G.R. No.

L-19227 February 17, 1968

DIOSDADO YULIONGSIU, plaintiff-appellant, vs.PHILIPPINE NATIONAL BANK (Cebu Branch), defendant-appellee.

Vicente Jaime, Regino Hermosisima & E. Lumontad, Sr. for plaintiff-appellant. Tomas Besa, R. B. de los Reyes and C. E.
Medina for defendant-appellee.

BENGZON, J.P., J.:

Plaintiff-appellant Diosdado Yuliongsiu 1 was the owner of two (2) vessels, namely: The M/S Surigao, valued at
P109,925.78 and the M/S Don Dino, valued at P63,000.00, and operated the FS-203, valued at P210,672.24, which was
purchased by him from the Philippine Shipping Commission, by installment or on account. As of January or February, 1943,
plaintiff had paid to the Philippine Shipping Commission only the sum of P76,500 and the balance of the purchase price was
payable at P50,000 a year, due on or before the end of the current year. 2

On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant Philippine National Bank, Cebu Branch. To
guarantee its payment, plaintiff pledged the M/S Surigao, M/S Don Dino and its equity in the FS-203 to the defendant bank,
as evidenced by the pledge contract, Exhibit "A" & "1-Bank", executed on the same day and duly registered with the office of
the Collector of Customs for the Port of Cebu. 3

Subsequently, plaintiff effected partial payment of the loan in the sum of P20,000. The remaining balance was renewed
by the execution of two (2) promissory notes in the bank's favor. The first note, dated December 18, 1947, for P20,000, was
due on April 16, 1948 while the second, dated February 26, 1948, for P10,000, was due on June 25, 1948. These two notes
were never paid at all by plaintiff on their respective due dates. 4

On April 6, 1948, the bank filed criminal charges against plaintiff and two other accused for estafa thru falsification of
commercial documents, because plaintiff had, as last indorsee, deposited with defendant bank, from March 11 to March 31,
1948, seven Bank of the Philippine Islands checks totalling P184,000. The drawer thereof — one of the co-accused — had
no funds in the drawee bank. However, in connivance with one employee of defendant bank, plaintiff was able to withdraw
the amount credited to him before the discovery of the defraudation on April 2, 1948. Plaintiff and his co-accused were
convicted by the trial court and sentenced to indemnify the defendant bank in the sum of P184,000. On appeal, the conviction
was affirmed by the Court of Appeals on October 31, 1950. The corresponding writ of execution issued to implement the
order for indemnification was returned unsatisfied as plaintiff was totally insolvent. 5

Meanwhile, together with the institution of the criminal action, defendant bank took physical possession of three
pledged vessels while they were at the Port of Cebu, and on April 29, 1948, after the first note fell due and was not paid, the
Cebu Branch Manager of defendant bank, acting as attorney-in-fact of plaintiff pursuant to the terms of the pledge contract,
executed a document of sale, Exhibit "4", transferring the two pledged vessels and plaintiff's equity in FS-203, to defendant
bank for P30,042.72. 6

The FS-203 was subsequently surrendered by the defendant bank to the Philippine Shipping Commission which
rescinded the sale to plaintiff on September 8, 1948, for failure to pay the remaining installments on the purchase price
thereof. 7 The other two boats, the M/S Surigao and the M/S Don Dino were sold by defendant bank to third parties on March
15, 1951.

On July 19, 1948, plaintiff commenced action in the Court of First Instance of Cebu to recover the three vessels or their
value and damages from defendant bank. The latter filed its answer, with a counterclaim for P202,000 plus P5,000 damages.
After issues were joined, a pretrial was held resulting in a partial stipulation of facts dated October 2, 1958, reciting most of
the facts above-narrated. During the course of the trial, defendant amended its answer reducing its claim from P202,000 to
P8,846.01, 8 but increasing its alleged damages to P35,000.

The lower court rendered its decision on February 13, 1960 ruling: (a) that the bank's taking of physical possession of
the vessels on April 6, 1948 was justified by the pledge contract, Exhibit "A" & "1-Bank" and the law; (b) that the private sale
of the pledged vessels by defendant bank to itself without notice to the plaintiff-pledgor as stipulated in the pledge contract
was likewise valid; and (c) that the defendant bank should pay to plaintiff the sums of P1,153.99 and P8,000, as his
remaining account balance, or set-off these sums against the indemnity which plaintiff was ordered to pay to it in the criminal
cases.

When his motion for reconsideration and new trial was denied, plaintiff brought the appeal to Us, the amount involved
being more than P200,000.00.

In support of the first assignment of error, plaintiff-appellant would have this Court hold that Exhibit "A" & "1-Bank" is a
chattel mortgage contract so that the creditor defendant could not take possession of the chattels object thereof until after
there has been default. The submission is without merit. The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a
pledge contract —

3. That a credit line of P50,000.00 was extended to the plaintiff by the defendant Bank, and the plaintiff obtained and
received from the said Bank the sum of P50,000.00, and in order to guarantee the payment of this loan, the pledge contract,
Exhibit "A" & Exhibit "1-Bank", was executed and duly registered with the Office of the Collector of Customs for the Port of
Cebu on the date appearing therein; (Emphasis supplied)1äwphï1.ñët

Necessarily, this judicial admission binds the plaintiff. Without any showing that this was made thru palpable mistake,
no amount of rationalization can offset it. 9

The defendant bank as pledgee was therefore entitled to the actual possession of the vessels. While it is true that
plaintiff continued operating the vessels after the pledge contract was entered into, his possession was expressly made
"subject to the order of the pledgee." 10 The provision of Art. 2110 of the present Civil Code 11 being new — cannot apply to
the pledge contract here which was entered into on June 30, 1947. On the other hand, there is an authority supporting the
proposition that the pledgee can temporarily entrust the physical possession of the chattels pledged to the pledgor without
invalidating the pledge. In such a case, the pledgor is regarded as holding the pledged property merely as trustee for the
pledgee. 12

Plaintiff-appellant would also urge Us to rule that constructive delivery is insufficient to make pledge effective. He
points to Betita v. Ganzon, 49 Phil. 87 which ruled that there has to be actual delivery of the chattels pledged. But then there
is also Banco Español-Filipino v. Peterson, 7 Phil. 409 ruling that symbolic delivery would suffice. An examination of the
peculiar nature of the things pledged in the two cases will readily dispel the apparent contradiction between the two rulings.
In Betita v. Ganzon, the objects pledged — carabaos — were easily capable of actual, manual delivery unto the pledgee. In
Banco Español-Filipino v. Peterson, the objects pledged — goods contained in a warehouse — were hardly capable of
actual, manual delivery in the sense that it was impractical as a whole for the particular transaction and would have been an
unreasonable requirement. Thus, for purposes of showing the transfer of control to the pledgee, delivery to him of the keys to
the warehouse sufficed. In other words, the type of delivery will depend upon the nature and the peculiar circumstances of
each case. The parties here agreed that the vessels be delivered by the "pledgor to the pledgor who shall hold said property
subject to the order of the pledgee." Considering the circumstances of this case and the nature of the objects pledged, i.e.,
vessels used in maritime business, such delivery is sufficient.

Since the defendant bank was, pursuant to the terms of pledge contract, in full control of the vessels thru the plaintiff,
the former could take actual possession at any time during the life of the pledge to make more effective its security. Its taking
of the vessels therefore on April 6, 1948, was not unlawful. Nor was it unjustified considering that plaintiff had just defrauded
the defendant bank in the huge sum of P184,000.

The stand We have taken is not without precedent. The Supreme Court of Spain, in a similar case involving Art. 1863
of the old Civil Code, 13 has ruled: 14

Que si bien la naturaleza del contrato de prenda consiste en pasar las cosas a poder del acreedor o de un tercero y no
quedar en la del deudor, como ha sucedido en el caso de autos, es lo cierto que todas las partes interesadas, o sean
acreedor, deudor y Sociedad, convinieron que continuaran los coches en poder del deudor para no suspender el trafico, y el
derecho de no uso de la prenda pertenence al deudor, y el de dejar la cosa bajo su responsabilidad al acreedor, y ambos
convinieron por creerlo util para las partes contratantes, y estas no reclaman perjuicios no se infringio, entre otros este
articulo.

In the second assignment of error imputed to the lower court plaintiff-appellant attacks the validity of the private sale of
the pledged vessels in favor of the defendant bank itself. It is contended first, that the cases holding that the statutory
requirements as to public sales with prior notice in connection with foreclosure proceedings are waivable, are no longer
authoritative in view of the passage of Act 3135, as amended; second, that the charter of defendant bank does not allow it to
buy the property object of foreclosure in case of private sales; and third, that the price obtained at the sale is unconscionable.

There is no merit in the claims. The rulings in Philippine National Bank v. De Poli, 44 Phil. 763 and El Hogar Filipino v.
Paredes, 45 Phil. 178 are still authoritative despite the passage of Act 3135. This law refers only, and is limited, to foreclosure
of real estate mortgages. 15 So, whatever formalities there are in Act 3135 do not apply to pledge. Regarding the bank's
authority to be the purchaser in the foreclosure sale, Sec. 33 of Act 2612, as amended by Acts 2747 and 2938 only states
that if the sale is public, the bank could purchase the whole or part of the property sold " free from any right of redemption on
the part of the mortgagor or pledgor." This even argues against plaintiff's case since the import thereof is this if the sale were
private and the bank became the purchaser, the mortgagor or pledgor could redeem the property. Hence, plaintiff could have
recovered the vessels by exercising this right of redemption. He is the only one to blame for not doing so.

Regarding the third contention, on the assumption that the purchase price was unconscionable, plaintiff's remedy was
to have set aside the sale. He did not avail of this. Moreover, as pointed out by the lower court, plaintiff had at the time an
obligation to return the P184,000 fraudulently taken by him from defendant bank.

The last assignment of error has to do with the damages allegedly suffered by plaintiff-appellant by virtue of the taking
of the vessels. But in view of the results reached above, there is no more need to discuss the same.

On the whole, We cannot say the lower court erred in disposing of the case as it did. Plaintiff-appellant was not all-too-
innocent as he would have Us believe. He did defraud the defendant bank first. If the latter countered with the seizure and
sale of the pledged vessels pursuant to the pledge contract, it was only to protect its interests after plaintiff had defaulted in
the payment of the first promissory note. Plaintiff-appellant did not come to court with clean hands.

WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against plaintiff-appellant. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ.,
concur.1äwphï1.ñët

G.R. No. L-24893 August 23, 1926

Involuntary Insolvency of The Gulf Plantation Co. PACIFIC COMMERCIAL COMPANY, PHILIPPINE-AMERICAN DRUG
COMPANY and STANDARD OIL COMPANY, petitioners-appellants, vs. PHILIPPINE NATIONAL BANK, creditor-appellee.
H. B. Hughes, assignee.

Simon R. Cruz for appellants.Dionisio de Leon for appellee.

-->
STATEMENT virtual law library
At Davao, Davao P. I., on august 24, 1918, the Gulf Plantation Company, a corporation, through its president executed to the
Philippine National Bank a certain instrument known in the record as Exhibit A, in which the Plantation Company is named
and styled as the pledgor, and the Philippine National Bank as the pledges, in which it is recited that the Gulf Plantation
Company has obtained certain credits, loans, overdrafts, etc., from the pledgee, which the parties have mutually agreed
should be guaranteed and secured, including costs, charges, and interest "of keeping the pledged property," and "all other
expenditures of the pledgee incurred in connection with this pledge." In consideration thereof, all other valuable consideration
received by the pledgor, and for the purpose of securing the payment of all sums not exceeding P165,000, the pledgor
hypothecated and pledged to the pledgee and hereby delivered the possession, for the purpose of the pledge, of all the
property itemized in schedule A on the back of this pledge. The pledgor agreed without demand to pledge and deliver to the
pledgee any further and additional securities required, and to pay the taxes and keep the property insured. That, if the
pledgor shall pay to the pledgee such sums of money as the pledgee, may advance under the terms of the pledge, then the
pledged property may be turned to the pledgor, and "this pledge shall be of no further, otherwise, to remain in force, and the
pledgee may dispose of the pledged property in the manner herein provided, or in accordance with the Chattel Mortgage
Law, at the option of the pledgee." The pledgor appoints the pledgee as attorney-in-fact of the pledgor with full power and
authority after any condition of the pledge may have been broken to enter the premises where the pledged property is
located, and take possession of it by force, if necessary, and seize and take actual possession of it without an order of the
court, and to sell, assign and deliver the property pledged, or any part thereof, at the option of the pledgee. Provision is then
made for the application of the proceeds of any sale of the property under the pledge. The instrument was duly executed and
acknowledged before a notary public as of the date it was signed.

