaran, conducted a due diligence audit on the Bank pursuant to the
MOA. The audit revealed several check-kiting operations which amounted
to P340,000,000.00. As a result, the Bank's Board of Directors was convened to
THIRD DIVISION discuss this matter.
[G.R. No. 140964. January 16, 2002]
INSULAR LIFE ASSURANCE COMPANY, LTD., INSULAR SAVINGS BANK and On October 17, 1991, a special meeting of the Bank's directors was
JACINTO D. JIMENEZ, petitioners, vs. ROBERT YOUNG, GABRIEL held. Chief Executive Officer Antonino L. Alindogan, Jr. reported to the Board the
LA'O II, ARTHUR TAN, LOPE JUBAN, JR., MARIA LOURDES ONGPIN, initial findings of the audit team about the irregularities in the Banks "kiting
ANTONIO ONGPIN, ELSIE DIZON, YOLANDA BAYER, CECILIA VIRAY, operations." When asked to explain these anomalies, Young, who was then the
MANUEL VIRAY and JOSE VITO BORROMEO, respondents. Bank's President, assumed responsibility since it happened during his
[G.R. No. 142267. January 16, 2002] incumbency. Thereupon, he offered, among others, to the Bank the 45% of his
INSULAR LIFE ASSURANCE COMPANY, LTD., INSULAR SAVINGS BANK and holdings as security. He admitted that he has compromised the interest of the Bank
JACINTO D. JIMENEZ, petitioners, vs. ROBERT YOUNG, GABRIEL and thus tendered his resignation. The Board deferred its acceptance.[12]
LA'O II, ARTHUR TAN, LOPE JUBAN, JR., MARIA LOURDES ONGPIN,
On October 21, 1991, Young signed a letter[13] prepared by Atty. Jacinto
ANTONIO ONGPIN, ELSIE DIZON, YOLANDA BAYER, CECILIA VIRAY,
Jimenez, counsel of Insular Life, addressed to Mr. Vicente R. Ayllon, Chairman of the
MANUEL VIRAY and JOSE VITO BORROMEO, COURT OF APPEALS
Bank's Board of Directors, stating that due to business reverses, he shall not be able
and DEPUTY SHERIFF RUBEN NEQUINTO, respondents.
to pay his obligations under the Credit Agreement between him and Insular
DECISION
Life. Consequently, Young "unconditionally and irrevocably waive(s) the benefit of
SANDOVAL-GUTIERREZ, J.: the period" of the loan (up to December 26, 1991) and Insular "may consider (his)
obligations thereunder as defaulted." He likewise interposes no objection to Insular
Life's exercise of its rights under the said agreement.
Before this Court are two (2) consolidated petitions, the first, docketed
as G.R. No. 140964, is a petition for review on certiorari[1] of the Decision of the Forthwith, Insular Life instructed its counsel to foreclose the pledge
Court of Appeals dated September 22, 1999 in CA-G.R. CV No. 54264 reversing the constituted upon the shares. The latter then sent Young a notice informing him of
Decision of the Regional Trial Court, Branch 142, Makati City in Civil Case No. 92- the sale of the shares in a public auction scheduled on October 28, 1991, and in the
From October 31, 1991 to December 27, 1991, Insular Life invested a total
of P325,000,000.00 in the Bank. Meanwhile, on November 27, 1991, its Board of b. the sum of P7.4 Million with interest at the rate of 30% per annum and monthly
Directors, during its meeting, accepted the resignation of Young as President.[16] penalty interest at 3% from September 10, 1991 until fully paid;
On January 7, 1992, Young and his associates filed with the Regional Trial
6. Ordering YOLANDA BAYER to pay to HOME the following amounts:
Court (RTC), Branch 142, Makati City, a complaint[17] against the Bank, Insular Life
and its counsel, Atty. Jacinto Jimenez, petitioners, for annulment of notarial sale,
specific performance and damages, docketed as Civil Case No. 92-049. The a. the sum of P1 Million with interest at the rate of 30% per annum and monthly
complaint alleges, inter alia, that the notarial sale conducted by petitioner Atty. penalty interest at 3% from June 17, 1991 until fully paid; and
Jacinto Jimenez is void as it does not comply with the requirement of notice of the
second auction sale; that Young was forced by the officers of Insular Life to sign
b. the sum of P6.9 Million with interest at the rate of 30% per annum and monthly
letters to enable them to have control of the Bank; that under the MOA, Insular Life
penalty interest at 3% from September 10, 1991 until fully paid;
should apply the purchase price of P198,000,000.00 (corresponding to the 55% of
the outstanding capital stock of the Bank) to Young's loan of P200,000,000.00 and
pay the latter P162,000,000.00, representing the remaining 45% of its outstanding 7. Ordering MANUEL VIRAY to pay to HOME the sum of P8.7 Million with interest at
capital stock, which must be set-off against the loans of the other respondents. the rate of 29% per annum from May 29, 1991 to August 26, 1991, and 30% per
annum from August 27, 1991, and monthly penalty interest at 3% from May 29,
Petitioners filed their answer[18] with counterclaim against Young, Gabriel 1991 until fully paid;
La'O II, Arthur Tan, Lope Juban, Jr., Antonio Ongpin, Elsie Dizon, Yolanda Bayer and
Manuel Viray, respondents herein. Except for Young, none of the respondents
answered the counterclaim, hence, the RTC declared them in default. 8. Ordering the above counterdefendants jointly and severally to pay to the
counterplaintiff the some of P500,000.00 as attorney's fees and cost of litigation.
On May 10, 1995, the RTC rendered a Decision, [19] dismissing the complaint,
ordering the respondents to pay the Bank their respective loans with interest at the
The counterclaim against YOUNG is dismissed for lack of merit." [20]
rate of 30% per annum and monthly penalty interest of 3% from the date they are
due until fully paid and dismissing petitioners' counterclaim against Young, thus:
Aggrieved by the RTC Decision, respondents appealed to the Court of
Appeals.
"Judgment is therefore rendered as follows:
On September 22, 1999, the Court of Appeals rendered
1. Dismissing the complaint; and judgment[21] reversing the RTC Decision, the dispositive portion of which reads:
2. Ordering the plaintiffs jointly and severally to reimburse to the defendants the PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and SET
sum of P300,000.00 as attorney's fees and cost of litigation; ASIDE, and a new one entered thereby:
ON THE COUNTERCLAIMS: 1. Declaring the Credit Agreement dated August 27, 1991 and the Memorandum of
Agreement dated October 9, 1991 valid and binding between the parties;
a. the sum of P4 Million with interest at the rate of 30% per annum and monthly 3. Ordering the defendant Insular Life to pay the appellant Robert T. Young the
penalty interest at 3% from June 17, 1991 until fully paid; amount of One Hundred Sixty Two Million Pesos (P162,000,000.00) representing the
money value of 45% of the shareholdings of Home Bankers Savings and Trust Co.,
b. the sum of P6 Million with interest at the rate of 30% per annum and monthly Inc.;
penalty interest at 3% from September 10, 1991 until fully paid;
4. Ordering the appellee Insular Life Assurance Co., Ltd. to pay appellant Robert T.
c. the sum of P500,000.00 with interest at the rate of 30% per annum and monthly Young moral damages in the amount of Five Million Pesos (P5,000,000.00); and
penalty interest at 3% from September 12, 1991 until fully paid;
5. Ordering the appellees to pay attorneys fees of One Million Five Hundred
2. Ordering ARTHUR TAN to pay to HOME the sum of P4.2 Million with interest at Thousand Pesos (P1,500,000.00) and the costs of the suit.
the rate of 30% per annum and monthly penalty interest at 3% from July 4, 1991
until fully paid; SO ORDERED.[22]
3. Ordering LOPE JUBAN, JR., to pay to HOME the sum of P3 Million with interest at On October 14, 1999, petitioners filed a motion for reconsideration, while
the rate of 29% per annum from May 27, 1991 to August 25, 1991, and 30% per respondents filed a motion for execution pending appeal.
annum from August 26, 1991 and monthly penalty interest at 3% from May 27, 1991
until fully paid; On December 1, 1999, the Court of Appeals issued a Resolution [23] denying
petitioners' motion for reconsideration for lack of merit, prompting them to file the
instant petition for review on certiorari (G. R. No. 140964).
4. Ordering ANTONIO ONGPIN to pay to HOME the following amounts:
On March 10, 2000, the Court of Appeals issued a Resolution [24] granting
a. the sum of P445,000.00 with interest at the rate of 32% per annum from May 25, respondents' motion for execution pending appeal. Forthwith, petitioners filed the
1991 to August 29, 1991, and 29% per annum from August 30, 1991, and monthly instant petition for certiorari (G. R. No. 142267).
penalty interest at 3% from May 25, 1991 until fully paid;
On March 27, 2000, we issued a Resolution [25] ordering the consolidation of
the two petitions and directing the parties "to maintain the STATUS QUO before the
b. the sum of P1 Million with interest at the rate of 32% a month from May 4, 1991 assailed (CA) Resolution of March 10, 2000 was issued, until further orders from this
to August 29, 1991, and 29% per annum from August 30, 1991, and monthly penalty Court.
interest at 3% from May 4, 1991 until fully paid;
In G.R. No. 140964, petitioners ascribe to the Court of Appeals the following
errors:
c. the sum of P550,000.00 with interest at the rate of 32% per annum from May 21,
1991 to August 29, 1991, and 29% per annum from August 30, 1991 and monthly
penalty interest at 3% from May 21, 1991 until fully paid;
Since no sale transpired between the parties, the Court of Appeals erred in
A. REPRESENTATION AND WARRANTIES: concluding that Insular Life purchased 55% of the total shares of the Bank under the
MOA. Consequently, its findings that the debt of Young has been fully paid and that
Insular Life is liable to pay for the remaining 45% equity have no basis. It must be
emphasized that the MOA did not convey title of the shares to Insular Life. If ever
1. As of September 30, 1991, the total outstanding paid in capital of
there was delivery of the said shares to Insular Life, it was because they were
the bank is ONE HUNDRED FIFTY SEVEN MILLION SEVEN
pledged by Young to Insular Life under the Credit Agreement.
HUNDRED FOURTEEN THOUSAND NINE HUNDRED PESOS
(P157,714,900.00), It would be unfair on the part of Young to demand compliance by Insular Life
of its obligations when he himself was remiss in his own. Neither can he feign
2. As of September 30, 1991, the total net worth of the bank is ONE
ignorance of the stipulation in the MOA since it is presumed that he read the same
HUNDRED FOURTEEN MILLION EIGHT HUNDRED ONE
and was satisfied with its provisions before he affixed his signature therein. The fact
THOUSAND FIVE HUNDRED THIRTY NINE PESOS
that no deed of sale was subsequently executed by the parties confirms the
(P114,801,593.00),
conclusion that no sale transpired between them.
3. As of September 30, 1991, the total loans with doubtful recovery
Notably, the Deed of Pledge which secured the Credit Agreement between
amounted to SIXTY MILLION PESOS (P60,000,000.00), which
the parties, covered not only 1,324,864 shares which then constituted 99.82% of the
includes the loans with doubtful recovery contained in the May
total outstanding shares of petitioner Bank, but also the 250,000 shares
1991 findings of the Central Bank and an additional provision for
subsequently issued. Consequently, when Young waived in his letter the period
certain loan accounts identified and listed by Robert T. Young,
granted him under the said agreement and manifested his inability to pay his
4. The entire proceeds of the sale shall be used to pay off the obligation (which waiver has been declared by the RTC and the CA to be valid), the
outstanding debt of Robert T. Young to Insular Life. loan extended by petitioner Insular Life became due and demandable. [33] Definitely,
petitioners merely exercised the right granted to them under the law, which is to
foreclose the pledge constituted on the shares, in satisfaction of respondent
Young's loan.
B. CONDITION PRECEDENTS: The Court of Appeals also erred in declaring that the auction sale is void
since petitioners failed to send a separate notice for the second auction.
Upon the signing of this Agreement and prior to the execution of a Deed Article 2112 of the Civil Code provides:
of Sale by the parties, the following events shall occur:
The creditor to whom the credit has not been satisfied in due time, may proceed
1. The Vendor shall infuse an additional capital of FIFTY MILLION before a Notary Public for the sale of the thing pledged. The sale shall be made at a
PESOS (P50,000,000.00) into the Bank, public auction, and with notification to the debtor and the owner of the thing
pledged in a proper case, stating the amount for which the public sale is to be
2. The Vendee shall undertake a due diligence audit on the bank held. If at the first auction the thing is not sold, a second one with the same
for a period not exceeding 60 days from the date of the formalities shall be held; and if at the second auction there is no sale either, the
signing of this Agreement, and the audit shall be undertaken creditor may appropriate the thing pledged. In this case he shall be obliged to give
to determine that the provision for SIXTY MILLION an acquittance for his entire claim.
PESOS (P60,000,000.00) for doubtful account is sufficient,
Petitioners contend that the Court of Appeals likewise erred when it declared
in the fallo of its decision that the unpaid accounts of the other respondents have We therefore rule that the Court of Appeals committed grave abuse of
been fully paid. There is no showing how the Appellate Court reached such discretion when it granted respondents motion for execution pending appeal.
conclusion. In doing so, the Court of Appeals violated the constitutional mandate
WHEREFORE, the petitions are GRANTED. In G.R. No. 140964, the assailed
that "(n)o decision shall be rendered by any court without expressing clearly and
Decision dated September 22, 1999 and the Resolution dated December 1, 1999
distinctly the facts and the law on which it is based."[34] Indeed, due process
issued by the Court of Appeals in CA G.R. CV No. 54264 are REVERSED and SET
demands that the parties to a litigation be informed of how it was decided with an
ASIDE.
explanation of the factual and legal reasons that led to the conclusions of the
court.[35] It must be observed that those respondents did not contest petitioners' In G.R. No. 142267, the Resolution dated March 10, 2000 issued by the Court
counterclaim against them. of Appeals granting respondents' motion for execution is declared VOID.
On the issue of damages, we find the Court of Appeals' award of moral The Decision dated March 10, 1995 of the Regional Trial Court, Branch
damages of P5,000,000.00 and attorney's fees of P1,500,000.00 to respondents 42, Makati City, in Civil Case No. 92-049, is REINSTATED. Costs against respondents.
without any basis. Under Article 2220 of the Civil Code, moral damages may be
awarded in breach of contracts where the defendant acted fraudulently or in bad SO ORDERED.
faith. Contrary to the finding of the Court of Appeals, we find no such breach
committed by petitioners, much less any badge of fraud or bad faith on their part. It
must be stressed that moral damages are emphatically not intended to enrich a EN BANC
plaintiff at the expense of the defendant. [36] Attorney's fees are not automatically G.R. No. L-21069 October 26, 1967
awarded to every winning litigant.[37] It must be shown that any of the instances MANILA SURETY and FIDELITY COMPANY, INC., plaintiff-appellee,
enumerated under Art. 2208 of the Civil Code exists to justify the award vs.
thereof.[38] Not one of such instances exists here. Surprisingly, the Court of Appeals RODOLFO R. VELAYO, defendant-appellant.
awarded the excessive amounts of P5,000,000.00 as moral damages
and P1,500,000.00 as attorneys fees to respondents. Villaluz Law Office for plaintiff-appellee.
Rodolfo R. Velayo for and in his own behalf as defendant-appellant.
We now come to the issue of whether or not the Court of Appeals
committed grave abuse of discretion when it ordered the execution of its own
judgment, thus: REYES, J.B.L., J.:
It can not be denied that the plaintiffs-appellants, who are stockholders of Home, Direct appeal from a judgment of the Court of First Instance of Manila (Civil Case
have long been deprived of their rights as such stockholders. It has been almost a No. 49435) sentencing appellant Rodolfo Velayo to pay appellee Manila Surety &
decade since their cause of action accrued. And to this day, no immediate relief is Fidelity Co., Inc. the sum of P2,565.00 with interest at 12-% per annum from July
still in sight. On the contrary, with Insular Life practically controlling the fate of 13, 1954; P120.93 as premiums with interest at the same rate from June 13, 1954:
Home, redress may become all but nugatory. This is the very line of reasoning this attorneys' fees in an amount equivalent to 15% of the total award, and the costs.
Court has adopted in rendering its main decision. There has been an unjust
enrichment on the part of the defendants-appellees, all to the injury and humiliation
Hub of the controversy are the applicability and extinctive effect of Article 2115 of
of the plaintiffs-appellants are denied what is properly theirs, the injury will be a
the Civil Code of the Philippines (1950).
continued one.
The uncontested facts are that in 1953, Manila Surety & Fidelity Co., upon request of
"This, we believe, is good reason enough to grant the plaintiffs'-appellants'
Rodolfo Velayo, executed a bond for P2,800.00 for the dissolution of a writ of
motion. Good reasons consist of compelling circumstances justifying the immediate
attachment obtained by one Jovita Granados in a suit against Rodolfo Velayo in the
execution lest judgment becomes illusory, or the prevailing party may after the
Court of First Instance of Manila. Velayo undertook to pay the surety company an
lapse of time become unable to enjoy it, considering the tactics of the adverse party
annual premium of P112.00; to indemnify the Company for any damage and loss of
who may apparently have no case except to delay.
whatsoever kind and nature that it shall or may suffer, as well as reimburse the same
for all money it should pay or become liable to pay under the bond including costs
"The allegation by the defendants-appellees that the plaintiff-appellant Young is a and attorneys' fees.
fugitive from justice deserves scant consideration from this Court. It is a personal
attack on an adverse party that is completely uncalled for and has no bearing
As "collateral security and by way of pledge" Velayo also delivered four pieces of
whatsoever in the present case. And even if the same is true, it is not difficult to see
jewelry to the Surety Company "for the latter's further protection", with power to
that the present predicament Young now finds himself in stemmed from the unfair,
sell the same in case the surety paid or become obligated to pay any amount of
nay, unlawful treatment he has received from the defendants-appellees. That Young
money in connection with said bond, applying the proceeds to the payment of any
now has very little assets should not come as a surprise to the defendants-
amounts it paid or will be liable to pay, and turning the balance, if any, to the
appellees; through their own machinations they deprived him of the same. To now
persons entitled thereto, after deducting legal expenses and costs (Rec. App. pp. 12-
hold the plight of Young against himself would be to and insult to injury, especially
15).
if one is to consider that the latter's situation was brought about by the same party
who now opposes the claim for immediate relief.
Judgment having been rendered in favor of Jovita Granados and against Rodolfo
Velayo, and execution having been returned unsatisfied, the surety company was
"With the grant of the instant motion, plaintiff-appellant Young may once again
forced to pay P2,800.00 that it later sought to recoup from Velayo; and upon the
reclaim his rightful place in society, before he sinks deeper into the mire in which he,
latter's failure to do so, the surety caused the pledged jewelry to be sold, realizing
according to the defendants-appellees, may now be in. Contrary to the defendants'-
therefrom a net product of P235.00 only. Thereafter and upon Velayo's failure to
appellees' contentions, it is, in fact, another reason to extend our favorable
pay the balance, the surety company brought suit in the Municipal Court. Velayo
consideration to the motion. It is the least we can do.
countered with a claim that the sale of the pledged jewelry extinguished any further
liability on his part under Article 2115 of the 1950 Civil Code, which recites:
xxx
Art. 2115. The sale of the thing pledged shall extinguish the principal
"In fine, it is this Court's considered opinion that the combination of all the obligation, whether or not the proceeds of the sale are equal to the
foregoing facts, and the plaintiffs'-appellants' readiness and willingness to post the amount of the principal obligation, interest and expenses in a proper
requisite bond, constitute sufficient grounds to grant immediate relief. [39] case. If the price of the sale is more than said amount, the debtor shall
not be entitled to the excess, unless it is otherwise agreed. If the price of
the sale is less, neither shall the creditor be entitled to recover the
We reject the Court of Appeal's ratiocination. The ruling of this Court in Heirs
deficiency, notwithstanding any stipulation to the contrary.
of the Late Justice Jose B. L. Reyes vs. Court of Appeals[40] is instructive on this point:
The Municipal Court disallowed Velayo's claims and rendered judgment against him.
One final word. It was bad enough that the Court of Appeals erred in ruling that the
Appealed to the Court of First Instance, the defense was once more overruled, and
lease contract must be judicially rescinded before respondent MMB, Inc. may be
the case decided in the terms set down at the start of this opinion.
evicted from the premises. It was worse that the Court of Appeals immediately
enforced its decision pending appeal restoring respondent in possession of the
leased premises and worst, appointed a special sheriff to carry out the writ of Thereupon, Velayo resorted to this Court on appeal.
It is thus crystal clear that the main agreement between the parties is On November 4, 1976, SOLID executed several real estate mortgage contracts in
the Indemnity Agreement and if the pieces of jewelry mentioned by the favor of State Investment Homes, (sic) Inc. (STATE) over its subdivided parcels of
defendant were delivered to the plaintiff, it was merely as an added land, one of which is the subject lot covered by Transfer Certificate of Title No.
protection to the latter. There was no understanding that, should the 209642.
same be sold at public auction and the value thereof should be short of
the undertaking, the defendant would have no further liability to the
For Failure of SOLID to comply with its mortgage obligations contract, STATE extra-
plaintiff. On the contrary, the last portion of the said agreement specifies
judicially foreclosed the mortgaged properties including the subject lot on April 6,
that in case the said collateral should diminish in value, the plaintiff may
1983, with the corresponding certificate of sale issued therefor to STATE annotated
demand additional securities. This stipulation is incompatible with the
at the back of the titles covering the said properties on October 13, 1983.
idea of pledge as a principal agreement. In this case, the status of the
pledge is nothing more nor less than that of a mortgage given as a
collateral for the principal obligation in which the creditor is entitled to a On June 23, 1984, SOLID thru a Memorandum of Agreement negotiated for the
deficiency judgment for the balance should the collateral not command deferment of consolidation of ownership over the foreclosed properties by
the price equal to the undertaking. committing to redeem the properties from STATE.
It appearing that the collateral given by the defendant in favor of the On August 15, 1988, the spouses filed a complaint before the Housing and Land Use
plaintiff to secure this obligation has already been sold for only the Regulatory Board, HLRB, against the developer SOLID and STATE for failure on the
amount of P235.00, the liability of the defendant should be limited to part of SOLID to execute the necessary absolute deed of sale as well as to deliver
the difference between the amounts of P2,800.00 and P235.00 or title to said property x x x in violation of the contract to sell x x x, despite full
P2,565.00. payment of the purchase price as of January 7, 1981. In its Answer, SOLID, by way of
alternative defense, alleged that the obligations under the Contract to Sell has
become so difficult x x x the herein respondents be partially released from said
We agree with the appellant that the above quoted reasoning of the appealed
obligation by substituting subject lot with another suitable residential lot from
decision is unsound. The accessory character is of the essence of pledge and
another subdivision which respondents own/operates. Upon the other hand, STATE,
mortgage. As stated in Article 2085 of the 1950 Civil Code, an essential requisite of
to which the subject lot was mortgaged, averred that unless SOLID pays the
these contracts is that they be constituted to secure the fulfillment of a principal
redemption price of P125,1955.00, (sic) it has a right to hold on and not release the
obligation, which in the present case is Velayo's undertaking to indemnify the surety
foreclosed properties.
company for any disbursements made on account of its attachment counterbond.
Hence, the fact that the pledge is not the principal agreement is of no significance
nor is it an obstacle to the application of Article 2115 of the Civil Code. On May 23, 1989, the Office of Appeals, Adjudication and Legal Affairs (OAALA)
rendered a decision the decretal portion of which reads:
The reviewed decision further assumes that the extinctive effect of the sale of the
pledged chattels must be derived from stipulation. This is incorrect, because Article 1. Ordering respondent, State Investment House, Inc. to execute a Deed of
2115, in its last portion, clearly establishes that the extinction of the principal Conveyance of Lot 1, B lock 8, in Capital Park Homes Subdivision in favor of
obligation supervenes by operation of imperative law that the parties cannot complainants and to deliver to the latter the corresponding certificate of title;
override:
2. Ordering respondent, Solid Homes, Inc. to pay State Investment House, Inc. that
If the price of the sale is less, neither shall the creditor be entitled to portion of its loan which corresponds to the value of the lot as collateral;
recover the deficiency notwithstanding any stipulation to the contrary.
3. Ordering respondent, Solid Homes, Inc. to pay to this Board the amount of Six
The provision is clear and unmistakable, and its effect can not be evaded. By Thousand Pesos (P6,000.00) as administrative fine in accordance with Section 25 in
electing to sell the articles pledged, instead of suing on the principal obligation, the relation to Section 38 of P.D. 957.
creditor has waived any other remedy, and must abide by the results of the sale. No
deficiency is recoverable.
Both the STATE and SOLID appealed to the Board of Commissioners, HLRB, which
affirmed on June 5, 1990 the OAALAs decision (Annex C of the Petition; ibid., p. 34).
It is well to note that the rule of Article 2115 is by no means unique. It is but an Again, both STATE and SOLID appealed the decision of the Board of Commissioners,
extension of the legal prescription contained in Article 1484(3) of the same Code, HLRB, to the Office of the President which dismissed the twin appeals on February
concerning the effect of a foreclosure of a chattel mortgage constituted to secure 26, 1993.
the price of the personal property sold in installments, and which originated in Act
4110 promulgated by the Philippine Legislature in 1933.
Petitioner filed with the Supreme Court this petition for review of decision of the
Office of the President where it was docketed as G.R. No. 109364. However, in a
WHEREFORE, the decision under appeal is modified and the defendant absolved resolution dated May 13, 1993, the Supreme Court referred this case to this Court
from the complaint, except as to his liability for the 1954 premium in the sum of for proper disposition. On the other hand, SOLID does not appear to have joined
P120.93, and interest at 12-1/2% per annum from June 13, 1954. In this respect the herein petitioner in this petition for review.[2]
decision of the Court below is affirmed. No costs. So ordered.
[Italics added.]
PART IX: REAL MORTGAGE (ARTICLES 2124-2131), ACT 3135 & FORECLOUSRE
OF REAL ESTATE MORTGAGE
In a decision dated May 19, 1994, respondent court sustained the judgment
of the Office of the President. Hence, this petition substantially anchored on these
two alleged errors, namely: (1) error in ruling that private respondent
spouses Oretas unregistered rights over the subject property are superior to the
registered mortgage rights of petitioner State Investment House, Inc. (STATE); and
THIRD DIVISION
(2) error in not applying the settled rule that that persons dealing with property
[G.R. No. 115548. March 5, 1996]
covered by torrens certificate of title are not required to go beyond what appears
STATE INVESTMENT HOUSE INC., petitioner, vs. COURT OF APPEALS, ET
on the face of the title.
AL., respondents.
DECISION At the outset, we note that herein petitioner argues more extensively on the
second assigned issue, than on the first. In fact, petitioner admits the superior rights
FRANCISCO, J.:
of respondents-spouses Oreta over the subject property as it did not pray for the
nullification of the contract between respondents-spouses and SOLID, but instead
The factual background of the case, aptly summarized in the decision of the asked for the payment of the release value of the property in question, plus interest,
Office of the President and cited by respondent Court of Appeals [1] in its assailed attorneys fees and costs of suit against SOLID or, in case of the latters inability to
decision, and which we have verified to be supported by the record is herein pay, against respondents-spouses before it can be required to release the title of
reproduced as follows: the subject property in favor of the respondent spouses. [3] And even if we were to
pass upon the first assigned error, we find respondent courts ruling on the matter to
be well-founded. STATEs registered mortgage right over the property is inferior to
The uncontroverted facts of the case as recited in the decision of the Office of the
that of respondents-spouses unregistered right. The unrecorded sale between
President are as follows:
respondents-spouses and SOLID is preferred for the reason that if the original
owner (SOLID, in this case) had parted with his ownership of the thing sold then he
Records show that, on October 15, 1969, Contract to Sell No. 36 was executed by no longer had ownership and free disposal of that thing so as to be able to
the Spouses Canuto and Ma. Aranzazu Oreta, and the Solid Homes, Inc. (SOLID), mortgage it again.[4] Registration of the mortgage is of no moment since it is
involving a parcel of land identified as Block No. 8, Lot No. 1, Phase I of the Capitol understood to be without prejudice to the better right of third parties. [5]
Park Homes Subdivision, Quezon City, containing 511 square meters for a
consideration of P39,347.00. Upon signing of the contract, the spouses Oreta made Anent the second issue, petitioner asserts that a purchaser or mortgagee of
land/s covered under the Torrens System is not required to do more than rely upon
As a general rule, where there is nothing in the certificate of title to indicate Dissatisfied, petitioner filed the instant petition for review on certiorari.
any cloud or vice in the ownership of the property, or any encumbrance thereon,
the purchaser is not required to explore further than what the Torrens Title upon its Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano,
face indicates in quest for any hidden defect or inchoate right that may in the total sum of P480,000.00, evidenced by four promissory notes in the amount
subsequently defeat his right thereto. This rule, however, admits of an exception as of P120,000.00 each dated August 2, 1996;[3] August 15, 1996;[4] September 4,
where the purchaser or mortgagee, has knowledge of a defect or lack of title in his 1996[5] and September 14, 1996.[6] This loan was secured by a real estate mortgage
vendor, or that he was aware of sufficient facts to induce a reasonably prudent man over a parcel of land covered by Original Certificate of Title No. 569. [7] After he failed
to inquire into the status of the title of the property in litigation. [7] In this case, to pay his obligation, Soriano filed a complaint for sum of money against him with
petitioner was well aware that it was dealing with SOLID, a business entity engaged the Regional Trial Court of Balanga City, Branch 1, which was docketed as Civil Case
in the business of selling subdivision lots. In fact, the OAALA found that at the time No. 6643.[8]
the lot was mortgaged, respondent State Investment House, Inc., [now petitioner]
Respondents, the Spouses Ricardo and Rosalina Galit, failed to file their
had been aware of the lots location and that said lot formed part of Capital
answer. Hence, upon motion of Marcelo Soriano, the trial court declared the
Park/Homes Subdivision.[8] In Sunshine Finance and investment Corp. v. Intermediate
spouses in default and proceeded to receive evidence for
Appellate Court,[9] the Court, noting petitioner therein to be a financing corporation,
petitioner Soriano ex parte.
deviated from the general rule that a purchaser or mortgagee of a land is not
required to look further than what appears on the face of the Torrens Title. Thus: On July 7, 1997, the Regional Trial Court of Balanga City, Branch 1 rendered
judgment[9] in favor of petitioner Soriano, the dispositive portion of which reads:
Nevertheless, we have to deviate from the general rule because of the failure
of the petitioner in this case to take the necessary precautions to ascertain if WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
there was any flaw in the title of the Nolascos and to examine the condition of defendant ordering the latter to pay:
the property they sought to mortgage. The petitioner is an investment and
financing corporation. We presume it is experienced in its
business.Ascertainment of the status and condition of properties offered to it 1. the plaintiff the amount of P350,000.00 plus 12% interest to be
as security for the loans it extends must be a standard and indispensable part computed from the dates of maturity of the promissory
of its operations. Surely, it cannot simply rely on an examination of notes until the same are fully paid;
a Torrens certificate to determine what the subject property looks like as its
condition is not apparent in the document. The land might be in a depressed 2. the plaintiff P20,000.00, as attorneys fees; and
area. There might be squatters on it. It might be easily inundated. It might be an
interior lot, without convenient access. These and other similar factors determine
the value of the property and so should be of practical concern to the petitioner. 3. the costs of suit.
Our conclusion might have been different if the mortgagee were an ordinary The judgment became final and executory. Accordingly, the trial court issued
individual or company without the expertise of the petitioner in the mortgage and a writ of execution in due course, by virtue of which, Deputy Sheriff Renato E. Robles
sale of registered land or if the land mortgaged were some distance from the levied on the following real properties of the Galit spouses:
mortgagee and could not be conveniently inspected. But there were no such
impediments in this case. The facilities of the petitioner were not so limited as to 1. A parcel of land covered by Original Certificate of Title No. T-569
prevent it from making a more careful examination of the land to assure itself that (Homestead Patent No. 14692) situated in the Bo.
there were no unauthorized persons in possession.[10] of Tapulac, Orani, Bataan. Bounded on the SW, along line 1-
2 by Lot No. 3, Cad. 145; containing an area of THIRTY FIVE
[Emphasis supplied.] THOUSAND SEVEN HUNDRED FIFTY NINE (35,759) SQUARE
METERS, more or less x x x;
I HEREBY that (sic) by virtue of the writ of execution dated October 16, 1998, issued
in the above-entitled case by the HON. BENJAMIN T. VIANZON, ordering the
[G.R. No. 156295. September 23, 2003] Provincial Sheriff of Bataan or her authorized Deputy Sheriff to cause to be made
(sic) the sum of P350,000.00 plus 12% interest to be computed from the date of
maturity of the promissory notes until the same are fully paid; P20,000.00 as
attorneys fees plus legal expenses in the implementation of the writ of execution,
the undersigned Deputy Sheriff sold at public auction on December 23, 1998 the
MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO and ROSALINA rights and interests of defendants Sps. Ricardo and Rosalina Galit, to the plaintiff
GALIT, respondents. Marcelo Soriano, the highest and only bidder for the amount of FOUR HNDRED
EIGHTY THREE THOUSAND PESOS (P483,000.00, Philippine Currency), the following
real estate properties more particularly described as follows :
DECISION
Petitioner was issued a writ of possession in Civil Case No. 6643 [1] for Sum of A parcel of land (Homestead Patent No. 14692) situated in the Bo.
Money by the Regional Trial Court of Balanga, Bataan, Branch 1. The writ of of Tapulac, Orani, Bataan, x x x. Bounded on the SW., along line 1-2 by Lot No. 3,
possession was, however, nullified by the Court of Appeals in CA-G.R. SP No. Cad. 145, containing an area of THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY
65891[2] because it included a parcel of land which was not among those explicitly NINE (35,759) SQUARE METERS, more or less x x x
enumerated in the Certificate of Sale issued by the Deputy Sheriff, but on which
I
IT IS FURTHER CERTIFIED, that the aforesaid highest and lone bidder,
C
Marcelo Soriano, being the plaintiff did not pay to the Provincial Sheriff
of Bataan the amount of P483,000.00, the sale price of the above-described Respondents filed a petition for certiorari with the Court of Appeals, which
property which amount was credited to partial/full satisfaction of the judgment was docketed as CA-G.R. SP No. 65891, assailing the inclusion of the parcel of land
embodied in the writ of execution. covered by Transfer Certificate of Title No. T-40785 among the list of real properties
in the writ of possession.[18] Respondents argued that said property was not among
The period of redemption of the above described real properties together with all those sold on execution by Deputy Sheriff Renato E. Robles as reflected in the
the improvements thereon will expire One (1) year from and after the registration of Certificate of Sale on Execution of Real Property.
this Certificate of Sale with the Register of Deeds.
In opposition, petitioner prayed for the dismissal of the petition because
respondent spouses failed to move for the reconsideration of the assailed order
This Certificate of Sheriffs Sale is issued to the highest and lone bidder, prior to the filing of the petition. Moreover, the proper remedy against the assailed
Marcelo Soriano, under guarantees prescribed by law. order of the trial court is an appeal, or a motion to quash the writ of possession.
SO ORDERED.[19]
A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani) , with the
improvements thereon, situated in the Municipality of Orani, Bounded on the NE;
by Calle P. Gomez; on the E. by Lot No. 1104; on the SE by Calle Washington; and on Aggrieved, petitioner now comes to this Court maintaining that
the W. by Lot 4102, containing an area of ONE HUNDRED THIRTY NINE (139)
SQUARE METERS, more or less. All points referred to are indicated on the plan;
1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 IS
bearing true; declination 0 deg. 40E., date of survey, February 191-March 1920.
NOT THE PLAIN, SPEEDY AND ADEQUATE REMEDY OF THE
RESPONDENTS IN ASSAILING THE WRIT OF POSSESSION
On February 23, 2001, ten months from the time the Certificate of Sale on ISSUED BY THE LOWER COURT BUT THERE WERE STILL
Execution was registered with the Registry of Deeds, petitioner moved [14] for the OTHER REMEDIES AVAILABLE TO THEM AND WHICH WERE
issuance of a writ of possession. He averred that the one-year period of redemption NOT RESORTED TO LIKE THE FILING OF A MOTION FOR
had elapsed without the respondents having redeemed the properties sold at public RECONSIDERATION OR MOTION TO QUASH OR EVEN
auction; thus, the sale of said properties had already become final. He also argued APPEAL.
that after the lapse of the redemption period, the titles to the properties should be
considered, for all legal intents and purposes, in his name and favor. [15]
2.) THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1 granted DECLARAING THE CERTIFICATE OF SALE ON EXECUTION OF
the motion for issuance of writ of possession. [16] Subsequently, on July 18, 2001, a REAL PROPERTY AS NULL AND VOID AND SUBSEQUENTLY
writ of possession[17]was issued in petitioners favor which reads: THE WRIT OF POSSESSION BECAUSE THE SAME IS A PUBLIC
DOCUMENT WHICH ENJOYS THE PRESUMPTION OF
REGULARITY AND IT CANNOT BE OVERCOME BY A MERE
WRIT OF POSSESSION STRANGE FEELING THAT SOMETHING IS AMISS ON ITS
SURFACE SIMPLY BECAUSE THE TYPEWRITTEN WORDS ON
Mr. Renato E. Robles THE FRONT PAGE AND AT THE DORSAL PORTION THEREOF
Deputy Sheriff IS DIFFERENT OR THAT IT IS UNLIKELY FOR THE SHERIFF TO
RTC, Br. 1, Balanga City USE THE DORSAL PORTION OF THE FIRST PAGE BECAUSE
THE SECOND PAGE IS MERELY HALF FILLED AND THE
NOTATION ON THE DORSAL PORTION COULD STILL BE
Greetings : MADE AT THE SECOND PAGE.
WHEREAS on February 3, 2001, the counsel for plaintiff filed Motion for the Issuance On the first ground, petitioner contends that respondents were not without
of Writ of Possession; remedy before the trial court. He points out that respondents could have filed a
motion for reconsideration of the Order dated June 4, 1999, but they did not do so.
WHEREAS on June 4, 2001, this court issued an order granting the issuance of the Respondents could also have filed an appeal but they, likewise, did not do so. When
Writ of Possession; the writ of possession was issued, respondents could have filed a motion to quash
the writ. Again they did not. Respondents cannot now avail of the special civil action
for certiorari as a substitute for these remedies.They should suffer the consequences
WHEREFORE, you are hereby commanded to place the herein plaintiff for sleeping on their rights.
Marcelo Soriano in possession of the property involved in this case situated (sic)
more particularly described as: We disagree.
The argument that the land on which the buildings levied upon in execution
while certiorari as a remedy may not be used as a substitute for an appeal, is necessarily included is, likewise, tenuous. Article 415 of the Civil Code provides:
especially for a lost appeal, this rule should not be strictly enforced if the petition is
genuinely meritorious.[25] It has been said that where the rigid application of the
rules would frustrate substantial justice, or bar the vindication of a legitimate ART. 415. The following are immovable property:
grievance, the courts are justified in exempting a particular case from the
operation of the rules.[26] (Emphasis ours) (1) Land, buildings, roads and constructions of all kinds adhered to the soil.
Indeed, well-known is the rule that departures from procedure may be xxxxxxxxx
forgiven where they do not appear to have impaired the substantial rights of the
parties.[27] Apropos in this regard is Cometa v. CA,[28] where we said that
(3) Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking them material or deterioration of
There is no question that petitioners were remiss in attending with dispatch to the the object;
protection of their interests as regards the subject lots, and for that reason the case
in the lower court was dismissed on a technicality and no definitive pronouncement
on the inadequacy of the price paid for the levied properties was ever made. In this (4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in
regard, it bears stressing that procedural rules are not to be belittled or dismissed buildings or on lands by the owner of the immovable in such a manner that it
simply because their non-observance may have resulted in prejudice to a reveals the intention to attach them permanently to the tenements;
partys substantive rights as in this case. Like all rules, they are required to be
followed except when only for the most persuasive of reasons they may be (5) Machinery, receptacles, instruments or implements intended by the owner of the
relaxed to relieve a litigant of an injustice not commensurate with the degree tenement for an industry or works which may be carried on in a building or on a
of his thoughtlessness in not complying with the procedure piece of land, and which tend directly to meet the needs of the said industry or
prescribed.[29] (emphasis and italics supplied.) works;
In short, since rules of procedure are mere tools designed to facilitate the (6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar
attainment of justice, their strict and rigid application which would result in nature, in case their owner has placed them or preserves them with the intention to
technicalities that tend to frustrate rather than promote substantial justice must have them permanently attached to the land, and forming a permanent part of it;
always be avoided.[30] Technicality should not be allowed to stand in the way of the animals in these places are also included;
equitably and completely resolving the rights and obligations of the parties. [31]
True, public documents by themselves may be adequate to establish the In this case, considering that what was sold by virtue of the writ of execution
presumption of their validity. However, their probative weight must be evaluated issued by the trial court was merely the storehouse and bodega constructed on the
not in isolation but in conjunction with other evidence adduced by the parties in the parcel of land covered by Transfer Certificate of Title No. T-40785, which by
controversy, much more so in this case where the contents of a copy thereof themselves are real properties of respondents spouses, the same should be
subsequently registered for documentation purposes is being contested. No reason regarded as separate and distinct from the conveyance of the lot on which they
has been offered how and why the questioned entry was subsequently intercalated stand.
in the copy of the certificate of sale subsequently registered with the Registry of
WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for
Deeds. Absent any satisfactory explanation as to why said entry was belatedly
lack of merit. The Decision dated May 13, 2002 of the Court of Appeals in CA-G.R.
inserted, the surreptitiousness of its inclusion coupled with the furtive manner of its
SP No. 65891, which declared the writ of possession issued by
intercalation casts serious doubt on the authenticity of petitioners copy of the
the Regional Trial Court of Balanga City, Branch 1, on July 18, 2001, null and void, is
Certificate of Sale. Thus, it has been held that while a public document like a
AFFIRMED in toto.
notarized deed of sale is vested with the presumption of regularity, this is not a
guarantee of the validity of its contents.[34] SO ORDERED.
It must be pointed out in this regard that the issuance of a Certificate of Sale
is an end result of judicial foreclosure where statutory requirements are strictly
adhered to; where even the slightest deviations therefrom will invalidate the SECOND DIVISION
proceeding[35] and the sale.[36] Among these requirements is an explicit enumeration
and correct description of what properties are to be sold stated in the notice.
The stringence in the observance of these requirements is such that an incorrect
title number together with a correct technical description of the property to be sold
and vice versa is deemed a substantial and fatal error which results in the [G.R. No. 116710. June 25, 2001]
invalidation of the sale.[37]
The trial court also ordered respondent PNB to grant petitioner Mendoza an
xxx
additional Two Million Pesos (P2,000,000.00) loan in order for him to have the
necessary capital to resume operation. It also ordered respondents PNB, Bayani A. Petitioner also presented a letter which he addressed to Mr. Jose Salvador,
Bautista and Ricardo C. Decepida to pay to petitioner actual damages in the amount Vice-President of the Metropolitan Branches of PNB, dated September 24, 1981,
of Two Million One Hundred Thirteen Thousand Nine Hundred Sixty One Pesos which reads:
(P2,113,961.00) and the peso equivalent of Six Thousand Two Hundred Fifteen
Dollars ($6,215.00) at the prevailing foreign exchange rate on October 11, 1983; and
exemplary damages in the amount of Two Hundred Thousand Pesos (P200,000.00). Re: Restructuring of our Account into a 5-year Term Loan and Request for the
Establishment of a P2.0 Million LC/TR Line
Respondent PNB appealed this decision of the trial court to the Court of
Appeals. And the Court of Appeals reversed the decision of the trial court and
Dear Sir:
dismissed the complaint. Hence, this petition.
It is the petitioners contention that the PNB management restructured his In compliance with our discussion last September 17, we would like to formalize our
existing loan obligations to a five-year term loan and granted him another Two proposal to support our above requested assistance from the Philippine National
Million Pesos (P2,000,000.00) LC/TR line; that the Promissory Notes Nos. 127/82 and Bank.
128/82 evidencing a 2-year restructuring period or with the due maturity date
December 29, 1984 were filled out fraudulently by respondent PNB, and contrary to
his verbal agreement with respondent PNB; hence, his indebtedness to respondent xxx
PNB was not yet due and the extrajudicial foreclosure of his real estate and chattel
mortgages was premature. On the other hand, respondent PNB denies that Again we wish to express our sincere appreciation for your open-minded approach
petitioner's loan obligations were restructured to five (5) years and maintains that towards the solution of this problem which we know and will be beneficial and to
the subject two (2) Promissory Notes Nos. 127/82 and 128/82 were filled out the best interest of the bank and mutually advantageous to your client.
regularly and became due as of December 29, 1984 as shown on the face thereof.
xxx
The doctrine of promissory estoppel is an exception to the general rule that a
promise of future conduct does not constitute an estoppel. In some jurisdictions, in
At the request of our client, we would like to furnish you with the following
order to make out a claim of promissory estoppel, a party bears the burden of
information pertinent to his accounts with us:
establishing the following elements: (1) a promise reasonably expected to induce
action or forebearance; (2) such promise did in fact induce such action or
xxx forebearance, and (3) the party suffered detriment as a result.[19]
It appears that respondent bank increased the interest rates on the two (2) 2. While the appraisal of Cuervo Appraisers, Inc. was undertaken in
subject Promissory Notes Nos. 127/82 and 128/82 without the prior consent of the September 1990, the extrajudicial foreclosure of petitioners real
petitioner. The petitioner did not agree to the increase in the stipulated interest rate estate and chattel mortgages have been effected way back on
of 21% per annum on Promissory Note No. 127/82 and 18% per annum on October 15, 1984, October 23, 1984 and December 21,
Promissory Note No. 128/82. As held in several cases, the unilateral determination 1984.[34] Common experience shows that real estate values
and imposition of increased interest rates by respondent bank is violative of especially in Metro Manila tend to go upward due to
the principle of mutuality of contracts ordained in Article 1308 of the Civil developments in the locality.
Code.[26] As held in one case:[27]
3. In the public auction/foreclosure sales, respondent PNB, as
mortgagee, was not obliged to bid more than its claims or more
It is basic that there can be no contract in the true sense in the absence of the
than the amount of petitioners loan obligations which are all
element of agreement, or of mutual assent of the parties. If this assent is wanting on
overdue. The foreclosed real estate and chattel mortgages which
the part of one who contracts, his act has no more efficacy than if it had been done
petitioner earlier executed are accessory contracts covering the
under duress or by a person of unsound mind.
collaterals or security of his loans with respondent PNB. The
principal contracts are the Promissory Notes Nos. 127/82 and
Similarly, contract changes must be made with the consent of the contracting 128/82 which superseded and novated the 1979 promissory
parties. The minds of all the parties must meet as to the proposed modification, notes and the 1979 eleven (11) Applications and Agreements for
especially when it affects an important aspect of the agreement. In the case of loan Commercial Letter of Credit.
The only issue is whether the mortgage contract also secured the The sole issue in this case is whether, in the foreclosure of a
penalty fee per month on the outstanding amount as stipulated in the Credit Line real estate mortgage, the penalties stipulated in two
Agreement. promissory notes secured by the mortgage may be charged
against the mortgagors as part of the sums secured,
The Court holds not. although the mortgage contract does not mention the said
penalties.
A mortgage must sufficiently describe the debt sought to be secured,
which description must not be such as to mislead or deceive, and an obligation is xxxx
not secured by a mortgage unless it comes fairly within the terms of the
mortgage.[15] We immediately discern that the mortgage contract does
In the case at bar, the parties executed two separate documents not at all mention the penalties stipulated in the promissory
on March 31, 1997 the Credit Line Agreement granting the Client a loan through a notes. However, the petitioner insists that the penalties are
credit facility in the maximum amount of P4,700,000.00, and the Real Estate covered by the following provision of the mortgage contract:
Mortgage contract securing the payment thereof. Undisputedly, both contracts were
prepared by respondent and written in fine print, single space. This mortgage is given as security for
The Credit Line Agreement contains the following stipulations on interest the payment to the MORTGAGEE on
and delinquency charges: demand or at maturity, as the case
A. CREDIT FACILITY may be, of all promissory notes,
9. INTEREST ON AVAILMENTS letters of credit, trust receipts, bills of
The CLIENT shall pay the BANK interest on each exchange, drafts, overdrafts and all
availment against the Credit Facility at the rate of: other obligations of every kind
PREVAILING PCIBANK LENDING RATE already incurred or which hereafter
for the first interest period as defined in A(10) hereof. x x x. may be incurred.
xxxx
15. DELINQUENCY xxxx
CLIENTs account shall be considered delinquent if the
availments exceed the amount of the line and/or in case the The Court is unconvinced, for the cases relied upon by the petitioner are
Account is debited for unpaid interest and the Available inapplicable. x x x.
Balance is insufficient to cover the amount debited. In such
cases, the Available Balance shall become negative and the xxxx
CLIENT shall pay the deficiency immediately in addition to
collection expenses incurred by the BANK and a penalty fee The mortgage contract is also one of adhesion as it was prepared solely
of three percent (3%) per month of the outstanding amount by the petitioner and the only participation of the other
to be computed from the day deficiency is incurred up to party was the affixing of his signature or adhesion
the date of full payment thereon. thereto. Being a contract of adhesion, the mortgage is to be
x x x x.[16] (Underscoring supplied) strictly construed against the petitioner, the party which
prepared the agreement.
The Real Estate Mortgage contract states its coverage, thus: A reading, not only of the earlier quoted provision, but of the entire
That for and in consideration of certain loans, credit and mortgage contract yields no mention of penalty charges.
other banking facilities obtained x x x from the Mortgagee, Construing this silence strictly against the petitioner, it can
the principal amount of which is PESOS FOUR MILLION fairly be concluded that the petitioner did not intend to
SEVEN HUNDERED THOUSAND ONLY (P4,700,000.00) include the penalties on the promissory notes in the secured
Philippine Currency, and for the purpose of securing the amount. This explains the finding by the trial court, as
payment thereof, including the interest and bank affirmed by the Court of Appeals, that penalties and charges
charges accruing thereon, the costs of collecting the same are not due for want of stipulation in the mortgage contract.
and of taking possession of and keeping the mortgaged
propert[ies], and all other expenses to which the Mortgagee Indeed, a mortgage must sufficiently describe the debt sought to be
may be put in connection with or as an incident to this secured, which description must not be such as to mislead
mortgage, as well as the faithful compliance with the terms or deceive, and an obligation is not secured by a
and conditions of this agreement and of the separate mortgage unless it comes fairly within the terms of the
instruments under which the credits hereby secured were mortgage. In this case, the mortgage contract provides that
obtained, the Mortgagor does hereby constitute in favor of it secures notes and other evidences of indebtedness. Under
the Mortgagee, its successors or assigns, a mortgage on the the rule of ejusdem generis, where a description of things of
real property particularly described, and the location of a particular class or kind is accompanied by words of a
which is set forth, in the list appearing at the back hereof generic character, the generic words will usually be limited
and/or appended hereto, of which the Mortgagor declare to things of a kindred nature with those particularly
that he is the absolute owner and the one in possession enumerated . . . A penalty charge does not belong to the
thereof, free and clear of any liens, encumbrances and species of obligations enumerated in the mortgage,
adverse claims.[17] (Emphasis and underscoring supplied) hence, the said contract cannot be understood to secure
the penalty.[20] (Emphasis and underscoring supplied)
The immediately-quoted provision of the mortgage contract does not
specifically mention that, aside from the principal loan obligation, it also secures the
payment of a penalty fee of three percent (3%) per month of the outstanding Respondents contention that the absence in the mortgage contract of a
amount to be computed from the day deficiency is incurred up to the date of full stipulation securing the payment of the 3% penalty fee per month on the
payment thereon, which penalty as the above-quoted portion of the Credit Line outstanding amount is of no consequence, the deed of mortgage being merely an
Agreement expressly stipulates. accessory contract that must take its bearings from the principal Credit Line
Agreement,[21] fails. Such absence is significant as it
Since an action to foreclose must be limited to the amount mentioned
in the mortgage[18] and the penalty fee of 3% per month of the outstanding creates an ambiguity between the two contracts, which ambiguity must be resolved
obligation is not mentioned in the mortgage, it must be excluded from the in favor of petitioners and against respondent who drafted the contracts. Again, as
computation of the amount secured by the mortgage. stressed by the Court in Philippine Bank of Communications:
The ruling of the Court of Appeals in its assailed Decision that the There is also sufficient authority to declare that any ambiguity in a
phrase including the interest and bank charges in the mortgage contract refers to contract whose terms are susceptible of different
the penalty charges stipulated in the Credit Line Agreement is unavailing. interpretations must be read against the party who drafted
it.
Penalty fee is entirely different from bank charges. The phrase bank
charges is normally understood to refer to compensation for services. A penalty fee A mortgage and a note secured by it are deemed
is likened to a compensation for damages in case of breach of the parts of one transaction and are construed together, thus, an
obligation. Being penal in nature, such fee must be specific and fixed by the ambiguity is created when the notes provide for the
contracting parties, unlike in the present case which slaps payment of a penalty but the mortgage contract does
a 3% penalty fee per month of the outstanding amount of the obligation. not. Construing the ambiguity against the petitioner, it
Moreover, the penalty fee does not belong to the species of obligation follows that no penalty was intended to be covered by
enumerated in the mortgage contract, namely: loans, credit and other banking the mortgage. The mortgage contract consisted of three
facilities obtained x x x from the Mortgagee, . . . including the interest and bank pages with no less than seventeen conditions in fine print; it
This appeal was certified to this Court by the Court of Appeals as involving 1. Declaring Lucia Tan the absolute owner of the property
questions purely of law. described in the first cause of action of the amended
complaint; and ordering the herein defendants not to
encroach and molest her in the exercise of her proprietary
The decision a quo was rendered by the Court of First Instance of Misamis
rights; and, from which property they must be dispossessed;
Occidental (Branch I) in an action instituted by the plaintiff-appellee Lucia Tan
against the defendants-appellants Arador Valdehueza and Rediculo Valdehueza
(docketed as civil case 2574) for (a) declaration of ownership and recovery of 2. Ordering the defendants, Arador Valdehueza and Rediculo
possession of the parcel of land described in the first cause of action of the Valdehueza jointly and severally to pay to the plaintiff, Lucia
complaint, and (b) consolidation of ownership of two portions of another parcel of Tan, on Annex 'E' the amount of P1,200, with legal interest of
(unregistered) land described in the second cause of action of the complaint, 6% as of August 15, 1966, within 90 days to be deposited
purportedly sold to the plaintiff in two separate deeds of pacto de retro. with the Office of the Court within 90 days from the date of
service of this decision, and that in default of such payment
the property shall be sold in accordance with the Rules of
After the issues were joined, the parties submitted the following stipulation of facts:
Court for the release of the mortgage debt, plus costs;
4. That the party-plaintiff is the same plaintiff in Civil Case 1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently provides
No. 2002; that the parties defendants Arador, Rediculo and that a dismissal for failure to prosecute "shall have the effect of an adjudication
Pacita, all Valdehueza were the same parties-defendants in upon the merits," the Valdehuezas submit that the dismissal of civil case 2002
the same said Civil Case No. 2002; the complaint in Civil Case operated, upon the principle of res judicata, as a bar to the first cause of action in
No. 2002 to be marked as Exhibit 1; the answer as Exhibit 2 civil case 2574. We rule that this contention is untenable as the causes of action in
2. The trial court treated the registered deed of pacto de retro as an equitable
For Failure of SOLID to comply with its mortgage obligations contract, STATE extra-
mortgage but considered the unregistered deed of pacto de retro "as a mere case of
judicially foreclosed the mortgaged properties including the subject lot on April 6,
simple loan, secured by the property thus sold under pacto de retro," on the ground
1983, with the corresponding certificate of sale issued therefor to STATE annotated
that no suit lies to foreclose an unregistered mortgage. It would appear that the trial
at the back of the titles covering the said properties on October 13, 1983.
judge had not updated himself on law and jurisprudence; he cited, in support of his
ruling, article 1875 of the old Civil Code and decisions of this Court circa 1910 and
1912. On June 23, 1984, SOLID thru a Memorandum of Agreement negotiated for the
deferment of consolidation of ownership over the foreclosed properties by
committing to redeem the properties from STATE.
Under article 1875 of the Civil Code of 1889, registration was a necessary requisite
for the validity of a mortgage even as between the parties, but under article 2125 of
the new Civil Code (in effect since August 30,1950), this is no longer so. 4 On August 15, 1988, the spouses filed a complaint before the Housing and Land Use
Regulatory Board, HLRB, against the developer SOLID and STATE for failure on the
part of SOLID to execute the necessary absolute deed of sale as well as to deliver
If the instrument is not recorded, the mortgage is
title to said property x x x in violation of the contract to sell x x x, despite full
nonetheless binding between the parties. (Article 2125, 2nd
payment of the purchase price as of January 7, 1981. In its Answer, SOLID, by way of
sentence).
alternative defense, alleged that the obligations under the Contract to Sell has
become so difficult x x x the herein respondents be partially released from said
The Valdehuezas having remained in possession of the land and the realty taxes obligation by substituting subject lot with another suitable residential lot from
having been paid by them, the contracts which purported to be pacto de another subdivision which respondents own/operates. Upon the other hand, STATE,
retro transactions are presumed to be equitable mortgages, 5 whether registered or to which the subject lot was mortgaged, averred that unless SOLID pays the
not, there being no third parties involved. redemption price of P125,1955.00, (sic) it has a right to hold on and not release the
foreclosed properties.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed
that they remained in possession of the land and gave the proceeds of the harvest On May 23, 1989, the Office of Appeals, Adjudication and Legal Affairs (OAALA)
to the plaintiff; it is thus argued that they would suffer double prejudice if they are rendered a decision the decretal portion of which reads:
to pay legal interest on the amounts stated in the pacto de retro contracts, as the
lower court has directed, and that therefore the court should have ordered evidence
1. Ordering respondent, State Investment House, Inc. to execute a Deed of
to be adduced on the harvest.
Conveyance of Lot 1, B lock 8, in Capital Park Homes Subdivision in favor of
complainants and to deliver to the latter the corresponding certificate of title;
The record does not support this claim. Nowhere in the original and the amended
complaints is an allegation of delivery to the plaintiff of the harvest from the land
2. Ordering respondent, Solid Homes, Inc. to pay State Investment House, Inc. that
involved in the second cause of action. Hence, the defendants' answer had none to
portion of its loan which corresponds to the value of the lot as collateral;
affirm.
3. Ordering respondent, Solid Homes, Inc. to pay to this Board the amount of Six
In submitting their stipulation of facts, the parties prayed "for its approval
Thousand Pesos (P6,000.00) as administrative fine in accordance with Section 25 in
and maybe made the basis of the decision of this Honorable Court. " (emphasis
relation to Section 38 of P.D. 957.
supplied) This, the court did. It cannot therefore be faulted for not receiving
evidence on who profited from the harvest.
Both the STATE and SOLID appealed to the Board of Commissioners, HLRB, which
affirmed on June 5, 1990 the OAALAs decision (Annex C of the Petition; ibid., p. 34).
4. The imposition of legal interest on the amounts subject of the equitable
Again, both STATE and SOLID appealed the decision of the Board of Commissioners,
mortgages, P1,200 and P300, respectively, is without legal basis, for, "No interest
HLRB, to the Office of the President which dismissed the twin appeals on February
shall be due unless it has been expressly stipulated in writing." (Article 1956, new
26, 1993.
Civil Code) Furthermore, the plaintiff did not pray for such interest; her thesis was a
consolidation of ownership, which was properly rejected, the contracts being
equitable mortgages. Petitioner filed with the Supreme Court this petition for review of decision of the
Office of the President where it was docketed as G.R. No. 109364. However, in a
resolution dated May 13, 1993, the Supreme Court referred this case to this Court
With the definitive resolution of the rights of the parties as discussed above, we find
for proper disposition. On the other hand, SOLID does not appear to have joined
it needless to pass upon the plaintiffs petition for receivership. Should the
herein petitioner in this petition for review.[2]
circumstances so warrant, she may address the said petition to the court a quo.
[Italics added.]
ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the amounts
of P1,200 and P300 mentioned in Annexes E and D shall bear interest at six percent
per annum from the finality of this decision; and (b) the parcel of land covered by In a decision dated May 19, 1994, respondent court sustained the judgment
Annex D shall be treated in the same manner as that covered by Annex E, should of the Office of the President. Hence, this petition substantially anchored on these
the defendants fail to pay to the plaintiff the sum of P300 within 90 days from the two alleged errors, namely: (1) error in ruling that private respondent
finality of this decision. In all other respects the judgment is affirmed. No costs. spouses Oretas unregistered rights over the subject property are superior to the
registered mortgage rights of petitioner State Investment House, Inc. (STATE); and
(2) error in not applying the settled rule that that persons dealing with property
covered by torrens certificate of title are not required to go beyond what appears
THIRD DIVISION
on the face of the title.
[G.R. No. 115548. March 5, 1996]
STATE INVESTMENT HOUSE INC., petitioner, vs. COURT OF APPEALS, ET At the outset, we note that herein petitioner argues more extensively on the
AL., respondents. second assigned issue, than on the first. In fact, petitioner admits the superior rights
DECISION of respondents-spouses Oreta over the subject property as it did not pray for the
nullification of the contract between respondents-spouses and SOLID, but instead
FRANCISCO, J.:
asked for the payment of the release value of the property in question, plus interest,
attorneys fees and costs of suit against SOLID or, in case of the latters inability to
The factual background of the case, aptly summarized in the decision of the pay, against respondents-spouses before it can be required to release the title of
Office of the President and cited by respondent Court of Appeals [1] in its assailed the subject property in favor of the respondent spouses. [3] And even if we were to
decision, and which we have verified to be supported by the record is herein pass upon the first assigned error, we find respondent courts ruling on the matter to
reproduced as follows: be well-founded. STATEs registered mortgage right over the property is inferior to
that of respondents-spouses unregistered right. The unrecorded sale between
Our conclusion might have been different if the mortgagee were an ordinary On June 29, 1998 the RTC rendered a decision granting respondent Corpuzs
individual or company without the expertise of the petitioner in the mortgage and prayers. This prompted petitioner PNB to appeal to the Court of Appeals (CA). On
sale of registered land or if the land mortgaged were some distance from the July 31, 2007 the CA affirmed the decision of the RTC and denied the motion for its
mortgagee and could not be conveniently inspected. But there were no such reconsideration, prompting PNB to take recourse to this Court.
impediments in this case. The facilities of the petitioner were not so limited as to The Issue Presented
prevent it from making a more careful examination of the land to assure itself that
there were no unauthorized persons in possession.[10] The sole issue presented in this case is whether or not petitioner PNB is
a mortgagee in good faith, entitling it to its lien on the title to the property in
dispute.
[Emphasis supplied.]
The Ruling of the Court
The above-enunciated rule should apply in this case as petitioner admits of
being a financing institution.[11] We take judicial notice of the uniform practice of Petitioner PNB points out that, since it did a credit investigation, inspected the
financing institutions to investigate, examine and assess the real property offered as property, and verified the clean status of the title before giving out the loan to the
security for any loan application especially where, as in this case, the subject Songcuans, it should be regarded as a mortgagee in good faith. PNB claims that the
property is a subdivision lot located at QuezonCity, M.M. It is a settled rule that a precautions it took constitute sufficient compliance with the due diligence required
purchaser or mortgagee cannot close its eyes to facts which should put a of banks when dealing with registered lands.
reasonable man upon his guard, and then claim that he acted in good faith under As a rule, the Court would not expect a mortgagee to conduct an exhaustive
the belief that there was no defect in the title of the vendor or investigation of the history of the mortgagors title before he extends a loan. [1] But
mortgagor.[12] Petitioners constructive knowledge of the defect in the title of the petitioner PNB is not an ordinary mortgagee; it is a bank.[2] Banks are expected to be
subject property, or lack of such knowledge due to its negligence, takes the place of more cautious than ordinary individuals in dealing with lands, even registered ones,
registration of the rights of respondents-spouses. Respondent court thus correctly since the business of banks is imbued with public interest. [3] It is of judicial notice
ruled that petitioner was not a purchaser or mortgagee in good faith; hence that the standard practice for banks before approving a loan is to send a staff to the
petitioner can not solely rely on what merely appears on the face of the Torrens property offered as collateral and verify the genuineness of the title to determine
Title. the real owner or owners.[4]
ACCORDINGLY, finding no reversible error in the assailed judgment, the One of the CAs findings in this case is that in the course of its
same is hereby AFFIRMED verification, petitioner PNB was informed of the previous TCTs covering the subject
property.[5] And the PNB has not categorically contested this finding. It is evident
SO ORDERED.
from the faces of those titles that the ownership of the land changed from Corpuz
to Bondoc, from Bondoc to the Palaganases, and from the Palaganases to the
Songcuans in less than three months and mortgaged to PNB within four months of
the last transfer.
SECOND DIVISION
The above information in turn should have driven the PNB to look at the
deeds of sale involved. It would have then discovered that the property was sold for
PHILIPPINE NATIONAL BANK, G.R. No. 180945
ridiculously low prices: Corpuz supposedly sold it to Bondoc for just P50,000.00;
AS THE ATTORNEY-IN-FACT OF
Bondoc to the Palaganases for just P15,000.00; and the Palaganases to the
OPAL PORTFOLIO INVESTMENTS
Songcuans also for just P50,000.00. Yet the PNB gave the property an appraised
(SPV-AMC), INC.,
value of P781,760.00. Anyone who deliberately ignores a significant fact that would
Petitioner, Present:
create suspicion in an otherwise reasonable person cannot be considered as an
Carpio, J., Chairperson,
- versus - Brion, Del Castillo, Abad, and Perez, JJ. innocent mortgagee for value.[6]
MERCEDES CORPUZ, REPRESENTED
The Court finds no reason to reverse the CA decision.
BY HER ATTORNEY-IN-FACT Promulgated:
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the
VALENTINA CORPUZ,
Court of Appeals dated July 31, 2007 and its resolution dated December 17, 2007 in
Respondent. February 12, 2010
CA-G.R. CV 60616.
G.R. No. 196118 July 30, 2014 As a rule, the jurisdiction of the Court over appealed cases from the CA is limited to
the review and revision of errors of law it allegedly committed, as its findings of fact
are deemed conclusive. Thus, the Court is not duty-bound to evaluate and weigh
LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO, Petitioner,
the evidence all over again which were already considered in the proceedings
vs.
below, except when, as in this case, the findings of fact of the CAare contrary to the
SECURITY BANK CORPORATION, JRC POULTRY FARMS or SPOUSES LEON C.
findings and conclusions of the trial court.8
CASTILLO, JR., and TERESITA FLORESCASTILLO, Respondents.
This is a Petition for Review questioning the Decision 1 of the Court of Appeals (CA)
(2) The mortgagor must be the absolute owner of the thing mortgaged;
dated November 26, 2010, as well as its Resolution 2 dated March 17, 2011 in CA-
G.R. CV No. 88914. The CA reversed and set aside the Decision3 of the Regional Trial
Court (RTC) of San Pablo City, Laguna, Branch 32, dated October 16, 2006 in Civil (3) The persons constituting the mortgage must have the free disposal
Case No. SP-5882 (02), and consequently, upheld the validity of the real estate of their property, and in the absence thereof, they should be legally
mortgage entered into by respondents spouses Leon C. Castillo, Jr. and Teresita authorized for the purpose.9
Flores-Castillo, and Security Bank Corporation (SBC).
Leonardo asserts that his signature inthe SPA authorizing his brother, Leon, to
The facts, as culled from the records, are as follows: mortgage his property covered by TCT No. T-28297 was falsified. He claims that he
was in America at the time of its execution. As proof of the forgery, he focuses on
his alleged CTC used for the notarization10 of the SPA on May 5, 1993 and points
Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are siblings. Leon
out that it appears to have been issued on January 11, 1993 when, in fact, he only
and Teresita Flores-Castillo (the Spouses Castillo) were doing business under the
obtained it on May 17, 1993. But it is a settled rule that allegations of forgery, like all
name of JRC Poultry Farms. Sometime in 1994, the Spouses Castillo obtained a loan
other allegations, must be proved by clear, positive, and convincing evidence by the
from respondent SBC in the amount of P45,000,000.00. To secure said loan, they
party alleging it. It should not be presumed, but must beestablished by comparing
executed a real estate mortgage on August 5, 1994 over eleven (11) parcels of land
the alleged forged signature with the genuine signatures. 11 Here, Leonardo simply
belonging to different members of the Castillo family and which are all located in
relied on his self-serving declarations and refused to present further corroborative
San Pablo City.4 They also procured a second loan5amounting to P2,500,000.00,
evidence, saying that the falsified document itself is the best evidence. 12He did not
which was covered by a mortgage on a land in Pasay City. Subsequently, the
even bother comparing the alleged forged signature on the SPA with samples of his
Spouses Castillo failed to settle the loan, prompting SBC to proceed with the
real and actual signature. What he consistently utilized as lone support for his
foreclosure of the properties. SBC was then adjudged as the winning bidder in the
allegation was the supposed discrepancy on the date of issuance of his CTC as
foreclosure sale held on July 29, 1999. Thereafter, they were able to redeem the
reflectedon the subject SPAs notarial acknowledgment. On the contrary, in view of
foreclosed properties, withthe exception of the lots covered by Torrens Certificate of
the great ease with which CTCs are obtained these days, 13 there is reasonable
Title(TCT) Nos. 28302 and 28297.
ground to believe that, as the CA correctly observed, the CTC could have been
issued with the space for the date left blank and Leonardo merelyfilled it up to
On January 30, 2002, Leonardo filed a complaint for the partial annulment of the accommodate his assertions. Also, upon careful examination, the handwriting
real estate mortgage. He alleged that he owns the property covered by TCT No. appearing on the space for the date of issuance is different from that on the
28297 and that the Spouses Castillo used it as one of the collaterals for a loan computation of fees, which in turn was consistent with the rest of the writings on
without his consent. He contested his supposed Special Power of Attorney (SPA) in the document.14 He did not likewise attempt to show any evidence that would back
Leons favor, claiming that it is falsified. According to him, the date of issuance of his up his claim that at the time of the execution of the SPA on May 5, 1993, he was
Community Tax Certificate (CTC) as indicated on the notarization of said SPA is actually in America and therefore could not have possibly appeared and signed the
January 11, 1993, when he only secured the same on May 17, 1993. He also assailed document before the notary.
the foreclosure of the lots under TCT Nos.20030 and 10073 which were still
registered in the name of their deceased father. Lastly, Leonardo attacked SBCs
And even if the Court were to assume, simply for the sake of argument, that
imposition of penalty and interest on the loans as being arbitrary and
Leonardo indeed secured his CTC only on May 17, 1993, this does not automatically
unconscionable.
render the SPA invalid. The appellate court aptly held that defective notarization will
simply strip the document of its public character and reduce it to a private
On the other hand, the Spouses Castillo insisted on the validity of Leonardos SPA. instrument, but nonetheless, binding, provided its validity is established by
They alleged that they incurred the loan not only for themselves, but also for the preponderance of evidence.15 Article 1358 of the Civil Code requires that the form of
other members of the Castillo family who needed money at that time. Upon receipt a contract that transmits or extinguishes real rights over immovable property should
of the proceeds of the loan, they distributed the same to their family members, as be in a public document, yet the failure to observethe proper form does not render
agreed upon. However, when the loan became due, their relatives failed to pay their the transaction invalid.16 The necessity of a public document for said contracts is
respective shares such that Leon was forced to use his own money until SBC had to only for convenience; it is not essential for validity or enforceability. 17 Even a sale of
finally foreclose the mortgage over the lots.6 real property, though notcontained in a public instrument or formal writing, is
nevertheless valid and binding, for even a verbal contract of sale or real estate
produceslegal effects between the parties.18 Consequently, when there is a defect in
In a Decision dated October 16, 2006, the RTC of San Pablo City ruled in Leonardos
the notarization of a document, the clear and convincing evidentiary standard
favor, the dispositive portion of which reads:
originally attached to a dulynotarized document is dispensed with, and the measure
to test the validity of such document is preponderance of evidence. 19
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Leonardo C.
Castillo and against the defendants SECURITY BANK CORPORATION, and JRC
Here, the preponderance ofevidence indubitably tilts in favor of the respondents,
POULTRY FARMS or SPS. LEON C. CASTILLO, JR. and TERESITA FLORES-CASTILLO
still making the SPA binding between the parties even with the aforementioned
declaring as null and void the Real Estate Mortgage dated August 5, 1994, the
assumed irregularity.1wphi1 There are several telling circumstances that would
Memorandum of Agreement dated October 28, 1997 and the Certificate of Sale
clearly demonstrate that Leonardo was aware of the mortgage and he indeed
dated August 27, 1999 insofar as plaintiffs property with Transfer Certificate of Title
executed the SPA to entrust Leon with the mortgage of his property. Leon had inhis
No. T-28297 is concerned. The Security Bank Corporation is likewise ordered to
possession all the titles covering the eleven (11) properties mortgaged, including
return the ownership of the Transfer Certificate of Title No. T-28297 to plaintiff
that of Leonardo.20 Leonardo and the rest of their relatives could not have just
Leonardo Castillo. Likewise, defendants spouses Leon C. Castillo, Jr. and Teresita
blindly ceded their respective TCTs to Leon.21 It is likewise ridiculous how Leonardo
Flores-Castillo are hereby ordered to pay plaintiff moral damages in the total
seemed to have been totally oblivious to the status of his property for eight (8) long
amount of P500,000.00 and exemplary damages of P20,000.00. All other claims for
years, and would only find outabout the mortgage and foreclosure from a nephew
damages and attorneys fees are DENIED for insufficiency of evidence.
who himself had consented to the mortgage of his own lot. 22 Considering the lapse
of time from the alleged forgery on May 5, 1993 and the mortgage on August 5,
SO ORDERED.7 1994, to the foreclosure on July 29, 1999, and to the supposed discovery in 2001, it
appears that the suit is a mere afterthought or a last-ditch effort on Leonardos part
to extend his hold over his property and to prevent SBC from consolidating
Both parties elevated the case to the CA. On November 26, 2010, the CA denied
ownership over the same. More importantly, Leonardo himself admitted on cross-
Leonardos appeal and granted that of the Spouses Castillo and SBC. It reversed and
examination that he granted Leon authority to mortgage, only that, according to
set aside the RTC Decision, essentially ruling that the August 5, 1994 real estate
him, he thought it was going to be with China Bank, and not SBC.23 But as the CA
mortgage isvalid. Leonardo filed a Motion for Reconsideration, but the same was
noted, there is no mention of a certainbank in the subject SPA with which Leon must
denied for lack of merit.
SO ORDERED."[3]
Section 47. Foreclosure of Real Estate Mortgage.- In the event of foreclosure,
whether judicially or extra-judicially, of any mortgage on real estate which is security The facts that matter:
for any loan or other credit accommodation granted, the mortgagor or debtor
whose real property has been sold for the full or partial payment of his obligation
Sometime in August, 1982, the petitioner, Osmundo S. Canlas, and private
shall have the right within one year after the sale of the real estate, to redeem the
respondent, Vicente Maosca, decided to venture in business and to raise the capital
property by paying the amount due under the mortgage deed, with interest thereon
needed therefor. The former then executed a Special Power of Attorney authorizing
at the rate specified in the mortgage, and all the costs and expenses incurred by the
the latter to mortgage two parcels of land situated in San Dionisio, (BF
bank or institutionfrom the sale and custody of said property less the income
Homes) Paranaque, Metro Manila, each lot with semi-concrete residential house
derived therefrom. However,the purchaser at the auction sale concerned whether in
existing thereon, and respectively covered by Transfer Certificate of Title No. 54366
a judicial or extra-judicial foreclosure shall have the right to enter upon and take
in his (Osmundo's) name and Transfer Certificate of Title No. S-78498 in the name of
possession of such property immediately after the date of the confirmation of the
his wife Angelina Canlas.
auction sale and administer the same in accordance with law. Any petition in court
to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to
this provision shall be given due course only upon the filing by the petitioner of a Subsequently, Osmundo Canlas agreed to sell the said parcels of land to Vicente
bond in an amount fixed by the court conditioned that he will pay all the damages Manosca, for and in consideration of P850,000.00, P500,000.00 of which payable
which the bank may suffer by the enjoining or the restraint of the foreclosure within one week, and the balance of P350,000.00 to serve as
proceeding. his (Osmundo's) investment in the business. Thus, Osmundo Canlas delivered to
Vicente Maosca the transfer certificates of title of the parcels of land involved.