Schedule A, which is part of the instrument, is as follows:

Lease No. 63 of 534 hectares of public situated in the municipality of Pantucan, Davao Province, P. I., planted to 236,000
hemp and 700 coconut trees, valued at P430,000.virtualawlibrary virtual law library

Forty-eight buildings of permanent materials valued at P5,500 situated on above lease. Two buildings of strong materials
valued at P15,000.virtualawlibrary virtual law library

One thousand piculs hemp now in the plantation bodega at Pantucan all belonging to the "Gulf Plantation, Incorporated,"
valued at P45,000.virtualawlibrary virtual law library

Twenty three carabaos, 38 bullocks, 18 horses, valued at P6,450.virtualawlibrary virtual law library

One launch "Peril" valued at P18,000; one auxiliary boat "Manuela," P9,000; one launch "Rigel," P800; one launch "New
Kirk," P3,500 and cargo boats, P200.

The instrument contains the following endorsement:

Doc. stamps affixed P17.20

THE PROVINCIAL GOVERNMENT OF DAVAOOFFICE OF THE REGISTER OF DEEDSReceived this 24th day of Feb.,
1921,at 9.30 o'clock a. m.

Entry No. 90, page 3, Volume Day Book (Provisional).

THE PROVINCIAL GOVERNMENT OF DAVAOOFFICE OF THE REGISTER OF DEEDSReceived this 24th day of Feb.,
1921.at 9.30 o'clock a. m.

March 25, 1922, an insolvency petition was filed to have the Gulf Plantation Company declared insolvent, and it was declared
insolvent on September 16, 1922, and the court ordered the sheriff to take possession of all the assets of the insolvent
estate. October 23, 1922, with the consent and approval of all creditors, including the Philippine National Bank, and assignee
was appointed, and on October 27, 1922, he filed an inventory of all of the properties of the plantation company, March 17,
1923, the court made an order requiring the assignee to render an account and to give the creditors a copy. March 20, 1923,
the assignee filed his account for the period between October 1, 1922, and February 28, 1923. On January 7, 1924, the
assignee filed a further account covering the period from October 1, 1922, to November 30, 1923. Both of which accounts
are still pending and waiting the approval of the court. November 28, 1923, the assignee filed a petition for authority to sell at
public auction all of the properties of the insolvent estate, which application is also now pending and waiting the order of the
court. November 3, 1922, the Philippine National Bank filed a petition, to which was attached a copy of Exhibit A and made a
part of it, reciting the execution of the instrument and a breach of its conditions, and praying for the following order from the
court:

(a) That the mortgage or pledge executed in its favor by the Gulf Plantation, Inc., a copy of which is attached to this claim as
appendix A be declared effective and matured; virtual law library

(b) That the assignee appointed in this insolvency proceeding, or if the latter has not yet been appointed, the sheriff of the
Province of Davao be authorized to sell at public or private sale, after notice to the Philippine National Bank, all such interest,
right or share as the Gulf Plantation, Inc., has or may have in the properties described in Exhibit A; virtual law library

(c) That should the proceeds of the sale of the properties mentioned in appendix A be greater than the sum of P165,000, this
amount of P165,000 be delivered to the Philippine National Bank, and the balance to the assignee in insolvency; and virtual
law library

(d) In the event that the proceeds of the sale of the properties mentioned in Appendix A is less than the sum of P165,000 that
said proceeds be delivered to the Philippine National Bank, and for the balance of difference not paid of the debt of the
insolvent corporation to the claimant company, the Philippine National Bank be admitted as an ordinary creditor in this
insolvency proceeding.

February 9, 1924, the bank, through the fiscal of Davao, and in compliance with an order of the court, filed objections to the
approval of the accounts rendered by the assignee.virtualawlibrary virtual law library

In this situation, the court rendered a judgment in favor of the Philippine National Bank to the effect that it was entitled to the
possession of all of the estate of the insolvent corporation, and that in the year 1919 the bank had appointed H. B. Hughes as
its representative or administrator of the properties of the Plantation Company, and requiring the bank to pay certain
preferred claims, including the income tax and the land tax, and that the bank was entitled to, and should have, possession of
all the properties of the insolvent corporation, and to have the property sold and the proceeds of the sale applied to the
satisfaction of the claim of the bank, and upon the payment of such preferred claims, to have the proceeds of the sale applied
to the satisfaction of the claim of the bank, and that the creditors of the Plantation Company should share in any amount
remaining after such application, and dismissed the case, without costs.virtualawlibrary virtual law library
From this judgment, the creditors appeal and assign the following errors:

I. The lower court erred in not finding and holding that the so-called "agreement of pledge" executed by the insolvent Gulf
Plantation Company in favor of the Philippine National Bank is null and void on account of its many defects.virtualawlibrary
virtual law library

II. The lower court erred in not finding and holding that the Philippine National Bank has renounced its alleged preferred lien
on the properties of the insolvent covered by the pledge, by giving its consent to the appointment of and assignee and by
permitting said assignee to take possession of said properties.virtualawlibrary virtual law library

III. The lower court erred in not finding and holding that the claim of the Philippine National Bank is an ordinary
claim.virtualawlibrary virtual law library

IV. The lower court erred in holding that the Philippine National Bank is entitled to the possession of the properties of the
insolvent.virtualawlibrary virtual law library

V. The lower court erred in holding that the mortgage in favor of the Philippine National Bank is effective and
due.virtualawlibrary virtual law library

VI. The lower court erred in not overruling the opposition of the Philippine National Bank dated February 9, 1924, to the
accounts submitted by the assignee.virtualawlibrary virtual law library

VIII. The lower court erred in dismissing the insolvency proceedings.

JOHNS, J.: virtual law library

In view of the numerous recitals made in it, what is known in the record as Exhibit A must be construed as a pledge in both
form and substance. It is very apparent from the language used in the instrument that it was prepared on the customary
blank form of a pledge for the taking of properties under a pledge. It will be noted that it was never received or filed for any
purpose until the 24th of February, 1921, which was two years and a half after it was executed, and that it was then
endorsed, only received in the "office of the register of deeds" with "Entry No. 90 page 3, Volume Day Book (Provisional)."
That is to say, there is no evidence that it was ever received, filed or recorded anywhere or by anyone, either as a chattel
mortgaged or a pledge of personal property. Hence, the receiving of it in the office of the register of deeds on February 24,
1921, is a nullity as to both a pledge and a chattel mortgage.virtualawlibrary virtual law library

The only witness for either party was Carlos Garcia, the manager of the bank at Davao, and he was called for the sole
purpose of testifying as to the amount of the bank's claim, which he placed at about P60,000, and that it was due and owing.
To make Exhibit A valid as a pledge, as to the personal property therein described , it was the duty of the bank to take the
actual, physical possession of the property, and to continue and remain in such possessions, and to make it valid against
creditors or the assignee, the bank must have been in such actual, physical possession at the time the Plantation Company
was declared insolvent. Upon the question, there is no evidence in the record. Without it, Exhibit A is void as a pledge, and
the bank would not have a preference, and would not now be entitled to the possession of the property of the Plantation
Company, or to have it sold and the proceeds applied to the satisfaction of its claim.virtualawlibrary virtual law library

Upon the question of pledge, article 1863 of the Civil Code provides:

In addition to the requisites mentioned in article 1857, it shall be necessary, in order to constitute the contract of pledge, that
the pledge, be placed in the possession of the creditor or, of a third person appointed by common consent.

Section 4 of Act No. 1508, entitled "an Act providing for the mortgaging of personal property, and for the registration of the
mortgages so executed," provides:

A chattel mortgage shall not be valid against any person except the mortgagor, his executors or administrators, unless the
possession of the property is delivered to and retained by the mortgagee or unless the mortgage is recorded in the office of
the register of deeds of the province in which the mortgagor resides at the time of making the same, or, if he resides without
the Philippine Islands, in the province in which the property is situated.

That is to say, a chattel mortgage is not valid against any person except the mortgagor, his executors or administrators,
without delivery of possession of the property, unless the mortgage is recorded in the office of the register of deeds of the
province. It will be noted that, in the absence of such delivery of possession on the recording of the instrument in the office of
the register of deeds, a chattel mortgages is valid only as to the mortgagor, his executors or administrators. Hence, it follows
that, in the absence of such record and the delivery of possession a chattel mortgage is void as against the creditors or the
assignee of an insolvent estate, and upon that question, there is no evidence in the record.virtualawlibrary virtual law library

If it was the purpose and intent of the bank to have Exhibit A received, filed and recorded as a chattel mortgage, it was not
only its duty to so instruct the register of deeds, but it was its further duty to see that the instrument was received, filed and
recorded as a chattel mortgage. Upon that point there is no evidence.virtualawlibrary virtual law library

Again, in the every nature of things, a pledge or chattel mortgage is confined and limited to personal property, and it cannot
be extended or made to apply to real property.virtualawlibrary virtual law library

In what is known as schedule A, attached to Exhibit A, the property is described as lease No. 63 of 534 hectares of public
land planted to 236,000 hemp and 700 coconut trees valued at P430,000, and forty-eight buildings of permanent materials
valued at P5,500, and two buildings of strong materials valued at P15,000. It may well be doubted whether that kind of
property could become the subject matter of a pledge or chattel mortgage.virtualawlibrary virtual law library

It will be noted that it is a pledge of a lease of public land which is planted to hemp and coconut trees, and of forty-eight
buildings of permanent materials and of two buildings of strong materials, clearly indicating that the buildings were attached
to the soil and as such would be real estate.virtualawlibrary virtual law library

It will also be noted that the pledge was executed in 1918, and it is very probable that the one thousand piculs of hemp have
long since been sold. As to the twenty-three carabaos, thirty-eight bullocks and eighteen horses, there is no provision for the
increase. Hence, the pledge, if valid for any purpose, should be confined and limited to the particular property described in
the pledge, and would not include any increase.virtualawlibrary virtual law library

That is to say, if it be a fact that at time the pledge was executed the bank took actual, physical possession of the property
described in it, and continued to remain in such possession up to the time the petition for insolvency was filed, or that it was
in such possession for more than thirty days prior to the filing of the petition, the pledge would then be valid as to the
personal property, and the bank would then have a preference on that property for the amount found due and owing upon its
claim. If be a fact that the bank was not in the actual, physical possession of the property at the time the insolvency petition
was filed, and that the Plantation Company was in such possession as its own, then the bank would not have a preference
over any other unsecured creditor.virtualawlibrary virtual law library

From what has been said, it follows that the judgment of the lower court is reversed, and the case remanded, with
instructions for the assignee to proceed with the administration of the insolvent estate in the ordinary course of business and
in the manner provided by law, and for such further proceedings as are not inconsistent with this opinion, with costs in favor
of the appellant. So ordered.

Avance�a, C. J., Street, Villamor, Ostrand, Romualdez and Villa-Real, JJ., concur.

G.R. No. L-6342 January 26, 1954

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.LAUREANO ATENDIDO, defendants-appellant.

Nicolas Fernandez for appellee.Gaudencio L. Atendido for appellant.

BAUTISTA, ANGELO, J.:

This is an appeal from a decision of the Court of First Instance of Nueva Ecija which orders the defendant to pay to the
plaintiff the sum of P3,000, with interest thereon at the rate of 6% per annum from June 26, 1940, and the costs of action.

On June 26, 1940, Laureano Atendido obtained from the Philippine National Bank a loan of P3,000 payable in 120 days with
interests at 6% per annum from the date of maturity. To guarantee the payment of the obligation the borrower pledged to the
bank 2,000 cavanes of palay which were then deposited in the warehouse of Cheng Siong Lam & Co. in San Miguel,
Bulacan, and to that effect the borrower endorsed in favor of the bank the corresponding warehouse receipt. Before the
maturity of the loan, the 2,000 cavanes of palay disappeared for unknown reasons in the warehouse. When the loan matured
the borrower failed to pay either the principal or the interest and so the present action was instituted.

Defendant set up a special defense and a counterclaim. As regards the former, defendant claimed that the warehouse receipt
covering the palay which was given as security having been endorsed in blank in favor of the bank, and the palay having
been lost or disappeared, he thereby became relieved of liability. And, by way of counterclaim, defendant claimed that, as a
corollary to his theory, he is entitled to an indemnity which represents the difference between the value of the palay lost and
the amount of his obligation.

The case was submitted on an agreed statements of facts and thereupon the court rendered judgment as stated in the early
part of this decision.

Defendant took the case on appeal to the Court of Appeals but later it was certified to this Court on the ground that the
question involved is purely one of law.

The only issue involved in this appeal is whether the surrender of the warehouse receipt covering the 2,000 cavanes of palay
given as a security, endorsed in blank, to appellee, has the effect of transferring their title or ownership to said appellee, or it
should be considered merely as a guarantee to secure the payment of the obligation of appellant.

In upholding the view of appellee, the lower court said: "The surrendering of warehouse receipt No. S-1719 covering the
2,000 cavanes of palay by the defendant in favor of the plaintiff was not that of a final transfer of that warehouse receipt but
merely as a guarantee to the fulfillment of the original obligation of P3,000.00. In other word, plaintiff corporation had no right
to dispose (of) the warehouse receipt until after the maturity of the promissory note Exhibit A. Moreover, the 2,000 cavanes of
palay were not in the first place in the actual possession of plaintiff corporation, although symbolically speaking the delivery
of the warehouse receipt was actually done to the bank."