Vicente Maosca, as his part of the transaction, issued two postdated checks in favor
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant
of Osmundo Canlas in the amounts of P40,000.00 and P460,000.00, respectively, but
to an extrajudicial foreclosure, shall have the right to redeem the property in
it turned out that the check covering the bigger amount was not sufficiently
accordance with this provision until, but not after, the registration of the certificate
funded.[4]Ne-xold
of foreclosure sale with the applicable Register of Deeds which in no case shall be
more than three (3) months after foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale prior to the effectivity of this Act On September 3, 1982, Vicente Maosca was able to mortgage the same parcels of
shall retain their redemption rights until their expiration. 28 Verily, the redemption land for P100,000.00 to a certain Attorney Manuel Magno, with the help of
price comprises not only the total amount due under the mortgage deed, but also impostors who misrepresented themselves as the spouses, Osmundo Canlas and
with interest at the rate specified in the mortgage, and all the foreclosure expenses Angelina Canlas.[5]
incurred by the mortgagee bank.
On September 29, 1982, private respondent Vicente Maosca was granted a loan by
To sustain Leonardo's claim that their payment of P45,000,000.00 had already the respondent Asian Savings Bank (ASB) in the amount of P500,000.00, with the use
extinguished their entire obligation with SBC would mean that no interest ever of subject parcels of land as security, and with the involvement of the same
accrued from 1994, when the loan was availed, up to the time the payment impostors who again introduced themselves as the Canlas spouses. [6] When the loan
of P45,000,000.00 was made in 2000-2001. it extended was not paid, respondent bank extrajudicially foreclosed the mortgaged.
SBC's 16% rate of interest is not computed per month, but rather per annum or only On January 15, 1983, Osmundo Canlas wrote a letter informing the respondent bank
1.33% per month. In Spouses Bacolor v. Banco Filipino Savings and Mortgage Bank, that the execution of subject mortgage over the two parcels of land in question was
Dagupan City Branch,29 the Court held that the interest rate of 24% per annum on a without their (Canlas spouses) authority, and request that steps be taken to annul
loan of P244,000.00 is not considered as unconscionable and excessive. As such, the and/or revoke the questioned mortgage. On January 18, 1983, petitioner Osmundo
Court ruled that the debtors cannot renege on their obligation to comply with what Canlas also wrote the office of Sheriff Maximo C. Contreras, asking that the auction
is incumbent upon them under the contract of loan as they are bound by its sale scheduled on February 3, 1983 be cancelled or held in abeyance.
stipulations. Also, the 24o/o per annum rate or 2% per month for the penalty But respondents Maximo C. Contreras and Asian Savings Bank refused to heed
charges imposed on account of default, cannot be considered as skyrocketing. The petitioner Canlas' stance and proceeded with the scheduled auction sale. [7]
enforcement of penalty can be demanded by the creditor in case of non-
performance due to the debtor's fault or fraud. The nonperformance gives rise to
Consequently, on February 3, 1983 the herein petitioners instituted the present case
the presumption of fault and in order to avoid the penalty, the debtor has the
for annulment of deed of real estate mortgage with prayer for the issuance of a writ
burden of proving that the failure of the performance was due to either force
of preliminary injunction; and on May 23, 1983, the trial court issued an Order
majeure or the creditor's own acts.30 In the instant case, petitioner failed to
restraining the respondent sheriff from issuing the corresponding Certificate of
discharge said burden and thus cannot avoid the payment of the penalty charge
Sheriffs Sale.[8]
agreed upon.
For failure to file his answer, despite several motions for extension of time for the
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court
filing thereof, Vicente Maosca was declared in default. [9]
of Appeals, dated November 26, 2010, as well as its Resolution dated March 17,
2011 in CA-G.R. CV No. 88914, are hereby AFFIRMED.
On June 1, 1989, the lower court a quo came out with a decision annulling subject
deed of mortgage and disposing, thus:
SO ORDERED.
From such Decision below, Asian Savings Bank appealed to the Court of Appeals,
A:.....Yes, among others the signature and TAX Account
which handed down the assailed judgment of reversal, dated September 30, 1983, in
Number, Residence Certificate appearing on the previous loan
CA-G.R. CV No. 25242. Dissatisfied therewith, the petitioners found their way to this
executed by the spouses CANLAS, I am referring to EXHIBIT 5,
Court via the present Petition; theorizing that:
mortgage to ATTY. MAGNO, those were made the basis.
"I
A:.....That is just the basis of accepting the signature, because
at that time the loan have been approved already on the basis
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE of the financial statement of the client the Bank Statement.
MORTGAGE OF THE PROPERTIES SUBJECT OF THIS CASE WAS VALID. Wneh (sic) it was approved we have to base it on the Financial
statement of the client, the signatures were accepted only for
the purpose of signing the mortgage not for the approval, we
II
don't (sic) approve loans on the signature.
IV
Q:.....Among others?
ATTY. CARLOS:
V
The degree of diligence required of banks is more than that of a good father of a
family;[12] in keeping with their responsibility to exercise the necessary care and A:.....Residence Certificate.
prudence in dealing even on a register or titled property. The business of a bank is
affected with public interest, holding in trust the money of the depositors, which
Q:.....Is that all, is that the only requirement?
bank deposits the bank should guard against loss due to negligence or bad faith, by
reason of which the bank would be denied the protective mantle of the land
registration law, accorded only to purchases or mortgagees for value and in good A:.....We requested for others but they could not produce, and
faith.[13]Man-ikan because they presented to us the Residence Certificate which
matches on the signature on the Residence Certificate in favor
of Atty. Magno."[14]M-isjuris
In the case under consideration, from the evidence on hand it can be gleaned
unerringly that respondent bank did not observe the requisite diligence in
ascertaining or verifying the real identity of the couple who introduced themselves Evidently, the efforts exerted by the bank to verify the identity of the couple posing
as the spouses Osmundo Canlas and Angelina Canlas. It is worthy to note that not as Osmundo Canlas and Angelina Canlas fell short of the responsibility of the bank
even a single identification card was exhibited by the said impostors to show their to observe more than the diligence of a good father of a family. The negligence of
true identity; and yet, the bank acted on their representations simply on the basis of respondent bank was magnified by the fact that the previous deed of
the residence certificates bearing signatures which tended to match the signatures mortgage (which was used as the basis for checking the genuineness of the signatures
affixed on a previous deed of mortgage to a certain Atty. Magno, covering the same of the suppose Canlas spouses) did not bear the tax account number of the
parcels of land in question. Felizado Mangubat, Assistant Vice President of Asian spouses,[15] as well as the Community Tax Certificate of Angelina Canlas. [16] But such
Savings Bank, thus testified inter alia: fact notwithstanding, the bank did not require the impostors to submit additional
proof of their true identity.
"x x x
Assuming that Osmundo Canlas was negligent in giving Vicente Maosca the
opportunity to perpetrate the fraud, by entrusting to latter the owner's copy of the xxx.....xxx.....xxx
transfer certificates of title of subject parcels of land, it cannot be denied that the
bank had the last clear chance to prevent the fraud, by the simple expedient of
QUESTION:..... So, what is the main topic of your discussion
faithfully complying with the requirements for banks to ascertain the identity of the
during the meeting?
persons transacting with them.
Thus, armed with the titles and the special power of attorney, ANSWER:..... General Economy then.
Manosca went to the defendant bank and applied for a loan.
And when Maosca came over to the bank to submit additional
x x x"[22]
documents pertinent to his loan application, Osmundo Canlas
was with him, together with a certain Rogelio Viray. At that
time, Osmundo Canlas was introduced to the bank personnel Verily, Osmundo Canlas was left unaware of the illicit plan of Maosca, explaining
as 'Leonardo Rey. thus why he (Osmundo) did not bother to correct what Maosca misrepresented and
to assert ownership over the two parcels of land in question. Scs-daad
When he was introduced as 'Leonardo Rey for the first time
Osmundo should have corrected Maosca right away. But he Not only that; while it is true that Osmundo Canlas was with Vicente Maosca when
did not. Instead, he even allowed Maosca to avail of his the latter submitted the documents needed for his loan application, and when the
(Osmundo's) membership privileges at the Metropolitan Club check of P200,000.000 was released, the former did not know that the collateral
when Maosca invited two officers of the defendant bank to a used by Maosca for the said loan were their (Canlas spouses) properties. Osmundo
luncheon meeting which Osmundo also attended. And during happened to be with Maosca at the time because he wanted to make sure that
that meeting, Osmundo did not say who he really is, but even Maosca would make good his promise to pay the balance of the purchase price of
let Maosca introduced him again as 'Leonardo Rey, which all the said lots out of the proceeds of the loan. [23]
the more indicates that he connived with Maosca in deceiving
the defendant bank.
The receipt by Osmundo Canlas of the P200,000.00 check from ASB could not estop
him from assailing the validity of the mortgage because the said amount was in
Finally after the loan was finally approved, Osmundo payment of the parcels of land he sold to Maosca. [24]
accompanied Maosca to the bank when the loan was released.
At that time a manger's check for P200,000.00 was issued in
What is decisively clear on record is that Maosca managed to keep Osmundo Canlas
the name of Oscar Motorworks, which Osmundo admits he
uninformed of his (Maosca's) intention to use the parcels of land of the Canlas
owns and operates.
spouses as security for the loan obtained from Asian Savings Bank. Since Vicente
Maosca showed Osmundo Canlas several certificates of title of lots which, according
Collectively, the foregoing circumstances cannot but conjure to Maosca were the collaterals, Osmundo Canlas was confident that
to a single conclusion that Osmundo actively participated in their (Canlases) parcels of land were not involved in the loan transaction with the
the loan application of defendant Asian Savings Bank, which Asian Savings Bank.[25] Under the attendant facts and circumstances, Osmundo
culminated in his receiving a portion of the process Canlas was undoubtedly negligent, which negligence made
thereof."[18] them (petitioners) undeserving of an award of Attorneys fees.
A meticulous and painstaking scrutiny of the Records on hand, reveals, however, Settled is the rule that a contract of mortgage must be constituted only by the
that the findings arrived at by the Court of Appeals are barren of any sustainable absolute owner on the property mortgaged;[26] a mortgage, constituted by an
basis. For instance, the execution of the deeds of mortgages constituted by Maosca impostor is void.[27]Considering that it was established indubitably that the contract
on subject pieces of property of petitioners were made possible not by the Special of mortgage sued upon was entered into and signed by impostors who
Power of Attorney executed by Osmundo Canlas in favor of Maosca but through the misrepresented themselves as the spouses Osmundo Canlas and Angelina Canlas,
use of impostors who misrepresented themselves as the spouses Angelina Canlas the Court is of the ineluctible conclusion and finding that subject contract of
and Osmundo Canlas. It cannot be said therefore, that the petitioners authorized mortgage is a complete nullity.
Vicente Maosca to constitute the mortgage on their parcels of land.
WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals,
What is more, Osmundo Canlas was introduced as "Leonardo Rey" by Vicente dated September 30, 1993, in CA-G.R. CV No. 25242 SET ASIDE. The Decision of
Maosca, only on the occasion of the luncheon meeting at the Metropolitan Branch 59 of the Regional Trial Court of Makati City in Civil Case No. M-028 is
Club.[19] Thereat, the failure of Osmundo Canlas to rectify Maosca's hereby REINSTATED. No pronouncement as to costs.
misrepresentations could not be taken as a fraudulent act. As well explained by the
former, he just did not want to embarrass Maosca, so that he waited for the end of
SO ORDERED.
the meeting to correct Maosca.[20]
Then, too, Osmundo Canlas recounted that during the said luncheon meeting, they
did not talk about the security or collateral for the loan of Maosca with ASB.[21] So
also, Mrs. Josefina Rojo, who was the Account Officer of Asian Savings Bank when EN BANC
Maosca applied for subject loan, corroborated the testimony of Osmundo Canlas,
she testified: S-daad
G.R. No. L-13313 April 28, 1960
"xxx.....xxx.....xxx
AGRICULTURAL CREDIT COOPERATIVE ASSOCIATION OF
HINIGARAN, movant-appellee,
vs.
ESTANISLAO YULO YUSAY, ET AL., oppositors-appellants.
G.R. No. 170166 is a petition for review1 assailing the Decision2 promulgated on 17
This is an appeal from an order of the Court of First Instance of Negros Occidental, October 2005 by the Court of Appeals (appellate court) in CA-G.R. CV No. 76845.
Hon. Jose S. de la Cruz, presiding the Register of Deeds of Negros Occidental to The appellate court granted the appeal filed by the Philippine National Bank
register a mortgage executed by Rafael Yulo in favor of the movant covering Lot No. Laoag Branch (PNB). The appellate court reversed the 29 June 2001 Decision of
855, Pontevedra Cadastre, covered by Original Certificate of Title No. 4979. Branch 15 of the Regional Trial Court of Laoag City (trial court) in Civil Case No.
7803.
The records disclose that on July 20, 1952, Rafaela Yulo executed in favor of the
movant a mortgage for P33,626.29, due from her, her mother, sisters, brothers, and The trial court declared the Deed of Real Estate Mortgage executed by spouses Jose
others, which amount she assumed to pay to the movant. A motion was presented A. Ros3 (Ros) and Estrella Aguete (Aguete) (collectively, petitioners), as well as the
to the court by the movant demanding the surrender of the owner's duplicate subsequent foreclosure proceedings, void. Aside from payment of attorneys fees,
certificate of title that he may annotate said mortgage at the back of the certificate. the trial court also ordered PNB to vacate the subject property to give way to
Estanislao Yusay, a part owner of the lot, opposed the petition on the ground that petitioners possession.
he is owner of a part of the property in question; that the granting of the motion
would operate to his prejudice, as he has not participated in the mortgage cited in
The Facts
the motion; that Rafaela Yulo is dead; that the motion is not verified and movant's
rights have lapsed by prescription. Finally it is argued that his opposition raises a
controversial matter which the court has no jurisdiction to pass upon. Margarita, The appellate court narrated the facts as follows:
Maria, Elena and Pilar, all surnamed Yulo, joined the oppositor Estanislao Yusay,
raising the same objections interposed by Yusay.
On January 13, 1983, spouses Jose A. Ros and Estrella Aguete filed a complaint for
the annulment of the Real Estate Mortgage and all legal proceedings taken
The existence of the mortgage is not disputed, and neither is the fact that the thereunder against PNB, Laoag Branch before the Court of First Instance, Ilocos
mortgagor Rafaela Yulo is part owner of Lot No. 855 of the Cadastral Survey of Norte docketed as Civil Case No. 7803.
Pontevedra. The oppositors do not dispute that she is such a part owner, and their
main objection to the petition is that as part owners of the property, the annotation
The complaint was later amended and was raffled to the Regional Trial Court,
of the mortgage on the common title will affect their rights.
Branch 15, Laoag City.
The court held that even if the ownership of the deceased Rafaela Yulo over the
The averments in the complaint disclosed that plaintiff-appellee Joe A. Ros obtained
portion of the lot in question and the validity of the mortgage are disputed, such
a loan of P115,000.00 from PNB Laoag Branch on October 14, 1974 and as security
invalidity of the mortgage is no proof of the non-existence of the mortgage nor a
for the loan, plaintiff-appellee Ros executed a real estate mortgage involving a
ground for objecting to its registration, citing the case of Register of Deeds of
parcel of land Lot No. 9161 of the Cadastral Survey of Laoag, with all the
Manila vs. Maxima Tinoco Vda. de Cruz, et, al., 95 Phil., 818; 53 Off. Gaz., 2804.
improvements thereon described under Transfer Certificate of Title No. T-9646.
In his Brief before this Court, counsel for appellants argue that the mortgage sought
Upon maturity, the loan remained outstanding. As a result, PNB instituted
to be registered was not recorded before the closing of the intestate proceedings of
extrajudicial foreclosure proceedings on the mortgaged property. After the
the deceased mortgagor, but was so recorded only four months after the
extrajudicial sale thereof, a Certificate of Sale was issued in favor of PNB, Laoag as
termination of said proceedings, so that the claim of movant has been reduced to
the highest bidder. After the lapse of one (1) year without the property being
the character of a mere money claim, not a mortgage, hence the mortgage may not
redeemed, the property was consolidated and registered in the name of PNB, Laoag
be registered. In the first place, as the judge below correctly ruled, the proceeding
Branch on August 10, 1978.
to register the mortgage does not purport to determine the supposed invalidity of
the mortgage or its effect. Registration is a mere ministerial act by which a deed,
contract or instrument is sought to be inscribed in the records of the Office of the Claiming that she (plaintiff-appellee Estrella Aguete) has no knowledge of the loan
Register of Deeds and annotated at the back of the certificate of title covering the obtained by her husband nor she consented to the mortgage instituted on the
land subject of the deed, contract or instrument. conjugal property a complaint was filed to annul the proceedings pertaining to
the mortgage, sale and consolidation of the property interposing the defense that
her signatures affixed on the documents were forged and that the loan did not
The registration of a lease or mortgage, or the entry of a memorial of a
redound to the benefit of the family.1avvphi1
lease or mortgage on the register, is not a declaration by the state that
such an instrument is a valid and subsisting interest in land; it is merely a
declaration that the record of the title appears to be burdened with the In its answer, PNB prays for the dismissal of the complaint for lack of cause of
lease or mortgage described, according to the priority set forth in the action, and insists that it was plaintiffs-appellees own acts [of]
certificate.
omission/connivance that bar them from recovering the subject property on the
The mere fact that a lease or mortgage was registered does not stop any ground of estoppel, laches, abandonment and prescription. 4]
party to it from setting up that it now has no force or effect. (Niblack,
pp. 134-135, quoted in Francisco Land Registration Act, l950 ed., p. 348.)
The Trial Courts Ruling
The court below, in ordering the registration and annotation of the mortgage, did
On 29 June 2001, the trial court rendered its Decision5 in favor of petitioners. The
not pass on its invalidity or effect. As the mortgage is admittedly an act of the
trial court declared that Aguete did not sign the loan documents, did not appear
registered owner, all that the judge below did and could do, as a registration court,
before the Notary Public to acknowledge the execution of the loan documents, did
is to order its registration and annotation on the certificate of title covering the land
not receive the loan proceeds from PNB, and was not aware of the loan until PNB
mortgaged. By said order the court did not pass upon the effect or validity of the
notified her in 14 August 1978 that she and her family should vacate the mortgaged
mortgage these can only be determined in an ordinary case before the courts,
property because of the expiration of the redemption period. Under the Civil Code,
not before a court acting merely as a registration court, which did not have the
the effective law at the time of the transaction, Ros could not encumber any real
jurisdiction to pass upon the alleged effect or validity.
property of the conjugal partnership without Aguetes consent. Aguete may, during
their marriage and within ten years from the transaction questioned, ask the courts
Wherefore, the order appealed from is hereby affirmed, with costs against for the annulment of the contract her husband entered into without her consent,
oppositors-appellants. So ordered. especially in the present case where her consent is required. The trial court,
however, ruled that its decision is without prejudice to the right of action of PNB to
recover the amount of the loan and its interests from Ros.
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Concepcion, Endencia,
and Gutierrez David, JJ., concur.
The dispositive portion reads:
SECOND DIVISION
WHEREFORE, premises considered, judgment is hereby rendered:
G.R. No. 170166 April 6, 2011
1. DECLARING the Deed of Real Estate Mortgage (Exhibit "C") and the
subsequent foreclosure proceedings conducted thereon NULL and
JOE A. ROS and ESTRELLA AGUETE, Petitioners,
VOID;
vs.
PHILIPPINE NATIONAL BANK - LAOAG BRANCH, Respondent.
2. ORDERING the Register of Deeds of the City of Laoag to cancel TCT
No. T-15276 in the name of defendant PNB and revert the same in the
DECISION
name of plaintiffs spouses Joe Ros and Estrella Aguete;
(1) All debts and obligations contracted by the husband for the benefit
PNB filed its Notice of Appeal7 of the trial courts decision on 13 September 2001
of the conjugal partnership, and those contracted by the wife, also for
and paid the corresponding fees. Petitioners filed on the same date a motion for
the same purpose, in the cases where she may legally bind the
execution pending appeal,8 which PNB opposed.9 In their comment to the
partnership;
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 (2) Arrears or income due, during the marriage, from obligations which
subject lot is dilapidated, a danger to life and limb, and should be demolished. constitute a charge upon property of either spouse or of the
Petitioners added that they obliged themselves to make the house habitable at a partnership;
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
(3) Minor repairs or for mere preservation made during the marriage
motion.11
upon the separate property of either the husband or the wife; major
repairs shall not be charged to the partnership;
In an Order12 dated 8 May 2002, the trial court found petitioners motion for
execution pending appeal improper because petitioners have made it clear that
(4) Major or minor repairs upon the conjugal partnership property;
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 (5) The maintenance of the family and the education of the children of
recovery of improvements introduced should PNB prevail on appeal. both husband and wife, and of legitimate children of one of the spouses;
The Appellate Courts Ruling (6) Expenses to permit the spouses to complete a professional,
vocational or other course.
On 17 October 2005, the appellate court rendered its Decision13 and granted PNBs
appeal. The appellate court reversed the trial courts decision, and dismissed Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or
petitioners complaint. 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
The appellate court stated that the trial court concluded forgery without adequate
compel her to grant the same.
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 Art. 173. The wife may, during the marriage, and within ten years from the
her full consent. 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
Assuming arguendo that Aguete did not give her consent to Ros loan, the appellate
the conjugal partnership property. Should the wife fail to exercise this right, she or
court ruled that the conjugal partnership is still liable because the loan proceeds
her heirs after the dissolution of the marriage may demand the value of the
redounded to the benefit of the family. The records of the case reveal that the loan
property fraudulently alienated by the husband.
was used for the expansion of the familys business. Therefore, the debt obtained is
chargeable against the conjugal partnership.
There is no doubt that the subject property was acquired during Ros and Aguetes
marriage. Ros and Aguete were married on 16 January 1954, while the subject
Petitioners filed the present petition for review before this Court on 9 December
property was acquired in 1968.15 There is also no doubt that Ros encumbered the
2005.
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
The Issues 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.
Petitioners assigned the following errors:
The husband cannot alienate or encumber any conjugal real property without the
I. The Honorable Court of Appeals erred in not giving weight to the findings and
consent, express or implied, of the wife. Should the husband do so, then the
conclusions of the trial court, and in reversing and setting aside such findings and
contract is voidable.17 Article 173 of the Civil Code allows Aguete to question Ros
conclusions without stating specific contrary evidence;
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
II. The Honorable Court of Appeals erred in declaring the real estate mortgage valid; 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.
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 The documents disavowed by Aguete are acknowledged before a notary public,
raised by respondent in its appeal.14] 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
The Courts Ruling
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
The petition has no merit. We affirm the ruling of the appellate court. alleged signer.19 PNB was correct when it stated that petitioners omission to
present other positive evidence to substantiate their claim of forgery was fatal to
petitioners cause.20Petitioners did not present any corroborating witness, such as a
The Civil Code was the applicable law at the time of the mortgage. The subject
handwriting expert, who could authoritatively declare that Aguetes signatures were
property is thus considered part of the conjugal partnership of gains. The pertinent
really forged.
articles of the Civil Code provide:
A notarized document carries the evidentiary weight conferred upon it with respect
Art. 153. The following are conjugal partnership property:
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
(1) That which is acquired by onerous title during the marriage at the controversy as to the falsity of the certificate. Absent such, the presumption must be
expense of the common fund, whether the acquisition be for the upheld. The burden of proof to overcome the presumption of due execution of a
partnership, or for only one of the spouses; notarial document lies on the one contesting the same. Furthermore, an allegation
of forgery must be proved by clear and convincing evidence, and whoever alleges it
has the burden of proving the same.21]
(2) That which is obtained by the industry, or work or as salary of the
spouses, or of either of them;
For this reason, we rule that Ros loan from PNB redounded to the benefit of the
conjugal partnership. Hence, the debt is chargeable to the conjugal partnership.
On 17 March 1987, respondent presented for negotiation to petitioner
drafts drawn under the letter of credit and the corresponding export documents in
WHEREFORE, we DENY the petition. The Decision of the Court of Appeals in CA- consideration for its drawings in the amounts of US$5,739.76 and US$4,585.79.
G.R. CV No. 76845 promulgated on 17 October 2005 is AFFIRMED. Costs against Petitioner purchased the drafts and export documents by paying respondent the
petitioners. 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]
SO ORDERED.
On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner through cable
SECOND DIVISION that the Korean buyer refused to pay respondents export documents on account of
PRODUCERS BANK OF THE G.R. No. 152071 typographical discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the export
PHILIPPINES, documents.[12]
Petitioner,
Present: Upon learning about the Korean importers non-payment, respondent
sent petitioner a letter dated 27 July 1987, informing the latter that respondent had
CARPIO MORALES, J.*, brought the matter before the Korea Trade Court and that it was ready to liquidate
- versus- Acting Chairperson, its past due account with petitioner. Respondent sent another letter dated 08
TINGA, September 1987, reiterating the same assurance. In a letter 05 October 1987, Kwang
VELASCO, JR., Ju Bank, Ltd. informed petitioner that it would be returning the export documents
LEONARDO-DE CASTRO, and** on account of the non-acceptance by the importer.[13]
EXCELSA INDUSTRIES, INC., BRION, JJ.
Respondent. Petitioner demanded from respondent the payment of the peso
Promulgated: 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,
May 8, 2009 petitioner moved for the extrajudicial foreclosure on the real estate mortgage over
respondents properties.
x -----------------------------------------------------------------------x
Per petitioners computation, aside from charges for attorneys fees and
DECISION sheriffs fees, respondent had a total due and demandable obligation of P573,225.60,
including interest, in six different accounts, namely:
TINGA, J.:
1) EBP-PHO-87-1121 (US$4,585.97 x 21.212) = P119,165.06
This is a petition for review on certiorari[1] under Rule 43 of the 1997 Rules of Civil 2) EBP-PHO-87-1095 (US$ 5,739.76 x 21.212) = 151,580.97
Procedure, assailing the decision[2] and resolution[3] of the Court of Appeals in CA- 3) BDS-001-87 = 61,777.78
G.R. CV No. 59931. The Court of Appeals decision [4] reversed the decision of the 4) BDS-030/86 A = 123,555.55
Regional Trial Court (RTC), Branch 73, Antipolo, Rizal, upholding the extrajudicial 5) BDS-PC-002-/87 = 55,822.91
foreclosure of the mortgage on respondents properties, while the resolution denied 6) BDS-005/87 = 61,323.33
petitioners motion for reconsideration.[5] P573,225.60[14]
As borne by the records of the case, the following factual antecedents The total approved bid price, which included the attorneys fees and
appear: 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
Respondent Excelsa Industries, Inc. is a manufacturer and exporter of fuel products, as the highest bidder.[15] The certificate of sale was registered on 24 March 1988. [16]
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 On 12 June 1989, petitioner executed an affidavit of consolidation over
petitioner Producers Bank of the Philippines, a banking institution duly organized the foreclosed properties after respondent failed to redeem the same. As a result,
and existing under Philippines laws.[6] the Register of Deeds of Marikina issued new certificates of title in the name of
petitioner.[17]
The RTC also found that by its admission, respondent had other loan
obligations obtained from petitioner which were due and demandable; hence, Notably, the errors cited by petitioners are factual in nature. Although
petitioner correctly exercised its right to foreclose the real estate mortgage, which the instant case is a petition for review under Rule 45 which, as a general rule, is
provided that the same secured the payment of not only the loans already obtained limited to reviewing errors of law, findings of fact being conclusive as a matter of
but also the export advances.[23] 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
Lastly, the RTC found respondent guilty of laches in questioning the exception to the general rule.[30]
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] 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
The RTC denied respondents motion for reconsideration. [25] Thus, by respondent as a condition for the negotiation of the drafts, respondent held
respondent elevated the matter to the Court of Appeals, reiterating its claim that itself liable if the drafts were not accepted. The two undertakings signed by
petitioner was not only a collection agent but was considered a purchaser of the respondent are similarly-worded and contained respondents express warranties, to
export wit:
On 30 May 2001, the Court of Appeals rendered the assailed decision, In consideration of your negotiating the above
reversing the RTCs decision, thus: described draft(s), we hereby warrant that the said
draft(s) and accompanying documents thereon are valid,
genuine and accurately represent the facts stated
WHEREFORE, the appeal is hereby GRANTED. therein, and that such draft(s) will be accepted and paid
The decision of the trial court dated December 18, 1997 is in accordance with its/their tenor. We further undertake
REVERSED and SET ASIDE. Accordingly, the foreclosure of and agree, jointly and severally, to defend and hold you free
mortgage on the properties of appellant is declared as and harmless from any and all actions, claims and demands
INVALID. The issuance of the writ of possession in favor of whatsoever, and to pay on demand all damages actual or
appellee is ANNULLED. The following damages are hereby compensatory including attorneys fees, costs and other
awarded in favor of appellant: awards or be adjudged to pay, in case of suit, which you may
suffer arising from, by reason, or on account of your
(a) Moral damages in the amount of P100,000.00; negotiating the above draft(s) because of the following
discrepancies or reasons or any other discrepancy or reason
(b) Exemplary damages in the amount whatever.
of P100,000.00; and
We hereby undertake to pay on demand the
(c) Costs. full amount of the above draft(s) or any unpaid balance
thereof, the Philippine perso equivalent converted at the
SO ORDERED.[26] 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 Court of Appeals held that respondent should not be faulted for the the date of negotiation, plus all charges and expenses
dishonor of the drafts and export documents because the obligation to collect the whatsoever incurred in connection therewith. You shall
export proceeds from Kwang Ju Bank, Ltd. devolved upon petitioner. It cited the neither be obliged to contest or dispute any refusal to
testimony of petitioners manager for the foreign currency department to the effect accept or to pay the whole or any part of the above draft(s),
that petitioner was respondents agent, being the only entity authorized under nor proceed in any way against the drawee, the issuing bank
Central Bank Circular No. 491 to collect directly from the importer the export or any endorser thereof, before making a demand on us for
proceeds on respondents behalf and converting the same to Philippine currency for the payment of the whole or any unpaid balance of the
remittance to respondent. The appellate court found that respondent was not draft(s).(Emphasis supplied)[31]
authorized and even powerless to collect from the importer and it appeared that
Petitioner, however, can still be made liable Plaintiff is estopped from questioning the
under the letter of undertaking. It bears stressing that it is a foreclosure. The plaintiff is guilty of laches and cannot at this
separate contract from the sight draft. The liability of point in time question the foreclosure of the subject
petitioner under the letter of undertaking is direct and properties. Defendant bank made demands against the
primary. It is independent from his liability under the sight plaintiff for the payment of plaintiffs outstanding loans and
draft. Liability subsists on it even if the sight draft was advances with the defendant as early as July 1997. Plaintiff
dishonored for non-acceptance or non-payment. acknowledged such outstanding loans and advances to the
defendant bank and committed to liquidate the same. For
Respondent agreed to purchase the draft and failure of the plaintiff to pay its obligations on maturity,
credit petitioner its value upon the undertaking that he will defendant bank foreclosed the mortgage on subject
reimburse the amount in case the sight draft is dishonored. properties on January 5, 1988 the certificate of sale was
The bank would certainly not have agreed to grant petitioner annotated on March 24, 1988 and there being no
an advance export payment were it not for the letter of redemption made by the plaintiff, title to said properties
undertaking. The consideration for the letter of undertaking were consolidated in the name of defendant in July 1989.
was petitioners promise to pay respondent the value of the Undeniably, subject foreclosure was done in accordance with
sight draft if it was dishonored for any reason by the Bank of the prescribed rules as may be borne out by the exhibits
Seoul.[33] 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
Thus, notwithstanding petitioners alleged failure to comply with the card evidencing receipt by plaintiff of the notice of
requirements of notice of dishonor and protest under Sections 89 [34] and extrajudicial sale and Exhibit 21 affidavit of publication.
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 Court adopts and approves the aforequoted findings by the RTC,
the same being fully supported by the evidence on record.
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.
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
Respondent executed a real estate mortgage containing a blanket REVERSED and SET ASIDE. The decision of the Regional Trial Court Branch 73,
mortgage clause, also known as a dragnet clause. It has been settled in a long line Antipolo, Rizal in Civil Case No. 1587-A and LR Case No. 90-787 is REINSTATED.
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 SO ORDERED.
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]
SECOND DIVISION
In Union Bank of the Philippines v. Court of Appeals,[37] the nature of a
dragnet clause was explained, thus: G.R. No. 173171 July 11, 2012
xxx
In the assailed Decision, the CA Affirmed the Decision3 dated January 28, 1998 of
Petitioner, therefore, was not precluded from seeking the foreclosure of the Regional Trial Court (RTC), Branch 42 of Dagupan City in Civil Case No. 94-
the real estate mortgage based on the unpaid drafts drawn by respondent. In any 00200-D, ordering petitioner Philippine Charity Sweepstakes Office (PCSO) to
case, respondent had admitted that aside from the unpaid drafts, respondent also surrender the owners duplicate of Transfer
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- Certificate of Title (TCT) No. 52135 to the Register of Deeds of Dagupan City for
005/87. cancellation and issuance of a new certificate of title in the name of respondent
New Dagupan Metro Gas Corporation (New Dagupan).
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. In its Resolution4 dated June 9, 2006, the CA denied PCSOs motion for
reconsideration.
Petitioner, on the other hand, claims that under paragraph 12 [39] of the The Factual Antecedents
real estate mortgage, personal notice of the foreclosure sale is not a requirement to
the validity of the foreclosure sale.
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
A perusal of the records of the case shows that a notice of sheriffs March 8, 1989, a real estate mortgage was constituted over such property in favor
sale[40] was sent by registered mail to respondent and received in due course. [41] Yet, of PCSO to secure the payment of the sweepstakes tickets purchased by one of its
respondent claims that it did not receive the notice but only learned about it from provincial distributors, Patricia P. Galang (Galang). The salient provisions of the Deed
petitioner. In any event, paragraph 12 of the real estate mortgage requires of Undertaking with First Real Estate Mortgage, 5 where Galang, PCSO and Peralta
petitioner merely to furnish respondent with the notice and does not oblige were respectively designated as "principal", "mortgagee" and "mortgagor", are as
petitioner to ensure that respondent actually receives the notice. On this score, the follows:
15. Upon payment of the principal amount together with interest and other
In a Motion for Leave to File Third-Party Complaint15 dated April 17, 1995, PCSO
expenses legally incurred by the MORTGAGEE, the above undertaking is considered
sought the inclusion of Peralta and Galang who are allegedly indispensable parties.
terminated.6
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
On July 31, 1990, Peralta sold, under a conditional sale, the subject property to New New Dagupan is void for being expressly prohibited under the Deed of Undertaking
Dagupan, the conveyance to be absolute upon the latters full payment of the price with First Real Estate Mortgage.
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
In their Answer to Third-Party Complaint with Counterclaims17 dated January 2,
instalments of P70,000.00, the first instalment falling due on August 31, 1990.
1996, Peralta and Galang claimed that: (a) the provision in the Deed of Undertaking
Peralta showed to New Dagupan a photocopy of TCT No. 52135, which bore no
with First Real Estate Mortgage prohibiting the sale of the subject property is void
liens and encumbrances, and undertook to deliver the owners duplicate within
under Article 2130 of the Civil Code; (b) PCSOs failure to intervene in Civil Case No.
three (3) months from the execution of the contract. 7
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;
New Dagupan withheld payment of the last instalment, which was intended to cover (c) it was due to PCSOs very own neglect in registering its mortgage lien that
the payment of the capital gains tax, in view of Peraltas failure to deliver the preference is accorded to New Dagupans rights as a buyer of the subject property;
owners duplicate of TCT No. 52135 and to execute a deed of absolute sale in its and (d) PCSO no longer has any cause of action against them following its decision
favor. Further, New Dagupan, through its President, Julian Ong Cua (Cua), to foreclose the subject mortgage.
executed an affidavit of adverse claim, which was annotated on TCT No. 52135 on
October 1, 1991 as Entry No. 14826.8
On March 6, 1996, Civil Case No. 94-00200-D was transferred to Branch 42, after the
presiding judge of Branch 43 inhibited himself.
In view of Peraltas continued failure to deliver a deed of absolute sale and the
owners duplicate of the title, New Dagupan filed a complaint for specific
On January 28, 1998, the RTC Branch 42 rendered a Decision 18 in New Dagupans
performance against her with the RTC on February 28, 1992. New Dagupans
favor, the dispositive portion of which states:
complaint was raffled to Branch 43 and docketed as Civil Case No. D-10160.
WHEREFORE, judgment is hereby rendered in favor of the petitioner and against the
On May 20, 1992, during the pendency of New Dagupans complaint against
defendant, ordering PCSO to deliver the owners duplicate copy of TCT No. 52135 in
Peralta, PCSO caused the registration of the mortgage. 9
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
On February 10, 1993, PCSO filed an application for the extrajudicial foreclosure sale defendant fail to deliver the said title within 30 days from the date this decision
of the subject property in view of Galangs failure to fully pay the sweepstakes she becomes final and executory, the said owners duplicate certificate of title is hereby
purchased in 1992.10 A public auction took place on June 15, 1993 where PCSO was cancelled and the Register of Deeds can issue a new one carrying all the
the highest bidder. A certificate of sale was correspondingly issued to PCSO.11 encumbrances of the original owners duplicate subject of this case. Further, the
defendant is ordered to pay to petitioner the sum of Ten Thousand Pesos
(P10,000.00) as attorneys fees. It is also ordered to pay costs.
The certified true copy of TCT No. 52135 that New Dagupan obtained from the
Register of Deeds of Dagupan City for its use in Civil Case No. D-10160 reflected
PCSOs mortgage lien. New Dagupan, claiming that it is only then that it was SO ORDERED.19
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
The RTC Branch 42 ruled that New Dagupan is a buyer in good faith, ratiocinating
property and suggesting that PCSO intervene and participate in the case.
that:
On January 21, 1994, the RTC Branch 43 rendered a Decision, approving the
In other words, the evidence of the petitioner would show that although the Deed
compromise agreement between Peralta and New Dagupan. Some of the
of Undertaking with First Real Estate Mortgage was executed on March 8, 1989 its
stipulations made are as follows:
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
3. For her failure to execute, sign and deliver a Deed of Absolute Sale to exhibits, petitioner contended that it was a buyer in good faith and for value.
plaintiff by way of transferring TCT No. 52135 in the name of the latter,
defendant hereby waives and quitclaims the remaining balance of the
Defendant, to controvert the aforementioned evidence of the plaintiff, alleged that
purchase price in the amount of P60,000.00 in favor of the plaintiff, it
Exhibits C, C-1 to C-1-C was contrary to the testimony of Mr. Julian Ong Cua to the
being understood that the said amount shall be treated as a penalty for
effect that when defendants sold the property to petitioner only the xerox copy of
such failure;
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
xxxx January 21, 1994 would show that there was a collusion between the petitioner and
the third-party defendants.
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
Defendant should not be allowed to profit from its negligence of not registering the
contract of guaranty to secure the subsequent obligations of Galang for the tickets
Deed of Undertaking with First Real Estate Mortgage in its favor.20
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.
Also, the RTC Branch 42 ruled that the prohibition on the sale of the subject
property is void. Specifically:
xxxx
New Dagupan also claims that the subject property had already been discharged
The instant appeal must fail. There is nothing in the Deed of Undertaking with First from the mortgage, hence, PCSO had nothing to foreclose when it filed its
Real Estate Mortgage, expressly or impliedly, that would indicate that Peralta agreed application for extra-judicial foreclosure on February 10, 1993. The subject
to let her property be burdened as long as the contract of undertaking with real mortgage was intended to secure Galangs ticket purchases that were outstanding
estate mortgage was not cancelled or revoked. x x x at the time of the execution of the same, the amount of which has been specified to
be P450,000.00 and does not extend to Galangs future purchases. Thus, upon
Galangs full payment of P450,000.00, which PCSO admits, the subject mortgage
xxxx
had been automatically terminated as expressly provided under Section 15 of the
Deed of Undertaking with First Real Estate Mortgage quoted above.
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-
Issue
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 The rise and fall of this recourse is dependent on the resolution of the issue who
parties to regard it as a contract of continuing guaranty. In other jurisdictions, it has between New Dagupan and PCSO has a better right to the property in question.
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
Our Ruling
"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
a. At the time of PCSOs registration of its mortgage lien on May 20, xxxx
1992, the subject mortgage had already been discharged by Galangs
full payment of P450,000.00, the amount specified in the Deed of
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED FIFTY
Undertaking with First Real Estate Mortgage;
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;
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
To secure the faithful compliance and as security to the obligation of the PRINCIPAL
there is an intent to secure Galangs future debts;
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
c. Assuming the contrary, New Dagupan is not bound by PCSOs real estate mortgage, a parcel/s of land together with all the improvements now or
mortgage lien and was a purchaser in good faith and for value; and 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
d. While the subject mortgage predated the sale of the subject property
to New Dagupan, the absence of any evidence that the latter had
knowledge of PCSOs mortgage lien at the time of the sale and its prior As the CA correctly observed, the use of the terms "outstanding" and "unpaid"
registration of an adverse claim created a preference in its favor. militates against PCSOs claim that future ticket purchases are likewise secured. That
there is a seeming ambiguity between the provision relied upon by PCSO containing
the phrase "after each draw" and the other provisions, which mention with
I
particularity the amount of P450,000.00 as Galangs unpaid and outstanding
account and secured by the subject mortgage, should be construed against PCSO.
As a general rule, a mortgage liability is usually limited to the amount mentioned in The subject mortgage is a contract of adhesion as it was prepared solely by PCSO
the contract. However, the amounts named as consideration in a contract of and the only participation of Galang and Peralta was the act of affixing their
mortgage do not limit the amount for which the mortgage may stand as security if signatures thereto.
from the four corners of the instrument the intent to secure future and other
indebtedness can be gathered.26
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
Alternatively, while a real estate mortgage may exceptionally secure future loans or document to be executed for the purpose. As provided in the Deed of Undertaking
advancements, these future debts must be specifically described in the mortgage with First Real Estate Mortgage:
contract. An obligation is not secured by a mortgage unless it comes fairly within
the terms of the mortgage contract.27
15. Upon payment of the principal amount together with interest and other
expenses legally incurred by the MORTGAGEE, the above-undertaking is considered
The stipulation extending the coverage of a mortgage to advances or loans other terminated.33
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
Section 6234 of Presidential Decree (P.D.) No. 1529 appears to require the execution
Bank v. Alviar,28 this Court elucidated on the nature and purpose of such a clause as
of an instrument in order for a mortgage to be cancelled or discharged. However,
follows:
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
A "blanket mortgage clause," also known as a "dragnet clause" in American or terminated upon Galangs full payment before PCSO availed of registration in
jurisprudence, is one which is specifically phrased to subsume all debts of past or 1992. As the subject mortgage was not annotated on TCT No. 52135 at the time it
future origins. Such clauses are "carefully scrutinized and strictly construed." was terminated, there was no need for Peralta to secure a deed of cancellation in
Mortgages of this character enable the parties to provide continuous dealings, the order for such discharge to be fully effective and duly reflected on the face of her
nature or extent of which may not be known or anticipated at the time, and they title.
avoid the expense and inconvenience of executing a new security on each new
transaction. A "dragnet clause" operates as a convenience and accommodation to
Therefore, since the subject mortgage is not in the nature of a continuing guaranty
the borrowers as it makes available additional funds without their having to execute
and given the automatic termination thereof, PCSO cannot claim that Galangs ticket
additional security documents, thereby saving time, travel, loan closing costs, costs
purchases in 1992 are also secured. From the time the amount of P450,000.00 was
of extra legal services, recording fees, et cetera. x x x. 29 (Citations omitted)
fully settled, the subject mortgage had already been cancelled such that Galangs
subsequent ticket purchases are unsecured. Simply put, PCSO had nothing to
A mortgage that provides for a dragnet clause is in the nature of a continuing register, much less, foreclose.
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
Consequently, PCSOs registration of its non-existent mortgage lien and subsequent
validity is anchored on Article 2053 of the Civil Code and is not limited to a single
foreclosure of a mortgage that was no longer extant cannot defeat New Dagupans
transaction, but contemplates a future course of dealing, covering a series of
title over the subject property.
transactions, generally for an indefinite time or until revoked. It is prospective in its
operation and is generally intended to provide security with respect to future
transactions within certain limits, and contemplates a succession of liabilities, for II
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,
Sections 51 and 53 of P.D. No. 1529 provide:
which are within the description or contemplation of the contract of guaranty, until
the expiration or termination thereof.30
Section 51. Conveyance and other dealings by registered owner. An owner of
registered land may convey, mortgage, lease, charge or otherwise deal with the
In this case, PCSO claims the subject mortgage is a continuing guaranty. According
same in accordance with existing laws. He may use such forms of deeds, mortgages,
to PCSO, the intent was to secure Galangs ticket purchases other than those
leases or other voluntary instrument, except a will purporting to convey or affect
outstanding at the time of the execution of the Deed of Undertaking with First Real
registered land, but shall operate only as a contract between the parties and as
Estate Mortgage on March 8, 1989 such that it can foreclose the subject mortgage
evidence of authority to the Register of Deeds to make registration.
for Galangs non-payment of her ticket purchases in 1992. PCSO does not deny and
even admits that Galang had already settled the amount of P450,000.00. However,
PCSO refuses to concede that the subject mortgage had already been discharged, The act of registration shall be the operative act to convey or affect the land insofar
claiming that Galang had unpaid ticket purchases in 1992 and these are likewise as third persons are concerned, and in all cases under this Decree, the registration
secured as evidenced by the following clause in the Deed of Undertaking with First shall be made in the office of the Register of Deeds for the province or city where
Real Estate Mortgage: the land lies.
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days after Section 52. Constructive notice upon registration. Every conveyance, mortgage,
each draw with interest at the rate of 14% per annum; 31 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
This Court has to disagree with PCSO in view of the principles quoted above. A
persons from the time of such registering, filing or entering.
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 On the other hand, Article 2125 of the Civil Code states:
Galangs liability in the amount of P450,000.00 is evident from the following:
A purchaser in good faith and for value is one who buys property of another, It is patent that the contrary appears in this case. Indeed, New Dagupans claim over
without notice that some other person has a right to, or interest in, such property, the subject property is based on a conditional sale, which is likewise a voluntary
and pays a full and fair price for the same, at the time of such purchase, or before instrument. However, New Dagupans use of the adverse claim to protect its rights is
he has notice of the claim or interest of some other person in the property. 39 Good far from being incongruent in view of the undisputed fact that Peralta failed to
faith is the opposite of fraud and of bad faith, and its non-existence must be surrender the owners duplicate of TCT No. 52135 despite demands.
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
Moreover, while the validity of the adverse claim in Gabin is not established as there
registered property can rely on the guarantee afforded by pertinent laws on
was no separate proceeding instituted that would determine the existence and due
registration that he can take and hold it free from any and all prior liens and claims
execution of the deed of sale upon which it is founded, the same does not obtain in
except those set forth in or preserved against the certificate of title.41
this case. The existence and due execution of the conditional sale and Peraltas
absolute and complete cession of her title over the subject property to New
This Court cannot give credence to PCSOs claim to the contrary. PCSO did not Dagupan are undisputed. These are matters covered by the Decision dated January
present evidence, showing that New Dagupan had knowledge of the mortgage 21, 1994 of RTC Branch 43, which had long become final and executory.
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
At any rate, in Sajonas v.CA,47 this Court clarified that there is no necessity for a prior
Dagupan of the subject mortgage.42 PCSOs only basis for claiming that New
judicial determination of the validity of an adverse claim for it to be considered a
Dagupan was a buyer in bad faith was the latters reliance on a mere photocopy of
flaw in the vendors title as that would be repugnant to the very purpose thereof. 48
TCT No. 52135. However, apart from the fact that the facsimile bore no annotation
of a lien or encumbrance, PCSO failed to refute the testimony of Cua that his
verification of TCT No. 52135 with the Register of Deeds of Dagupan City confirmed WHEREFORE, premises considered, the petition is DISMISSED and the Decision
Peraltas claim of a clean title. dated September 29, 2005 and Resolution dated June9, 2006 of the Court of
Appeals in CA-G.R. CV No. 59590 are hereby AFFIRMED.
Since PCSO had notice of New Dagupans adverse claim prior to the registration of
its mortgage lien, it is bound thereby and thus legally compelled to respect the SO ORDERED.
At this point, it is important to note that one of the loans sought to be included in Under American jurisprudence, two schools of thought have emerged
the blanket mortgage clause was obtained by respondents for Donalco Trading, Inc. on this question. One school advocates that a dragnet clause so worded as to be
Indeed, PN BD#76/C-430 was executed by respondents on behalf of Donalco broad enough to cover all other debts in addition to the one specifically secured will
Trading, Inc. and not in their personal capacity. Petitioner asks the Court to pierce be construed to cover a different debt, although such other debt is secured by
the veil of corporate fiction and hold respondents liable even for obligations they another mortgage.[44] The contrary thinking maintains that a mortgage with such a
incurred for the corporation. The mortgage contract states that the mortgage covers clause will not secure a note that expresses on its face that it is otherwise secured as
as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, to its entirety, at least to anything other than a deficiency after exhausting the
including interest and expenses or any other obligation owing to the Mortgagee, security specified therein,[45] such deficiency being an indebtedness within the
whether direct or indirect, principal or secondary. Well-settled is the rule that a meaning of the mortgage, in the absence of a special contract excluding it from the
corporation has a personality separate and distinct from that of its officers and arrangement.[46]
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 The latter school represents the better position. The parties having conformed to
legal fiction that a corporation has a personality separate and distinct from the blanket mortgage clause or dragnet clause, it is reasonable to conclude that
stockholders and members may be disregarded if it is used as a means to they also agreed to an implied understanding that subsequent loans need not be
perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing secured by other securities, as the subsequent loans will be secured by the first
obligation, the circumvention of statutes, or to confuse legitimate issues. [37] PN mortgage. In other words, the sufficiency of the first security is a corollary
BD#76/C-430, being an obligation of Donalco Trading, Inc., and not of the component of the dragnet clause. But of course, there is no prohibition, as in the
respondents, is not within the contemplation of the blanket mortgage clause. mortgage contract in issue, against contractually requiring other securities for the
Moreover, petitioner is unable to show that respondents are hiding behind the subsequent loans. Thus, when the mortgagor takes another loan for which another
corporate structure to evade payment of their obligations. Save for the notation in security was given it could not be inferred that such loan was made in reliance solely
the promissory note that the loan was for house construction and personal on the original security with the dragnet clause, but rather, on the new security
consumption, there is no proof showing that the loan was indeed for respondents given. This is the reliance on the security test.
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- Hence, based on the reliance on the security test, the California court in the cited
established institution of long standing that it is, should have insisted that the note case made an inquiry whether the second loan was made in reliance on the original
be made in the name of respondents themselves, and not to Donalco Trading Inc., security containing a dragnet clause. Accordingly, finding a different security was
and that they sign the note in their personal capacity and not as officers of the taken for the second loan no intent that the parties relied on the security of the first
corporation. loan could be inferred, so it was held. The rationale involved, the court said, was that
Now on the main issues. 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
A blanket mortgage clause, also known as a dragnet clause in American instrument, and that when the lender accepted a different security he did not accept
jurisprudence, is one which is specifically phrased to subsume all debts of past or the offer.[47]
future origins. Such clauses are carefully scrutinized and strictly In another case, it was held that a mortgage with a dragnet clause is an
construed.[38] Mortgages of this character enable the parties to provide continuous offer by the mortgagor to the bank to provide the security of the mortgage for
dealings, the nature or extent of which may not be known or anticipated at the time, advances of and when they were made. Thus, it was concluded that the offer was
and they avoid the expense and inconvenience of executing a new security on each not accepted by the bank when a subsequent advance was made because (1) the
new transaction.[39] A dragnet clause operates as a convenience and accommodation second note was secured by a chattel mortgage on certain vehicles, and the clause
to the borrowers as it makes available additional funds without their having to therein stated that the note was secured by such chattel mortgage; (2) there was no
execute additional security documents, thereby saving time, travel, loan closing reference in the second note or chattel mortgage indicating a connection between
costs, costs of extra legal services, recording fees, et cetera.[40] Indeed, it has been the real estate mortgage and the advance; (3) the mortgagor signed the real estate
settled in a long line of decisions that mortgages given to secure future mortgage by her name alone, whereas the second note and chattel mortgage were
advancements are valid and legal contracts, [41] and the amounts named as signed by the mortgagor doing business under an assumed name; and (4) there was
consideration in said contracts do not limit the amount for which the mortgage may no allegation by the bank, and apparently no proof, that it relied on the security of
stand as security if from the four corners of the instrument the intent to secure the real estate mortgage in making the advance. [48]
future and other indebtedness can be gathered.[42]
Indeed, in some instances, it has been held that in the absence of clear, supportive
The blanket mortgage clause in the instant case states: evidence of a contrary intention, a mortgage containing a dragnet clause will not be
That for and in consideration of certain loans, extended to cover future advances unless the document evidencing the subsequent
overdraft and other credit accommodations obtained from advance refers to the mortgage as providing security therefor. [49]
the Mortgagee by the Mortgagor and/or ________________
hereinafter referred to, irrespective of number, as DEBTOR, It was therefore improper for petitioner in this case to seek foreclosure
and to secure the payment of the same and those that of the mortgaged property because of non-payment of all the three promissory
may hereafter be obtained, the principal or all of which is notes. While the existence and validity of the dragnet clause cannot be denied,
hereby fixed at Two Hundred Fifty Thousand (P250,000.00) there is a need to respect the existence of the other security given for PN BD#76/C-
Pesos, Philippine Currency, as well as those that the 345. The foreclosure of the mortgaged property should only be for the P250,000.00
Mortgagee may extend to the Mortgagor and/or loan covered by PN BD#75/C-252, and for any amount not covered by the security
DEBTOR, including interest and expenses or any other for the second promissory note. As held in one case, where deeds absolute in form
obligation owing to the Mortgagee, whether direct or were executed to secure any and all kinds of indebtedness that might subsequently
indirect, principal or secondary as appears in the accounts, become due, a balance due on a note, after exhausting the special security given for
books and records of the Mortgagee, the Mortgagor does the payment of such note, was in the absence of a special agreement to the
hereby transfer and convey by way of mortgage unto the contrary, within the protection of the mortgage, notwithstanding the giving of the
Mortgagee, its successors or assigns, the parcels of land special security.[50] This is recognition that while the dragnet clause subsists, the
which are described in the list inserted on the back of this security specifically executed for subsequent loans must first be exhausted before
document, and/or appended hereto, together with all the the mortgaged property can be resorted to.
buildings and improvements now existing or which may One other crucial point. The mortgage contract, as well as the promissory notes
hereafter be erected or constructed thereon, of which the subject of this case, is a contract of adhesion, to which respondents only
Mortgagor declares that he/it is the absolute owner free participation was the affixing of their signatures or adhesion thereto. [51] A contract
from all liens and incumbrances. . . .[43] (Emphasis supplied.) 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]
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 The real estate mortgage in issue appears in a standard form, drafted
petitioner, but also future credit facilities and advancements that may be obtained and prepared solely by petitioner, and which, according to jurisprudence must be
by the respondents. The terms of the above provision being clear and strictly construed against the party responsible for its preparation. [53] If the parties
unambiguous, there is neither need nor excuse to construe it otherwise. intended that the blanket mortgage clause shall cover subsequent advancement
secured by separate securities, then the same should have been indicated in the
Despite his payment of the redemption price, Tuble questioned how the foreclosure
G.R. No. 183987 July 25, 2012
basis of P421,800 ballooned to P1,318,401.91 in a matter of one year. Belatedly, the
bank explained that this redemption price included the Nissan Vanettes book value,
ASIA TRUST DEVELOPMENT BANK, Petitioner, the salary loan, car insurance, 18% annual interest on the banks redemption price
vs. of P421,800, penalty and interest charges on Promissory Note No. 0142, and
CARMELO H. TUBLE, Respondent. litigation expenses.9 By way of note, from these items, the amounts that remained to
be collected as stated in the Petition before us, are (1) the 18% annual interest on
the redemption price and (2) the interest charge on Promissory Note No. 0142.
DECISION
Because Tuble disputed the redemption price, he filed a Complaint for recovery of a
SERENO, J.:
sum of money and damages before the RTC. He specifically sought to
collect P896,602.0210 representing the excess charges on the redemption price.
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Additionally, he prayed for moral and exemplary damages.
Rules of Court, seeking to review the Court of Appeals (CA) 28 March 2008 Decision
and 30 July 2008 Resolution in CA-G.R. CV No. 87410. The CA affirmed the Regional
The RTC ruled in favor of Tuble. The trial court characterized the redemption price
Trial Court (RTC) Decision of 15 May 2006 in Civil Case No. 67973, which granted to
as excessive and arbitrary, because the correct redemption price should not have
respondent the refund of P845,805.491 representing the amount he had paid in
included the above-mentioned charges. Moral and exemplary damages were also
excess of the redemption price.
awarded to him.
Respondent acquired a Nissan Vanette through the companys car incentive plan.
The arrangement was made to appear as a lease agreement requiring only the As for the 18% annual interest on the bid price of P421,800, the RTC agreed with
payment of monthly rentals. Accordingly, the lease would be terminated in case of Tuble that this charge was unlawful. Act 313512 as amended, in relation to Section
the employees resignation or retirement prior to full payment of the price. 28 of Rule 39 of the Rules of Court,13 only allows the mortgagee to charge an
interest of 1% per month if the foreclosed property is redeemed. Ultimately, under
the principle of solutio indebiti, the trial court required the refund of these amounts
As regards the loan privileges, Tuble obtained three separate loans. The first, a real
charged in excess of the correct redemption price.
estate loan evidenced by the 18 January 1993 Promissory Note No. 01423 with
maturity date of 1 January 1999, was secured by a mortgage over his property
covered by Transfer Certificate of Title No. T 145794. No interest on this loan was On appeal, the CA affirmed the findings of the RTC. 14 The appellate court only
indicated. expounded the rule that, at the time of redemption, the one who redeemed is liable
to pay only 1% monthly interest plus taxes. Thus, the CA also concluded that there
was practically no basis to impose the additional charges.
The second was a consumption loan, evidenced by the 10 January 1994 Promissory
Note No. 01434 with the maturity date of 31 January 1995 and interest at 18% per
annum. Aside from the said indebtedness, Tuble allegedly obtained a salary loan, Before this Court, petitioner reiterates its claims regarding the inclusion in the
his third loan. redemption price of the 18% annual interest on the bid price of P421,800 and the
interest charges on Promissory Note No. 0142. Petitioner emphasizes that an 18%
interest rate allegedly referred to in the mortgage deed is the proper basis of the
On 30 March 1995, he resigned. Subsequently, he was given the option to either
interest. Pointing to the Real Estate Mortgage Contract, the bank highlights the
return the vehicle without any further obligation or retain the unit and pay its
blanket security clause or "dragnet clause" that purports to cover all obligations
remaining book value.
owed by Tuble:15
Respondent had the following obligations to the bank after his retirement: (1) the
All obligations of the Borrower and/or Mortgagor, its renewal, extension,
purchase or return of the Nissan Vanette; (2) P100,000 as consumption loan;
amendment or novation irrespective of whether such obligations as renewed,
(3) P421,800 as real estate loan; and (4) P16,250 as salary loan.5
extended, amended or novated are in the nature of new, separate or additional
obligations;
In turn, petitioner owed Tuble (1) his pro-rata share in the DIP, which was to be
issued after the bank had given the resigned employees clearance; and
All other obligations of the Borrower and/or Mortgagor in favor of the Mortgagee,
(2) P25,797.35 representing his final salary and corresponding 13th month pay.
executed before or after the execution of this document whether presently owing or
hereinafter incurred and whether or not arising from or connection with the
Respondent claimed that since he and the bank were debtors and creditors of each aforesaid loan/Credit accommodation; x x x.
other, the offsetting of loans could legally take place. He then asked the bank to
simply compute his DIP and apply his receivables to his outstanding
The Applicable Law 3. In case of redemptioners who are considered by law as juridical persons, they
shall have the right to redeem not after the registration of the certificate of
foreclosure sale with the applicable Register of Deeds which in no case shall be
The bank argues that instead of referring to the Rules of Court to compute the
more than three (3) months after foreclosure, whichever is earlier.
redemption price, the courts a quo should have applied the General Banking
Law,17 considering that petitioner is a banking institution.
Consequently, the bank cannot alter that right by imposing additional charges and
including other loans. Verily, the freedom to stipulate the terms and conditions of
The statute referred to requires that in the event of judicial or extrajudicial
an agreement is limited by law.29
foreclosure of any mortgage on real estate that is used as security for an obligation
to any bank, banking institution, or credit institution, the mortgagor can redeem the
property by paying the amount fixed by the court in the order of execution, with Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate Appellate Court 30 that
interest thereon at the rate specified in the mortgage. 18 the power to decide whether or not to foreclose is the prerogative of the
mortgagee; however, once it has made the decision by filing a petition with the
sheriff, the acts of the latter shall thereafter be governed by the provisions of the
Petitioner is correct. We have already established in Union Bank of the Philippines v.
mortgage laws, and not by the instructions of the mortgagee. In direct
Court of Appeals,19 citing Ponce de Leon v. Rehabilitation Finance
contravention of this ruling, though, the bank included numerous charges and loans
Corporation20 and Sy v. Court of Appeals,21 that the General Banking Act being a
in the redemption price, which inexplicably ballooned to P1,318,401.91. On this error
special and subsequent legislation has the effect of amending Section 6 of Act No.
alone, the claims of petitioner covering all the additional charges should be denied.
3135, insofar as the redemption price is concerned, when the mortgagee is a bank.
Thus, considering the undue inclusions of the additional charges, the bank cannot
Thus, the amount to be paid in redeeming the property is determined by the
impose the 18% annual interest on the redemption price.
General Banking Act, and not by the Rules of Court in Relation to Act 3135.
In any event, assuming that the Real Estate Mortgage Contract subsists, we rule that
In reviewing the banks additional charges on the redemption price as a result of the
the dragnet clause therein does not justify the imposition of an 18% annual interest
foreclosure, this Court will first clarify certain vital points of fact and law that both
on the redemption price.
parties and the courts a quo seem to have missed.
This Court has recognized that, through a dragnet clause, a real estate mortgage
Firstly, at the time respondent resigned, which was chronologically before the
contract may exceptionally secure future loans or advancements. 31 But an obligation
foreclosure proceedings, he had several liabilities to the bank. Secondly, when the
is not secured by a mortgage, unless, that mortgage comes fairly within the terms of
bank later on instituted the foreclosure proceedings, it foreclosed only the
the mortgage contract.32
mortgage secured by the real estate loan of P421,800.22 It did not seek to include, in
the foreclosure, the consumption loan under Promissory Note No. 0143 or the other
alleged obligations of respondent. Thirdly, on 28 February 1996, the bank availed We have also emphasized that the mortgage agreement, being a contract of
itself of the remedy of foreclosure and, in doing so, effectively gained the property. adhesion, is to be carefully scrutinized and strictly construed against the bank, the
party that prepared the agreement.33
As a result of these established facts, one evident conclusion surfaces: the Real
Estate Mortgage Contract on the secured property is already extinguished. Here, after reviewing the entire deed, this Court finds that there is no specific
mention of interest to be added in case of either default or redemption. The Real
Estate Mortgage Contract itself is silent on the computation of the redemption
In foreclosures, the mortgaged property is subjected to the proceedings for the
price. Although it refers to the Promissory Notes as constitutive of Tubles secured
satisfaction of the obligation.23 As a result, payment is effected by abnormal means
obligations, the said contract does not state that the interest to be charged in case
whereby the debtor is forced by a judicial proceeding to comply with the
of redemption should be what is specified in the Promissory Notes.
presentation or to pay indemnity.24
Furthermore, this Court refuses to be blindsided by the dragnet clause in the Real
Estate Mortgage Contract to automatically include the consumption loan, and its (4) That they be liquidated and demandable;
corresponding interest, in computing the redemption price.
(5) That over neither of them there be any retention or controversy, commenced by
As we have held in Prudential Bank v. Alviar,36 in the absence of clear and supportive third persons and communicated in due time to the debtor. (Emphasis supplied)
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
Liquidated debts are those whose exact amount has already been determined. 46 In
advance refers to the mortgage as providing security therefor.
this case, the receivable of Tuble, including his DIP share, was not yet determined; it
was the petitioners policy to compute and issue the computation only after the
In this regard, this Court adopted the "reliance on the security test" used in the retired employee had been cleared by the bank. Thus, Tuble incorrectly invoked
above-mentioned cases, Prudential Bank37 and Philippine Bank of legal compensation in addressing this issue of default.
Communications.38 In these Decisions, we elucidated the test as follows:
Nevertheless, based on the findings of the RTC and the CA, the obligation of Tuble
x x x A mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank as evidenced by Promissory Note No. 0142, was set to mature on 1 January 1999.
to provide the security of the mortgage for advances of and when they were made. But then, he had already settled his liabilities on 17 March 1997 by
Thus, it was concluded that the "offer" was not accepted by the bank when a paying P1,318,401.91 as redemption price. Then, in 1999, the bank issued his
subsequent advance was made because (1) the second note was secured by a Clearance and share in the DIP in view of the full settlement of his obligations. Thus,
chattel mortgage on certain vehicles, and the clause therein stated that the note there being no substantial delay on his part, the CA did not grievously err in not
was secured by such chattel mortgage; (2) there was no reference in the second declaring him to be in default.
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
The Award of Moral and Exemplary
alone, whereas the second note and chattel mortgage were signed by the
Damages
mortgagor doing business under an assumed name; and (4) there was no allegation
by the bank, and apparently no proof, that it relied on the security of the real estate
mortgage in making the advance.39 (Emphasis supplied) The courts a quo awarded Tuble P200,000 as moral damages and P50,000 as
exemplary damages.1wphi1 As appreciated by the RTC, which had the opportunity
to examine the parties,47 the bank treated Tuble unfairly and unreasonably by
Here, the second loan agreement, or Promissory Note No. 0143, referring to the
refusing to lend even a little charity and human consideration when it immediately
consumption loan makes no reference to the earlier loan with a real estate
foreclosed the loans of its previous vice-president instead of heeding his request to
mortgage. Neither does the bank make any allegation that it relied on the security
make a straightforward calculation of his receivables and offset them against his
of the real estate mortgage in issuing the consumption loan to Tuble.
liabilities.48
DECISION The SSS appealed to the Court of Appeals (CA) in CA G.R. CV 77582. On August 30,
2007 the latter court reversed the RTC decision[24] for the reasons that the Vegas
ABAD, J.: were unable to produce the deed of assignment of the property in their favor and
that such assignment was not valid as to PDC. Their motion for reconsideration
having been denied, the Vegas filed this petition for review on certiorari under Rule
This case is about the lack of authority of a sheriff to execute upon a 45.[25]
property that the judgment obligor had long sold to another although the
registered title to the property remained in the name of the former. The Issues Presented
The Facts and the Case The issues in this case are:
Magdalena V. Reyes (Reyes) owned a piece of titled 1. Whether or not the Vegas presented adequate proof of Reyes sale of
land[1] in Pilar Village, Las Pias City. On August 17, 1979 she got a housing loan from the subject property to them;
respondent Social Security System (SSS) for which she mortgaged her land. [2] In late
1979, however, she asked the petitioner spouses Antonio and Leticia Vega (the 2. In the affirmative, whether or not Reyes validly sold her SSS-
Vegas) to assume the loan and buy her house and lot since she wanted to mortgaged property to the Vegas; and
emigrate.[3]
3. In the affirmative, whether or not the sheriff validly sold the same at
Upon inquiry with the SSS, an employee there told the Vegas that the public auction to satisfy Reyes debt to PDC.
SSS did not approve of members transferring their mortgaged homes. The Vegas
could, however, simply make a private arrangement with Reyes provided they paid The Rulings of the Court
the monthly amortizations on time. This practice, said the SSS employee, was
commonplace.[4] Armed with this information, the Vegas agreed for Reyes to One. The CA ruled that the Vegas were unable to prove that Reyes assigned the
execute in their favor a deed of assignment of real property with assumption of subject property to them, given that they failed to present the deed of assignment
mortgage and paid Reyes P20,000.00 after she undertook to update the in their favor upon a claim that they lost it. [26] But the rule requiring the presentation
amortizations before leaving the country. The Vegas then took possession of the of the original of that deed of assignment is not absolute. Secondary evidence of
house in January 1981.[5] the contents of the original can be adduced, as in this case, when the original has
been lost without bad faith on the part of the party offering it. [27]
But Reyes did not readily execute the deed of assignment. She left the
country and gave her sister, Julieta Reyes Ofilada (Ofilada), a special power of Here, not only did the Vegas prove the loss of the deed of assignment in
attorney to convey ownership of the property. Sometime between 1983 and 1984, their favor and what the same contained, they offered strong corroboration of the
Ofilada finally executed the deed promised by her sister to the Vegas. Ofilada kept fact of Reyes sale of the property to them. They took possession of the house and
the original and gave the Vegas two copies. The latter gave one copy to the Home lot after they bought it. Indeed, they lived on it and held it in the concept of an
Development Mortgage Fund and kept the other. [6] Unfortunately, a storm in 1984 owner for 13 years before PDC came into the picture. They also paid all the
resulted in a flood that destroyed the copy left with them.[7] amortizations to the SSS with Antonio Vegas personal check, even those that Reyes
promised to settle but did not. And when the SSS wanted to foreclose the property,
In 1992, the Vegas learned that Reyes did not update the amortizations the Vegas sent a managers check to it for the balance of the loan. Neither Reyes nor
for they received a notice to Reyes from the SSS concerning it.[8] They told the SSS any of her relatives came forward to claim the property. The Vegas amply proved
that they already gave the payment to Reyes but, since it appeared indifferent, on the sale to them.
January 6, 1992 the Vegas updated the amortization themselves and
paid P115,738.48 to the SSS, through Antonio Vegas personal check. [9] They Two. Reyes acquired the property in this case through a loan from the
negotiated seven additional remittances and the SSS accepted P8,681.00 more from SSS in whose favor she executed a mortgage as collateral for the loan. Although the
the Vegas.[10] loan was still unpaid, she assigned the property to the Vegas without notice to or
the consent of the SSS. The Vegas continued to pay the amortizations apparently in
Meanwhile, on April 16, 1993 respondent Pilar Development Reyes name. Meantime, Reyes apparently got a cash loan from Apex, which
Corporation (PDC) filed an action for sum of money against Reyes before the assigned the credit to PDC. This loan was not secured by a mortgage on the
Regional Trial Court (RTC) of Manila in Civil Case 93-6551. PDC claimed that Reyes property but PDC succeeded in getting a money judgment against Reyes and had it
borrowed from Apex Mortgage and Loans Corporation (Apex) P46,500.00 to buy the executed on the property. Such property was still in Reyes name but, as pointed out
lot and construct a house on it. [11] Apex then assigned Reyes credit to the PDC on above, the latter had disposed of it in favor of the Vegas more than 10 years before
December 29, 1992,[12] hence, the suit by PDC for the recovery of the unpaid PDC executed on it.
debt. On August 26, 1993 the RTC rendered judgment, ordering Reyes to pay the
PDC the loan of P46,398.00 plus interest and penalties beginning April 11, 1979 as The question is: was Reyes disposal of the property in favor of the Vegas
well as attorneys fees and the costs. [13]Unable to do so, on January 5, 1994 the RTC valid given a provision in the mortgage agreement that she could not do so without
issued a writ of execution against Reyes and its Sheriff levied on the property the written consent of the SSS?
in Pilar Village.[14] The CA ruled that, under Article 1237 [28] of the Civil Code, the Vegas who paid the
SSS amortizations except the last on behalf of Reyes, without the latters knowledge
On February 16, 1994 the Vegas requested the SSS to acknowledge their or against her consent, cannot compel the SSS to subrogate them in her rights
status as subrogees and to give them an update of the account so they could settle arising from the mortgage. Further, said the CA, the Vegas claim of subrogation was
it in full. The SSS did not reply. Meantime, the RTC sheriff published a notice for the invalid because it was done without the knowledge and consent of the SSS as
auction sale of the property on February 24, March 3 and 10, 1994. [15] He also served required under the mortgage agreement.[29]
on the Vegas notice of that sale on or about March 20, 1994. [16] On April 5, 1994, the
Vegas filed an affidavit of third party claimant and a motion for leave to admit a But Article 1237 cannot apply in this case since Reyes consented to the
motion in intervention to quash the levy on the property. [17] transfer of ownership of the mortgaged property to the Vegas. Reyes also agreed
for the Vegas to assume the mortgage and pay the balance of her obligation to
Still, stating that Vegas remedy lay elsewhere, the RTC directed the SSS. Of course, paragraph 4 of the mortgage contract covering the property
sheriff to proceed with the execution.[18] Meantime, the Vegas got a telegram dated required Reyes to secure SSS consent before selling the property. But, although
August 29, 1994, informing them that the SSS intended to foreclose on the property such a stipulation is valid and binding, in the sense that the SSS cannot be
to satisfy the unpaid housing debt of P38,789.58.[19] On October 19, 1994 the Vegas compelled while the loan was unpaid to recognize the sale, it cannot be interpreted
requested the SSS in writing for the exact computation of the indebtedness and for as absolutely forbidding her, as owner of the mortgaged property, from selling the
assurance that they would be entitled to the discharge of the mortgage and delivery same while her loan remained unpaid. Such stipulation contravenes public policy,
of the proper subrogation documents upon payment. They also sent a P37,521.95 being an undue impediment or interference on the transmission of property. [30]
managers check that the SSS refused to accept.[20]
Besides, when a mortgagor sells the mortgaged property to a third
On November 8, 1994 the Vegas filed an action for consignation, person, the creditor may demand from such third person the payment of the
damages, and injunction with application for preliminary injunction and temporary principal obligation. The reason for this is that the mortgage credit is a real right,
restraining order against the SSS, the PDC, the sheriff of RTC Branch 19, and the which follows the property wherever it goes, even if its ownership changes. Article
Register of Deeds before the RTC of Las Pias in Civil Case 94-2943. Still, while the 2129[31] of the Civil Code gives the mortgagee, here the SSS, the option of collecting
case was pending, on December 27, 1994 the SSS released the mortgage to the from the third person in possession of the mortgaged property in the concept of
PDC.[21] And on August 22, 1996 the Register of Deeds issued TCT T-56657 to the owner.[32] More, the mortgagor-owners sale of the property does not affect the right
PDC.[22] A writ of possession subsequently evicted the Vegas from the property. of the registered mortgagee to foreclose on the same even if its ownership had
been transferred to another person. The latter is bound by the registered mortgage
On May 8, 2002 the RTC decided Civil Case 94-2943 in favor of the on the title he acquired.
Vegas. It ruled that the SSS was barred from rejecting the Vegas final payment
of P37,521.95 and denying their assumption of Reyes debt, given the SSS previous After the mortgage debt to SSS had been paid, however, the latter had
acceptance of payments directly from them. The Vegas were subrogated to the no further justification for withholding the release of the collateral and the
rights of Reyes and substituted her in the SSS housing loan and mortgage registered title to the party to whom Reyes had transferred her right as
But Article 1625 referred to assignment of credits and other incorporeal On 9 November 1983, with the consent of Pineda, the Spouses Benitez sold
rights. Reyes did not assign any credit or incorporeal right to the Vegas. She sold the house,[6] which was part of the Property, to Olivia G. Mojica (Mojica). On the
the Vegas her house and lot. They became owner of the property from the time she same date, Mojica filed a petition for the issuance of a second owners duplicate of
executed the deed of assignment covering the same in their favor. PDC had a TCT 8361 alleging that she purchased a parcel of land [7] and the owners duplicate
judgment for money against Reyes only. A courts power to enforce its judgment copy of TCT No. T-8361 was lost.[8]
applies only to the properties that are indisputably owned by the judgment
obligor.[33] Here, the property had long ceased to belong to Reyes when she sold it On 7 December 1983, the trial court granted the petition. The Register of
to the Vegas in 1981. Deeds of Cavite City issued the second owners duplicate of TCT 8361 in the name of
the Spouses Benitez.
The PDC cannot take comfort in the fact that the property remained in
Reyes name when it bought the same at the sheriff sale. The PDC cannot assert that On 12 December 1983, the Spouses Benitez sold the lot [9] covered by TCT
it was a buyer in good faith since it had notice of the Vegas claim on the property 8361 to Mojica. With the registration of the deed of sale and presentation of the
prior to such sale. second owners duplicate of TCT 8361, the Register of Deeds cancelled TCT 8361 and
issued Transfer Certificate of Title No. T-13138 (TCT 13138) in the name of Mojica.
Under the circumstances, the PDC must reconvey the subject property
On 22 February 1985, Mojica obtained a loan of P290,000 from Teresita A.
to the Vegas or, if this is no longer possible, pay them its current market value as
Gonzales (Gonzales). Mojica executed a promissory note and a deed of mortgage
the trial court may determine with interest of 12 percent per annum from the date
over the Property in favor of Gonzales. Gonzales registered this deed of mortgage
of the determination of such value until it is fully paid. Further, considering the
with the Register of Deeds of Cavite City who annotated the mortgage on TCT
distress to which the Vegas were subjected after the unlawful levy on their property,
13138 as Entry No. 33209.
aggravated by their subsequent ouster from it through a writ of possession secured
by PDC, the RTC was correct in awarding the Vegas moral damages of P300,000.00, Meanwhile, on 8 May 1985, Pineda and Sayoc filed a complaint before the
exemplary damages of P30,000.00 and attorneys fees of P50,000.00 plus costs of the Regional Trial Court[10] of Cavite City, docketed as Civil Case No. 4654, against the
suit. But these are to be borne solely by PDC considering that the SSS had nothing Spouses Benitez and Mojica. The complaint prayed for the cancellation of the
to do with the sheriffs levy on the property. It released the title to the PDC simply second owners duplicate of TCT 8361 and the award of moral damages and
because it had a sheriffs sale in its favor. attorneys fees.
The PDC is, however, entitled to reimbursement from the Vegas of the In their answer, the Spouses Benitez admitted selling to Mojica the Property
sum of P37,820.15 that it paid to the SSS for the release of the mortgaged title. which was already subject to a previous mortgage in favor of Pineda and Sayoc. The
Spouses Benitez claimed that under the Acknowledgment of Indebtedness,[11] Mojica,
WHEREFORE, the Court GRANTS the petition, REVERSES the assailed with the conformity of Pineda and Sayoc, agreed to assume the balance of the
decision of the Court of Appeals in CA-G.R. CV 77582 dated August 30, 2007, and in mortgage debt of the Spouses Benitez to Pineda and Sayoc.
its place DIRECTS respondent Pilar Development Corporation:
The Spouses Benitez denied any knowledge of Mojicas petition for the
1. To convey to petitioner spouses Antonio and issuance of a second owners duplicate of TCT 8361. The Spouses Benitez prayed for
Leticia Vega the title to and possession of the property the dismissal of the complaint and the award of moral damages and attorneys
subject of this case, covered by Transfer Certificate of Title fees. The Spouses Benitez also prayed that in case the court would render judgment
56657 of the Register of Deeds of Las Pias City, for the in favor of Pineda and Sayoc, only Mojica should be held liable.
issuance of a new title in their names; and
On the other hand, Mojica denied conspiring with the Spouses Benitez and
committing fraud in filing the petition for the issuance of a second owners duplicate
2. To pay the same petitioner spouses moral
of TCT 8361. Mojica stated that the Spouses Benitez sold to her the Property. Mojica
damages of P300,000.00, exemplary damages of P30,000.00,
claimed that upon the execution of the deed of sale, the Spouses Benitez delivered
and attorneys fees of P50,000.00.
to her the owners duplicate of TCT 8361. However, Mojica alleged that the owners
duplicate of TCT 8361 was lost.
On the other hand, the Court DIRECTS petitioner spouses to reimburse
respondent Pilar Development Corp. the sum of P37,820.15, representing what it
Mojica also asserted that she verified with the Register of Deeds of Cavite
paid the respondent SSS for the release of the mortgaged certificate of title.
City the provision in the deed of sale that the Property was free from all liens and
encumbrances and found the same to be true. Mojica added that on learning of the
SO ORDERED.
Spouses Benitezs mortgage with Pineda and Sayoc, she signed the Acknowledgment
of Indebtedness. Mojica contended that since Pineda, for herself and Sayoc,
conformed to this agreement, Pineda and Sayoc had no personality to file the
FIRST DIVISION
complaint. Mojica further alleged that Pineda and Sayoc were in estoppel from
[G.R. No. 114172. August 25, 2003]
challenging the validity of the second owners duplicate of TCT 8361 because Pineda
JUANITA P. PINEDA, assisted by her husband, CRISPIN PINEDA, and LILIA
and Sayoc, despite notice, failed to oppose the reconstitution of the title.
SAYOC, petitioners, vs. COURT OF APPEALS and TERESITA A.
GONZALES, assisted by her husband, FRANCISCO G. Mojica maintained that the Spouses Benitez are indispensable parties
GONZALES, respondents. because TCT 8361 was in their name. Mojica also asserted that she did not breach
DECISION the Acknowledgment of Indebtedness since she had paid the Spouses Benitez an
amount more than their debt to Pineda and Sayoc. Mojica contended that had the
CARPIO, J.: Spouses Benitez paid the amount to Pineda and Sayoc, there would have been no
obligation to assume. Mojica prayed for the dismissal of the complaint and the
award of moral and exemplary damages and attorneys fees.
The Case During the pendency of the case, Pineda caused the annotation on 18
August 1986 of a notice of lis pendens on the original of TCT 8361 with the Register
of Deeds.
This petition for review on certiorari[1] seeks to reverse the Decision[2] of the
After trial, the trial court rendered a Decision dated 15 June 1987, the
Court of Appeals dated 26 August 1993 in CA-G.R. SP No. 28651 as well as the
dispositive portion of which reads:
Resolution dated 4 March 1994 denying the motion for reconsideration. In its
assailed decision, the Court of Appeals declared void the orders [3] of the Regional
Trial Court[4] of Cavite City dated 10 January 1992, 5 February 1992 and 30 April WHEREFORE, in view of the foregoing, the Court hereby renders judgment declaring
1992, and made the preliminary injunction permanent. In the first order, the trial the second owners duplicate of TCT No. T-8361 of the land records of Cavite as null
court declared that Teresita A. Gonzales, despite notice, failed to appear at the and void and the Register of Deeds of Cavite City is hereby ordered upon payment
hearing of the motion to surrender Transfer Certificate of Title No. T-16084 and to of the corresponding legal fees the annotation of this pronouncement in its record
file opposition to the motion. In the second order, the trial court declared void the and the revival of the first owners duplicate with the same faith and credit before its
original and owners duplicate of Transfer Certificate of Title No. T-16084 and
In its Order dated 10 January 1992 (first order), the trial court declared that
1. Whether a notice of lis pendens binds a subsequent purchaser of
Gonzales, despite notice, failed to appear at the hearing and to oppose the motion the property to the outcome of the pending case.
to surrender TCT 16084. In the same order, the trial court directed Gonzales to file a
memorandum. Gonzales received this order on 20 January 1992.
2. Whether TCT 13138 and TCT 16084, being derived from the void
Subsequently, Gonzales filed a motion to lift the first order alleging that since second owners duplicate of TCT 8361, are also void.
she was not a party in Civil Case No. 4654, the decision did not bind her. Gonzales
also claimed that she did not receive notice of the hearing, copy of the motion to
3. Whether a separate action should be filed to cancel TCT 16084.
surrender TCT 16084 and the order resetting the hearing because she was in the
United States of America. Gonzales finally alleged that she was an innocent
purchaser for value. 4. Whether Gonzales was an innocent purchaser for value.
In an Order dated 5 February 1992 (second order), the trial court declared
void the original and the owners duplicate of TCT 16084 in the name of 5. Whether Gonzales was denied due process of law.
Gonzales. The trial court ordered the reinstatement of TCT 8361 in the name of the
Spouses Benitez.
Gonzales filed a motion for reconsideration of the second order. On 30 April The Ruling of the Court
1992, the trial court issued an Order (third order) denying Gonzales motions to lift
the first order and to reconsider the second order.
Aggrieved by the trial courts orders, Gonzales filed with the Court of Appeals We deny the petition.
a petition for the issuance of a writ of prohibitory injunction.
WHEREFORE, the petition is granted. The assailed orders dated 10 January 1992, 5
February 1992, and 30 April 1992 are hereby declared NULL and VOID, and the Mojica filed a petition for reconstitution[17] of the owners duplicate of TCT
preliminary prohibitory injunction is made permanent. 8361 claiming that this owners duplicate was lost. However, contrary to Mojicas
claims, the owners duplicate of TCT 8361 was not lost but in Pinedas
possession. Since the owners duplicate of TCT 8361 was in fact not lost or
SO ORDERED.[15] destroyed, there was obviously nothing to reconstitute or replace. Therefore, the
trial court correctly ruled that the reconstitution proceedings and the second
Hence, the instant petition. owners duplicate of TCT 8361 are void.[18] As the Court held in New Durawood Co.,
Inc. v. Court of Appeals:[19]
In the instant case, the owners duplicate certificates of title were in the possession
The Ruling of the Court of Appeals of Dy Quim Pong, the petitioners chairman of the board and whose family controls
the petitioner-corporation. Since said certificates were not in fact lost or destroyed,
there was no necessity for the petition filed in the trial court for the Issuance of New
In the Court of Appeals, Gonzales maintained that the trial court had no Owners Duplicate Certificates of Title . . . In fact, the said court never acquired
jurisdiction over her person and property because Pineda and Sayoc did not jurisdiction to order the issuance of new certificates. Hence, the newly issued
implead her as a party in Civil Case No. 4654. Insisting that the questioned orders duplicates are themselves null and void. (Emphasis supplied)
were procured through extrinsic or collateral fraud, Gonzales claimed that the
orders of the trial court were void. Gonzales further alleged that she was an
Mojica registered with the Register of Deeds the deed of sale executed by
innocent purchaser for value making her title to the Property indefeasible and
the Spouses Benitez conveying the Property to her. Mojica also presented to the
imprescriptible.
Register of Deeds the second owners duplicate of TCT 8361. The Register of Deeds
Pineda and Sayoc, on the other hand, argued that the notice of lis cancelled TCT 8361 and issued on 14 December 1983 TCT 13138 in the name of
pendens annotated on the title of the Property bound Gonzales, as subsequent Mojica. However, since TCT 13138 is derived from the void second owners duplicate
purchaser of the Property, to the outcome of the case. Pineda and Sayoc contended of TCT 8361, TCT 13138 is also void. No valid transfer certificate of title can issue
In her petition for reconstitution, Mojica also claimed that she purchased a Gonzales registered her mortgage in good faith. Gonzales had no actual
parcel of land when in fact she only purchased on 9 November 1983 the house, and notice of the prior unregistered mortgage in favor of Pineda and Sayoc. To bind
not the lot covered by TCT 8361. Obviously, Mojica procured the reconstitution of third parties to an unregistered encumbrance, the law requires actual notice.[27] The
the second owners duplicate of TCT 8361 through misrepresentation. Hence, Mojica fact that Mojica, who sold the Property to Gonzales, had actual notice of the
was not a purchaser in good faith when she later purchased on 12 December 1983 unregistered mortgage did not constitute actual notice to Gonzales, absent proof
the lot since she knew of the irregularity in the reconstitution of the second owners that Gonzales herself had actual notice of the prior mortgage. Thus, Gonzales
duplicate of TCT 8361. acquired her rights as a mortgagee in good faith.
Therefore, TCT 13138 issued in the name of Mojica is void. However, what is When Mojica defaulted in paying her debt, Gonzales caused the extrajudicial
void is the transfer certificate of title and not the title over the Property. The title foreclosure of the mortgaged Property. Gonzales purchased the mortgaged
refers to the ownership of the Property covered by the transfer certificate of title Property as the sole bidder at the public auction sale. For Mojicas failure to redeem
while the transfer certificate of title merely evidences that ownership. A certificate of the foreclosed Property within the prescribed period, Gonzales consolidated her title
title is not equivalent to title as the Court explained in Lee Tek Sheng v. Court of to the Property. Absent any evidence to the contrary, the sale at public auction of
Appeals:[21] the Property to Gonzales was valid. Thus, the title or ownership of the Property
passed from Mojica to Gonzales. At this point, therefore, Gonzales became the
owner of the Property.
xxx The certificate referred to is that document issued by the Register of Deeds
known as the Transfer Certificate of Title (TCT). By title, the law refers to When Gonzales purchased the Property at the auction sale, Pineda and Sayoc
ownership which is represented by that document. Petitioner apparently confuses had already annotated the lis pendens on the original of TCT 8361, which remained
certificate with title. Placing a parcel of land under the mantle of the Torrens system valid. However, the mortgage of Gonzales was validly registered prior to the
does not mean that ownership thereof can no longer be disputed. Ownership is notation of the lis pendens. The subsequent annotation of the lis pendens could not
different from a certificate of title. The TCT is only the best proof of ownership of a defeat the rights of the mortgagee or the purchaser at the auction sale who derived
piece of land. Besides, the certificate cannot always be considered as conclusive their rights under a prior mortgage validly registered. The settled rule is that the
evidence of ownership. Mere issuance of the certificate of title in the name of any auction sale retroacts to the date of the registration of the mortgage,[28] putting the
person does not foreclose the possibility that the real property may be under co- auction sale beyond the reach of any intervening lis pendens, sale or attachment. As
ownership with persons not named in the certificate or that the registrant may only the Court explained in Caviles, Jr. v. Bautista:[29]
be a trustee or that other parties may have acquired interest subsequent to the
issuance of the certificate of title. To repeat, registration is not the equivalent of
We have also consistently ruled that an auction or execution sale retroacts to the
title, but is only the best evidence thereof. Title as a concept of ownership
date of levy of the lien of attachment. When the subject property was sold on
should not be confused with the certificate of title as evidence of such
execution to the petitioners, this sale retroacted to the date of inscription of
ownership although both are interchangeable. xxx (Emphasis supplied)
petitioners notice of attachment on October 6, 1982. The earlier registration of the
petitioners levy on preliminary attachment gave them superiority and preference in
rights over the attached property as against respondents.
Mojicas Title
Accordingly, we rule that the execution sale in favor of the petitioner Caviles
spouses was anterior and superior to the sale of the same property to the
respondent Bautista spouses on October 18, 1982. The right of petitioners to the
The prior mortgage of the Property by the Spouses Benitez to Pineda and
surrender of the owners duplicate copy of TCT No. 57006 covering the subject
Sayoc did not prevent the Spouses Benitez, as owners of the Property, from selling
property for inscription of the certificate of sale, and for the cancellation of said
the Property to Mojica.A mortgage is merely an encumbrance on the property and
certificate of title and the issuance of a new title in favor of petitioners cannot be
does not extinguish the title of the debtor who does not lose his principal attribute
gainsaid.
as owner to dispose of the property.[22] The law even considers void a stipulation
forbidding the owner of the property from alienating the mortgaged immovable. [23]
A contrary rule would make a prior registration of a mortgage or any lien
Since the Spouses Benitez were the undisputed owners of the Property, they meaningless.[30] The prior registered mortgage of Gonzales prevails over the
could validly sell and deliver the Property to Mojica. The execution of the notarized subsequent notice of lis pendens, even if the auction sale took place after the
deed of sale between the Spouses Benitez and Mojica had the legal effect of actual notation of the lis pendens. Consequently, TCT 16084, issued to Gonzales after she
or physical delivery. Ownership of the Property passed from the Spouses Benitez to presented the sheriffs certificate of sale and her affidavit of consolidation, is valid.
Mojica.[24] The nullity of the second owners duplicate of TCT 8361 did not affect the
validity of the sale as between the Spouses Benitez and Mojica. What remained with Pineda and Sayoc after the foreclosure was the
mortgagors residual rights over the foreclosed Property, which rights are the equity
of redemption[31] and a share in the surplus fund, if any. [32] Since Mojica was not a
purchaser in good faith, the residual rights of Mojica were subject to the claim of
Gonzales Title Pineda and Sayoc. Of course, Pineda and Sayoc may still file an action to recover the
outstanding debt of the Spouses Benitez, and even go after Mojica for her
assumption of obligation under the Acknowledgment of Indebtedness.
After the sale of the Property to her, Mojica obtained a loan from Gonzales
secured by a real estate mortgage over the Property. Gonzales registered this
mortgage on 22 February 1985 with the Register of Deeds who annotated the
mortgage on the void TCT 13138 in Mojicas name. The nullity of TCT 13138 did not The Equities Favor Gonzales over Pineda and Sayoc
automatically carry with it the nullity of the annotation of Gonzales mortgage. The
rule is that a mortgage annotated on a void title is valid if the mortgagee registered
the mortgage in good faith.[25] In Blanco v. Esquierdo,[26] the Court held: Pineda and Sayoc were negligent in not registering their mortgage, which
ultimately led to this controversy. Had Pineda and Sayoc registered their mortgage,
their rights as prior mortgagees would have prevailed over that of Gonzales. Pineda
That the certificate of title issued in the name of Fructuosa Esquierdo is a nullity, the
and Sayoc were also negligent in not foreclosing their mortgage ahead of Gonzales,
same having been secured thru fraud, is not here in question. The only question for
when they could have done so as early as 4 January 1983 after the Spouses Benitez
determination is whether the defendant bank is entitled to the protection accorded
defaulted on their loan.[33] In contrast, the loan of Mojica fell due only on 7
to innocent purchasers for value, which phrase, according to sec. 38 of the Land
December 1987.
Registration Law, includes an innocent mortgagee for value. The question, in our
opinion, must be answered in the affirmative. Since Gonzales vigilantly exercised her right to foreclose the mortgaged
Property ahead of Pineda and Sayoc, Gonzales mortgage would still prevail over the
The trial court, in the decision complained of, made no finding that the defendant mortgage of Pineda and Sayoc even if Gonzales mortgage was not validly
mortgagee bank was a party to the fraudulent transfer of the land to Fructuosa registered. The unregistered mortgage of Pineda and Sayoc was extinguished upon
Esquierdo. Indeed, there is nothing alleged in the complaint which may implicate foreclosure of Gonzales mortgage even assuming for the sake of argument that the
said defendant mortgagee in the fraud, or justify a finding that it acted in bad faith. latter mortgage was unregistered. Between two unregistered mortgagees, both
On the other hand, the certificate of title was in the name of the mortgagor being in good faith, the first to foreclose his mortgage prevails over the other.
Fructuosa Esquierdo when the land was mortgaged by her to the defendant bank.
Such being the case, the said defendant bank, as mortgagee, had the right to rely Even assuming that Gonzales mortgage was not validly registered, the notice
on what appeared in the certificate and, in the absence of anything to excite of lis pendens could still not defeat Gonzales right under the foreclosure sale. The
suspicion, was under no obligation to look beyond the certificate and investigate effect of the notice of lis pendens was to subject Gonzales, as the subsequent
The notice of lis pendens would only bind Gonzales to the declaration of Petitioners opposed the motion for being premature, asserting that the
nullity of the second owners duplicate of TCT 8361. Gonzales could not use TCT decision has not yet attained finality. On March 5, 1998, they filed a manifestation
13138, as a void issue of the void second owners duplicate of TCT 8361, to secure a and motion informing the court of their difficulty in paying Macaspac as there is no
new TCT in her name. This is the legal consequence of the notice of lis pendens, correct computation of the judgment debt.
which would have bound Gonzales had the registration of her mortgage been
void. However, the declaration of nullity of TCT 13138 would still not make the On February 23, 1998, Macaspac filed a supplemental motion for execution
mortgage of Pineda and Sayoc preferred over that of Gonzales. Since Gonzales stating that the amount due him is P243,864.08.
foreclosed her mortgage ahead of Pineda and Sayoc, she would still have a better
Petitioners failed to pay the amount. On March 25, 1998, the trial court
right than Pineda and Sayoc who slept on their rights as mortgagees.
issued a writ of execution ordering the sale of the property subject of litigation for
the satisfaction of the judgment.
On May 15, 1998, an auction sale of the property was held wherein
Conclusion petitioners participated. However, the property was sold for P285,000.00 to spouses
Alfonso and Lourdes Suba, herein respondents, being the highest bidders. On July
15, 1998, the trial court issued an order confirming the sale of the property and
The nullity of TCT 13138 did not affect the validity of the title or ownership of directing the sheriff to issue a final deed of sale in their favor.
Mojica or Gonzales as subsequent transferees of the Property. What is void is the
transfer certificate of title, not the title or ownership itself of Mojica or On July 28, 1998, Macaspac filed a motion praying for the release to him of
Gonzales. The notice of lis pendens could not defeat Gonzales rights over the the amount of P176,176.06 from the proceeds of the auction sale, prompting
Property for two reasons. First, Gonzales registered in good faith her mortgage petitioners to file a motionpraying that an independent certified public accountant
before the notation of the lis pendens, making the registration of her mortgage valid be appointed to settle the exact amount due to movant Macaspac.
despite the invalidity of TCT 13138. Second, since Gonzales mortgage was valid, the
Meanwhile, on August 3, 1998, the Register of Deeds of Manila issued a new
auction sale retroacted to the date of registration of her mortgage, making the
Transfer Certificate of Title over the subject property in the names of respondents.
auction sale prior in time to the notice of lis pendens. Thus, TCT 16084, issued to
Gonzales as a result of the foreclosure sale, is valid. On August 18, 1998, respondents filed with the trial court a motion for a writ
of possession, contending that the confirmation of the sale effectively cut off
WHEREFORE, the petition is DENIED. The Decision dated 26 August 1993
petitioners equity of redemption. Petitioners on the other hand, filed a motion for
and the Resolution dated 4 March 1994 of the Court of Appeals in CAG.R. SP No.
reconsideration of the order dated July 15, 1998 confirming the sale of the property
28651 are AFFIRMED. Petitioners Juanita P. Pineda and Lilia Sayoc are directed to
to respondents.
surrender the owners duplicate of Transfer Certificate of Title No. 8361 to the
Register of Deeds of Cavite City for cancellation. Transfer Certificate of Title No. On October 19, 1998, the trial court, acting upon both motions, issued an
16084 in the name of Teresita A. Gonzales is declared valid. This is without prejudice order (1) granting respondents prayer for a writ of possession and (2) denying
to any action petitioners Juanita P. Pineda and Lilia Sayoc may file against the petitioners motion for reconsideration. The trial court ruled that petitioners have no
Spouses Virgilio and Adorita Benitez as well as Olivia G. Mojica. No pronouncement right to redeem the property since the case is for judicial foreclosure of mortgage
as to costs. under Rule 68 of the 1997 Rules of Civil Procedure, as amended. Hence,
respondents, as purchasers of the property, are entitled to its possession as a matter
SO ORDERED.
of right.
Forthwith, petitioners filed with the Court of Appeals a petition for certiorari,
THIRD DIVISION
docketed as CA-G.R. SP No. 49634, alleging that the trial court committed grave
[G.R. No. 137792. August 12, 2003]
abuse of discretion amounting to lack or excess of jurisdiction in issuing a writ of
SPOUSES RICARDO ROSALES and ERLINDA SIBUG, petitioners, vs. SPOUSES
possession to respondents and in denying their motion for reconsideration of the
ALFONSO and LOURDES SUBA, THE CITY SHERIFF OF
order dated July 15, 1998 confirming the sale of the property to said respondents.
MANILA, respondents.
On November 25, 1998, the CA dismissed outright the petition for lack of
DECISION merit, holding that there is no right of redemption in case of judicial foreclosure
of mortgage.Petitioners motion for reconsideration was also denied.
SANDOVAL-GUTIERREZ, J.:
Hence this petition.
Challenged in the instant petition for review on certiorari are the In the main, petitioners fault the Appellate Court in applying the rules on
Resolutions[1] dated November 25, 1998 and February 26, 1999 of the Court of judicial foreclosure of mortgage. They contend that their loan with Macaspac is
Appeals dismissing the petition for certiorari in CA G.R. SP No. 49634, Spouses unsecured, hence, its payment entails an execution of judgment for money under
Ricardo Rosales and Erlinda Sibug vs. Alfonso and Lourdes Suba. Section 9 in relation to Section 25, Rule 39 of the 1997 Rules of Civil Procedure, as
amended,[4] allowing the judgment debtor one (1) year from the date of
On June 13, 1997, the Regional Trial Court, Branch 13, Manila rendered a registration of the certificate of sale within which to redeem the foreclosed
Decision[2] in Civil Cases Nos. 94-72303 and 94-72379, the dispositive portion of property.
which reads:
Respondents, upon the other hand, insist that petitioners are actually
questioning the decision of the trial court dated June 13, 1997 which has long
WHEREFORE, judgment is rendered:
become final and executory; and that the latter have no right to redeem a
mortgaged property which has been judicially foreclosed.
(1) Declaring the Deed of Sale of Exhibit D, G and I, affecting the property in
question, as an equitable mortgage; Petitioners contention lacks merit. The decision of the trial court, which is
final and executory, declared the transaction between petitioners and Macaspac an
equitable mortgage. In Matanguihan vs. Court of Appeals,[5] this Court defined an
(2) Declaring the parties Erlinda Sibug and Ricardo Rosales, within 90 days from equitable mortgage as one which although lacking in some formality, or form or
finality of this Decision, to deposit with the Clerk of Court, for payment to the words, or other requisites demanded by a statute, nevertheless reveals the intention
parties Felicisimo Macaspac and Elena Jiao, the sum of P65,000.00, with interest at of the parties to charge real property as security for a debt, and contains nothing
nine (9) percent per annum from September 30, 1982 until payment is made, plus impossible or contrary to law. An equitable mortgage is not different from a real
the sum of P219.76 as reimbursement for real estate taxes; estate mortgage, and the lien created thereby ought not to be defeated by
requiring compliance with the formalities necessary to the validity of a voluntary real
(3) Directing the parties Felicisimo Macaspac and Elena Jiao, upon the deposit on estate mortgage.[6] Since the parties transaction is an equitable mortgage and that
their behalf of the amounts specified in the foregoing paragraph, to execute a deed the trial court ordered its foreclosure, execution of judgment is governed by
of reconveyance of the property in question to Erlinda Sibug, married to Ricardo Sections 2 and 3, Rule 68 of the 1997 Rules of Civil Procedure, as amended, quoted
Rosales, and the Register of Deeds of Manila shall cancel Transfer Certificate of Title as follows:
No. 150540 in the name of the Macaspacs (Exh. E) and issue new title in the name of
Sibug; SEC. 2. Judgment on foreclosure for payment or sale. If upon the trial in such action
the court shall find the facts set forth in the complaint to be true, it shall ascertain
(4) For non-compliance by Sibug and Rosales of the directive in paragraph (2) of this the amount due to the plaintiff upon the mortgage debt or obligation, including
dispositive portion, let the property be sold in accordance with the Rules of Court interest and other charges as approved by the court, and costs, and shall render
for the release of the mortgage debt and the issuance of title to the purchaser. judgment for the sum so found due and order that the same be paid to the
court or to the judgment obligee within a period of not less that ninety (90)
days nor more than one hundred twenty (120) days from the entry of
SO ORDERED.[3] judgment, and that in default of such payment the property shall be sold at
public auction to satisfy the judgment.
The decision became final and executory. Spouses Ricardo and Erlinda
Rosales, judgment debtors and herein petitioners, failed to comply with paragraph 2
x x x.
Private respondent Emerald Resort Hotel Corporation (ERHC) obtained a loan
from petitioner Development Bank of the Philippines (DBP). DBP released the loan
In Huerta Alba Resort, Inc. vs. Court of Appeals, we held that the right of
[7]
of P3,500,000.00 in three installments: P2,000,000.00 on 27 September
redemption is not recognized in a judicial foreclosure, thus:
1975, P1,000,000.00 on 14 June 1976 and P500,000.00 on 14 September 1976. To
secure the loan, ERHC mortgaged its personal and real properties to DBP.
The right of redemption in relation to a mortgageunderstood in the sense of a
prerogative to re-acquire mortgaged property after registration of the On 18 March 1981, DBP approved a restructuring of ERHCs loan subject to
foreclosure saleexists only in the case of the extrajudicial foreclosure of the certain conditions.[4] On 25 August 1981, DBP allegedly cancelled the restructuring
mortgage. No such right is recognized in a judicial foreclosure except only agreement for ERHCs failure to comply with some of the material conditions [5] of the
where the mortgagee is the Philippine National bank or a bank or a banking agreement.
institution.
Subsequently, ERHC delivered to DBP three stock certificates of ERHC
aggregating 3,477,052 shares with a par value of P1.00 per share. ERHC first
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the delivered to DBP on 20 October 1981 Stock Certificate No. 30 covering 1,862,148
right of redemption within one (1) year from the registration of the sheriffs shares. Then ERHC delivered on 3 November 1981 Stock Certificate No. 31 covering
certificate of foreclosure sale. 691,052 shares, and on 27 November 1981 Stock Certificate No. 32 covering
923,852 shares.
Where the foreclosure is judicially effected, however, no equivalent right of On 5 June 1986, alleging that ERHC failed to pay its loan, DBP filed with the
redemption exists. The law declares that a judicial foreclosure sale, when Office of the Sheriff, Regional Trial Court of Iriga City, an Application for Extra-
confirmed by an order of the court, x x x shall operate to divest the rights of all judicial Foreclosure of Real Estate and Chattel Mortgages.
the parties to the action and to vest their rights in the purchaser, subject to
such rights of redemption as may be allowed by law. Such rights exceptionally Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the
allowed by law (i.e., even after the confirmation by an order of the court) are those required notices of public auction sale of the personal and real properties. However,
granted by the charter of the Philippine National Bank (Act Nos. 2747 and 2938), Sheriffs Ramos and Galeon failed to execute the corresponding certificates of
and the General Banking Act (R.A.337). These laws confer on the mortgagor, his posting of the notices. On 10 July 1986, the auction sale of the personal properties
successors in interest or any judgment creditor of the mortgagor, the right to proceeded.
redeem the property sold on foreclosureafter confirmation by the court of the
foreclosure salewhich right may be exercised within a period of one (1) year, counted The Office of the Sheriff scheduled on 12 August 1986 the public auction sale
from the date of registration of the certificate of sale in the Registry of Property. of the real properties. The Bicol Tribune published on 18 July 1986, 25 July 1986 and
1 August 1986 the notice of auction sale of the real properties. However, the Office
of the Sheriff postponed the auction sale on 12 August 1986 to 11 September 1986
But, to repeat, no such right of redemption exists in case of judicial foreclosure at the request of ERHC. DBP did not republish the notice of the rescheduled auction
of a mortgage if the mortgagee is not the PNB or a bank or banking sale because DBP and ERHC signed an agreement to postpone the 12 August 1986
institution. In such a case, the foreclosure sale, when confirmed by an order of auction sale.[6] ERHC, however, disputes the authority of Jaime Nuevas who signed
the court, x x x shall operate to divest the rights of all the parties to the action the agreement for ERHC.
and to vest their rights in the purchaser. There then exists only what is known
as the equity of redemption. This is simply the right of the defendant In a letter dated 24 November 1986, ERHC informed DBP of its intention to
mortgagor to extinguish the mortgage and retain ownership of the property by lease the foreclosed properties.[7]
paying the secured debt within the 90-day period after the judgment becomes
final, in accordance with Rule 68, or even after the foreclosure sale but prior to On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City a
its confirmation. complaint for annulment of the foreclosure sale of the personal and real
properties. Subsequently, ERHC filed a Supplemental Complaint. ERHC alleged that
the foreclosure was void mainly because (1) DBP failed to comply with the
xxx procedural requirements prescribed by law; and (2) the foreclosure was
premature. ERHC maintained that the loan was not yet due and demandable
This is the mortgagors equity (not right) of redemption which, as above stated, because the DBP had restructured the loan.
may be exercised by him even beyond the 90-day period from the date of
DBP moved to dismiss the complaint because it stated no cause of action
service of the order, and even after the foreclosure sale itself, provided it be
and ERHC had waived the alleged procedural defenses. The trial court denied the
before the order of confirmation of the sale. After such order of confirmation,
motion to dismiss.Consequently, DBP filed its answer, claiming that it complied with
no redemption can be effected any longer. (Italics supplied)
the legal requirements for a valid foreclosure. DBP further claimed that it cancelled
the conditional restructuring of ERHCs loan because ERHC failed to comply with
Clearly, as a general rule, there is no right of redemption in a judicial some material conditions of the restructuring agreement.
foreclosure of mortgage. The only exemption is when the mortgagee is the
Philippine National Bank or a bank or a banking institution. Since the mortgagee in Meanwhile, acting on ERHCs application for the issuance of a writ of
this case is not one of those mentioned, no right of redemption exists in favor of preliminary injunction, the trial court granted the writ on 20 August
petitioners. They merely have an equity of redemption, which, to reiterate, is simply 1990. Accordingly, the trial court enjoined DBP from enforcing the legal effects of
their right, as mortgagor, to extinguish the mortgage and retain ownership of the the foreclosure of both the chattel and real estate mortgages.
property by paying the secured debt prior to the confirmation of the foreclosure
Thereafter, trial on the merits ensued. After the parties presented their
sale. However, instead of exercising this equity of redemption, petitioners chose to
evidence, the trial court rendered a Decision [8] dated 28 January 1992, the
delay the proceedings by filing several manifestations with the trial court. Thus, they
dispositive portion of which reads:
only have themselves to blame for the consequent loss of their property.
WHEREFORE, the petition is DENIED. The Resolutions of the Court of WHEREFORE, premises considered, judgment is hereby rendered in favor of the
Appeals dated November 25, 1998 and February 26, 1999 in CA G.R. SP No. 49634 plaintiff corporation and against the defendants:
are AFFIRMED.
SO ORDERED. 1. Declaring as null and void the foreclosure and auction sale of the personal
properties of plaintiff corporation held on July 10, 1986;
FIRST DIVISION
[G.R. No. 125838. June 10, 2003] 2. Declaring as null and void the foreclosure and auction sale of the real properties
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS of plaintiff corporation covered by TCT No. RT-1075 (19980); TCT No. RT-1076
and EMERALD RESORT HOTEL CORPORATION, respondents. (19981); TCT No. RT-1077 (22367) and TCT No. 10244 of the Register of Deeds of
DECISION Camarines Sur (now Iriga City) in the auction sale thereof held on September 11,
1986, and all the improvements therein;
CARPIO, J.:
3. Ordering the Register of Deeds of Camarines Sur (now Iriga City) to cancel the
annotations of the Sheriffs Certificate of Sale on the aforestated titles as null and
void and without any legal effect;
The Case
The Court of Appeals, which consolidated the appeals, affirmed the decision
of the trial court.[9] DBP filed a Motion for Reconsideration which the Court of
Appeals denied.[10] The petition is partly meritorious.
Hence, this petition. First Issue: Compliance with the posting and publication
requirements under applicable laws
The Ruling of the Court of Appeals In alleging that the foreclosure was valid, DBP maintains that it complied with
the mandatory posting requirement under applicable laws. [12] DBP insists that the
non-execution of the certificate of posting of the auction sale notices did not
The Court of Appeals sustained the trial courts ruling that the foreclosure invalidate the foreclosure.
was void. The Court of Appeals affirmed the trial courts finding that DBP failed to
We agree.
comply with the posting and publication requirements under the applicable laws.
The Court of Appeals held that the non-execution of the certificate of posting of the This Court ruled in Cristobal v. Court of Appeals [13] that a certificate of
notices of auction sale and the non-republication of the notice of the rescheduled posting is not required, much less considered indispensable for the validity of an
11 September 1986 auction sale invalidated the foreclosure. extrajudicial foreclosure sale of real property under Act No. 3135. Cristobal merely
reiterated the doctrine laid down in Bohanan v. Court of Appeals.[14] In the present
The Court of Appeals also found that the parties perfected the restructuring
case, the foreclosing sheriffs failed to execute the certificate of posting of the
agreement and that ERHC substantially complied with its conditions based on the
auction sale notices. However, this fact alone does not prove that the sheriffs failed
following circumstances:
to post the required notices. As held in Bohanan, the fact alone that there is no
certificate of posting attached to the sheriff's records is not sufficient to prove the
(a) The transmittal letter dated October 20, 1981 which relates to the progress of the lack of posting.[15]
restructuring of the mortgage account of Emerald Resort Hotel Corporation and
that the same has been approved by the SEC (Exh. D) Based on the records, DBP presented sufficient evidence to prove that the
sheriffs posted the notices of the extrajudicial sale. The trial and appellate courts
glaringly erred and gravely abused its discretion in disregarding the sheriffs partial
(b) The transfer of shares of stocks to appellant DBP, the value of which are broken report and the sheriffs certificate of sale executed after the auction sale. A careful
as follows: examination of these two documents clearly shows that the foreclosing sheriffs
posted the required notices of sale.
1. Stock certificate No. 30 for 1,862,148 shares worth P1,862,148.00 (Exhs. D and D-
The partial report dated 10 July 1986 signed by both Sheriff Abel Ramos and
1);
Deputy Sheriff Ruperto Galeon states in part:
2. Stock certificate No. 32 for 932,852 shares worth P953,852.00 (Exhs. F and F-1);
That on July 1, 1986, the undersigned sheriffs posted the notice of public auction
sale of chattel mortgage in the conspicuous places, and at the Iriga City Hall
3. Stock certificate No. 031, for 691,052 shares worth P691,052.00 (Exhs. M and M-5). Bulletin Board, including Ibalon Hotel, Iriga City xxx. [16] (Emphasis supplied)
(c) The acceptance of the foregoing by the DBP without raising the fact of delay as Similarly, the certificate of sale of the real properties signed by both Sheriff
embodied in condition no. 7 of Exh. B. Ramos and Deputy Sheriff Galeon on 11 September 1986 states in part:
(d) No rejection was made by the defendant-appellant DBP at the time the shares of I, FURTHERMORE CERTIFY that the Notice of Sale was published in BICOL TRIBUNE,
stocks were being held by the latter. a newspaper of general circulation in the province of Camarines Sur, for three (3)
consecutive weeks and three (3) copies of the notices of sale were posted in
three (3) public places of the City where the properties are located for no less than
(e) The belated rejection of the shares of stocks was interposed only at the time the
twenty (20) days before the sale. [17] (Emphasis supplied)
instant suit was filed which was long after the expiration of the 90-day period
extended by DBP to Emerald.
Deputy Sheriff Galeon also testified that he, together with Sheriff
Ramos,[18] actually posted the notices of sale.[19] Indisputably, there is clear and
(f) No rejection was also made when plaintiff corporation did not avail of the
convincing evidence of the posting of the notices of sale. What the law requires is
additional loan which was allegedly part of the package accommodation. [11]
the posting of the notice of sale, which is present in this case, and not the execution
of the certificate of posting.
The Court of Appeals also affirmed the trial courts award of moral damages
but denied ERHCs claim for temperate and exemplary damages. The Court of Moreover, ERHC bore the burden of presenting evidence that the sheriffs
Appeals found that DBPs intrusion, assisted by sheriffs and several armed men, into failed to post the notices of sale.[20] In the absence of contrary evidence, as in this
Hotel Ibalon and the sheriffs inventory of the hotels furniture and fixtures caused case, the presumption prevails that the sheriffs performed their official duty of
fear and anxiety to the hotel owner, staff and guests. These acts, according to the posting the notices of sale. Consequently, we hold that the non-execution of the
Court of Appeals, debased the hotels goodwill and undermined its viability certificate of posting cannot nullify the foreclosure of the chattel and real estate
warranting the award of moral damages. mortgages in the instant case.
Finding the foreclosure void, the Court of Appeals also denied DBPs petition Publication requirement under Act No. 3135
for a deficiency claim and a writ of possession.
Having shown that there was posting of the notices of auction sale, we shall
now resolve whether there was publication of the notice of sale of the real
properties in compliance with Act No. 3135. [21]
The Issues There is no question that DBP published the notice of auction sale scheduled
on 12 August 1986. However, no auction sale took place on 12 August 1986
because DBP, at the instance of ERHC, agreed to postpone the same to 11
DBP presents the following issues for resolution: September 1986. DBP contends that the agreement to postpone dispensed with the
need to publish again the notice of auction sale. Thus, DBP did not anymore publish
the notice of the 11 September 1986 auction sale. DBP insists that the law does not
require republication of the notice of a rescheduled auction sale. Consequently, DBP
We do not agree.
a. Prepare a Notice of Extra-judicial Sale using the following form:
The Court held recently in Ouano v. Court of Appeals[22] that republication
in the manner prescribed by Act No. 3135 is necessary for the validity of a
NOTICE OF EXTRA-JUDICIAL SALE
postponed extrajudicial foreclosure sale. Another publication is required in case the
auction sale is rescheduled, and the absence of such republication invalidates the
foreclosure sale. Upon extra-judicial petition for sale under Act 3135/1508 filed _________ against
(name and address of Mortgagor/s) to satisfy the mortgage indebtedness which as
The Court also ruled in Ouano that the parties have no right to waive the of ___________ amounts to P__________ excluding penalties, charges, attorneys fees
publication requirement in Act No. 3135. The Court declared thus: and expenses of foreclosure, the undersigned or his duly authorized deputy will sell
at public auction on (date of sale) ________ at 10:00 A.M. or soon thereafter at the
Petitioner further contends that republication may be waived voluntarily by the main entrance of the ________ (place of sale) to the highest bidder, for cash or
parties. managers check and in Philippine Currency, the following property with all its
improvements, to wit:
This argument has no basis in law. The issue of whether republication may be
waived is not novel, as we have passed upon the same query in Philippine National (Description of Property)
Bank v. Nepomuceno Productions Inc.Petitioner therein sought extrajudicial
foreclosure of respondents mortgaged properties with the Sheriffs Office of Pasig, All sealed bids must be submitted to the undersigned on the above stated time and
Rizal. Initially scheduled on August 12, 1976, the auction sale was rescheduled date.
several times without republication of the notice of sale, as stipulated in their
Agreements to Postpone Sale. Finally, the auction sale proceeded on December 20,
1976, with petitioner as the highest bidder.Aggrieved, respondents sued to nullify In the event the public auction should not take place on the said date, it shall
the foreclosure sale. The trial court declared the sale void for non-compliance with be held on ___________,______ without further notice.
Act No. 3135. This decision was affirmed in toto by the Court of Appeals.Upholding
the conclusions of the trial and appellate courts, we held: __________
(date)
Petitioner and respondents have absolutely no right to waive the posting and
publication requirements of Act No. 3135. SHERIFF
(Emphasis supplied)
xxx
The last paragraph of the prescribed notice of sale allows the holding of a
Publication, therefore, is required to give the foreclosure sale a reasonably wide rescheduled auction sale without reposting or republication of the notice. However,
publicity such that those interested might attend the public sale. To allow the the rescheduled auction sale will only be valid if the rescheduled date of auction is
parties to waive this jurisdictional requirement would result in converting into a clearly specified in the prior notice of sale. The absence of this information in the
private sale what ought to be a public auction. prior notice of sale will render the rescheduled auction sale void for lack of
reposting or republication. If the notice of auction sale contains this particular
information, whether or not the parties agreed to such rescheduled date, there is no
DBP further asserts that Section 24, Rule 39 of the Rules of Court, which more need for the reposting or republication of the notice of the rescheduled
allows adjournment of execution sales by agreement of the parties, applies to the auction sale.
present case. Section 24 of Rule 39 provides:
The Office of the Court Administrator issued Circular No. 7-2002 pursuant to
the 14 December 1999 Resolution of this Court in A.M. No. 99-10-05-0, as amended
Sec. 24. Adjournment of Sale By written consent of debtor and creditor, the officer
by the Resolutions of 30 January 2001 and 7 August 2001. The Court issued these
may adjourn any sale upon execution to any date agreed upon in writing by the
Resolutions for two reasons.
parties. Without such agreement, he may adjourn the sale from day to day, if it
becomes necessary to do so for lack of time to complete the sale on the day fixed in First, the Court seeks to minimize the expenses which the mortgagee incurs
the notice. in publishing the notice of extrajudicial sale. With the added information in the
notice of sale, the mortgagee need not cause the reposting and republication of the
The Court ruled in Ouano that Section 24 of Rule 39 does not apply to notice of the rescheduled auction sale. There is no violation of the notice
extrajudicial foreclosure sales, thus: requirements under Acts Nos. 3135 and 1508 precisely because the interested
parties as well as the public are informed of the schedule of the next auction sale, if
the first auction sale does not proceed. Therefore, the purpose of a notice of sale,
Petitioner submits that the language of the abovecited provision [23] implies that the which is to notify the mortgagor and the public of the foreclosure sale, is satisfied.
written request of the parties suffices to authorize the sheriff to reset the sale
without republication or reposting. Second, the Court hopes to deter the practice of some mortgagors in
requesting postponement of the auction sale of real properties, then later attacking
the validity of the foreclosure for lack of republication. This practice will only force
At the outset, distinction should be made of the three different kinds of sales under
mortgagees to deny outright requests for postponement by mortgagors since it will
the law, namely: an ordinary execution sale, a judicial foreclosure sale, and an
only mean added publication expense on the part of mortgagees. Such
extrajudicial foreclosure sale. An ordinary execution sale is governed by the
development will eventually work against mortgagors because mortgagees will
pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules of Court
hesitate to grant postponements to mortgagors.
applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135, as
amended by Act No. 4118 otherwise known as An Act to Regulate the Sale of In the instant case, there is no information in the notice of auction sale of any
Property under Special Powers Inserted in or Annexed to Real Estate Mortgages date of a rescheduled auction sale. Even if such information were stated in the
applies in cases of extrajudicial foreclosure sale. A different set of law applies to notice of sale, the reposting and republication of the notice of sale would still be
each class of sale mentioned. The cited provision in the Rules of Court hence does necessary because Circular No. 7-2002 took effect only on 22 April 2002. There were
not apply to an extrajudicial foreclosure sale. (Emphasis supplied) no such guidelines in effect during the questioned foreclosure.
Clearly, DBP failed to comply with the publication requirement under Act No.
DBP also maintains that ERHCs act of requesting postponement of the 12
3135. There was no publication of the notice of the rescheduled auction sale of the
August 1986 auction sale estops ERHC from challenging the absence of publication
real properties.Therefore, the extrajudicial foreclosure of the real estate mortgage is
of the notice of the rescheduled auction sale.
void.
We do not agree.
DBP, however, complied with the mandatory posting of the notices of the
ERHC indeed requested postponement of the auction sale scheduled on 12 auction sale of the personal properties. Under the Chattel Mortgage Law,[27] the only
August 1986.[24] However, the records are bereft of any evidence that ERHC requirement is posting of the notice of auction sale. There was no postponement of
requested the postponement without need of republication of the notice of the auction sale of the personal properties and the foreclosure took place as
sale. In Philippine National Bank v. Nepomuceno Productions Inc.,[25] the Court scheduled. Thus, the extrajudicial foreclosure of the chattel mortgage in the instant
held that: case suffers from no procedural infirmity.
RESOLUTION NO. 956. Emerald Resort Hotel Corporation (Hotel Ibalon) Conversion xxx
Into Common and/or Preferred Shares of P2,786,000.00 Representing 40% of the
Total Outstanding Obligations; a Third Additional Loan of P679,000.00 and
c. By an assignment to the Mortgagee of not less than 67% of the
Restructuring of the Account.
total subscribed and outstanding voting shares of the
company. The said percentages of shares assigned shall be
xxx maintained at all times and the said assignment to subsist for
as long as the Assignee may deem necessary during the
existence of the Mortgagees approved accommodation. xxx[30]
In view thereof and as favorably recommended by the Manager of the Industrial
Projects Department III in her memorandum dated February 24, 1981, the Board,
upon motion made and duly seconded, APPROVED in favor of Emerald Resort Hotel On 17 April 1985, DBP informed ERHC that it had not complied with the
Corporation (Hotel Ibalon) the following: condition in the original mortgage contract on the assignment of 67 percent of its
outstanding shares to DBP.The letter of DBP states in part:
We are ready to bring up the assigned shares in favor of DBP to 67% of the
A. For the P679,000.00 Additional Loan corporations outstanding voting shares of 4,917,500 as of December 31, 1982 or
total of 3,294,725 shares.
a. That subject-firm shall first pay the amount of P473.00 to reduce its
total arrearages on interest and other charges of P3,465,473.00 The corporation will maintain its previous assignment of 911,800 shares.
as of May 15, 1980 to P3,465,000.00; and
Moreover, the corporation is agreeable that Stock Certificate No. 030 for 1,862,148
b. That the proceeds of this additional loan shall be applied to shares which had been transferred to DBP be considered as an alternative
subject-firms accrued interest and other charges due DBP as compliance to the raising of DBPs assigned shares to the full 67% or 3,294,725
of May 15, 1980 not otherwise covered by the proposed equity shares. Your formal conformity to this arrangement is likewise requested.
conversion of P2,786,000.00.
Finally, the corporation will further assign to DBP another 520,777 shares in
B. For Both Additional Loan and Restructuring exchange of Stock Certificate No. 032 for 923,852 shares which was transferred to
DBP conditionally. This Stock Certificate has to be surrendered to the corporation
for cancellation before we can issue by way of further assignment the 520,777
a. That a quasi-reorganization shall first be undertaken for the
shares. In short, the 3 blocks of shares mentioned above would result as follows:
purpose of eliminating existing deficits, which should be
formally authorized by the stockholders of the corporation,
should comply with legal requirements, and should be 1. 911,800 shares
approved by the Securities and Exchange Commission which 2. 1,862,148 shares
sees to it that the rights of creditors are not prejudiced. 3. 520,777 shares
________
xxx Total 3,294,725 shares of 67% outstanding
voting shares
e. That subject-firm shall apply with SEC for an amendment of
its authorized capitalization to include preferred shares x x x. [32]
in case immediate conversion into equity of 40% of the
total outstanding obligation as of May 15, 1980 will
include preferred shares. Clearly, when ERHC delivered the certificates of stocks, it was to comply with ERHCs
xxx (Emphasis supplied) commitment under the original mortgage contracts, not the restructuring
agreement.
A careful review of the facts and the evidence presented by the parties Besides, there is a vast difference between an assignment of shares to DBP
discloses that ERHC failed to comply with the terms and conditions set forth in DBP by existing stockholders and conversion of DBPs loan into equity of ERHC. In the
Resolution No. 956. first, the paid-up capital of ERHC remains the same. In the latter, the paid-up capital
of ERHC, as well as its liabilities, changes in that the liabilities are transferred to the
First, ERHC failed to comply with the important condition of converting into capital account to the extent of the conversion. The latter case, which is the
equity 40 percent of its outstanding debt to DBP. ERHC did not present any conversion of debt into equity required under the restructuring agreement, never
evidence to show that it complied with this particular requirement. While it is true happened. The delivery to DBP of stock certificates representing 3,294,725 ERHC
Lastly, ERHC failed to comply with the quasi-reorganization requirement, as xxx while no proof of pecuniary loss is necessary in order that moral damages may
clearly admitted in ERHCs letter dated 3 November 1982 to DBP, thus: be awarded, the amount of indemnity being left to the discretion of the court (Art.
2216), it is, nevertheless, essential that the claimant satisfactorily prove the existence
of the factual basis of the damage (Art. 2217) and its causal relation to
3. On July 31, 1981, we once more communicated with your Naga Branch advising defendants acts. This is so because moral damages, though incapable of pecuniary
of the Emerald Resort Hotel Corporations Stockholders Resolution approving the estimation, are in the category of an award designed to compensate the claimant
quasi-reorganization and the Petition filed with the Securities and Exchange for actual injury suffered and not to impose a penalty on the
Commission requesting approval of the corporations resolution on quasi- wrongdoer.[37] (Emphasis supplied)
reorganization and the transfer of 1,862,148 shares in favor of the DBP, copy
whereof is attached as Annex C;
In the body of its decision, the trial court gave no basis to justify the award of moral
damages. The trial court simply awarded moral damages in the dispositive portion
4. On September 7, 1981, we received by personal delivery a letter from Manager of its decision.[38]
Mario C. Leao, copy whereof is attached as Annex D. In our conversation had on this
occasion, I reiterated our request in our letter dated 19 June 1981 that in view of the Moreover, as a general rule, moral damages are not awarded to a
circumstances affecting our papers in the Securities and Exchange Commission corporation, thus:
there was need to extend our period of compliance.
Considering that ERHC failed to comply with the material conditions of the
restructuring agreement, the agreement was never implemented or even THIRD DIVISION
perfected. The perfection and implementation of the restructuring agreement were
expressly subject to the following conditions embodied in DBP Resolution No. 956
and in DBPs notice of approval to ERHC, respectively:
xxxxxxxxx SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI, petitioners, vs. THE
HONORABLE COURT OF APPEALS; SPS. BENJAMIN SAN DIEGO and
CARMENCITA SAN DIEGO; The EX-OFFICIO SHERIFF and CLERK OF
7. All documents for this loan approval shall be executed and perfected within 90 COURT of the Regional Trial Court, Makati City; and the REGISTER
days from the date of this notice; otherwise, this accommodation shall be OF DEEDS, Makati City, respondents.
automatically cancelled.[35]
DECISION
The trial and appellate courts gravely misapprehended the facts and made
manifestly mistaken inferences in finding that the parties had perfected the GARCIA, J.:
restructuring agreement. Consequently, when DBP filed the application for
extrajudicial foreclosure of the chattel and real estate mortgages, ERHC was already
Herein petitioners, the spouses Maximo Landrito, Jr. and Pacita Landrito,
in default in paying its debt to DBP.
have come to this Court via this petition for review on certiorari under Rule 45 of
Third Issue: ERHCs offer to lease the foreclosed properties the Rules of Court to seek the reversal and setting aside of the decision dated 12
December 1997[1] and resolution dated 10 March 1998[2] of the Court of Appeals in
ERHC offered to lease from DBP the foreclosed properties after the auction CA-G.R. CV No. 48896, affirming an earlier order of the Regional Trial Court at
sale. DBP argues that when ERHC offered to lease from DBP the foreclosed Makati City which granted the motion to dismiss filed by the herein private
properties, ERHC waived its right to question the validity of the foreclosure. respondents, the spouses Benjamin San Diego and Carmencita San Diego, in its Civil
Case No. 94-2950, a complaint for annulment of extrajudicial foreclosure and
We do not agree. auction sale, thereat commenced by them against the San Diegos, the ex-
officio sheriff and the Register of Deeds of Makati City.
To constitute a waiver, the intent to waive must be shown clearly and
convincingly.[36] A mere offer to lease the foreclosed properties cannot constitute a The facts:
waiver of ERHCs right to contest the validity of the foreclosure on the ground of
non-compliance with the statutory requisites. ERHCs offer to lease does not In July 1990, petitioners obtained a loan of P350,000.00 from respondent
relinquish ERHCs right to challenge the validity of the foreclosure. The offer to lease Carmencita San Diego. To secure payment thereof, petitioners executed on 02
the foreclosed properties cannot validate or ratify a void foreclosure. ERHCs August 1990 in favor of the same respondent a deed of real estate mortgage over
intention to lease the foreclosed properties cannot simply outweigh DBPs failure to their parcel of land located at Bayanan, Muntinlupa, Rizal and registered in their
comply with the statutory requisite for a valid extrajudicial foreclosure. As the Court names under Transfer Certificate of Title No. (432281) S-21000.
of Appeals correctly ruled, there can be no waiver of the posting and publication
requirements in foreclosure proceedings because the same is contrary to law and After making substantial payments, petitioners again obtained and were
public order. granted by Carmencita San Diego an additional loan of One Million Pesos
(P1,000,000.00). To secure this additional loan, the parties executed on 13
Fourth Issue: Award of moral damages September 1991 an Amendment of Real Estate Mortgage, whereunder they
stipulated that the loan shall be paid within six (6) months from 16 September 1991,
DBP maintains that ERHC, a juridical person, is not entitled to moral and if not paid within said period, the mortgagee shall have the right to declare the
damages. ERHC counters that its reputation was debased when the sheriffs and
As announced, on 11 August 1993, at 10:00 oclock in the morning, the public The records indubitably show that at the time of the foreclosure sale on 11
auction sale was held and the mortgaged property sold to respondent Carmencita August 1993, petitioners were already in default in their loan obligation to
San Diego as the highest bidder for P2,000,000.00, as evidenced by the Sheriffs respondent Carmencita San Diego.
Certificate of Sale issued in her favor on 07 October 1993.
Much earlier, or on 27 April 1993, a final notice of demand for payment had
On 29 October 1993, respondent San Diego caused the registration of the been sent to them, despite which they still failed to pay. Hence, respondent
same sheriffs certificate of sale with the Office of the Register of Deeds, Makati City, Carmencita San Diegos resort to extrajudicial foreclosure, provided no less in the
and duly inscribed on the same date at the dorsal side of the petitioners TCT No. parties Amendment of Real Estate Mortgage.
(432281) S-21000.
The rule has been, and still is, that in real estate mortgage, when the principal
With the petitioners having failed to redeem their property within the 1-year obligation is not paid when due, the mortgagee has the right to foreclose on the
redemption period from the date of inscription of the sheriffs certificate of sale, as mortgage and to have the mortgaged property seized and sold with the view of
provided for in Act No. 3135, as amended, the San Diegos caused the consolidation applying the proceeds thereof to the payment of the obligation. [4]
of title over the foreclosed property in their names.
Here, the validity of the extrajudicial foreclosure on 11 August 1993 was
Then, on 09 November 1994, before the Regional Trial Court at Makati City, virtually confirmed by the trial court when it dismissed petitioners complaint, and
petitioners filed their complaint for annulment of the extrajudicial foreclosure and rightly so, what with the fact that petitioners failed to exercise their right of
auction sale, with damages. In their complaint, thereat docketed as Civil Case No. redemption within the 1-year period therefor counted from the registration of the
94-2950, petitioners alleged that (1) said foreclosure and auction sale were null and sheriffs certificate of sale.
void for failure to comply with the requirements of notice and publication, as
It is petitioners main submission, however, that the very reason why they did
mandated by Act 3135, as amended; (2) the mortgaged property was illegally
not avail of their redemption right is because Mrs. San Diego bloated their original
foreclosed in the light of the settled rule that an action to foreclose a mortgage
loan of P1,000,000.00 to P1,950,000.00, an issue supposedly not considered and/or
must be limited to the amount mentioned in the mortgage document, in this
addressed by the appellate court in the decision under review. In this regard,
case, P1,000,000.00, which amount was allegedly bloated by respondent Carmencita
petitioners argue that the Court of Appeals, in sustaining the extrajudicial
San Diego to P1,950,000.00; and (3) the San Diegos application for consolidation of
foreclosure proceedings, thereby go against the established jurisprudence that an
title was premature because the husband, Benjamin San Diego, allegedly granted
action for foreclosure must be limited to the amount mentioned in the mortgage
them an extension of the period of redemption up to 11 November 1994.
document, P1,000,000.00 in this case.
To the complaint, respondents interposed a Motion to Dismiss, therein
We do not take issue with petitioners submission that a mortgage may be
alleging that said complaint failed to state a cause of action as no primary right of
foreclosed only for the amount appearing in the mortgage document, more so
the petitioners had been violated since they actually failed to exercise their right of
where, as here, the mortgage contract entered into by the parties is evidently silent
redemption within the one-year redemption period, adding that petitioners never
on the payment of interest.
took any action which may stall the running of the same period, thereby leaving
them no further right or interest in the property in question. However, contrary to petitioners claim, the appellate court did pass upon the
legal issue raised by them, albeit ruling that petitioners had been barred by laches
In an order dated 13 January 1995, the trial court granted respondents
from raising the same. We quote from the challenged decision:
motion to dismiss and accordingly dismissed petitioners complaint, saying that the
latters cause of action, if any, is already barred by laches on account of their failure
or neglect for an unreasonable length of time to do that which, by exercising due [Petitioners] next argued that the mortgaged property was illegally foreclosed since
diligence, could or should have been done earlier. Further, the trial court ruled that it is a well settled rule that an action to foreclose a mortgage must be limited to the
petitioners inaction constituted a waiver on their part. amount mentioned in the mortgage.
From the foregoing, it is clear as day that even the complaint filed by the
petitioners with the trial court on 09 November 1994 was instituted beyond the 1-
year redemption period. In fact, petitioners no less acknowledged that their
complaint for annulment of extrajudicial foreclosure and auction sale was filed x-----------------------------------------------------------------x
about eleven (11) days after the redemption period had already expired on 29
October 1994[7]. They merely harp on the alleged increase in the redemption price
of the mortgaged property as the reason for their failure to redeem the same. DECISION
However, and as already pointed out herein, they chose not, despite notice, to
appear during the foreclosure proceedings. PERALTA, J.:
Of course, petitioners presently insist that they requested for and were This is a petition for review on certiorari assailing the Decision[1] dated
granted an extension of time within which to redeem their property, relying on a December 6, 2005, of the Regional Trial Court (RTC), National Capital Judicial
handwritten note allegedly written by Mrs. San Diegos husband on petitioners Region, Branch 101, Quezon City, in SP. Civil Action Q-04-53522 for Mandamus with
statement of account, indicating therein the date 11 November 1994 as the last Prayer for Issuance of a Temporary Restraining Order and a Writ of Preliminary
day to pay their outstanding account in full. Even assuming, in gratia argumenti, that Injunction.
they were indeed granted such an extension, the hard reality, however, is that at no
time at all did petitioners make a valid offer to redeem coupled with a tender of the The procedural and factual antecedents are as follows:
redemption price. The facts are undisputed. The spouses Roberto and Monette Naval
obtained a loan from respondent Rizal Commercial Banking Corporation, secured by
Even on this score, petitioners case must fall. a real estate mortgage of properties covered by Transfer Certificate of Title (TCT)
Nos. N-167986, N-167987, and N-167988. In 1998, the real estate mortgage was
For, in Lazo v. Republic Surety & Insurance Co., Inc. [8], this Court has made it
later foreclosed and the properties were sold at public auction with respondent as
clear that it is only where, by voluntary agreement of the parties, consisting of
the highest bidder. The corresponding Certificates of Sale were issued in favor of
extensions of the redemption period, followed by commitment by the debtor to
respondent on August 4, 1998.However, the certificates of sale were allegedly
pay the redemption price at a fixed date, will the concept of legal redemption be
registered only on February 10, 2004.
converted into one of conventional redemption.
Here, there is no showing whatsoever that petitioners agreed to pay the Meanwhile, on May 30, 2003, an auction sale of tax delinquent
redemption price on or before 11 November 1994, as allegedly set by Mrs. San properties was conducted by the City Treasurer of Quezon City. Included in the
Diegos husband. On the contrary, their act of filing their complaint on 09 November properties that were auctioned were two (2) townhouse units covered by TCT Nos.
1994 to declare the nullity of the foreclosure sale is indicative of their refusal to pay N-167986 and N-167987 and the parcel of land covered by TCT No. N-167988. For
the redemption price on the alleged deadline set by the husband. At the very least, these delinquent properties, Alvin Emerson S. Yu was adjudged as the highest
if they so believed that their loan obligation was only for P1,000,000.00, petitioners bidder. Upon payment of the tax delinquencies, he was issued the corresponding
should have made an offer to redeem within one (1) year from the registration of Certificate of Sale of Delinquent Property.
the sheriffs certificate of sale, together with a tender of the same amount. This, they
never did. On February 10, 2004, the Certificate of Sale of Delinquent Property was
registered with the Office of the Register of Deeds of Quezon City.
It must be remembered that the period of redemption is not a prescriptive
period but a condition precedent provided by law to restrict the right of the person On June 10, 2004, respondent tendered payment for all of the assessed
exercising redemption. Correspondingly, if a person exercising the right of tax delinquencies, interest, and other costs of the subject properties with the Office
redemption has offered to redeem the property within the period fixed, he is of the City Treasurer, Quezon City. However, the Office of the City Treasurer refused
considered to have complied with the condition precedent prescribed by law and to accept said tender of payment.
may thereafter bring an action to enforce redemption. If, on the other hand, the
period is allowed to lapse before the right of redemption is exercised, then the Undeterred, on June 15, 2004, respondent filed before the Office of the
action to enforce redemption will not prosper, even if the action is brought within City Treasurer a Petition[2] for the acceptance of its tender of payment and for the
the ordinary prescriptive period. Moreover, the period within which to redeem the subsequent issuance of the certificate of redemption in its favor. Nevertheless,
property sold at a sheriffs sale is not suspended by the institution of an action to respondents subsequent tender of payment was also denied.
annul the foreclosure sale.[9] It is clear, then, that petitioners have lost any right or Consequently, respondent filed a Petition for Mandamus with Prayer for
interest over the subject property primarily because of their failure to redeem the Issuance of a Temporary Restraining Order and a Writ of Preliminary
same in the manner and within the period prescribed by law. Their belated attempts Injunction[3] before the RTC. Petitioners contended, among other things, that it had
to question the legality and validity of the foreclosure proceedings and public until February 10, 2005, or one (1) year from the date of registration of the
auction must accordingly fail. certificate of sale on February 10, 2004, within which to redeem the subject
properties, pursuant to Section 78 of Presidential Decree (P.D.) No. 464 or the Real
WHEREFORE, the instant petition is DENIED and the challenged decision and Property Tax Code.
resolution of the Court of Appeals AFFIRMED.
After the parties filed their respective pleadings, the RTC initially denied
No pronouncement as to costs.
the petition in the Order[4] dated December 6, 2004. In denying the petition, the RTC
opined that respondents reliance on Section 78 of P.D. No. 464 as basis of the
SO ORDERED.
reckoning period in counting the one (1) year period within which to redeem the
subject properties was misplaced, since P.D. No. 464 has been expressly repealed by
Republic Act (R.A.) No. 7160, or the Local Government Code.
SECOND DIVISION
Aggrieved, respondent filed a Motion for Reconsideration[5] questioning
the Order, arguing that:
A.
The Honorable Court committed grave error when it
summarily denied the petition for Mandamus filed by herein
petitioner during the hearing on the Motion for Issuance of
Temporary Restraining Order and/or Issuance of a Writ of
Preliminary Injunction without conducting a hearing or trial
on petition for mandamus. The order of the court effectively
denied petitioner its right to due process.
B.
The principal action subject of the petition for mandamus is
the annulment of the auction sale. Alternatively, petitioner
sought the right to consign the redemption price, inclusive
of interests on the basis that it was exercising the right of
WHEREFORE, premises considered, the above- From the foregoing, the owner or any person holding a lien or claim
captioned petition for mandamus is hereby granted. over a tax delinquent property sold at public auction has one (1) year from the date
of registration of sale to redeem the property. However, since the passing of R.A.
Accordingly, the public respondents are ordered to No. 7160, such is no longer controlling. The issue of whether or not R.A No. 7160 or
accept the petitioners tender of redemption payment, to the Local Government Code, repealed P.D. No. 464 or the Real Property Tax Code
issue the corresponding certificate of redemption in the has long been laid to rest by this Court. Jurisdiction thrives to the effect that R.A.
name of the petitioner and to cancel the certificate of tax No. 7160 repealed P.D. No. 464.[11] From January 1, 1992 onwards, the proper basis
sale issued to the private respondent. for the computation of the real property tax payable, including penalties or
interests, if applicable, must be R. A. No. 7160. Its repealing clause, Section 534,
SO ORDERED.[8] reads:
In granting the petition, the RTC ratiocinated that the counting of the SECTION 534. Repealing Clause.
one (1) year redemption period of tax delinquent properties sold at public auction
should start from the date of registration of the certificate of sale or the final deed xxxx
of sale in favor of the purchaser, so that the delinquent registered owner or third
parties interested in the redemption may be notified that the delinquent property (c) The provisions of Sections 2, 3, and 4 of Republic
had been sold, and that they have one (1) year from said constructive notice of the Act No. 1939 regarding hospital fund; Section 3, a (3) and b
sale within which to redeem the property. The RTC was also of the opinion that (2) of Republic Act No. 5447 regarding the Special Education
Section 261, R.A. No. 7160 did not amend Section 78 of P.D. No. 464. Fund; Presidential Decree No. 144 as amended by
Presidential Decree Nos. 559 and 1741; Presidential Decree
Hence, the petition raising the following arguments: No. 231 as amended; Presidential Decree No. 436 as
amended by Presidential Decree No. 558; and Presidential
I Decrees Nos. 381, 436, 464, 477, 526, 632, 752, and 1136 are
hereby repealed and rendered of no force and effect.
THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON CITY,
DECIDED A QUESTION [OF] LAW CONTRARY TO LAW AND Inasmuch as the crafter of the Local Government Code clearly worded
JURISPRUDENCE WHEN IT DECIDED THAT SECTION 78 OF the above-cited Section to repeal P.D. No. 464, it is a clear showing of their
P.D. 464 WAS NOT REPEALED BY REPUBLIC ACT NO. 7160 legislative intent that R.A. No. 7160 was to supersede P.D. No. 464. As such, it is
KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991. apparent that in case of sale of tax delinquent properties, R.A. No. 7160 is the
general law applicable.Consequently, as regards redemption of tax delinquent
II properties sold at public auction, the pertinent provision is Section 261 of R.A. No.
7160, which provides:
THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON CITY,
DECIDED A QUESTION [OF] LAW CONTRARY TO LAW AND Section 261. Redemption of Property Sold. Within one
JURISPRUDENCE WHEN IT RAISED THE FOLLOWING ISSUES (1) year from the date of sale, the owner of the delinquent
WHICH DO NOT CONFORM TO THE PETITION AND real property or person having legal interest therein, or his
ANSWER FILED BY THE PARTIES: representative, shall have the right to redeem the property
upon payment to the local treasurer of the amount of
A. WHETHER OR NOT THE RESPONDENT IS delinquent tax, including the interest due thereon, and the
ENTITLED TO THE PROTECTION OF ALL THE expenses of sale from the date of delinquency to the date of
PROVISIONS OF QUEZON CITY TAX ORDINANCE sale, plus interest of not more than two percent (2%) per
NUMBER SP-91-93, OTHERWISE KNOWN AS month on the purchase price from the date of sale to the
QUEZON CITY REVENUE CODE OF 1993, INCLUDING date of redemption. Such payment shall invalidate the
SECTION 14 THEREOF, PROMULGATED PURSUANT certificate of sale issued to the purchaser and the owner of
TO R.A. 7160; the delinquent real property or person having legal interest
therein shall be entitled to a certificate of redemption which
B. WHETHER THE PERIOD OF REDEMPTION IN A shall be issued by the local treasurer or his deputy.
REALTY TAX SALE IN QUEZON CITY [H]AS TO BE
RECKONED FROM THE DATE OF ANNOTATION OF From the date of sale until the expiration of the
THE CERTIFICATE OF SALE PURSUANT TO period of redemption, the delinquent real property shall
PARAGRAPH 7, SECTION 14 OF QUEZON CITY TAX remain in the possession of the owner or person having
ORDINANCE NO. SP-91-93 OR FROM THE DATE legal interest therein who shall remain in the possession of
OF SALE PURSUANT TO SECTION 261 OF R.A. the owner or person having legal interest therein who shall
7160.[9] be entitled to the income and other fruits thereof.
Petitioners argue that the RTC erred when it ruled that P.D. No. 464 was The local treasurer or his deputy, upon receipt from
not repealed by R.A. No. 7160 and when it concluded that the phrase from the date the purchaser of the certificate of sale, shall forthwith return
of sale as appearing in Section 261 of R.A. No. 7160 means that the counting of the to the latter the entire amount paid by him plus interest of
xxxx
Verily, the ordinance is explicit that the one-year redemption period
FIRST DIVISION
should be counted from the date of the annotation of the sale of the property at the
proper registry.At first glance, this provision runs counter to that of Section 261 of
R.A. No. 7160 which provides that the one year redemption period shall be counted G.R. No. 195540 March 13, 2013
from the date of sale of the tax delinquent property. There is, therefore, a need to
reconcile these seemingly conflicting provisions of a general law and a special law.
GOLDENWAY MERCHANDISING CORPORATION, Petitioner,
vs.
A general statute is one which embraces a class of subjects or places
EQUITABLE PCI BANK, Respondent.
and does not omit any subject or place naturally belonging to such class. A special
statute, as the term is generally understood, is one which relates to particular
persons or things of a class or to a particular portion or section of the state DECISION
only.[14] In the present case, R.A. No. 7160 is to be construed as a general law, while
City Ordinance No. SP-91, S-93 is a special law, having emanated only from R.A. No.
VILLARAMA, JR., J.:
7160 and with limited territorial application in Quezon City only.
A general law and a special law on the same subject should be Before the Court is a petition for review on certiorari which seeks to reverse and set
accordingly read together and harmonized, if possible, with a view to giving effect aside the Decision1 dated November 19, 2010 and Resolution2 dated January 31,
to both. Where there are two acts, one of which is special and particular and the 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 91120. The CA affirmed the
other general which, if standing alone, would include the same matter and thus Decision3 dated January 8, 2007 of the Regional Trial Court (RTC) of- Valenzuela
conflict with the special act, the special must prevail, since it evinces the legislative City, Branch 171 dismissing the complaint in Civil Case No. 295-V -01.
intent more clearly than that of the general statute and must be taken as intended
to constitute an exception to the rule. [15]More so, when the validity of the law is not
The facts are undisputed.
in question.
In giving effect to these laws, it is also worthy to note that in cases On November 29, 1985, Goldenway Merchandising Corporation (petitioner)
involving redemption, the law protects the original owner. It is the policy of the law executed a Real Estate Mortgage in favor of Equitable PCI Bank (respondent) over its
to aid rather than to defeat the owners right. Therefore, redemption should be real properties situated in Valenzuela, Bulacan (now Valenzuela City) and covered by
looked upon with favor and where no injury will follow, a liberal construction will be Transfer Certificate of Title (TCT) Nos. T-152630, T-151655 and T-214528 of the
given to our redemption laws, specifically on the exercise of the right to redeem.[16] Registry of Deeds for the Province of Bulacan. The mortgage secured the Two
Million Pesos (P2,000,000.00) loan granted by respondent to petitioner and was duly
To harmonize the provisions of the two laws and to maintain the policy registered.4
of the law to aid rather than to defeat the owners right to redeem his property,
Section 14 (a), Paragraph 7 of City Ordinance No. SP-91, S-93 should be construed
As petitioner failed to settle its loan obligation, respondent extrajudicially foreclosed
as to define the phrase one (1) year from the date of sale as appearing in Section 261
the mortgage on December 13, 2000. During the public auction, the mortgaged
of R.A. No. 7160, to mean one (1) year from the date of the annotation of the sale of
properties were sold for P3,500,000.00 to respondent. Accordingly, a Certificate of
the property at the proper registry.