We hold this finding to be correct not only because it is in line with the nature of a contract of pledge as defined by law
(Articles 1857, 1858 & 1863, Old Civil Code), but is supported by the stipulations embodied in the contract signed by
appellant when he secured the loan from the appellee. There is no question that the 2,000 cavanes of palay covered by the
warehouse receipt were given to appellee only as a guarantee to secure the fulfillment by appellant of his obligation. This
clearly appears in the contract Exhibit A wherein it is expressly stated that said 2,000 cavanes of palay were given as a
collateral security. The delivery of said palay being merely by way of security, it follows that by the very nature of the
transaction its ownership remains with the pledgor subject only to foreclose in case of non-fulfillment of the obligation. By this
we mean that if the obligation is not paid upon maturity the most that the pledgee can do is to sell the property and apply the
proceeds to the payment of the obligation and to return the balance, if any, to the pledgor (Article 1872, Old Civil Code). This
is the essence of this contract, for, according to law, a pledgee cannot become the owner of, nor appropriate to himself, the
thing given in pledge (Article 1859, Old Civil Code). If by the contract of pledge the pledgor continues to be the owner of the
thing pledged during the pendency of the obligation, it stands to reason that in case of loss of the property, the loss should be
borne by the pledgor. The fact that the warehouse receipt covering the palay was delivered, endorsed in blank, to the bank
does not alter the situation, the purpose of such endorsement being merely to transfer the juridical possession of the property
to the pledgee and to forestall any possible disposition thereof on the part of the pledgor. This is true notwithstanding the
provisions to the contrary of the Warehouse Receipt Law.

In case recently decided by this Court (Martinez vs. Philippine National Bank, 93 Phil., 765) which involves a similar
transaction, this Court held:

In conclusion, we hold that where a warehouse receipt or quedan is transferred or endorsed to a creditor only to secure the
payment of a loan or debt, the transferee or endorsee does not automatically become the owner of the goods covered by the
warehouse receipt or quedan but he merely retains the right to keep and with the consent of the owner to sell them so as to
satisfy the obligation from the proceeds of the sale, this for the simple reason that the transaction involved is not a sale but
only a mortgage or pledge, and that if the property covered by the quedans or warehouse receipts is lost without the fault or
negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse receipt or quedan, then said goods
are to be regarded as lost on account of the real owner, mortgagor or pledgor.

Wherefore, the decision appealed from is affirmed, with costs against appellant.

Bengzon, Padilla, Montemayor, Jugo, Reyes and Labrador, JJ., concur.

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner, vs.COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY,
respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofileña & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court on
March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the Regional Trial Court of
Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein petitioner against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of record:

1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of time
deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of
P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records, p. 207; Defendant's
Exhibits 1 to 280);

CTD CTDDates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,00026 Feb. 82 74602 to 74691 90 360,0002 Mar. 82 74701 to 74740 40 160,0004 Mar.
82 90127 to 90146 20 80,0005 Mar. 82 74797 to 94800 4 16,0005 Mar. 82 89965 to 89986 22 88,0005 Mar. 82 70147 to
90150 4 16,0008 Mar. 82 90001 to 90020 20 80,0009 Mar. 82 90023 to 90050 28 112,0009 Mar. 82 89991 to 90000 10
40,0009 Mar. 82 90251 to 90272 22 88,000——— ————Total 280 P1,120,000===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his purchased of fuel
products from the latter (Original Record, p. 208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that he lost all the
certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,
as required by defendant bank's procedure, if he desired replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss (Defendant's
Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's
Exhibits 282-561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight Hundred
Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of Assignment of
Time Deposit (Exhibit 562) which stated, among others, that he (de la Cruz) surrenders to defendant bank "full control of the
indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate, set-off and
"apply the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity
(TSN, February 9, 1987, pp. 60-62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's
Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered
to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor (TSN, February 9, 1987, pp.
54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff formally informing it of
its possession of the CTDs in question and of its decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation
against which plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter
dated February 7, 1983 (Defendant's Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter
set-off and applied the time deposits in question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the
aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest therein at
16% per annum, moral and exemplary damages as well as attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant complaint. 3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this petition
wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite being
clearly negotiable instruments; (2) that petitioner did not become a holder in due course of the said certificates of deposit;
and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues involved
in this recourse.

SECURITY BANKAND TRUST COMPANY6778 Ayala Ave., Makati No. 90101Metro Manila, PhilippinesSUCAT OFFICEP
4,000.00CERTIFICATE OF DEPOSITRate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date, upon
presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

—————————— ———————————

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:

. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is important to note that after the
word "BEARER" stamped on the space provided supposedly for the name of the depositor, the words "has deposited" a
certain amount follows. The document further provides that the amount deposited shall be "repayable to said depositor" on
the period indicated. Therefore, the text of the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the "bearer" but only to the specified person indicated therein, the depositor. In effect, the appellee
bank acknowledges its depositor Angel dela Cruz as the person who made the deposit and further engages itself to pay said
depositor the amount indicated thereon at the stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable instruments.
Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to
become negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention is with
regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in
1982, testified in open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.

xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of the bank, the depositor referred (sic) in these certificates
states that it was Angel dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause (sic) the amount.

Atty. Calida:

q And no other person or entity or company, Mr. Witness?

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as the bank is concerned?

witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing,
that is, from the face of the instrument itself. 9 In the construction of a bill or note, the intention of the parties is to control, if it
can be legally ascertained. 10 While the writing may be read in the light of surrounding circumstances in order to more
perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward
and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court
in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used. What the parties meant must be determined by what they
said. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that the amounts
deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to
him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the
bearer at the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that
Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the bearer stated in the CTDs. Hence, the situation
would require any party dealing with the CTDs to go behind the plain import of what is written thereon to unravel the
agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to be
avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation of
obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The records
reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs
amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time. Unfortunately for petitioner,
although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De
la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to deflect this fact,
the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any doubt as to whether
the CTDs were delivered as payment for the fuel products or as a security has been dissipated and resolved in favor of the
latter by petitioner's own authorized and responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote:
". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"
(Emphasis ours.) 13 This admission is conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of
estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. 14 A party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a party has, by his own declaration,
act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have easily
said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant in
the court below, moved for a bill of particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to
aver with sufficient definiteness or particularity (a) the due date or dates of payment of the alleged indebtedness of Angel de
la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by De la Cruz as
payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the receipt
prayed for, it could have proved, if such truly was the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption that evidence willfully suppressed would be
adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine National Bank, et
al. 20 is apropos:

. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:

The character of the transaction between the parties is to be determined by their intention, regardless of what language was
used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a
pledge; but if there was some other intention, it is not a pledge. However, even though a 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 property as collateral security. It has been said that a transfer of property by the
debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt
continues in inexistence and is not discharged by the transfer, and that accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect in such a transaction if they are also commonly used in
pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear
and unambiguous language or other circumstances excluding an intent to pledge.

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 from one person to another in such a manner as to constitute the transferee
the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof. 22 In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in
favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of 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 mere delivery of the instrument since, necessarily, the
terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must
be contractually provided for.

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
therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil
Code provisions on pledge of incorporeal rights, 24 which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving the right
pledged shall be delivered to the creditor, and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge
do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at the
start of this opinion show that petitioner 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 the CTDs did not legally vest in petitioner
any right effective against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge contract, but a rule of
substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons
adversely. 26

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 other mode of transfer, the Civil Code specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a
public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or lien
holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public instrument
which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter
has definitely the better right over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of 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,
on the ground that petitioner failed to raised that issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent was not
included in the stipulation of the parties and in the statement of issues submitted by them to the trial court. 29 The issues
agreed upon by them for resolution in this case are:

1. Whether or not the CTDs as worded are negotiable instruments.

2. Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's loan by virtue of the
assignment (Annex "C").

3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs and the depositor's
outstanding account with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing enumeration
does not include the issue of negligence on the part of respondent bank. An issue raised for the first time on appeal and not
raised timely in the proceedings in the lower court is barred by estoppel. 30 Questions raised on appeal must be within the
issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on
appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. Thus,
to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact 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

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by the
issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that petitioner could
raise 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
respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot have the
odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case of
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 permissive and not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of competent
jurisdiction, asking that the principal, interest or dividends due or about to become due, be not paid a third person, as well as
in order to prevent the ownership of the instrument that a duplicate be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but 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 discretional. 34 The word "may" is usually permissive,
not mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission and possibility. 36

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 supposed negligence, merely established, on the one hand, a right of recourse in favor of
a dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the other, an
option in favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a replacement of the
instrument. Significantly, none of the provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate
or replacement instrument sans compliance with the procedure outlined therein, and none establishes a mandatory
precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is hereby
AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

G.R. No. L-18500 October 2, 1922

FILOMENA SARMIENTO and her husband EUSEBIO M. VILLASEÑOR, plaintiffs-appellants, vs.GLICERIO JAVELLANA,
defendant-appellant.

Montinola, Montinola and Hontiveros for plaintiffs-appellants. J. M. Arroyo and Fisher and DeWitt for defendant-appellant.

AVANCEÑA, J.:

On August 28, 1991, the defendant loaned the plaintiffs the sum of P1,500 with interest at the rate of 25 per cent per
annum for the term of one year. To guarantee this loan, the plaintiffs pledged a large medal with a diamond in the center and
surrounded with ten diamonds, a pair of diamond earrings, a small comb with twenty-two diamonds, and two diamond rings,
which the contracting parties appraised at P4,000. This loan is evidenced by two documents (Exhibits A and 1) wherein the
amount appears to be P1,875, which includes the 25 per cent interest on the sum of P1,500 for the term of one year.
 The plaintiffs allege that at the maturity of this loan, August 31, 1912, the plaintiff Eusebio M. Villaseñor, being unable
to pay the loan, obtained from the defendant an extension, with the condition that the loan was to continue, drawing interest
at the rate of 25 per cent per annum, so long as the security given was sufficient to cover the capital and the accrued interest.
In the month of August, 1919, the plaintiff Eusebio M. Villaseñor, in company with Carlos M. Dreyfus, went to the house of the
defendant and offered to pay the loan and redeem the jewels, taking with him, for this purpose, the sum of P11,000, but the
defendant then informed them that the time for the redemption had already elapsed. The plaintiffs renewed their offer to
redeem the jewelry by paying the loan, but met with the same reply. These facts are proven by the testimony of the plaintiffs,
corroborated by Carlos M. Dreyfus.

The plaintiffs now bring this action to compel the defendant to return the jewels pledged, or their value, upon the
payment by them of the sum they owe the defendant, with the interest thereon.

The defendant alleges, in his defense, that upon the maturity of the loan, August 31, 1912, he requested the plaintiff,
Eusebio M. Villaseñor, to secure the money, pay the loan and redeem the jewels, as he needed money to purchase a certain
piece of land; that one month thereafter, the plaintiff, Filomena Sarmiento, went to his house and offered to sell him the
jewels pledged for P3,000; that the defendant then told her to come back on the next day, as he was to see his brother,
Catalino Javellana, and ask him if he wanted to take the jewels for that sum; that on the next day the plaintiff, Filomena
Sarmiento, went back to the house of the defendant who then paid her the sum of P1,125, which was the balance remaining
of the P3,000 after deducting the plaintiff's loan.

It appearing that the defendant possessed these jewels originally, as a pledge to secure the payment of a loan stated
in writing, the mere testimony of the defendant to the effect that later they were sold to him by the plaintiff, Filomena
Sarmiento, against the positive testimony of the latter that she did not make any such sale, requires a strong corroboration to
be accepted. We do not find the testimony of Jose Sison to be of sufficient value as such corroboration. This witness testified
to having been in the house of the defendant when Filomena went there to offer to sell the defendant the jewels, as well as
on the third day when she returned to receive the price. According to this witness, he happened to be in the house of the
defendant, having gone there to solicit a loan, and also accidentally remained in the house of the defendant for three days,
and that that was how he happened to witness the offer to sell, as well as the receipt of the price on the third day. But not
only do we find that the defendant has not sufficiently established, by his evidence, the fact of the purchase of the jewels, but
also that there is a circumstance tending to show the contrary, which is the fact that up to the trial of this cause the defendant
continued in possession of the documents, Exhibits A and 1, evidencing the loan and the pledge. If the defendant really
bought these jewels, its seems natural that Filomena would have demanded the surrender of the documents evidencing the
loan and the pledge, and the defendant would have returned them to plaintiff.

Our conclusion is that the jewels pledged to defendant were not sold to him afterwards.