Sale was issued to respondent on January 26, 2001. On February 16, 2001, the
Certificate of Sale was registered and inscribed on TCT Nos. T-152630, T-151655
Consequently, the counting of the one (1) year redemption period of
and T-214528.5
property sold at public auction for its tax delinquency should be counted from
the date of annotation of the certificate of sale in the proper Register of
Deeds. Applying the foregoing to the case at bar, from the date of registration of In a letter dated March 8, 2001, petitioners counsel offered to redeem the
the Certificate of Sale of Delinquent Property on February 10, 2004, respondent had foreclosed properties by tendering a check in the amount of P3,500,000.00. On
until February 10, 2005 to redeem the subject properties. Hence, its tender of March 12, 2001, petitioners counsel met with respondents counsel reiterating
payment of the subject properties tax delinquencies and other fees on June 10, petitioners intention to exercise the right of redemption.6 However, petitioner was
2004, was well within the redemption period, and it was manifest error on the part told that such redemption is no longer possible because the certificate of sale had
of petitioners to have refused such tender of payment. already been registered. Petitioner also verified with the Registry of Deeds that title
to the foreclosed properties had already been consolidated in favor of respondent
Finally, respondents failure to cite Section 14 (a), Paragraph 7, City and that new certificates of title were issued in the name of respondent on March 9,
Ordinance No. SP-91, S-93 in its petition for mandamus does not preclude it from 2001.
invoking the said provision in the later part of the judicial proceeding.
In its Answer with Counterclaim,8 respondent pointed out that petitioner cannot However, Section 47 of R.A. No. 8791 otherwise known as "The General Banking Law
claim that it was unaware of the redemption price which is clearly provided in of 2000" which took effect on June 13, 2000, amended Act No. 3135. Said provision
Section 47 of R.A. No. 8791, and that petitioner had all the opportune time to reads:
redeem the foreclosed properties from the time it received the letter of demand and
the notice of sale before the registration of the certificate of sale. As to the check
SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure,
payment tendered by petitioner, respondent said that even assuming arguendo
whether judicially or extrajudicially, of any mortgage on real estate which is security
such redemption was timely made, it was not for the amount as required by law.
for any loan or other credit accommodation granted, the mortgagor or debtor
whose real property has been sold for the full or partial payment of his obligation
On January 8, 2007, the trial court rendered its decision dismissing the complaint as shall have the right within one year after the sale of the real estate, to redeem the
well as the counterclaim. It noted that the issue of constitutionality of Sec. 47 of R.A. property by paying the amount due under the mortgage deed, with interest thereon
No. 8791 was never raised by the petitioner during the pre-trial and the trial. Aside at the rate specified in the mortgage, and all the costs and expenses incurred by the
from the fact that petitioners attempt to redeem was already late, there was no bank or institution from the sale and custody of said property less the income
valid redemption made because Atty. Judy Ann Abat-Vera who talked to Atty. derived therefrom. However, the purchaser at the auction sale concerned whether in
Joseph E. Mabilog of the Legal Division of respondent bank, was not properly a judicial or extrajudicial foreclosure shall have the right to enter upon and take
authorized by petitioners Board of Directors to transact for and in its behalf; it was possession of such property immediately after the date of the confirmation of the
only a certain Chan Guan Pue, the alleged President of petitioner corporation, who auction sale and administer the same in accordance with law. Any petition in court
gave instruction to Atty. Abat-Vera to redeem the foreclosed properties.9 to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to
this provision shall be given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will pay all the damages
Aggrieved, petitioner appealed to the CA which affirmed the trial courts decision.
which the bank may suffer by the enjoining or the restraint of the foreclosure
According to the CA, petitioner failed to justify why Section 47 of R.A. No. 8791
proceeding.
should be declared unconstitutional. Furthermore, the appellate court concluded
that a reading of Section 47 plainly reveals the intention to shorten the period of
redemption for juridical persons and that the foreclosure of the mortgaged Notwithstanding Act 3135, juridical persons whose property is being sold pursuant
properties in this case when R.A. No. 8791 was already in effect clearly falls within to an extrajudicial foreclosure, shall have the right to redeem the property in
the purview of the said provision.10 accordance with this provision until, but not after, the registration of the certificate
of foreclosure sale with the applicable Register of Deeds which in no case shall be
more than three (3) months after foreclosure, whichever is earlier. Owners of
Petitioners motion for reconsideration was likewise denied by the CA.
property that has been sold in a foreclosure sale prior to the effectivity of this Act
shall retain their redemption rights until their expiration. (Emphasis supplied.)
In the present petition, it is contended that Section 47 of R.A. No. 8791 is
inapplicable considering that the contracting parties expressly and categorically
Under the new law, an exception is thus made in the case of juridical persons which
agreed that the foreclosure of the real estate mortgage shall be in accordance with
are allowed to exercise the right of redemption only "until, but not after, the
Act No. 3135. Citing Co v. Philippine National Bank 11 petitioner contended that the
registration of the certificate of foreclosure sale" and in no case more than three (3)
right of redemption is part and parcel of the Deed of Real Estate Mortgage itself
months after foreclosure, whichever comes first. 16
and attaches thereto upon its execution, a vested right flowing out of and made
dependent upon the law governing the contract of mortgage and not on the
mortgagees act of extrajudicially foreclosing the mortgaged properties. This Court May the foregoing amendment be validly applied in this case when the real estate
thus held in said case that "Under the terms of the mortgage contract, the terms mortgage contract was executed in 1985 and the mortgage foreclosed when R.A.
and conditions under which redemption may be exercised are deemed part and No. 8791 was already in effect?
parcel thereof whether the same be merely conventional or imposed by law."
The freedom to contract is not absolute; all contracts and all rights are subject to On 19 December 1994, Judge Ignacio M. Capulong to whom this case was
the police power of the State and not only may regulations which affect them be assigned admitted the aforementioned amended complaint and set the application
established by the State, but all such regulations must be subject to change from for writ of preliminary injunction for hearing. After UNIONBANKs motion for
time to time, as the general well-being of the community may require, or as the reconsideration of said Order was denied on 17 January 1995, it filed a petition
circumstances may change, or as experience may demonstrate the for certiorari with the CA questioning the admission of the amended complaint.The
necessity.32 Settled is the rule that the non-impairment clause of the Constitution CA upheld Judge Capulongs order admitting the amended complaint on 24 April
must yield to the loftier purposes targeted by the Government. The right granted by 1995, UNIONBANK thereafter elevated its cause to this Court.
this provision must submit to the demands and necessities of the States power of
regulation.33 Such authority to regulate businesses extends to the banking industry Meanwhile, on 9 February 1995 UNIONBANK filed its answer ad
which, as this Court has time and again emphasized, is undeniably imbued with cautelam asserting its status as an innocent mortgagee for value whose right or lien
public interest.34 upon the property mortgaged must be respected even if the mortgagor obtained
his title through fraud. It also averred that the action had become moot and
academic by the consolidation of the foreclosed property on 24 October 1994 in its
Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we find
name, resulting to the issuance of TCT No. 120929 by the Register of Deeds of
no reversible error committed by the CA in holding that petitioner can no longer
Quezon City. In reaction to UNIONBANKs revelation, private respondents moved to
exercise the right of redemption over its foreclosed properties after the certificate of
declare UNIONBANKs counsel in indirect contempt attacking his disobedience to
sale in favor of respondent had been registered.
the TRO.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. The On 19 May 1995, private respondents moved to declare the other defendants
Decision dated November 19, 2010 and Resolution dated January 31, 2011 of the in default for their non-filing of responsive pleadings within the mandatory period
Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED. and to set the application for preliminary injunction and indirect contempt for pre-
trial and trial.
With costs against the petitioner. On 14 June 1995 the second division of this Court denied the petition
for certiorari, which it considered as a petition for review under Rule 45, for failure to
show that the CA had committed any reversible error in judgment.
SO ORDERED.
In its 19 August 1995 Order, the RTC held the mortgagors and the City
FIRST DIVISION Sheriff of Quezon City in default and sustained UNIONBANKs contention that the
[G.R. No. 133366. August 5, 1999] act sought to be enjoined had been enforced, negating the need of hearing the
UNIONBANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS and application for preliminary injunction. Private respondents filed a lengthy motion for
FERMINA S. DARIO and REYNALDO S. DARIO, respondents. reconsideration to this Order.
DECISION
The annulment case was re-raffled to Branch 227 under Presiding Judge
DAVIDE, JR., C.J.: Vicente Q. Roxas upon the creation of new salas. Judge Roxas, on 25 March 1996,
denied the motion to reconsider the 19 August 1995 Order but suggested that
private respondents amend their application from prohibitory to mandatory
Unionbank of the Philippines (hereafter UNIONBANK) appeals, by way injunction.
of certiorari, the Decision[1] of the Court of Appeals (CA) of 26 June 1997 and its
Resolution of 7 April 1998[2] The CA nullified the Regional Trial Courts (RTC) As private respondents were unable to amend their application, the RTC
Order[3] of 7 August 1995 denying private respondents application for preliminary denied the motion for reconsideration and their motion for indirect contempt, in the
injunction as UNIONBANKs consolidation of ownership divested private interest of free speech and tolerance on 9 July 1996. Asserting grave abuse of
respondents of their property without due process of law. It also ordered the discretion, private respondents brought the denial of their motion for
register of deeds to cancel UNIONBANKs title and the trial court to hear private reconsideration with the Court of Appeals on 6 September 1996.
respondents prayer for injunctive relief.
After considering the arguments presented by the parties, the CA ruled that
This case stemmed from a real estate mortgage executed on 17 December despite its knowledge that the ownership of the property was being questioned,
1991 by spouses Leopoldo and Jessica Dario (hereafter mortgagors) in favor of UNIONBANK took advantage of private respondents procedural error by
UNIONBANK to secure a P3 million loan, including interest and other charges. The consolidating title to the property, which smack[ed] of bad faith and evince[d] a
mortgage covered a Quezon City property with Transfer Certificate of Title (TCT) No. reprobate disposition of the part of its counsel to advance his clients cause by fair
On 26 June 1997, CA nullified the consolidation of ownership, ordered the There is, moreover, nothing erroneous with the denial of private respondents
Register of Deeds to cancel the certificate of title in UNIONBANKs name and to application for preliminary prohibitory injunction. The acts complained of have
reinstate TCT No. 41828 with the notice of lis pendens annotated at the back. The already been consummated. It is impossible to restrain the performance of
CA also set aside the portion of the assailed RTC Orders that declared private consummated acts through the issuance of prohibitory injunction. When the act
respondents prayer for writ of preliminary injunction as moot and sought to be prevented had long been consummated, the remedy of injunction
academic.UNIONBANKs motion for reconsideration of the above-mentioned could no longer be entertained,[18] hearing the application for preliminary injunction
decision was likewise rejected for lack of merit on 7 April 1998. would just be an exercise in futility.
Hence, UNIONBANK came to this Court claiming to be a mortgagee in good In addition, to be entitled to the injunctive writ, movant must show that there
faith and for value with a right to consolidate ownership over the foreclosed exists a right to be protected which is directly threatened by an act sought to be
property with the redemption period having expired and there having been no enjoined. Furthermore, there must be a showing that the invasion of the right is
redemptioners. UNIONBANK contends that the TRO which provisionally enjoined material and substantial and that there is an urgent and paramount necessity for the
the tolling of the redemption period was automatically dissolved upon dismissal of writ to prevent a serious damage.[19] The injunctive remedy prevents a threatened or
the complaint on 17 October 1994. Conformably, consolidation of title in its name continuous irremediable injury to some of the parties before their claim can be
and the issuance of TCT No. 120929 rendered further proceedings on the thoroughly investigated and advisedly adjudicated; it is resorted to only when there
application for injunction academic. Moreover, the alleged fraudulent mortgage was is a pressing necessity to avoid injurious consequences which cannot be remedied
facilitated through private respondents negligence so they must bear the loss. It under any standard compensation.[20]
also contends that since private respondents had filed several pleadings, due
process, being an opportunity to be heard either through pleadings or oral In the case at bar, the consolidation of ownership over the mortgaged
arguments, was observed. property in favor of UNIONBANK and the issuance of a new title in its name during
the pendency of an action for annulment and reconveyance will not cause
Private respondents maintain that UNIONBANKs consolidation of the title in irreparable injury to private respondents who are plaintiffs in the said action that will
its name was in bad faith, vitiated a standing court order, is against the law, thus merit the protection of the court through the writ of preliminary injunction. This is
void ab initio. The application for preliminary injunction was not rendered moot and because as purchaser at a public auction, UNIONBANK is only substituted to and
academic by consolidation, which took place during the lifetime of the TRO, and did acquires the right, title, interest and claim of the judgment debtors or mortgagors to
not follow the proper legal procedure due to the surreptitious manner it was the property at the time of levy.[21]Perforce, the judgment in the main action for
accomplished. By treating the application for preliminary injunction as moot and reconveyance will not be rendered ineffectual by the consolidation of ownership
academic and denying the motion for indirect contempt without hearing, the RTC and the issuance of title in the name of UNIONBANK.
order ran afoul with the requirements of due process.
More importantly, with the main action for reconveyance pending before the
Two main issues can be gleaned from the posturing and claims of the parties, RTC, the notice of lis pendens, which despite consolidation remains annotated on
to wit, was the consolidation of title in UNIONBANKs name proper, and was the UNIONBANKs transfer certificate of title subject to the outcome of the litigation,
dismissal of the application for preliminary prohibitory injunction valid. sufficiently protects private respondents interest over the property. A
transferee pendente lite stands exactly in the shoes of the transferor and is bound by
The issues must be answered in the affirmative. any judgment or decree which may be rendered for or against the transferor. Once
a notice of lis pendens has been duly registered, any cancellation or issuance of the
UNIONBANKs consolidation of title over the property on 24 October 1994
title of the land involved as well as any subsequent transaction affecting the same,
was proper, though precipitate. Contrary to private respondents allegation
would have to be subject to the outcome of the litigation. In other words, upon the
UNIONBANK violated no standing court order.The only bar to consolidation was the
termination of the litigation there can be no risk of losing the property or any part
temporary restraining order issued by Justice Lipana-Reyes on 10 October 1994
thereof as a result of any conveyance of the land or any encumbrance that may be
which effectively halted the tolling of the redemption period 7 days short of its
made thereon posterior to the filing of the notice of lis pendens.[22]
expiration. When private respondents original complaint was dismissed on 17
October 1994 for failure to append a certification of non-forum shopping, the TRO, Finally, as to the issue of who between private respondents and UNIONBANK
as an ancillary order that cannot stand independent of the main proceeding, is negligent and hence must bear the loss, the same is not the proper subject of the
became functus officio. Thus the tolling of the 12-month redemption period, present petition and can only be resolved by the trial court after the trial on the
interrupted by the filing of the complaint and the TRO, recommenced and merit of the main case.
eventually expired 7 days thereafter or on 24 October 1994, the date of the disputed
consolidation. WHEREFORE, the assailed Decision of the Court of Appeals of 26 June 1997
nullifying the consolidation of ownership and ordering the Register of Deeds of
The motion for reconsideration and to amend complaint filed by private Quezon City to cancel TCT No. 120929 and reinstate TCT No. 41828 is hereby
respondent on 20 October 1994 was of no moment, this Court recognizing that a REVERSED and SET ASIDE. The order of the trial court dated 7 August 1999,
dismissal, discontinuance or non-suit of an action in which a restraining order or declaring UNIONBANKs prayer for writ of preliminary injunction moot and
temporary injunction has been granted operates as a dissolution of the restraining academic, is hereby REINSTATED. Let this case be remanded to the Regional Trial
order or temporary injunction,[9] regardless of whether the period for filing a motion Court for trial on the merits.
for reconsideration of the order dismissing the case or appeal therefrom has
expired.[10] The rationale therefor is that even in cases where an appeal is taken from No pronouncement as to costs.
a judgment dismissing an action on the merits, the appeal does not suspend the
judgment, hence the general rule applies that a temporary injunction terminates SO ORDERED.
automatically on the dismissal of the action.[11]
We disagree with the appellate courts observation that consolidation SECOND DIVISION
deprived private respondents of their property without due process. It is settled that
the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration CUA LAI CHU, CLARO G. CASTRO, G.R. No. 169190
of the sale.[12] Consolidation took place as a matter of right since there was no and JUANITA CASTRO,
redemption of the foreclosed property and the TRO expired upon dismissal of the Petitioners, Present:
complaint. UNIONBANK need not have informed private respondent that it was
consolidating its title over the property, upon the expiration of the redemption CARPIO, J., Chairperson,
period, without the judgment debtor having made use of his right of redemption, - versus - BRION,
the ownership of the property sold becomes consolidated in the DEL CASTILLO,
purchaser.[13] Notice to the mortgagors and with more reason, to private ABAD, and
respondents who are not even parties to the mortgage contract nor to the HON. HILARIO L. LAQUI, Presiding PEREZ, JJ.
extrajudicial sale is not necessary. Judge, Regional Trial Court, Branch 218,
Quezon City and PHILIPPINE BANK Promulgated:
In real estate mortgage, when the principal obligation is not paid when due, OF COMMUNICATION,
the mortgage has the right to foreclose the mortgage and to have the property Respondents. February 11, 2010
seized and sold with a view to applying the proceeds to the payment of the x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
principal obligation.[14] Foreclosure may be effected either judicially or
extrajudicially.
DECISION
In a public bidding during extra-judicial foreclosure, the creditor-mortgagee,
trustee, or other person authorized to act for the creditor may participate and
purchase the mortgaged property as any other bidder. Thereafter the mortgagor CARPIO, J.:
has one year within which to redeem the property from and after registration of sale
with the Register of Deeds.[15] In case of non-redemption, the purchaser at
foreclosure sale shall file with the Register of Deeds, either a final deed of sale The Case
executed by the person authorized by virtue of the power of attorney embodied in
the deed or mortgage, or his sworn statement attesting to the fact of non- This is a petition for review[1] of the 29 April 2005 and 4 August 2005 Resolutions[2]
redemption; whereupon, the Register of Deeds shall issue a new certificate of title in of the Court of Appeals in CA-G.R. SP No. 88963. In its 29 April 2005 Resolution, the
favor of the purchaser after the owners duplicate of the certificate has been Court of Appeals dismissed the petition for certiorari[3] of petitioner spouses Claro
previously delivered and cancelled.[16] Thus, upon failure to redeem foreclosed G. Castro and Juanita Castro and petitioner Cua Lai Chu (petitioners). In its 4 August
realty, consolidation of title becomes a matter of right on the part of the auction
In November 1994, petitioners obtained a loan in the amount of P3,200,000 from At the outset, we must point out that the authorities relied upon by petitioners are
private respondent Philippine Bank of Communication. To secure the loan, not in point and have no application here. In Bustos v. Court of Appeals,[20] the
petitioners executed in favor of private respondent a Deed of Real Estate Court simply ruled that the issue of possession was intertwined with the issue of
Mortgage[4] over the property of petitioner spouses covered by Transfer Certificate ownership in the consolidated cases of unlawful detainer and accion
of Title No. 22990. In August 1997, petitioners executed an Amendment to the Deed reinvindicatoria. In Vda. De Legaspi v. Avendao,[21] the Court merely stated that in a
of Real Estate Mortgage[5] increasing the amount of the loan by P1,800,000, case of unlawful detainer, physical possession should not be disturbed pending the
bringing the total loan amount to P5,000,000. resolution of the issue of ownership. Neither case involved the right to possession
of a purchaser at an extrajudicial foreclosure of a mortgage.
For failure of petitioners to pay the full amount of the outstanding loan upon
demand,[6] private respondent applied for the extrajudicial foreclosure of the real Banco Filipino Savings and Mortgage Bank v. Pardo[22] squarely ruled on the right
estate mortgage.[7] Upon receipt of a notice[8] of the extrajudicial foreclosure sale, to possession of a purchaser at an extrajudicial foreclosure of a mortgage. This case
petitioners filed a petition to annul the extrajudicial foreclosure sale with a prayer involved a real estate mortgage as security for a loan obtained from a bank. Upon
for temporary restraining order (TRO). The petition for annulment was filed in the the mortgagors default, the bank extrajudicially foreclosed the mortgage. At the
Regional Trial Court of Quezon City and docketed as Q-02-46184.[9] auction sale, the bank was the highest bidder. A certificate of sale was duly issued
and registered. The bank then applied for the issuance of a writ of possession, which
The extrajudicial foreclosure sale did not push through as originally scheduled the lower court dismissed. The Court reversed the lower court and held that the
because the trial court granted petitioners prayer for TRO. The trial court purchaser at the auction sale was entitled to a writ of possession pending the lapse
subsequently lifted the TRO and reset the extrajudicial foreclosure sale on 29 May of the redemption period upon a simple motion and upon the posting of a bond.
2002. At the foreclosure sale, private respondent emerged as the highest bidder. A
certificate of sale[10] was executed on 4 June 2002 in favor of private respondent. In Navarra v. Court of Appeals,[23] the purchaser at an extrajudicial foreclosure sale
On 7 June 2002, the certificate of sale was annotated as Entry No. 1855[11] on TCT applied for a writ of possession after the lapse of the one-year redemption period.
No. 22990 covering the foreclosed property. The Court ruled that the purchaser at an extrajudicial foreclosure sale has a right to
After the lapse of the one-year redemption period, private respondent filed in the the possession of the property even during the one-year redemption period
Registry of Deeds of Quezon City an affidavit of consolidation to consolidate its provided the purchaser files an indemnity bond. After the lapse of the said period
ownership and title to the foreclosed property. Forthwith, on 8 July 2003, the with no redemption having been made, that right becomes absolute and may be
Register of Deeds cancelled TCT No. 22990 and issued in its stead TCT No. demanded by the purchaser even without the posting of a bond. Possession may
251835[12] in the name of private respondent. then be obtained under a writ which may be applied for ex parte pursuant to
Section 7 of Act No. 3135,[24] as amended by Act No. 4118,[25] thus:
On 18 August 2004, private respondent applied for the issuance of a writ of
possession of the foreclosed property.[13] Petitioners filed an opposition.[14] The SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition
trial court granted private respondents motion for a declaration of general default the Court of First Instance of the province or place where the property or any part
and allowed private respondent to present evidence ex parte. The trial court denied thereof is situated, to give him possession thereof during the redemption period,
petitioners notice of appeal. furnishing bond in an amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that the sale was made
Undeterred, petitioners filed in the Court of Appeals a petition for certiorari. The without violating the mortgage or without complying with the requirements of this
appellate court dismissed the petition. It also denied petitioners motion for Act. Such petition shall be made under oath and filed in form of an ex parte motion
reconsideration. x x x and the court shall, upon approval of the bond, order that a writ of possession
issue, addressed to the sheriff of the province in which the property is situated, who
The Orders of the Trial Court shall execute said order immediately. (Emphasis supplied)
The 8 October 2004 Order[15] granted private respondents motion for a declaration
of general default and allowed private respondent to present evidence ex parte. The
6 January 2005 Order[16] denied petitioners motion for reconsideration of the prior In the present case, the certificate of sale of the foreclosed property was annotated
order. The 24 February 2005 Order[17] denied petitioners notice of appeal. on TCT No. 22990 on 7 June 2002. The redemption period thus lapsed on 7 June
2003, one year from the registration of the sale.[26] When private respondent
applied for the issuance of a writ of possession on 18 August 2004, the redemption
period had long lapsed. Since the foreclosed property was not redeemed within one
The Ruling of the Court of Appeals year from the registration of the extrajudicial foreclosure sale, private respondent
had acquired an absolute right, as purchaser, to the writ of possession. It had
The Court of Appeals dismissed on both procedural and substantive grounds the become the ministerial duty of the lower court to issue the writ of possession upon
petition for certiorari filed by petitioners. The appellate court noted that the counsel mere motion pursuant to Section 7 of Act No. 3135, as amended.
for petitioners failed to indicate in the petition the updated PTR Number, a ground
for outright dismissal of the petition under Bar Matter No. 1132. Ruling on the Moreover, once ownership has been consolidated, the issuance of the writ of
merits, the appellate court held that a proceeding for the issuance of a writ of possession becomes a ministerial duty of the court, upon proper application and
possession is ex parte in nature. As such, petitioners right to due process was not proof of title.[27] In the present case, when private respondent applied for the
violated even if they were not given a chance to file their opposition. The appellate issuance of a writ of possession, it presented a new transfer certificate of title issued
court also ruled that there was no violation of the rule against forum shopping since in its name dated 8 July 2003. The right of private respondent to the possession of
the application for the issuance of a writ of possession is not affected by a pending the property was thus founded on its right of ownership. As the purchaser of the
case questioning the validity of the extrajudicial foreclosure sale. property at the foreclosure sale, in whose name title over the property was already
issued, the right of private respondent over the property had become absolute,
The Issue vesting in it the corollary right of possession.
Petitioners raise the question of whether the writ of possession was properly issued
despite the pendency of a case questioning the validity of the extrajudicial
foreclosure sale and despite the fact that petitioners were declared in default in the Petitioners are wrong in insisting that they were denied due process of law when
proceeding for the issuance of a writ of possession. they were declared in default despite the fact that they had filed their opposition to
the issuance of a writ of possession. The application for the issuance of a writ of
The Courts Ruling possession is in the form of an ex parte motion. It issues as a matter of course once
the requirements are fulfilled. No discretion is left to the court.[28]
The petition has no merit. Petitioners cannot oppose or appeal the courts order granting the writ of
possession in an ex parte proceeding. The remedy of petitioners is to have the sale
Petitioners contend they were denied due process of law when they were declared set aside and the writ of possession cancelled in accordance with Section 8 of Act
in default despite the fact that they had filed their opposition to private respondents No. 3135, as amended, to wit:
application for the issuance of a writ of possession. Further, petitioners point out
that the issuance of a writ of possession will deprive them not only of the use and SEC. 8. The debtor may, in the proceedings in which possession was requested, but
possession of their property, but also of its ownership. Petitioners cite Bustos v. not later than thirty days after the purchaser was given possession, petition that the
Court of Appeals[18] and Vda. De Legaspi v. Avendao[19] in asserting that physical sale be set aside and the writ of possession cancelled, specifying the damages
possession of the property should not be disturbed pending the final determination suffered by him, because the mortgage was not violated or the sale was not made
of the more substantial issue of ownership. Petitioners also allege forum shopping in accordance with the provisions hereof. x x x
on the ground that the application for the issuance of a writ of possession was filed
during the pendency of a case questioning the validity of the extrajudicial Any question regarding the validity of the extrajudicial foreclosure sale and the
foreclosure sale. resulting cancellation of the writ may be determined in a subsequent proceeding as
outlined in Section 8 of Act No. 3135, as amended. Such question should not be
Private respondent, on the other hand, maintains that the application for the raised as a justification for opposing the issuance of a writ of possession since under
issuance of a writ of possession in a foreclosure proceeding is ex parte in nature. Act No. 3135, as amended, the proceeding for this is ex parte.
Hence, petitioners right to due process was not violated even if they were not given
a chance to file their opposition. Private respondent argues that the issuance of a Further, the right to possession of a purchaser at an extrajudicial foreclosure sale is
writ of possession may not be stayed by a pending case questioning the validity of not affected by a pending case questioning the validity of the foreclosure
By petition for review on certiorari, the petitioner appeals the decision The petitioner sought reconsideration,[19] but the Presiding Judge of Branch 48
promulgated on March 17, 2003, whereby the Court of Appeals (CA) dismissed his denied his motion for reconsideration on February 11, 2002.[20]
petition for certiorari.
Ruling of the CA
Antecedents
By petition for certiorari dated March 15, 2002 filed in the CA, the petitioner assailed
In 1968, the petitioner obtained two loans totaling P34,000.00 from respondent the orders of February 11, 2002, July 30, 2001, October 21, 1999, and October 8,
Government Service Insurance System (GSIS). To secure the performance of his 1999.[21]
obligations, he mortgaged two parcels of land registered under his and his wife
Marcelina Mallaris names. However, he paid GSIS about ten years after contracting On March 17, 2003, however, the CA dismissed the petition for certiorari for lack of
the obligations only P10,000.00 on May 22, 1978 and P20,000.00 on August 11, merit,[22] stating:
1978.[1]
We find the instant petition patently devoid of merit. This Court is not unaware of
What followed thereafter was the series of inordinate moves of the petitioner to the legal tactics and maneuvers employed by the petitioner in delaying the
delay the efforts of GSIS to recover on the debt, and to have the unhampered disposition of the subject case (Civil Case No. 7802) which has already become final
possession of the foreclosed property. and executory upon the final resolution by the Supreme Court affirming the
judgment rendered by the Court of Appeals. We construe the actuation of the
After reminding the petitioner of his unpaid obligation on May 2, 1979, GSIS sent on petitioner in resorting to all kinds of avenues accorded by the Rules of Court,
November 2, 1981 a telegraphic demand to him to update his account. On through the filing of several pleadings and/or motions in litigating this case, as
November 10, 1981, he requested a final accounting, but did not do anything more. running counter to the intendment of the Rules to be utilized in promoting the
Nearly three years later, on March 21, 1984, GSIS applied for the extrajudicial objective of securing a just, speedy and inexpensive disposition of every action and
foreclosure of the mortgage by reason of his failure to settle his account. On proceeding.
November 22, 1984, he requested an updated computation of his outstanding
account. On November 29, 1984, he persuaded the sheriff to hold the publication of The issues raised in the present controversy have already been settled in our
the foreclosure notice in abeyance, to await action on his pending request for final existing jurisprudence on the subject. In the case of De Jesus vs. Obnamia, Jr., the
accounting (that is, taking his payments of P30,000.00 made in 1978 into account). Supreme Court ruled that generally, no notice or even prior hearing of a motion for
On December 13, 1984, GSIS responded to his request and rendered a detailed execution is required before a writ of execution is issued when a decision has
explanation of the account. On May 30, 1985, it sent another updated statement of already become final.
account. On July 21, 1986, it finally commenced extrajudicial foreclosure
proceedings against him because he had meanwhile made no further payments. The recent accretion to the corpus of our jurisprudence has established the principle
of law, as enunciated in Buaya vs. Stronghold Insurance Co., Inc. that once a
On August 22, 1986, the petitioner sued GSIS and the Provincial Sheriff of judgment becomes final and executory, the prevailing party can have it executed as
Pampanga in the Regional Trial Court (RTC), Branch 44, in San Fernando, Pampanga, a matter of right, and the issuance of a Writ of Execution becomes a ministerial duty
docketed as Civil Case No. 7802,[2] ostensibly to enjoin them from proceeding of the court.
against him for injunction (with an application for preliminary injunction). The RTC
ultimately decided Civil Case No. 7802 in his favor, nullifying the extrajudicial The rule is also firmly entrenched in the aforecited Buaya case that the effective
foreclosure and auction sale; cancelling Transfer Certificate of Title (TCT) No. and efficient administration of justice requires that once a judgment has become
284272-R and TCT No. 284273-R already issued in the name of GSIS; and reinstating final, the prevailing party should not be deprived of the fruits of the verdict by
TCT No. 61171-R and TCT No. 54835-R in his and his wifes names.[3] subsequent suits on the same issues filed by the same parties. Courts are duty-
bound to put an end to controversies. Any attempt to prolong, resurrect or juggle
GSIS appealed the adverse decision to the CA, which reversed the RTC on March 27, them should be firmly struck down. The system of judicial review should not be
1996.[4] misused and abused to evade the operation of final and executory judgments.
The petitioner elevated the CA decision to this Court via petition for review on As succinctly put in Tag Fibers, Inc. vs. National Labor Relations Commission, the
certiorari (G.R. No. 124468).[5] Supreme Court is emphatic in saying that the finality of a decision is a jurisdictional
event that cannot be made to depend on the convenience of a party.
On September 16, 1996, this Court denied his petition for review.[6] On January 15,
1997, this Court turned down his motion for reconsideration.[7]
1. This new provision clarifies with a regulatory norm the proper procedure for [G.R. No. 129572. June 26, 2000]
commencing contempt proceedings. While such proceeding has been classified as
a special civil action under the former Rules, the heterogeneous practice, tolerated PHILBANCOR FINANCE, INC. AND VICENTE HIZON, JR., petitioners, vs. COURT OF
by the courts, has been for any party to file a mere motion without paying any APPEALS, THE HONORABLE DEPARTMENT OF AGRARIAN REFORM ADJUDICATION
docket or lawful fees therefor and without complying with the requirements for BOARD (DARAB), ALFREDO PARE, PABLO GALANG and AMADO VIE, respondents.
initiatory pleadings, which is now required in the second paragraph of this amended
section. Worse, and as a consequence of unregulated motions for contempt, said DECISION
incidents sometimes remain pending for resolution although the main case has
already been decided. There are other undesirable aspects but, at any rate, the same PARDO, J.:
may now be eliminated by this amendatory procedure.
The case before the Court is an appeal via certiorari from the decision[1] of the
Court of Appeals dismissing the petition for review of the decision of the
Henceforth, except for indirect contempt proceedings initiated motu proprio by Department of Agrarian Reform Adjudication Board sustaining the ruling of the
order of or a formal charge by the offended court, all charges shall be commenced Provincial Agrarian Reform Adjudication Board of San Fernando, Pampanga allowing
"In its answer, petitioner Philbancor alleged, among others, that it has no tenancy or G.R. No. 129279 March 4, 2003
agricultural relationship with private respondents considering that it acquired
ownership over the disputed lots by virtue of an extra-judicial foreclosure sale ALFREDO M. OUANO, petitioner,
pursuant to Act 3135, as amended; that it is not an agricultural lessor as vs.
contemplated in Section 10 of Republic Act (RA) No. 3844, as amended; that COURT OF APPEALS, and HEIRS OF JULIETA M. OUANO, respondents.
assuming private respondents have the right to redeem the lots in question, such
right has already expired in accordance with Section 12 of R. A. 3844, which states AZCUNA, J.:
that the right of redemption may be exercised within two (2) years from the
registration of the sale (CA Rollo, pp. 30-31). Before us is a petition for review on certiorari against the decision and resolution of
the Court of Appeals on CA-GR CV No. 334991 affirming the decision of the
"In a Decision dated September 17, 1993, Provincial Adjudicator Toribio E. Ilao, Jr. Regional Trial Court of Cebu, Branch 19, in Civil Case No. CEB-596, which set aside
rendered a decision in favor of private respondents, the dispositive portion of which the extrajudicial foreclosure proceedings involving respondents' properties.
reads:
From the documentary evidence and the Stipulation of Facts2 filed by the parties
"WHEREFORE, judgment is hereby rendered: before the Regional Trial Court of Cebu, the facts of the case are, as follows:
"1. Ordering the redemption by the plaintiffs of the land in question at the price of On June 8, 1977, respondent Julieta M. Ouano (Julieta), now deceased, obtained a
P201,182.92; loan from the Philippine National Bank (PNB) in the amount of P104,280.00. As
security for said loan, she executed a real estate mortgage over two parcels of land
"2. Ordering the defendant, Philbamcor Finance, Inc., to execute the necessary Deed located at Opao, Mandaue City.3 She defaulted on her obligation. On September
of Redemption in favor of the plaintiffs; and 29, 1980, PNB filed a petition for extrajudicial foreclosure with the City Sheriff of
Mandaue City.
"3. Ordering the Register of Deeds of the Province of Pampanga to cause the
registration of the land in question to be conveyed to and redeemed by the On November 4, 1980, the sheriff prepared a notice of sale setting the date of
plaintiffs; public auction of the two parcels of land on December 5, 1980 at 9:00 a.m. to 4:00
p.m.4 He caused the notice to be published in the Cebu Daily Times, a newspaper of
"The counterclaim of the defendant Philbancor Finance, Inc. is hereby dismissed." general circulation in Mandaue City, in its issues of November 13, 20 and 27, 1980.5
(Ibid., pp. 81-90) He likewise posted copies thereof in public places in Mandaue City and in the place
where the properties are located.6
"Petitioners filed a motion for reconsideration but the same was denied by the
Provincial Adjudicator (CA Rollo, pp. 108-109). On appeal, public respondent However, the sale as scheduled and published did not take place as the parties, on
Department of Agrarian Reform Adjudication Board (DARAB) affirmed in toto the four separate dates, executed Agreements to Postpone Sale (Agreements).7 These
findings of the Provincial Adjudicator in a Decision dated March 8, 1996 (Ibid., pp. Agreements were addressed to the sheriff, requesting the latter to defer the auction
26-35). sale to another date at the same time and place, "without any further republication
of the Notice." The first of the four pro-forma Agreements reads, as follows:
"Petitioners' motion for reconsideration was denied by respondent DARAB in a
Resolution (Ibid., pp. 36-38) dated July 22, 1996, x x x."[2] AGREEMENT TO POSTPONE SALE
On August 14, 1996, petitioners filed with the Court of Appeals a petition for review Provincial Sheriff
of the decision of the DARAB.[3] Mandaue City
After due proceedings, on March 17, 1997, the Court of Appeals rendered a decision Sir:
dismissing the petition.[4]
In accordance with this agreement of the parties in the above named case, it is
On April 18, 1997, petitioners filed with the Court of Appeals a motion for respectfully requested that the auction sale of the properties of the mortgagor,
reconsideration of the decision; however, on May 19, 1997, the Court of Appeals scheduled to take place on December 5 1980 at 9:00 o'clock in the morning at
denied the motion.[5] Office of the City Sheriff of Mandaue City be postponed to February 5, 1981, at the
same time and place, without any further republication of the notice of sale as
Hence, this appeal.[6] required by law. [italics supplied]
The petition raises three issues; however, the last issue raised is decisive, hence, only Cebu City, December 11, 1980.
this issue is herein resolved, that is, whether or not the private respondents could
still exercise their right of redemption of the parcels of land sold at public auction PHILIPPINE NATIONAL BANK
due to foreclosure of the mortgages thereon considering that they invoked their (Mortgagee)
right to redeem only on July 14, 1992, seven years after the date of registration of
the certificate of sale with the Register of Deeds. By:
Republic Act No. 3844, Section 12, provides as follows: (SGD.) F.B. Briones
Cebu Branch
Eight days later, on February 13, 1981, the parties executed and filed for the second PNB and petitioner filed their own petitions for review on certiorari before us. PNB's
time a similar agreement moving the date of sale to February 28, 1981.9 Again, on petition however was dismissed on July 21, 1997 for being filed out of time and for
February 28, 1981, no sale occurred. lack of certification of non-forum-shopping.24 The petition herein remaining is the
one filed by petitioner.
Ten days later, on March 10, 1981, the parties executed and filed for the third time a
similar agreement moving the date of sale to March 30, 1981.10 No sale occurred Petitioner assigns the following errors:
on this date.
I. RESPONDENT COURT OF APPEALS ERRED IN SUSTAINING THE FINDING
On March 30, 1981, the parties executed for the fourth time a similar agreement OF THE LOWER COURT THAT THE POSTPONED AUCTION SALE OF SUBJECT
moving the date of sale to May 29, 1981.11 This agreement was filed with the sheriff PROPERTIES HELD ON MAY 29, 1981 UPON WRITTEN AGREEMENT OF THE PARTIES
on April 30, 1981. WAS NULL AND VOID FOR LACK OF PUBLICATION OF NOTICE OF SALE ON THE
SAID DATE ALTHOUGH THE REQUIREMENTS OF PUBLICATION OF NOTICE OF SALE
In all these postponements, no new notice of sale was issued, nor was there any ON THE ORIGINALLY INTENDED DATE [WERE] FULLY COMPLIED WITH.
republication or reposting of notice for the rescheduled dates.
II. RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE
Finally, on May 29, 1981, the sheriff conducted the auction sale, awarding the two PROVISION OF SEC. 24, RULE 39 OF THE RULES OF COURT WHICH ALLOWS THE
parcels of land to PNB, the only bidder. He executed a Certificate of Sale certifying SHERIFF TO ADJOURN ANY SALE UPON EXECUTION TO ANY DATE AGREED UPON
the sale for and in consideration of P195, 510.50.12 BY THE PARTIES IS NOT APPLICABLE TO THIS CASE.
As Julieta failed to redeem the properties within the one year period from III. RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT JULIETA
registration of sale, PNB consolidated its title on February 12, 1983.13 On February M. OUANO IS NOT ESTOPPED FROM CHALLENGING THE VALIDITY OF THE
23 of the same year, it conveyed the properties to herein petitioner Alfredo Ouano, AUCTION SALE SINCE THE SALE WAS REPEATEDLY POSTPONED UPON HER
the brother of Julieta, under a Deed of Promise to Sell payable in five years.14 REQUEST AND WRITTEN AGREEMENT[S] THAT THERE WOULD BE NO
REPUBLICATION OF THE NOTICE OF SALE.
On March 28, 1983, Julieta sent demand letters to PNB and petitioner, pointing out
irregularities in the foreclosure sale.15 On April 18, 1983, Julieta filed a complaint IV. RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE DECISION
with the Regional Trial Court (RTC) of Cebu for the nullification of the May 29, 1981 OF THE LOWER COURT ALTHOUGH JULIETA M. OUANO FILED HER COMPLAINT
foreclosure sale.16 Petitioner filed a motion for leave to intervene in said case, and AFTER ALMOST TWO YEARS FROM THE DATE OF THE AUCTION SALE.25
filed his Answer in Intervention to protect his rights over the properties.17
The main issue before us is whether or not the requirements of Act No. 3135 were
While the case was pending, on February 25, 1986, PNB executed a Deed of Sale in complied with in the May 29, 1981 foreclosure sale.
favor of petitioner.18 The Register of Deeds of Mandaue City accordingly cancelled
the TCTs in PNB's name and issued in lieu thereof TCTs in the name of petitioner The governing law for extrajudicial foreclosures is Act No. 3135 as amended by Act
over the two parcels of land.19 No. 4118. The provision relevant to this case is Section 3, which provides:
On January 29, 1990, the Regional Trial Court of Cebu rendered a decision in favor SEC. 3. Notice shall be given by posting notices of the sale for not less than
of Julieta, holding that the lack of republication rendered the foreclosure sale void. twenty (20) days in at least three public places of the municipality or city where the
The dispositive portion of said decision state: property is situated, and if such property is worth more than four hundred pesos,
such notice shall also be published once a week for at least three consecutive weeks
WHEREFORE, judgment is hereby rendered, in a newspaper of general circulation in the municipality of city.
1. declaring as null and void: It is a well-settled rule that statutory provisions governing publication of notice of
mortgage foreclosure sales must be strictly complied with, and that even slight
a) the auction sale by the City Sheriff of Mandaue City on May 29, 1981 deviations therefrom will invalidate the notice and render the sale at least
over the aforesaid properties of plaintiff Julieta Ouano; voidable.26 In a number of cases, we have consistently held that failure to advertise
a mortgage foreclosure sale in compliance with statutory requirements constitutes a
b) the Certificate of Sale (Exhibit K) issued by the City Sheriff of Mandaue jurisdictional defect invalidating the sale.27 Consequently, such defect renders the
City on May 29, 1981, in favor of the Philippine National Bank; sale absolutely void and no title passes.28
c) the Deed of Sale (Exhibit L) executed by PNB to itself; Petitioner, however, insists that there was substantial compliance with the
publication requirement, considering that prior publication and posting of the
d) the Deed of Promise to Sell (Exhibit O) executed by PNB on February 23, notice of the first date were made.
1983 in favor of Alfredo Ouano
In Tambunting v. Court of Appeals,29 we held that republication in the manner
e) the Deed of Sale (Exhibit 24) executed by PNB on February 5, 1986 in prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial
favor of Alfredo Ouano; foreclosure sale. Thus we stated:
f) TCT No. 17929 (Exhibit M) and TCT No. 17930 (Exhibit N) in the name of Where required by the statute or by the terms of the foreclosure decree, public
PNB; notice of the place and time of the mortgage foreclosure sale must be given, a
statute requiring it being held applicable to subsequent sales as well as to the first
g) TCT No. 21982 (Exhibit 21) and TCT No. 21987 (Exhibit 22) in the name advertised sale of the property. [emphasis supplied].
of Alfredo Ouano;
Petitioner further contends that republication may be waived voluntarily by the
2. ordering the Register of Deeds of Mandaue City to cancel the parties.30
aforementioned titles (TCT Nos. 17929 and 17930, as well as TCT Nos. 21982 and
21987), and to reinstate TCT Nos. 15724 (5033) and 24377 (6876) in the name of This argument has no basis in law. The issue of whether republication may be
Julieta Ouano; waived is not novel, as we have passed upon the same query in Philippine National
Bank v. Nepomuceno Productions Inc,.31 Petitioner therein sought extrajudicial
3. ordering the City Sheriff of Mandaue City to conduct a new auction sale foreclosure of respondent's mortgaged properties with the Sheriff's Office of Pasig,
strictly complying with the requirements for publication and posting as required by Rizal. Initially scheduled on August 12, 1976, the auction sale was rescheduled
Act 3135, as amended by Act 4118; several times without republication of the notice of sale, as stipulated in their
Agreements to Postpone Sale. Finally, the auction sale proceeded on December 20,
4. ordering PNB to return to Alfredo Ouano all amounts the latter has paid 1976, with petitioner as the highest bidder. Aggrieved, respondents sued to nullify
to the said bank; the foreclosure sale. The trial court declared the sale void for non-compliance with
Act No. 3135. This decision was affirmed in toto by the Court of Appeals. Upholding
5. ordering Alfredo Ouano to vacate the premises in question and turn the conclusions of the trial and appellate court, we categorically held:
them over to Julieta Ouano;
Petitioner and respondents have absolutely no right to waive the posting and
publication requirements of Act No. 3135.
xxx xxx xxx . . . To request postponement of the sale is one thing; to request it without need of
compliance with the statutory requirements is another. Respondents, therefore, did
Although the general rule is that any right or privilege conferred by statute or not commit any act that would have estopped them from questioning the validity of
guaranteed by constitution may be waived, a waiver in derogation of a statutory the foreclosure sale for non-compliance with Act No. 3135. . . .
right is not favored, and a waiver will be inoperative and void if it infringes on the
rights of others, or would be against public policy or morals and the public interest In addition, we observe herein that the Agreements prepared by the counsel of PNB
may be waived. were in standard forms of the bank, labeled as "Legal Form No.41." The
Nepomuceno41 case likewise involved an "Agreement to Postpone Sale" that was in
xxx xxx xxx a ready-made form, and the only participation of respondents therein was to affix or
"adhere" their signatures thereto. We therefore held that said agreement partakes
The principal object of a notice of sale in a foreclosure of mortgage is not so much of the nature of a contract of adhesion, i.e., one in which one of the contracting
to notify the mortgagor as to inform the public generally of the nature and parties imposes a ready-made form of contract which the other party may accept or
condition of the property to be sold, and of the time, place, and terms of the sale. reject, but cannot modify. One party prepares the stipulation in the contract, while
Notices are given to secure bidders and prevent a sacrifice of the property. Clearly, the other party merely affixes his signature or his "adhesion" thereto, giving no
the statutory requirements of posting and publication are mandated, not for the room for negotiation, and depriving the latter of the opportunity to bargain on
mortgagor's benefit, but for the public or third persons. In fact, personal notice to equal footing.42 As such, their terms are construed strictly against the party who
the mortgagor in extrajudicial foreclosure proceedings is not even necessary, unless drafted it.43
stipulated. As such, it is imbued with public policy considerations and any waiver
thereon would be inconsistent with the intent and letter of Act No. 3135. More importantly, the waiver being void for being contrary to the express mandate
of Act No. 3135, such cannot be ratified by estoppel.44 Estoppel cannot give validity
Publication, therefore, is required to give the foreclosure sale a reasonably wide to an act that is prohibited by law or one that is against public policy.45 Neither can
publicity such that those interested might attend the public sale.32 To allow the the defense of illegality be waived.46
parties to waive this jurisdictional requirement would result in converting into a
private sale what ought to be a public auction. Petitioner, moreover, makes much of the fact that Julieta filed her complaint with
the trial court after almost two years from the May 29, 1981 auction sale, thus
Moreover, assuming arguendo that the written waivers are valid, we find noticeable arguing that the delayed filing was a clear case of laches.47
flaws that would nevertheless invalidate the foreclosure proceedings. First, the
Agreements, as worded, only waived "further republication of the notice of sale." Laches is the failure or neglect, for an unreasonable and unexplained length of time,
Nothing in the Agreements indicates that the parties likewise dispensed with the to do that which by exercising due diligence, could or should have been done
reposting of the notices of sale. As there was no reposting of notice of the May 29, earlier.48 In the case at bar, Julieta only realized the defect in the foreclosure sale
1981 sale, the foreclosure fell short of the requirements of Act No. 3135. Second, we upon conferring with her counsel who discovered the irregularity.49 Thus, on March
observe that the Agreements were executed and filed with the sheriff several days 25, 1983, Julieta filed her adverse claim with the Registrar of Deeds.50 Three days
after each rescheduled date. As stated in the facts, the first agreement was timely after, she sent demand letters to PNB and petitioner.51 Soon after they replied on
filed, two days prior to the originally scheduled sale on December 5, 1980. The April 6 and 7, 1983,52 she promptly sued to nullify the foreclosure sale in the
second agreement, however, was executed and filed eight days after the Regional Trial Court of Mandaue City on April 20, 1983.53 She likewise filed a suit
rescheduled sale on February 5, 1981. The third agreement was executed and filed for forcible entry against petitioner in the Municipal Trial Court of Mandaue City.54
ten days after the rescheduled sale on February 28, 1981. The fourth agreement was Considering all these, we find the delay of almost two years not unreasonable.
timely executed, but was filed with the sheriff one month after the rescheduled sale Julieta cannot be guilty of laches. Her prompt actions upon discovering her cause of
on March 30, 1981. On the rescheduled dates, therefore, no public sale occurred, action negate the claim that she has abandoned her right to claim the properties.
nor was there any request to postpone filed with the sheriff, except for the first one. Besides, this defense lacks merit in light of the Civil Code stating that an action or
In short, the Agreements are clearly defective for having been belatedly executed defense for the declaration of the inexistence of a contract does not prescribe.55
and filed with the sheriff. The party who may be said to be at fault for this failure,
and who should bear the consequences, is no other than PNB, the mortgagee in the WHEREFORE, premises considered, the Decision dated February 17, 1997 in CA-G.R.
case at bar. It is the mortgagee who causes the mortgaged property to be sold, and CV No. 33499 and the Resolution therein dated April 15, 1997 are AFFIRMED. No
the date of sale is fixed upon his instruction.33 We have held that the mortgagee's costs.
right to foreclose a mortgage must be exercised according to the clear mandate of
the law. Every requirement of the law must be complied with, lest the valid exercise SO ORDERED.
of the right would end.34 PNB's inaction on the scheduled date of sale and belated
filing of requests to postpone may be deemed as an abandonment of the petition FIRST DIVISION
to foreclose it filed with the sheriff. Consequently, its right to foreclose the
mortgage based on said petition lapsed. G.R. No. 198800, December 11, 2013
In a vain attempt to uphold the validity of the aforesaid waiver, petitioner asserts JOSE T. RAMIREZ, Petitioner, v. THE MANILA BANKING CORPORATION, Respondent.
that the Court of Appeals should have applied Rule 39, Section 24 of the Rules of
Court, which allows adjournment of execution sales by agreement of the parties. DECISION
The said provision provides:
VILLARAMA, JR., J.:
Sec. 24. Adjournment of Sale By written consent of debtor and creditor, the
officer may adjourn any sale upon execution to any date agreed upon in writing by We have consistently held that unless the parties stipulate, personal notice to the
the parties. Without such agreement, he may adjourn the sale from day to day, if it mortgagor in extrajudicial foreclosure proceedings is not necessary because Section
becomes necessary to do so for lack of time to complete the sale on the day fixed in 31 of Act No. 31352 only requires the posting of the notice of sale in three public
the notice.35 places and the publication of that notice in a newspaper of general circulation.3
Petitioner submits that the language of the abovecited provision implies that the Before us is a petition for review on certiorari under Rule 45 of the Decision4 dated
written request of the parties suffices to authorize the sheriff to reset the sale November 26, 2010 and Resolution5 dated September 28, 2011 of the Court of
without republication or reposting.36 Appeals (CA) in CAG.R. CV No. 80616.
At the outset, distinction should be made of the three different kinds of sales under The facts of the case are as follows:
the law, namely: an ordinary execution sale, a judicial foreclosure sale, and an
extrajudicial foreclosure sale. An ordinary execution sale is governed by the Petitioner Jose T. Ramirez mortgaged two parcels of land located at Bayanbayanan,
pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules of Court Marikina City and covered by Transfer Certificate of Title (TCT) Nos. N107226 and
applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135, as N230337 in favor of respondent The Manila Banking Corporation to secure his
amended by Act No. 4118 otherwise known as "An Act to Regulate the Sale of P265,000 loan. The real estate mortgage provides that all correspondence relative to
Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" the mortgage including notifications of extrajudicial actions shall be sent to
applies in cases of extrajudicial foreclosure sale. A different set of law applies to petitioner Ramirez at his given address, to wit:chanRoblesvirtualLawlibrary
each class of sale mentioned.37 The cited provision in the Rules of Court hence N) All correspondence relative to this MORTGAGE, including demand letters,
does not apply to an extrajudicial foreclosure sale. summons, subpoenas or notifications of any judicial or extrajudicial actions shall be
sent to the MORTGAGOR at the address given above or at the address that may
Moreover, even assuming that the aforecited provision applies, all it authorizes is hereafter be given in writing by the MORTGAGOR to the MORTGAGEE, and the
the adjournment of the execution sale by agreement of the parties. Nowhere does it mere act of sending any correspondence by mail or by personal delivery to the said
4) Costs of suit. We delete aforesaid monetary awards, except the award of costs of suit. Nothing
supports the trial courts award of moral damages. There was no testimony of any
SO ORDERED.15ChanRoblesVirtualawlibrary physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
The CA reversed the trial courts decision and ruled that absence of personal notice wounded feelings, moral shock, social humiliation, and similar injury26 suffered by
of foreclosure to Ramirez as required by paragraph N of the real estate mortgage is Ramirez. The award of moral damages must be anchored on a clear showing that
not a ground to set aside the foreclosure sale.16 The fallo of the assailed CA Ramirez actually experienced mental anguish, besmirched reputation, sleepless
Decision reads:chanRoblesvirtualLawlibrary nights, wounded feelings or similar injury.27 Ramirezs testimony28 is also wanting
WHEREFORE, the appealed decision dated June 30, 2003 of the Regional Trial Court as to the moral damages he suffered.
of Marikina, Branch 193 is hereby REVERSED and SET ASIDE, and a new one is
entered AFFIRMING the validity of the Certificate of Sale of the properties covering Similarly, no exemplary damages can be awarded since there is no basis for the
TCT Nos. N10722 and N23033. award of moral damages and there is no award of temperate, liquidated or
compensatory damages.29 Exemplary damages are imposed by way of example for
SO ORDERED.17ChanRoblesVirtualawlibrary the public good, in addition to moral, temperate, liquidated or compensatory
Ramirezs motion for reconsideration was denied in the assailed CA Resolution. damages.30
Hence, this petition raising a lone issue: We likewise delete the trial courts award of attorneys fees since the trial court
failed to state in the body of its decision the factual or legal reasons for said
What is the legal effect of violating paragraph N of the deed of mortgage which award.31
requires personal notice to the petitionermortgagor by the respondentmortgagee
bank?18 Indeed, even the instant petition32 does not offer any supporting fact or argument
for us to affirm the award of moral and exemplary damages and attorneys fees.
Ramirez insists that the auction sale as well as the certificate of sale issued to
respondent are null and void since no notice of the foreclosure and sale by public However, we agree, with the trial courts award of costs of suit to Ramirez. Costs
auction was personally given to him in violation of paragraph N of the real estate shall be allowed to the prevailing party as a matter of course unless otherwise
mortgage which requires personal notice to him of said extrajudicial foreclosure.19 provided in the Rules of Court.33 These costs Ramirez may recover are those stated
in Section 10, Rule 142 of the Rules of Court.34 For instance, Ramirez may recover
In its comment, respondent counters that under Section 3 of Act No. 3135, no the lawful fees he paid in docketing his action for annulment of sale before the trial
personal notice to the mortgagor is required in case of a foreclosure sale. The bank court. We add thereto the amount of P3,530 or the amount of docket and lawful
claims that paragraph N of the real estate mortgage does not impose an additional fees paid by Ramirez for filing this petition before this Court.35 We deleted the
obligation to it to provide personal notice to the mortgagor Ramirez.20 award of moral and exemplary damages; hence, the restriction under Section 7, Rule
142 of the Rules of Court36 would have prevented Ramirez to recover any cost of
We agree with Ramirez and grant his petition. suit. But we certify, in accordance with said Section 7, that Ramirezs action for
annulment of sale involved a substantial and important right such that he is entitled
The CA erred in ruling that absence of notice of extrajudicial foreclosure sale to to an award of costs of suit. Needless to stress, the purpose of paragraph N of the
Ramirez as required by paragraph N of the real estate mortgage will not invalidate real estate mortgage is to apprise the mortgagor, Ramirez, of any action that the
the extrajudicial foreclosure sale. We rule that when respondent failed to send the mortgageebank might take on the subject properties, thus according him the
notice of extrajudicial foreclosure sale to Ramirez, it committed a contractual breach opportunity to safeguard his rights.37
of said paragraph N sufficient to render the extrajudicial foreclosure sale on
September 8, 1994 null and void. Thus, we reverse the assailed CA Decision and WHEREFORE, we GRANT the petition, REVERSE and SET ASIDE the Decision dated
Resolution. November 26, 2010 and Resolution dated September 28, 2011 of the Court of
Appeals in CAG.R. CV No. 80616. The extrajudicial foreclosure proceedings and
In Carlos Lim, et al. v. Development Bank of the Philippines,21 we held that unless auction sale conducted by Atty. Hipolito Saez on September 8, 1994 and the
the parties stipulate, personal notice to the mortgagor in extrajudicial foreclosure Certificate of Sale over the mortgaged properties covered by TCT Nos. N10722 and
proceedings is not necessary because Section 3 of Act No. 3135 only requires the N23033, issued in favor of respondent The Manila Banking Corporation, are hereby
posting of the notice of sale in three public places and the publication of that notice DECLARED NULL and VOID.
in a newspaper of general circulation. In this case, the parties stipulated in
paragraph N of the real estate mortgage that all correspondence relative to the Costs against respondent The Manila Banking
mortgage including notifications of extrajudicial actions shall be sent to mortgagor Corporation.ChanRoblesVirtualawlibrary
Ramirez at his given address. Respondent had no choice but to comply with this
contractual provision it has entered into with Ramirez. The contract is the law SO ORDERED.
between them. Hence, we cannot agree with the bank that paragraph N of the real
estate mortgage does not impose an additional obligation upon it to provide FIRST DIVISION
personal notice of the extrajudicial foreclosure sale to the mortgagor Ramirez.
[G.R. No. 199747, April 03, 2013]
As we explained in Metropolitan Bank v. Wong,22 the banks violation of paragraph
N of the real estate mortgage is sufficient to invalidate the extrajudicial foreclosure TEODORO DARCEN, MAMERTO DARCEN, JR., NESTOR DARCEN, BENILDA DARCEN-
sale:chanRoblesvirtualLawlibrary SANTOS, AND ELENITA DARCEN-VERGEL, Petitioners, v. V. R. GONZALES CREDIT
DECISION The one-year period to redeem lapsed. Respondent company executed an affidavit
of consolidation of ownership. On December 8, 2009, it filed an ex parte petition for
REYES, J.: issuance of a writ of possession in the RTC-Branch 81 docketed as P-826-2009.13 In
its Order14 dated December 17, 2009, the court set the petition for hearing on
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the 1997 February 26, 2010. Meanwhile, on February 25, 2010, the petitioners were able to file
Rules of Civil Procedure of the Decision2 of the Court of Appeals (CA) in CA-G.R. SP an Opposition15 to the petition, praying for the outright denial thereof on the
No. 114265 dated July 20, 2011, denying herein petitioners petition for certiorari ground of forum shopping because the respondent company did not disclose the
and prohibition which sought to annul and set aside the Orders dated March 16, pendency of Civil Case No. 333-M-2007 in its certification against forum-shopping.
20103 and May 4, 20104 of the Regional Trial Court (RTC) of the City of Malolos, On March 10, 2010, V.R. Gonzales filed a Comment to the Opposition,16 to which
Bulacan, Branch 81, in P-826-2009, entitled, In Re: Ex-Parte Petition for Issuance of the petitioners filed a Reply17 on March 23, 2010.
a Writ of Possession, V.R. Gonzalez Credit Enterprises, Inc., as represented by its
President Veronica Gonzalez, Petitioner, Teodoro Darcen, et al., Oppositors. In its Order18 dated March 16, 2010, the RTC-Branch 81 denied the petitioners
opposition and ruled that the respondent company was not guilty of forum
Antecedent Facts shopping. Citing Sps. Ong v. CA,19 it held that the issuance of the writ of possession
was a mere ministerial function of the court, and was summary in nature.20 Not
The spouses Mamerto Darcen (Mamerto) and Flora De Guzman (Flora) were married being a judgment on the merits, litis pendentia or res judicata would not set in to
on February 2, 1947, and they begot seven (7) children, namely: Teodoro, Mamerto, bar the filing of Civil Case No. 333-M-2007.
Jr., Nestor, Benilda, and Elenita (the petitioners), and their brothers Arturo and
Manuel. Mamerto died on September 18, 1986, leaving behind an estate consisting Petitioners motion for reconsideration was denied in the courts Order21 dated May
of three titled parcels of land located in Baliuag, Bulacan and covered by Transfer 4, 2010.
Certificate of Title (TCT) No. RT-19565 (T-41394), TCT No. RT-19566 (T-11678), and
TCT No. RT-19564 (T-193099), all under the name Mamerto Darcen married to On June 2, 2010, the petitioners filed a petition for certiorari22 in the CA docketed
Flora de Guzman. as CA-G.R. SP No. 114265, whose decision therein, dated July 20, 2011, is now the
subject of this Petition.
According to the petitioners, sometime in 1990 their late brother Manuel borrowed
money from Veronica Gonzales (Gonzales), president of V.R. Gonzales Credit Meanwhile, on February 28, 2011, the RTC-Branch 81 granted the writ of possession
Enterprises, Inc. (respondent company). Manuel sought their consent in constituting sought by the respondent company in P-826-2009. The notice to vacate was issued
a mortgage over the above properties of their father, but the petitioners refused. on April 26, 2011 against the petitioners.
Manuel then caused the execution of an Extra-Judicial Settlement of Estate with
Waiver by forging the signatures of the petitioners and their mother Flora. In the In a related development, on August 10, 2010, the RTC-Branch 78 dismissed the
said instrument, the petitioners and their siblings were said to have waived their complaint in Civil Case No. 333-M-2007, holding that the mortgage contracts
shares in their fathers estate in favor of their mother, thus making Flora the sole executed by Flora in favor of the respondent company over TCT Nos. T-19267, T-
owner of the three lots.5 Meanwhile, fire had razed part of the Office of the Register 19268, and T-19269 are valid, and declaring valid the extrajudicial foreclosure and
of Deeds of Bulacan and destroyed the titles to the said parcels. After the auction sale of the said properties. The decision is now pending appeal in the CA,
reconstitution of the titles on April 7, 1992,6 new titles were issued in the name of docketed as CA-G.R. CV No. 96251.
Flora de Guzman, Filipino, of legal age, widow, to wit:chanroblesvirtuallawlibrary
Petition for Certiorari in the CA
(1) TCT No. T-19267, which is a transfer from TCT No. RT-19565 (T-41394),
containing an area of 512 square meters, located in Barangay Sabang, Baliuag, In CA-G.R. SP No. 114265,23 the petitioners reiterated their arguments: (1) that due
Bulacan;cralawlibrary to identity of parties and cause of action, the respondent company committed
forum shopping for failing to disclose the pendency of Civil Case No. 333-M-2007;
(2) TCT No. T-19268, which is a transfer from TCT No. RT-19566 (T-116789), covering (2) that due to the pendency of Civil Case No. 333-M-2007, the RTC-Branch 81 has
an area of 478.4 sq m, located at P. Angeles St., Baliuag, Bulacan; and no jurisdiction over the ex parte petition for writ of possession, since the question of
possession was already laid before the RTC-Branch 78; and (3) that the issue of
(3) TCT No. T-19269, which is a transfer from TCT No. RT-19564 (T-193099), covering validity of the mortgage contracts executed by Flora and the foreclosure of the
an area of 580 sq m, located in Baliuag, Bulacan.7 mortgages are material to the issue of possession.
Petitioners further claim that on the day that the above new titles were issued, they On April 25, 2011, the CA denied petitioners urgent motion for writ of preliminary
caused the annotation thereon of their hereditary claim in their fathers estate.8 On injunction and/or Temporary Restraining Order.
December 4, 2000, Flora died.
On July 20, 2011, the CA rendered its now assailed decision denying the petition in
Sometime in January 2007, Gonzales appeared and, claiming that the petitioners CA-G.R. SP No. 114265, ruling that respondent company was not guilty of forum
late mother Flora had mortgaged the above properties to respondent company in shopping since the ex parte petition for writ of possession it filed in P-826-2009 is
1995, demanded payment from the petitioners of several loans allegedly taken out not an initiatory pleading as to require that a certification of non-forum shopping
by Flora, as follows:9cralawvllred be attached thereto; that the issuance of the writ of possession is merely a
ministerial function of the court a quo, the possession being incidental to the
(i) transfer of title to the new owner; that the issuance of the writ is summary in nature
P3,000,000.00, borrowed by Flora on January 30, 1995 secured by a mortgage and is not a judgment on the merits.
contract over TCT No. T-19269;
(ii) The CA further explained that the ex parte writ of possession is for the sole benefit
P3,500,000.00, taken out on July 12, 1995 by Flora upon a mortgage over TCT No. T- of the new owner, without need of notice to or consent by any party who might be
19267; adversely affected. Thus, notwithstanding the pendency of a suit to annul the real
(iii) estate mortgage and the extrajudicial foreclosure and auction sale, the purchaser is
P500,000.00, also borrowed on July 12, 1995 by Flora secured by a mortgage over entitled to a writ of possession, without prejudice to the outcome in the annulment
TCT No. T-19268; case, which can proceed without encroaching on the jurisdiction of the court
resolving the ex parte petition for writ of possession.
On Februry 16, 2007, the petitioners were able to verify from the Register of Deeds
of Bulacan that the above properties had indeed been mortgaged to respondent Petition for Review in the Supreme Court
company in 1995, but they now say that they immediately noted that the
purported signatures of their mother on the three (3) mortgage contracts were On December 12, 2011, the CA denied the petitioners Motion for Reconsideration
actually forgeries, and that the mortgage contracts did not state when the supposed from its above decision.24 Hence, this petition for review.
loan obligations would become due and demandable.10 They maintain that their
mother did not contract the loans, and they point to their brothers Manuel and The petitioners now contend that the CA erred in failing to take into account the
Arturo, whose signatures appear as witnesses on the mortgage documents, as guilty fact that they, against whom the writ of possession issued by the RTC in P-826-2009
of forging her signatures and of receiving the proceeds of the loans. The petitioners was directed, are adverse claimants who are third parties and strangers to the real
also disclaim any knowledge of the loans, or of their consent thereto, either before estate mortgages executed by their mother. They cite Villanueva v. Cherdan Lending
or after. Investors Corporation,25 where it was reiterated that the issuance of a writ of
possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be
The respondent company extrajudicially foreclosed on the mortgage over the ministerial where the property is in the possession of a third party who holds the
aforesaid lots sometime in 2007, but meanwhile, on June 8, 2007, the petitioners property under a claim adverse to that of the debtor/mortgagor.26cralawvllred
filed Civil Case No. 333-M-200711 with the RTC-Branch 78, for Annulment of
Mortgage, Extra-Judicial Foreclosure, Auction Sale, Certificate of Sale, and The petitioners maintain that they knew nothing about the mortgage contracts,
Damages, seeking to void the real estate mortgages, the extrajudicial foreclosure whose validity is now the subject of their appeal in CA-G.R. CV No. 96251. They
and the auction sale of the lots. Named defendants were respondent company and further claim that their signatures in the Extrajudicial Settlement of Estate with
their brothers Manuel and Arturo. Waiver, which they supposedly executed in favor of their mother Flora, were forged.
As co-heirs and co-owners with their mother of the subject lots, they have a claim
After posting and publication of the notice of sheriffs sale dated October 20, 2008, directly adverse to hers, and therefore, also directly adverse to her successor-in-
the three properties were sold at auction held on November 18, 2008 for a total interest, the respondent company. Consequently, the duty of the RTC to issue the
price of P8,000,000, with the respondent company as the highest bidder. A writ of possession to respondent company ceases to be ministerial.
The long-settled rule in extrajudicial foreclosure of real estate mortgage is that after Sec. 33. Deed and possession to be given at expiration of redemption period; by
consolidation of ownership of the foreclosed property, it is the ministerial duty of whom executed or given.If no redemption be made within one (1) year from the
the court to issue, as a matter of right, an ex parte writ of possession to the buyer. date of the registration of the certificate of sale, the purchaser is entitled to a
conveyance and possession of the property; or, if so redeemed whenever sixty (60)
days have elapsed and no other redemption has been made, and notice thereof
given, and the time for redemption has expired, the last redemptioner is entitled to
The established rule is that the purchaser in an extrajudicial foreclosure sale the conveyance and possession; but in all cases the judgment obligor shall have the
becomes the absolute owner of the property if no redemption is made within one entire period of one (1) year from the date of the registration of the sale to redeem
(1) year from the registration of the certificate of sale by those who are entitled to the property. The deed shall be executed by the officer making the sale or by his
redeem.27 Possession being a recognized essential attribute of ownership,28 after successor in office, and in the latter case shall have the same validity as though the
consolidation of title the purchaser may demand possession as a matter of right.29 officer making the sale had continued in office and executed it.
Under Section 7 of Act No. 3135, as amended by Act No. 4118, the issuance of the
writ is merely a ministerial function of the RTC, which the new owner may obtain Upon the expiration of the right of redemption, the purchaser or redemptioner shall
through an ex parte motion.30 Section 7 of Act No. 3135 be substituted to and acquire all the rights, title, interest and claim of the judgment
provides:chanroblesvirtuallawlibrary obligor to the property as of the time of the levy. The possession of the property
shall be given to the purchaser or last redemptioner by the same officer unless a
Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition third party is actually holding the property adversely to the judgment obligor.
the Court of First Instance of the province or place where the property or any part
thereof is situated, to give him possession thereof during the redemption period, The application of the above Section has been extended to extrajudicial foreclosure
furnishing bond in an amount equivalent to the use of the property for a period of sales pursuant to Section 6 of Act No. 3135, to wit:chanroblesvirtuallawlibrary
twelve months, to indemnify the debtor in case it be shown that the sale was made
without violating the mortgage or without complying with the requirements of this Sec. 6. In all cases in which an extrajudicial sale is made under the special power
Act. Such petition shall be made under oath and filed in form of an ex parte motion hereinbefore referred to, the debtor, his successors in interest or any judicial
in the registration or cadastral proceedings if the property is registered, or in special creditor or judgment creditor of said debtor, or any person having a lien on the
proceedings in the case of property registered under the Mortgage Law or under property subsequent to the mortgage or deed of trust under which the property is
section one hundred and ninety-four of the Administrative Code, or of any other sold, may redeem the same at any time within the term of one year from and after
real property encumbered with a mortgage duly registered in the office of any the date of sale; and such redemption shall be governed by the provisions of
register of deeds in accordance with any existing law, and in each case the clerk of section four hundred and sixty-four to four hundred and sixty-six, inclusive, of the
the court shall, upon the filing of such petition, collect the fees specified in Code of Civil Procedure, in so far as these are not inconsistent with the provisions of
paragraph eleven of section one hundred and fourteen of Act numbered Four this Act.
hundred and ninety-six, as amended by Act numbered Twenty-eight hundred and
sixty-six, and the court shall, upon approval of the bond, order that a writ of Thus emboldened by Section 33 of Rule 39, the petitioners have persisted in making
possession issue, addressed to the sheriff of the province in which the property is the point that they are strangers to the mortgage contracts executed by their
situated, who shall execute said order immediately. mother over their fathers lots, which they claim to co-own with her, an interest
adverse to that of the respondent company. In Villanueva,38 they found support for
The possession may be granted to the buyer either (a) within the one-year their contention:chanroblesvirtuallawlibrary
redemption period, upon the filing by the purchaser of a bond, or (b) after the lapse
of the redemption period, without need of a bond.31 As explained in Spouses It is settled that the buyer in a foreclosure sale becomes the absolute owner of the
Arquiza v. CA:32cralawvllred property purchased if it is not redeemed within one year after the registration of the
sale. As such, he is entitled to the possession of the property and can demand that
Indeed, it is well-settled that an ordinary action to acquire possession in favor of the he be placed in possession at any time following the consolidation of ownership in
purchaser at an extrajudicial foreclosure of real property is not necessary. There is his name and the issuance to him of a new TCT. Time and again, we have held that it
no law in this jurisdiction whereby the purchaser at a sheriffs sale of real property is is ministerial upon the court to issue a writ of possession after the foreclosure sale
obliged to bring a separate and independent suit for possession after the one-year and during the period of redemption. Upon the filing of an ex parte motion and the
period for redemption has expired and after he has obtained the sheriffs final approval of the corresponding bond, the court issues the order for a writ of
certificate of sale. The basis of this right to possession is the purchasers ownership possession. The writ of possession issues as a matter of course even without the
of the property. The mere filing of an ex parte motion for the issuance of the writ of filing and approval of a bond after consolidation of ownership and the issuance of a
possession would suffice, and no bond is required.33 (Citations omitted and new TCT in the name of the purchaser.
underscoring ours)
This rule, however, is not without exception. Under Section 33, Rule 39 of the Rules
We repeated the above rule in Asia United Bank v. Goodland Company, Inc.,34 in of Court, which is made to apply suppletorily to the extrajudicial foreclosure of real
this wise:chanroblesvirtuallawlibrary estate mortgages by Section 6, Act 3135, as amended, the possession of the
mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure
It is a time-honored legal precept that after the consolidation of titles in the buyers unless a third party is actually holding the property adversely to the judgment
name, for failure of the mortgagor to redeem, entitlement to a writ of possession debtor. Section 33 provides:cralaw
becomes a matter of right. As the confirmed owner, the purchasers right to
possession becomes absolute. There is even no need for him to post a bond, and it xxxx
is the ministerial duty of the courts to issue the same upon proper application and
proof of title. To accentuate the writs ministerial character, the Court has The same issue had been raised in Bank of the Philippine Islands v. Icot,
consistently disallowed injunction to prohibit its issuance despite a pending action Development Bank of the Philippines v. Prime Neighborhood Association, Dayot v.
for annulment of mortgage or the foreclosure itself. Shell Chemical Company (Phils.), Inc., and Philippine National Bank v. Court of
Appeals, and we uniformly held that the obligation of the court to issue an ex parte
The nature of an ex parte petition for issuance of the possessory writ under Act No. writ of possession in favor of the purchaser in an extrajudicial foreclosure sale
3135 has been described as a non-litigious proceeding and summary in nature. As ceases to be ministerial once it appears that there is a third party in possession of
an ex parte proceeding, it is brought for the benefit of one party only, and without the property who is claiming a right adverse to that of the debtor/mortgagor.
notice to or consent by any person adversely interested.35 (Citations omitted)
The purchasers right of possession is recognized only as against the judgment
Moreover, we made it clear in the recent case of BPI Family Savings Bank, Inc. v. debtor and his successor-in-interest but not against persons whose right of
Golden Power Diesel Sales Center, Inc.,36 that not even a pending action for possession is adverse to the latter. In this case, petitioner opposed the issuance of
annulment of mortgage or foreclosure sale will stay the issuance of the writ of the writ of possession on the ground that he is in actual possession of the
possession:chanroblesvirtuallawlibrary mortgaged property under a claim of ownership. He explained that his title to the
property was cancelled by virtue of a falsified deed of donation executed in favor of
Furthermore, it is settled that a pending action for annulment of mortgage or spouses Pearedondo. Because of this falsification, he filed civil and criminal cases
foreclosure sale does not stay the issuance of the writ of possession. The trial court, against spouses Pearedondo to nullify the deed of donation and to punish the
where the application for a writ of possession is filed, does not need to look into the party responsible for the falsified document. Petitioners claim that he is in actual
validity of the mortgage or the manner of its foreclosure. The purchaser is entitled possession of the property is not challenged, and he has come to court asserting an
to a writ of possession without prejudice to the outcome of the pending annulment ownership right adverse to that of the mortgagors, the spouses Pearedondo.39
case.37 (Citations omitted) (Citations omitted)
Nonetheless, the ministerial duty of the court to issue an ex parte writ of possession But in China Banking Corporation v. Lozada,40 the Supreme Court clarified that it is
ceases once it appears that there is a third party in possession of the property, who not enough that the property be possessed by a third party, but the same must also
is a stranger to the mortgage and who claims a right adverse to that of the debtor/ held by the third party adversely to the
mortgagor. debtor/mortgagor:chanroblesvirtuallawlibrary
Thus, it was held in BPI Family Savings Bank, Inc. that to be error for the court to
issue an ex parte writ of possession to the purchaser in an extrajudicial foreclosure,
or to refuse to abate one already granted, where a third party claimant in actual On December 17, 2009, the RTC-Branch 81 set for hearing on February 26, 2010 the
possession has raised, in an opposition to the writ or in a motion to quash the same, petition for writ of possession in P-826-2009.51 On February 25, 2010, the
the matter of his actual possession upon a claim of ownership or a right adverse to petitioners were able to file their Opposition52 to the said petition, wherein they
that of the debtor or mortgagor. The procedure, accordingly to Unchuan v. CA,44 is asserted that they are co-owners of the properties, being heirs of the deceased
for the trial court to order a hearing to determine the nature of the adverse Mamerto; that they filed a case, Civil Case No. 333-M-2007, to annul the mortgages
possession:45cralawvllred over the three lots on account of forgery; and that the extrajudicial foreclosure sale
of the lots was invalid. They, thus, prayed for outright denial of the writ on the
Note, however, that a third party not privy to the debtor is protected by the law. He ground of forum shopping, because respondent company did not disclose the
may be ejected from the premises only after he has been given an opportunity to pendency of Civil Case No. 333-M-2007 in its certification against forum shopping.
be heard, conformably with the time-honored principle of due process. Where a
parcel of land levied on execution is occupied by a party other than the judgment At the hearing on February 26, 2010, the petitioners appeared with their counsel,
debtor, the proper procedure is for the court to order a hearing to determine the Atty. Enrique dela Cruz, Jr. They did not however present any documents, and only
nature of said adverse possession.46 (Citations omitted) affirmed their Opposition already in the records.53 On March 11, 2010, respondent
company filed its comment to petitioners Opposition.54 On March 23, 2010, the
We find no proof that the petitioners are adverse third-party claimants entitled to petitioners filed their reply.55cralawvllred
be retained in possession.
In its Order dated March 16, 2010, the RTC-Branch 81 held that respondent
company was not guilty of forum shopping, citing Sagarbarria v. Philippine Business
The RTCs chief consideration for granting to the respondent company a writ of Bank,56 as follows:chanroblesvirtuallawlibrary
possession was that the assailed mortgages purportedly executed by Flora in 1995
were constituted on properties covered by certificates of title issued solely in her [A]ct No. 3135, as amended by Act No. 4118, is categorical in stating that the
name. purchaser must first be placed in possession of the mortgaged property pending
proceedings assailing the issuance of the writ of possession.
It will be noted that it was only in June 2007, after respondent company had
threatened them with extrajudicial foreclosure and eviction, or after 12 years had Consequently, the RTC under which the application for the issuance of a writ of
passed, that the petitioners brought an action to annul the real estate mortgages, possession over the subject property is pending cannot defer the issuance of the
and meanwhile, Flora had obtained several loans totaling P7.5 million from the said writ in view of the pendency of an action for annulment of mortgage and
respondent company in 1995. It took petitioners even longer, 15 years, to assail the foreclosure sale. The judge with whom an application for a writ of possession is filed
validity of the alleged Extrajudicial Settlement of Estate with Waiver, which gave need not look into the validity of the mortgage or the manner of its foreclosure.
Flora sole title to the subject lots under the new titles issued to her in April 1992.
Any question regarding the validity of the mortgage or its foreclosure cannot be a
Realizing that their claim of forgery of their mothers signature in the mortgage legal ground for the refusal to issue a writ of possession. Regardless of whether or
contracts was tenuous after the RTC-Branch 78 dismissed Civil Case No. 333-M- not there is a pending suit for the annulment of the mortgage or the foreclosure
2007, the petitioners now claim that an earlier instrument, an Extrajudicial itself, the purchaser is entitled to a writ of possession without prejudice, of course,
Settlement of Estate with Waiver, was falsified by their brothers Manuel and Arturo to the eventual outcome of the pending annulment case.57 (Underscoring ours)
who forged their signatures. Yet, why the said instrument named neither Manuel
nor Arturo but their mother Flora as the sole beneficiary of the heirs waiver, the On April 8, 2010, petitioners filed their Motion for Reconsideration58 from the
petitioners did not explain. Thus, through the said instrument, on April 7, 1992, TCT denial of their opposition, but it was denied on May 4, 2010.
No. RT-19565 (T-41394), TCT No. RT-19566 (T-11678), and TCT No. RT-19564 (T-
193099), all under the name of Mamerto Darcen married to Flora de Guzman, Even granting that the petitioners should be allowed to retain possession, the
were cancelled and replaced with TCT Nos. T-19267, T-19268, and T-19269, petition has been rendered moot and academic by the issuance and satisfaction of
respectively, now in the name solely of Flora de Guzman, Filipino, of legal age, the writ of possession issued in P-826-2009.
widow.
Considering that the petitioners are now stridently asserting that their signatures in
the aforesaid Extrajudicial Settlement of Estate with Waiver had been forged, it is As the petitioners have themselves admitted in their Petition,59 the RTC-Branch 81,
inexplicable why they failed to attach a copy thereof either to their Opposition to issued a Writ of Possession60 dated April 18, 2011, and on October 4, 2011 they
the ex parte petition for writ of possession, or to this petition. All that they could say were physically evicted from the disputed lots by the Sheriff, and the respondent
about this oversight is that they were never able to insist on the presentation of company was placed in possession thereof, per the Sheriffs report dated October 4,
the said document because they were never parties in the case for writ of 2011.61 With the writ of possession having been served and fully satisfied, the
possession. Besides, the case for writ of possession is summary and non- instant petition has ceased to present a justiciable controversy for this Court to
adversarial.47cralawvllred resolve, and a declaration thereon would be of no practical use or value,62 in view
of the pendency in the CA of the petitioners appeal from the decision in Civil Case
But this is a lie and an obvious subterfuge, for the fact is that the RTC set a hearing No. 333-M-2007 on the question of the ownership of the subject mortgaged lots,
on February 26, 2010 to hear out the petitioners on the nature of their claimed and thus of the rightful possession thereover. As we have reiterated in Madriaga, Jr.
adverse possession. They appeared with their lawyer, and had an opportunity to lay v. China Banking Corporation:63cralawvllred
out the complete facts and present whatever pertinent documents were in their
possession. They did no such thing, and only affirmed the contents of their Judicial power presupposes actual controversies, the very antithesis of mootness.
Opposition, wherein they chiefly asserted their defense of lack of jurisdiction of the Where there is no more live subject of controversy, the Court ceases to have a
RTC-Branch 81 and forum shopping. reason to render any ruling or make any pronouncement. Courts generally decline
jurisdiction on the ground of mootness save when, among others, a compelling
Not only did petitioners not sue to annul the extrajudicial settlement, but on the constitutional issue raised requires the formulation of controlling principles to guide
very day, April 7, 1992, that the new titles were issued to Flora, an inscription the bench, the bar and the public; or when the case is capable of repetition yet
appears in the said titles announcing that one-half () of the lots would be bound evading judicial review, which are not extant in this case.64 (Citations omitted)
for the next two years to possible claims by other heirs or unknown creditors
against the estate of Mamerto, pursuant to Section 4 of Rule 74 of the Rules of What is now left for the petitioners to do is to await the resolution of their appeal in
Court. All three titles bear this same inscription,48 which the petitioners admit that Civil Case No. 333-M-2007. Their restoration to possession may then be sought
they themselves had caused to be annotated on their mothers titles,49 in the therein as an incident or relief, if justified.
following words:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the Petition for Review on Certiorari is
DENIED.???r?bl? ??r??l l?? l?br?r
G.R. No. 196864, July 08, 2015 In an Order dated 24 March 2009, the RTC refused to reconsider its earlier Order.
SPOUSES VICTOR P. DULNUAN AND JACQUELINE P. DULNUAN, Petitioners, v. Arguing that the RTC gravely abused its discretion in enjoining its taking of
METROPOLITAN BANK & TRUST COMPANY, Respondent. possession over the subject realties, Metrobank filed a Petition for Certiorari before
the Court of Appeals.
DECISION
On 14 January 2011, the Court of Appeals rendered a Decision reversing the
PEREZ, J.: questioned Orders and declared that the issuance of the writ of preliminary
injunction is unjustified under the circumstances. The appellate court made a
This is a Petition for Review on Certiorari1 filed by petitioners Spouses Victor pronouncement that as the highest bidder at the auction sale, Metrobank is entitled
Dulnuan and Jacqueline Dulnuan (Spouses Dulnuan) seeking to reverse and set to occupy the subject property, and, any question regarding the validity of the
aside the 14 January 2011 Decision2 of the Court of Appeals and its 29 April 2011 mortgage or the foreclosure thereof shall not preclude the purchaser from taking
Resolution3 in CA-G.R. SP No. 108628. The assailed decision and resolution possession. The disquisition the Court of Appeals reads:LawlibraryofCRAlaw
reversed the 3 December 2008 Order of the Regional Trial Court (RTC) of La
Trinidad, Benguet, which, in turn, enjoined the extrajudicial foreclosure sale of a ChanRoblesVirtualawlibrary
parcel of land covered by Transfer Certificate of Title (TCT) No. T-46390 registered WHEREFORE, the petition is GRANTED. The Order dated December 3, 2008 of the
under the name of the Spouses Dulnuan. The dispositive portion of the Court of Regional Trial Court, Branch 63 of La Trininidad, Benguet in Civil Case 08-CV-2470
Appeals Decision reads:LawlibraryofCRAlaw which granted respondents application for writ of preliminary injunction and the
RTCs Order dated March 24, 2009 which denied [Metrobanks] motion for
ChanRoblesVirtualawlibrary reconsideration are hereby RESERVED and SET ASIDE.11
WHEREFORE, the petition is GRANTED. The Order dated December 3, 2008 of the For lack of merit, the Spouses Dulnuans Motion for Reconsideration was denied by
Regional Trial Court, Branch 63 of La Trinidad, Benguet in Civil Case No. 08-CV-2470 the Court of Appeals in a Resolution dated 29 April 2011.
which granted [the Spouses Dulnuans] application for writ of preliminary injunction
and the RTCs Order dated March 24, 2009, which denied [Metropolitan Bank and The Spouses Dulnuan is now before this Court via this instant Petition for Review on
Trust Companys] motion for reconsideration, are hereby REVERSED and SET Certiorari seeking the reversal of the Court of Appeals Decision and Resolution on
ASIDE.4 the following grounds:LawlibraryofCRAlaw
On 22 April 2008, Metrobank filed an application for extra-judicial foreclosure The Courts Ruling
proceedings over the subject property before the RTC of La Trinidad, Benguet. After
due notice and publication, the mortgaged property was sold at a public auction The Court is urged to resolve the issue of whether or not the Court of Appeals erred
where Metrobank was declared as the highest bidder after tendering the bid of in dissolving the writ of preliminary injunction issued against Metrobank. The writ
P6,189,000.00, as shown in the Certificate of Sale.7redarclaw of preliminary injunction enjoined Metrobank from entering, occupying, possessing,
using, or performing any act of possession and occupation over the subject
In order to validly effect the foreclosure, a copy of the said Notice of Public Auction property. Without going into the merits of this case, the Court will confine itself in
Sale was posted on the bulletin boards of Barangay Betag, Municipal Hall of La the determination of the propriety of the preliminary injunction, such being a
Trinidad, Benguet, Provincial Capitol Benguet.8 Before the expiration of the one- preservative remedy for the protection of substantive rights or interests, is not a
year redemption period allowed by law, Metrobank filed a Petition for the Issuance cause of action in itself but merely a provisional remedy, an adjunct to a main
of Writ of Possession docketed as LRC Case No. 08-60 which was raffled before suit.13redarclaw
Branch 63 of the RTC.9redarclaw
A writ of preliminary injunction and a TRO are injunctive reliefs and preservative
On 30 September 2008, the Spouses Dulnuan instituted a Complaint seeking the remedies for the protection of substantive rights and interests. An application for
issuance of a temporary restraining order and preliminary and final injunction and, the issuance of a writ of preliminary injunction and/or TRO may be granted upon
for the annulment of extra-judicial foreclosure and real estate mortgage before the the filing of a verified application showing facts entitling the applicant to the relief
RTC of La Trinidad, Benguet, Branch 10, which case was docketed as Civil Case No. demanded.14 The purpose of injunction is to prevent threatened or continuous
08-CV-2470. The complaint alleged that the mortgage constituted over the irremediable injury to some of the parties before their claims can be thoroughly
property is null and void because at the time the agreement was entered on 18 studied and educated. Its sole aim is to preserve the status quo until the merits of
October 2000, no contract of loan was yet executed by the parties. It was only on the case is heard fully.15redarclaw
19 December 2003 that they received the proceeds of the loan, as evidenced by the
Promissory Note. In other words, there is no principal obligation upon which the The status quo is the last actual, peaceable and uncontested situation which
ancillary contract of mortgage was attached to. precedes a controversy.16 The status quo should be that existing at the time of the
filing of the case. A preliminary injunction should not establish new relations
Upon motion of the Spouses Dulnuan, Civil Case No. 08-CV-2470 was consolidated between the parties, but merely maintain or re-establish the pre-existing
before Branch 63 of the RTC wherein the LRC Case No. 08-60 was pending. After relationship between them.
summary hearing, the court a quo in an Order dated 5 November 2008, issued a
Temporary Restraining Order and set the hearing for the issuance of Writ of Pertinent are the provisions of Section 3, Rule 58 of the Rules of Court, enumerates
Preliminary Injunction. Both parties proceeded to adduce evidence for and against the grounds for the issuance of a writ of preliminary injunction, to
the issuance of the writ of preliminary injunction. wit:LawlibraryofCRAlaw
Finding an imperative need to protect and preserve the rights of the Spouses ChanRoblesVirtualawlibrary
Dulnuan during the pendency of the principal action, the RTC issued an Order dated SEC. 3. Grounds for issuance of preliminary injunction. A preliminary injunction
3 December 2008, enjoining Metrobank from taking possession of the subject may be granted when it is established:LawlibraryofCRAlaw
property until the final disposition of the annulment of mortgage case. The decretal
portion of the Order reads:LawlibraryofCRAlaw (a) That the applicant is entitled to the relief demanded, and the whole or part of
such relief consists in restraining the commission or continuance of the act or acts
ChanRoblesVirtualawlibrary complained of, or in requiring the performance of an act or acts, either for a limited
WHEREFORE, premises considered, and finding compelling reason at this point in period or perpetually;
time to grant for the application for preliminary injunction, the same is hereby
granted upon posting of preliminary injunction bond in the amount of P200,000.00 (b) That the commission, continuance or non-performance of the act or acts
duly approved by the court, let the writ of preliminary injunction be issued to take complained of during the litigation would probably work injustice to the applicant;
effect pendente lite, commanding the [Metrobank] including its agents and or
representatives, as well as persons acting under its control, supervision, instruction,
order or authorization, to desist from entering, occupying, possessing, using, or (c) That a party, court, agency or a person is doing, threatening, or is attempting to
from performing any act of possession and occupation of the aforedescribed do, or is procuring or suffering to be done, some act or acts probably in violation of
As such, a writ of preliminary injunction may be issued only upon clear showing of WHEREFORE, premises considered, the instant petition is hereby DENIED. The
an actual existing right to be protected during the pendency of the principal action. assailed Decision dated 14 January 2011 and Resolution dated 29 April 2011 of the
The requisites of a valid injunction are the existence of the right and its actual or Court of Appeals in CA-G.R. SP No. 108628 are hereby AFFIRMED.
threatened violations. Thus, to be entitled to an injunctive writ, the right to be
protected and the violation against the right must be shown.18redarclaw SO ORDERED.cralawlawlibrary
Extant from the pleadings of the parties is the failure of the Spouses Dulnuan to EN BANC
establish the essential requisites for the issuance of the writ of preliminary
injunction. G.R. No. 196040 August 26, 2014
First. The court a quo cannot enjoin Metrobank, at the instance of the Spouses FE H. OKABE, Petitioner,
Dulnuan, from taking possession of the subject property simply because the period vs.
of redemption has not yet expired. As the highest bidder in the foreclosure sale ERNESTO A. SATURNINO, Respondent.
upon whom a certificate sale was issued by the sheriff, Metrobank has the right to
be placed in possession of the subject property even during the redemption period DECISION
provided that the necessary amount of bond is posted. As elucidated by the Court
in Spouses Tolosa v. United Coconut Planters Bank:19redarclaw PERALTA, J.:
ChanRoblesVirtualawlibrary Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
A writ of possession is simply an order by which the sheriff is commanded by the seeking the reversal of the Decision1 dated September 24, 2010 and Resolution2
court to place a person in possession of a real or personal property. Under Section 7 dated March 9, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 110029.
of Act No. 3135, as amended, a writ of possession may be issued in favor of a
purchaser in a foreclosure sale either (1) within the one-year redemption period, The facts, as culled from the records, are as follows:
upon the filing of a bond; or (2) after the lapse of the redemption period, without
need of a bond. Within the one-year redemption period, the purchaser may apply The subject of the controversy is an eighty-one (81)square meter property located in
for a writ of possession by filing a petition in the form of an ex parte motion under Barangay San Antonio, Makati City, which was initially covered by Transfer
oath, in the registration or cadastral proceedings of the registered property. The law Certificate of Title (TCT) No. 175741under the name of the wife of respondent
requires only that the proper motion be filed, the bond approved and no third Ernesto A. Saturnino. Sometime in 1994, the couple obtained a loan with the
person is involved. After the consolidation of title in the buyers name for failure of Philippine National Bank (PNB), which was secured by the subject property. Because
the mortgagor to redeem the property, entitlement to the writ of possession of the couples failure to settle their loan obligation with the bank, PNB
becomes a matter of right. In the latter case, the right of possession becomes extrajudicially foreclosed the mortgage.
absolute because the basis thereof is the purchasers ownership of the property.
On August 24, 1999, the Certificate ofSale was inscribed on TCT No. 175741.
It is an established rule that the purchaser in an extra-judicial foreclosure sale is Considering that the property was not redeemedby respondent during the
entitled to the possession of the property and can demand that he be placed in redemption period, consolidation of ownership was inscribed on October 13, 2006
possession of the same either during (with bond) or after the expiration (without and a new TCT was issued in favor of PNB. Without taking possession of the subject
bond) of the redemption period therefor.20 The non-expiration of the period of property, PNB sold the land to petitioner Fe H. Okabe on June 17, 2008. TCT No.
redemption shall not preclude the purchaser from taking possession of the property 225265 was later issued in petitioners name on August 13, 2008.
provided that the necessary is posted. The buyer can in fact demand possession of
the land even during the redemption period except that he has to post a bond in On November 27, 2008, petitioner filed with the Regional Trial Court (RTC) of Makati
accordance with Section 721 of Act No. 3135, as amended. In the case at bar, City an Ex-Parte Petition for Issuance of Writ of Possession3 over the subject
Metrobank manifested its willingness to post a bond but its application for the property, to which respondent submitted an Opposition with Motion to Dismiss.4
issuance of the writ of possession was unjustly denied by the RTC. Petitioner filed her Reply to/ Comment on the Opposition with Motion to Dismiss,5
while respondent submitted his Oppositor-MovantsRejoinder with Motion for
Second. The pendency of the action assailing the validity of the mortgage should Postponement.6
not bar the issuance of the writ of possession. A pending action for annulment of
mortgage or foreclosure does not stay the issuance of a writ of possession.22 On April 30 2009, the RTC issued an Order7 denying respondents Opposition with
Regardless of the pendency of such suit, the purchaser remains entitled to a writ of Motion to Dismiss for lack of merit. The RTC, citing the case of Ramos v. Maalac
possession, without prejudice, of course, to the eventual outcome of the pending and Lopez8 opined that the issuance of a writ of possession in favor of the
annulment case. Emphatic to the point is the ruling of the Court in Spouses petitioner was merely a ministerial and complementary duty of the court.
Fortaleza v. Spouses Lapitan:23redarclaw
Respondent then filed an Urgent Motion for Clarification (of the Order dated 30
ChanRoblesVirtualawlibrary April 2009),9 then a Motion for Reconsideration,10 which was followed by a
Lastly, we agree with the CA that any question regarding the regularity and validity Supplement to the Motion for Reconsideration11 which petitioner likewise
of the mortgage or its foreclosure cannot be raised as a justification for opposing opposed.12
the petition for the issuance of the writ of possession. The said issues may be raised
and determined only after the issuance of the writ of possession. Indeed, [t]he On July 29, 2009, the RTC issued an Order13 denying respondents Motion for
judge with whom an application for writ of possession is filed need not look into the Reconsideration and the Supplement to the Motion for Reconsideration. The RTC
validity of the mortgage or the manner of its foreclosure. The writ issues as a ruled, among other things, that the right of the petitioner to be placed in absolute
matter of course. The rationale for the rule is to allow the purchaser to have possession of the subject property was a consequence of her right of ownership and
possession of the foreclosed property without delay, such possession being that petitioner cannot be deprived of said possession being now the registered
founded on the right of ownership. owner of the property.
Without prejudice to the final disposition of the annulment case, Metrobank is Dismayed, respondent filed on August 17, 2009 a Petition for Certiorari14 with the
entitled to the writ of possession and cannot be barred from enjoying the property, CA questioning the Orders of the RTC based on the following grounds:
possession being one of the essential attributes of ownership.
I
Third. While the grant or denial of the preliminary injunction rests on the sound
discretion of the court taking cognizance of the case, and judicial discretion of the HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER THE FACT THAT PRIVATE
court in injunctive matters should not be interfered with,24 in the absence of clear RESPONDENT WAS ALREADY ESTOPPED FROM ASKING FOR THE ISSUANCE OF A
and legal right, however, the issuance of a writ of injunction constitutes a grave WRIT OF POSSESSION CONSIDERING THAT THE VERY DEED OF ABSOLUTE SALE
abuse of discretion.25redarclaw FROM WHICH HER ALLEGED RIGHT EMANATES EXPLCITLY (sic) GAVE HER THE
ONLY OPTION OF FILING AN EJECTMENT SUIT.
Grave abuse of discretion in the issuance of writs of preliminary injunction implies a
capricious and whimsical exercise of judgment equivalent to lack of jurisdiction; or II
the exercise of power in an arbitrary despotic manner by reason of passion,
prejudice or personal aversion amounting to an evasion of a positive duty or to a HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER THAT SECTION 7 OF ACT
virtual refusal to perform a duty enjoined or to act at all in contemplation of law.26 NO. 3135, AS AMENDED BY ACT 4118 SHOULD BE CONSTRUED STRICTLY.15
The burden is thus on petitioner to show in his application that there is meritorious
ground for the issuance of TRO in his favor.27 When the complainants right is Respondent prayed, among other things, that the CA reverse and set aside the
doubtful or disputed, he does not have a clear legal right and, therefore, the assailed Orders and thata Temporary Restraining Order (TRO) be issued enjoining
issuance of injunctive writ is improper.28 Herein, the Spouses Dulnuan failed to the RTC from hearing the petition for the issuance of a writ of possession.
show that they have clear and unmistakable right to the issuance of writ in question.
Furnish copies of this Decision to the parties and their respective counsels. Petitioner argues that her possession of the subject property as its registered owner
should not be disturbed. Petitioner posits that considering that respondent failed to
SO ORDERED.17 redeem the subject property within the redemption period, respondent should not
be granted a favor nor rewarded for his failure to redeem and for his illegal
Respondent filed a motion to set aside the said Decision, but the same was denied occupation of the property. Petitioner contends that the issue regarding possession
by the RTC in its Order18 dated April 27, 2010. ofthe property has become moot and academic since she, being the registered
owner of the property, has been in possession thereof since July 20, 2010. Petitioner
On May 13, 2010, petitioner filed a Motion for Execution of Judgment. stresses that the ruling of the CA, that she is "permanently enjoined from
proceeding against the [respondent] via an ex-partemotion for a writ of possession,"
On July 8, 2010, the RTC issued an Order19 granting the motion. On even date, the would result in an absurdity since she is already in possession of the land.
branch clerk of court issued a Writ of Possession20 addressed to the Sheriff
ordering the latter toplace petitioner in possession of the subject property. Petitioner now prays that the Court rectify the situation and for it to reverse the
ruling of the CA based on the fact that the proceedings for the expartemotion for a
On July 14, 2010, the Sheriff, together with petitioner, tried to cause the service of writ of possession has already been terminated and possession of the subject
the notice to vacate upon the respondent, but the property was already abandoned property was awarded by the lower court in her favor, thus rendering the arguments
by its occupants. The Sheriff, with the assistance of barangay officials, thus, posted raised by respondent in his petition for certiorari before the CA moot and academic.
the notice to vacate together with the writ of possession in front of the gate of the
subject property.21 In essence, the issue is whether or not, in the case at bar, an ex-parte petition for the
issuance of a writ of possession was the proper remedy of the petitioner in
On July 20, 2010, the Sheriff,the petitioner, and the barangay officials returned to obtaining possession of the subject property.
the property to cause the implementation of the writ of possession. After finding
that no onewas occupying the property, the Sheriff turned over possession of the Section 7 of Act No. 3135,28 as amended by Act No. 4118,29 states:
subject property to the petitioner free and clear of occupants and personal
property.22 Section 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property or
In the proceedings before the CA, respondent filed a Motion to Admit Herein any part thereof is situated, to give him possession thereof during the redemption
Memorandum of Authorities in Amplification/Support of the Position of Petitioner period, furnishing bond in an amount equivalent to the use of the property for a
in this Case and Reiterating Prayer for Issuance of a Temporary Restraining Order period of twelve months, to indemnify the debtor in case it be shown that the sale
and/or Writ of Preliminary Injuction.23 In the said motion, respondent alleged that was made without violating the mortgage or without complying with the
the RTC was about to issue the writ of possession prayed for by the petitioner and requirements of this Act. Such petition shall be made under oath and filed in the
that a TRO was necessary to prevent great and irreparable injury which respondent form of an ex partemotion x x x and the court shall, upon approval of the bond,
may suffer if removed from possession of the property in question. order that a writ of possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order immediately.
On July 19, 2010, the CA issued a Resolution24 granting the issuance of a TRO in
favor of the respondentand commanding petitioner and the RTC to refrain from Under the provision cited above, the purchaser or the mortgagee who is also the
committing any acts relative to the proceedings before it upon the posting of a purchaser in the foreclosure sale may apply for a writ of possession during the
bond. redemption period,30 upon an ex-partemotion and after furnishing a bond.
In a Manifestation25 dated July 21, 2010 the RTC Presiding Judge informed the CA In GC Dalton Industries, Inc. v. Equitable PCI Bank,31 the Court held that the
that as much as the court would like to comply with its directive, it can no longer do issuance of a writ of possession to a purchaser in an extrajudicial foreclosureis
so because the writ of possession had already been implemented by the Branch summary and ministerial in nature as such proceeding is merely an incident in the
Sheriff on July 20, 2010. transfer of title. Also, in China Banking Corporation v. Ordinario,32 we held that
under Section 7 of Act No. 3135, the purchaser in a foreclosure saleis entitled to
On September 24, 2010, the CA rendered the assailed Decision which granted possession of the property.
respondents petition and vacatedthe challenged orders of the RTC. The falloreads:
In the recent case of Spouses Nicasio Marquez and Anita Marquez v. Spouses
WHEREFORE,we resolve to GRANTthe instant petition. The challenged orders below Carlito Alindog and Carmen Alindog,33 although the Court allowed the purchaser in
are consequently vacated. The respondents are permanently enjoined from a foreclosure sale to demand possession of the land during the redemption period,
proceeding against the petitioner via an expartemotion for a writ of possession. it still required the posting ofa bond under Section 7 of Act No. 3135. Thus:
IT IS SO ORDERED.26 It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of
the property purchased if it is not redeemed during the period of one year after the
The CA opined, among other things, that although it may be true that by virtue of registration of the sale. As such, he is entitled to the possession of the said property
the contract of sale, petitioner obtained the same rights of a purchaser-owner and and can demand it at any time following the consolidation of ownership in his name
which rights she derived from erstwhile mortgagee turned owner PNB, this does not and the issuance to him of a new transfer certificate oftitle. The buyer can in fact
mean that the right to file an ex-parte motion for a writ of possession under Act demand possession of the land even during the redemption period except that he
3135 had also been transferred to the petitioner. Such a special right isgranted only has to post a bond in accordance with Section 7 of Act No. 3135, as amended. No
to purchasers in a sale made under the provisions of Act 3135. The CA ruled that to such bond is required after the redemption period if the property is not redeemed.
allow a second, third, or even tenth subsequent buyer of the foreclosed property to Possession of the land then becomes an absolute right of the purchaser as
evict the mortgagor-debtor or his successor-in-interest from the said property or confirmed owner. Upon proper application and proof of title, the issuance of the
wrench away possession from them via a mere ex-partemotion is to trample upon writ of possession becomes a ministerial duty of the court.34
due process because whatever defenses that the owner mortgagor/actual possessor
may have would have been drowned and muted by the ex-partewrit of possession. Here, petitioner does not fall under the circumstances of the aforequoted case and
Considering that the transaction between PNB and the petitioner was by an ordinary the provisions of Section 7 of Act No. 3135, as amended, since she bought the
contract of sale, an ex-partewrit of possession may not therefore be issued in favor property long after the expiration of the redemption period. Thus, it is PNB, if it was
of the latter. the purchaser in the foreclosure sale, or the purchaser during the foreclosure sale,
who can file the ex-parte petition for the issuance of writ of possession during the
Unfazed, petitioner filed a Motion for Reconsideration on the ground that redemption period, but it will only issue upon compliance with the provisions of
respondents possession of the property had become illegal and that the procedure Section 7 of Act No. 3135.
affecting his possession was moot and academic for he was no longer in possession
of the subject property. In fact, the Real Estate Mortgage35 contains a waiver executed by the mortgagor in
favor of the mortgagee, wherein the mortgagor even waives the issuance of the writ
In a Resolution dated March 9, 2011, the CA denied petitioners of possession in favor of the mortgagee. The contract provides that "effective upon
the breach of any condition ofthe mortgage and in addition to the remedies
Motion for Reconsideration. hereinstipulated, the mortgagee is hereby likewise appointed Attorney-in-Fact of
the Mortgagor/s with full power and authority with the use of force, if necessary, to
Hence, the present petition wherein petitioner raises the following arguments to take actual possession of the mortgaged property/ies without the necessity of any
support its petition: judicial order or permission, or power, to collect rents, to eject tenants, to lease or
To be sure, immediately requiring the subsequent purchaser to file a separate case PNB, therefore, as the absolute owner of the properties is entitled to a writ of
of ejectment instead of a petition for the issuance of a writ of possession, albeit not possession. And since respondent purchased the properties from PNB, the former
ex-parte, will only prolong the proceedings and unduly deny the subsequent has necessarily stepped into the shoes of the latter. Otherwise stated, respondent,
purchaser of possession of the property which he already bought. by subrogation, has the right to pursue PNBs claims against petitioners as though
they were his own.
WHEREFORE, premises considered, the instant petition is GRANTED. The Decision
dated September 24, 2010 and Resolution dated March 9, 2011 of the Court of The dispositive portion of the above Order reads:chanroblesvirtuallawlibrary
Appeals in CA-G.R. SP No. 110029 are hereby REVERSED AND SET ASIDE.
WHEREFORE, premises considered, the Court hereby issues a writ of possession in
SO ORDERED. favor of movant Leo Ray V. Yanson ordering Spouses Jose and Mila Gatuslao, their
heirs, assigns, successors-in-interest, agents, representatives and/or any and all
SECOND DIVISION other occupants or persons claiming any interest or title of the subject property to
deliver the possession of said property to the herein movant/ petitioner.
G.R. No. 191540, January 21, 2015
SO ORDERED.19
SPOUSES JOSE O. GATUSLAO AND ERMILA LEONILA LIMSIACO-GATUSLAO, Petitioners moved for reconsideration20 which was denied in an Order21 dated
Petitioners, v. LEO RAY V. YANSON, Respondent. February 26, 2010, thus:chanroblesvirtuallawlibrary
Preliminarily, we note that petitioners direct resort to this Court from the assailed Nevertheless, where the extrajudicially foreclosed real property is in the possession
Orders of the RTC violates the rule on hierarchy of courts. Their remedy lies with of a third party who is holding the same adversely to the judgment debtor or
the Court of Appeals. Considering however the length of time this case has been mortgagor, the RTCs duty to issue a writ of possession in favor of the purchaser of
pending and in view of our January 26, 2011 Resolution26 giving due course to the said real property ceases to be ministerial and, as such, may no longer proceed ex
Petition, we deem it proper to adjudicate the case on its merits. parte.34 In such a case, the trial court must order a hearing to determine the nature
of the adverse possession.35 For this exception to apply, however, it is not enough
The Petition is denied. that the property is in the possession of a third party, the property must also be
held by the third party adversely to the judgment debtor or mortgagor,36 such as a
It is settled that the issuance of a Writ of co-owner, agricultural tenant or usufructuary.37chanRoblesvirtualLawlibrary
Possession may not be stayed by a pending
action for annulment of mortgage or the In this case, petitioners do not fall under any of the above examples of such a third
foreclosure itself. party holding the subject properties adversely to the mortgagor; nor is their claim to
their right of possession analogous to the foregoing situations. Admittedly, they are
It is petitioners stand that the pending action for annulment of foreclosure of the mortgagor Limsiacos heirs. It was precisely because of Limsiacos death that
mortgage and of the corresponding sale at public auction of the subject properties petitioners obtained the right to possess the subject properties and, as such, are
operates as a bar to the issuance of a writ of possession. considered transferees or successors-in-interest of the right of possession of the
latter. As Limsiacos successors-in-interest, petitioners merely stepped into his
The Court rules in the negative. BPI Family Savings Bank, Inc. v. Golden Power Diesel shoes and are, thus, compelled not only to acknowledge but, more importantly, to
Sales Center, Inc.27 reiterates the long-standing rule that:chanroblesvirtuallawlibrary respect the mortgage he had earlier executed in favor of respondent.38 They
cannot effectively assert that their right of possession is adverse to that of Limsiaco
[I]t is settled that a pending action for annulment of mortgage or foreclosure sale as they do not have an independent right of possession other than what they
does not stay the issuance of the writ of possession. The trial court, where the acquired from him.39 Not being third parties who have a right contrary to that of
application for a writ of possession is filed, does not need to look into the validity of the mortgagor, the trial court was thus justified in issuing the writ and in ordering its
the mortgage or the manner of its foreclosure. The purchaser is entitled to a writ of implementation.
possession without prejudice to the outcome of the pending annulment case.
Petitioners claim that their right to due process was violated by the mere issuance
This is in line with the ministerial character of the possessory writ. Thus, in Bank of of the writ of possession must likewise fail. As explained, petitioners were not
the Philippine Islands v. Tarampi,28 it was held:chanroblesvirtuallawlibrary occupying the properties adversely to the mortgagor, hence, a writ of possession
may be issued ex parte. And precisely because of this ex parte nature of the
To stress the ministerial character of the writ of possession, the Court has disallowed proceedings no notice is needed to be served40 upon them. It has been stressed
injunction to prohibit its issuance, just as it has held that its issuance may not be time and again that the ex parte nature of the proceeding does not deny due
stayed by a pending action for annulment of mortgage or the foreclosure itself. process to the petitioners because the issuance of the writ of possession does not
prevent a separate case for annulment of mortgage and foreclosure sale.41
Clearly then, until the foreclosure sale of the property in question is annulled by a Consequently, the RTC may grant the petition even without petitioners
court of competent jurisdiction, the issuance of a writ of possession remains the participation. Nevertheless, even if the proceedings in this case was supposed to be
ministerial duty of the trial court. The same is true with its implementation; ex parte, the records of the case would show that petitioners side on this
otherwise, the writ will be a useless paper judgment a result inimical to the controversy was actually heard as evidenced by the numerous pleadings42 filed by
mandate of Act No. 3135 to vest possession in the purchaser immediately.29 them in the lower court. In fact, in its July 27, 2009 Order,43 the RTC expressly
(Emphases supplied) directed respondent, in observance of equity and fair play x x x to furnish
[petitioners] with a copy of his motion/petition and to show x x x proof of
Clearly, petitioners argument is devoid of merit. compliance thereof x x x.44 Then and now, the Court holds that a party cannot
invoke denial of due process when he was given an opportunity to present his
Petitioners are not strangers or third side.45chanRoblesvirtualLawlibrary
parties to the foreclosure sale; they
were not deprived of due process. Respondent is entitled to the
issuance of writ of possession.
Section 7 of Act No. 3135, as amended, sets forth the following procedure in the
availment of and issuance of a writ of possession in cases of extrajudicial Petitioners insist that respondent is not entitled to the issuance of the writ of
foreclosures, viz:chanroblesvirtuallawlibrary possession under Section 7 of Act No. 3135 as he is only a buyer of the subject
properties in a contract of sale subsequently executed in his favor by the actual
SECTION 7. In any sale made under the provisions of this Act, the purchaser may purchaser, PNB. To them, it is only the actual purchaser of a property at the public
petition the Court of First Instance (Regional Trial Court) of the province or place auction sale who can ask the court and be granted a writ of possession.
where the property or any part thereof is situated, to give him possession thereof
during the redemption period, furnishing bond in an amount equivalent to the use This argument is not tenable. Respondent, as a transferee or successor-in-interest of
of the property for a period of twelve months, to indemnify the debtor in case it be PNB by virtue of the contract of sale between them, is considered to have stepped
shown that the sale was made without violating the mortgage or without complying into the shoes of PNB. As such, he is necessarily entitled to avail of the provisions of
with the requirements of this Act. Such petition shall be made under oath and filed Section 7 of Act No. 3135, as amended, as if he is PNB. This is apparent in the Deed
in form of an ex parte motion in the registration or cadastral proceedings if the of Absolute Sale46 between the two, viz:chanroblesvirtuallawlibrary
property is registered, or in special proceedings in the case of property registered
under the Mortgage Law or under section one hundred and ninety-four of the
Further, respondent may rightfully take possession of the subject properties through
a writ of possession, even if he was not the actual buyer thereof at the public On June 10, 2005, TCLC applied for a writ of possession15 before the RTC, docketed
auction sale, in consonance with our ruling in Ermitao v. Paglas.48 In the said case, as Cadastral Case No. 118.Sps. Guevarraopposed16 the samebychallenging the
therein respondent was petitioners lessee in a residential property owned by the validity of the foreclosure proceedingsdue tothe purported failure of TCLC to
latter. During the lifetime of the lease, respondent learned that petitioner comply with the notice, posting and publication requirements, and lack of authority,
mortgaged the subject property in favor of Charlie Yap (Yap) who eventually as a corporation,to acquire the subject property. Sps. Guevarra also assailed the
foreclosed the same. Yap was the purchaser thereof in an extrajudicial foreclosure issuance by the Sheriff of Iloilo of a Final Deed of Sale17 to be premature, as they
sale. Respondent ultimately bought the property from Yap. However, it was were still entitled to redeem the subject property within five (5) yearsfrom the
stipulated in the deed of sale that the property was still subject to petitioners right expiration of the one-year period to repurchase.18cralawred
of redemption. Subsequently and despite written demands to pay the amounts
corresponding to her monthly rental of the subject property, respondent did not Subsequently, or on September 8, 2005, Sps. Guevarra filed before the RTC a
anymore pay rents. Meanwhile, petitioners period to redeem the foreclosed petition for redemption,19 docketed as Cadastral Case No. 122, maintaining that the
property expired on February 23, 2001. Several months after, petitioner filed a case redemption period did not expire on August 25, 2001, or one (1) year from the
for unlawful detainer against respondent. When the case reached this Court, it ruled registration of the certificate of sale, but will still expire five (5) years therefrom, or
that therein respondents basis for denying petitioners claim for rent was on August 25, 2006.20 They further averred that they pleaded to be allowed to
insufficient as the latter, during the period for which payment of rent was being redeem the subject property but TCLC unjustifiably refused the same, constraining
demanded, was still the owner of the foreclosed property. This is because at that them to file said petition, offering to redeem the subject property at P150,000.00,
time, the period of redemption has not yet expired. Thus, petitioner was still plus one percent (1%) interest per month for five (5) years from August 25, 2000, or
entitled to the physical possession thereof subject, however, to the purchasers right in the amount of P240,000.00,21 which they consigned22 to the RTC.
to petition the court to give him possession and to file a bond pursuant to the
provisions of Section 7 of Act No. 3135, as amended. However, after the expiration Cadastral Case Nos. 118 and 122 werelater consolidated.23cralawred
of the redemption period without redemption having been made by petitioner,
respondent became the owner thereof and consolidation of title becomes a right. Inan Order24 dated July 12, 2006, the RTC granted TCLCs petition in Cadastral Case
Being already then the owner, respondent became entitled to possession. No. 118, resulting in the issuance of the corresponding Writ of Possession25
Consequently, petitioners ejectment suit was held to have been rendered moot by andNotice to Vacate26which were duly served uponSps. Guevarra.27Accordingly,
the expiration of the period of redemption without petitioner redeeming the the latterfiled a motion for reconsideration28 andMotion to Hold in Abeyance the
properties. This is considering that petitioner already lost his possessory right over Implementation of the Writ of Possession.29cralawred
the property after the expiration of the said period.
In an Order30 dated October 20, 2008, the RTC denied the motion for
Although the main issue in Ermitao was whether respondent was correct in reconsideration in Cadastral Case No. 118, but granted Sps. Guevarraspetition in
refusing to pay rent to petitioner on the basis of her having bought the latters Cadastral Case No. 122. In so doing, the RTC recognizedSps. Guevarras right to
foreclosed property from whom it was mortgaged, the case is enlightening as it repurchase the subject property, pointing out that they were able to file their
acknowledged respondents right, as a subsequent buyer of the properties from the petition within the five-yearperiod provided under Section 119 of Commonwealth
actual purchaser of the same in the public auction sale, to possess the property after Act No. 141,31 otherwise known as the Public Land Act (Public Land Act).32As a
the expiration of the period to redeem sans any redemption. Verily, Ermitao consequence, the RTC directed TCLC to reconvey the subject propertyto Sps.
demonstrates the applicability of the provisions of Section 7 of Act No. 3135 to such Guevarraand execute the corresponding deed of reconveyance upon payment of
a subsequent purchaser like respondent in the present case. the purchase price of ?150,000.00, plus one percent(1%) interest per month from
the date of the auction sale on June 15, 2000upto August 8, 2006,as well as the
All told, the Court affirms the RTCs issuance of the Writ of Possession in favor of corresponding tax assessments and foreclosure expenses.33cralawred
respondent.chanrobleslaw
Dissatisfied, TCLC filed a motion for reconsideration34 which was, however, denied
WHEREFORE, the Petition is hereby DENIED. The December 8, 2009 and February in an Order35 dated January 6, 2009; thus, itfiled an appeal36 before the
26, 2010 Orders of the Regional Trial Court of Bacolod City, Branch 49 in Cad. Case CA.chanroblesvirtuallawlibrary
No. 09-2802 are AFFIRMED.
The CA Proceedings
SO ORDERED.cralawl
FIRST DIVISION In a Decision37 dated October 3, 2011, the CA affirmed the RTCs October 20, 2008
Order, upholding Sps. Guevarras right to repurchase the subject property pursuant
G.R. No. 204672, February 18, 2015 to Section 119 of the Public Land Act, with modification that the same be
conditioned upon the payment of the purchase price fixed by TCLC. It ruled that
SPOUSES RODOLFO AND MARCELINA GUEVARRA, Petitioners, v. THE COMMONER after the expiration of the redemption period, the present owner, i.e., TCLC,has the
LENDING CORPORATION, INC., Respondent. discretion to set a higher price.38cralawred
DECISION Aggrieved, Sps. Guevarra filed a motion for reconsideration39 which was, however,
denied in a Resolution40 dated October 17, 2012, hence, this petition.
PERLAS-BERNABE, J.:
The Issue Before the Court
Assailed in this petition for review on certiorari1are the Decision2 dated October 3,
2011 and the Resolution3 dated October 17, 2012 of the Court of Appeals (CA) in
CA-G.R. CV No. 02895,which affirmed with modification the Order4 dated October The essential issue in this case is whether or not the CA committed a reversible error
20, 2008 of the Regional Trial Court of Guimbal, Iloilo, Branch 67 (RTC) in Cadastral in ruling that the repurchase price for the subject property should be fixed by TCLC.
Case Nos. 118 and 122, allowing petitioners-spouses Rodolfo and Marcelina
Guevarra (Sps. Guevarra) to exercise their right to repurchase the mortgaged The Courts Ruling
property subject of this case, conditioned upon the payment of the purchase price
fixed by respondent The Commoner Lending Corporation, Inc.
(TCLC).chanroblesvirtuallawlibrary In an extra-judicial foreclosure of registered land acquired under a free patent, the
mortgagor may redeem the property within two (2) years from the date of
foreclosure if the land is mortgaged to a rural bank under Republic Act No. (RA)
In this relation, it is apt to clarify that contrary to TCLCs claim,45the tender of the Principal
repurchase price is not necessary for the preservation of the right of repurchase, P320,000.00
because the filing of a judicial action for such purpose within the five-year period Add: Interest from 12/12/1996 to 09/05/2005
under Section 119 of the Public Land Actis already equivalent to a formal offer to from 12/12/1996 to 12/12/2004: (P320,000.00 x 12% x 8 years)
redeem. On this premise, consignation of the redemption price is equally P307,200.00
unnecessary.46cralawred from 12/13/2004 to 09/08/2005: (P320,000.00 x 12% x 270/365)
28,405.48
Thus, the RTC and CAboth correctly ruled that Sps. Guevarras right to repurchase 335,605.48
the subject property had not yet expiredwhen Cadastral Case No. 122 was filed on Total Amount due under the mortgage
September 8, 2005. That being said, the Court now proceeds to determine the P655,605.48
proper amount of the repurchase price. Add:
Capital Gains Tax
Sps. Guevarrainsist that the repurchase price should be the purchase price at the 18,203.17
auction sale plus interest of one percent (1%) per month and other assessment Documentary Stamp Tax
fees,47citing the rulings in the cases of Belisario v. Intermediate Appellate Court48 4,501.46
(Belisario) and Salenillas v. CA49 (Salenillas). On the other hand, TCLC maintains that Judicial Commission
it is entitled to its total claims under the promissory note and the mortgage 4,150.00
contract50in accordance with Section 4751 of the General Banking Law of Publication Fee
2000.52cralawred 4,000.00
Sheriffs Fee
TCLCs argument is partly correct. 3,000.00
Repurchase Price
To resolve the matter, it must first be pointed out that case law has equated a right P689,460.11
of repurchase of foreclosed properties under Section 119 of the Public Land Act as a ==============
right of redemption53 and the repurchase price as a redemption price.54 Thus,
in Salenillas, the Court applied then Section 30, now Section 28, Rule 39 of the Rules
of Court (Rules) in the redemption of the foreclosed property covered by a free From this repurchase priceshall be deducted the amount consigned to the RTC, or
patent:chanRoblesvirtualLawlibrary P240,000.00. Sps. Guevarramay repurchase the subject property within thirty (30)
days from finality of this Decision upon payment of the net amount of P449,460.11.
Now, as regards the redemption price, applying Sec. 30 of Rule 39 of the [Rules], the
petitioners should reimburse the private respondent the amount of the purchase WHEREFORE, the petition is DENIED. The Decision dated October 3, 2011 and the
price at the public auction plus interest at the rate of one per centum per month up Resolution dated October 17, 2012 of the Court of Appeals in CA-G.R. CV No. 02895
to November 17, 1983, together with the amounts of assessments and taxes on the are hereby AFFIRMED with MODIFICATION allowing petitioners-spouses Rodolfo
property that the private respondent might have paid after purchase and interest on and MarcelinaGuevarra to repurchase the subject property from respondent The
the last named amount at the same rate as that on the purchase price. (Emphases Commoner Lending Corporation, Inc. (TCLC) within thirty (30) days from the finality
supplied)55cralawlawlibrary of this Decision for the price of P689,460.11, less the amount of P240,000.00
previously consigned to the court a quo, or the net amount of P449,460.11, for
which the corresponding deed of absolute conveyance shall be executed by TCLC.
The Court has,however, ruled56 that redemptions from lending or credit institutions,
like TCLC, are governed by Section 7857 of the General Banking Act (now Section 47 SO ORDERED.cralawlawlibrary
of the General Banking Law of 2000), which amended Section 6 of Act No. 3135 in
relation to the proper redemption price when the mortgagee is a bank, or a banking FIRST DIVISION
or credit institution.58cralawred
G.R. No. 189061 August 6, 2014
Nonetheless, the Court cannot subscribe to TCLCs contention that it is entitled to
its total claims under the promissory note and the mortgage contract59in view of MIDWAY MARITIME AND TECHNOLOGICAL FOUNDATION, represented by its
the settled rule that an action to foreclose must be limited to the amount Chairman/President PhD in Education DR. SABINO M. MANGLICMOT, Petitioner,
mentioned in the mortgage.60Hence, amounts not stated therein must be excluded, vs.
like the penalty charges of three percent (3%) per month included in TCLCs MARISSA E. CASTRO, ET AL., Respondents.
claim.61A penalty charge is likened to a compensation for damages in case of
breach of the obligation. Being penal in nature,it must be specific and fixed by the DECISION
contracting parties.62cralawred
REYES, J.:
Moreover, the Court notes that the stipulated three percent (3%) monthly interest is
excessive and unconscionable.In a plethora of cases, the Court has affirmed that The petitioner Midway Maritime and Technological Foundation (petitioner) is the
stipulated interest rates of three percent (3%) per month and higher are excessive, lessee of two parcels of land in Cabanatuan City. Its president, Dr. Sabino
iniquitous, unconscionable, and exorbitant,63hence, illegal64and void for being Manglicmot (Manglicmot), is married to Adoracion Cloma (Adoracion), who is the
contrary to morals.65 In Agner v. BPI Family Savings Bank, Inc.,66 the Court had the registered owner of the property under Transfer Certificate of Title (TCT) Nos. T-
occasion to rule:chanRoblesvirtualLawlibrary 71321 and T-71322. Inside said property stands a residential building, which is now
the subject matter of the dispute, owned by the respondents.
Settled is the principle which this Court has affirmed in a number of cases that
stipulated interest rates of three percent (3%) per month and higher are excessive, The two parcels of land, on a portion of which the residential building stand, were
iniquitous, unconscionable, and exorbitant. While Central Bank Circular No. 905-82, originally owned by the respondents father Louis Castro, Sr. The elder Castro was
which took effect on January 1, 1983, effectively removed the ceiling on interest also the president of Cabanatuan City Colleges (CCC). On August 15, 1974, Castro
rates for both secured and unsecured loans, regardless of maturity, nothing in the mortgaged the property to Bancom Development Corporation (Bancom) to secure a
said circular could possibly be read as granting carte blanche authority to lenders to loan. During the subsistence of the mortgage, CCCs board of directors agreed to a
raise interest rates to levels which would either enslave their borrowers or lead to a 15-year lease of a portion of the property to the Castrochildren, herein respondents,
hemorrhaging of their assets. Since the stipulation on the interest rate is void for who subsequently built the residential house nowin dispute. The lease was to expire
being contrary to morals, if not against the law, it is as if there was no express in 1992.
The petitioner, however, denied respondents ownership of the residential building "Nemo dat quod non habet. One can sell only what one owns or is authorized to
and claimed that Adoracion owns the building, having bought the same together sell, and the buyer can acquire no more right than what the seller can transfer
with the land on which it stands.4 legally."18 It must be pointed out that what Tomas bought from Union Bank in the
auction sale werethe two parcels of land originally owned and mortgaged by CCC to
In a Decision5 dated July 2, 2001, the Regional Trial Court (RTC) of Cabanatuan City, Bancom, and which mortgage was later assigned by Bancom to Union Bank.
Branch 28, rendered judgment in favor of the respondents, declared them as the Contrary to the petitioners assertion, the property subject of the mortgage and
absolute owners of the residential building and ordered petitioner to pay the consequently the auction sale pertains only to these two parcels of land and did not
respondents unpaidrentals from August 1995 until fully paid. The dispositive portion include the residential house. This was precisely the tenor of Castro, Jr. v. CA19
of the RTC decision reads: where the Court nullified the writ of possession issued by the trial court insofar as it
affected the residential house constructed by the respondents on the mortgaged
WHEREFORE, judgment is hereby rendered: property as it was not owned by CCC, which was the mortgagor. The Court ruled:
1. Declaring the [respondents] asthe absolute owners of the building in question [Article 2127 of the Civil Code] extends the effects of the real estate mortgage to
described as follows: accessions and accessories found on the hypothecated property when the secured
obligation becomes due. The law is predicated on an assumption that the
xxxx ownership of such accessions and accessories also belongs to the mortgagor as the
owner of the principal. The provision has thus been seen by the Court, x x x, to
2. Ordering the [petitioner] topay the [respondents] the sum of [P]672,000.00 by mean that all improvements subsequently introduced or owned by the mortgagor
way of unpaid rentals from August 1995 at [P]6,000.00 and from October 1995 at on the encumbered property are deemed to form part of the mortgage. That the
[P]10,000.00 until fully paid. improvements are to be considered so incorporated only if so owned by the
mortgagor is a rule that can hardly be debated since a contract of security, whether
3. The claim for moral damages,other litigation expenses and attorneys fees are real or personal, needs as an indispensable element thereof the ownership by the
dismissed for lack of merit. pledgor ormortgagor of the property pledged or mortgaged. The rationale
shouldbe clear enough in the event of default on the secured obligation, the
SO ORDERED.6 foreclosure sale of the property would naturally be the next step that can expectedly
follow. A sale would result in the transmission of title to the buyer which is feasible
The Court of Appeals (CA) dismissed the petitioners appeal and affirmed the RTC only if the seller can be in a position to convey ownership of the thing sold (Article
decision in the assailed Decision7 dated October 29, 2008 and Resolution8 dated 1458, Civil Code). It is to say, in the instant case, that a foreclosure would be
August 3, 2009. Hence, this petition. ineffective unless the mortgagor has title to the property to be foreclosed.20
(Citations omitted and emphasis ours) The rule is that "when a decision becomes
The petitioner contests the award ofrentals made by the RTC, which was affirmed by final and executory, it becomes valid and binding upon the parties and their
the CA, contending that when Tomas bought the two parcels of land from Union successors in interest."21 Such being the case, Castro, which already determined
Bank in 1993, the sale included the improvements thereon, one of which was the with finality the respondents ownership of the residential house in question, is
residential house in dispute. The petitioner also argues that the lease between CCC applicable and binding in this case and the petitioner cannotbe allowed to
and the respondents already expired at the time of the sale and they are now the challenge the same. Thus, as correctlyruled by the CA, "[t]o our mind, the
current lessees of the property, albeit the residential house is still standing inside pronouncement resolving the said issue necessarily touches also the issue on the
the school compound.9 The petitioner relies on a decision rendered by the RTC of ownership of the building. x x x The finding of the Court [in Castro], now being final
Cabanatuan City, Branch 26, in Civil Case No. 2939 (AF),which was an appeal from and executory, is no longer open for inquiry and therefore, has attained its
the trial courts dismissal of the complaint for Ejectment with Damages filed by the immutability."22
respondents against the petitioner. In said decision, the RTC stated that "in the
advertised sale of the lots covered by TCT Nos. T-45816 and [T-45817] of the land As regards the ruling of the RTC of Cabanatuan City, Branch 26, in Civil Case No.
records of Cabanatuan City, all improvements were included, hence, the instant case 2939 (AF) that the advertised sale of the property included allthe improvements
has no factual and legal basis."10 Ruling of the Court thereon,23 suffice it to say that said case involved an action for ejectment and any
resolution by the RTC on the matter of the ownership of the improvements of the
The first issue to be resolved iswhether there was a lease agreement between the property is merely provisional and cannot surpass the Courts pronouncement in
petitioner and the respondents as regards the residential building. Such issue, it Castro and in the present case. The petitioner should be reminded that "in
must beemphasized, is a question of fact11 that has been resolved by the RTC in the ejectment suits, the only issue for resolution is the physical or materialpossession of
affirmative, towit: "from June 1993 to July 25, 1995 or for a period of 26 months, the the property involved, independent of any claim of ownership by any of the party
[petitioner] has been paying rentals for the building in question and paid a rental of litigants. However, the issue of ownership may be provisionally ruled upon for the
[P]156,000.00 which rental was increasedto P10,000.00 beginning October 1995 sole purpose of determining who is entitled to possession de facto."24 The MTC
when the caretaker of the [respondents] Mr. Josefino Castro was ejected therefrom and RTCs adjudication of ownership is merely provisionaland would not bar or
and the entire building was leased to the [petitioner], represented by Dr. Sabino prejudice an action between the same parties involving title to the property.25
Manglicmot."12 Such finding is borne by the records of this case. Exhibit "J"13 for
the respondents is a cash disbursement voucher issued by the petitioner to Mrs. Also, Adoracions subsequent acquisition of the two parcels of land from her father
Lourdes Castro. The voucher contained the statement "payment of building rentals x does not necessarily entail the acquisition of the residential building. "A building by
x x from June 01 to December 01, 1993" in the total amount of P36,000.00. The itself is a realor immovable property distinct from the land on which it is constructed
petitioners payment of the foregoing rentals confirms the existence of its and therefore can be a separate subject of contracts."26 Whatever Adoracion
agreement to lease the residential building from the respondents. acquired from her father is still subject to the limitation pronounced by the Court in
Castro, and the sale between Adoracion and Tomas is confined only to the two
There is also nothing on record that will prove the petitioners claim that the lease On January 31, 1992, ERDI executed an amendment to the Credit Agreement5 (First
between CCC and the respondents already expired. The fact that Adoracion Amendment)and obtained an additional loan of Forty Million Pesos
subsequently bought the property did not ipso facto terminate the lease. While the (P40,000,000.00). As additional security to the increased amounts of loan, the
lease between CCC and the respondents contained a 15-year period, to end in 1992, respondent spouses 958-square meter lot and the improvements thereon, situated
the petitioner failed to show that the subsequent transferors/purchasers of the two in Greenhills, San Juan, Metro Manila (Greenhills property)and covered by TCT No.
parcels of land opted to terminate the lease or instituted any action for its 29733, was mortgaged in favor of PNB as evidencedby the Supplement to REM.6 On
termination. Bancom bought the property at an auction sale in 1979; Union Bank, in October 28, 1992, a Second Amendment to Credit Agreement7 (Second
1984; Tomas, and later, Adoracion, acquired the property in 1993. Amendment)was executed by the parties to extend the repayment dates of the loan
and the additional loan subject to the terms set forth in the said agreement.
Article 1676 of the Civil Code provides:
The following year, or on November 3, 1993, a Third Amendment to the Credit
The purchaser of a piece of land which is under a lease that is not recorded in the Agreement8 (Third Agreement)was entered into by the parties wherein PNB granted
Registry of property may terminate the lease, save when there is a stipulation to the an additional loan of Fifty Five Million Pesos (P55,000,000.00) to ERDI, subject to
contrary in the contract of sale, or when the purchaser knows of the existence of the several conditions stated in the said agreement.
lease.
As of September 30, 1994, ERDIs outstanding loan obligation with PNB amounted
x x x x. to P211,935,067.40.9
It cannot be denied that the transferors/purchasers of the property all had ERDI failed to settle its obligation.As a consequence, PNB filed an application for
knowledge of the lease between CCC and the respondents; yet, not any of the foreclosure of the Greenhills property. As the highest bidder, PNB was issued the
transferors/purchasers moved to terminate the lease. In Bernabe v. Judge Luna,28 Certificate of Sale,10 dated October 9, 1997. Upon ERDIs failure to redeem the
the Court stated: property, PNB consolidated its title and caused the cancellation of TCT No. 29733.11
A new title, TCT No. 9424-R, was issued in the name of PNB.12
[P]etitioners are in error when they say that because they are the buyers of the lot
involved herein, they ipso facto have the right to terminate an existing lease. They The Complaint
can do so but only if the lease itself is not recorded, and they, as buyers, are not
aware of the lease's existence and duration, thus Art. 1676 of the Civil Code says: This prompted the respondents to file a complaint against PNB for annulment of
sale, cancellation oftitle, cancellation of mortgage, and damages before the RTC. In
xxxx the complaint, the respondents alleged that: the title to the mortgaged property
that was transferred to PNB as a consequence of the foreclosure proceedings was
In the present case, the lease is not recorded, and although petitioner knew of its null and void as their mortgage obligation had been novated and no new loans
existence, there was no fixed period for its duration - hence the lease was generally were released to them, in violation of the provisions of the Supplement to REM; the
terminable at the will of the buyerspetitioners. But of course they had to make a foreclosure proceedings were defective due to PNBs failure to send personal notice
demand for its termination. x x x.29 (Citation omitted and emphasis ours) to the respondent spouses; PNBs delay in the release of loan proceeds under the
credit agreements caused the non-completion of the condominium project; and the
This was, in fact, the significance of the Court's statement in Castro, that properties mortgaged under the original mortgage contract covering the
respondents condominium titles should now be discharged, as the property of the
[I]n respect of the lease on the foreclosed property, the buyer at the foreclosure sale respondent spouses had already been foreclosed.13
merely succeeds to the rights and obligations of the pledgor-mortgagor subject,
however, to the fcrovisions of Article 1676 of the Civil Code on its possible PNBs Answer
termination.30 (Citation omitted, emphasis and underscoring ours)
In its Answer with Counterclaim, PNB denied the respondents allegations and raised
Given, however, the lack of substantiation, the petitioner's insistence on the expiry the following defenses: 1) the mortgage contract was supported by valuable
of the lease between CCC and the respondents, at this point, must fail. consideration asthe loan proceeds under the credit agreements were fully released
to them; 2) there was no novation of the contract; 3) demand letters were given to
WHEREFORE, the petition is DENIED for lack of merit. and duly received by the respondents; and 4) the sufficiency of the mortgage over
the condominium titles cannot be determined because the court has no jurisdiction
SO ORDERED. over such issue.14
G.R. No. 195889 September 24, 2014 On December 8, 2003, the RTC rendered its judgment in favor of the respondents
and disposed as follows:
PHILIPPINE NATIONAL BANK, Petitioner,
vs. WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against the
SPOUSES EDUARDO AND MA. ROSARIO TAJONERA and EDUAROSA REALTY defendant:
DEVELOPMENT, INC., Respondents.
1. NULLIFYING and CANCELLING the Supplement to Real Estate Mortgage dated
DECISION January 28, 1992 and the Certificate of Sale dated October 9, 1997.
MENDOZA, J.: 2. NULLIFYING and CANCELLING the Transfer Certificate of Title No. 9424-R,
Registry of Deeds for San Juan, Metro Manila, and REINSTATING Transfer Certificate
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil of Title No. 29733, Registry of Deeds for San Juan, Metro Manila.
Procedure seeking to reverse and set aside the November 30, 2010 Decision1 of the
Court of Appeals (CA), and its March 2, 2011 Resolution,2 in CA-G.R. CV No. 85458, 3. ORDERING the defendant to pay the plaintiffs the amount of P500,000.00 as
entitled "Spouses Eduardo & Ma. Rosario Tajonera and Eduarosa Realty & moral damages.
Development, Inc. v. Philippine National Bank," which affirmed with modification the
December 8, 2003 Decision3 of the Regional Trial Court, Branch 71, Pasig City (RTC), 4. ORDERING the defendant to pay the plaintiffs the amount of P200,000.00 as
in a case for annulment of sale, cancellation of title, cancellation of mortgage and exemplary damages.
damages.
5. ORDERING the defendant to pay the plaintiffs the amount of P100,000.00 as and
The Facts by way of attorneys fees.
Respondent Eduarosa Realty Development, Inc. (ERDI) was engaged in realty 6. Costs of suit.
construction and sale of condominium buildings. Respondent Ma. Rosario Tajonera
PNBs assignment of errors boils down to the sole issue of whether the CA erred in xxx
annulling the mortgage contract constituted over the Greenhills property of the
respondents. 2.05 The full payment of the Loans and any and all sums payable by the Borrower
hereunder and under the Notes and the other documents contemplated hereby and
PNB contends that the Supplement to REM was supported by sufficient and the faithful compliance by the Borrower with the terms and conditions hereof and
valuable consideration because the loan proceeds secured by it under the Third thereof and the Notes shall be secured by the following collaterals:
Amendment had been substantially released to the respondents. It avers that had it
not been for the additional collateral over the Greenhills property, PNB would not xxx
have made the respondents loan account current under the First Amendment. This
consideration, according to it, must be deemed valuable and sufficient enough to b) Existing real estate mortgageon a parcel of land with an area of 958 sq. m., more
uphold the validity of the Supplement to the REM. or less, together with the improvements thereon, situated in San Juan, Metro
Manila, covered by TCT No. 29733 of the land records for Metro Manila (D-11) and
PNB insists that there was no breach, substantial or otherwise, of its contractual registered in the name of Rosario M. Mendoza married to Eduardo Tajonera (the
obligation when it did not release the remaining balance of the approved loan to "Accommodation Mortgagors"), as evidenced by that Supplement to Real Estate
the respondents considering that the latter had no history of any payment either on Mortgage dated January 28, 1992 and acknowledged before Notary Public for the
interest or principal of the loan. PNB, thus, asserts that the CA erred when it City ofManila, Rowena Fe N. Suarez as Doc. No. 300, Page No. 61, Book No. II Series
affirmed the RTC in ordering the annulment and cancellation of the supplement of 1992;22
REM covering the Greenhills property.
xxx
PNBs arguments fail to persuade.
The obligation of PNB was to furnish the P55,000,000.00 additional loan accrued on
Record shows that ERDI obtained loans from, and entered into, several credit November 3, 1993, the date the parties entered into the Third Amendment. Thus,
agreements with PNB to finance the completion of the construction of its 20-storey PNBs delay in furnishing the entire additional loan started from the said date.
Indeed, the execution of the subject Supplement to Real Estate Mortgage dated As expressly provided in the terms ofthe second additional loan embodied in the
January 28, 1992 lacks sufficient valuable consideration since PNB did not release Third Amendment, to wit:
the balance of the Php160,000,000.00 approved loan in the amount of
Php39,503,038.54, pursuant to the Third Amendment to Credit Agreement of the SECTION 1. TERMS OF THE SECOND ADDITIONAL LOAN
parties. As the records would show, the subject Supplement to Real Estate
Mortgage, supra, was constituted by Appellees as additional security for the xxx
execution of the 1st, 2nd as well as the 3rd Amendment to Credit Agreements.
1.05 Repayment Dates. The Borrower agrees to repay the Second Additional Loan in
To elucidate, the Greenhills property was first mortgaged by Appellees in favor of full in eleven (11) equal (or as nearly equal as possible) consecutive quarterly
PNB as collateral security to the additional loan of Php40,000,000.00, evidenced by installments ("Repayment Dates"), the first installment to commence on June 30,
the provisions of the 1st Amendment to Credit Agreement, reading as follows: 1994 and every quarter thereafter up to December 31, 1996.
We agree with the court a quowhen it correctly ruled that the subject supplement 2.01 The Interest Payment Dates and Repayment Dates of the Loan, the Additional
mortgage over Appellees Greenhills property was likewise constituted in Loan and the Second Additional Loan (Collectively the "Loans") shall be the same.
consideration of the Third Amendment to Credit Agreement, supra, as evidenced by Accordingly, the Credit Documents are hereby amended to change the Interest
2.05 (b), Section 2 thereof which provides, to wit: xxx Payment Dates and Repayment Dates in the following manner:
In view of the foregoing,We hold that the court a quoaptly ruled that the refusal of xxx
PNB to release portion of the additional loan granted under the Third Amendment
to Credit Transaction is not justified. In this jurisdiction, breach of contract is defined First principal payment on the Loans shall commence on June 30, 1994 and every
as follows: quarter thereafter until maturity of all the loans on December 31, 1996.26
[Underscoring Supplied] Equally without merit is PNBs reliance on the case of Sps.
xxx Omengan v. Philippine National Bank.27 The said case finds no application
inasmuch as the circumstances in that case are not in all fours with the present case.
[It] is the "failure without legal reason to comply with the terms of a contract." Itis In Omengancase, there was no actual meeting of the minds with respect to the
also defined as the "[f]ailure, without legal excuse, to perform any promise which conditionally approved additional loan as the condition attached to the increase in
forms the whole or part of the contract." borrowers credit line was not acknowledged and accepted by them. Hence, there
being no perfectedcontract over the increase in credit line, it was held that no
xxx breach of contract could be attributed to PNB in not releasing the additional loan. In
the present case, there was a perfected contract in so far as the Third Amendment
Undoubtedly, PNB breached its contractual obligation when it failed to release to was concerned. Thus, PNBs action in not releasing the entire amount of the
Appellees the remaining balance of the approved loan amounting to additional loan was not justified.
Php39,503,088.84.23
Still in the said case, atthe time the original loan was approved, the title to the
The RTC found that PNB was guilty of breach of contract as the credit agreements property offered as collateral appeared topertain exclusively to Spouses Omengan.
had been violated. For its failure to release the balance of the approved loan, the By the time the application for increase was considered, PNB had acquired
construction of the Eduarosa Towers Condominium project was not finished, information that the said property, although in the name of spouses petitioners was
transgressing the very purpose of the credit agreements, that is, to finance the owned in co-ownership. The Court justified PNBs act of withholding the release of
completion of the construction of Eduarosa Towers. This factual findingwas affirmed the additional loan because it already had reason to suspect the spouses claim of
by the CA. Thus, the Court is bound to uphold such finding. "The settled rule is that exclusive ownership over the mortgaged collateral. Inthis case, the respondents
conclusions and findings of fact of the trial court are entitled to great weight on were unquestionably the exclusive owners ofthe mortgaged property (Greenhills
appeal and should not be disturbed unless for strong and cogent reasons because property) at the time the initial and the additional loans were approved.
the trial court is in a better position to examine real evidence, as well as observe the
demeanor of the witnesses while testifying in the case. The fact that the CA adopted For said reasons, the Court holds that PNB was indeed guilty of breach of contract
the findings of fact of the trial court makes the same binding upon this Court."24 of its reciprocal obligation under the credit agreements.
At any rate, the Court finds no merit in PNBs claim that its refusal to release the Considering that there was no sufficient valuable consideration in the execution of
balance of the approved additional loan was justified on the ground of the the Supplement to REM on the Third Amendment as the balance of the last
respondentsfailure to settle their amortization. PNBs own witness, Mr. Mallari, approved additional loan in the amount of P39,503,088.54 remained unreleased, the
testified, thus: cancellation of the Supplement to REM constituted over the respondents Greenhills
property was in order.
Cross Examination
It is true that loans are often secured by a mortgage constituted on real or personal
xxx property to protect the creditor's interest in case of the default of the debtor. By its
nature, however, a mortgage remains an accessory contract dependent on the
ATTY. LLAUDER: principal obligation, such that enforcement of the mortgage contract depends on
whether or not there has been a violation of the principal obligation. While a
Q. Now, what happened to the balance of the loan that was yet to be released to creditor and a debtor could regulate the order in which they should comply with
plaintiff corporation? their reciprocal obligations, it is presupposed that in a loan the lender should
perform its obligation the release of the full loan amount.28
A: The bank did not allow further availments because of the failure of the borrower
to pay the maturing obligation. In this case, to repeat, PNB did not fulfill its principal obligation under the Third
Amendment by failing torelease the amount of the last additional loan in full.
xxx Consequently, the Supplement to REM covering the Greenhills property became
unenforceable, as the said property could not be entirely foreclosed to satisfy the
Redirect Examination respondents total debts to PNB. Moreover, the Supplement to REM was no longer
necessary because PNBs interest was amply protected as the loans had been
xxx sufficiently secured by the Paranaque properties. As aptly found by the RTC, the
Paranaque properties together with the 20-storey condominium building to be
ATTY. BALDONO: erected thereon would have been sufficient security in the execution of the REM
even without the Greenhills property as additional collateral. Thus, under the
xxx circumstances, PNBs actuation in foreclosing the Greenhills property was legally
unfounded.
Q: What was the reason, Mr. Witness, why the PNB withheld the release of the
additional loan? Being a banking institution, PNB owes it to the respondents to observe the high
standards of integrity and performance in all its transactions because its business is
A: Because the borrower failed to settle the quarterly amortization June 30, 1994. imbued with public interest. The high standards are also necessary to ensure public
Even the June 30, the amortization were never settled by the borrower. confidence in the banking system, for, according to Philippine National Bank v.
Pike,29 "[t]he stability of banks largely depends on the confidence of the people in
COURT: the honesty and efficiency of banks."30 Thus, PNB was duty bound tocomply with
the terms and stipulations under its credit agreements with the respondents,
What year? specifically the release of the amount ofthe additional loan in its entirety, lest it
erodes public confidence.1wphi1 Yet, PNB failed in this regard.
A: June 30, 1994, your Honor.25
On June 1, 2009, the RTC issued an order15 holding in abeyance the In the present case, the Deed of Conditional Sale between the respondent (buyer)
implementation of the petitioners writ of possession until after the resolution of the and the subject propertys registered owner (seller) expressly reserved to the latter
respondents motion. The following day, the RTC denied the respondents motion ownership over the property until full payment of the purchase price, despite the
for intervention.16 The respondent promptly filed a motion for reconsideration.17 delivery of the subject property to the respondent. It is provided in paragraph 6 of
the parties contract that only upon full payment of the total sale value of P2.2
The RTCs Orders million that the seller shall execute a deed of absolute sale in favor of the
respondent.31
On July 14, 2009, the RTC issued the 1st assailed order18 granting the respondents
motion for reconsideration. It recalled and rendered ineffective the writ of It likewise appears from the records that no deed of absolute sale over the subject
possession issued to the petitioner, stating that "an ex-parte writ of possession property has been executed in the respondent's favor. Thus, the respondent's
issued pursuant to Act No. 335 (sic), as amended, cannot be enforced against a third possession from the time the subject property was "delivered" to her by the seller
person who is in actual possession of the foreclosed property and who is not in cannot be claimed as possession in the concept of an owner, as the ownership and
privity with the debtor/mortgagor."19 Considering that the respondent was not a title to the subject property still then remained with the seller until the title to the
party to the extrajudicial foreclosure, the RTC held that she cannot be ousted of her property was transferred to the petitioner in March 2009. In order for the
possession by a mere ex-parte motion for the issuance of a possessory writ, and respondent not to be ousted by the ex parte issuance of a writ of possession, her
that the petitioner must now resort to the appropriate judicial process in order to possession of the property must be adverse in that she must prove a right
recover the foreclosed property. independent of and even superior to that of the judgment debtor/mortgagor.
Under these circumstances, the general rule, and not the exception, applies.