Another point on which evidence was introduced by both parties is as to the value of the jewels in the event that they
were not returned by the defendant. In view of the evidence of record, we accept the value of P12,000 fixed by the trial court.

From the foregoing it follows that, as the jewels in question were in the possession of the defendant to secure the
payment of a loan of P1,500, with interest thereon at the rate of 25 per cent per annum from Augusts 31, 1911, to August 31,
1912, and the defendant having subsequently extended the term of the loan indefinitely, and so long as the value of the
jewels pledged was sufficient to secure the payment of the capital and the accrued interest, the defendant is bound to return
the jewels or their value (P12,000) to plaintiffs, and the plaintiffs have the right to demand the same upon the payment by
them of the sum of P1,5000, plus the interest thereon at the rate of 25 per cent per annum from August 28, 1911.

The judgment appealed from being in accordance with this findings, the same is affirmed without special
pronouncement as to costs. So ordered.

Araullo, C.J., Street, Malcolm, Villamor, Ostrand and Romualdez, JJ., concur.

RESOLUTION

April 4, 1923

AVANCEÑA, J.:

The defendant contends that the plaintiffs' action for the recovery of the jewels pledged has prescribed. Without
deciding whether or not the action to recover the thing pledged may prescribe in any case, it not being necessary for the
purposes of this opinion, but supposing that it may, still the defendant's contention is untenable. In the document evidencing
the loan in question there is stated: "I transfer by way of pledge the following jewels." That this is a valid contract of pledge
there can be no question. As a matter of fact the defendant does not question it, but take s it for granted. However, it is
contended that the obligation of the defendant to return the jewels pledged must be considered as not stated in writing, for
this obligation is not expressly mentioned in the document. But if this contract of pledge is in writing, it must necessarily be
admitted that the action to enforce the right, which constitutes the essence of this contract, is covered by a written contract.
The duty of the creditor to return the thing pledged in case the principal obligation is fulfilled is essential in all contracts of
pledge. This constitutes, precisely, the consideration of the debtor in this accessory contract, so that if this obligation of the
creditor to return to thing pledged, and the right of the debtor to demand the return thereof, are eliminated, the contract would
not be a contract of pledge. It would be a donation.

If the right of the plaintiffs to recover the thing pledged is covered by a written contract, the time for the prescription of
this action is ten years, according to section 43 of the Code of Civil Procedure.

The defendant contends that the time of prescription of the action of the plaintiffs to recover the thing pledged must be
computed from August 28, 1911, the date of the making of the contract of loan secured by this pledge. The term of this loan
is one year. However, it is contended that the action of the plaintiff to recover the thing pledged accrued on the very date of
the making of the contract, inasmuch as from that date they could have recovered the same by paying the loan even before
the expiration of the period fixed for payment. This view is contrary to law. Whenever a term for the performance of an
obligation is fixed, it is presumed to have been established for the benefit of the creditor as well as that of the debtor, unless
from its tenor or from other circumstances it should appear that the term was established for the benefit of one or the other
only (art. 1128 of the Civil Code.) In this case it does not appear, either from any circumstance, or from the tenor of the
contract, that the term of one year allowed the plaintiffs to pay the debt was established in their favor only. Hence it must be
presumed to have been established for the benefit of the defendant also. And it must be so, for this is a case of a loan, with
interest, wherein the term benefits the plaintiffs by the use of the money, as well as the defendant by the interest. This being
so, the plaintiffs had no right to pay the loan before the lapse of one year, without the consent of the defendant, because
such a payment in advance would have deprived the latter of the benefit of the stipulated interest. It follows from this that
appellant is in error when he contents that the plaintiffs could have paid the loan and recovered the thing pledged from the
date of the execution of the contract and, therefore, his theory that the action of the plaintiffs to recover the thing pledged
accrued from the date of the execution of the contract is not tenable. 1awph!l.net

It must, therefore, be admitted that the action of the plaintiffs for the recovery of the thing pledged did not accrue until
August 31, 1912, when the term fixed for the loan expired. Computing the time from that date to that of the filing of the
complaint in this cause, October 9, 1920, it appears that the ten years fixed by the law for the prescription of the action have
not yet elapsed.

On the other hand, the contract of loan with pledge is in writing and the action of the defendant for the recovery of the
loan does not prescribe until after ten years. It is unjust to hold that the action of the plaintiffs for the recovery of the thing
pledged, after the payment of the loan, has already prescribed while the action of the defendant for the recovery of the loan
has not yet prescribed. The result of this would be that the defendant might have collected the loan and at the same time
kept the thing pledged.

The motion for reconsideration is denied.

Araullo, C.J., Malcolm, Ostrand and Romualdez, JJ., concur.

Separate Opinions

STREET, J., concurring:

I agree, Prescription cannot become effective against the right of the pledgor to redeem so long as the written contract
evidencing the debt remains in the hands of the pledgee as evidence of a valid and unbarred debt. The pledgor may always
claim at least as long a period within which to redeem as is allowed to the creditor to enforce his debt. (Gilmer vs. Morris, 80
Ala., 78; 60 Am. Rep., 85, 89.)

G.R. No. L-21069 October 26, 1967

MANILA SURETY and FIDELITY COMPANY, INC., plaintiff-appellee, vs.RODOLFO R. VELAYO, defendant-appellant.

Villaluz Law Office for plaintiff-appellee. Rodolfo R. Velayo for and in his own behalf as defendant-appellant.

REYES, J.B.L., J.:

Direct appeal from a judgment of the Court of First Instance of Manila (Civil Case No. 49435) sentencing appellant Rodolfo
Velayo to pay appellee Manila Surety & Fidelity Co., Inc. the sum of P2,565.00 with interest at 12-½% per annum from July
13, 1954; P120.93 as premiums with interest at the same rate from June 13, 1954: attorneys' fees in an amount equivalent to
15% of the total award, and the costs.

Hub of the controversy are the applicability and extinctive effect of Article 2115 of the Civil Code of the Philippines (1950).

The uncontested facts are that in 1953, Manila Surety & Fidelity Co., upon request of Rodolfo Velayo, executed a bond for
P2,800.00 for the dissolution of a writ of attachment obtained by one Jovita Granados in a suit against Rodolfo Velayo in the
Court of First Instance of Manila. Velayo undertook to pay the surety company an annual premium of P112.00; to indemnify
the Company for any damage and loss of whatsoever kind and nature that it shall or may suffer, as well as reimburse the
same for all money it should pay or become liable to pay under the bond including costs and attorneys' fees.

As "collateral security and by way of pledge" Velayo also delivered four pieces of jewelry to the Surety Company "for the
latter's further protection", with power to sell the same in case the surety paid or become obligated to pay any amount of
money in connection with said bond, applying the proceeds to the payment of any amounts it paid or will be liable to pay, and
turning the balance, if any, to the persons entitled thereto, after deducting legal expenses and costs (Rec. App. pp. 12-15).

Judgment having been rendered in favor of Jovita Granados and against Rodolfo Velayo, and execution having been
returned unsatisfied, the surety company was forced to pay P2,800.00 that it later sought to recoup from Velayo; and upon
the latter's failure to do so, the surety caused the pledged jewelry to be sold, realizing therefrom a net product of P235.00
only. Thereafter and upon Velayo's failure to pay the balance, the surety company brought suit in the Municipal Court. Velayo
countered with a claim that the sale of the pledged jewelry extinguished any further liability on his part under Article 2115 of
the 1950 Civil Code, which recites:

Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are
equal to the amount of the principal obligation, interest and expenses in a proper case. If the price of the sale is more than
said amount, the debtor shall not be entitled to the excess, unless it is otherwise agreed. If the price of the sale is less,
neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary.

The Municipal Court disallowed Velayo's claims and rendered judgment against him. Appealed to the Court of First Instance,
the defense was once more overruled, and the case decided in the terms set down at the start of this opinion.

Thereupon, Velayo resorted to this Court on appeal.

The core of the appealed decision is the following portion thereof (Rec. Appeal pp. 71-72):

It is thus crystal clear that the main agreement between the parties is the Indemnity Agreement and if the pieces of jewelry
mentioned by the defendant were delivered to the plaintiff, it was merely as an added protection to the latter. There was no
understanding that, should the same be sold at public auction and the value thereof should be short of the undertaking, the
defendant would have no further liability to the plaintiff. On the contrary, the last portion of the said agreement specifies that
in case the said collateral should diminish in value, the plaintiff may demand additional securities. This stipulation is
incompatible with the idea of pledge as a principal agreement. In this case, the status of the pledge is nothing more nor less
than that of a mortgage given as a collateral for the principal obligation in which the creditor is entitled to a deficiency
judgment for the balance should the collateral not command the price equal to the undertaking.

It appearing that the collateral given by the defendant in favor of the plaintiff to secure this obligation has already been sold
for only the amount of P235.00, the liability of the defendant should be limited to the difference between the amounts of
P2,800.00 and P235.00 or P2,565.00.

We agree with the appellant that the above quoted reasoning of the appealed decision is unsound. The accessory character
is of the essence of pledge and mortgage. As stated in Article 2085 of the 1950 Civil Code, an essential requisite of these
contracts is that they be constituted to secure the fulfillment of a principal obligation, which in the present case is Velayo's
undertaking to indemnify the surety company for any disbursements made on account of its attachment counterbond. Hence,
the fact that the pledge is not the principal agreement is of no significance nor is it an obstacle to the application of Article
2115 of the Civil Code.

The reviewed decision further assumes that the extinctive effect of the sale of the pledged chattels must be derived from
stipulation. This is incorrect, because Article 2115, in its last portion, clearly establishes that the extinction of the principal
obligation supervenes by operation of imperative law that the parties cannot override:
If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency notwithstanding any stipulation to
the contrary.

The provision is clear and unmistakable, and its effect can not be evaded. By electing to sell the articles pledged, instead of
suing on the principal obligation, the creditor has waived any other remedy, and must abide by the results of the sale. No
deficiency is recoverable.

It is well to note that the rule of Article 2115 is by no means unique. It is but an extension of the legal prescription contained in
Article 1484(3) of the same Code, concerning the effect of a foreclosure of a chattel mortgage constituted to secure the price
of the personal property sold in installments, and which originated in Act 4110 promulgated by the Philippine Legislature in
1933.

WHEREFORE, the decision under appeal is modified and the defendant absolved from the complaint, except as to his
liability for the 1954 premium in the sum of P120.93, and interest at 12-1/2% per annum from June 13, 1954. In this respect
the decision of the Court below is affirmed. No costs. So ordered.

Concepcion, C.J., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

G.R. No. 138053 May 31, 2000

CORNELIO M. ISAGUIRRE, petitioner,vs.

FELICITAS DE LARA, respondent.

GONZAGA-REYES, J.:

In this petition for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, petitioner Cornelio M.
Isaguirre assails the October 5, 1998 decision 1 of the Court of Appeals 2 and its Resolution promulgated on March 5, 1999.

The antecedent facts of the present case are as follows:

Alejandro de Lara was the original applicant-claimant for a Miscellaneous Sales Application over a parcel of land identified as
portion of Lot 502, Guianga Cadastre, filed with the Bureau of Lands on January 17, 1942 and with an area of 2,324 square
meters. Upon his death, Alejandro de Lara was succeeded by his wife — respondent Felicitas de Lara, as claimant. On
November 19, 1954, the Undersecretary of Agriculture and Natural Resources amended the sales application to cover only
1,600 square meters. Then, on November 3, 1961, by virtue of a decision rendered by the Secretary of Agriculture and
Natural Resources dated November 19, 1954, a subdivision survey was made and the area was further reduced to 1,000
square meters. On this lot stands a two-story residential-commercial apartment declared for taxation purposes under TD
43927 in the name of respondent's sons — Apolonio and Rodolfo, both surnamed de Lara.

Sometime in 1953, respondent obtained several loans from the Philippine National Bank. When she encountered financial
difficulties, respondent approached petitioner Cornelio M. Isaguirre, who was married to her niece, for assistance. On
February 10, 1960, a document denominated as "Deed of Sale and Special Cession of Rights and Interests" was executed
by respondent and petitioner, whereby the former sold a 250 square meter portion of Lot No. 502, together with the two-story
commercial and residential structure standing thereon, in favor of petitioner, for and in consideration of the sum of P5,000.

Sometime in May, 1968, Apolonio and Rodolfo de Lara filed a complaint against petitioner for recovery of ownership and
possession of the two-story building. 3 However, the case was dismissed for lack of jurisdiction.

On August 21, 1969, petitioner filed a sales application over the subject property on the basis of the deed of sale. His
application was approved on January 17, 1984, resulting in the issuance of Original Certificate of Title No. P-11566 on
February 13, 1984, in the name of petitioner. Meanwhile, the sales application of respondent over the entire 1,000 square
meters of subject property (including the 250 square meter portion claimed by petitioner) was also given due course,
resulting in the issuance of Original Certificate of Title No. P-13038 on June 19, 1989, in the name of respondent. 4
Due to the overlapping of titles, petitioner filed an action for quieting of title and damages with the Regional Trial Court of
Davao City against respondent on May 17, 1990. The case was docketed as Civil Case No. 20124-90. After trial on the
merits, the trial court rendered judgment on October 19, 1992, in favor of petitioner, declaring him to be the lawful owner of
the disputed property. However, the Court of Appeals reversed the trial court's decision, holding that the transaction entered
into by the parties, as evidenced by their contract, was an equitable mortgage, not a sale. 5 The appellate court's decision
was based on the inadequacy of the consideration agreed upon by the parties, on its finding that the payment of a large
portion of the "purchase price" was made after the execution of the deed of sale in several installments of minimal amounts;
and finally, on the fact that petitioner did not take steps to confirm his rights or to obtain title over the property for several
years after the execution of the deed of sale. As a consequence of its decision, the appellate court also declared Original
Certificate of Title No. P-11566 issued in favor of petitioner to be null and void. On July 8, 1996, in a case docketed as G.R.
No. 120832, this Court affirmed the decision of the Court of Appeals and on September 11, 1996, we denied petitioner's
motion for reconsideration.

On May 5, 1997, respondent filed a motion for execution with the trial court, praying for the immediate delivery of possession
of the subject property, which motion was granted on August 18, 1997. On February 3, 1998, respondent moved for a writ of
possession, invoking our ruling in G.R. No. 120832. Petitioner opposed the motion, asserting that he had the right of
retention over the property until payment of the loan and the value of the improvements he had introduced on the property.
On March 12, 1998, the trial court granted respondent's motion for writ of possession. Petitioner's motion for reconsideration
was denied by the trial court on May 21, 1998. Consequently, a writ of possession dated June 16, 1998, together with the
Sheriff's Notice to Vacate dated July 7, 1998, were served upon petitioner.

Petitioner filed with the Court of Appeals a special civil action for certiorari and prohibition with prayer for a temporary
restraining order or preliminary injunction to annul and set aside the March 12, 1998 and May 21, 1998 orders of the trial
court, including the writ of possession dated June 16, 1998 and the sheriff's notice to vacate dated July 7, 1998. 6

The appellate court summarized the issues involved in the case as follows: (1) whether or not the mortgagee in an equitable
mortgage has the right to retain possession of the property pending actual payment to him of the amount of indebtedness by
the mortgagor; and (b) whether or not petitioner can be considered a builder in good faith with respect to the improvements
he made on the property before the transaction was declared to be an equitable mortgage.

The Court of Appeals held that petitioner was not entitled to retain possession of the subject property. It said that —

. . . the mortgagee merely has to annotate his claim at the back of the certificate of title in order to protect his rights against
third persons and thereby secure the debt. There is therefore no necessity for him to actually possess the property. Neither
should a mortgagee in an equitable mortgage fear that the contract relied upon is not registered and hence, may not operate
as a mortgage to justify its foreclosure. In Feliza Zubiri v. Lucio Quijano, 74 Phil 47, it was ruled "that when a contract . . . is
held as an equitable mortgage, the same shall be given effect as if it had complied with the formal requisites of mortgage. . . .
by its very nature the lien thereby created ought not to be defeated by requiring compliance with the formalities necessary to
the validity of a voluntary real estate mortgage, as long as the land remains in the hands of the petitioner (mortgagor) and the
rights of innocent parties are not affected.

Proceeding from the foregoing, petitioner's imagined fears that his lien would be lost by surrendering possession are
unfounded.

In the same vein, there is nothing to stop the mortgagor de Lara from acquiring possession of the property pending actual
payment of the indebtedness to petitioner. This does not in anyway endanger the petitioner's right to security since, as
pointed out by private respondents, the petitioner can always have the equitable mortgage annotated in the Certificate of Title
of private respondent and pursue the legal remedies for the collection of the alleged debt secured by the mortgage. In this
case, the remedy would be to foreclose the mortgage upon failure to pay the debt within the required period.

It is unfortunate however, that the Court of Appeals, in declaring the transaction to be an equitable mortgage failed to specify
in its Decision the period of time within which the private respondent could settle her account, since such period serves as
the reckoning point by which foreclosure could ensue. As it is, petitioner is now in a dilemma as to how he could enforce his
rights as a mortgagee. . . .

Hence, this Court, once and for all resolves the matter by requiring the trial court to determine the amount of total
indebtedness and the period within which payment shall be made.

Petitioner's claims that he was a builder in good faith and entitled to reimbursement for the improvements he introduced upon
the property were rejected by the Court of Appeals. It held that petitioner knew, or at least had an inkling, that there was a
defect or flaw in his mode of acquisition. Nevertheless, the appellate court declared petitioner to have the following rights:
. . . He is entitled to reimbursement for the necessary expenses which he may have incurred over the property, in accordance
with Art. 526 and Art. 452 of the Civil Code. Moreover, considering that the transaction was merely an equitable mortgage,
then he is entitled to payment of the amount of indebtedness plus interest, and in the event of non-payment to foreclose the
mortgage. Meanwhile, pending receipt of the total amount of debt, private respondent is entitled to possession over the
disputed property.

The case was finally disposed of by the appellate court in the following manner:

WHERFORE, the Petition is hereby DISMISSED, and this case is ordered remanded to the Regional Trial Court of Davao
City for further proceedings, as follows:

1) The trial court shall determine —

a) The period within which the mortgagor must pay his total amount of indebtedness.

b) The total amount of indebtedness owing the petitioner-mortgagee plus interest computed from the time when the judgment
declaring the contract to be an equitable mortgage became final.

c) The necessary expenses incurred by petitioner over the property. 7

On March 5, 1999, petitioner's motion for reconsideration was denied by the appellate court. 8 Hence, the present appeal
wherein petitioner makes the following assignment of errors:

A. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT THE RTC ACTED WITHOUT OR IN EXCESS
OF ITS JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN ISSUING A WRIT OF POSSESSION IN FAVOR OF RESPONDENT.

A.1 The RTC patently exceeded the scope of its authority and acted with grave abuse of discretion in ordering the immediate
delivery of possession of the Property to respondent as said order exceeded the parameters of the final and executory
decision and constituted a variance thereof.

B. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS NOT ENTITLED TO THE
POSSESSION OF THE PROPERTY PRIOR TO THE PAYMENT OF RESPONDENT'S MORTGAGE LOAN.

C. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PETITIONER WAS NOT A BUILDER IN GOOD
FAITH.

D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS ENTITLED TO INTEREST
COMPUTED ONLY FROM THE TIME WHEN THE JUDGMENT DECLARING THE CONTRACT TO BE AN EQUITABLE
MORTGAGE BECAME FINAL. 9

Basically, petitioner claims that he is entitled to retain possession of the subject property until payment of the loan and the
value of the necessary and useful improvements he made upon such property. 10 According to petitioner, neither the Court of
Appeals' decision in G.R. CV No. 42065 nor this Court's decision in G.R. No. 120832 ordered immediate delivery of
possession of the subject property to respondent.

The dispositive portion of the March 31, 1995 decision of the Court of Appeals in G.R. CV No. 42065, which was affirmed by
this Court, provides that —

IN VIEW OF ALL THE FOREGOING, the judgment appealed from is REVERSED and SET ASIDE and a new one entered:
(1) dismissing the complaint; (2) declaring the "Document of Sale and Special Cession of Rights and Interests" (Exhibit B)
dated February 10, 1960, to be an equitable mortgage not a sale; (3) upholding the validity of OCT No. P-13038 in the name
of Felicitas de Lara; and (3) declaring null and void OCT No. P-11566 in the name of plaintiff Cornelio Isaguirre. All other
counterclaims for damages are likewise dismissed. Costs against the appellee. 11

Petitioner argues that the abovementioned decision merely settled the following matters: (1) that the transaction between
petitioner and respondent was not a sale but an equitable mortgage; (2) that OCT No. P-13038 in the name of respondent is
valid; and (3) that OCT No. P-11566 in the name of petitioner is null and void. Since the aforementioned decision did not
direct the immediate ouster of petitioner from the subject property and the delivery thereof to respondent, the issuance of the
writ of possession by the trial court on June 16, 1998 constituted an unwarranted modification or addition to the final and
executory decision of this Court in G.R. No. 120832. 12

We do not agree with petitioner's contentions. On the contrary, the March 31, 1995 decision of the appellate court, which was
affirmed by this Court on July 8, 1996, served as more than adequate basis for the issuance of the writ of possession in favor
of respondent since these decisions affirmed respondent's title over the subject property. As the sole owner, respondent has
the right to enjoy her property, without any other limitations than those established by law. 1 Corollary to such right,
respondent also has the right to exclude from the possession of her property any other person to whom she has not
transmitted such property. 14

It is true that, in some instances, the actual possessor has some valid rights over the property enforceable even against the
owner thereof, such as in the case of a tenant or lessee. 15 Petitioner anchors his own claim to possession upon his
declared status as a mortgagee. In his Memorandum, he argues that —

4.8 It was respondent who asserted that her transfer of the Property to petitioner was by way of an equitable mortgage and
not by sale. After her assertion was sustained by the Courts, respondent cannot now ignore or disregard the legal effects of
such judicial declaration regarding the nature of the transaction.

xxx xxx xxx

4.13 Having delivered possession of the Property to petitioner as part of the constitution of the equitable mortgage thereon,
respondent is not entitled to the return of the Property unless and until the mortgage loan is discharged by full payment
thereof. Petitioner's right as mortgagee to retain possession of the Property so long as the mortgage loan remains unpaid is
further supported by the rule that a mortgage may not be extinguished even though then mortgagor-debtor may have made
partial payments on the mortgage loan:

Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the
debtor or the creditor.

Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.

Neither can the creditor's heir who has received his share of the debt return the pledge or cancel the mortgage, to the
prejudice of the other heirs who have not been paid. (Emphasis supplied.)

xxx xxx xxx

4.14 To require petitioner to deliver possession of the Property to respondent prior to the full payment of the latter's mortgage
loan would be equivalent to the cancellation of the mortgage. Such effective cancellation would render petitioner's rights
ineffectual and nugatory and would constitute unwarranted judicial interference.

xxx xxx xxx

4.16 The fact of the present case show that respondent delivered possession of the Property to petitioner upon the execution
of the Deed of Absolute Sale and Special Cession of Rights and Interest dated 10 February 1960. Hence, transfer of
possession of the Property to petitioner was an essential part of whatever agreement the parties entered into, which, in this
case, the Supreme Court affirmed to be an equitable mortgage.

xxx xxx xxx

4.19 Petitioner does not have the mistaken notion that the mortgagee must be in actual possession of the mortgaged
property in order to secure the debt. However, in this particular case, the delivery of possession of the Property was an
integral part of the contract between petitioner and respondent. After all, it was supposed to be a contract of sale. If delivery
was not part of the agreement entered into by the parties in 1960, why did respondent surrender possession thereof to
petitioner in the first place?

4.20 Now that the Courts have ruled that the transaction was not a sale but a mortgage, petitioner's entitlement to the
possession of the Property should be deemed as one of the provisions of the mortgage, considering that at the time the
contract was entered into, possession of the Property was likewise delivered to petitioner. Thus, until respondent has fully
paid her mortgage loan, petitioner should be allowed to retain possession of the subject property. 16

Petitioner's position lacks sufficient legal and factual moorings.

A mortgage is a contract entered into in order to secure the fulfillment of a principal obligation. 17 It is constituted by
recording the document in which it appears with the proper Registry of Property, although, even if it is not recorded, the
mortgage is nevertheless binding between the parties. 18 Thus, the only right granted by law in favor of the mortgagee is to
demand the execution and the recording of the document in which the mortgage is formalized. 19 As a general rule, the
mortgagor retains possession of the mortgaged property since a mortgage is merely a lien and title to the property does not
pass to the mortgagee. 20 However, even though a mortgagee does not have possession of the property, there is no
impairment of his security since the mortgage directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. 21 If the debtor is
unable to pay his debt, the mortgage creditor may institute an action to foreclose the mortgage, whether judicially or
extrajudicially, whereby the mortgaged property will then be sold at a public auction and the proceeds therefrom given to the
creditor to the extent necessary to discharge the mortgage loan. Apparently, petitioner's contention that "[t]o require [him] . . .
to deliver possession of the Property to respondent prior to the full payment of the latter's mortgage loan would be equivalent
to the cancellation of the mortgage" is without basis. Regardless of its possessor, the mortgaged property may still be sold,
with the prescribed formalities, in the event of the debtor's default in the payment of his loan obligation.