DECISION The CA declared that the loan agreement as embodied in the Promissory Note and
Disclosure Statement failed to stipulate a rate of interest. Petitioner bank likewise
VILLARAMA, JR., J.: admitted that there is no written agreement to prove that the parties agreed to the
interest rate of 30.33% per annum on the loan. Thus, the CA held that petitioner
Before us is a petition for review on certiorari assailing the Decision1 dated erred in unilaterally imposing an interest rate of 30.33% on the unpaid portion of
September 11, 2009 and Resolution2 dated May 1 7, 2010 of the Court of Appeals the loan. The CA held that said rate was excessive, iniquitous, unconscionable and
(CA) in CA-G.R. CV No. 89420. The CA had reversed and set aside the Decision3 blatantly contrary to law and morals. Further, the CA ruled that the imposition of
dated March 16, 2007 of the Regional Trial Court (RTC), Branch 147 ofMakati City, in such unlawful interest rate will nullify the foreclosure sale arising therefrom.
Civil Case No. 00-1094. However, this was without prejudice to the lenders right to recover the principal of
the loan and the validity of the terms of the real estate mortgage. In particular, the
The facts, as culled from the records, follow: CA affirmed the subsistence of the principal amount due without the unlawful
interest rate. In its place, the CA imposed a legal interest rate of 12% per annum.
Sometime in December 1997, the private respondents obtained a loan from the Moreover, the CA annulled the previously held foreclosure sale, but upheld the right
petitioner in the amount of P3,000,000 secured by a real estate mortgage over of the mortgagee to institute another foreclosure proceedings upon default of the
parcels of land located in Cubao, Quezon City which were registered in the name of mortgagor.
herein private respondent Marylin Mafialac. Private respondent Mafialac executed a
Promissory Note4 and Disclosure Statement5 in favor of the petitioner in the total Thus, the petitioner filed the instant petition for review on certiorari raising the
amount of P3,308,447.74 which amount already included payment for three months following issues:
interest. The loan documents stipulated that the first installment shall be for
P148,640 and will be due on December 26, 1997, the second installment will be for I
the same amount and shall be due on January 26, 1998, and the third installment
will be for P3,011,167.74 and will be due on February 26, 1998. Moreover, the WHETHER OR NOT ARTICLE 195612 OF THE CIVIL CODE REQUIRES THE RATE OF
Promissory Note and Disclosure Statement imposed a monthly 5% latepayment INTEREST TO BE STIPULATED; and
charge, 25% attorneys fees, and 25% liquidated damages in case of unpaid
installments on the part of private respondent Maalac. On December 3, 1997, the II
proceeds of the loan were released to private respondent Maalac who then issued
three checks for the payment of monthly installments to the petitioner.The first WHETHER OR NOT FORECLOSURE OF MORTGAGE WAS VALID.13
check was for P144,000 and was for the first installment due on December 26, 1997.
The second check in the same amount was for the second installment due on Essentially, the sole issue for our resolution is whether the imposition of usurious
January 26, 1998. Finally, the third check in the amount ofP3,300,000 corresponded interest rates on a loan obligation secured by a real estate mortgage will result in
to the last installment due on February 26, 1998.However, among the three checks, the invalidity of the subsequent foreclosure sale of the mortgage.
only the first one was cleared for payment, and the private respondents incurred an
outstanding balance of P3,012,252.32 which they failed to settle. Private respondent Petitioner argues that the CA was under the mistaken belief that the failure to
Maalac continued her correspondence with the petitioner through its Vice stipulate a rate of interest was equivalent to the failure to provide for the payment
President toask for an update on their account.6 of interest. Thus, petitioner establishes a distinction between stipulation of interest
rate and stipulation of interest. Petitioner further contends that while the Promissory
Subsequently, the private respondents received a Second Notice of Extrajudicial Note and Disclosure Statement did not provide a specific interest rate, the parties
Sale7 for the satisfaction of an obligation, which as of October 15, 1998 amounted still agreed to the payment of interest based on the tenor of the language used
to P4,577,269.42, excluding penalties, charges, attorneys fees and costs of therein. This, petitioner stresses, militates against the ruling ofthe CA that there was
foreclosure. On June 1,1999, the assailed foreclosure sale was held where the a unilateral imposition of interest rate.
petitioner emerged as the highest bidder of the disputed properties, and a
Certificate of Sale8 was issued in favor of the petitioner. Still, private respondent Petitioner further claims that the defect in the Second Notice of Extrajudicial Sale
Maalac allegedly tried to settle the loan but was surprised when petitioner issued a cannot affect the validity of the foreclosure sale. Based on case law, petitioner
Statement of Account9 stating that as of October 29, 1999, Pinzman Realty owed argues that discrepancies between the Notice of Foreclosure Sale and the actual
the petitioner P12,525,673.44 computed as follows: indebtedness of the mortgagor will not result in the annulment of the foreclosure
sale as long as the objectives of the notice are attained. Petitioner likewise argues
STATEMENT OF ACCOUNT that the action of the private respondents which was filed after the redemption
AS OF OCTOBER 29, 1999 period, was barred by laches.
PARTICULAR PAYSYS METHOD On the other hand, private respondents claim that the imposition of interest rates
Principal Balance 3,012,525.32 and penalty charges by petitioner should be struck down as these were manifestly
Interest 2,026,062.38 excessive, unreasonable, and unconscionable. Private respondents maintain that the
Penalty Interest @ 60% 3,129,879.85 CA correctly ruled that the foreclosure sale which arose from the enforcement of
Forfeited Rebate 8,620.00 usurious interest rates and penalty charges should be nullified.
Litigation Expenses 158,595.41
Others 14,766.00 The petition lacks merit.
Sub-total 8,350,448.96
Attorney's fees 2,087,612.24 It is jurisprudential axiom that a foreclosure sale arising from a usurious mortgage
Liquidated Damages 2,087,612.24 cannot be given legal effect.14 Relevantly, in Heirs of Zoilo Espiritu v. Sps.
Total Amount Due 12,525,673.44 Landrito,15 we struck down a foreclosure sale where the amount declared as
As private respondent Maalac failed to redeem the properties, ownership of the mortgageindebtedness involved excessive, unreasonable, and unconscionable
foreclosed properties was eventually consolidated in petitioners name. Petitioner interestcharges. In no uncertain terms, we ruled that a mortgagor cannot be legally
later succeeded in acquiring certificates of title over the disputed properties. compelled to pay for a grossly inflated loan:
On September 6, 2000, private respondents filed a Complaint for the Annulment of Since the Spouses Landrito, the debtors in this case, were not given an opportunity
Extrajudicial Foreclosure of Mortgaged Properties, Auction Sale, Certificate ofSale to settle their debt, at the correctamount and without the iniquitous interest
and Damages10 against the petitioner before the RTC. The private respondents imposed, no foreclosure proceedings may be instituted. A judgment ordering a
prayed for the nullification of the foreclosure sale alleging that the amount foreclosure sale is conditioned upon a finding on the correct amount of the unpaid
demanded in the Notice of Extrajudicial Sale was exorbitant and excessive. obligation and the failure of the debtor to pay the said amount. In this case, ithas
Specifically, instead of the amount of P4,577,269.42 as demanded therein, the not yet beenshown that the Spouses Landrito had already failed to pay the correct
private respondents contended that the proper amount should only be amount of the debt and, therefore, a foreclosure sale cannotbe conducted in order
P3,825,907.16 if the balance of the loan is computed with interest at the rate of 3% to answer for the unpaid debt. The foreclosure sale conducted upon their failure to
reckoned from the date of last payment. pay P874,125 in 1990 should be nullified since the amount demanded as the
DECISION Petitioner Bank of the Philippine Islands (BPI), being the successor-in-interest of
Prudential Bank, by virtue of the merger of the two banking institutions with BPI as
PEREZ, J.: the surviving entity, filed the instant petition for review defending the ruling of the
trial court and reiterating that the published Notice of Sheriffs Sale would show that
For resolution is the petition for review on certiorari assailing the Decision1 dated the subject of the sale, the Quezon City property, was sufficiently and properly
26 November 2009 of the Court of Appeals, Special Sixth Division in CA-G.R. CV No. described and identified. Petitioner refuted the appellate courts finding that by
88870 and the Resolution2 dated 14 January 2011 of the Court of Appeals, Second indicating a lower amount of indebtedness, the notice depreciated the value of the
Division denying the motion for reconsideration, which reversed and set aside the property subject of sale. Petitioner cited Olizon v. Court of Appeals,12 wherein the
judgment3 rendered by the Regional Trial Court of Quezon City, Branch 97 (RTC) court declared that immaterial errors and mistakes cannot affect the sufficiency of
dismissing the complaint for Declaration of Nullity of Sheriffs Certificate of Sale and the notice. Petitioner reiterated Prudential Banks right to foreclose the mortgage
Damages against Prudential Bank. constituted over the Quezon City property because the loan secured by the
mortgage had not been paid when it fell due and remained so when the mortgage
The Complaint has its origins from the two loans contracted by respondent Spouses was scheduled for foreclosure.13chanRoblesvirtualLawlibrary
David M. Castro (David)4 and Consuelo B. Castro (Consuelo) from Prudential Bank in
the amounts of P100,000.00 and P55,000.00 in July and August 1987. The first In her Comment, Consuelo points out as glaringly erroneous the Notice of Sheriffs
loans maturity date was on 18 January 1988 while the second loan had a maturity Sale which named the mortgagor as Guellerma Malabanan and the mortgage
date of 23 February 1988. The P100,000.00 loan was secured by a Real Estate indebtedness as P96,870.20. Consuelo avers that the properties, the foreclosure of
Mortgage (REM) over petitioners' property located in Quezon City and covered by which Prudential Bank appears to seek in its petition, were situated in Laguna, thus,
Transfer Certificate of Title (TCT) No. 364277 while the P55,000.00 loan was secured the Sheriff of Quezon City had no jurisdiction to issue a Notice for Sale of said
by another REM over two parcels of land located in Alaminos, Laguna covered by property. Consuelo insists that even if the property was sold for more than the
TCT Nos. T-2225 and T-2226, registered in the name of Davids mother, Guellerma mortgage indebtedness, such would not render the sale valid because public policy
Malabanan. is involved in the need for strict compliance with the requirements of notice in
extrajudicial foreclosures of mortgage. It was posited that a lesser amount of
The loans remained unpaid as of 30 April 1996 and the balances ballooned to indebtedness as stated in the notice would mislead a potential bidder in public
P290,205.05 on the P100,000.00 loan and P96,870.20 on the P55,000.00 loan. auction and subject the value of the property to risk of unwarranted diminution.
Prudential Bank, through counsel, filed two separate petitions for foreclosure of the Finally, Consuelo counters that petitioners reliance on Olizon is misplaced because
mortgage. In their first petition, Prudential Bank admitted that through the alleged failure of notice in said case lay in the fact that the notice was published
inadvertence, the photocopies of the first two pages of the REM covering the in a newspaper in lieu of being posted. Consuelo argues that in this case the
properties in Laguna were mixed and attached to the photocopies of the last two property itself was misidentified in the petition for
pages of the REM covering the Quezon City property.5 Thus, in the Notice of foreclosure.14chanRoblesvirtualLawlibrary
Sheriffs Sale, the name Guellerma Malabanan rep. by her AIF David M. Castro
appeared as mortgagor while the amount of mortgaged indebtedness is P96,870.20. The submissions of the parties indicate the basic issue to be whether the errors in
The real property described therein however is the Quezon City property. the Notice of Sheriffs Sale invalidate the notice and render the sale and the
certificate of such sale void.
On 26 August 1996, the Quezon City property was sold at a public auction in favor
of Prudential Bank whose winning bid was P396,000.00. We find merit in the petition.
In their Complaint, Spouses Castro alleged that the extrajudicial foreclosure and sale At the outset, it bears emphasis that foreclosure proceedings have in their favor the
of the Quezon City property is null and void for lack of notice and publication of the presumption of regularity and the party who seeks to challenge the proceedings has
extrajudicial foreclosure sale. Spouses Castro proffered that the property foreclosed the burden of evidence to rebut the same.15 In this case, respondent failed to
is not one of the properties covered by the REM executed by Guellerma Malabanan prove that Prudential Bank has not complied with the notice requirement of the law.
which was the basis of the Notice of Sheriffs Sale which was posted and published.
Spouses Castro prayed for the declaration of the Sheriffs Certificate of Sale as null Sections 2, 3, and 4 of Act No. 3135 laid down the procedure regarding foreclosure
and void and for award of damages.6chanRoblesvirtualLawlibrary sale:chanroblesvirtuallawlibrary
In their Answer, Prudential Bank asserted that Spouses Castro were fully aware that Sec. 2. Said sale cannot be made legally outside of the province in which the
the Quezon City property was to be foreclosed considering that the obligation property sold is situated; and in case the place within said province in which the sale
secured by it remained unpaid as of the date of the foreclosure sale. Prudential is to be made is subject to stipulation, such sale shall be made in said place or in the
Bank cited a clerical and harmless inadvertence in the preparation of the petition for municipal building of the municipality in which the property or part thereof is
extrajudicial foreclosure but nonetheless, it claimed that Spouses Castro, having situated.
been notified of the scheduled foreclosure of the mortgage of the Quezon City
property, should have noticed the inadvertence and alerted the sheriff. Their failure Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
In Century Savings Bank v. Samonte18 citing Olizon v. Court of Appeals,19 the Court THIRD DIVISION
reiterated the purpose of the rule on notice, to wit:chanroblesvirtuallawlibrary
G.R. No. 174581 February 4, 2015
The object of a notice of sale is to inform the public of the nature and condition of
the property to be sold, and of the time, place and terms of the sale. Notices are ATTY. LEO N. CAUBANG, Petitioner,
given for the purpose of securing bidders and to prevent a sacrifice of the property. vs.
If these objects are attained, immaterial errors and mistakes will not affect the JESUS G. CRISOLOGO and NANETTE B. CRISOLOGO, Respondents.
sufficiency of the notice; but if mistakes or omissions occur in the notices of sale,
which are calculated to deter or mislead bidders, to depreciate the value of the DECISION
property, or to prevent it from bringing a fair price, such mistakes or omissions will
be fatal to the validity of the notice, and also to the sale made pursuant thereto.20 PERALTA, J.:
The mistakes and omissions referred to in the above-cited ruling which would For the Court's resolution is a Petition for Review under Rule 45 of the Rules of
invalidate notice pertain to those which: 1) are calculated to deter or mislead Court which petitioner Atty. Leo N. Caubang filed, questioning the Decision1 of the
bidders, 2) to depreciate the value of the property, or 3) to prevent it from bringing Court of Appeals (CA), dated May 22, 2006, and its Resolution2 dated August 16,
a fair price. 2006 in CA-G.R. CV. No. 68365. The CA affirmed the Decision3 of the Regional Trial
Court (RTC) of Davao City, Branch 12, dated August 1, 2000, with modifications, in
In this case, the Notice of Sheriffs Sale21 states:chanroblesvirtuallawlibrary Civil Case No. 27168-99.
NOTICE OF SHERIFFS SALE The facts, as gathered from the records, are as follows:
Upon extra-judicial petition for sale under Act 3135, as amended by Act 4118, filed On December 17, 1993, respondents spouses Jesus and Nannette Crisologo (the
Prudential Bank, mortgage[e]/s, against Guellerma Malabanan rep. by her AIF David Spouses Crisologo) obtained an Express Loan in the amount of P200,000.00 from
M. Castro mortgagor/s, with residence and postal address at Sta. Rosa, Alaminos, PDCP Development Bank Inc. (PDCP Bank). On January 26, 1994, the Spouses
Laguna to satisfy the mortgaged indebtedness, which as of July 1996 amounts to Crisologo acquired another loan from the same bank, this time a Term Loan of
NINETY SIX THOUSAND EIGHT HUNDRED SEVENTY PESOS & 20/100 (P96,870.20) P1,500,000.00 covered by a Loan Agreement. As security for both loans,the spouses
excluding penalties[,] charges, attorneys fees and all the legal fees and expenses for mortgaged their property covered by Transfer Certificate of Title (TCT) No. T-
the foreclosure and sale, the Ex-Officio Sheriff of Quezon City or her duly authorized 181103. Upon release of the Term Loan, they were given two (2) promissory notes,
Deputy, will sell at PUBLIC AUCTION to the highest bidder FOR CASH and in for the amount of P500,000.00 on February 9, 1994 and P1,000,000.00 on February
Philippine Currency, on the 26th day of AUGUST, 1996, at 10:00 oclock in the 21, 1994.
morning, or soon thereafter, infront of the main entrance of the Hall of Justice
(beside the Quezon City Hall) Elliptical Road, Diliman, Quezon City, the following Under the promissory notes, the Spouses Crisologo agreed to pay the principal
described real estate property, together with all the improvements existing thereon amount of the loan over a periodof three (3) years in twelve (12) equal quarterly
to wit:chanroblesvirtuallawlibrary amortizations. Although they were able to pay the Express Loan, starting August 22,
1994, however, or after payment of the first few installments on the other loans, the
TRANSFER CERTIFICATE OF TITLE spouses defaulted in the amortizations. Despite several demands made by the
NO. 364277 bank,the spouses still failed to pay.
Registry of Deeds Quezon City
On May 31, 1996, the spouses received a detailed breakdown of their outstanding
A parcel of land (Lot 5-B of the subd. Plan (LRC) Psd-339863, approved as a obligation. Finding the charges to be excessive, they wrote a letter to the bank
nonsubdn. project, being a portion of Lot 5, Blk. 1, (LRC) Psd-45612, LRC Rec. No. proposing to pay their loan in full with a request that the interest and penalty
5975), situated in the Dist. of Tandang Sora, Quezon City. Bounded on the NE., charges be waived. The manager of PDCP Bank, Davao Branch, advised them to
points 4 to 1 by Road Lot 1 (LRC) Psd-45612; on the SE., points 1 to 2 by Lot 5-C; on deposit their P1,500,000.00 obligation as manifestation of their intent to pay the
the SW., points 2-3 by Lot 5-A, both of the subdn. plan; and on the NW., points 3-4 loan. As a counter-offer, the spouses agreed to deposit the amount but on the
by Lot 371- New Psd- 36060. x x x x containing an area of ONE HUDNRED (100) condition that the bank should first return to them the title over the mortgaged
SQUARE METERS, more or less. property. The bank did not reply until July 7, 1997, where they senta letter denying
Prospective bidders or buyers are hereby enjoined to investigate for themselves the the spouses counteroffer and demanding payment of the loan already amounting
title of the said real estate property and the encumbrances thereon, if any there be. to P2,822,469.90. By October 20, 1997, the debt had ballooned to P3,041,287.00. For
failure to settle the account, the Davao branch of the bank recommended the
With jurisprudence as the measure, the errors pointed out by respondents appear to foreclosure of the mortgage to its head office. On March 20, 1998, PDCP Bank filed
be harmless. The evils that can result from an erroneous notice did not arise. There a Petition for the Extrajudicial Foreclosure of the Mortgage.
was no intention to mislead, as the errors in fact did not mislead the bidders as
shown by the fact that the winning registered bid of P396,000.00 is over and above On June 8, 1998, petitioner Leo Caubang, as Notary Public, prepared the Notices of
the real amount of indebtedness of P209,205.05. As correctly observed by the trial Sale, announcing the foreclosure of the real estate mortgage and the sale of the
court, the amount mentioned in the notice did not indicate a collusion between the mortgaged property at public auction on July 15, 1998. He caused the posting of
sheriff who conducted the sale and the respondent bank. Notably, the mentioned said notices in three (3) public places: the Barangay Hall of Matina, City Hall of
amount of P96,870.20 refers to the mortgage indebtedness not the value of the Davao,and Bangkerohan Public Market. Publication was, likewise, made in the
property. Equally notable is the announcement in the notice that the amount Oriental Daily Examiner, one of the local newspapers in Davao City.
excludes penalties, charges, attorneys fees and all legal fees and expenses for the
foreclosure and sale. On July 15, 1998, Caubang conducted the auction sale of the mortgaged property,
with the bank as the only bidder.1wphi1 The bank bidded for P1,331,460.00,
As regards the designation of Guellerma Malabanan as the mortgagor, we agree leaving a deficiencyof P2,207,349.97. Thereafter, a Certificate of Sale in favor of the
with the reference made by the Court of Appeals to the case of Langkaan Realty bank was issued.
Devt Inc. v. UCPB which ruled that the erroneous designation of an entity as the
mortgagor does not invalidate the notice of sale.22chanRoblesvirtualLawlibrary Later, the Spouses Crisologo were surprised to learn that their mortgaged property
had already been soldto the bank. Thus, they filed a Complaint for Nullity of
The notice rule was complied with when the Notice of Sheriffs Sale was published in Extrajudicial Foreclosure and Auction Sale and Damages against PDCP Bank and
Philippine Recorder, a national newspaper of general circulation once a week for Caubang.
three consecutive weeks or on 29 July, 5 and 12 August 1996. As a matter of fact,
the foreclosure procedure undertaken by Prudential Bank was supported by the On August 1, 2000, the Davao RTC rendered a Decision nullifying the extrajudicial
following documents: Affidavit of Publication,23 Notice of Sheriffs Sale,24 Sheriffs foreclosure of the real estate mortgage for failure to comply with the publication
Certificate of Sale,25 Affidavit of Posting,26 and Minutes of the Auction Sale.27 requirement, the dispositive portion of which reads:
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. 113255
on TCT No. T-181103, the entry relative to the Certificate of Sale executed by Atty. FIRST DIVISION
Leo Caubang on August 5, 1998, and if a new title has been issued to defendant
PDCP, to cancel the same, and to reinstate TCT No. T-181103 in the name of G.R. No. 212689 August 6, 2014
Nannette B. Crisologo, of legal age, Filipino, married to Jesus Crisologo, and a
resident of Davao City, Philippines. ECE REALTY and DEVELOPMENT, INC., Petitioner,
vs.
All the other claims of the parties are disallowed. HAYDYN HERNANDEZ, Respondent.
The Spouses Crisologo appealed before the CA, seeking a partial modification of the This is a Petition for Review on Certiorari1 from the Decision2 dated November 4,
RTC Decision, insofar as their claims for moral and exemplary damages, attorneys 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 120738, which affirmed with
fees, and costs of suit were concerned. On May 22, 2006, the appellate court modification the Decision3 dated January 10, 2011 of the Office of the President
modified the decretal portion to read: WHEREFORE, judgment is hereby rendered: (OP) in O.P. Case Number 09-D-152, entitled, "The Housing and Land Use
Regulatory Board and Haydyn Hernandez v. ECE Realty and Development
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs property, covered by TCT Corporation." The fallo of the appellate court's decision reads:
# T-181103, null and void.
We AFFIRM the assailed Decision of the Office of the President in O.P. Case Number
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. T- 09-D-152, with MODIFICATION: We DIRECT petitioner ECE REALTY AND
181103, the entry relative to the Certificate of Sale executed by Atty. Leo Caubang DEVELOPMENT INC., to pay respondent Haydyn Hernandez, the amount of
on August 5, 1998, and if a new title has been issued to defendant PDCP, to cancel [P]452,551.65 (representing the total amount respondent Hernandez paid petitioner
the same, and to reinstate TCT No. T-181103 in the name of Nannette B. Crisologo, ECE), plus 6% interest per annum starting 07 September 2006, and 12% interest per
of legal age, Filipino, married to Jesus Crisologo, and a resident of Davao City, annum from the time the judgment becomes final and executor[y], until fully paid.
Philippines; and
IT IS SO ORDERED.4
3. Atty. Caubang is ordered to pay appellants the sum of P41,500.00 as attorneys
fees and P30,248.50 as litigation expenses. On September 7, 2006, Haydyn Hernandez (respondent) filed a Complaint for
specific performance, with damages, against Emir Realty and Development
All other claims of the parties are disallowed. Corporation (EMIR) and ECE Realty and Development Incorporated (ECE) before the
Housing and Land Use Regulatory Board Expanded National Capital Region Field
SO ORDERED.5 Office (HLURB-Regional Office). The respondent alleged that ECE and EMIR,
engaged in condominium development and marketing,respectively, sold tohim a
Caubang filed a Motion for Reconsideration, but the same was denied. Hence, he 30-square meter condominium unit in the "Harrison Mansion" described as Unit
filed the present petition. 808, Building B, Phase 1 (Unit 808). On July 22, 1997 the respondent paid the
reservation fee of P35,000.00, and on August 2, 1997 he paid P104,063.65 to
Caubang mainly assails the CAs ruling on the publication of the notices in the complete the downpayment.5 In the parties Contract to Sell6 dated November 5,
Oriental Daily Examiner. He firmly contends that the CAs finding was based on 1997, EMIR and ECE promised that Unit 808 would be ready for occupancy by
assumptions and speculations. December 31, 1999.
The petition lacks merit. EMIR and ECE failed to deliver Unit 808 to the respondent on December 31, 1999,
by which date he had already paid a total of P452,551.65. Moreover, the
Under Section 3 of Act No. 3135:6 respondentdiscovered that Unit 808 contained only 26 sq m, not 30 sq m as
contracted, thus, he asked for a corresponding reduction in the price by
Section 3. Notice of sale; posting; when publication required. Notice shall be given P120,000.00, based on the price per sq m of P30,000.00. Instead, EMIR and ECE
by posting notices ofthe sale for not less than twenty days in at least three public demanded that he settle all his amortizations in arrears with interest. Sometime in
places ofthe municipality or city where the property is situated, and if such property 2005, the respondent learned that EMIR and ECE had sold Unit 808 to a third party.7
is worth more than four hundred pesos, such notices shall also be published once a
week for at least three consecutive weeksin a newspaper of general circulation in The respondent in his complaint inthe HLURB asked that EMIR and ECE be ordered
the municipality or city.7 to accept his payment of the balance of the price of Unit 808, less P120,000.00,
without interest; and to pay him moral damages of P500,000.00, actual damages of
Caubang never made an effort toinquire as to whether the Oriental Daily P100,000.00, exemplary damages of P100,000.00, and attorneys fees of P50,000.00
Examinerwas indeed a newspaper of general circulation, as required by law. It was plus P2,000.00 per appearance fee. If Unit 808 is no longer available, the respondent
shown that the Oriental Daily Examineris not even on the list of newspapers asked that EMIR and ECE reimburse him the amountof P452,551.65 he paid, plus
accredited to publish legal notices, as recorded in the Davao RTCs Office of the legal interest.8
Clerk of Court. It also has no paying subscribers and it would only publish whenever
there are customers. Since there was no proper publication of the notice of sale, the In their Answer with Counterclaim, EMIR and ECE sought to dismiss the complaint
Spouses Crisologo, as well as the rest of the general public, were never informed for lack of cause of action, and to drop EMIR as defendant because it has no
thatthe mortgaged property was about to be foreclosed and auctioned. As a contractual relations with the respondent.9 They alleged that the respondent
result,PDCP Bank became the sole bidder. This allowed the bank to bid for a very unjustifiably refused to accept the turn-over of Unit 808, that he was duly given a
low price (P1,331,460.00) and go after the spouses for a bigger amount as Grace Period Notice10 that he was in arrears in his monthly amortizations, but the
deficiency.1wphi1 respondentlet the said period lapse without settling his past-due amortizations.
Thus, ECE was compelled to cancel his contract to sell, invoking RepublicAct No.
The principal object of a notice of sale in a foreclosure of mortgage is not so much 6552 (An Act to provide protection to buyers of Real Estate on Installment
to notify the mortgagor as to inform the public generally of the nature and Payments). EMIR and ECE also sought exemplary damages, attorneys fees, and
condition of the property to be sold, and of the time, place, and terms of the sale. litigation expenses.
Notices are given to secure bidders and prevent a sacrifice of the property.
Therefore, statutory provisions governing publication of notice of mortgage On May 12, 2008, the HLURB-Regional Office ordered EMIR and ECE to reimburse
foreclosure sales must be strictly complied with and slight deviations therefrom will the respondent the amount of P452,551.65, plus legal interest, from the filing of the
invalidate the notice and render the sale, at the very least, voidable. Certainly, the complaint, and to pay the respondent P50,000.00 as moral damages, P50,000.00 as
statutory requirements of posting and publication are mandated and imbued with attorneys fees, and P50,000.00 as exemplary damages.11
public policy considerations. Failure to advertise a mortgage foreclosure sale in
compliance with the statutory requirements constitutes a jurisdictional defect, and EMIR and ECE appealed to the HLURB Board of Commissioners, which in its
any substantial error in a notice of sale will render the notice insufficient and will Decision12 dated January 23, 2009 upheld the HLURB-Regional Office but dropped
consequently vitiate the sale.8 EMIR as defendant. ECE appealed to the OP, but the OP in its Decision13 dated
January 10, 2011 dismissed ECEs appeal. On July 5, 2011, the OP denied ECEs
Since it was Caubang who caused the improper publication of the notices which, in motion for reconsideration.
turn, compelled the Spouses Crisologo to litigate and incur expenses involving the
declaration of nullity of the auction sale for the protection of their interest on the On petition for review to the CA, ECE argued that the OP erred in affirming the
property, the CA aptly held that Caubang shall be the one liable for the spouses' rescission of the parties contract to sell and the order to refund the respondents
claim for litigation expenses and attorney's fees. payments with legal interest from filing of the complaint, along with the award of
moral and exemplary damages and attorneys fees to the respondent. ECE pointed
out that the respondent did not ask for rescission and refund on account of the
delay in the delivery of Unit 808, but only for a reduction in the price. It further
II. With regard particularly to an award of interest in the concept of actual and EN BANC
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows: G.R. No. L-27084 December 31, 1927
1. When the obligation is breached, and it consists in the payment of a sum of AMBROSIO T. ALOJADO, as administrator of the intestate estate of the deceased
money, i.e., a loan or forbearance of money, the interest due should be that which Juana Mabaquiao, plaintiff-appellant,
may have been stipulated in writing. Furthermore, the interest due shall itself earn vs.
legal interest from the time it is judicially demanded. In the absence of stipulation, M. J. LIM SIONGCO, ET AL., defendant-appellees.
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 Araneta and Zaragoza for appellant.
of the Civil Code. Soriano and Nepomuceno for appellees.
Considering the case from this point of view, the appellant argues that, as it was The demurrer to the said complaint having been overruled, the counsel for the
never intention of the parties that, after a certain period, the land could not be defendant in an answer dated May 23, 1914, denied each and every one of the
repurchased by the vendor, the contract cannot be one of sale with the right to allegations contained in the complaint and alleged that the defendant is in
repurchase, because it conflicts with the nature of this contract, essential of which is possession of the land and lot claimed in the first and second causes of action of
the right of the purchaser to consolidate his title immediately after the period of the complaint, as well as of the rest of the hacienda, that is, that he is in possession
redemption has passed. of all the hacienda of Balintagac as the true owner thereof since 1881.
Another contention of the appellant is that if the right of redemption in this case is Upon the permission of the Court, the attorney for Angelica Barretto, Beatriz
considered null after ten years, this nullity must likewise affect the sale itself. These Barretto West and her husband, J. C. West, Maria Teresa Barretto York and her
questions have been resolved by this court in the case of Yadao vs. Yadao (20 Phil., husband Archibald C. York, Carlos Alejandro Barretto, Bernardo O. Barretto, and
260). In that case the contract contained a stipulation that the vendor repurchase Ernesto E. Barretto, filed a complaint of intervention in this case, alleging among
the land any time he had the money, it being understood that he could not exercise other things that the hacienda of Balintagac in controversy was owned and
this right of redemption after ten years, and not having done so within that period, possessed by Juan Antonio Barretto, Sr.; that on his death in Zambales on
the court held that the vendor irrevocably acquired title to the land. In that case, November 21, 1881, he left seven children called Juan Antonio Barretto, domiciled
notwithstanding the fact that the right of redemption after ten years had been in Macao, Angelica Maria Barretto, a resident of Manila, Leonardo F. Barretto, a
declared null, the sale itself however, was considered valid and the title acquired resident of San Felipe, Zambales, Francisca Barretto also domiciled in Macao,
thereunder consolidated; and that is because the stipulation to repurchase is Bartolome Barretto, a resident of Kow Loon, China, and now deceased Jose A.
accidental to a sale and may be made at the will of the parties. A contract of Barretto and Leopoldo Barretto, and these seven children of the deceased Juan
absolute sale may be made without this stipulation. It seems logical that if this Antonio Barretto, Sr., were his only heirs who succeeded him in all his rights and
stipulation is made and it is declared, null, its nullity cannot affect the sale first since actions and for this reason they became owners with the right of possession of the
the latter might be entered into without said stipulation. said hacienda of Balintagac, as in fact they are at present in possession of the same
through their agents and representatives; that one of his children, Jose A. Barretto
The judgment appealed from is affirmed, with the costs against the appellant. So on his death in 1893 left three children, Beatriz Barretto, Amalia Barretto, and Jose
ordered. Conde Barretto, who succeeded in all rights of their father Jose A. Barretto and in
the possession of the said hacienda, as well as the four children of Leopoldo F.
Barretto, who died in 1894, named Maria Teresa Barretto, Carlos Alejandro Barretto,
EN BANC Ernesto E. Barretto, and Bernardo O. Barretto, coowners and copossessors of the
said hacienda; that the interveners deny that the plaintiff Alberto Barretto is the
G.R. No. L-11933 December 1, 1917 owner of any part of the said hacienda and the lot mentioned in the complaint, or
that the said plaintiff was in possession of them, or any portion of the same, and
ALBERTO BARRETTO, plaintiff-appellee, that the defendant Leonardo F. Barretto is in possession of the said hacienda
vs. Balintagac and the lot described in the complaint as the representative of the
LEONARDO F. BARRETTO, ET AL., objector-appellant. interveners and the other coheirs, of the estate of the deceased Juan Antonio
Barretto Sr., since the said Leonardo F. Barretto being one of the coheirs, is not the
Modesto Reyes and Eliseo Ymzon for appellants. only owner of the said hacienda, nor of any part of the same except that portion
Williams, Ferrier and Sycip for interveners. which belongs to him as one of the heirs of the original owner, but without any
Delgado and Delgado for appellee. right to withhold the possession of the hacienda as against the interveners, and
concluded by asking that they be declared owners as the heirs of their deceased
ascendant Juan Antonio Barretto, Sr., of their respective undivided shares in the
hacienda and lot mentioned in the complaint, adjudging to them the possession of
TORRES, J.: the same, with the costs. lawphi1.net
This case was begun in the Court of First Instance of Zambales by Alberto Barretto, The counsel for Amalia Barretto Moore and her husband, J. B. Moore, residents of
who claimed delivery to him of a piece of land which was a part of the hacienda San Francisco, California, with the permission of the court filed a complaint of
In his Answer with Counterclaim,[19]Bangis claimed to have bought the subject On their part, respondent Heirs of Adolfo averred that no reversible error was
property from Adolfo for which TCT No. T-10567[20]was issued. He also alleged to committed by the CA in upholding that no sale transpired between the parties'
have been in open and adverse possession of the property since 1972 and that the predecessors-in-interest. Moreover, petitioners' TCT No. T-10567 was not offered in
cause of action of the Heirs of Adolfo has prescribed. On November 11, 2001, evidence and worse, certified as of dubious origin per the Manifestation of the
Bangis died and was substituted in this suit by his heirs, namely, Rodolfo B. Bangis, Registrar of Deeds.[36]
Ronie B. Bangis, Rogelio B. Bangis, Raquel B. Quillo, Romulo B. Bangis, Rosalina B.
Paran, Rosario B. Reddy, Reynaldo B. Bangis and Remedios B. Lastre (Heirs of
Bangis).[21] THE COURT'S RULING
On December 29, 2005, the RTC rendered a Decision[28]in favor of the Heirs of Nonetheless, the Court perused the records and found substantial evidence
Adolfo, the dispositive portion of which reads: supporting the factual findings of the RTC, as affirmed by the CA, that the nature of
the transaction between the parties' predecessors-in-interest was a mortgage and
WHEREFORE, the preponderance of evidence being strongly in favor of the plaintiffs not a sale. Thus, the maxim that factual findings of the trial court when affirmed by
and against the defendants, decision is hereby rendered: the CA are final and conclusive on the Court[39]obtains in this case.
1. Declaring the contract between the plaintiffs and defendants as a mere mortgage
or antichresis and since the defendants have been in the possession of the property THERE WAS NEITHER AN
in 1975 up to the present time enjoying all its fruits or income, the mortgaged loan ANTICHRESIS NOR SALE
of P12,000.00 is deemed fully paid;
2. Ordering the defendants to deliver the possession of the property in question and
all the improvements thereon to the plaintiffs peacefully; For the contract of antichresis to be valid, Article 2134 of the Civil Code requires that
"the amount of the principal and of the interest shall be specified in writing;
3. Declaring TCT No. 10567 in the name of Aniceto Bangis as NULL AND VOID AB otherwise the contract of antichresis shall be void." In this case, the Heirs of Adolfo
INITIO and directing the Office of the Register of Deeds to cause its cancellation were indisputably unable to produce any document in support of their claim that
from its record to avoid confusion regarding the ownership thereof; and the contract between Adolfo and Bangis was an antichresis, hence, the CA properly
held that no such relationship existed between the parties. [40]
4. Declaring all the transfer certificates of title issued in favor of the plaintiffs
namely, Luz Adolfo-Bannister, Serafin Adolfo, Jr. and Eleuterio Adolfo, as above- On the other hand, the Heirs of Bangis presented an Extra-Judicial Settlement with
mentioned as the ones valid and issued in accordance with PD 1529. Absolute Deed of Sale dated December 30, 1971[41]to justify their claimed
ownership and possession of the subject land. However, notwithstanding that the
SO ORDERED. subject of inquiry is the very contents of the said document, only its
photocopy[42]was presented at the trial without providing sufficient justification for
the production of secondary evidence, in violation of the best evidence rule
Aggrieved, the Heirs of Bangis appealed the foregoing disquisition to the Court of embodied under Section 3 in relation to Section 5 of Rule 130 of the Rules of Court,
Appeals (CA). to wit:
In its assailed Decision, the CA affirmed the RTC finding that the contract between (1) When the original has been lost or destroyed, or cannot be produced in court,
the parties was a mortgage, not a sale. It noted that while Bangis was given without bad faith on the part of the offeror;
possession of the subject property, the certificate of title remained in the custody of
Adolfo and was never cancelled. The CA also ordered the Heirs of Adolfo to pay the (2) When the original is in the custody or under the control of the party against
Heirs of Bangis the mortgage debt of P12,500.00[29]with twelve (12%) percent whom the evidence is offered, and the latter fails to produce it after reasonable
interest reckoned from 1975 until 1998 and to deliver to them the possession of the notice;
property upon full payment.[30]It, however, deleted the RTC order directing the
Register of Deeds to cancel TCT No. T-10567 in the name of Bangis for being a (3) When the original consists of numerous accounts or other documents which
collateral attack proscribed under PD 1529.[31] cannot be examined in court without great loss of time and the fact sought to be
established from them is only the general result of the whole; and
Dissatisfied, the Heirs of Bangis filed a Motion for Reconsideration[32]arguing that (4) When the original is a public record in the custody of a public officer or is
the CA erred in disregarding their testimonial and documentary evidence, recorded in a public office.
particularly, the Extra-Judicial Settlement with Absolute Deed of Sale (Exh. 2) which
purportedly established the sale in favor of their predecessor-in-interest, Aniceto
Bangis. The said motion was, however, denied in the Resolution[33]dated December
2, 2009. SEC. 5. When original document is unavailable. - When the original document has
been lost or destroyed, or cannot be produced in court, the offeror, upon proof of
its execution or existence and the cause of its unavailability without bad faith on his
JOSE C. MACAPINLAC, plaintiff-appellant, Turning then to the complaint and assuming, for the purposes of this decision only,
vs. that all material facts stated therein, and well pleaded, are true, we find that the case
FRANCISCO GUTIERREZ REPIDE, ET AL., defendants made in the complaint is substantially this:
FRANCISCO GUTIERREZ REPIDE, defendant-appellee.
J. F. BOOMER, defendant-appellant. On and prior to August 22, 1916, the plaintiff was the owner of the Hacienda
Dolores, a property located in the municipality of Porac, Pampanga, and assessed
J. F. Boomer in his own behalf. upon the tax books at P288,000, but having an actual value of no less than P800,00,
Ramon Diokno and Jose Varela Calderon for appellant. encumbered, however, with certain debts and charges which need not be here
Eduardo Gutierrez Repide for appellee. enumerated. This property had been registered under Act No. 496, as amended, and
upon May 13, 1916, a Torrens certificate of title covering the same had been issued
STREET, J.: to the plaintiff.
This action was instituted on June 27, 1921, in the Court of First Instance of the On the date above stated, or August 22, 1916, the said plaintiff was indebted to the
Province of Pampanga by Jose C. Macapinlac, for the purpose of securing a decree Bachrach Garage & Taxicab Company, of Manila, later organized under the name of
declaratory of the rights of the plaintiff as owner of a valuable estate located in the Bacharch Motor Company, for the price of an automobile, previously purchased
municipality of Porac, Pampanga, known as the Hacienda Dolores; to nullify a upon credit, and certain automobile accessories; and as evidence of this
transfer of the Torrens certificate now appearing in the name of the Torrens indebtedness the plaintiff executed on said dated a series of fourteen promissory
certificate now appearing in the name of the defendant Francisco Gutierrez Repide, notes payable to the Bachrach Garage & Taxicab Company, and amounting in all to
with certain remedial measure incident to said to said relief; and to recover said the sum of P12,960, falling due respectively upon the second of each month
estate from the possession of said defendant, with damages; and to secure general beginning on September 2, 1916, and ending on October 2, 1917. Each of these
relief. In addition to Francisco Gutierrez Repide several other parties are named as notes was drawn in the amount of P1,000, except the last two which together
defendants in the complaint, for the alleged reason that they have been at one time amounted to P960. On September 1, 1916, eleven of these notes were discounted
or another holders of liens , now cancelled, upon said property, and it was deemed by the Bachrach Garage & Taxicab Company, through its manager E. M. Bachrach, at
proper to join them as defendants in order to give them an opportunity to show the Philippine National Bank. The other three votes, amounting to P2,277.70,
cause, if any they have, whey their respective liens should not be cancelled in the remained in the hands of the payee corporation and were subsequently paid in full
registry. Soon after the action was instituted Francisco Gutierrez Repide died; and by the plaintiff.
his executrix, Da. Maria Sanz, was admitted as defendant in his stead.
Contemporaneously with the delivery of said notes, or on August 16, 1916, and as a
To the original complaint the attorneys for the executrix in due time demurred, security or guaranty for the payment of said notes, the plaintiff executed what on its
while the defendant J. F. Boomer interposed an answer and a cross-complaint face purports to be a deed of sale, with privilege of repurchase, to be exercised on
directed mainly against Jose C. Macapinlac and his codefendant Repide. To this or before October 2, 1917. This transfer comprises all the property covered by
cross-complaint Jose C. Macapinlac answered with a general denial, while the Torrens certificate No. 427 (which includes the Hacienda Dolores), subjects to the
representation of Repide merely demurred. By this means the case, as it reaches this encumbrances noted thereon; and the conveyance to which reference is now made
court, presents itself in two branches, namely, first, that which has relation to the was itself extended on the back of said certificate. In this conveyance E. M. Bachrach
controversy between the plaintiff and Francisco Gutierrez Repide and, secondly, that is named as transferee, instead of the alleged real creditor, the Bachrach Garage &
which has relation to the controversy between the defendant Boomer and the two Taxicab Company. Upon the circumstance of the nonconformity of the promissory
principal litigants. For convenience of treatment in this opinion, we first give notes and the deed of sale as regards creditor and beneficiary, the complaint alleges
attention to the controversy between the plaintiff and the defendant Repide, a that the deed of sale is void for lack of consideration as between the plaintiff and E.
course which is the more proper for the reason that cause of action stated in M. Bachrach, the nominal beneficiary; but to this suggestion, for obvious reasons,
Boomer's cross-bill in great measure depends upon the questions arising upon the we attach little importance.
other controversy.
On November 8, 1917, Francisco Gutierrez Repide acquired, for the sum of P5,000,
By an order of October 29, 1921, entered in the lower court the demurrer interposed all the rights of E. M. Bachrach in the property which had been thus conveyed to the
to the complaint in behalf of the defendant Repide was sustained, and at the same later; and at this time Francisco Gutierrez Repide, so that complaint alleges, was well
time the complaint was dismissed with costs against the plaintiff. From this order aware that the transfer to Bachrach had been made by the plaintiff for the purpose
the plaintiff appealed. of securing a debt owing to the Bachrach Company, and he was furthermore aware
that part of said debt has been paid and that the balance really due from the
A preliminary point arises with respect to the conditions under which the appeal has plaintiff to said company was less than one-half of the sum of P12,960, expressed in
been prosecuted, which must be disposed of before we enter into a consideration the fourteen promissory notes.
of the legal questions involved in the allowance of the demurrer; and in this
connection it is suggested by the attorneys for the appellee that the appeal is After Francisco Gutierrez Repide had acquired the interest above described in the
premature. hacienda in question, he addressed himself to the problem of procuring the
certificate of title to be transferred to this own name. To accomplish this is was
The point is clearly not well taken. While it is of course undeniable that an order necessary to make it appear that the contract of sale with pacto de retro noted in
merely sustaining a demurrer is not forthwith appealable, and an appeal in such the original Torrens certificate was really and truly what it appeared to be, that is, a
case is premature (Serrano vs. Serrano, 9 Phil., 142), the same cannot be said of an contract of sale, not a mere mortgage, and that the ownership had consolidated in
order sustaining a demurrer and at the same time actually dismissing the complaint. the purchaser by reason of the failure of the seller to repurchase the property
Such an order is definitive and "final" in the sense necessary to justify the taking of before the expiration of the time allowed for redemption. When this question was
an appeal, and if an appeal had not in fact been prosecuted from the order in this raised, it was referred for decision to the judge of the Court of First Instance of
case, the plaintiff would have been completely and forever out of court. This is self- Pampanga, who was of the opinion that the conveyance to Bachrach was a straight
evident. contract of sale with pacto de retro; and inasmuch as it appeared that the ownership
had then consolidated in the purchaser, he directed the register of deeds of
On the other hand, the trial court committed manifest error when it entered the Pampanga to register the property in the name of Francisco Gutierrez Repide and to
order dismissing the complaint at the same time that it sustained the demurer, issue to him a new certificate of transfer, which was accordingly done. The order
without allowing the plaintiff an opportunity to amend his complaint, if he had here referred to was in fact entered in case No. 104 of the Court of First Instance of
elected to amend. Section 101 of the Code of Civil Procedure expressly provides Pampanga, this being the same land registration proceedings in which the title had
that the plaintiff shall have this election; and it has been repeatedly held to be been registered in the name of the plaintiff, and in which judicial proceedings had
reversible error on the part of a Court of First Instance to dismiss a cause already been terminated.
immediately upon sustaining a demurrer, without giving the plaintiff an opportunity
to amend, it he so desires. (Molina vs. La electricista, 6 Phil., 519; Ibaez de Aldecoa Though not plainly so stated in the complaint, it is to be inferred that one of the
vs. Fortis, 17 Phil., 82.) To the action thus taken by the trial court the plaintiff has decisive considerations that operated upon the mind of the judge of the Court of
duly assigned error, and said error (No. VIII, in the appellant's assignment of errors) First Instance in making the order above alluded to was the fact that the plaintiff
is without doubt well taken. himself had made an affidavit which directly sustained the contention of Repide,
and this affidavit was submitted to the court in support of Repide's contention.
As to the extent of the review which may be had at the instance of the appellant in Certain it is that the inscription of the property in the name of Francisco Gutierrez
this court, it should be noted that by the express terms of section 143 of the Code Repide was accomplished with the external approval of the plaintiff and by means
of Civil Procedure a party appealing by bill of exceptions to this court is entitled to a of his assistance or collusion.
review of all rulings, orders, and judgments made in the action to which he has duly
excepted; and this means, as applied to the present case, that the appellant is In the complaint now before us the plaintiff alleges that his apparent acquiescence
entitled to a review of the decision of the lower court not only upon the error in the transfer of title to Francisco Gutierrez Repide, under the circumstances above
committed in peremptorily dismissing the cause demurrer, without giving the set forth, was due to fraudulent practices on the part of said Repide and to the
appellant opportunity to amend, but upon any error that may have been committed undue influence exerted over the plaintiff by that person. In this respect the
The sketch above given contains, we believe, the substance of the essential . . . Whenever a deed absolute on its face is thus treated as a mortgage, the parties
allegations of the lengthy complaint in this cause, and it will at least serve as the are clothed with all the rights, are subject to all the liabilities, and are entitled to all
necessary basis for a discussion of the legal problems here requiring solution. In the remedies of ordinary mortgagors and mortgagees. The grantee may maintain an
taking up these problems we begin with the situation created by the execution of action for the foreclosure of the grantor's equity of redemption; the grantor may
the contract of sale with pacto de retro between the plaintiff, Jose C. Macapinlac, maintain an action to redeem and to compel a reconveyance upon his payment of
and E. M. Bachrach Company, assuming, as we do, that the personality of the the debt secured. If the grantee goes into possession, he is in reality a mortgagee in
second party to that contract is a matter of indifference. In this connection the first possession, and as such is liable to account for the rents and profits. (3 Pom. Eq. Jur.,
and most obvious proposition to be laid down is that inasmuch as said conveyance sec. 1196.)
is alleged to have been executed as security for a debt owing by the plaintiff to the
Bachrach Company, it follows that in equity said conveyance must be treated as a In Cuyugan vs. Santos, supra, the action to enforce the right of redemption was
mere security or substantially as a mortgage, that is, as creating a mere equitable brought was brought directly against the immediate grantee in the conveyance
charge in favor of the creditor or person named as the purchaser therein. This there held to be a mortgage, and no account had to be there taken of the situation
conclusion is fully supported by the decision in Cuyugan vs. Santos (34 Phil., 100), resulting from a transfer of the property to a stranger. In the present case the rights
where this court held that a conveyance in the form of a contract of sale with pacto of the immediate grantee (E. M. Bachrach) passed by transfer for a valuable
de retro will be treated as a ere mortgage, if really executed as security for a debt, consideration to Francisco Gutierrez Repide and this transfer had been effected
and that this fact can be shown by oral evidence apart from the instrument of before the action in this case was began. But is obvious that this circumstance
conveyance, a doctrine which has been followed in the later cases of Villa vs. cannot be any obstacle to the enforcement of any rights that the plaintiff my have
Santiago (38 Phil., 157), and Cuyugan vs. Santos (39 Phil., 970). had as against Bachrach (or the Bachrach Company) since it is alleged that at the
time Repide acquired the interest of Bachrach, he was fully aware of the nature of
In view of the lengthy discussion contained in the first decision of Cuyugan vs. the transaction between Bachrach and the plaintiff and knew that part of the debt
Santos, supra, it might seem superfluous to add to what is there said, but the secured by the conveyance of August 22, 1916, had been paid.
importance of the subject and the paucity of our own jurisprudence on this topic
apart from that case and its two successors, must serve as our justification for In this connection the cardinal rule is that a party who acquires any interest in
here collating a few additional passages relative to the same subject, taken from Mr. property with notice of an existing equity takes subject to that equity. "The full
Pomeroy's treatise on Equity Jurisprudence, recognized as the leading work on this meaning of this most just rule," says Mr. Pomeroy, "is, that the purchaser of an
subject in all jurisdiction where the common law prevails. estate or interest, legal or equitable, even for a valuable consideration, wit notice of
any existing equitable estate, interest, claim, or right, in or to the same subject-
Speaking then with referrence to the conditions under which a conveyance absolute mater, held by a third person, is liable in equity to the same extend and in the same
on its face may be treated as a mortgage, this distinguished writer says: manner as the person from whom he made the purchase; his conscience is equally
bound with that of his vendor, and he acquires only what his vendor can honestly
Any conveyance of land absolute on its face, without anything in its terms to transfer." (2 Pom. Eq. Jur., sec. 688.)
indicate that it is otherwise than an absolute conveyance, and without any
accompanying written defeasance, contract of repurchase, or other agreement, may, In other words, having acquired the interest of Bachrach in the Hacienda Dolores,
in equity, by means of extrinsic and parol evidence, be shown to be in a reality a with knowledge that the contract of August 22, 1916, has been executed as security
mortgage as between the original parties, and as against all those deriving title from for a debt, Francisco Gutierrez Repide or his estate, now that Repide is a dead
or under the grantee, who are not bona fide purchasers for value and without must be understood to stand towards the present plaintiff in exactly the same
notice. The principle which underlies this doctrine is the fruitful source of any other position that would have been occupied by Bachrach, if the transfer to Repide had
equitable rules; that it would be a virtual fraud for the grantee to insist upon the never been effected.
deed as an absolute conveyance of the title, which had been intentionally given to
him, and which he had knowingly accepted, merely as a security, and therefore in But it is insisted that the title of Repide has become indefeasible, owing to the fact
reality as a mortgage. The general doctrine is fully established, and certainly prevails that the conveyance of the land to him has been followed by the issuance of a
in a great majority of the states, that the granter and his representatives are always transfer certificate of title in his name, and the original certificate in the name of the
allowed in equity to show, by parol evidence, that a deed absolute on its face was plaintiff has been cancelled, all of which had been accomplished more than one
only intended to be a security for the payment of a debt, and thus to be a year before the present action was begun. The unsoundness of this contention can
mortgage, although the parties deliberately and knowingly executed the instrument be easily demonstrated from several different points of view.
in its existing form, and without any allegations of fraud, mistake, or accident in its
mode of execution. As in the last preceding case, the sure test and the essential In the first place, it must be borne in mind that the equitable doctrine which has
requisite are the continued existence of a debt. (3 Pom. Eq. Jur., sec. 1196.) been so fully stated above, to the effect that any conveyance intended as security
for a debt will be held in effect to be a mortgage, whether so actually expressed in
And, Speaking particularly of the contract of sale with pacto de retro, he adds: the instrument or not, operates regardless of the form of the agreement chosen by
the contracting parties as the repository of their will. Equity looks through the form
Whether any particular transaction does thus amount to a mortgage or to a sale and considers the substance; and no kind of engagement can be adopted which will
with a contract of repurchase must, to a large extent, depend upon its own special enable the parties to escape from the equitable doctrine to which reference is made.
circumstances; for the question finally turns, in all cases, upon the real intention of In other words, a conveyance of land, accompanied by registration in the name of
the parties as shown upon the face of the writings, or as disclosed by extrinsic the transferee and the issuance of a new certificate, is no more secured from the
evidence. A general criterion, however, has been established by an overwhelming operation of this equitable doctrine than the most informal conveyance that could
consensus of authorities, which furnishes a sufficient test in the great majority of be devised.
cases; and whenever the application of this test still leaves a doubt, the American
courts, from obvious motives of policy, have generally leaned in favor of the In the second place, the circumstance that the land has been judicially registered
mortgage. This criterion is the continued existence of a debt or liability between the under the Torrens system does not change or affect civil rights and liabilities with
parties, so that the conveyance is in reality intended as a security for the debt or respect thereto except as expressly provided in the Land Registration Act (see sec.
indemnity against the liability. If there is an indebtedness or liability between the 70); and as between the immediate parties to any contract affecting such lands their
parties, either a debt existing prior to the conveyance, or a debt arising from a loan rights will generally be determined by the same rules of law that are applicable to
made at the time of the conveyance, or from any other cause, and this debt is still unregistered land. A judicial decree of registration admittedly has the effect of
left subsisting, not being discharged or satisfied by the conveyance, but the granter binding the land and quieting the title thereto, to the extent and with the
is regarded as still owing and bound to pay it at some future time, so that the exceptions stated in section 38 of the Land Registration Act. But an ordinary transfer
payment stipulated for in the agreement to reconvey is in reality the payment of this of land, effected in any of the ways allowed by law, even when followed by
existing debt, then the whole transaction amount to a mortgage, whatever language registration and that issuance of a new certificate, as contemplated in sections 50 to
the parties may have used, and whatever stipulations they may have inserted in the 55, inclusive, of the Land Registration Act, has a different character.
instruments. (3 Pom. Eq. Jur., sec. 1195.)
One of the differences between an original decree of registration and the
Again says he: subsequent registration by transfer of the certificate of title, pertinent to the present
controversy, is that which may be noted in regard to the period within which relief
. . . The doctrine has been firmly established from an early day that when the may be obtained from fraud. Thus, under section 38 of Act No. 496, any person
character of a mortgage has attached at the commencement of the transaction, so deprived of land by a decree of registration procured by fraud is limited to the
that the instrument, whatever be its form, is regarded in equity as a mortgage, that period of one year after the entry of the decree within which to file a petition for
character of mortgage must and will always continue. If the instrument is in its review, and even this remedy is unavailable if any innocent purchaser for value has
Before leaving the topic of this alleged fraud committed by Repide in procuring a In what has preceded we have demonstrated the error of the trial judge in
Torrens certificate to be issued in his own name, thereby making it appear that the sustaining the demurrer interposed to the original complaint on behalf of the
absolute and indefeasible title had become vested in himself, it will be well to point Repide estate, and we have at the same time indicated the character of the relief to
out that the complaint reflect a mistaken point of view as to the consequences of which the plaintiff appears to be entitled on the showing made in the complaint. It
that act. Upon perusal of the compliant it will be noted that it proceeds upon the is hardly necessary to add that we must not be understood as defining the rights of
assumption that, if the alleged fraud should be proved, the plaintiff will be entitled the parties further than is necessary to dispose of the case as presented to us upon
to have the premises at once restored to himself, with an accounting for profits, and demurrer; and it is obvious that if the litigation proceeds further, many questions
an award of damages adequate to compensate the plaintiff for the wrong supposed will be presented which cannot and should not here be anticipated.
to have been done. But the circumstance must not be overlooked that the supposed
fraud relates only to the registration of the title in the name of Repide, and even Directing our attention now to the appeal of the defendant Boomer, we not that this
supposing that this act had never been accomplished, the Repide estate would litigant by way of cross-complaint a right to the Hacienda Dolores hostile to both
merely be in the position occupied by Repide after he had acquired the interest of Jose C. Macapinlac and Francisco Gutierrez Repide, basing his claim upon a contract
Bachrach in the property, without prejudice to the rights acquired by that purchase. (Exhibit 1) between Macapinlac and Boomer, of a date anterior to the contract of
But of course in the case supposed the plaintiff would be entitled to have the sale with pacto de retro of August 22, 1916. It is unnecessary her to enter into the
certificate of title cancelled and other issued in such form as to show the correct details of Boomers contention. Suffice it to say that, if the allegations of the cross-
state of facts with respect to the ownership and incumbrance of the property. complaint are true, as is to be assumed upon demurrer, it shows a cause of action
proper to be ventilated in this suit. The trial judge, however, sustained the demurrer
The preceding discussion conducts us to the conclusion that, so far as this case is to the cross-complaint, apparently for the reason that this Honor believed that the
concerned, the estate of Francisco Gutierrez Repide occupies substantially the transfer of certificate of title to the name of Repide constituted an insuperable
position of a mortgagee in possession. The question then arises as to what are the obstacle to the cross-action. This point has been fully discussed by us in connection
legal rights of the plaintiff as against the Repide estate, judged by the facts alleged with the controversy between the two principal litigants, and for the rest it may be
and relief sought in the complaint as at present framed, and in this connection the said that the action of the trial judge in sustaining the demurrer to Boomer's cross-
circumstances is not to be ignored that the complaint contains in usual form the complaint involves the same errors that were committed in the other branch of the
prayer for general. case.
The solution of this problem is to be found in the application of the doctrine From what has been said it follows that the action of the trial judge in sustaining the
formulated by this court in Barretto vs. Barretto (37 Phil., 234). In that case the heirs two demurrers interposes in behalf of Francisco Gutierrez Repide to the original
of a mortgagee of an estate were found in possession of mortgaged property more complaint and to Boomer's cross-complaint must be reversed and said demurrers
than thirty years after the mortgage had been executed; and it was shown that the are hereby overruled, with costs; and the cause will be returned to the lower court
mortgage had never been foreclosed. Upon this state of facts it was in effect held with directions to require the appellee to answer within the time allowed by the
that the rights of the parties, heirs respectively of the mortgagor and mortgagee, rules. So ordered.
were essentially the same as under the contract of antichresis.
By reference to the appropriate provisions of the Civil Code (arts. 1881-1884), in the
chapter dealing with antichresis, it will be at once seen that while non-payment of SECOND DIVISION
the debt does not vest the ownership of the property in the creditor, nevertheless
the debtor cannot recover the enjoyment of the property without first paying in full G.R. No. L-38185 September 24, 1986
what he owes to his creditor. At the same time, however, the creditor is under
obligation to apply the fruits derived from the estate in satisfaction, first, of the HILARIO RAMIREZ and VALENTINA BONIFACIO, petitioners,
interest on the debt, if any, and, secondly, to the payment of the principal. From this vs.
is necessarily deduced the obligation of the creditor to account to the debtor for HONORABLE COURT OF APPEALS, FRANCISCA MEDINA, MATILDE MARTIN, EMILIO
said fruits and the corresponding right of the debtor to have the same applied in MARTIN, DELFIN GUINTO, TEOFILO GUINTO, PRUDENCIO GUINTO and MARGARITA
satisfaction of the mortgage debt, as recognized in Barretto vs. Barretto, supra. GUINTO, respondents.
The respective rights and obligations of the parties to a contract of antichresis, Castro, Makalintal, Mendoza & Associates for petitioner.
under the Civil Code, appear to be similar and in many respects identical with those
recognized in the equity jurisprudence of England and American as incident to the Flores, Ocampo, Dizon & Domingo Law Office for respondents.
position of a mortgagee in possession, in reference to which the following
propositions may be taken to be established, namely, that if the mortgagee acquires
possession in any lawful manner, he is entitled to retain such possession until the
indebtedness is satisfied and the property redeemed; that the non-payment of the GUTIERREZ, JR., J.:
debt within the term agreed does not vest the ownership of the property in the
creditor; that the general duty of the mortgagee in possession towards the premises This is an appeal from the decision of the Court of Appeals which affirmed in toto
is that of the ordinary prudent owner' that the mortgagee must account for the the decision of the then Court of First instance of Rizal rendered in the petition for
rents and profits of the land, or its value for purposes of use and occupation, any review of the decree of registration issued in Land Registration Case No. N-2597,
amount thus realized going towards the discharge of the mortgage debt; that if the L.R.C. Record No. N-17939.
mortgagee remains in possession after the mortgage debt has been satisfied, he
becomes a trustee for the mortgagor as to the excess of the rents and profits over On September 15,1959, petitioners-spouses Hilario Ramirez and Valentina Bonifacio
such debt; and, lastly, that the mortgagor can only enforce his rights to the land by filed an application for registration of a parcel of riceland in Pamplona, Las Pinas
an equitable action for an account and to redeem. (3 Pom. Eq. Jur., sex. 1215-1218.) Rizal. After notice and publication nobody appeared to oppose the application. An
order of general default was issued and the court allowed the petitioners to present
From the complaint it appears that, even before acquiring the interest of Bachrach evidence in support of their claim. Thereafter, the petitioners presented parol
in the Hacienda Dolores, the defendant Francisco Gutierrez Repide had taken over evidence that they acquired the land in question by purchase from Gregorio Pascual
from the Archbishop of Manila a mortgage on the property in favor of said during the early part of the American regime but the corresponding contract of sale
Archbishop, paying therefor the sum of P35,000; and we infer from the complaint was lost and no copy or record of the same was available.
that Repide had probably discharged other liens on the property either before or
after he acquired the interest of Bachrach. If so, his executrix will be entitled to On January 30, 1960, the court ordered the issuance of the decree of registration
charge the plaintiff with the amount paid to free the property from such liens, and and consequently: Original Certificate of Title No. 2273 of the Registry of Deeds of
to retain possession until all valid claims against the estate are satisfied, in Rizal was issued in the petitioners names.
obedience to the maxim that he who seeks equity must do equity.
On March 30, 1960, the private respondents Francisca Medina, Basilio Martin,
A question has been made as to whether, in an action like this, it is necessary for the Matilde Martin, Delfin Guinto, Teofilo Guinto, Prudencio Guinto and Margarita
plaintiff to tender the amount necessary to effect the redemption of the property; Guinto, petitioners' nephews and nieces, filed a petition to review the decree of
and we note that in paragraph XII of the complaint it is alleged that the plaintiff had registration on the ground of fraud. The private respondents based their claim to
made a written offer to the defendant Repide to pay all debts and charges held by the land on the following allegations: that they are the legal heirs of the deceased
Repide against the property, which offer said defendant had refused to accept. this Agapita Bonifacio who died intestate on March 11, 1936; that Valentina Bonifacio is
paragraph of the complaint was doubtless inserted in view of section 347 of the a sister of the deceased Agapita Bonifacio, they being the children of one Gregoria
a. Francisca Medina, married to Tomas de Leon, one-third (1/3) thereof; In the case of Libundan v. Palma Gil (45 SCRA 17), this Court held:
b. Emilio Martin, married to Dolores Antonio, and Matilde Martin, married The purpose of the law in giving aggrieved parties, deprived of land or any interest
to Federico Torres, one-third (1/3) thereof-, therein, through fraud in the registration proceedings, the opportunity to review the
decree is to insure fair and honest dealing in the registration of land. But the action
c. Teofilo Guinto, married to Rocila de la Cruz, Delfin Guinto, married to to annul a judgment, upon the ground of fraud, would be unavailing unless the
Gregoria Pamaran, Prudencio Guinto, married to Ana Guinto, and Margarita Guinto, fraud be extrinsic or collateral and the facts upon which it is based have not been
married to Felix Calacala one- third (1/3) thereof; controverted or resolved in the case where the judgment sought to be annulled was
rendered. Extrinsic or collateral fraud, as distinguished from intrinsic fraud, connotes
3) Ordering the registration of the said parcel of land described in Exhibits any fraudulent scheme executed by a prevailing litigant 'outside the trial of a case
A, B and C in the names of petitioners; against the defeated party, or his agents, attorneys or witnesses, whereby said
defeated party is prevented from presenting fully and fairly his side of the case.' But
4) Setting aside its order for the issuance of the decree of registration in intrinsic fraud takes the form of 'acts of a party in a litigation during the trial, such as
favor of applicants dated January 30, 1959, and ordering the issuance of the decree the use of forged instruments or perjured testimony, which did not affect the
of registration in the names of petitioners; presentation of the case, but did prevent a fair and just determination of the case.
5) Cancelling Original Certificate of Title No. 2273 of the Register of Deeds Thus, relief is granted to a party deprived of his interest in land where the fraud
of Rizal in the names of applicants and the issuance in lieu thereof of another consists in a deliberate misrepresentation that the lots are not contested when in
original certificate of title in the names of petitioners in the proportion of their fact they are, or in applying for and obtaining adjudication and registration in the
ownership of the property as stated in paragraph 2 above; name of a co-owner of land which he knows had not been alloted to him in the
partition, or in intentionally concealing facts, and conniving with the land inspector
6) Ordering applicants to pay P3,000.00 to petitioners as and for attorney's to include in the survey plan the bed of a navigable stream, or in willfully
fees; misrepresenting that there are no other claims, or in deliberately failing to notify the
party entitled to notice, or in inducing him not to oppose an application, or in
7) Ordering applicants to pay the costs of this suit. misrepresenting about the indentity of the lot to the true owner by the applicant
causing the former to withdraw his opposition. In all these examples the overriding
The decision was affirmed by the Court of Appeals. On a motion for reconsideration consideration is that the fraudulent scheme of the prevailing litigant prevented a
filed by the petitioners, the same appellate court, but with a new member, party from having his day in court or from presenting his case, The fraud, therefore,
promulgated a resolution setting aside the original decision. On a motion for is one that affects and goes into the jurisdiction of the court.
reconsideration filed by the private respondents, this resolution was set aside and
the original decision was reinstated. The second question assigned as an error must also be resolved against the
petitioners.
The petitioners went to this Court in a petition for review on certiorari with the
following questions: Section 122 of Act No. 496 otherwise known as the Land Registration Act provides:
ONE-HAS THE COURT OF FIRST INSTANCE, ACTING AS A LAND REGISTRATION SEC. 122. Whenever public lands in the Philippine Islands belonging to the
COURT, THE JURISDICTION TO GIVE DUE COURSE TO A PETITION FOR REVIEW OF Government of the United States or to the Government of the Philippine Islands are
DECREE UNDER SEC. 38 OF ACT 496 AND TO RE-OPEN THE ORIGINAL alienated, granted, or conveyed to persons or the public or private corporations, the
PROCEEDINGS WHEN THE PETITION IS ACTUALLY ONE OF RECONVEYANCE AND same shall be brought forthwith under the operation of this Act and shall become
NOT BASED ON ACTUAL OR EXTRINSIC FRAUD? registered lands. It shall be the duty of the official issuing the instrument of
alienation, grant, or conveyance in behalf of the Government to cause such
TWO-DOES SEC. 38 OF ACT NO. 496 APPLY ON ALL FORES (SIC) TO ORIGINAL instrument before its delivery to the grantee, to be filed with the register of deeds
LAND REGISTRATION PROCEEDINGS HAD UNDER PARAGRAPH B, SECTION 48 OF for the province where the land lies and to be there registered like other deeds and
COM. ACT NO. 141 AS AMENDED BY REP. ACT NO. 1942 WHEREIN THE LAND conveyances, whereupon a certificate shall be entered as in other cases of
INVOLVED IS PUBLIC AGRICULTURAL LAND? registered land, and an owner's duplicate certificate issued to the grantee. The deed,
SO ORDERED. SEC. 5 (e) Report of mortgages. Whenever any owner hypothecates or mortgage
any motor vehicle as surety for a debt or other obligation, the creditor or person in
whose favor the mortgage is made shall, within seven days, notify the Chief of the
Motor Vehicles Office in writing to the effect, stating the registration number of the
EN BANC motor vehicle, date of mortgage, names and addresses of both parties, and such
other information as the Chief of the Motor Vehicles Office may require. This notice
G.R. No. L-9451 March 29, 1957 shall be signed jointly by the parties to the mortgage.
OLAF N. BORLOUGH, petitioner, On termination, cancellation or foreclosure of the mortgage, a similar written notice
vs. signed by both parties, shall be forwarded to the Chief of the Motor Vehicles Office
FORTUNE ENTERPRISES, INC. and THE HONORABLE COURT OF APPEALS (2nd by the owner.
DIVISION), respondents.
These notice shall be filed by the Chief of the Motor Vehicles Office in the motor
Arturo M. del Rosario and Alfredo G. Fernando for petitioner. records, and in the absence of more specific information, shall be deemed evidence
Laurel & Salonga for respondents. of the true status of ownership of the motor vehicle. (Revised Motor Vehicles Law.)
LABRADOR, J.: It is to be noted that under section 4 (b) of the Revised Motor Vehicles Law the
Chief of the Motor Vehicles Office is required to enter or record, among other
One holding a lien on a motor vehicle, in so far as he can reasonably do so, must The original provisions touching this matter are contained in section 15 of the
protect himself and others thereafter dealing in good faith by complying and Chattel Mortgage Law (Act No. 1508), as amended by Act No. 2496; but these have
requiring compliance with the provisions of the laws concerning certificates of title been transferred to section 198 of the Administrative Code, where they are now
to motor vehicles, such as statutes providing for the notation of liens or claims found. There is nothing in any of these provisions conferring upon the register of
against the motor vehicle certificate of title or manufacturer's certificate, or for the deeds any authority whatever in respect to the "qualification," as the term is used in
issuance to the mortgagee of a new certificate of ownership. Where the lien holder Spanish law, of chattel mortgage. His duties in respect to such instruments are
has satisfied himself that the existence of the lien is recited in the certificate of title, ministerial only. The efficacy of the act of recording a chattel mortgage consists in
he has done all that the law contemplates that he should do, and there is notice to the fact that it operates as constructive notice of the existence of the contract, and
the public of the existing lien, which continues valid until the record shows that it the legal effects of the contract must be discovered in the instrument itself in
has been satisfied and a new certificate issued on legal authority, even through relation with the fact of notice. Registration adds nothing to the instrument,
another certificate which does not disclose the lien is procured as the result of false considered as a source of title, and affects nobody's rights except as a specifies of
statements made in the application therefore, and the vehicle is purchased by a notice.
bona fide purchaser.
Articles 334 and 335 of the Civil Code supply no absolute criterion for discriminating
The holder of a lien who is derelict in his duty to comply and require compliance between real property and personal property for purpose of the application of the
with the statutory provisions acts at his own peril, and must suffer the consequence Chattel Mortgage Law. Those articles state rules which, considered as a general
of his own negligence; and accordingly, he is not entitled to the lien as against a doctrine, are law in this jurisdiction; but it must not be forgotten that under given
subsequent innocent purchaser filed as provided by other chattel mortgage conditions property may have character different from that imputed to it in said
statutes. The rule is otherwise, however, as against claimants not occupying the articles. It is undeniable that the parties to a contract may by agreement treat as
position of innocent purchaser, such as a judgment creditor, or one acquiring title personal property that which by nature would be real property; and it is a familiar
with actual notice of an unregistered lien, and the statutes do not protect a phenomenon to see things classed as real property for purposes of taxation which
purchaser holding under registered title if a link in the title is forgery. Moreover, on general principle might be considered personal property. Other situations are
such statute will not impair vested rights of a mortgage under a chattel mortgage constantly arising, and from time to time are presented to this court, in which the
duly recorded. (60 C.J.S., pp. 181-182.) proper classification of one thing or another as real or personal property may be
said to be doubtful.
The above authorities leave no room for doubt that purchaser O. N. Borlough's right
to the vehicle as against the previous and prior mortgage Fortune Enterprises, Inc., The point submitted to us in this case was determined on September 8, 1914, in an
which failed to record its lien in accordance with the Revised Motor Vehicles Law, administrative ruling promulgated by the Honorable James A. Ostrand, now a
should be upheld. Justice of this Court, but acting at that time in the capacity of Judge of the fourth
branch of the Court of First Instance of the Ninth Judicial District, in the City of
For the foregoing consideration, the judgment of the Court of Appeals is hereby Manila; and little of value can be here added to the observations contained in said
reversed and that of the Court of First Instance affirmed, with costs against ruling. We accordingly quote therefrom as follows:
respondent.
It is unnecessary here to determine whether or not the property described in the
document in question is real or personal; the discussion may be confined to the
point as to whether a register of deeds has authority to deny the registration of a
EN BANC
Then, after quoting section 5 of the Chattel Mortgage Law (Act No. 1508), his Honor One-third of the claim of the appellant Laura Lindley
continued: Shuman by virtue of a joint judgement obtained by her on August 10, 1933, in the
Case No. 44254 of the Court of First Instance of Manila, against the said Sonja Maria
Based principally upon the provisions of section quoted the Attorney-General of the Lilius, Aleko E. Lilius and Brita Marianne Lilius
Philippine Islands, in an opinion dated August 11, 1909, held that a register of deeds
has no authority to pass upon the capacity of the parties to a chattel mortgage 661.13
which is presented to him for record. A fortiori a register of deeds can have no
authority to pass upon the character of the property sought to be encumbered by a One-third of the claim of the St. Paul's Hospital by
chattel mortgage. Of course, if the mortgaged property is real instead of personal virtue of a joint written assignment of September 21, 1933, by the said Sonja Maria
the chattel mortgage would no doubt be held ineffective as against third parties, Lilius, Aleko E. Lilius and Brita Marianne Lilius to it
but this is a question to be determined by the courts of justice and not by the
register of deeds. 518.19
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37 Phil., 644), this and the balance of the award was ordered paid to the said Brita Marianne Lilius, and
court held that where the interest conveyed is of the nature of real, property, the
placing of the document on record in the chattel mortgage register is a futile act; (b) As against the sum of P4,109.28, separately awarded to the plaintiff Brita
but that decision is not decisive of the question now before us, which has reference Marriane Lilius, the following claims or portions thereof in the order stated:
to the function of the register of deeds in placing the document on record.