Moreover, this Court cannot find any justification in the records to uphold petitioner's contention that respondent delivered
possession of the subject property upon the execution of the "Deed of Sale and Special Cession of Rights and Interests" on
February 10, 1960 and that the transfer of possession to petitioner must therefore be considered an essential part of the
agreement between the parties. This self-serving assertion of petitioner was directly contradicted by respondent in her
pleadings. 22 Furthermore, nowhere in the Court of Appeals' decisions promulgated on March 31, 1995 (G.R. CV No. 42065)
and on October 5, 1998 (G.R. SP No. 48310), or in our own decision promulgated on July 8, 1996 (G.R. No. 120832) was it
ever established that the mortgaged properties were delivered by respondent to petitioner.

In Alvano v. Batoon, 2 this Court held that "[a] simple mortgage does not give the mortgagee a right to the possession of the
property unless the mortgage should contain some special provision to that effect." Regrettably for petitioner, he has not
presented any evidence, other than his own gratuitous statements, to prove that the real intention of the parties was to allow
him to enjoy possession of the mortgaged property until full payment of the loan.

Therefore, we hold that the trial court correctly issued the writ of possession in favor of respondent. Such writ was but a
necessary consequence of this Court's ruling in G.R. No. 120832 affirming the validity of the original certificate of title (OCT
No. P-13038) in the name of respondent Felicitas de Lara, while at the same time nullifying the original certificate of title
(OCT No. P-11566) in the name of petitioner Cornelio Isaguirre. Possession is an essential attribute of ownership; thus, it
would be redundant for respondent to go back to court simply to establish her right to possess subject property. Contrary to
petitioner's claims, the issuance of the writ of possession by the trial court did not constitute an unwarranted modification of
our decision in G.R. No. 120832, but rather, was a necessary complement thereto. 24 It bears stressing that a judgment is
not confined to what appears upon the face of the decision, but also those necessarily included therein or necessary thereto.
25

With regard to the improvements made on the mortgaged property, we confirm the Court of Appeals' characterization of
petitioner as a possessor in bad faith. Based on the factual findings of the appellate court, it is evident that petitioner knew
from the very beginning that there was really no sale and that he held respondent's property as mere security for the
payment of the loan obligation. Therefore, petitioner may claim reimbursement only for necessary expenses; however, he is
not entitled to reimbursement for any useful expenses 26 which he may have incurred. 27

Finally, as correctly pointed out by the Court of Appeals, this case should be remanded to the Regional Trial Court of Davao
City for a determination of the total amount of the loan, the necessary expenses incurred by petitioner, and the period within
which respondent must pay such amount. 28 However, no interest is due on the loan since there has been no express
stipulation in writing. 29

WHEREFORE, the assailed Decision of the Court of Appeals dated October 5, 1998 and its Resolution dated March 5, 1999
are hereby AFFIRMED. Respondent is entitled to delivery of possession of the subject property. This case is hereby
REMANDED to the trial court for determination of the amount of the loan, the necessary expenses incurred by petitioner and
the period within which the respondent must pay the same.
SO ORDERED.

Melo, Vitug and Purisima, JJ., concur.

Panganiban, J., is on leave.

G.R. No. 112160 February 28, 2000

OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner, vs.COURT OF APPEALS, ASIAN SAVINGS BANK,
MAXIMO C. CONTRARES and VICENTE MAÑOSCA, respondents.

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to review and set aside the
Decision1 of the Court of Appeals in CA-G.R. CV No. 25242, which reversed the Decision2 of Branch 59 of the Regional Trial
Court of Makati City in Civil Case No. M-028; the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and a new one is hereby entered
DISMISSING the complaint of the spouses Osmundo and Angelina Canlas. On the counterclaim of defendant Asian Savings
Bank, the plaintiffs Canlas spouses are hereby ordered to pay the defendant Asian Savings Bank the amount of P50,000.00
as moral and exemplary damages, plus P15,000.00 as and for attorney's fees.

With costs against appellees.

SO ORDERED.3

The facts that matter:

Sometime in August, 1982, the petitioner, Osmundo S. Canlas, and private respondent, Vicente Mañosca, decided to venture
in business and to raise the capital needed therefor. The former then executed a Special Power of Attorney authorizing the
latter to mortgage two parcels of land situated in San Dionisio, (BF Homes) Paranaque, Metro Manila, each lot with semi-
concrete residential house existing thereon, and respectively covered by Transfer Certificate of Title No. 54366 in his
(Osmundo's) name and Transfer Certificate of Title No. S-78498 in the name of his wife Angelina Canlas.

Subsequently, Osmundo Canlas agreed to sell the said parcels of land to Vicente Mañosca, for and in consideration of
P850,000.00, P500,000.00 of which payable within one week, and the balance of P350,000.00 to serve as his (Osmundo's)
investment in the business. Thus, Osmundo Canlas delivered to Vicente Mañosca the transfer certificates of title of the
parcels of land involved. Vicente Mañosca, as his part of the transaction, issued two postdated checks in favor of Osmundo
Canlas in the amounts of P40,000.00 and P460,000.00, respectively, but it turned out that the check covering the bigger
amount was not sufficiently funded.4

On September 3, 1982, Vicente Mañosca was able to mortgage the same parcels of land for P100,000.00 to a certain
Attorney Manuel Magno, with the help of impostors who misrepresented themselves as the spouses, Osmundo Canlas and
Angelina Canlas.5

On September 29, 1982, private respondent Vicente Mañosca was granted a loan by the respondent Asian Savings Bank
(ASB) in the amount of P500,000.00, with the use of subject parcels of land as security, and with the involvement of the same
impostors who again introduced themselves as the Canlas spouses.6 When the loan it extended was not paid, respondent
bank extrajudicially foreclosed the mortgage.

On January 15, 1983, Osmundo Canlas wrote a letter informing the respondent bank that the execution of subject mortgage
over the two parcels of land in question was without their (Canlas spouses) authority, and request that steps be taken to
annul and/or revoke the questioned mortgage. On January 18, 1983, petitioner Osmundo Canlas also wrote the office of
Sheriff Maximo O. Contreras, asking that the auction sale scheduled on February 3, 1983 be cancelled or held in abeyance.
But respondents Maximo C. Contreras and Asian Savings Bank refused to heed petitioner Canlas' stance and proceeded
with the scheduled auction sale.7

Consequently, on February 3, 1983 the herein petitioners instituted the present case for annulment of deed of real estate
mortgage with prayer for the issuance of a writ of preliminary injunction; and on May 23, 1983, the trial court issued an Order
restraining the respondent sheriff from issuing the corresponding Certificate of Sheriff's Sale.8

For failure to file his answer, despite several motions for extension of time for the filing thereof, Vicente Mañosca was
declared in default.9

On June 1, 1989, the lower court a quo came out with a decision annulling subject deed of mortgage and disposing, thus:

Premises considered, judgment is hereby rendered as follows.1âwphi1.nêt

1. Declaring the deed of real estate mortgage (Exhibit "L") involving the properties of the plaintiffs as null and void;

2. Declaring the public auction sale conducted by the defendant Sheriff, involving the same properties as illegal and without
binding effect;

3. Ordering the defendants, jointly and severally, to pay the plaintiffs the sum of P20,000.00 representing attorney's fees;

4. On defendant ASB's crossclaim: ordering the cross-defendant Vicente Mañosca to pay the defendant ASB the sum of
P350,000.00, representing the amount which he received as proceeds of the loan secured by the void mortgage, plus
interest at the legal rate, starting February 3, 1983, the date when the original complaint was filed, until the amount is fully
paid;

5. With costs against the defendants.

SO ORDERED.10

From such Decision below, Asian Savings Bank appealed to the Court of Appeals, which handed down the assailed judgment
of reversal, dated September 30, 1983, in CA-G.R. CV No. 25242. Dissatisfied therewith, the petitioners found their way to
this Court via the present Petition; theorizing that:

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE MORTGAGE OF THE PROPERTIES SUBJECT OF
THIS CASE WAS VALID.

II

RESPONDENT COURT OF APPEALS ERRED IN HIOLDING THAT PETITIONERS ARE NOT ENTITLED TO RELIEF
BECAUSE THEY WERE NEGLIGENT AND THEREFORE MUST BEAR THE LOSS.

III

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB EXERCISED DUE DILIGENCE IN
GRANTING THE LOAN APPLICATION OF RESPONDENT.

IV

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB DID NOT ACT WITH BAD FAITH IN
PROCEEDING WITH THE FORECLOSURE SALE OF THE PROPERTIES.

RESPONDENT COURT OF APPEALS ERRED IN AWARDING RESPONDENT ASB MORAL DAMAGES.11

The Petition is impressed with merit.

Art. 1173 of the Civil Code, provides:

Art. 1173. The fault or negligence of the obligor consist in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad
faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a
good father of a family shall be required. (1104)

The degree of diligence required of banks is more than that of a good father of a family;12 in keeping with their responsibility
to exercise the necessary care and prudence in dealing even on a registered or titled property. The business of a bank is
affected with public interest, holding in trust the money of the depositors, which bank deposits the bank should guard against
loss due to negligence or bad faith, by reason of which the bank would be denied the protective mantle of the land
registration law, accorded only to purchasers or mortgagees for value and in good faith.13

In the case under consideration, from the evidence on hand it can be gleaned unerringly that respondent bank did not
observe the requisite diligence in ascertaining or verifying the real identity of the couple who introduced themselves as the
spouses Osmundo Canlas and Angelina Canlas. It is worthy to note that not even a single identification card was exhibited by
the said impostors to show their true identity; and yet, the bank acted on their representations simply on the basis of the
residence certificates bearing signatures which tended to match the signatures affixed on a previous deed of mortgage to a
certain Atty. Magno, covering the same parcels of land in question. Felizado Mangubat, Assistant Vice President of Asian
Savings Bank, thus testified inter alia:

xxx xxx xxx

Q: According to you, the basis for your having recommended for the approval of MANASCO's (sic) loan particularly that
one involving the property of plaintiff in this case, the spouses OSMUNDO CANLAS and ANGELINA CANLAS, the basis for
such approval was that according to you all the signatures and other things taken into account matches with that of the
document previously executed by the spouses CANLAS?

Q: That is the only basis for accepting the signature on the mortgage, the basis for the recommendation of the
approval of the loan are the financial statement of MAÑOSCA?

A: Yes; among others the signature and TAX Account Number, Residence Certificate appearing on the previous loan
executed by the spouses CANLAS, I am referring to EXHIBIT 5, mortgage to ATTY. MAGNO, those were made the basis.

A: That is just the basis of accepting the signature, because at that time the loan have been approved already on the
basis of the financial statement of the client the Bank Statement. Wneh (sic) it was approved we have to base it on the
Financial statement of the client, the signatures were accepted only for the purpose of signing the mortgage not for the
approval, we don't (sic) approve loans on the signature.

ATTY. CLAROS:

Would you agree that as part of ascertaining the identify of the parties particularly the mortgage, you don't consider also the
signature, the Residence Certificate, the particular address of the parties involved.

A: I think the question defers (sic) from what you asked a while ago.

Q: Among others?

A: We have to accept the signature on the basis of the other signatures given to us it being a public instrument.

ATTY. CARLOS:

You mean to say the criteria of ascertaining the identity of the mortgagor does not depend so much on the signature on the
residence certificate they have presented.

A: We have to accept that.

xxx xxx xxx

A: We accepted the signature on the basis of the mortgage in favor of ATTY. MAGNO duly notarized which I have been
reiterrting (sic) entitled to full faith considering that it is a public instrument.

ATTY. CARLOS:

What other requirement did you take into account in ascertaining the identification of the parties particularly the mortgagor in
this case.

A: Residence Certificate.

Q: Is that all, is that the only requirement?

A: We requested for others but they could not produce, and because they presented to us the Residence Certificate
which matches on the signature on the Residence Certificate in favor of Atty. Magno.14

Evidently, the efforts exerted by the bank to verify the identity of the couple posing as Osmundo Canlas and Angelina Canlas
fell short of the responsibility of the bank to observe more than the diligence of a good father of a family. The negligence of
respondent bank was magnified by the fact that the previous deed of mortgage (which was used as the basis for checking
the genuineness of the signatures of the supposed Canlas spouses) did not bear the tax account number of the spouses, 15
as well as the Community Tax Certificate of Angelina Canlas.16 But such fact notwithstanding, the bank did not require the
impostors to submit additional proof of their true identity.

Under the doctrine of last clear chance, which is applicable here, the respondent bank must suffer the resulting loss. In
essence, the doctrine of last clear chance is to the effect that where both parties are negligent but the negligent act of one is
appreciably later in point of time than that of the other, or where it is impossible to determine whose fault or negligence
brought about the occurrence of the incident, the one who had the last clear opportunity to avoid the impending harm but
failed to do so, is chargeable with the consequences arising therefrom. Stated differently, the rule is that the antecedent
negligence of a person does not preclude recovery of damages caused by the supervening negligence of the latter, who had
the last fair chance to prevent the impending harm by the exercise of due diligence.17

Assuming that Osmundo Canlas was negligent in giving Vicente Mañosca the opportunity to perpetrate the fraud, by
entrusting to latter the owner's copy of the transfer certificates of title of subject parcels of land, it cannot be denied that the
bank had the last clear chance to prevent the fraud, by the simple expedient of faithfully complying with the requirements for
banks to ascertain the identity of the persons transacting with them.