One-third of the claim of Laura Lindley Shuman by virtue of a joint judgment
In the light of what has been said it becomes unnecessary for us to pass upon the obtained by her on August 10, 1933, in Case No. 44254 of the Court of First Instance
point whether the interests conveyed in the instrument now in question are real or of Manila, against the said Brita Marianne Lilius, Sonja Maria Lilius and Aleko E. Lilius
personal; and we declare it to be the duty of the register of deeds to accept the
estimate placed upon the document by the petitioner and to register it, upon P661.13
payment of the proper fee.
One-third of the claim of St. Paul's Hospital by virtue
The demurrer is overruled; and unless within the period of five days from the date of of a joint written assignment of September 21, 1933, by the
the notification hereof, the respondent shall interpose a sufficient answer to the said Brita Marianne Lilius, Sonia Maria Lilius and Aleko
petition, the writ of mandamus will be issued, as prayed, but without costs. So E. Lilius
ordered.
518.18
and the balance of the award was ordered paid to the said Brita Marianne Lilius, and
EN BANC
(c) As against the sum of P13,181.33, awarded to the plaintiff Aleko E. Lilius,
G.R. No. 42551 September 4, 1935 the following claims or portions thereof in the order stated:
ALEKO E. LILIUS, for himself and as guardian ad litem of his minor child, Brita The other half of the claim of Dr. W.H. Waterous by virtue of the final judgement in
Marianne Lilius, and SONJA MARIA LILIUS, plaintiffs-appellees, the original case, G.R. No. 39587
vs.
MANILA RAILROAD COMPANY, defendant. P1,500.00
LAURA LINDLEY SHUMAN, MANILA WINE MERCHANTS, LTD., BANK OF THE
PHILIPPINE ISLANDS AND MANILA MOTOR CO., INC., intervenors-appellants, and The claim of Dr. M. Marfori, by virtue of the final judgment in the original case, G.R.
W.H. WATEROUS, M. MARFORI, JOHN R. MCFIE, JR., ERLANGER & GALINGER, INC., No. 39587
PHILIPPINE EDUCATION CO., INC., HAMILTON BROWN SHOE CO., ESTRELLA DEL
NORTE and EASTERN & PHILIPPINE SHIPPING AGENCIES, LTD., intervenors- 250.00
appellees.
The claim of John R. McFie, Jr., by virtue of a written assignment to him by the said
J.W. Ferrier for intervenor-appellant Shuman. Aleko E. Lilius of November 13, 1931
Franco and Reinoso for intervenor-appellant Manila Wine Merchants, Ltd.
Feria and La O for intervenor-appellant Bank of the Philippine Islands. 500.00
Gibbs and McDonough for intervenor-appellant Manila Motor Co.
Harvey and O'Brien for plaintiffs-appellees. The balance of P10, 931.33 of the judgment pertaining to the said Aleko E. Lilius was
John R. Mcfie, Jr., in his behalf and for the intervenors-appellees. allowed and distributed by the lower court proportionately among the following
claimants by virtue of their written assignment of January 27, 1932:
GODDARD, J.:
Erlanger & Galinger, Inc.
In this case Laura Lindley Shuman, the Manila Wine Merchants, Ltd., the Bank of the
Philippine Islands and the Manila Motor Co., Inc., have appealed from an order of 3,374.50
the Court of First Instance of Manila fixing the degree of preference of the claimants
and distributing the proceeds of the judgment of this court in the case of Lilius vs. Philippine Education Co., Inc.,
Manila Railroad Co. (59 Phil., 758), the amount of which judgment in the sum of
P33,525.03, including interest and costs, was deposited by the railroad company 3,394.94
with the clerk of the lower court in that case. After deducting the attorneys' fees in
the sum of P8,016.88, which is not questioned, the net amount in the hands of the Hamilton Brown Shoe Co.
clerk of the lower court pertaining to each of the plaintiffs in the original action is
follows: 1,878.98
P13,181.33 1,850.76
8,218.54 432.15
4,109.28 First assignments of error: "The lower court erred in holding that Dr. W.H. Waterous
and Dr. M. Marfori had a claim against the plaintiff, Aleko E. Lilius superior to the
There was a total of twenty-eight claimants to these funds, whose claims were claim of the appellant, Laura Lindley Shuman, against him."
presented and decided without objection in the original case in the lower court.
One of the contentions of this appellant under this assignment of error is that her
The trial court in its order from which these appeals are taken, allowed: claim, having been made the basis of the plaintiffs' action and of the award for
damages, as shown in the original decision herein, should constitute, and does
(a) As against the sum of P8,218.54, separately awarded to the plaintiff constitute a superior lien against the funds awarded said plaintiffs, to those of any
Sonja Lilius, the following claims or portions thereof in the order stated: other claimants, except the two doctors, the hospital and the other nurse, and that
as to the claims of the two doctors, the hospital and the other nurse the claim of
One-half of the claim of Dr. W.H. Waterous by virtue of a written assignment of this appellant has equal preference with their claims.
March 9, 1933, by the said Sonja Maria Lilius to him
P3,000.00 APPEAL OF THE MANILA WINE MERCHANTS, LTD., AND THE BANK OF THE
PHILIPPINE ISLANDS.
Por la primera cura hecha en el Hospital de Calauang (Exhibit N-5)
The appellants, the Manila Wine Merchants. Ltd., and the Bank of the Philippine
250.00 islands also contend that the sum separately awarded Sonja Maria Lilius is conjugal
property and therefore liable for the payment of the private debts of her husband,
Por el alquiler de la ambulancia del Hospital General (Exhibit N-4) Aleko E. Lilius, contracted during her marriage.
10.00 it is contended that the damages awarded for personal injury are not classified as
separate property of each of the spouses in article 1396 of the Civil Code and they
Por la estancia en el Hospital Saint Paul (Exhibit N-3) should therefore be resumed conjugal. In answer to this, article 1401 of the same
Code, in enumerating the property belonging to the conjugal partnership, does not
3,355.00 mention damages for personal injury.
Por los servicios prestados por la enfermera Laura Shuman (Exhibit N-6) The question raised by these appellants is one of first impression in this jurisdiction
and apparently has never been passed upon by the Supreme Court of Spain.
2,156.00
The following comment is found in Colin y Capitant, Vol. 6, pages 217 and 218:
Por los servisios prestados por la enfermera Alejandra Alcayaga (Exhibit N-9)
"No esta resuelta expresamente en la legislacion espa__ola la cuestion de si las
1,450.00 indemnizaciones debidas por accidentes del trabajo tienen la consideracion de
gananciales o son bienes particulares de los conyuges.
Porlos servicios prestados por la enfermera Carmen Villanueva (Exhibit N-11)
"Inclinan a la solucion de que estas indemnizaciones deben ser consideradas como
240.00 gananciales, el hecho de que la sociedad pierde la capacidad de trabajo con el
accidente, que a ella le pertenece, puesto que de la sociedad son los frutos de ese
Por la perdida de la camara fotografica, pluma fuente y lapiz (Exhibit N-1) trabajo; en cambio, la consideracion de que de igual manera que los bienes que
sustituyen a los que cada conyuge lleva al matrimonio como propios tienen el
43.00 caracter de propios, hace pensar que las indemnizaciones que vengan a suplir la
capacidad de trabajo aportada por cada conyuge a la sociedad, deben ser
Por trajes daados en el choque juridicamente reputadas como bienes propios del conyuge que haya sufrido el
accidente. Asi se Ilega a la misma solucion aportada por la jurisprudencia francesa.".
131.00
From the above it appears that there are two distinct theories as to whether
Total damages rising from an injury suffered by one of the spouses should be considered
conjugal or separate property of the injured spouse. The theory holding that such
10,635.00 damages should form part of the conjugal partnership property is based wholly on
the proposition, also advanced by the Manila Wine Merchants, Ltd., that by the
The trial court in that case directed the defendant Railroad Company to pay P3,000 injury the earning capacity of the injured spouse is diminished to the consequent
to Dr. Waterous and to pay to Dr. Marfori P250, but failed to direct the defendant to prejudice of the conjugal partnership.
pay the corresponding sums to the other persons and entities mentioned in the
portion of the decision copied above. Assuming the correctness of this theory, a reading of the decision of this court in G.
R. No. 39587 will show that the sum of P10,000 was awarded to Sonja Maria Lilius
It must be admitted that the amounts due Dr. Waterous and the others mentioned "by way of indemnity for patrimonial and moral damages." The pertinent part of
is the original decision, including the appellant Shuman, were all used as a basis for that decision on this point reads:
a part of the judgment which plaintiffs secured against the defendants Railroad
Company. "Taking into consideration the fact that the plaintiff Sonja Maria Lilius, wife of the
plaintiff Aleko E. Lilius is-in the language of the court, which saw her at the trial
From the foregoing it is clear that the claim of this appellant rests upon the same "young and beautiful and the big scar, which she has on her forehead caused by the
ground as those of Doctors Waterous and Marfori. She was also among those who lacerated wound received by her from the accident, disfigures her face and that the
rendered services to plaintiffs in aid of their recover from the injuries received by fracture of her left leg has caused a permanent deformity which renders it very
them in the accident for which damages were awarded them in the case against the difficult for her to walk', and taking into further consideration her social standing,
Railroad Company. The fact that the trial court did not direct the defendant Railroad neither is the sum of P10,000, adjudicated to her by the said trial court by way, of
Company to pay directly to this appellant the amount of her claim does not modify indemnity for patrimonial and moral damages, excessive.".
or do away with her equitable right to the same status as that given to the two
doctors mentioned above. The inevitable conclusion is that the claims of Waterous It should be added that the interest on that sum is part of the damages "patrimonial
and Marfori have no preference over her claim for her services as a nurse. This and moral" awarded to Sonja Maria Lilius.
assignment of error should be and is hereby sustained.
Furthermore it appears in the decision of the trial court in G. R. No. 39587 that Aleko
This appellant in her second assignment of error contends that the trial court erred E. Lilius claimed the sum of P10,000 as damages on account of the loss of the
in failing to allow her claim in the sum of P61.94 as costs in the case in which services of Sonja Maria Lilius as secretary and translator, her particular work as a
judgment was rendered in her favor against the herein plaintiffs-appellees. The member of the conjugal partnership. The trial court disallowed this claim and
record shows that the reason for the disallowance of this item was because no proof neither of the plaintiffs in that case appealed to this court.
was offered as to the amount of such costs. The only thing appearing in the
transcript on this point is the statement of counsel that the amount of costs in case In view of the foregoing it is held that the sum of P10,000 with interest thereon
No. 44254, as shown by the bill of costs, was P6l.94. Rule 38 of the Revised Rules of awarded to Sonja Maria Lilius as damages is paraphernal property.
Courts of First Instance requires that ". . . costs shall be taxed by the clerk on five
days' written notice given by the prevailing party to the adverse party, with which The third assignment of error of the appellant Shuman, the second assignment of
notice given by the prevailing party, verified by his oath or that of his attorney, shall error of the appellant Bank of the Philippine Islands and the sole assignment of
be served. . . ." The proper evidence, therefore, of the costs in that case would have error of the appellant Manila Wine Merchants, Ltd., are overruled.
been the bill of costs and the taxation of such costs by the clerk. In order to recover
such costs in a separate proceeding, such as this, evidence must be presented as to In its first assignment of error it is contended by the Bank of the Philippines Islands
the amount of the same. As there was no evidence offered in this case as to the that by virtue of its writ of garnishment served on the Manila Railroad Company of
amount of said costs, the lower court was correct in disallowing that item. This February 8, 1933, it acquired a lilen superior to the preference granted by article
assignment of error is overruled. 1924 of the Civil Code to prior judgments. This error, if at all, is however non-
prejudicial as the record shows that all the creditors declared by the court as having
Under her third assignment of error this appellant contends (1) that the funds a right to participate in the proceeds of the judgment in favor of Aleko E. Lilius were
separately awarded the wife, Sonja Maria Lilius, partake of the nature of conjugal so held by virtue of deeds of assignment executed prior to the date of the service of
property, at least to the extent of the sum of P800 awarded to her as interest on the notice of the bank's writ of garnishment on the Manila Railroad Company. These
principal award of P10,000 made in her favor by the trial court, and as such should creditors are John R. McFie, jr., whose claim is based on a deed of assignment dated
respond for the support of the family, including medical expenses and (2) that even November 13, 1931, and Erlanger & Galinger, Philippine Education Co., Inc.,
assuming that the sums awarded separately to Sonja Maria Lilius are not conjugal Hamilton Brown Shoe Co., Estrella del Norte and Eastern & Philippine Shipping
property, but her own paraphernal property, still under the provisions of the Civil Agencies, Ltd., whose claims are based on a deed of assignment dated November
Code payment may be required out of said funds, her husband being insolvent, 17, 1931. As the record shows that whatever was left of the judgment in favor of
under her liability for the medical expenses incurred by her husband, one of the Aleko E. Lilius is not sufficient to pay in full the credits of the above mentioned
obligations imposed by law upon the wife. creditors and furthermore, in view of the fact that strictly speaking, there was no
existing credit in favor of Aleko E. Lilius to be garnished on February 3, 1933, as it
The two error assigned by this appellant read as follows: The remaining portion of the dispositive part of the decision of the trial court is
modified as follows:
"I. The lower court erred in considering the date of the date judgment, Exhibit A,
Manila Motor Co., Inc., instead of the date of the public document upon which it "That from the sum of P13,181.33 pertaining to Aleko E. Lilius, which is deposited
was based in determining the preference among the several claims filed and with the clerk of the trial court, the following claims shall first be paid:
litigated in this proceeding.
Dr. W.H. Waterous
"ll. The lower court erred in not holding the claim of the claimant-appellant, Manila
Motor Co., Inc., preferred over all other claims against Aleko E. Lilius evidenced by P1,500.00
public instruments and final judgments.".
Dr. M. Marfori
The claimant has not proven that its credit is evidenced by a public document within
the meaning of article 1924 of the Civil Code. The only evidence offered by the 250.00
Manila Motor Co., Inc., in support of its claim of preference against the fund of
Aleko E. Lilius was a certified copy of its judgment against him in civil case No. Laura Lindley Shuman
41159 of the Court of First Instance of Manila, together with a certified copy of the
writ of execution and the garnishment issued by virtue of said judgment. These 661.13
documents appear in the record as Exhibits A, B and C. The alleged public document
evidencing its claim was not offered in evidence and counsel of the Manila Motor John R. McFie, Jr.
Co., Inc., merely stated at the hearing in the lower court that its judgment was based
on a public document dated May 10, 1931. There is no explanation as to why it was 500.00
not presented as evidence along with Exhibits A, B, and C. In their brief in this court,
counsel for the Motor Co., Inc., merely assume that its credit is evidenced by a and the balance of the sum pertaining to Aleko E. Lilius shall be divided among the
public document dated may 10, 1931, because the court, in its judgment in said civil following entities in proportion to their respective claims:
case No. 41159, refers to a mortgage appearing in the evidence as Exhibit A, as the
basis of its judgment, without mentioning the date of the execution of the exhibit. Amount of claim
This reference in said judgment to a mortgage is not competent or satisfactory
evidence as against third persons upon which to base a finding that the Manila Erlanger & Galinger, Inc.
Motor Company's credit evidenced by a public document within the meaning of
article 1924 of the Civil Code. This court is not authorized to make use of that P3,672.76
judgment as a basis for its findings of fact in this proceeding. This is shown by the
decision of this court in the case of Martinez vs. Diza 920 Phil., 498). In that syllabus Philippine Education Co., Inc.
of that decision it is stated:
3,695.20
"1. COURTS OF FIRST INSTANCE; JUDGMENT IN FORMER CIVIL ACTION AS BASIC
FOR FINDINGS OF FACT; ERROR.-A person who was not a party to a former civil Hamilton-Brown Shoe Co.
action, or who did not acquire his rights from one of the parties thereto after the
entry of judgment therein, is not bound by such judgment; nor can it be used 2045.00
against him as a basis for the findings of fact in a judgment rendered in a
subsequent action.". Estrella del Norte
But even if the court is authorized to accept the statement in that judgment as a 2,014.45
basis for its finding of fact in relation to this claim, still it would not establish the
claim of preference of the Manila Motor Co., Inc. Granting that a mortgage existed Eastern and Philippine Shipping Agencies, Ltd.
between the Manila Motor Co., Inc., and Aleko E. Lilius, this does not warrant the
conclusion that the instrument evidencing that mortgage is a public document 470.38
entitled to preference under article 1924 of the Civil Code. Under section 5 of Act
No. 1507 as amended by Act No. 2496, a chattel does not have to be acknowledge So ordered without special pronouncement as to costs.
before a notary public. As against creditors and subsequent encumbrances, the law
does require an affidavit of good faith appended to the mortgage and recorded
with it. (See Giberson vs. A. N. Jureidini Bros., 44 Phil., 216, and Betita vs. Ganzon, 49
Phil., 87.) A chattel mortgage may, however, be valid as between the parties without FIRST DIVISION
such an affidavit of good faith. In 11 Corpus Juris, 482, the rule is expressly stated [G.R. No. 107554. February 13, 1997]
that as between the parties and as to third persons who have no rights against the
mortgagor, no affidavit of good faith is necessary. It will thus be seen that under the CEBU INTERNATIONAL FINANCE CORPORATION, petitioner, vs. COURT OF
law, a valid mortgage may exist between the parties without its being evidenced by APPEALS, ROBERT ONG and ANG TAY, respondents.
a public document. This court would not be justified, merely from the reference by DECISION
the lower court in that case to a mortgage, in assuming that its date appears in a KAPUNAN, J.:
public document. if the Manila motor Co., Inc., desired to rely upon a public
document in the form of a mortgagor as establishing its preference in this case, it In this petition for review on certiorari under Rule 45 of the Revised Rules of Court,
should have offered that document in evidence, so that the court might satisfy itself petitioner seeks to set aside the decision of the Court of Appeals in CA-G.R. C.V. No.
as to its nature and unquestionably fix the date of its execution. There is nothing 26257 dated 2 July 1992 which affirmed the decision of the Regional Trial Court in
either in the judgment relied upon or in the evidence to show the date of said Civil Case No. CEB-6919, declaring the chattel mortgage void and ordering
mortgage. The burden was upon the claimant to prove that it actually had a public petitioner and private respondent Robert Ong to pay damages to private
Code. It is essential that the nature and the date of the document be established by respondent Ang Tay. The Court of Appeals' resolution dated 30 September 1992 is
competent evidence before the court can allow a preference as against the other similarly impugned for denying petitioner's motion for reconsideration.
parties to this proceeding. Inasmuch as the claimant failed to establish its
preference, based on a public document, the lower court properly held that its claim Gleaned from the records are the following facts:
against the said Aleko E. Lilius was based on the final judgment in civil case No.
41159 of the Court of First Instance of Manila of May 3, 1932. The court, therefore, On 4 March 1987, Jacinto Dy executed a Special Power of Attorney[1] in favor of
committed no error in holding that the claim of the Manila Motor Co., Inc., was private respondent Ang Tay, authorizing the latter to sell the cargo vessel owned by
inferior in preference to those of the appellees in this case. Dy and christened LCT "Asiatic."
This appellant's assignments of error are overulled. On 28 April 1987, through a Deed of Absolute Sale,[2] Ang Tay sold the subject
vessel to private respondent Robert Ong (Ong) for P900,000.00. Ong paid the
In view of the foregoing the following portion of the dispositive part of the decision purchase price by issuing three (3) checks in the following amounts: P150,000.00,
of the trial court is affirmed. P600,000.00 and P150,000.00. However, since the payment was not made in cash, it
was specifically stipulated in the deed of sale that the "LCT Asiatic shall not be
"Por estas consideraciones, se ordena y se decreta (a) que del saldo de P8,219.54, registered or transferred to Robert Ong until complete payment."[3] Thereafter, Ong
que pertenece a Sonja Maria LIllius y que se halla depositado en la Escribana del obtained possession of the subject vessel so he could begin deriving economic
Juzgado, se pague po el Escribano al Dr. W. H. Waterous la suma de mil quinientos benefits therefrom. He, likewise, obtained copies of the unnotarized deed of sale
pesos (P1,500), a Laura L. Shuman, seiscientos sesenta y un pesos con trece allegedly to be shown to the banks to enable him to acquire a loan to replenish his
centavos (P661.13, y al St. Paul's Hospital, quinientos diez y ocho pesos con diez y (Ong's) capital. The aforequoted condition, however, which was handwritten on the
ocho centavos (P518.18), y el remanente de cinco mil cuatrocientos setenta y siete original deed of sale does not appear on Ong's copies.
pesos con veinticuatro centavos (P5,477.24), a Sonja Maria Lililus, o su apoderado;
(b) que del saldo de P4,109.28 que pretence a Brita Marianne Lilius y que se halla Contrary to the aforementioned agreements and without the knowledge of Ang Tay,
deposito en la Escribania del Juzgado, se pague por el Escribano a Laura Shuman, la Ong had his copies of the deed of sale (on which the aforementioned prohibition
As security for the loan, Ong executed a chattel mortgage over the subject vessel,[8] THE RULING OF THE COURT OF APPEALS IS CONTRARY TO EXISTING AND WELL-
which mortgage was registered with the Philippine Coast Guard and annotated on SETTLED JURISPRUDENCE THAT A MORTGAGEE HAS THE RIGHT TO RELY ON WHAT
the Certificate of Ownership.[9] In paragraph 3 of the Deed of Chattel Mortgage, it APPEARS IN THE CERTIFICATE OF OWNERSHIP (TITLE).
was stated that:
III
3. The said sum of FOUR HUNDRED NINETY SIX THOUSAND EIGHT ONLY Pesos
(P496 008.00) represents the balance due on the purchase price of the above- THE DECISION OF THE COURT OF APPEALS IS REPUGNANT TO THE CLEAR RULING
described property purchased by the MORTGAGOR(S) from the MORTGAGEE and is OF THE HONORABLE COURT THAT BETWEEN TWO INNOCENT PERSONS, THE ONE
payable in the office of the MORTGAGEE at Cebu City or in the office of the latter's WHO MADE THE DAMAGE POSSIBLE BY HIS ACT OF CONFIDENCE MUST BEAR THE
assignee, in case the rights and interests of the MORTGAGEE in the foregoing LOSS.[16]
mortgage are assigned to a third person, under the terms of said promissory note,
as follows: (a) TWENTY THOUSAND SIX HUNDRED SIXTY SEVEN ONLY** Pesos We grant the petition.
(P20,667.00) on or before . . . and (b) the balance in Twenty Four (24) equal
successive monthly installments on the . . . day of each and every succeeding month In upholding the nullity of the chattel mortgage on the subject vessel, the Court of
thereafter until the amount is fully paid. The interest on the foregoing installments Appeals declared thus:
shall be paid on the same date that the installments become payable and additional
interest at the rate of fourteen (14%) per cent per annum will be charged on all In Par. 3 of the Chattel Mortgage Contract executed between appellants CIFC and
amounts, principal and interest, not paid on due date.[10] (Underscoring ours.) Robert Ong, it was made to appear that the subject vessel was sold by the plaintiff
Cebu International Finance Corporation to Robert Ong on installment. However,
Ong defaulted in the payment of the monthly installments. Consequently, on 11 there is no showing that appellant CIFC acquired the vessel in question from either
May 1988, petitioner sent him a letter[11] demanding delivery of the mortgaged Jacinto Dy or Ang Tay, the owner of such vessel. Since, CIFC appears to have sold
vessel for foreclosure or in the alternative to pay the balance of P437,802.00 the vessel in question to Ong on installment basis, the said contract is null and void,
pursuant to paragraph 11 of the deed of chattel mortgage.[12] because CIFC was never the owner of the vessel.
Meanwhile, the two checks (worth P600,000.00 and P150,000.00) paid by Ong to Moreover, Robert Ong, CIFC's mortgagor, did not acquire ownership of the vessel
Ang Tay for the Purchase of the subject vessel bounced. Ang Tay's search for the because of an express stipulation in the Deed of Sale that the vessel "shall not be
elusive Ong and all attempts to confer with him proved to be futile. A subsequent registered or transferred to Robert Ong until complete payment." (Exh. "7-C-1".)
investigation and inquiry with the Office of the Coast Guard revealed that the Since Ong clearly was not the owner of the vessel at the time of the execution of the
subject vessel was already in the name of Ong, in violation of the express mortgage, the said mortgage is null and void on that ground.
undertaking contained in the original deed of sale.
Furthermore, the evidence on record shows the chattel mortgage in question did
As a result thereof, on 13 January 1988, Ang Tay and Jacinto Dy filed a civil case for not comply with the requirements of P.D. 1521, The Ship Mortgage Decree of 1978 .
rescission and replevin with damages against Ong and his wife (docketed as Civil . . [17]
Case No. CEB-6565) with the Regional Trial Court of Cebu City, Branch 10. The trial
court issued a writ of replevin and the subject vessel was seized and subsequently The Court of Appeals nullified the chattel mortgage contract between petitioner and
delivered to Ang Tay. Ong because paragraph 3 of the said contract (where it appeared that petitioner
sold the subject vessel to Ong on installment basis and that the amount supposedly
On 9 March 1988, petitioner filed a motion for intervention but withdrew the same loaned to Ong represented the balance due on the purchase price) seemed to
on 29 April 1988. Instead, on 26 May 1988, petitioner filed a separate case for indicate that the owner of the vessel mortgaged was petitioner although it had
replevin and damages against Ong and "John Doe" (Ang Tay) with the same trial been duly established that another party (Jacinto Dy) was the true owner
court, docketed as Civil Case No. CEB-6919. thereof.[18]
The trial court granted petitioner's prayer for replevin. The vessel was seized and We disagree with the aforequoted ruling of the Court of Appeals. The chattel
placed in the custody of the trial court. However, Ang Tay posted a counterbond mortgage contract should not be viewed in such a myopic context. The key lies in
and the vessel was returned to his possession. the certificate of ownership issued in Ong's name (which, along with the deed of
sale, he submitted to petitioner as proof that he is the owner of the ship he gave as
On 3 October 1990 in CEB-6565, the trial court rendered a decision in favor of Ang security for his loan). It was plainly stated therein that the ship LCT "Orient Hope" ex
Tay and Jacinto Dy. The sale of the subject vessel was rescinded, the registration of "Asiatic," by means of a Deed of Absolute Sale dated 28 April 1987, was "sold and
the vessel with the Office of the Coast Guard and other government agencies in transferred by Jacinto Dy to Robert Ong."[19] There can be no dispute then that it
Ong's name nullified and the vessel's registration in Dy's name revived. Ong was, was Dy who was the seller and Ong the buyer of the subject vessel. Coupled with
likewise, ordered to pay Jacinto Dy and Ang Tay actual damages for lost income, the fact that there is no evidence of any transaction between Jacinto Dy or Ang Tay
moral damages, attorney's fees and litigation expenses.[13] and petitioner, it follows, therefore, that petitioner's role in the picture is properly
and logically that of a creditor-mortgagee and not owner-seller. It is paragraph 2 of
The Court of Appeals affirmed the trial court's decision and Ong's petition for the mortgage contract[20] which accurately expresses the true nature of the
review before this Court was dismissed for lack of merit in a resolution dated 15 transaction between petitioner and Ong -- that it is a simple loan with chattel
March 1993. mortgage. The amount petitioner loaned to Ong does not represent the balance of
any purchase price since, as we have previously discussed, the aforementioned
On the other hand, in CEB-6919, the subject of the present appeal, the trial court in documents state that Ong is already the absolute owner of the subject vessel.
a decision dated 14 February 1990, declared the chattel mortgage on the subject Obviously, therefore, paragraph 3 of the said contract was filled up by mistake.
vessel null and void and ordered petitioner and Ong to pay Ang Tay damages. The Considering that petitioner used a form contract, it is not improbable that such an
dispositive portion states, thus: oversight may have been committed -- negligently but unintentionally and without
malice. As testified to by Mr. Benjamin C. Alfaro, petitioner's Senior Vice President
WHEREFORE, in view of all the foregoing, the chattel mortgage on the vessel LCT for Operations they only use one form for several kinds of transaction:
ORIENT HOPE is declared null and void, rendering its annotation and registration at
the back of the Certificate of Ownership and Certificate of Philippine Registry ATTY. UY: (TO WITNESS)
respectively, to be of no force and effect.
Q: Mr. Alfaro, as a financing institution, Cebu International Finance Corporation, how
Plaintiff CIFC and defendant Robert Ong are hereby ordered to pay jointly and many kinds of lending transaction do you have in a firm? Do you have financing,
severally to defendant Ang Tay the following amounts: P50,000.00 as unrealized leasing, discounting or whatever? Can you explain briefly to the Honorable Court?
income during the five-day period when the vessel was taken from Ang Tay's
possession; P100,000.00, representing the premiums Ang Tay paid for the redelivery WITNESS:
of the vessel to him and other expenses; P10,000.00 as actual expenses for the
recovery of the vessel; P100,000.00 as moral damages; P50,000.00 as exemplary A: We have direct loan transaction. We have financing transaction and we have
damages; P40,000.00 as actual expenses in attending trials and litigation expenses; leasing transaction. Now, in the leasing transaction, the document will show that we
and P30,000.00 as attorney's fees. are the owner of the equipment and we leased it out. In the financing transaction,
where we used the same Chattel Mortgage instrument, there are three parties
SO ORDERED.[14] involved, the seller of the equipment. And then, the seller of the equipment would
sell or assign the contract with the financing company. That is the financing
On 2 July 1992, the Court of Appeals affirmed in toto the abovementioned transaction. And in the simple loan transaction, there appears only two parties
decision.[15] Hence, the present petition for review on certiorari. involved, the borrower and the lender.
Petitioner enumerates the alleged errors of the Court of Appeals as follows: ATTY. UY: (TO WITNESS)
WITNESS: The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on
the certificate of title of the mortgagor to the property given as security and in the
A: Simple loan and financing transactions. absence of any sign that might arouse suspicion, has no obligation to undertake
further investigation. Hence, even if the mortgagor is not the rightful owner of or
ATTY. UY: (TO WITNESS) does not have a valid title to the mortgaged property, the mortgagee or transferee
in good faith is nonetheless entitled to protection.[23] Although this rule generally
Q: Now, Mr. Alfaro, this paragraph 2 of Chattel Mortgage, can this apply to a pertains to real property, particularly registered land, it may also be applied by
financing transaction? analogy to personal property, in this case specifically, since shipowners are, likewise,
required by law to register their vessels with the Philippine Coast Guard.
WITNESS:
Private respondent Ang Tay, however, contends that the aforementioned rule does
A: No, the paragraph 3 will be the one that is applicable to a financing transaction. not apply in the case at bar in the face of the numerous "badges of bad faith" on
(Witness reading the document and after reading continued) Paragraph 2 applies to the part of petitioner.
both financing and simple loan transaction.Scslx
Capitalizing on paragraph 3 of the chattel mortgage contract, Ang Tay argues as
ATTY. UY: follows:
Q: And paragraph 3? . . . The fraud and conspiracy by Robert Ong and some responsible employees of
CIFC against Jacinto Dy and Ang Tay are thus brought to the open by this
WITNESS: stipulation. Since CIFC appears in the registered chattel mortgage to have sold the
vessel in question to Robert Ong, the said contract is null and void because CIFC
A: Paragraph 3 applies to both financing and lending transactions but paragraph 3 never for a second or a moment became the owner of the vessel. CIFC was the one
does not apply to simple lending transaction. who prepared the chattel mortgage and the one who registered the same without
contemporaneous or subsequent correction or modification; it cannot, after it
xxx [21] notified the public by means of registration that it acquired the vessel and became
its owner, now shy away from a stipulation which is the heart and nerve-center of
ATTY. LOGRONIO: (TO WITNESS) the contract and which it made and registered. This is both the essence and
consequence of estoppel. Applicable is Article 1459 of the Civil Code which provides
Q: You do not affirm the assertion made by your counsel that paragraph 3 arise only inter alia: ". . . the vendor must have a right to transfer the ownership thereof (the
in case that your rights to a mortgage were assigned by you to a third person, do thing sold) at the time it is delivered."
you agree that also?
2. Robert Ong, CIFC's mortgagor, did not acquire ownership of the vessel because
WITNESS: of an express stipulation which he signed that the vessel "shall not be registered or
transferred to Robert Ong until complete payment." (Exh. "7-C-1".) This stipulation is
A: This form of chattel mortgage, in fact, you will notice that the portion for expressly covered by Article 1478 of the Civil Code: "The parties may stipulate that
mortgagor and mortgagee are all blank because this is the same form which is used ownership in the thing shall not pass to the purchaser until he has fully paid the
by the company, used for the parties when there is a dealer involved, when there is price." Since Ong clearly was not the owner of the vessel at the time of the
installment buyer involved and when we come in as third party purchaser of the execution of the mortgage, the said mortgage is null and void on that ground.[24]
document because as practiced by the different dealer, this is the same form used Scslx
between the buyer and the dealer of the motor vehicle. After this is being
consummated already, it is assigned to a finance company and these are the same Ang Tay's contentions are unmeritorious. As previously discussed, paragraph 3 of
documents used. Now, in this particular case, this becomes already . . . this is a the chattel mortgage contract was erroneously but unintentionally filled up. The
direct transaction between the finance company and the borrower. We, the finance failure of petitioner to exercise due care in filling up the necessary provisions in the
company becomes the direct lender and Mr. Ong became the direct borrower. As I chattel mortgage contract does not, however, amount to bad faith. It was a mere
explained earlier, this document is also the form used between a dealer of a motor oversight and not a deliberate and malicious act.
vehicle and an installment buyer wherein after paying the down payment, the
unpaid balance which is secured by the chattel mortgage, the promissory note, and Petitioner's bad faith is further demonstrated, Ang Tay avers, by its failure to comply
the disclosure statement and this document is sold to a third party and that is the with the following requirements of P.D. No. 1521 or the Ship Mortgage Decree of
finance company by the dealer.Scslx 1978:
ATTY. LOGRONIO: 1) The loan secured by the mortgaged vessel was not for any of purposes specified
in Sec. 2 of P.D. No. 1521, i.e., "financing the construction, acquisition, purchase of
Q: Up to this point, when you had the transaction with Mr. Ong, this form that you vessels or initial operation of vessels"[25] and that petitioner failed to furnish the
executed, the Chattel Mortgage was in what kind of form that was already used by Central Bank a copy of the mortgage;[26]
the company?
2) The special affidavit of good faith required in Sec. 4 of P.D. No. 1521 was lacking;
WITNESS: and
A: These are forms available to us. 3) Ong failed to disclose his creditors and lienors as provided in Sec. 6 of P.D. No.
1521.
ATTY. LOGRONIO:
There is no merit in private respondent's allegations. In the 9 November 1989
Q: This is a form used when there is a buyer and a . . . hearing, Ang Tay confirmed his statement in his affidavit, executed in Civil Case No.
CEB-6565, that Ong wanted to obtain a loan to replenish his capital because he had
WITNESS: used up his money in the purchase of the subject vessel[27] and that the ship was
delivered to Ong so that he could begin deriving economic benefits therefrom.[28]
A: Third party or direct borrowing lender. Mr. Randolph Veloso, petitioner's collector, processing clerk, credit investigator and
appraiser, further testified as follows:
ATTY. LOGRONIO:
xxx
Q: And this refers to a direct borrower or lending transaction?
Q: Do you know the purpose for that loan
WITNESS:
A: Yes.
A: Yes.
Q: What was his purpose?
ATTY. LOGRONIO:
A: He was going to mortgage the vessel to us.
Q: No third party assignment has been involved so far?
Q: What was the purpose of the loan?
WITNESS:
A: We don't usually ask our client what they will do with it.
A: No.
Q: You don't ask the purpose?
xxx [22]
A: It is understood that whenever a client approach the institution he usually has a
Accordingly, the chattel mortgage contract between petitioner and Ong is valid and purpose for the money.
subsisting.
Already answered. He will use it in the business of his boat. A: Yes, finishing touches. In fact, it had pictures to support the application. I don't
know if we have it now.
ATTY. LOGRONIO:
ATTY. UY:
What was the purpose.
We have. (Counsel producing a picture of a vessel and handing it to the witness).
ATTY. UY:
WITNESS: (Cont.)
Already answered Your Honor and besides it is immaterial.
This is the picture of the vessel because we required him to submit.
ATTY. LOGRONIO:
ATTY. LOGRONIO
Very material and it is important Your Honor as there is a violation of the law. I am
entitled to insist for the answer. Q: You are referring to the picture which you asked the Court to mark as Exhibit . . .
Witness may answer, if he knows. No, we are requesting now Your Honor. This has not been marked yet. We asked
that the picture showing the back portion of the vessel, Orient Hope be marked as
(TO WITNESS) Exhibit 'I' and the picture showing the front portion of the vessel as Exhibit 'I-1"
Q: Did he tell you what was the purpose? COURT: (TO INTERPRETER)
Q: That's all, that he is going to use the money for the business of the boat? Q: So, at the time that the vessel was submitted to you as collateral for the loan, the
condition of the vessel was as it is reflected in this exhibit? (Cross-examiner referring
A: Yes. to the picture).
From the foregoing, therefore, it can be readily deduced that the loan was for the A: Yes.
initial operation of the subject vessel and thus falls under the purposes laid down in
the Ship Mortgage Decree. xxx [32]
The special affidavit of good faith, on the other hand, is required only for the Anent the last issue, although Ang Tay may also be an innocent person, a similar
purpose of transforming an already valid mortgage into a "preferred mortgage."[30] victim of Ong's fraudulent machinations, it was his act of confidence which led to
Thus, the abovementioned affidavit is not necessary for the validity of the chattel the present fiasco. Ang Tay readily agreed to execute a deed of absolute sale in
mortgage itself but only to give it a preferred status. Ong's favor even though Ong had yet to make a complete payment of the purchase
price. It is true that in the copy of the said deed submitted in evidence by Ang Tay
As to the disclosure requirement in Sec. 6 of the Ship Mortgage Decree,[31] it was there was an undertaking that ownership will not vest in Ong until full payment.[33]
intentional on Ong's part not to inform petitioner that he had yet to pay in full the However, Ong was able to obtain several copies of the deed[34] with Ang Tay's
purchase price of the subject vessel. Ong presented himself to petitioner as the signature and had these notarized without the aforementioned undertaking, as
absolute owner of the LCT "Orient Hope" ex "Asiatic." The Certificate of Ownership evidenced by the copy of the deed of sale presented by petitioner.[35] The Deed of
in Ong's name showed that the ship was conveyed to him by means of a Deed of Absolute Sale consisted of two (2) pages. The signatures of Ang Tay and Ong
Absolute Sale which gave the idea that the purchase price had been fully paid and appeared only on the first page of the deed. The second page contained the
the sale completed. continuation of the acknowledgment and the undertaking. Ong could have easily
reproduced the second page without the undertaking since this page was not
Petitioner had every right to rely on the Certificate of Ownership and Certificate of signed by the contracting parties. To complete the deception, Ang Tay unwittingly
Philippine Register duly issued by the Philippine Coast Guard in Ong's name. allowed Ong to have possession of the ship. Hence, in consonance with our ruling
Petitioner had no reason to doubt Ong's ownership over the subject vessel. The that:
documents presented by Ong, upon petitioner's insistence before accepting the
said vessel as loan security, were all in order and properly issued by the duly . . . as between two innocent persons, the mortgagee and the owner of the
constituted authorities. There was no circumstance that might have aroused mortgaged property, one of whom must suffer the consequence of a breach of
petitioner's suspicion or alerted it to any infirmity committed by Ong. It had no trust, the one who made it possible by his act of confidence must bear the loss.[36]
participation in and was not privy to the sale transaction between Jacinto Dy
(through Ang Tay) and Ong. Petitioner, thus, had no obligation to undertake further it is Ang Tay and his principal Jacinto Dy, who must, unfortunately, suffer the
investigation since it had the necessary documents to prove Ong's ownership. In consequences thereof. They are considered bound by the chattel mortgage on the
addition, petitioner even took pains to inspect the subject vessel which was in Ong's subject vessel.
possession. Mr. Benjamin C. Alfaro testified thus:
WHEREFORE, this Court GRANTS the Petition for Review and REVERSES the
xxx questioned decision and resolution of the Court of Appeals. The validity of the
chattel mortgage on the vessel LCT ORIENT HOPE is hereby upheld without
ATTY. LOGRONIO: prejudice to whatever legal remedies private respondent Ang Tay may have against
private respondent Robert Ong in the premises.
Q: In your credit investigation of Mr. Robert Ong, did you have a chance yourself or
any of your employees to verify the condition and the location of the vessel at the SO ORDERED.
very time?
WITNESS:
EN BANC
A: Yes.
G.R. No. L-13194 January 29, 1960
ATTY. LOGRONIO:
BUENAVENTURA T. SALDANA, plaintiff-appellant,
Q: Will you tell the Court where was the vessel at the time that he applied for a loan vs.
with your bank? PHILIPPINE GUARANTY COMPANY, INC., et al., defendants-appellees.
1 G.E. Deepfreezer. The courts and textbook writers have developed several rules for determination of
the sufficiency of the description in a chattel mortgage. The rules are general in
8 Tables, stateside. nature and are different where the controversy is between the parties to the
mortgage from the situation where third parties with out actual notice come in. In
32 Chromium chairs, stateside. 11 C.J. 457, it is said: "Ad against third persons the description in the mortgage must
point out its subject matter so that such person may identify the chattels observed,
1 Sala set upholstered, 6 pieces. but it is not essential that the description be so specific that the property may be
identified by it alone, if such description or means of identification which, if pursued
1 Bedroom set, 6 pieces. will disclose the property conveyed." In 5 R.C.L. 423 the rule is stated that a
description which will enable a third person, aided by inquires which the instrument
And all other furniture's, fixtures or equipment found in the said premises. itself suggest to identify the property is sufficiently definite." In 1 Jones on Chattel
Mortgages and Conditional Sales, Bowers Edition, at page 95 the writer says: "As to
Subsequent to the execution of said mortgage and while the same was still in force, them (third persons), the description is sufficient if it points to evidence whereby the
the defendant Hospital de San Juan de Dios, Inc. obtained, in Civil Case No. 1930 of precise thing mortgaged may be ascertained with certainty." Here there is nothing
the Municipal Court of Pasay City, a judgment was duly Josewfina Vda. de Eleazar. A in the description "873 head of sheep" from which anyone, the mortgagee or third
writ of execution was duly issued and, on January 28, 1957, the same was served on persons, could ascertain with any certainty what chattels were covered by the
the judgment debtor by the sheriff of Pasay City; whereupon the following mortgage.
properties of Josefina Eleazar were levied upon:
In many instances the courts have held the description good where, though
8 Tables with 4 (upholstered) chairs each. otherwise faulty, the mortgage explicity states that the property is in the possession
of the mortgagor, and especially where it is the only property of that kind owned by
1 Table with 4 (wooden) chairs. him.
1 Table (large) with 5 chairs. The specifications in the chattel mortgage contract in the instant case, we believe, in
substantial compliance with the "reasonable description rule" fixed by the chattel
1 Radio-phono (Zenith, 8 tubes). Mortgage Act. We may notice in the agreement, moreover, that the phrase in
question is found after an enumeration of other specific articles. It can thus be
2 Showcases (big, with mirrors). reasonably inferred therefrom that the "furnitures, fixture and equipment" referred
to are properties of like nature, similarly situated or similarly used in the restaurant
1 Rattan sala set with 4 chairs, 1 table and 3 sidetables . of the mortgagor located in front of the San Juan de Dos Hospital at Dewey
Boulevard, Pasay City, which articles can be definitely pointed out or ascertain by
1 Wooden drawer. simple inquiry at or about the premises. Note that the limitation found in the last
paragraph of section 7 of the Chattel Mortgage Law1 on "like or subsituated
1 Tocador (brown with mirror). properties" make reference to those "thereafter acquired by the mortgagor and
placed in the same depository as the property originally mortgaged", not to those
1 Aparador . already existing and originally included at the date of the constitution of the chattel
mortgage. A contrary view would unduly impose a more rigid condition than what
2 Beds (single type). the law prescribes, which is that the description be only such as to enable
identification after a reasonable inquiry and investigation.
1 Freezer (deep freeze).
The case of Giberson vs. A.N. Jureidini Bros., 44 Phil., 216, 219, cited by the appellees
1 Gas range (magic chef, with 4 burners). and the lower court, cannot be likened to the case at bar, for there, what were
sought to be mortgaged included two stores wit all its merchandise, effects, wares,
1 Freezer (G.E.). and other bazar goods which were being constantly disposed of and replaced with
new supplies in connection with the business, thereby making any particular or
On January 31, 1957, the plaintiff-appellant Saldana filed a third-party claim definite identification either impractical or impossible under the circumstances.
asserting that the above-described properties levied are subject to his chattel Here, the properties deemed overed were more or less fixed, or at least permanently
mortgage of May 8, 1953. In virtue thereof, the sheriff released only some of the situated or used in the premises of the mortgagor's restaurant.
property originally included in the levy of January 28, 1957, to wit:
The rule in the Jureidini case is further weakened by the court's observation that (44
1 Radio, Zenith, cabinet type. Phil., p. 220)
8 Tables, stateside. Moreover, if there should exist any doubts on the questions we have just discussed,
they should be treshed out in the insolvency proceedings,
32 Chromiun chairs, stateside.
which appears inconsistent with the definitive character of the rulings invoked.
1 G.E. Deep freezer.
We find that the ground for the appealed order (lack of cause of action) does not
To proceed with the execution sale of the rest of the properties still under levy, the appear so indubitable as to warrant a dismissal of the action without inquiry into the
defendants-appellees Hospital de San Juan de Dios, Inc. and the Philippine Guaranty merits and without the description in the deed of mortgage (Nico vs. Blanco, 81
Co., Inc., executed an indemnity bond to answer for any damages that plaintiff Phil., 213; Zobel vs. Abreau, 52 Off. Gaz., 3592).
might suffer. Accordingly, on February 13, 1957, the said properties were sold to the
defendant hospital as the highest bidder, for P1,500.00. Wherefore, the orders appealed from are set aside and the case remanded to the
lower court for further proceedings. Costs against appellee.
Appellants claims that the phrase in the chattel mortgage contract "and all other
furnitures, fixtures and equipment found in the said premises", validly and
sufficiently covered within its terms the personal properties disposed of in the
auction sale, as to warrant an action for damages by the plaintiff mortgagee. THIRD DIVISION
Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that
Articles 1484 13 and 2115 14 of the Civil Code be applied in analogy to the instant
GONZAGA-REYES, J.: case to preclude the recovery of a deficiency claim. 15
Before Us for review on certiorari is the decision of the respondent Court of Appeals Petitioners are not the first to posit the theory of the applicability of Article 2115 to
in C.A. G.R. C.V. No. 27861, promulgated on April 23, 1992, 1 affirming in toto the foreclosures of chattel mortgage. In the leading case of Ablaza vs. Ignacio 16, the
decision of the Regional Trial Court of Makati 2 to a award respondent bank's lower court dismissed the complaint for collection of deficiency judgment in view of
deficiency claim, arising from a loan secured by chattel mortgage. Article 2141 of the Civil Code, which provides that the provisions of the Civil Code
on pledge shall also apply to chattel mortgages, insofar as they are not in conflict
The antecedents of the case are as follows: with the Chattel Mortgage Law. It was the lower court's opinion that, by virtue of
Article 2141, the provisions of Article 2115 which deny the creditor-pledgee the
On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) right to recover deficiency in case the proceeds of the foreclosire sale are less than
obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00 from the amount of the principal obligation, will apply.
respondent Bank. By virtue of this loan, petitioner PAMECA, through its President,
petitioner Herminio C. Teves, executed a promissory note for the said amount, This Court reversed the ruling of the lower court and held that the provisions of the
promising to pay the loan by installment. As security for the said loan, a chattel Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage,
mortgage was also executed over PAMECA's properties in Dumaguete City, being contrary to the provisions of Article 2115, Article 2115, in relation to Article
consisting of inventories, furniture and equipment, to cover the whole value of the 2141, may not be applied to the case.
loan.
Sec. 14 of Act No. 1508, as amended, or the chattel Mortgage Law, states:
On January 18, 1984, and upon petitioner PAMECA's failure to pay, respondent bank
extrajudicially foreclosed the chattel mortgage, and, as sole bidder in the public xxx xxx xxx
auction, purchased the foreclosed properties for a sum of P322,350.00. On June 29,
1984, respondent bank filed a complaint for the collection of the balance of The officer making the sale shall, within thirty days thereafter, make in writing a
P4,366,332.46 3 with Branch 132 of the Regional Trial Court of Makati City against return of his doings and file the same in the office of the Registry of Deeds where
petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA the mortgage is recorded, and the Register of Deeds shall record the same. The fees
under the promissory note. of the officer for selling the property shall be the same as the case of sale on
execution as provided in Act Numbered One Hundred and Ninety, and the
On February 8, 1990, the RTC of Makati rendered a decision on the case, the amendments thereto, and the fees of the Register of Deeds for registering the
dispositive portion of which we reproduce as follows: officer's return shall be taxed as a part of the costs of sale, which the officer shall
pay to the Register of Deeds. The return shall particularly describe the articles sold,
WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly and state the amount received for each article, and shall operate as a discharge of
and severally plaintiff the (1) sum of P4,366,332.46 representing the deficiency claim the lien thereon created by the mortgage. The proceeds of such sale shall be
of the latter as of March 31, 1984, plus 21% interest per annum and other charges applied to the payment, first, of the costs and expenses of keeping and sale, and
from April 1, 1984 until the whole amount is fully paid and (2) the costs of the suit. then to the payment of the demand or obligation secured by such mortgage, and
SO ORDERED." 4 the residue shall be paid to persons holding subsequent mortgages in their order,
and the balance, after paying the mortgage, shall be paid to the mortgagor or
The Court of Appeals affirmed the RTC decision. Hence, this Petition. persons holding under him on demand. (Emphasis supplied).
The petition raises the following grounds: It is clear from the above provision that the effects of foreclosure under the Chattel
Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas, in
1. Respondent appellate court gravely erred in not reversing the decision pledge, the sale of the thing pledged extinguishes the entire principal obligation,
of the trial court, and in not holding that the public auction sale of petitioner such that the pledgor may no longer recover proceeds of the sale in excess of the
PAMECA's chattels were tainted with fraud, as the chattels of the said petitioner amount of the principal obligation, Section 14 of the Chattel Mortgage Law
were bought by private respondent as sole bidder in only 1/6 of the market value of expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction
the property, hence unconscionable and inequitable, and therefore null and void. of the principal obligation and costs.
2. Respondent appellate court gravely erred in not applying by analogy Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the
Article 1484 and Article 2115 of the Civil Code by reading the spirit of the law, and excess of the sale proceeds there is a corollary obligation on the part of the debtor-
taking into consideration the fact that the contract of loan was a contract of mortgagee to pay the deficiency in case of a reduction in the price at public auction.
adhesion. As explained in Manila Trading and Supply Co. vs. Tamaraw Plantation Co. 17, cited
in Ablaza vs. Ignacio, supra:
3. The appellate court gravely erred in holding the petitioners Herminio
Teves, Victoria Teves and Hiram Diday R. Pulido solidarily liable with PAMECA Wood While it is true that section 3 of Act No. 1508 provides that "a chattel mortgage is a
Treatment Plant, Inc. when the intention of the parties was that the loan is only for conditional sale", it further provides that it "is a conditional sale of personal property
the corporation's benefit. as security for the payment of a debt, or for the performance of some other
obligation specified therein." The lower court overlooked the fact that the chattels
Relative to the first ground, petitioners contend that the amount of P322,350.00 at included in the chattel mortgage are only given as security and not as a payment of
which respondent bank bid for and purchased the mortgaged properties was the debt, in case of a failure of payment.
unconscionable and inequitable considering that, at the time of the public sale, the
mortgaged properties had a total value of more than P2,000,000.00. According to The theory of the lower court would lead to the absurd conclusion that if the
petitioners, this is evident from an inventory dated March 31, 1980 5, which valued chattels mentioned in the mortgage, given as security, should sell for more than the
the properties at P2,518,621.00, in accordance with the terms of the chattel amount of the indebtedness secured, that the creditor would be entitled to the full
mortgage contract 6 between the parties that required that the inventories "be amount for which it might be sold, even though that amount was greatly in excess
maintained at a level no less than P2 million". Petitioners argue that respondent of the indebtedness. Such a result certainly was not contemplated by the legislature
bank's act of bidding and purchasing the mortgaged properties for P322,350.00 or when it adopted Act No. 1508. There seems to be no reason supporting that theory
only about 1/6 of their actual value in a public sale in which it was the sole bidder under the provision of the law. The value of the chattels changes greatly from time
was fraudulent, unconscionable and inequitable, and constitutes sufficient ground to time, and sometimes very rapidly. If for example, the chattels should greatly
for the annulment of the auction sale. increase in value and a sale under that condition should result in largely overpaying
the indebtedness, and if the creditor is not permitted to retain the excess, then the
To this, respondent bank contends that the above-cited inventory and chattel same token would require the debtor to pay the deficiency in case of a reduction in
mortgage contract were not in fact submitted as evidence before the RTC of Makati, the price of the chattels between the date of the contract and a breach of the
and that these documents were first produced by petitioners only when the case condition.
was brought to the Court of Appeals. 7 The Court of Appeals, in turn, disregarded
these documents for petitioners' failure to present them in evidence, or to even Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors
allude to them in their testimonies before the lower courtr. 8 Instead, respondent on the question of chattel mortgages, have said, that "in case of a sale under a
court declared that it is not at all unlikely for the chattels to have sufficiently foreclosure of a chattel mortgage, there is no question that the mortgagee or
deteriorated as to have fetched such a low price at the time of the auction sale. 9 creditor may maintain an action for the deficiency, if any should occur." And the.
Neither did respondent court find anything irregular or fraudulent in the fact that Act No. 1508 permits a private sale, such sale is not, in fact, a satisfaction of
circumstance that respondent bank was the sole bidder in the sale, as all the legal the debt, to any greater extent than the value of the property at the time of the sale.
procedures for the conduct of a foreclosure sale have been complied with, thus The amount received at the time of the sale, of course, always requiring good faith
giving rise to the presumption of regularity in the performance of public duties. 10
Neither do We find tenable the application by analogy of Article 1484 of the Civil The promissory note was signed by private petitioners in the following manner:
Code to the instant case. As correctly pointed out by the trial court, the said article
applies clearly and solely to the sale of personal property the price of which is PAMECA WOOD TREATMENT PLANT, INC.
payable in installments. Although Article 1484, paragraph (3) expressly bars any
further action against the purchaser to recover an unpaid balance of the price, By:
where the vendor opts to foreclose the chattel mortgage on the thing sold, should
the vendee's failure to pay cover two or more installments, this provision is (Sgd) HERMINIO G. TEVES
specifically applicable to a sale on installments.
(For himself & as President of above-named corporation)
To accommodate petitioners' prayer even on the basis of equity would be to
expand the application of the provisions of Article 1484 to situations beyond its (Sgd) HIRAM DIDAY PULIDO
specific purview, and ignore the language and intent of the Chattel Mortgage Law.
Equity, which has been aptly described as "justice outside legality", is applied only in (Sgd) VICTORIA V. TEVES 22
the absence of, and never against, statutory law or judicial rules of procedure. 19
From the foregoing, it is clear that private petitioners intended to bind themselves
We are also unable to find merit in petitioners' submission that the public auction solidarily with petitioner PAMECA in the loan. As correctly submitted by respondent
sale is void on grounds of fraud and inadequacy of price. Petitioners never assailed bank, private petitioners are not made to answer for the corporate act of petitioner
the validity of the sale in the RTC, and only in the Court of Appeals did they attempt PAMECA, but are made liable because they made themselves co-makers with
to prove inadequacy of price through the documents, i.e., the "Open-End Mortgage PAMECA under the promissory note.
on Inventory" and inventory dated March 31, 1980, likewise attached to their
Petition before this Court. Basic is the rule that parties may not bring on appeal IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court
issues that were not raised on trial. of Appeals dated April 23, 1992 in CA G.R. CV No. 27861 is hereby AFFIRMED. Costs
against petitioners.
Having nonetheless examined the inventory and chattel mortgage document as part
of the records, We are not convinced that they effectively prove that the mortgaged SO ORDERED.
properties had a market value of at least P2,000,000.00 on January 18, 1984, the
date of the foreclosure sale. At best, the chattel mortgage contract only indicates
the obligation of the mortgagor to maintain the inventory at a value of at least
P2,000,000.00, but does not evidence compliance therewith. The inventory, in turn, EN BANC
was as of March 31, 1980, or even prior to April 17, 1980, the date when the parties
entered into the contracts of loan and chattel mortgage, and is far from being an G.R. No. L-26860 July 30, 1969
accurate estimate of the market value of the properties at the time of the
foreclosure sale four years thereafter. Thus, even assuming that the inventory and ALBERTA B. CABRAL and RENATO CABRAL, plaintiffs-appellees,
chattel mortgage contract were duly submitted as evidence before the trial court, it vs.
is clear that they cannot suffice to substantiate petitioners' allegation of inadequacy TEODORA EVANGELISTA, and JUAN N. EVANGELISTA, defendants-appellants,
of price.1wphi1.nt and GEORGE L. TUNAYA, defendant.
Furthermore, the mere fact that respondent bank was the sole bidder for the Emilio D. Castellanes for plaintiffs-appellees.
mortgaged properties in the public sale does not warrant the conclusion that the Manuel E. Reyes for defendants-appellants.
transaction was attended with fraud. Fraud is a serious allegation that requires full
and convincing evidence, 20 and may not be inferred from the lone circumstance TEEHANKEE, J.:
that it was only respondent bank that bid in the sale of the foreclosed properties.
The sparseness of petitioners' evidence in this regard leaves Us no discretion but to In this appeal from a decision of the Court of First Instance, and certified by the
uphold the presumption of regularity in the conduct of the public sale. Court of Appeals to this Court upon agreement of the parties as involving only
questions of law, we reaffirm the well settled principle that the rights of a mortgage
We likewise affirm private petitioners' joint and several liability with petitioner creditor over the mortgaged properties are superior to those of a subsequent
corporation in the loan. As found by the trial court and the Court of Appeals, the attaching creditor.
terms of the promissory note unmistakably set forth the solidary nature of private
petitioners' commitment. Thus: On December 12, 1959, defendant George L. Tunaya had executed in favor of
plaintiffs-appellees a chattel mortgage covering a "MORRISON" English piano,
On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT PLANT, made in England, Concert model, Serial No. 6079 and a Frigidaire General Motors
INC., a corporation organized and existing under the laws of the Philippines, with Electric Stove with four burners and double oven bearing Serial No. 21009298, as
principal office at 304 El Hogar Filipina Building, San Juan, Manila, promise to pay to security for payment to the plaintiffs-mortgagees of a promissory note in the sum
the order of DEVELOPMENT BANK OF THE PHILIPPINES at its office located at of P1,000.00 executed on the same date by said defendant Tunaya with his wife,
corner Buendia and Makati Avenues, Makati, Metro Manila, the principal sum of Esperanza N. Angeles. The chattel mortgage deed was duly inscribed in the Chattel
TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY ONE & Mortgage Register of Rizal province on December 14, 1959. The promissory note,
67/100 US DOLLARS (US$ 267,881.67) with interest at the rate of three per cent (3%) which provided for payment of 12% interest per annum and of an additional 15% of
per annum over DBP's borrowing rate for these funds. Before the date of maturity, the total amount due for attorney's fees and cost of collection was not paid within
we hereby bind ourselves, jointly and severally, to make partial payments as follows: the two-month maturity period therein provided.
xxx xxx xxx Meanwhile, defendants-appellants, the Evangelista spouses, obtained on January 4,
1960, a final money judgment against defendant Tunaya in Civil Case No. 5550 of
In case of default in the payment of any installment above, we bind ourselves to pay the Court of First Instance of Rizal. They caused the levy in execution on personal
DBP for advances . . . properties of said defendant Tunaya, including the piano and stove mortgaged to
plaintiffs. The said mortgaged chattels, together with other personal properties of
xxx xxx xxx the judgment debtor, were sold at public auction on June 24, 1960, after the
corresponding notice of sheriff's sale, to the defendants-appellants as the highest
We further bind ourselves to pay additional interest and penalty charges on loan bidders for the total sum of P2,373.00. The judgment credit of defendants-
amortizations or portion thereof in arrears as follows: appellants, as judgment creditors in said Civil Case No. 5550, was considered paid
up to the said amount and the Sheriff of Rizal issued the corresponding certificate
xxx xxx xxx of sale in their favor.
In addition to the above, we also bind ourselves to pay for bank advances for Subsequently, on October 11, 1960, or 8 months after the maturity of Tunaya's
insurance premiums, taxes . . . promissory note and his having defaulted in the payment thereof, plaintiffs filed
their complaint in the City Court of Manila against Tunaya and the Evangelista
xxx xxx xxx spouses, alleging the above facts and that the Evangelista spouses had refused their
demands to pay the amount due on Tunaya's promissory note or to exercise their
We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred right of redemption and praying for judgment, ordering the defendants, jointly and
by DBP on the foreign currency borrowings from where the loan shall be drawn . . . solidarity, to pay them the amounts stipulated on the note, and in case of the failure
to make such payment, to order defendants to deliver to the Sheriff of Manila the
xxx xxx xxx mortgaged chattels for sale at public auction to satisfy their mortgage credit.
In case of non-payment of the amount of this note or any portion of it on demand, The City Court, on November 29, 1960, rendered judgment in favor of plaintiffs
when due, or any other amount or amounts due on account of this note, the entire against the mortgage debtor, Tunaya, on confession of the latter, but granted the
obligation shall become due and demandable, and if, for the enforcement of the motion to dismiss of the defendants Evangelista spouses on the ground of failure to
payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES is constrained to state a cause of action and dismissed the complaint as against said spouses.
Justice Imperial, in a concurring opinion, noted that if the only attachable interest of In the Cabral case the unsecured judgment creditor (of the chattel mortgagor) who
a chattel mortgagor in a mortgaged car was his right of redemption and if the bought the mortgaged chattels at the execution sale was held solidarily liable with
purchaser at the execution sale could not acquire anything except such right of the mortgagor to the chattel mortgagee for the mortgage obligation. 2
redemption, then the purchaser was "not entitled to the actual possession and
On appeal, the Intermediate Appellate Court upheld the trial court's decision and The designated officers of the government financing institution cannot simply walk
held: away and then state that since the loans were obtained in the corporation's name,
then P.D. 385 must be peremptorily applied and that there is no way the borrower
While petitioner concedes 'that Presidential Decree No. 385 applies only where it is corporation can prevent the automatic foreclosure of the mortgage on its properties
clear that there was a loan or where the loan is not denied' (p. 14-petition), it once the arrearages reach twenty percent (20%) of the total obligation no matter
disclaims receipt of the $5 million loan nor benefits derived therefrom and bewails who was responsible.
the onerous conditions imposed by DBP Resolution No. 385 dated December 7,
1977, which allegedly placed the petitioner under the complete control of the In the case at bar, the respondents try to impress upon this Court that the
private respondents DBP and Bancom Systems Control Inc. (Bancom, for short). The $5,000,000.00 loan was actually granted and released to the petitioner corporation
plausibility of petitioner's statement that it did Dot receive the $5 million loan is and whatever the composition of the management which received the loan is of no
more apparent than real. At the hearing for injunction before the counsel for DBP moment because this management was acting in behalf of the corporation. The
stressed that $2,625,316.83 of the $5 million loan was earmarked to finance the respondents also argue that since the loan was extended to the corporation, the
acquisition of machinery, equipment and spare parts for petitioner's Diamond releases had to be made to the then officers of that borrower corporation.
gangsaw which machineries were actually imported by petitioner Filipinas Marble
Corporation and arrived in the Philippines. Indeed, a summary of releases to Precisely, what the petitioner is trying to point out is that the DBP and Bancom
petitioner covering the period June 1978 to October 1979 (Exh. 2, Injunction) people who managed Filipinas Marble misspent the proceeds of the loan by taking
showed disbursements amounting to millions of pesos for working capital and advantage of the positions that they were occupying in the corporation which
opening of letter of credits for the acquisition of its machineries and equipment. resulted in the latter's devastation instead of its rehabilitation. The petitioner does
Petitioner does not dispute that releases were made for the purchase of machineries not question the authority under which the loan was delivered but stresses that it is
and equipment but claims that such imported machineries were left to the mercy of precisely this authority which enabled the DBP and Bancom people to misspend and
the elements as they were never delivered to it. misappropriate the proceeds of the loan thereby defeating its very purpose, that is,
to develop the projects of the corporation. Therefore, it is as if the loan was never
xxx xxxxxx delivered to it and thus, there was failure on the part of the respondent DBP to
deliver the consideration for which the mortgage and the assignment of deed were
Apart from the foregoing, petitioner is patently not entitled to a writ of preliminary executed.
injunction for it has not demonstrated that at least 20% of its outstanding
arrearages has been paid after the foreclosure proceedings were initiated. Nowhere We cannot, at this point, conclude that respondent DBP together with the Bancom
in the record is it shown or alleged that petitioner has paid in order that it may fall people actually misappropriated and misspent the $5 million loan in whole or in
within the exception prescribed on Section 2, Presidential Decree No. 385. part although the trial court found that there is "persuasive" evidence that such acts
were committed by the respondent. This matter should rightfully be litigated below
Dissatisfied with the appellate court's decision, the petitioner filed this instant in the main action. Pending the outcome of such litigation, P.D. 385 cannot
petition with the following assignments of errors: automatically be applied for if it is really proven that respondent DBP is responsible
for the misappropriation of the loan, even if only in part, then the foreclosure of the
1. There being 'persuasive' evidence that the $5 million proceeds of the petitioner's properties under the provisions of P.D. 385 to satisfy the whole amount
loan were not received and did not benefit the petitioner per finding of the lower of the loan would be a gross mistake. It would unduly prejudice the petitioner, its
court which should not be disturbed unless there is grave abuse of discretion, it employees and their families.
must follow that PD 385 does not and cannot apply;
Only after trial on the merits of the main case can the true amount of the loan which
2. If there was no valid loan contract for failure of consideration, the was applied wisely or not, for the benefit of the petitioner be determined.
mortgage cannot exist or stand by itself being a mere accessory contract. Consequently, the extent of the loan where there was no failure of consideration
Additionally, the chattel mortgage has not been registered. Therefore, the same is and which may be properly satisfied by foreclosure proceedings under P.D. 385 will
null and void under Article 2125 of the New Civil Code; and have to await the presentation of evidence in a trial on the merits. As we have ruled
in the case of Central Bank of the Philippines vs. Court of Appeals, (1 39 SCRA 46,
3. PD 385 is unconstitutional as a 'class legislation', and violative of the due 5253; 56):
process clause.
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00
With regard to the first assignment of error, the petitioner maintains that since the loan agreement on April 28, 1965, they undertook reciprocal obligations, the
trial court found "persuasive evidence" that there might have been a failure of obligation or promise of each party is the consideration for that of the othe.
consideration on the contract of loan due to the manner in which the amount of $5 (Penacio vs. Ruaya, 110 SCRA 46 [1981]; ...
million was spent, said court committed grave abuse of discretion in holding that it
had no recourse but to apply P.D. 385 because the application of this decree xxxxxxxxx
requires the existence of a valid loan which, however, is not present in petitioner's
case. It likewise faults the appellate court for upholding the applicability of the said The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no
decree. consideration was then in existence, as there was no debt yet because Island
Savings Bank had not made any release on the loan, does not make the real estate
Sections 1 and 2 of P.D. No. 385 respectively provide: mortgage void for lack of consideration. It is not necessary that any consideration
should pass at the time of the execution of the contract of real mortgage (Bonnevie
Section 1. It shall be mandatory for government financial institutions after the lapse vs. Court of Appeals, 125 SCRA 122 [1983]. It may either be a prior or subsequent
of sixty (60) days from the issuance of this Decree, to foreclose the collaterals and/or matter. But when the consideration is subsequent to the mortgage, the mortgage
securities for any loan, credit accommodation, and/or guarantees granted by them can take effect only when the debt secured by it is created as a binding contract to
whenever the arrearages on such account, including accrued interest and other pay (Parks vs. Sherman, Vol. 2, pp. 5-6). And, when there is partial failure of
charges, amount to at least twenty (20%) of the total outstanding obligations, consideration, the mortgage becomes unenforceable to the extent of such failure
including interest and other charges, as appearing in the book of accounts and/or (Dow, et al. vs. Poore Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. C.J.S. p. 138). ...
related records of the financial institution concerned. This shall be without prejudice
to the exercise by the government financial institution of such rights and/or Under the admitted circumstances of this petition, we, therefore, hold that until the
remedies available to them under their respective contracts with their debtors, trial on the merits of the main case, P.D. 385 cannot be applied and thus, this Court
including the right to foreclose on loans, credits, accommodations, and/or can restrain the respondents from foreclosing on petitioner's properties pending
guarantees on which the arrearages are less than twenty percent (20%). such litigation.
Section 2. No restraining order, temporary or permanent injunction shall be issued The respondents, in addition, assert that even if the $5 million loan were not
by the court against any government financial institution in any action taken by such existing, the mortgage on the properties sought to be foreclosed was made to
institution in compliance with the mandatory foreclosure provided in Section 1 secure previous loans of the petitioner with respondent and therefore, the
hereof, whether such restraining order, temporary or permanent injunction is foreclosure is still justified.
sought by the borrower(s) or any third party or parties, except after due hearing in
which it is established by the borrower, and admitted by the government financial This contention is untenable. Two of the conditions imposed by respondent DBP for
institution concerned that twenty percent (20%) of the outstanding arrearages has the release of the $5 million loan embodied in its letter to petitioner dated
been paid after the filing of foreclosure proceedings. December 21, 1977 state:
Presidential Decree No. 385 was issued primarily to see to it that government A. The interim loan of $289,917.32 plus interest due thereon which was used for the
financial institutions are not denied substantial cash inflows, which are necessary to importation of one Savage Diamond Gangsaw shall be liquidated out of the
finance development projects all over the country, by large borrowers who, when proceeds of this $5 million loan. In addition, FMC shall also pay DBP, out of the
they become delinquent, resort to court actions in order to prevent or delay the proceeds of above foreign currency loan, the past due amounts on obligation with
government's collection of their debts and loans. DBP.
The government, however, is bound by basic principles of fairness and decency xxxxxxxxx
under the due process clause of the Bill of Rights. P.D. 385 was never meant to
protect officials of government lending institutions who take over the management B. Conversion into preferred shares of P 2 million of FMCs total obligations with DBP
of a borrower corporation, lead that corporation to bankruptcy through as of the date the legal documents for this refinancing shall have been exempted or
not later than 90 days from date of advice of approval of this accommodation.
REYES DAWAY LIM BERNARDO The CA agreed with this and elaborated:
LINDO ROSALES LAW OFFICES,
ATTY. WENDELL CORONEL and Much as we find both detestable and reprehensible the grossly abusive and illicit
the SECURITIES AND EXCHANGE contrivance employed by private respondents against petitioner, we, nevertheless,
COMMISSION,*** concur with public respondent that the return of petitioners CSPI shares is well-nigh
Respondents. Promulgated: impossible, if not already an utter impossibility, inasmuch as the certificates of
stocks have already been alienated or transferred in favor of Northeast Corporation,
July 3, 2007 as early as May 27, 1996, in consequence whereof the proceeds of the sale have
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x been transmuted into corporate assets of Philfinance, under custodia legis, ready for
distribution to its creditors and/or investors. Case law holds that the assets of an
DECISION institution under receivership or liquidation shall be deemed in custodia legis in the
hands of the receiver or liquidator, and shall from the moment of such receivership
We agree with both the SEC and the CA that petitioner had become an ordinary The guidelines for awarding interest were laid down in Eastern Shipping Lines, Inc. v.
creditor of Philfinance. CA:[29]
Certainly, petitioner had the right to demand the return of his CSPI shares.[19] He in I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
fact filed a complaint in the liquidation proceedings in the SEC to get them back but delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
was confronted by an impossible situation as they had already been sold. The provisions under Title XVIII on "Damages" of the Civil Code govern in
Consequently, he sought instead to recover their monetary value. determining the measure of recoverable damages.
Petitioners CSPI shares were specific or determinate movable properties.[20] But II. With regard particularly to an award of interest in the concept of actual and
after they were sold, the money raised from the sale became generic[21] and were compensatory damages, the rate of interest, as well as the accrual thereof, is
commingled with the cash and other assets of Philfinance. Unlike shares of stock, imposed, as follows:
money is a generic thing. It is designated merely by its class or genus without any
particular designation or physical segregation from all others of the same class.[22] 1. When the obligation is breached, and it consists in the payment of a sum of
This means that once a certain amount is added to the cash balance, one can no money, i.e., a loan or forbearance of money, the interest due should be that which
longer pinpoint the specific amount included which then becomes part of a whole may have been stipulated in writing. Furthermore, the interest due shall itself earn
mass of money. legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
It thus became impossible to identify the exact proceeds of the sale of the CSPI judicial or extrajudicial demand under and subject to the provisions of Article 1169
shares since they could no longer be particularly designated nor distinctly of the Civil Code.
segregated from the assets of Philfinance. Petitioners only remedy was to file a
claim on the whole mass of these assets, to which unfortunately all of the other 2. When an obligation, not constituting a loan or forbearance of money, is
creditors and investors of Philfinance also had a claim. breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
Petitioners right of action against Philfinance was a claim properly to be litigated in adjudged on unliquidated claims or damages except when or until the demand can
the liquidation proceedings.[23] In Finasia Investments and Finance Corporation v. be established with reasonable certainty.
CA,[24] we discussed the definition of claims in the context of liquidation
proceedings: Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art.
We agree with the public respondent that the word claim as used in Sec. 6(c) of P.D. 1169, Civil Code) but when such certainty cannot be so reasonably established at
902-A,[25] as amended, refers to debts or demands of a pecuniary nature. It means the time the demand is made, the interest shall begin to run only from the date of
"the assertion of a right to have money paid. It is used in special proceedings like the judgment of the court is made (at which time the quantification of damages
those before [the administrative court] on insolvency." may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount of finally
The word "claim" is also defined as: adjudged.
Right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, 3. When the judgment of the court awarding a sum of money becomes final and
equitable, secured, or unsecured; or right to an equitable remedy for breach of executory, the rate of legal interest, whether the case falls under paragraph 1 or
performance if such breach gives rise to a right to payment, whether or not such paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
right to an equitable remedy is reduced to judgment, fixed, contingent, matured, this interim period being deemed to be by then an equivalent to a forbearance of
unmatured, disputed, undisputed, secured, unsecured.[26] credit.[30] (Emphasis supplied)
Undoubtedly, petitioner had a right to the payment of the value of his shares. His Under this ruling, petitioner was not entitled to legal interest of 12% per annum
demand was of a pecuniary nature since he was claiming the monetary value of his (from demand) because the amount owing to him was not a loan[31] or forbearance
shares. It was in this sense (i.e. as a claimant) that he was a creditor of Philfinance. of money.[32]
The Civil Code provisions on concurrence and preference of credits are applicable to
the liquidation proceedings.[27] The next question is, was petitioner a preferred or Neither was he entitled to legal interest of 6% per annum under Article 2209 of the
ordinary creditor under these provisions? Civil Code[33] since this provision applies only when there is a delay in the payment
of a sum of money.[34] This was not the case here. In fact, petitioner himself
Petitioner argues that he was a preferred creditor because private respondents manifested before the CA that the SEC (as liquidator) had already paid him
illegally withdrew his CSPI shares from the custodian banks and sold them without P5,062,500 representing 15% of P33,750,000.[35]
his knowledge and consent and without authority from the SEC. He quotes Article
2241 (2) of the Civil Code: Accordingly, petitioner was not entitled to interest under the law and current
jurisprudence.