For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest,
respondent Asian Savings Bank has to bear the loss sued upon.

In ruling for respondent bank, the Court of Appeals concluded that the petitioner Osmundo Canlas was a party to the
fraudulent scheme of Mañosca and therefore, estopped from impugning the validity of subject deed of mortgage; ratiocinating
thus:

xxx xxx xxx

Thus, armed with the titles and the special power of attorney, Mañosca went to the defendant bank and applied for a loan.
And when Mañosca came over to the bank to submit additional documents pertinent to his loan application, Osmundo Canlas
was with him, together with a certain Rogelio Viray. At that time, Osmundo Canlas was introduced to the bank personnel as
"Leonardo Rey".

When he was introduced as "Leonardo Rey" for the first time Osmundo should have corrected Mañosca right away. But he
did not. Instead, he even allowed Mañosca to avail of his (Osmundo's) membership privileges at the Metropolitan Club when
Mañosca invited two officers of the defendant bank to a luncheon meeting which Osmundo also attended. And during that
meeting, Osmundo did not say who he really is, but even let Mañosca introduced him again as "Leonardo Rey", which all the
more indicates that he connived with Mañosca in deceiving the defendant bank.

Finally after the loan was finally approved, Osmundo accompanied Mañosca to the bank when the loan was released. At that
time, a manger's check for P200,000.00 was issued in the name of Oscar Motorworks, which Osmundo admits he owns and
operates.
Collectively, the foregoing circumstances cannot but conjure to a single conclusion that Osmundo active participated in the
loan application of defendant Asian Savings Bank, which culminated in his receiving a portion of the process thereof:18

A meticulous and painstaking scrutiny of the Records on hand, reveals, however, that the findings arrived at by the Court of
Appeals are barren of any sustainable basis. For instance, the execution of the deeds of mortgages constituted by Mañosca
on subject pieces of property of petitioners were made possible not by the Special Power of Attorney executed by Osmundo
Canlas in favor of Mañosca but through the use of impostors who misrepresented themselves as the spouses Angelina
Canlas and Osmundo Canlas. It cannot be said therefore, that the petitioners authorized Vicente Mañosca to constitute the
mortgage on their parcels of land.

What is more, Osmundo Canlas was introduced as "Leonardo Rey" by Vicente Mañosca, only on the occasion of the
luncheon meeting at the Metropolitan Club.19 Thereat, the failure of Osmundo Canlas to rectify Mañosca's
misrepresentations could not be taken as a fraudulent act. As well explained by the former, he just did not want to embarrass
Mañosca, so that he waited for the end of the meeting to correct Mañosca.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 Mañosca with ASB.21 So also, Mrs. Josefina Rojo, who was the Account Officer of Asian Savings Bank when
Mañosca applied for subject loan, corroborated the testimony of Osmundo Canlas, she testified:

xxx xxx xxx

QUESTION: Now could you please describe out the lunch conference at the Metro Club in Makati?

ANSWER: Mr. Mangubat, Mr. Mañosca and I did not discuss with respect to the loan application and discuss primarily
his business.

xxx xxx xxx

QUESTION: So, what is the main topic of your discussion during the meeting?

ANSWER: The main topic war then, about his business although, Mr. Leonardo Rey, who actually turned out as Mr.
Canlas, supplier of Mr. Mañosca.

QUESTION: I see . . . other than the business of Mr. Mañosca, were there any other topic discussed?

ANSWER: YES.

QUESTION: And what was the topic:

ANSWER: General Economy then.

xxx xxx x x x22

Verily, Osmundo Canlas was left unaware of the illicit plan of Mañosca, explaining thus why he (Osmundo) did not bother to
correct what Mañosca misrepresented and to assert ownership over the two parcels of land in question.

Not only that; while it is true that Osmundo Canlas was with Vicente Mañosca when the latter submitted the documents
needed for his loan application, and when the check of P200,000.00 was released, the former did not know that the collateral
used by Mañosca for the said loan were their (Canlas spouses') properties. Osmundo happened to be with Mañosca at the
time because he wanted to make sure that Mañosca would make good his promise to pay the balance of the purchase price
of the said lots out of the proceeds of the loan.23

The receipt by Osmundo Canlas of the P200,000.00 check from ASB could not estop him from assailing the validity of the
mortgage because the said amount was in payment of the parcels of land he sold to Mañosca.24

What is decisively clear on record is that Mañosca managed to keep Osmundo Canlas uninformed of his (Mañosca's)
intention to use the parcels of land of the Canlas spouses as security for the loan obtained from Asian Savings Bank. Since
Vicente Mañosca showed Osmundo Canlas several certificates of title of lots which, according to Mañosca were the
collaterals, Osmundo Canlas was confident that their (Canlases') parcels of land were not involved in the loan transactions
with the Asian Savings Bank.25 Under the attendant facts and circumstances, Osmundo Canlas was undoubtedly negligent,
which negligence made them (petitioners) undeserving of an award of attorney's fees.

Settled is the rule that a contract of mortgage must be constituted only by the absolute owner on the property mortgaged;26 a
mortgage, constituted by an impostor is void.27 Considering that it was established indubitably that the contract of mortgage
sued upon was entered into and signed by impostors who misrepresented themselves as the spouses Osmundo Canlas and
Angelina Canlas, the Court is of the ineluctible conclusion and finding that subject contract of mortgage is a complete nullity.

WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals, dated September 30, 1993, in CA-G.R.
CV No. 25242 SET ASIDE. The Decision of Branch 59 of the Regional Trial Court of Makati City in Civil Case No. M-028 is
hereby REINSTATED. No pronouncement as to costs.

SO ORDERED.1âwphi1.nêt

Melo, Vitug and Gonzaga-Reyes, JJ., concur.Panganiban, J., in the result.

March 28, 1960

G.R. No. L-13683

PAZ SAMANILLA, petitioner-appellee,
vs.
CENEN A. CAJUCOM, ET AL., respondents-appellants.

R. M. Ordiz de Guzman, L. P. de Guzman, Jr. and Lorenzo de Guzman, Sr. for appellee.
Agustin C. Bagasao for appellants.

, J.:

Appeal interposed by respondents Cenen A. Cajucom and Jose A. Cajucom from the order of the Court of First Instance of
Nueva Ecija in Land Registration Case No. 210, G.L.R.O. Rec. No. N-6010, requiring them to surrender Original Certificate of
Title No. O-966 within ten days either to the Register of Deeds or to the Court for the annotation of a mortgage executed by
them in favor of petitioner Paz Samanilla.

The case arose out of a petition presented by appellee Samanilla in said registration case alleging that respondents Cajucom
had executed in her favor, on December 20, 1955, a real estate mortgage over their rights and participation on the parcel of
land covered by Original Certificate of Title No. O-966 to secure a loan of P10,000.00; that sometime in February, 1956,
respondents borrowed the title from her on the excuse that they needed it to segregate from the land the portion claimed by
other persons; and that thereafter, petitioner asked for the return of the title so that she could register her mortgage, but
respondents refused. Attached to the petition were the deed of mortgage and the affidavits of petitioner and a certain Antonio
G. Javier, who allegedly was the one who borrowed the title from petitioner in behalf of respondents.

Respondents opposed the petition, claiming that the mortgage in question was void ab initio for want of consideration, and
that the issues should be litigated in an ordinary civil action. The opposition notwithstanding, the lower court entered an order
on June 12, 1956 finding the petition well-taken and ordering respondents to surrender their title either to the Register of
Deeds or to the Court. From this order, respondents appealed to the Court of Appeals, which forwarded the case to us for
raising purely question of law.

The appeal has no merit. Appellants' sole objection to the registration of the deed of mortgage is that the same was executed
without any consideration. But there is a legal presumption of sufficient cause or consideration supporting a contract, even if
such cause is not stated therein (Art. 1354, New Civil Code; Rule 123, sec. 69 [r], Rules of Court). This presumption
appellants cannot overcome by a simple assertion of lack of consideration. Especially may not the presumption be so lightly
set aside when the contract itself states that consideration was given, and the same has been reduced into a public
instrument with all due formalities and solemnities as in this case. As held by this Court.

Once a mortgage has been signed in due form, the mortgagee is entitled to its registration as a matter of right. By executing
the mortgage the mortgagor is understood to have given his consent to its registration, and he cannot be permitted to revoke
it unilaterally. The validity and fulfillment of contracts cannot be left to the will of one of the contracting parties (Article 1254 of
the Civil Code)." (Gonzales vs. Basa, Jr., et al., 73 Phil. 704)
To overcome the presumption of consideration, appellants must show the alleged lack of consideration of the mortgage by
preponderance of evidence in a proper action.

Appellants assert that they cannot be compelled to surrender their title for registration of the mortgage in question until they
are given an opportunity to show its invalidity in an ordinary civil action, because registration is an essential element of a real
estate mortgage and the surrender of their title would complete this requirement of registration. The argument is fallacious,
for a mortgage, whether registered or not, is binding between the parties, registration being necessary only to make the same
valid against third persons (Art. 2125, New Civil Code). In other words, registration only operates as a notice of the mortgage
to others, but neither adds to its validity nor convert an invalid mortgage into a valid one between the parties. Appellants still
have the right to show that the mortgage in question is invalid for lack of consideration in an ordinary action and there ask for
the avoidance of the deed and the cancellation of its registration. But until such action is filed and decided, it would be too
dangerous to the rights of the mortgagee to deny registration of her mortgage, because her rights can so easily be defeated
by a transfer or conveyance of the mortgaged property to an innocent third person. In Gurbax Singh Pabla & Co., et al. vs.
Reyes, et al., 92 Phil. 177; 48 O.G. 4365, this Court had the occasion to rule that "if the purpose of registration is merely to
give notice, the questions regarding the effect or invalidity of instruments are expected to be decided after, not before,
registration. It must follow as a necessary consequence that registration must first be allowed and validity or effect litigated
afterwards".

Appellants cite the case of Government of the Philippine Islands vs. Payva, 44 Phil. 629. However, the appellee correctly
points out that the same is inapplicable to this case because the only question raised and decide therein was whether an
order of the registration court requiring the holder of a duplicate certificate of title for the purpose of annotating an
attachment, lien, or adverse claim under sec. 72 of Act 496 is appealable or not, and we held that it was, because it resolves
important questions as to the respective rights of the parties. It should be remembered that the Land Registration Court may
summarily pass upon the validity of adverse claims sought to be registered under sections 72 and 110 of the Land
Registration Act, if all the parties agree to submit the precise question to the court (see Gurbax Singh Pabla Co. vs. Reyes,
supra); and when it is thus submitted, the losing party may appeal the court's ruling, as held in the Payva case. But
appellants herein, by opposing appellee's petition on the ground that their defense of invalidity o the mortgage sought to be
registered is contentious and should be litigated in a separate action, precisely refused to submit said question to the Land
Registration Court. The court, then, acted correctly in ordering the recording without passing upon the validity of the
mortgage in question.

The order appealed from is affirmed, without prejudice to appellants' right to bring a separate action to question the validity of
the mortgage in question and ask for the cancellation of its registration. Costs against appellants.

Paras, C.J. Bengzon, Montemayor, Bautista Angelo, Concepcion, Endencia, Barrera, and Gutierrez David, JJ., concur.

G.R. No. L-26371 September 30, 1969

MOBIL OIL PHILIPPINES, INC., plaintiff-appellant, vs.RUTH R. DIOCARES, ET AL., defendants-appellees.

Faylona, Berroya, Norte and Associates for plaintiff-appellant.Vivencio G. Ibrado Jr. for defendants-appellees.