With reference to specific movable property of the debtor, the following claims or
liens shall be preferred: Considering that petitioner had already received the amount of P5,062,500, the
obligation of the SEC as liquidator of Philfinance was totally extinguished.[36]
xxx xxx xxx
We note that there is an undisputed finding by the SEC and CA that private
(2) Claims arising from misappropriation, breach of trust, or malfeasance by public respondents sold the subject shares without authority from the SEC. Petitioner
officials committed in the performance of their duties, on the movables, money or evidently has a cause of action against private respondents for their bad faith and
securities obtained by them; unauthorized acts, and the resulting damage caused to him.[37]
WHEREFORE, the petition is hereby DENIED.
xxx xxx xxx
(Emphasis supplied) SO ORDERED.
He asserts that, as a preferred creditor, he was entitled to the entire monetary value
of his shares.
Petitioners argument is incorrect. Article 2241 refers only to specific movable EN BANC
property. His claim was for the payment of money, which, as already discussed, is
generic property and not specific or determinate. G.R. No. L-14938 January 28, 1961
Considering that petitioner did not fall under any of the provisions applicable to MAGDALENA C. DE BARRETO, ET AL., plaintiffs-appellants,
preferred creditors, he was deemed an ordinary creditor under Article 2245: vs.
JOSE G. VILLANUEVA, ET AL., defendants-appellees.
Credits of any other kind or class, or by any other right or title not comprised in the
four preceding articles, shall enjoy no preference. Bausa, Ampil & Suarez for plaintiffs-appellants.
Esteban Ocampo for defendants-appellees.
This being so, Article 2251 (2) states that:
On October 4, 1958, 'the Court of First Instance issued an order confirming the Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be
aforesaid sale and directing the Register of Deeds of the City of Manila to issue to discussed in the course of this resolution, that our decision of 28 January 1961 be
the Barrettos the corresponding certificate of title, subject, however, to the order of reconsidered and set aside, and a new one entered declaring that their right as
August 18, 1958 concerning,. the vendor's lien. On the same date, the motion of the mortgagees remain superior to the unrecorded claim of herein appellee for the
Barettos seeking reconsideration of the order of the court giving due course to the balance of the purchase price of her rights, title, and interests in the mortgaged
said vendor's lien was denied. From this last order, the Barretto spouses interposed property.
the present appeal.
It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title,
The appeal is devoid of merit. and interest and that of her children in the house and lot herein involved to Pura I.
Villanueva for P19,000.00. The purchaser paid Pl,500 in advance, and executed a
In claiming that the decision of the Court, of First Instance of Manila in Civil Case promissory note for the balance of P17,506.00. However, the buyer could only pay
No. 20075 . awarding the amount of P12,000.00 in favor of Rosario Cruzado and her P5,500 On account of the note, for which reason the vendor obtained judgment for
minor children . cannot constitute a basis for the vendor's lien filed by the appellee the unpaid balance. In the meantime, the buyer Villanueva was able to secure a
Rosario Cruzado, appellants allege that the action in said civil case was merely to clean certificate of title (No. 32626), and mortgaged the property to appellant
recover the balance of a promissory note. But while, apparently, the action was to Magdalena C. Barretto, married to Jose C. Barretto, to secure a loan of P30,000.03,
recover the remaining obligation of promissor Pura Villanueva on the note, the fact said mortgage having been duly recorded.
remains that Rosario P. Cruzado as guardian of her minor children, was an unpaid
vendor., of the realty in question, and the promissory note, was, precisely, for the Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
unpaid balance of the price of the property bought by, said Pura Villanueva. foreclosed the mortgage in her favor, obtained judgment, and upon its becoming
final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a
motion for recognition for her "vendor's lien" in the amount of Pl2,000.00, plus legal
2. ID.; ID.; PREFERENCE OF CREDITS; ARTICLES 2249 AND 2242 OF THE The duplex-apartment house was built for the spouses by private respondent
NEW CIVIL CODE OF THE PHILIPPINES; CONSTRUED. Under the system Candido Ramos, a duly licensed architect and building contractor, at a total cost of
established by Article 2249 of the civil Code of the Philippines, only taxes and P32,927.00. The spouses paid private respondent the sum of P7,139.00 only. Hence,
assessments upon immovable property enjoy absolute preference. All the remaining the latter used his own money, P25,788.50 in all, to finish the construction of the
specified classes of preferred creditors under Article 2242 enjoy no priority among duplex-apartment.chanrobles.com:cralaw:red
themselves. Their credits shall be satisfied pro-rata, i.e., in proportion to the amount
of the respective credits. Meanwhile, on December 16, 1966, February 1, 1967, and February 28, 1967, the
spouses Tabligan obtained from petitioner Philippine Savings Bank three (3) loans in
3. ID.; ID.; ARTICLE 2249 AND 2242 OF THE NEW CIVIL CODE; PAIL the total amount of P35,000.00, the purpose of which was to complete the
REQUISITE TO THEIR FULL APPLICATION UNDER THE DE BARRETO CASE. Under construction of the duplex-apartment. To secure payment of the l2oans, the
the De Barreto decision, the full application of Articles 2242 and 2249 demands that spouses executed in favor of the petitioner three (3) promissory notes and three (3)
there must first be some proceeding where the class of all the preferred creditors deeds of real estate mortgages over the property subject matter of this litigation.
may be bindingly adjudicated, such as insolvency, the settlement of a decedents
estate under Rule 87 of the Rules of Court, or other liquidation proceedings of On December 19, 1966, the petitioner registered the December 16, 1966 deed of
similar import. real estate mortgage with the Register of Deeds of Manila. The subsequent
mortgages of February 1, 1967, and February 28, 1967, were registered with the
4. REMEDIAL LAW; INSOLVENCY PROCEEDINGS AND SETTLEMENT OF A Register of Deeds of Manila on February 2, 1967 and March 1, 1967, respectively. At
DECEDENTS ESTATE; BOTH PROCEEDINGS IN REM, OTHER EQUIVALENT GENERAL the time of the registration of these mortgages, Transfer Certificate of Title No.
LIQUIDATION OF SIMILAR NATURE. Insolvency proceedings end settlement of a 86195 was free from all liens and encumbrances.
decedents estate are both proceedings in rem which are binding the whole world.
All persons having interest in the subject matter involved, whether they were The spouses failed to pay their monthly amortizations. As a result thereof, the
notified or not, are equally bound. Consequently, a liquidation of similar import or petitioner bank foreclosed the mortgages, and at the public auction held on July 23,
other equivalent general liquidation must also necessarily be a proceeding in rem so 1969, was the highest bidder.
that all interested persons whether known to the parties or not may be bound by
such proceeding. On August 5, 1969, the petitioner bank registered the certificate of sale issued in its
favor. On August 9, 1970, the bank consolidated its ownership over the property in
3. ID.; ACTION FOR COLLECTION OF UNPAID CONTRACTORS FEE; NOT question, and Transfer Certificate of Title No. 101864 was issued by the Register of
AN ACTION IN REM. The proceedings in the court below do not partake of the Deeds of Manila in the name of the petitioner bank.
insure of insolvency proceedings or settlement of a decedents estate. The action
filed by Ramos was only to collect the unpaid cost of the construction of the duplex Upon the other hand, the private respondent filed an action against the spouses to
apartment. It is far from being a general liquidation of the estate of the Tabligan collect the unpaid cost of the construction of the duplex-apartment before the
spouses. Court of First Instance of Manila, Branch I, which case was docketed therein as Civil
Case No. 69228. During its pendency, the private respondent succeeded in
6. CIVIL LAW; CREDIT TRANSACTION; ANNOTATION OF CLAIMS AND obtaining the issuance of a writ of preliminary attachment, and pursuant thereto,
CREDITS AS STATUTORY LIENS; RELEVANCE TO THE STABILITY OF THE TORRENS had the property in question attached. Consequently, a notice of adverse claim was
SYSTEM. In the case at bar, although the lower court found that "there were no annotated at the back of Transfer Certificate of Title No. 86195.
known creditors other than the plaintiff and the defendant herein," this cannot be
conclusive. It will not bar other creditors in the event they show up and present their On August 26, 1968, a decision was rendered in Civil Case No. 69228 in favor of the
claims State petitioner bank, claiming that they also have preferred liens against the private respondent and against the spouses. A writ of execution was accordingly
property involved. Consequently, Transfer Certificate of Title No. 101864 issued in issued but was returned unsatisfied.
favor of the bank which is supposed to be indefeasible would remain constantly
unstable and questionable. Such could not have been the intention of Article 2243 As the spouses did not have any properties to satisfy the judgment in Civil Case No.
of the Civil Code although it considers claims and credits under Article 2242 as 69228, the private respondent addressed a letter to the petitioner for the delivery to
statutory liens. Neither does the De Barreto case sanction such instability. In fact, an him (private respondent) of his pro-rata share in the value of the duplex-apartment
annotation, as suggested above, would insure to the benefit of the public, in accordance with Article 2242 of the Civil Code. The petitioner refused to pay the
particularly those who may subsequently wish to buy the property in question or pro-rata value prompting the private respondent to file the instant action. As earlier
who have a business transaction in connection therewith. It would facilitate the stated, a decision was rendered in favor of the private Respondent.chanrobles
enforcement of a legal statutory right which cannot be barred by laches (See Manila virtual lawlibrary
Railroad Co. v. Luzon Stevedoring Co., 100 Phil. 135).
The parties are agreed that the only issue is whether or not the private respondent
7. ID.; SALE; BUYER IN GOOD FAITH OF REALTY; TAKES IT FEE FROM LIENS is entitled to claim a pro-rata share in the value of the property in question. The
AND ENCUMBRANCES OTHER THAN STATUTORY LIENS AND THOSE ANNOTATED applicable provision, Article 2242 of the Civil Code, reads as
IN THE TITLE; CASE AT BAR. Since the action filed by the private respondent is follows:jgc:chanrobles.com.ph
not one which can be considered as "equivalent general liquidation" having the
same import as an insolvency or settlement of the decedents estate proceeding, the "ART. 2242. With reference to specific immovable property and real rights of the
well established principle must be applied that a purchaser in good faith and for debtor, the following claims, mortgages and liens shall be preferred, and shall
value takes register land free from liens and encumbrances other than statutory constitute an encumbrance on the immovable or real right:jgc:chanrobles.com.ph
liens and those recorded in the Certificate of Title. It Is an limited fact that at the
time the deeds of real estate mortgage in favor of the petitioner bank were "(1) Taxes due upon the land or building;
constituted, the transfer certificate of title of the spouses Tabligan was free from any
recorded lien and encumbrances, so that the only registered liens in the title were "(2) For the unpaid price of real property sold, upon the immovable sold;
deeds in favor of the petitioner.
"(3) Claims of laborers, masons, mechanics and other workmen, as well as of
architects, engineers and contractors, engaged in the construction, reconstruction or
DECISION repair of buildings, canals or other works, upon said buildings, canals or other
works;
GUTIERREZ, JR., J.: "(4) Claims of furnishers of materials used in the construction reconstruction,
or repair of buildings, canals or other works upon said buildings, canals or other
works;
This is a petition for review of the decision of the Court of First Instance of Manila,
Branch VII, presided over by respondent Judge Gregorio T. Lantin, in Civil Case No. "(5) Mortgage credits recorded in the Registry of Property, upon the real
79914 entitled Candido Ramos v. Philippine Savings Bank and of the order denying estate mortgaged;
a motion for its reconsideration. The dispositive portion of the decision
reads:jgc:chanrobles.com.ph "(6) Expenses for the preservation or improvement of real property when the
law authorizes reimbursement, upon the immovable preserved or improved;
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the defendant to pay the plaintiff the sum of P15,000.00 as his
pro-rata share in the value of the duplex-apartment house which was built by the
"(8) Claims of co-heirs for warranty in the partition of an immovable among A careful considering of this petition leads us to agree with the petitioner. The
them, upon the real property thus divided; conclusions of the lower court are not supported by the law and the facts.
"(9) Claims of donors of real property for pecuniary charges or other The proceedings in the court below do not partake of the nature of the insolvency
conditions imposed upon the donee, upon the immovable donated; proceedings or settlement of a decedents estate. The action filed by Ramos was
only to collect the unpaid cost of the construction of the duplex apartment. It is far
"(10) Credits of insurers upon the property insured, for the insurance from being a general liquidation of the estate of the Tabligan spouses.
premium for two years."cralaw virtua1aw library
Insolvency proceedings and settlement of a decedents estate are both proceedings
Both the petitioner bank and private respondent Ramos rely on the case of De in rem which are binding against the whole world. All persons having interest in the
Barreto v. Villanueva (6 SCRA 928). subject matter involved, whether they were notified or not, are equally bound.
Consequently, a liquidation of similar import or "other equivalent general
The petitioner bank would impress upon this Court that the proceedings had before liquidation must also necessarily be a proceeding in rem so that all interested
the court below is not one of the proceedings contemplated in the De Barreto case persons whether known to the parties or not may be bound by such proceeding.
that will sustain the authority of the respondent court to adjudicate the claims of all
preferred creditors under Article 2242 of the Civil Code. Petitioner argues that for In the case at bar, although the lower court found that "there were no known
Article 2242 of the Civil Code to apply, there must have been an insolvency creditors other than the plaintiff and the defendant herein", this can not be
proceeding or other liquidation proceedings of similar import. And under the facts conclusive. It will not bar other creditors in the event they show up and present their
then obtaining, there could have been no insolvency proceeding as there were only claims against the petitioner bank, claiming that they also have preferred liens
two known creditors. ** Consequently, it is argued that private respondents unpaid against the property involved. Consequently, Transfer Certificate of Title No. 101864
contractors claim did not acquire the character of a statutory lien equal to the issued in favor of the bank which is supposed to be indefeasible would remain
petitioners registered mortgage. constantly unstable and questionable. Such could not have been the intention of
Article 2243 of the Civil Code although it considers claims and credits under Article
Upon the other hand, private respondent Ramos maintains that the proceedings 2242 as statutory liens. Neither does the De Barretto case sanction such instability. It
had before the court below can qualify as a general liquidation of the estate of the emphasized the following:jgc:chanrobles.com.ph
spouses Tabligan because the only existing property of said spouses is the property
subject matter of this litigation.chanrobles virtualawlibrary "We are understandably loath (absent a clear precept of law so commanding) to
chanrobles.com:chanrobles.com.ph adopt a rule that would undermine the faith and credit to be accorded to registered
Torrens titles and nullify the beneficient objectives sought to be obtained by the
Concurrence of credits occurs when the same specific property of the debtor or all Land Registration Act. No argument is needed to stress that if a person dealing with
of his property is subjected to the claims of several creditors. The concurrence of registered land were to be held to take it in every instance subject to all the
credits raises no questions of consequence where the value of the property or the fourteen preferred claims enumerated in Article 2242 of the new Civil Code, even if
value of all assets of the debtor is sufficient to pay in full all the creditors. However, the existence and import thereof can not be ascertained from the records, all
it becomes material when said assets are insufficient for then some creditors of confidence in Torrens titles would be destroyed, and credit transactions on the faith
necessity will not be paid or some creditors will not obtain the full satisfaction of of such titles would be hampered, if not prevented, with incalculable results. Loans
their claims. In this situation, the question of preference will then arise, that is to say on real estate security would become aleatory and risky transactions, for no
who of the creditors will be paid ahead of the others. (Caguioa, Comments and prospective lender could accurately estimate the hidden liens on the property
Cases on Civil Law, 1970 ed., Vol. VI, p. 472.) offered as security, unless he indulged in complicated, tedious investigations. The
logical result might well be a contraction of credit to unforeseable proportions that
Under the system established by Article 2249 of the Civil Code of the Philippines, could lead to economic disaster.
only taxes and assessments upon immovable property enjoy absolute preference.
All the remaining specified classes of preferred creditors under Article 2242 enjoy no "Upon the other hand, it does not appear excessively burdensome to require the
priority among themselves. Their credits shall be satisfied pro-rata, i.e., in proportion privileged creditors to cause their claims to be recorded in the books of the Register
to the amount of the respective credits. of Deeds should they desire to protect their rights even outside of insolvency or
liquidation proceedings.
Under the De Barreto decision, the full application of Articles 2242 and 2249
demands that there must first be some proceeding where the claims of all the In fact, an annotation, as suggested above, would inure to the benefit of the public,
preferred creditors may be bindingly adjudicated, such as insolvency, the settlement particularly those who may subsequently wish to buy the property in question or
of a decedents estate under Rule 87 of the Rules of Court, or other liquidation who have a business transaction in connection therewith. It would facilitate the
proceedings of similar import. enforcement of a legal statutory right which cannot be barred by laches. (See Manila
Railroad Co. v. Luzon Stevedoring Co., 100 Phil. 135).chanrobles law library
The pertinent ruling reads:jgc:chanrobles.com.ph
Respondent Ramos admitted in the partial stipulation of facts submitted by both
"Thus, it becomes evident that one preferred creditors third-party claim to the parties that at the time of the loans to the spouses, the petitioners bank had no
proceeds of a foreclosure sale (as in the case now before us) is not the proceeding actual or constructive knowledge of any lien against the property in question. The
contemplated by law for the enforcement of preferences under Article 2242, unless duplex apartment house was built for P32,927.00. The spouses Tabligan borrowed
the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of P35,000.00 for the construction of the apartment house. The bank could not have
the claims is for taxes, a dispute between two creditors will not enable the Court to known of any contractors lien because, as far as it was concerned, it financed the
ascertain the pro rata dividend corresponding to each because the rights of the entire construction even if the stated purpose of the loans was only to "complete"
other creditors likewise enjoying preference under Article 2242 can not be the construction.
ascertained. Wherefore, the order of the Court of First Instance of Manila now
appealed from, decreeing that the proceeds of the foreclosure sale be apportioned Since the action filed by the private respondent is not one which can be considered
only between appellant and appellee, is incorrect and must be reversed. as "equivalent general liquidation" having the same import as an insolvency or
settlement of the decedents estate proceeding, the well established principle must
"In the absence of insolvency proceedings (or other equivalent general liquidation be applied that a purchaser in good faith and for value takes registered land free
of the debtors estate), the conflict between the parties now before us must be from liens and encumbrances other than statutory liens and those recorded in the
decided pursuant to the well established principle concerning registered lands; that Certificate of Title. It is an admitted fact that at the time the deeds of real estate
a purchaser in good faith and for value (as the appellant concededly is) takes mortgage in favor of the petitioner bank were constituted, the transfer certificate of
registered property free from liens and encumbrances other then statutory liens and title of the spouses Tabligan was free from any recorded lien and encumbrances, so
those recorded in the certificate of title. There being no insolvency or liquidation, that the only registered liens in the title were deeds in favor of the petitioner.
the claim of the appellee, as unpaid vendor, did not acquire the character and rank
of a statutory lien co-equal to the mortgagees recorded encumbrance, and must Prescinding from the foregoing, the private respondents claim must remain
remain subordinate to the latter."cralaw virtua1aw library subordinate to the petitioner banks title over the property evidenced by TCT No.
101864.
The resolution of this petition, therefore, hinges on the determination of whether an
insolvency proceeding or other liquidation proceeding of similar import may be WHEREFORE, the petition is granted. The decision of the Court of First Instance of
considered to have been conducted in the court below. Manila, Branch VII is, hereby, reversed and set aside. The complaint and the
counterclaim are dismissed.
The respondent court ruled in the affirmative holding that:jgc:chanrobles.com.ph
SO ORDERED.
"There were no known creditors, other than the plaintiff and defendant herein, and
the proceedings in the present case may ascertain and bindingly adjudicate the
respective claims of the plaintiff and the defendant, serving as a substantial
compliance with what the Supreme Court stated:jgc:chanrobles.com.ph THIRD DIVISION
". . . it is thus apparent that the full application of Articles 2242 and 2249 demands [G.R. No. 105827. January 31, 2000]
that there must be first some proceeding where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency, the settlement of a
Petitioners allege that, although the whole amount of the cash equity became due, FOR ALL THE FOREGOING, the petition is hereby granted as follows:
the Municipality refused to pay the same, despite repeated demands and
notwithstanding that the public market was more than ninety-eight percent (98%) 1. The respondent judges ORDER dated September 5, 1991 for the issuance of a writ
complete as of July 20, 1991. Furthermore, petitioners maintain that Salonga of attachment and for the enforcement of a contractors lien, is hereby NULLIFIED
induced them to advance the expenses for the demolition, clearing and site filling and SET ASIDE; the writ of attachment issued pursuant thereto and the proceedings
work by making representations that the Municipality had the financial capability to conducted by the Sheriffs assigned to implement the same are, as a consequence,
reimburse them later on. However, petitioners claim that they have not been also hereby NULLIFIED and SET ASIDE;
reimbursed for their expenses.[1]
2. The respondent judges ORDER dated October 11, 1991 further enforcing the
On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and contractors lien and approving the guidelines for the operation of the San Antonio
Fernando Erana, with the latter three bringing the case in their own personal Public Market is also NULLIFIED and SET ASIDE.
capacities and also in representation of J.L. Bernardo Construction, filed a complaint
for breach of contract, specific performance, and collection of a sum of money, with Petitioners prayers for the dismissal of Civil Case No. 1016 (now pending before
prayer for preliminary attachment and enforcement of contractors lien against the respondent judge) and for his deletion from said case as defendant in his private
Municipality of San Antonio, Nueva Ecija and Salonga, in his personal and official capacity are, however, DENIED.
capacity as municipal mayor. After defendants filed their answer, the Regional Trial
Court held hearings on the ancillary remedies prayed for by plaintiffs.[2] The respondent judge may now proceed to hearing of Civil Case No. 1016 on the
merits.
On September 5, 1991, the Regional Trial Court issued the writ of preliminary
attachment prayed for by plaintiffs. It also granted J.L. Bernardo Construction the SO ORDERED.
right to maintain possession of the public market and to operate the same. The
dispositive portion of the decision provides: The appellate court reasoned that since the Construction Agreement was only
between Juanito Bernardo and the Municipality of San Antonio, and since there is
IN VIEW OF THE FOREGOING DISQUISITION, the Court finds the auxiliary reliefs of no sworn statement by Juanito Bernardo alleging that he had been deceived or
attachment prayed for by the plaintiffs to be well-taken and the same is hereby misled by Mayor Salonga or the Municipality of San Antonio, it is apparent that the
GRANTED. Conformably thereto, let a writ of preliminary attachment be issued upon applicant has not proven that the defendants are guilty of inceptive fraud in
the filing by the plaintiffs of a bond in the amount of P2,653,576.84 to answer for contracting the debt or incurring the obligation, pursuant to Rule 57 of the Rules of
costs and damages which the defendants may suffer should the Court finally Court, and therefore, the writ of attachment should be struck down for having been
adjudged (sic) that the plaintiffs are not entitled to the said attachment, and improvidently and irregularly issued.
thereafter, the Deputy Sheriff of this court is hereby ordered to attach the properties
of the defendants JOSE LAPUZ SALONGA and the MUNICIPALITY OF SAN The filing of a motion for the approval of counter-bond by defendants did not,
ANTONIO, NUEVA ECIJA which are not exempt from execution. according to the Court of Appeals, render the petition for certiorari premature. The
appellate court held that such motion could not cure the defect in the issuance of
CORROLARILY, the Court grants the plaintiffs J.L. BERNARDO CONSTRUCTION, the writ of attachment and that, moreover, the defendants motion was filed by them
represented by SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S.A. "without prejudice to the petition for certiorari."
ERANA, the authority to hold on to the possession of the public market in question
and to open and operate the same based on fair and reasonable guidelines and As to the contractors lien, the appellate court ruled that Articles 2242 of the Civil
other mechanics of operation to be submitted by plaintiffs within fifteen (15) days Code finds application only in the context of insolvency proceedings, as expressly
from their receipt of this Order which shall be subject to Courts approval and to stated in Article 2243. Even if it is conceded that plaintiffs are entitled to retain
A petition for certiorari may be filed in case a tribunal, board or officer exercising Clearly, the trial courts order of September 5, 1991 granting possession and use of
judicial or quasi-judicial functions has acted without or in excess of jurisdiction, or the public market to petitioners does not adhere to the procedure for attachment
with grave abuse of discretion amounting to lack or excess of jurisdiction, and there laid out in the Rules of Court. In issuing such an order, the trial court gravely abused
is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of its discretion and the appellate courts nullification of the same should be sustained.
law.[7]
At this stage of the case, there is no need to pass upon the question of whether or
The office of a writ of certiorari is restricted to truly extraordinary cases wherein the not petitioners herein are the real parties-in-interest. In the event that judgment is
act of the lower court or quasi-judicial body is wholly void.[8] We held in a recent rendered against Salonga and the Municipality, this issue may be assigned as an
case that certiorari may be issued "only where it is clearly shown that there is a error in their appeal from such judgment.
patent and gross abuse of discretion as to amount to an evasion of positive duty or
to virtual refusal to perform a duty enjoined by law, or to act at all in contemplation WHEREFORE, we UPHOLD the Court of Appeals Decision dated February 6, 1992 in
of law, as where the power is exercised in an arbitrary and despotic manner by CA-G.R. SP No. 26336 insofar as it nullifies the contractors lien granted by the trial
reason of passion or personal hostility."[9] court in favor of petitioners in its September 5, 1991 Order. Consequently, we also
UPHOLD the appellate courts nullification of the trial courts October 11, 1991 Order
approving the guidelines for the operation of the San Antonio Public Market.
On March 17, 1998, [RTC Judge Ranada] dismissed the Complaint as against
THIRD DIVISION [respondent] for [petitioners] failure to comply with a condition precedent to the
[G.R. No. 148568. March 20, 2003] filing of a court action which is the prior resort to arbitration and as against x x x
Escaler for failure of the Complaint to state a cause of action x x x.
ATLANTIC ERECTORS, INC., petitioner, vs. HERBAL COVE REALTY CORPORATION,
respondent. [Petitioner] filed a Motion for Reconsideration of the March 17, 1998 dismissal
DECISION order. [Respondent] filed its Opposition thereto.
PANGANIBAN, J.:
On April 24, 1998, [respondent] filed a Motion to Cancel Notice of Lis Pendens. It
The pendency of a simple collection suit arising from the alleged nonpayment of argued that the notices of lis pendens are without basis because [petitioners] action
construction services, materials, unrealized income and damages does not justify is a purely personal action to collect a sum of money and recover damages and x x x
the annotation of a notice of lis pendens on the title to a property where does not directly affect title to, use or possession of real property.
construction has been done.
In his July 30, 1998 Order, [Judge Ranada] granted [respondents] Motion to Cancel
Statement of the Case Notice of Lis Pendens x x x:
Before the Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules [Petitioner] filed a Motion for Reconsideration of the aforesaid July 30, 1998 Order
of Court, challenging the May 30, 2000 Decision[2] of the Court of Appeals (CA) in to which [respondent] filed an Opposition.
CA-GR SP No. 56432. The dispositive portion of the Decision is reproduced as
follows: In a November 4, 1998 Order, [Judge Ranada,] while finding no merit in the grounds
raised by [petitioner] in its Motion for Reconsideration, reversed his July 30, 1998
WHEREFORE, the petition is granted and the assailed November 4, 1998 and Order and reinstated the notices of lis pendens, as follows:
October 22, 1999 orders annulled and set aside. The July 30, 1998 order of
respondent judge is reinstated granting the cancellation of the notices of lis 1. The Court finds no merit in plaintiffs contention that in dismissing the above-
pendens subject of this petition.[3] entitled case for lack of jurisdiction, and at the same time granting defendant Herbal
Coves motion to cancel notice of lis pendens, the Court [took] an inconsistent
In its July 21, 2001 Resolution,[4] the CA denied petitioners Motion for posture. The Rules provide that prior to the transmittal of the original record on
Reconsideration. appeal, the court may issue orders for the protection and preservation of the rights
of the parties which do not involve any matter litigated by the appeal (3rd par., Sec.
The Facts 10, Rule 41). Even as it declared itself without jurisdiction, this Court still has power
to act on incidents in this case, such as acting on motions for reconsideration, for
The factual antecedents of the case are summarized by the CA in this wise: correction, for lifting of lis pendens, or approving appeals, etc.
On June 20, 1996, [respondent] and [petitioner] entered into a Construction As correctly argued by defendant Herbal Cove, a notice of lis pendens serves only as
Contract whereby the former agreed to construct four (4) units of [townhouses] a precautionary measure or warning to prospective buyers of a property that there
designated as 16-A, 16-B, 17-A and 17-B and one (1) single detached unit for an is a pending litigation involving the same.
original contract price of P15,726,745.19 which was late[r] adjusted to
P16,726,745.19 as a result of additional works. The contract period is 180 days The Court notes that when it issued the Order of 30 July 1998 lifting the notice of lis
commencing [on] July 7, 1996 and to terminate on January 7, 1997. [Petitioner] pendens, there was as yet no appeal filed by plaintiff. Subsequently, on 10
claimed that the said period was not followed due to reasons attributable to September 1998, after a notice of appeal was filed by plaintiff on 4 September 1998,
[respondent], namely: suspension orders, additional works, force majeure, and the Branch Clerk of Court was ordered by the Court to elevate the entire records of
unjustifiable acts of omission or delay on the part of said [respondent]. the above-entitled case to the Court of Appeals. It therefore results that the above-
[Respondent], however, denied such claim and instead pointed to [petitioner] as entitled case is still pending. After a careful consideration of all matters relevant to
having exceeded the 180 day contract period aggravated by defective workmanship the lis pendens, the Court believes that justice will be better served by setting aside
and utilization of materials which are not in compliance with specifications. the Order of 30 July 1998.
xxxxxxxxx On November 27, 1998, [respondent] filed a Motion for Reconsideration of the
November 4, 1998 Order arguing that allowing the notice of lis pendens to remain
On November 21, 1997, [petitioner] filed a complaint for sum of money with annotated on the titles would defeat, not serve, the ends of justice and that
damages (Civil Case No. 97-2707) with the Regional Trial Court of Makati entitled equitable considerations cannot be resorted to when there is an applicable
Atlantic Erectors, Incorporated vs. Herbal Cove Realty Corp. and Ernest C. Escal[e]r. provision of law.
This case was raffled to Branch 137, x x x Judge Santiago J. Ranada presiding. In said
initiatory pleading, [petitioner] AEI asked for the following reliefs: xxxxxxxxx
AFTER DUE NOTICE AND HEARING, to order x x x defendant to: On October 22, 1999, [Judge Ranada] issued an order denying [respondents]
Motion for Reconsideration of the November 4, 1998 Order for lack of sufficient
1. Pay plaintiff the sum of P4,854,229.94 for the unpaid construction services already merit.[5]
rendered;
Thereafter, Respondent Herbal Cove filed with the CA a Petition for Certiorari.
2. To x x x pay plaintiff the sum of P1,595,551.00 for the construction materials,
equipment and tools of plaintiff held by defendant; Ruling of the Court of Appeals
3. To x x x pay plaintiff the sum of P2,250,000.00 for the [loss] x x x of expected Setting aside the Orders of the RTC dated November 4, 1998 and October 22, 1999,
income from the construction project; the CA reinstated the formers July 30, 1998 Order[6] granting Herbal Coves Motion
to Cancel the Notice of Lis Pendens. According to the appellate court, the re-
4. [T]o x x x pay plaintiff the sum of P800,000.00 for the cost of income by way of annotation of those notices was improper for want of any legal basis. It specifically
rental from the equipment of plaintiff held by defendants; cited Section 76 of Presidential Decree No. 1529 (the Property Registration Decree).
The decree provides that the registration of such notices is allowed only when court
5. To x x x pay plaintiff the sum of P5,000,000.00 for moral damages; proceedings directly affect the title to, or the use or the occupation of, the land or
any building thereon.
6. To x x x pay plaintiff the sum of P5,000,000.00 for exemplary damages;
The CA opined that the Complaint filed by petitioner in Civil Case No. 97-2707 was
7. To x x x pay plaintiff the sum equivalent of 25% of the total money claim plus intended purely to collect a sum of money and to recover damages. The appellate
P200,000.00 acceptance fee and P2,500.00 per court appearance; court ruled that the Complaint did not aver any ownership claim to the subject land
or any right of possession over the buildings constructed thereon. It further
8. To x x x pay the cost of suit. declared that absent any claim on the title to the buildings or on the possession
thereof, the notices of lis pendens had no leg to stand on.
On the same day of November 21, 1997, [petitioner] filed a notice of lis pendens for
annotation of the pendency of Civil Case No. 97-707 on titles TCTs nos. T-30228, Likewise, the CA held that Judge Ranada should have maintained the notice
30229, 30230, 30231 and 30232. When the lots covered by said titles were cancellations, which he had directed in his July 30, 1998 Order. Those notices were
subsequently subdivided into 50 lots, the notices of lis pendens were carried over to no longer necessary to protect the rights of petitioner, inasmuch as it could have
the titles of the subdivided lots, i.e., Transfer Certificate of Title Nos. T-36179 to T- procured protective relief from the Construction Industry Arbitral Commission
36226 and T-36245 to T-36246 of the Register of Deeds of Tagaytay City. (CIAC), where provisional remedies were available. The CA also mentioned
Finally, the CA opined that petitioners Complaint had not alleged or claimed, as In J.L. Bernardo Construction v. Court of Appeals,[13] the Court explained the
basis for the continued annotation of the Notice of Lis Pendens, the lien of concept of a contractors lien under Article 2242 of the Civil Code and the proper
contractors and laborers under Article 2242 of the New Civil Code. Moreover, mode for its enforcement as follows:
petitioner had not even referred to any lien of whatever nature. Verily, the CA ruled
that the failure to allege and claim the contractors lien did not warrant the Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy
continued annotation on the property titles of Respondent Herbal Cove. preference with respect to specific personal or real property of the debtor.
Specifically, the contractors lien claimed by the petitioners is granted under the
Hence, this Petition.[7] third paragraph of Article 2242 which provides that the claims of contractors
engaged in the construction, reconstruction or repair of buildings or other works
The Issues shall be preferred with respect to the specific building or other immovable property
constructed.
Petitioner raises the following issues for our consideration:
However, Article 2242 finds application when there is a concurrence of credits, i.e.,
I. Whether or not money claims representing cost of materials [for] and labor [on] when the same specific property of the debtor is subjected to the claims of several
the houses constructed on a property [are] a proper lien for annotation of lis creditors and the value of such property of the debtor is insufficient to pay in full all
pendens on the property title[.] the creditors. In such a situation, the question of preference will arise, that is, there
will be a need to determine which of the creditors will be paid ahead of the others.
II. Whether or not the trial court[,] after having declared itself without jurisdiction to Fundamental tenets of due process will dictate that this statutory lien should then
try the case[,] may still decide on [the] substantial issue of the case.[8] only be enforced in the context of some kind of a proceeding where the claims of all
the preferred creditors may be bindingly adjudicated, such as insolvency
This Courts Ruling proceedings.[14] (Emphasis supplied)
The Petition has no merit. Clearly then, neither Article 2242 of the Civil Code nor the enforcement of the lien
thereunder is applicable here, because petitioners Complaint failed to satisfy the
First Issue: foregoing requirements. Nowhere does it show that respondents property was
Proper Basis for a subject to the claims of other creditors or was insufficient to pay for all concurring
Notice of Lis Pendens debts. Moreover, the Complaint did not pertain to insolvency proceedings or to any
other action in which the adjudication of claims of preferred creditors could be
Petitioner avers that its money claim on the cost of labor and materials for the ascertained.
townhouses it constructed on the respondents land is a proper lien that justifies the
annotation of a notice of lis pendens on the land titles. According to petitioner, the Another factor negates the argument of petitioner that its money claim involves the
money claim constitutes a lien that can be enforced to secure payment for the said enforcement of a lien or the assertion of title to or possession of the subject
obligations. It argues that, to preserve the alleged improvement it had made on the property: the fact that it filed its action with the RTC of Makati, which is
subject land, such annotation on the property titles of respondent is necessary. undisputedly bereft of any jurisdiction over respondents property in Tagaytay City.
Certainly, actions affecting title to or possession of real property or the assertion of
On the other hand, Respondent Herbal Cove argues that the annotation is bereft of any interest therein should be commenced and tried in the proper court that has
any factual or legal basis, because petitioners Complaint[9] does not directly affect jurisdiction over the area, where the real property involved or a portion thereof is
the title to the property, or the use or the possession thereof. It also claims that situated.[15] If petitioner really intended to assert its claim or enforce its supposed
petitioners Complaint did not assert ownership of the property or any right to lien, interest or right over respondents subject properties, it would have instituted
possess it. Moreover, respondent attacks as baseless the annotation of the Notice of the proper proceedings or filed a real action with the RTC of Tagaytay City, which
Lis Pendens through the enforcement of a contractors lien under Article 2242 of the clearly had jurisdiction over those properties.[16]
Civil Code. It points out that the said provision applies only to cases in which there
are several creditors carrying on a legal action against an insolvent debtor. Narciso Pea, a leading authority on the subject of land titles and registration, gives
an explicit exposition on the inapplicability of the doctrine of lis pendens to certain
As a general rule, the only instances in which a notice of lis pendens may be availed actions and proceedings that specifically include money claims. He explains in this
of are as follows: (a) an action to recover possession of real estate; (b) an action for wise:
partition; and (c) any other court proceedings that directly affect the title to the land
or the building thereon or the use or the occupation thereof.[10] Additionally, this By express provision of law, the doctrine of lis pendens does not apply to
Court has held that resorting to lis pendens is not necessarily confined to cases that attachments, levies of execution, or to proceedings for the probate of wills, or for
involve title to or possession of real property. This annotation also applies to suits administration of the estate of deceased persons in the Court of First Instance. Also,
seeking to establish a right to, or an equitable estate or interest in, a specific real it is held generally that the doctrine of lis pendens has no application to a
property; or to enforce a lien, a charge or an encumbrance against it.[11] proceeding in which the only object sought is the recovery of a money judgment,
though the title or right of possession to property be incidentally affected. It is
Apparently, petitioner proceeds on the premise that its money claim involves the essential that the property be directly affected, as where the relief sought in the
enforcement of a lien. Since the money claim is for the nonpayment of materials action or suit includes the recovery of possession, or the enforcement of a lien, or
and labor used in the construction of townhouses, the lien referred to would have to an adjudication between conflicting claims of title, possession, or the right of
be that provided under Article 2242 of the Civil Code. This provision describes a possession to specific property, or requiring its transfer or sale[17] (Emphasis
contractors lien over an immovable property as follows: supplied)
Art. 2242. With reference to specific immovable property and real rights of the Pea adds that even if a party initially avails itself of a notice of lis pendens upon the
debtor, the following claims, mortgages and liens shall be preferred, and shall filing of a case in court, such notice is rendered nugatory if the case turns out to be
constitute an encumbrance on the immovable or real right: a purely personal action. We quote him as follows:
xxxxxxxxx It may be possible also that the case when commenced may justify a resort to lis
pendens, but during the progress thereof, it develops to be purely a personal action
(3) Claims of laborers, masons, mechanics and other workmen, as well as of for damages or otherwise. In such event, the notice of lis pendens has become
architects, engineers and contractors, engaged in the construction, reconstruction or functus officio.[18] (Emphasis supplied)
repair of buildings, canals or other works, upon said buildings, canals or other
works; Thus, when a complaint or an action is determined by the courts to be in personam,
the rationale for or purpose of the notice of lis pendens ceases to exist. To be sure,
(4) Claims of furnishers of materials used in the construction, reconstruction, or this Court has expressly and categorically declared that the annotation of a notice of
repair of buildings, canals or other works, upon said buildings, canals or other lis pendens on titles to properties is not proper in cases wherein the proceedings
works[.] (Emphasis supplied) instituted are actions in personam.[19]
However, a careful examination of petitioners Complaint, as well as the reliefs it Second Issue:
seeks, reveals that no such lien or interest over the property was ever alleged. The Jurisdiction of the Trial Court
Complaint merely asked for the payment of construction services and materials plus
damages, without mentioning -- much less asserting -- a lien or an encumbrance Petitioner argues that the RTC had no jurisdiction to issue the Order canceling the
over the property. Verily, it was a purely personal action and a simple collection Notice of Lis Pendens as well as the Order reinstating it. Supposedly, since both
case. It did not contain any material averment of any enforceable right, interest or Orders were issued by the trial court without jurisdiction, the annotation made by
lien in connection with the subject property. the Register of Deeds of Tagaytay City must remain in force.
xxxxxxxxx The events following the foreclosure are narrated by DBP in its petition, as follows:
In appeals by notice of appeal, the court loses jurisdiction over the case upon the In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP
perfection of the appeals filed in due time and the expiration of the time to appeal emerged and were declared the highest bidders over the foreclosed real properties,
of the other parties. (Emphasis supplied) buildings, mining claims, leasehold rights together with the improvements thereon
as well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel
On the basis of the foregoing rule, the trial court lost jurisdiction over the case only Refinery Plant at Surigao del Norte for a bid price of P14,238,048,150.00 [and] [o]ver
on August 31, 1998, when petitioner filed its Notice of Appeal.[20] Thus, any order the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao del
issued by the RTC prior to that date should be considered valid, because the court Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00 (Exhs. "5" to "5-
still had jurisdiction over the case. Accordingly, it still had the authority or A", "6", "7" to "7-AA-" PNB/DBP). For the foreclosed real properties together with all
jurisdiction to issue the July 30, 1998 Order canceling the Notice of Lis Pendens. On the buildings, major machineries & equipment and other improvements of MMIC
the other hand, the November 4, 1998 Order that set aside the July 30, 1998 Order located at Antipolo, Rizal, likewise held on August 31, 1984, were sold to PNB and
and reinstated that Notice should be considered without force and effect, because it DBP as highest bidders in the sum of P1,107,167,950.00 (Exhs. "10" to "10-X"-PNB/
was issued by the trial court after it had already lost jurisdiction. DBP).
In any case, even if we were to adopt petitioners theory that both the July 30, 1998 At the auction sale conducted on September 7, 1984[,] over the foreclosed real
and the November 4, 1998 Orders were void for having been issued without properties, buildings, & machineries/equipment of MMIC located at Sipalay, Negros
jurisdiction, the annotation is still improper for lack of factual and legal bases. Occidental were sold to PNB and DBP, as highest bidders, in the amount of
P2,383,534,000.00 and P543,040.000.00 respectively (Exhs. "8" to "8-BB", "9" to "90-
As discussed previously, erroneously misplaced is the reliance of petitioner on the GGGGGG"-PNB/DBP).
premise that its money claim is an action for the enforcement of a contractors lien.
Verily, the annotation of the Notice of Lis Pendens on the subject property titles Finally, at the public auction sale conducted on September 18, 1984 on the
should not have been made in the first place. The Complaint filed before the Makati foreclosed personal properties of MMIC, the same were sold to PNB and DBP as the
RTC -- for the collection of a sum of money and for damages -- did not provide highest bidder in the sum of P678,772,000.00 (Exhs. "11" and "12-QQQQQ"-PNB).
sufficient legal basis for such annotation.
PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely,
Finally, petitioner vehemently insists that the trial court had no jurisdiction to cancel in order to ensure the continued operation of the Nickel refinery plant and to
the Notice. Yet, the former filed before the CA an appeal, docketed as CA-GR CV prevent the deterioration of the assets foreclosed, assigned and transferred to
No. 65647,[21] questioning the RTCs dismissal of the Complaint for lack of Nonoc Mining and Industrial Corporation all their rights, interest and participation
jurisdiction. Moreover, it must be remembered that it was petitioner which had over the foreclosed properties of MMIC located at Nonoc Island, Surigao del Norte
initially invoked the jurisdiction of the trial court when the former sought a for an initial consideration of P14,361,000,000.00 (Exh. "13"-PNB).
judgment for the recovery of money and damages against respondent. Yet again, it
was also petitioner which assailed that same jurisdiction for issuing an order Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned
unfavorable to the formers cause. Indeed, parties cannot invoke the jurisdiction of a and transferred in favor of Maricalum Mining Corp. all its rights, interest and
court to secure affirmative relief, then repudiate or question that same jurisdiction participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental
after obtaining or failing to obtain such relief.[22] for an initial consideration of P325,800,000.00 (Exh. "14"-PNB/DBP).
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended,
Costs against petitioner. again assigned, transferred and conveyed to the National Government thru [sic] the
Asset Privatization Trust (APT) all its existing rights and interest over the assets of
SO ORDERED. MMIC, earlier assigned to Nonoc Mining and Industrial Corporation, Maricalum
Mining Corporation and Island Cement Corporation (Exh. "15" & "15-A" PNB/DBP).4
In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining
FIRST DIVISION purchased and caused to be delivered construction materials and other
merchandise from Remington Industrial Sales Corporation (Remington) worth
G.R. No. 126200 August 16, 2001 P921,755.95. The purchases remained unpaid as of August 1, 1984 when Remington
filed a complaint for a sum of money and damages against Marinduque Mining for
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, the value of the unpaid construction materials and other merchandise purchased by
vs. Marinduque Mining, as well as interest, attorney's fees and the costs of suit.
HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES
CORPORATION, respondents. On September 7, 1984, Remington's original complaint was amended to include
PNB and DBP as co-defendants in view of the foreclosure by the latter of the real
KAPUNAN, J.: and chattel mortgages on the real and personal properties, chattels, mining claims,
machinery, equipment and other assets of Marinduque Mining.5
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court, seeking a review of the Decision of the Court of Appeals dated October 6, On September 13, 1984, Remington filed a second amended complaint to include as
1995 and the Resolution of the same court dated August 29, 1996. additional defendant, the Nonoc Mining and Industrial Corporation (Nonoc Mining).
Nonoc Mining is the assignee of all real and personal properties, chattels,
The facts are as follows: machinery, equipment and all other assets of Marinduque Mining at its Nonoc
Nickel Factory in Surigao del Norte.6
Marinduque Mining-Industrial Corporation (Marinduque Mining), a corporation
engaged in the manufacture of pure and refined nickel, nickel and cobalt in mixed On March 26, 1986, Remington filed a third amended complaint including the
sulfides; copper ore/concentrates, cement and pyrite conc., obtained from the Maricalum Mining Corporation (Maricalum Mining) and Island Cement Corporation
Philippine National Bank (PNB) various loan accommodations. To secure the loans, (Island Cement) as co-defendants. Remington asserted that Marinduque Mining,
Marinduque Mining executed on October 9, 1978 a Deed of Real Estate Mortgage PNB, DBP, Nonoc Mining, Maricalum Mining and Island Cement must be treated in
and Chattel Mortgage in favor of PNB. The mortgage covered all of Marinduque law as one and the same entity by disregarding the veil of corporate fiction since:
Mining's real properties, located at Surigao del Norte, Sipalay, Negros Occidental,
and at Antipolo, Rizal, including the improvements thereon. As of November 20, 1. Co-defendants NMIC, Maricalum and Island Cement which are newly
1980, the loans extended by PNB amounted to P4 Billion, exclusive of interest and created entities are practically owned wholly by defendants PNB and DBP, and
charges.1 managed by their officers, aside from the fact that the aforesaid co-defendants
NMIC, Maricalum and Island Cement were organized in such a hurry and in such
On July 13, 1981, Marinduque Mining executed in favor of PNB and the suspicious circumstances by co-defendants PNB and DBP after the supposed
Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement. In extrajudicial foreclosure of MMIC's assets as to make their supposed projects assets,
said agreement, Marinduque Mining mortgaged to PNB and DBP all its real machineries and equipment which were originally owned by co-defendant MMIC
properties located at Surigao del Norte, Sipalay, Negros Occidental, and Antipolo, beyond the reach of creditors of the latter.
Rizal, including the improvements thereon. The mortgage also covered all of
To reiterate, the doctrine of piercing the veil of corporate fiction applies only when A. The previous decision failed to take fully into account the radical
such corporate fiction is used to defeat public convenience, justify wrong, protect changes introduced by the Civil Code of the Philippines into the system of priorities
fraud or defend crime.14 To disregard the separate juridical personality of a among creditors ordained by the Civil Code of 1889.
corporation, the wrongdoing must be clearly and convincingly established. It cannot
be presumed.15 In this case, the Court finds that Remington failed to discharge its Pursuant to the former Code, conflicts among creditors entitled to preference as to
burden of proving bad faith on the part of Marinduque Mining and its transferees in specific real property under Article 1923 were to be resolved according to an order
the mortgage and foreclosure of the subject properties to justify the piercing of the of priorities established by Article 1927, whereby one class of creditors could
corporate veil. exclude the creditors of lower order until the claims of the former were fully
satisfied out of the proceeds of the sale of the real property subject of the
The Court of Appeals also held that there exists in Remington's favor a "lien" on the preference, and could even exhaust proceeds if necessary.
unpaid purchases of Marinduque Mining, and as transferee of these purchases, DBP
should be held liable for the value thereof. Under the system of the Civil Code of the Philippines, however, only taxes enjoy a
similar absolute preference. All the remaining thirteen classes of preferred creditors
In the absence of liquidation proceedings, however, the claim of Remington cannot under Article 2242 enjoy no priority among themselves, but must be paid pro rata,
be enforced against DBP. Article 2241 of the Civil Code provides: i.e., in proportion to the amount of the respective credits. Thus, Article 2249
provides:
ARTICLE 2241. With reference to specific movable property of the debtor,
the following claims or liens shall be preferred: "If there are two or more credits with respect to the same specific real property or
real rights, they shall be satisfied pro rata, after the payment of the taxes and
xxx xxx xxx assessments upon the immovable property or real rights."
(3) Claims for the unpaid price of movables sold, on said movables, so long But in order to make this prorating fully effective, the preferred creditors
as they are in the possession of the debtor, up to the value of the same; and if the enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits
movable has been resold by the debtor and the price is still unpaid, the lien may be outstanding) must necessarily be convened, and the import of their claims
enforced on the price; this right is not lost by the immobilization of the thing by ascertained. It is thus apparent that the full application of Articles 2249 and 2242
destination, provided it has not lost its form, substance and identity, neither is the demands that there must be first some proceeding where the claims of all the
right lost by the sale of the thing together with other property for a lump sum, preferred creditors may be bindingly adjudicated, such as insolvency, the settlement
when the price thereof can be determined proportionally; of decedent's estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.
(4) Credits guaranteed with a pledge so long as the things pledged are in
the hands of the creditor, or those guaranteed by a chattel mortgage, upon the This explains the rule of Article 2243 of the new Civil Code that
things pledged or mortgaged, up to the value thereof;
"The claims or credits enumerated in the two preceding articles shall be considered
xxx xxx xxx as mortgages or pledges of real or personal property, or liens within the purview of
legal provisions governing insolvency x x x (Italics supplied).
In Barretto vs. Villanueva,16 the Court had occasion to construe Article 2242,
governing claims or liens over specific immovable property. The facts that gave rise And the rule is further clarified in the Report of the Code Commission, as follows
to the case were summarized by this Court in its resolution as follows:
"The question as to whether the Civil Code and the Insolvency Law can be
x x x Rosario Cruzado sold all her right, title, and interest and that of her children in harmonized is settled by this Article (2243). The preferences named in Articles 2261
the house and lot herein involved to Pura L. Villanueva for P19,000.00. The and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency
purchaser paid P1,500 in advance, and executed a promissory note for the balance Law." (Italics supplied)
of P17,500.00. However, the buyer could only pay P5,500 on account of the note, for
which reason the vendor obtained judgment for the unpaid balance. In the Thus, it becomes evident that one preferred creditor's third-party claim to the
meantime, the buyer Villanueva was able to secure a clean certificate of title (No. proceeds of a foreclosure sale (as in the case now before us) is not the proceeding
32626), and mortgaged the property to appellant Magdalena C. Barretto, married to contemplated by law for the enforcement of preferences under Article 2242, unless
Jose C. Baretto, to secure a loan of P30,000.03, said mortgage having been duly the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of
recorded. the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain the pro rata dividend corresponding to each, because the rights of the
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter other creditors likewise enjoying preference under Article 2242 can not be
foreclosed the mortgage in her favor, obtained judgment, and upon its becoming ascertained. Wherefore, the order of the Court of First Instance of Manila now
final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a appealed from, decreeing that the proceeds of the foreclosure sale be apportioned
motion for recognition for her "vendor's lien" in the amount of P12,000.00, plus only between appellant and appellee, is incorrect, and must be reversed. [Emphasis
legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After supplied]
hearing, the court below ordered the "lien" annotated on the back of Certificate of
Title No. 32526, with the proviso that in case of sale under the foreclosure decree The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et
the vendor's lien and the mortgage credit of appellant Barretto should be paid pro al.,18 and in two cases both entitled Development Bank of the Philippines vs.
rata from the proceeds. Our original decision affirmed this order of the Court of First NLRC.19
Instance of Manila.
Although Barretto involved specific immovable property, the ruling therein should
In its decision upholding the order of the lower court, the Court ratiocinated thus: apply equally in this case where specific movable property is involved. As the
extrajudicial foreclosure instituted by PNB and DBP is not the liquidation proceeding
Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that contemplated by the Civil Code, Remington cannot claim its pro rata share from
constitute an encumbrance on specific immovable property, and among them are: DBP.
"(2) For the unpaid price of real property sold, upon the immovable sold"; WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated
and October 6, 1995 and its Resolution promulgated on August 29, 1996 is REVERSED
and SET ASIDE. The original complaint filed in the Regional Trial Court in CV Case
"(5) Mortgage credits recorded in the Registry of Property." No. 84-25858 is hereby DISMISSED.
Article 2249 of the same Code provides that "if there are two or more credits with SO ORDERED.
respect to the same specific real property or real rights, they shall be satisfied pro-
rata, after the payment of the taxes and assessments upon the immovable property
or real rights."
FIRST DIVISION
Application of the above-quoted provisions to the case at bar would mean that the
herein appellee Rosario Cruzado as an unpaid vendor of the property in question
has the right to share pro-rata with the appellants the proceeds of the foreclosure
sale. G.R. No. 108031 March 1, 1995
Sec. 10. Payment of wages in case of bankruptcy. Unpaid wages earned by . . . A preference applies only to claims which do not attach to specific properties. A
the employees before the declaration of bankruptcy or judicial liquidation of the lien creates a charge on a particular property. The right of first preference as regards
employer's business shall be given first preference and shall be paid in full before unpaid wages recognized by Article 110 does not constitute a lien on the property
other creditors may establish any claim to a share in the assets of the employer. of the insolvent debtor in favor of workers. It is but a preference of credit in their
favor, a preference in application. It is a method adopted to determine and specify
We interpreted this provision in Development Bank of the Philippines v. Santos 4 to the order in which credits should be paid in the final distribution of the proceeds of
mean that the insolvent's assets. It is a right to a first preference in the discharge of the funds
of the judgment debtor . . . In the words of Republic v. Peralta, supra: Article 110 of
. . . a declaration of bankruptcy or a judicial liquidation must be present before the the Labor Code does not purport to create a lien in favor of workers or employees
worker's preference may be enforced. Thus, Article 110 of the Labor Code and its for unpaid wages either upon all of the properties or upon any particular property
implementing rule cannot be invoked by the respondents in this case absent a owned by their employer. Claims for unpaid wages do not therefore fall at all within
formal declaration of bankruptcy or a liquidation order . . . . (Emphasis supplied). the category of specially preferred claims established under Articles 2241 and 2242
of the Civil Code, except to the extent that such claims for unpaid wages are already
The rationale is that to hold Art. 110 to be applicable also to extrajudicial covered by Article 2241, number 6: "claims for laborers: wages, on the goods
proceedings would be putting the worker in a better position than the State which manufactured or the work done;" or by Article 2242, number 3, "claims of laborers
could only assert its own prior preference in case of a judicial proceeding. 5 Art. 110, and other workers engaged in the construction reconstruction or repair of buildings,
which was amended by R.A. 6715 effective 21 March 1989, now reads: canals and other works, upon said buildings, canals and other works . . . . To the
extent that claims for unpaid wages fall outside the scope of Article 2241, number 6,
Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy and 22421 number 3, they would come within the ambit of the category of ordinary
or liquidation of an employer's business, his workers shall enjoy first preference as preferred credits under Article 2244.
regards their unpaid wages and other monetary claims, any provision of law to the
contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in The DBP anchors its claim on a mortgage credit. A mortgage directly and
full before the claims of the Government and other creditors may be paid. immediately subjects the property upon which it is imposed, whoever the possessor
may be, to the fulfillment of the obligation for whose security it was constituted
Obviously, the amendment expanded the concept of "worker preference" to cover (Article 2176, Civil Code). It creates a real right which is enforceable against the
not only unpaid wages but also other monetary claims to which even claims of the whole world. It is a lien on an identified immovable property, which a preference is
Government must be deemed subordinate. The Rules and Regulations not. A recorded mortgage credit is a special preferred credit under Article 2242 (5)
Implementing R.A. 6715, approved 24 May 1989, also amended the corresponding of the Civil Code on classification of credits. The preference given by Article 1l0,
implementing rule, and now reads: when not falling within Article 2241 (6) and Article 2242 (3), of the Civil Code and
not attached to any specific property, is all ordinary preferred credit although its
The present controversy could have been easily settled by public respondent had it is given to a laborer for a separation from employment computed on the basis of
referred to ample jurisprudence which already provides the solution. Stare decisions the number of years the laborer was employed by the employer; it is a form of
et non quiet movere. Once a case is decided by this Court as the final arbiter of any penalty or damage against the employer in favor of the employee for the latter's
justifiable controversy one way, then another case involving exactly the same point dismissal or separation from service. 3
at issue should be decided in the same manner. Public respondent had no choice on
the matter. It could not have ruled any other way. This Court having spoken in a Article 97 (f) of the Labor Code defines "wages" in the following terms:
string of cases against public respondent, its duty is simply to obey judicial
precedents. 9 Any further disregard, if not defiance, of our rulings will be considered Wage' paid to any employee shall mean the remuneration or earnings, however
a ground to hold public respondent in contempt. designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other method of
WHEREFORE, the petition is GRANTED. The decision of public respondent National calculating the same, which is payable by an employer to an employee under a
Labor Relations Commission affirming the decision of the Labor Arbiter insofar as it written or unwritten contract of employment for work done or to be done, or for
held petitioner Development Bank of the Philippines liable for the monetary claims services rendered or to be rendered, and includes the fair and reasonable value, as
of private respondent Leonor A. Ang is SET ASIDE. The temporary restraining order determined by the Secretary of Labor, of board, lodging, or other facilities
we issued on 8 February 1993 10 enjoining the execution of the decision of public customarily furnished by the employer to the employee. 'Fair and reasonable value'
respondent against petitioner is made PERMANENT. shall not include any profit to the employer or to any person affiliated with the
employer.(emphasis supplied)
SO ORDERED.
We are unable to subscribe to the view urged by the Solicitor General. We note, in
this connection, that in Philippine Commercial and Industrial Bank (PCIB) us.
National Mines and Allied Workers Union, 4 the Solicitor General took a different
EN BANC view and there urged that the term "wages" under Article 110 of the Labor Code
may be regarded as embracing within its scope severance pay or termination or
G.R. No. L-56568 May 20, 1987 separation pay. In PCIB, this Court agreed with the position advanced by the
Solicitor General. 5 We see no reason for overturning this particular position. We
REPUBLIC OF THE PHILIPPINES, represented by the Bureau of Customs and the continue to believe that, for the specific purposes of Article 110 and in the context
Bureau of Internal Revenue, petitioner, of insolvency termination or separation pay is reasonably regarded as forming part
vs. of the remuneration or other money benefits accruing to employees or workers by
HONORABLE E.L. PERALTA, PRESIDING JUDGE OF THE COURT OF FIRST INSTANCE reason of their having previously rendered services to their employer; as such, they
OF MANILA, BRANCH XVII, QUALITY TABACCO CORPORATION, FRANCISCO, fall within the scope of "remuneration or earnings for services rendered or to be
FEDERACION OBRERO DE LA INDUSTRIA TABAQUERA Y OTROS TRABAJADORES DE rendered ." Liability for separation pay might indeed have the effect of a penalty,
FILIPINAS (FOITAF) USTC EMPLOYEES ASSOCIATION WORKERS UNION-PTGWO, so far as the employer is concerned. So far as concerns the employees, however,
respondents. separation pay is additional remuneration to which they become entitled because,
having previously rendered services, they are separated from the employer's service.
Oscar A. Pascua for assignee F. Candelaria. The relationship between separation pay and services rendered is underscored by
the fact that separation pay is measured by the amount (i.e., length) of the services
Teofilo C. Villarico for respondent Federation. rendered. This construction is sustained both by the specific terms of Article 110
and by the major purposes and basic policy embodied in the Labor Code. 6 It is also
Pedro A. Lopez for respondent USTC. the construction that is suggested by Article 4 of the Labor Code which directs that
doubts assuming that any substantial rather than merely frivolous doubts
remain-in the interpretation of the provisions of the labor Code and its
implementing rules and regulations shall be "resolved in favor of labor."
FELICIANO, J.:
The resolution of the issue of priority among the several claims filed in the
The Republic of the Philippines seeks the review on certiorari of the Order dated 17 insolvency proceedings instituted by the Insolvent cannot, however, rest on a
November 1980 of the Court of First Instance of Manila in its Civil Case No. 108395 reading of Article 110 of the labor Code alone.
entitled "In the Matter of Voluntary Insolvency of Quality Tobacco Corporation,
Quality Tobacco Corporation, Petitioner," and of the Order dated 19 January 1981 of Article 110 of the Labor Code, in determining the reach of its terms, cannot be
the same court denying the motion for reconsideration of the earlier Order filed by viewed in isolation. Rather, Article 110 must be read in relation to the provisions of
the Bureau of Internal Revenue and the Bureau of Customs for the Republic. the Civil Code concerning the classification, concurrence and preference of credits,
which provisions find particular application in insolvency proceedings where the
In the voluntary insolvency proceedings commenced in May 1977 by private claims of all creditors, preferred or non-preferred, may be adjudicated in a binding
respondent Quality Tobacco Corporation (the "Insolvent"), the following claims of manner. 7 It is thus important to begin by outlining the scheme constituted by the
creditors were filed: provisions of the Civil Code on this subject.
(i) P2,806,729.92, by the USTC Association of Employees and workers Those provisions may be seen to classify credits against a particular insolvent into
Union-PTGWO USTC as separation pay for their members. This amount plus an three general categories, namely:
additional sum of P280,672.99 as attorney's fees had been awarded by the National
Labor Relations Commission in NLRC Case No. RB-IV-9775-77. 1 (a) special preferred credits listed in Articles 2241 and 2242,
(ii) P53,805.05 by the Federacion de la Industria Tabaquera y Otros (b) ordinary preferred credits listed in Article 2244; and
Trabajadores de Filipinas ("FOITAF), as separation pay for their members, an amount
similarly awarded by the NLRC in the same NLRC Case. (c) common credits under Article 2245.
(iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection Turning first to special preferred credits under Articles 2241 and 2242, it should be
fees covering the period 1 October 1967 to 28 February 1973; noted at once that these credits constitute liens or encumbrances on the specific
movable or immovable property to which they relate. Article 2243 makes clear that
(iv) P276,161.00 by the Bureau of Customs for customs duties and taxes these credits "shall be considered as mortgages or pledges of real or personal
payable on various importations by the Insolvent. These obligations appear to be property, or liens within the purview of legal provisions governing insolvency." It
secured by surety bonds. 2 Some of these imported items are apparently still in should be emphasized in this connection that "duties, taxes and fees due [on
customs custody so far as the record before this Court goes. specific movable property of the insolvent] to the State or any subdivision thereof"
(Article 2241 [1]) and "taxes due upon the [insolvent's] land or building (2242
In its questioned Order of 17 November 1980, the trial court held that the above- [1])"stand first in preference in respect of the particular movable or immovable
enumerated claims of USTC and FOITAF (hereafter collectively referred to as the property to which the tax liens have attached. Article 2243 is quite explicit: "[T]axes
"Unions") for separation pay of their respective members embodied in final awards mentioned in number 1, Article 2241 and number 1, Article 2242 shall first be
of the National Labor Relations Commission were to be preferred over the claims of satisfied. " The claims listed in numbers 2 to 13 in Article 2241 and in numbers 2 to
the Bureau of Customs and the Bureau of Internal Revenue. The trial court, in so 10 in Articles 2242, all come after taxes in order of precedence; such claims enjoy
ruling, relied primarily upon Article 110 of the Labor Code which reads thus: their privileged character as liens and may be paid only to the extent that taxes have
been paid from the proceeds of the specific property involved (or from any other
Article 110. Worker preference in case of bankruptcy In the event of bankruptcy sources) and only in respect of the remaining balance of such proceeds. What is
or liquidation of an employer's business, his workers shall enjoy first preference as more, these other (non-tax) credits, although constituting liens attaching to
regards wages due them for services rendered during the period prior to the particular property, are not preferred one over another inter se. Provided tax liens
bankruptcy or liquidation, any provision of law to the contrary notwithstanding. shall have been satisfied, non-tax liens or special preferred credits which subsist in
Union paid wages shall be paid in full before other creditors may establish any claim respect of specific movable or immovable property are to be treated on an equal
to a share in the assets of the employer. basis and to be satisfied concurrently and proportionately. 8 Put succintly, Articles
2241 and 2242 jointly with Articles 2246 to 2249 establish a two-tier order of
The Solicitor General, in seeking the reversal of the questioned Orders, argues that preference. The first tier includes only taxes, duties and fees due on specific
Article 110 of the Labor Code is not applicable as it speaks of "wages," a term which movable or immovable property. All other special preferred credits stand on the
Credits which are specially preferred because they constitute liens (tax or non-tax) in not in the limited sense [of burdens imposed upon persons and/or properties, by
turn, take precedence over ordinary preferred credits so far as concerns the way of contributions to the support of the Government, in consideration of general
property to which the liens have attached. The specially preferred credits must be benefits derived from its operation], but, in a broad sense, encompassing all
discharged first out of the proceeds of the property to which they relate, before government revenues collectible by the Commissioner of Internal Revenue under
ordinary preferred creditors may lay claim to any part of such proceeds. 9 said Code, whether involving taxes, in the strict technical sense thereof, or not. x x x
As used in Title IX of said Code, the term 'tax' includes 'any national internal revenue
If the value of the specific property involved is greater than the sum total of the tax tax, fee or charge imposed by the Code. 17
liens and other specially preferred credits, the residual value will form part of the
"free property" of the insolvent i.e., property not impressed with liens by It follows that the claim of the Bureau of Internal Revenue for unpaid tobacco
operation of Articles 2241 and 2242. If, on the other hand, the value of the specific inspection fees constitutes a claim for unpaid internal revenue taxes 18 which gives
movable or immovable is less than the aggregate of the tax liens and other specially rise to a tax lien upon all the properties and assets, movable and immovable, of the
preferred credits, the unsatisfied balance of the tax liens and other such credits are Insolvent as taxpayer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249
to the treated as ordinary credits under Article 2244 and to be paid in the order of of the Civil Code, this tax claim must be given preference over any other claim of
preference there set up. 10 any other creditor, in respect of any and all properties of the Insolvent. 19
In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate C. Claims of the Unions for Separation Pay of Their Members
property which follow such property. What Article 2244 creates are simply rights in
favor of certain creditors to have the cash and other assets of the insolvent applied Article 110 of the Labor Code does not purport to create a lien in favor of workers
in a certain sequence or order of priority. 11 or employees for unpaid wages either upon all of the properties or upon any
particular property owned by their employer. Claims for unpaid wages do not
Only in respect of the insolvent's "free property" is an order of priority established therefore fall at all within the category of specially preferred claims established
by Article 2244. In this sequence, certain taxes and assessments also figure but these under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims
do not have the same kind of overriding preference that Articles 2241 No. 1 and for unpaid wages are already covered by Article 2241, number 6. "claims for
2242 No. I create for taxes which constituted liens on the taxpayer's property. Under laborers' wages, on the goods manufactured or the work done;" or by Article 2242,
Article 2244, number 3: "claims of laborers and other workers engaged in the construction,
reconstruction or repair of buildings, canals and other works, upon said buildings,
(a) taxes and assessments due to the national government, excluding those canals or other works." To the extent that claims for unpaid wages fall outside the
which result in tax liens under Articles 2241 No. 1 and 2242 No. 1 but including the scope of Article 2241, number 6 and 2242, number 3, they would come within the
balance thereof not satisfied out of the movable or immovable property to which ambit of the category of ordinary preferred credits under Article 2244.
such liens attached, are ninth in priority;
Applying Article 2241, number 6 to the instant case, the claims of the Unions for
(b) taxes and assessments due any province, excluding those impressed as separation pay of their members constitute liens attaching to the processed leaf
tax liens under Articles 2241 No. 1 and 2242 No. 1, but including the balance tobacco, cigars and cigarettes and other products produced or manufactured by the
thereof not satisfied out of the movable or immovable property to which such liens Insolvent, but not to other assets owned by the Insolvent. And even in respect of
attached, are tenth in priority; and such tobacco and tobacco products produced by the Insolvent, the claims of the
Unions may be given effect only after the Bureau of Internal Revenue's claim for
(c) taxes and assessments due any city or municipality, excluding those unpaid tobacco inspection fees shall have been satisfied out of the products so
impressed as tax liens under Articles 2241 No. I and 2242 No. 2 but including the manufactured by the Insolvent.
balance thereof not satisfied out of the movable or immovable property to which
such liens attached, are eleventh in priority. Article 2242, number 3, also creates a lien or encumbrance upon a building or other
real property of the Insolvent in favor of workmen who constructed or repaired such
It is within the framework of the foregoing rules of the Civil Code that the question building or other real property. Article 2242, number 3, does not however appear
of the relative priority of the claims of the Bureau of Customs and the Bureau of relevant in the instant case, since the members of the Unions to whom separation
Internal Revenue, on the one hand, and of the claims of the Unions for separation pay is due rendered services to the Insolvent not (so far as the record of this case
pay of their members, on the other hand, is to be resolved. A related vital issue is would show) in the construction or repair of buildings or other real property, but
what impact Article 110 of the labor Code has had on those provisions of the Civil rather, in the regular course of the manufacturing operations of the Insolvent. The
Code. Unions' claims do not therefore constitute a lien or encumbrance upon any
immovable property owned by the Insolvent, but rather, as already indicated, upon
A. Claim of the Bureau of Customs for Unpaid Customs Duties and Taxes- the Insolvent's existing inventory (if any of processed tobacco and tobacco
products.
Under Section 1204 of the Tariff and Customs Code, 12 the liability of an importer
We come to the question of what impact Article 110 of the Labor Code has had
for duties, taxes and fees and other charges attaching on importation constitute a upon the complete scheme of classification, concurrence and preference of credits
personal debt due from the importer to the government which can be discharged in insolvency set out in the Civil Code. We believe and so hold that Article 110 of the
only by payment in full of all duties, taxes, fees and other charges legally accruing It Labor Code did not sweep away the overriding preference accorded under the
also constitutes a lien upon the articles imported which may be enforced while such scheme of the Civil Code to tax claims of the government or any subdivision thereof
articles are in the custody or subject to the control of the government. (emphasis which constitute a lien upon properties of the Insolvent. It is frequently said that
supplied) taxes are the very lifeblood of government. The effective collection of taxes is a task
of highest importance for the sovereign. It is critical indeed for its own survival. It
Clearly, the claim of the Bureau of Customs for unpaid customs duties and taxes follows that language of a much higher degree of specificity than that exhibited in
enjoys the status of a specially preferred credit under Article 2241, No. 1, of the Civil Article 110 of the Labor Code is necessary to set aside the intent and purpose of the
Code. only in respect of the articles importation of which by the Insolvent resulted legislator that shines through the precisely crafted provisions of the Civil Code. It
in the assessment of the unpaid taxes and duties, and which are still in the custody cannot be assumed simpliciter that the legislative authority, by using in Article 110
or subject to the control of the Bureau of Customs. The goods imported on one the words "first preference" and "any provision of law to the contrary
occasion are not subject to a lien for customs duties and taxes assessed upon other notwithstanding" intended to disrupt the elaborate and symmetrical structure set
importations though also effected by the Insolvent. Customs duties and taxes which up in the Civil Code. Neither can it be assumed casually that Article 110 intended to
remain unsatisfied after levy upon the imported articles on which such duties and subsume the sovereign itself within the term "other creditors" in stating that
taxes are due, would have to be paid out of the Insolvent's "free property" in "unpaid wages shall be paid in full before other creditors may establish any claim to
accordance with the order of preference embodied in Article 2244 of the Civil Code. a share in the assets of employer." Insistent considerations of public policy prevent
Such unsatisfied customs duties and taxes would fall within Article 2244, No. 9, of us from giving to "other creditors" a linguistically unlimited scope that would
the Civil Code and hence would be ninth in priority. embrace the universe of creditors save only unpaid employees.
B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees We, however, do not believe that Article 110 has had no impact at all upon the
provisions of the Civil Code. Bearing in mind the overriding precedence given to
Under Section 315 of the National Internal Revenue Code ("old Tax Code"), 13 later taxes, duties and fees by the Civil Code and the fact that the Labor Code does not
reenacted in Identical terms as Section 301 of the Tax Code of 1977, 14 an unpaid impress any lien on the property of an employer, the use of the phrase "first
"internal revenue tax," together with related interest, penalties and costs, constitutes preference" in Article 110 indicates that what Article 110 intended to modify is the
a lien in favor of the Government from the time an assessment therefor is made and order of preference found in Article 2244, which order relates, as we have seen, to
until paid, "upon all property and rights to property belonging to the taxpayer." property of the Insolvent that is not burdened with the liens or encumbrances
created or recognized by Articles 2241 and 2242. We have noted that Article 2244,
Tobacco inspection fees are specifically mentioned as one of the miscellaneous number 2, establishes second priority for claims for wages for services rendered by
taxes imposed under the National Internal Revenue Code, specifically Title VIII, employees or laborers of the Insolvent "for one year preceding the commencement
Chapter IX of the old Tax Code and little VIII, Chapter VII of the Tax Code of 1977. of the proceedings in insolvency." Article 110 of the Labor Code establishes "first
15 Tobacco inspection fees are collected both for purposes of regulation and preference" for services rendered "during the period prior to the bankruptcy or
control and for purposes of revenue generation: half of the said fees accrues to the liquidation, " a period not limited to the year immediately prior to the bankruptcy or
Tobacco Inspection Fund created by Section 12 of Act No. 2613, as amended by Act liquidation. Thus, very substantial effect may be given to the provisions of Article
No. 3179, while the other half accrues to the Cultural Center of the Philippines. 110 without grievously distorting the framework established in the Civil Code by
Tobacco inspection fees, in other words, are imposed both as a regulatory measure holding, as we so hold, that Article 110 of the Labor Code has modified Article 2244
and as a revenue-raising measure. In Commissioner of Internal Revenue us. of the Civil Code in two respects: (a) firstly, by removing the one year limitation
Accordingly, and by way of recapitulating the application of Civil Code and Labor
Code provisions to the facts herein, the trial court should inventory the properties of
the Insolvent so as to determine specifically: (a) whether the assets of the Insolvent
before the trial court includes stocks of processed or manufactured tobacco
products; and (b) whether the Bureau of Customs still has in its custody or control
articles imported by the Insolvent and subject to the lien of the government for
unpaid customs duties and taxes.
Turning to (b), should the Bureau of Customs no longer have any importations by
the Insolvent still within customs custody or control, or should the importations still
held by the Bureau of Customs be or have become insufficient in value for the
purpose, customs duties and taxes remaining unpaid would have only ninth priority
by virtue of Article 2244, number 9. In respect therefore of the Insolvent's "free
property, " the claims of the Unions will enjoy first priority under Article 2244 as
modified and will be paid ahead of the claims of the Bureau of Customs for any
customs duties and taxes still remaining unsatisfied.
It is understood that the claims of the Unions referred to above do not include the
10% claim for attorney's fees. Attorney's fees incurred by the Unions do not stand
on the same footing as the Unions' claims for separation pay of their members.
WHEREFORE, the petition for review is granted and the Orders dated 17 November
1980 and 19 January 1981 of the trial court are modified accordingly. This case is
hereby remanded to the trial court for further proceedings in insolvency compatible
with the rulings set forth above. No pronouncement as to costs.
SO ORDERED.