FERNANDO, J.:

It may very well be, as noted by jurists of repute, that to stress the element of a promise as the basis of contracts is to
acknowledge the influence of natural law. 1 Nonetheless, it does not admit of doubt that whether under the civil law or the
common law, the existence of a contract is unthinkable without one's word being plighted. So the New Civil Code provides: "A
contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something
or to render some service." 2 So it is likewise under American law. Thus: "A contract is a promise or a set of promises for the
breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty." 3

The law may go further and require that certain formalities be executed. Thus, for a mortgage to be validly constituted,
"it is indispensable, ..., that the document in which it appears be recorded in the Registry of Property." The same codal
provision goes on: "If the instrument is not recorded, the mortgage is nevertheless binding between the parties." 4

The question before us in this appeal from a lower court decision, one we have to pass upon for the first time, is the
effect, if any, to be given to a mortgage contract admittedly not registered, only the parties being involved in the suit. The
lower court was of the opinion that while it "created a personal obligation [it] did not establish a real estate mortgage." 5 It did
not decree foreclosure therefor. Plaintiff-appellant appealed. We view the matter differently and reverse the lower court.
 The case for the plaintiff, Mobil Oil Philippines, Inc., now appellant, was summarized in the lower court order of
February 25, 1966, subject of this appeal. Thus: "In its complaint plaintiff alleged that on Feb. 9, 1965 defendants Ruth R.
Diocares and Lope T. Diocares entered into a contract of loan and real estate mortgage wherein the plaintiff extended to the
said defendants a loan of P45,000.00; that said defendants also agreed to buy from the plaintiff on cash basis their petroleum
requirements in an amount of not less than 50,000 liters per month; that the said defendants will pay to the plaintiff 9-1/2%
per annum on the diminishing balance of the amount of their loan; that the defendants will repay the said loan in monthly
installments of P950.88 for a period of five (5) years from February 9, 1965; that to secure the performance of the foregoing
obligation they executed a first mortgage on two parcels of land covered by Transfer Certificates of Title Nos. T-27136 and T-
27946, both issued by the Register of Deeds of Bacolod City. The agreement further provided that in case of failure of the
defendants to pay any of the installments due and purchase their petroleum requirements in the minimum amount of 50,000
liters per month from the plaintiff, the latter has the right to foreclose the mortgage or recover the payment of the entire
obligation or its remaining unpaid balance; that in case of foreclosure the plaintiff shall be entitled to 12% of the indebtedness
as damages and attorney's fees. A copy of the loan and real estate mortgage contract executed between the plaintiff and the
defendants is attached to the complaint and made a part thereof. The complaint further alleges that the defendant paid only
the amount of P1,901.76 to the plaintiff, thus leaving a balance of P43,098.24, excluding interest, on their indebtedness. The
said defendants also failed to buy on cash basis the minimum amount of petroleum which they agreed to purchase from the
plaintiff. The plaintiff, therefore, prayed that the defendants be ordered to pay the amount of P43,098.24, with interest at 9-
1/2% per annum from the date it fell due, and in default of such payment that the mortgaged properties be sold and the
proceeds applied to the payment of defendants' obligation." 6

Defendants, Ruth R. Diocares and Lope T. Diocares, now appellees, admitted their indebtedness as set forth above,
denying merely the alleged refusal to pay, the truth, according to them, being that they sought for an extension of time to do
so, inasmuch as they were not in a position to comply with their obligation. They further set forth that they did request plaintiff
to furnish them with the statement of accounts with the view of paying the same on installment basis, which request was,
however, turned down by the plaintiff.

Then came a motion from the plaintiff for a judgment on the pleadings, which motion was favorably acted on by the
lower court. As was stated in the order appealed from: "The answer of the defendants dated October 21, 1965 did not raise
any issue. On the contrary, said answer admitted the material allegations of the complaint. The plaintiff is entitled to a
judgment on the pleadings." 7

As to why the foreclosure sought by plaintiff was denied, the lower court order on appeal reads thus: "The Court
cannot, however, order the foreclosure of the mortgage of properties, as prayed for, because there is no allegation in the
complaint nor does it appear from the copy of the loan and real estate mortgage contract attached to the complaint that the
mortgage had been registered. The said loan agreement although binding among the parties merely created a personal
obligation but did not establish a real estate mortgage. The document should have been registered. (Art. 2125, Civil Code of
the Phil.)" 8 The dispositive portion is thus limited to ordering defendants "to pay the plaintiff the account of P43,098.24, with
interest at the rate of 9-1/2% per annum from the date of the filing of the complaint until fully paid, plus the amount of
P2,000.00 as attorneys' fees, and the costs of the suit." 9

Hence this appeal, plaintiff-appellant assigning as errors the holding of the lower court that no real estate mortgage
was established and its consequent refusal to order the foreclosure of the mortgaged properties. As set forth at the outset,
we find the appeal meritorious. The lower court should not have held that no real estate mortgage was established and
should have ordered its foreclosure.

The lower court predicated its inability to order the foreclosure in view of the categorical nature of the opening
sentence of the governing article 10 that it is indispensable, "in order that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property." Note that it ignored the succeeding sentence: "If the
instrument is not recorded, the mortgage is nevertheless binding between the parties." Its conclusion, however, is that what
was thus created was merely "a personal obligation but did not establish a real estate mortgage."

Such a conclusion does not commend itself for approval. The codal provision is clear and explicit. Even if the
instrument were not recorded, "the mortgage is nevertheless binding between the parties." The law cannot be any clearer.
Effect must be given to it as written. The mortgage subsists; the parties are bound. As between them, the mere fact that there
is as yet no compliance with the requirement that it be recorded cannot be a bar to foreclosure.1awphîl.nèt

A contrary conclusion would manifest less than full respect to what the codal provision ordains. The liability of the
mortgagor is therein explicitly recognized. To hold, as the lower court did, that no foreclosure would lie under the
circumstances would be to render the provision in question nugatory. That we are not allowed to do. What the law requires in
unambiguous language must be lived up to. No interpretation is needed, only its application, the undisputed facts calling for
it. 11
 Moreover to rule as the lower court did would be to show less than fealty to the purpose that animated the legislators in
giving expression to their will that the failure of the instrument to be recorded does not result in the mortgage being any the
less "binding between the parties." In the language of the Report of the Code Commission: "In article [2125] an additional
provision is made that if the instrument of mortgage is not recorded, the mortgage is nevertheless binding between the
parties." 12 We are not free to adopt then an interpretation, even assuming that the codal provision lacks the forthrightness
and clarity that this particular norm does and, therefore, requires construction, that would frustrate or nullify such legislative
objective.

Nor is the reason difficult to discern why such an exception should be made to the rule that is indispensable for a
mortgage to be validly constituted that it be recorded. Equity so demands, and justice is served. There is thus full
acknowledgment of the binding effect of a promise, which must be lived up to, otherwise the freedom a contracting party is
supposed to possess becomes meaningless. It could be said of course that to allow foreclosure in the absence of such a
formality is to offend against the demands of jural symmetry. What is "indispensable" may be dispense with. Such an
objection is far from fatal. This would not be the first time when logic yields to what is fair and what is just. To such an
overmastering requirement, law is not immune.

WHEREFORE, the lower court order of February 25, 1966 is affirmed with the modification that in default of the
payment of the above amount of P43,028.94 with interests at the rate of 9-1/2% per annum from the date of the filing of the
complaint, that the mortgage be foreclosed with the properties subject thereof being sold and the proceeds of the sale
applied to the payment of the amounts due the plaintiff in accordance with law. With costs against defendants-appellees.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Capistrano, Teehankee and Barredo, JJ., concur.Reyes,
J.B.L., J., is on leave.

[G.R. No. 147788. March 19, 2002]

EDILBERTO CRUZ and SIMPLICIO CRUZ, petitioners, vs. BANCOM FINANCE CORPORATION (NOW UNION BANK
OF THE PHILIPPINES), respondent.

DECISION

PANGANIBAN, J.:

An absolutely simulated contract of sale is void ab initio and transfers no ownership right. The purported buyer, not
being the owner, cannot validly mortgage the subject property. Consequently, neither does the buyer at the foreclosure sale
acquire any title thereto.

Statement of the Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the March 30, 2001
Decision[1] of the Court of Appeals (CA) in CA-GR No. 58346. The decretal portion of the challenged Decision reads as
follows:

“WHEREFORE, upon the premises, the assailed Decision is REVERSED and SET ASIDE. A new one is rendered declaring
BANCOM’s right to the subject land as a purchaser in good faith and for value, and ordering the cancellation of the Notice of
Lis Pendens on TCT No. 248262-Bulacan. Without pronouncement as to costs.”[2]

The Facts

The factual antecedents of the case are summarized by the Court of Appeals thus:

“Brothers Rev. Fr. Edilberto Cruz and Simplicio Cruz, plaintiffs herein, were the registered owners of a 339,335 square meter
or 33.9335 hectare parcel of agricultural land together with improvements located in Barangay Pulang Yantoc, Angat,
Bulacan covered by TCT No. 19587. Sometime in May 1978, defendant Norma Sulit, after being introduced by Candelaria
Sanchez to Fr. Cruz, offered to purchase the land. Plaintiffs’ asking price for the land was P700,000.00, but Norma only had
P25,000.00 which Fr. Cruz accepted as earnest money with the agreement that titles would be transferred to Norma upon
payment of the balance of P675,000.00. Norma failed to pay the balance and proposed [to] Fr. Cruz to transfer the property
to her but the latter refused, obviously because he had no reason to trust Norma. But capitalizing on the close relationship of
Candelaria Sanchez with the plaintiffs, Norma succeeded in having the plaintiffs execute a document of sale of the land in
favor of Candelaria who would then obtain a bank loan in her name using the plaintiffs’ land as collateral. On the same day,
Candelaria executed another Deed of Absolute Sale over the land in favor of Norma. In both documents, it appeared that the
consideration for the sale of the land was only P150,000.00. Pursuant to the sale, Norma was able to effect the transfer of
the title to the land in her name under TCT No. T-248262.

“Evidence shows that aside from the P150,000.00, Candelaria undertook to pay the plaintiffs the amount of P655,000.00
representing the balance of the actual price of the land. In a Special Agreement dated September 1, 1978, Norma assumed
Candelaria’s obligation, stipulating to pay the plaintiffs the said amount within six months on pain of fine or penalty in case of
non-fulfillment. Unknown to the plaintiffs, Norma managed to obtain a loan from Bancom in the amount of P569,000.00
secured by a mortgage over the land now titled in her name.

“On account of Norma’s failure to pay the amount stipulated in the Special Agreement and her subsequent disappearance
from her usual address, plaintiffs were prompted to file the herein complaint for the reconveyance of the land.

“Norma filed an Answer on February 11, 1980 but failed to appear in court and was eventually declared in default. On May
20, 1980, Bancom filed a motion for leave to intervene which was granted by the trial court. In its Answer in Intervention,
Bancom claimed priority as mortgagee in good faith; and that its contract of mortgage with Norma had been executed before
the annotation of plaintiffs’ interest in the title.

“Meanwhile in the middle of 1980, Norma defaulted in her payment to the Bank and her mortgage was foreclosed. At the
subsequent auction sale, Bancom was declared the highest bidder and was issued the corresponding certificate of sale over
the land.

“On January 25, 1996, the trial court rendered the herein assailed Decision in favor of the plaintiffs. It ruled that the contract
of sale between plaintiffs and Candelaria was absolutely simulated. Consequently, the second contract of sale, that is,
between Candelaria and Norma, produced no legal effect. As for Bancom, the trial court held that the Bank was not a
mortgagee in good faith thus it can not claim priority of rights over plaintiffs’ property.”[3]

Ruling of the Court of Appeals

In reversing the RTC, the CA held that the Deeds of Sale were valid and binding, not simulated. Thus, the Contract of
Mortgage between Sulit and respondent was likewise valid.

Petitioners, the CA ruled, intended to be bound by the Contracts of Sale and Mortgage, because they “did not seek to
annul the same but instead executed a special agreement to enforce payment of the balance of the price in the amount of
P665,000.00.”[4]

Furthermore, it upheld respondent as a “mortgagee in good faith;” ergo, it had a preferential right to the land.

Hence, this Petition.[5]

Issues

In their Memorandum, petitioners raise the following issues for this Court’s consideration:

“Whether or not the Honorable Court of Appeals seriously erred when it held that the petitioners intended to enter into a sale
of the property in question and that the declarations of Petitioner Fr. Edilberto Cruz in Court belied the court a quo’s finding
that the Deeds of Sale in question were absolute simulations.

II

“Whether or not the Honorable Court of Appeals gravely erred when it ruled that respondent bank was a mortgagee in good
faith, despite the fact that respondent Bancom was in truth and in fact a mortgagee in bad faith over the subject property.
 III

“Whether or not the Honorable Court of Appeals seriously erred when it ruled that the face of the title [to] the property did not
disclose any irregularity that would arouse suspicion by respondent bank as to the condition of the subject land despite the
fact that questions and circumstances abound which would render respondent bank not a mortgagee in good faith, and that
the case of Sunshine Finance Investment Corporation vs. Intermediate Appellate Court applies to the instant case.

IV

“Whether or not the Honorable Court of Appeals gravely erred when it ruled that respondent bank possesses a preferential
right over petitioners on the subject land as a mortgagee in good faith.”[6]

The above issues can be summed up into two: (1) the validity of the Deeds of Sale and Mortgage and (2) the good
faith of the mortgagee.

This Court’s Ruling

The Petition is meritorious.

First Issue:
Validity of the Sale and the Mortgage

Petitioners claim that the Deed of Sale[7] they executed with Sanchez, as well as the Deed of Sale[8] executed
between Sanchez and Sulit, was absolutely simulated; hence, null and void. On the other hand, echoing the appellate court,
respondent contends that petitioners intended to be bound by those Deeds, and that the real estate mortgage over the
subject property was valid.

As a general rule, when the terms of a contract are clear and unambiguous about the intention of the contracting
parties, the literal meaning of its stipulations shall control. But if the words appear to contravene the evident intention of the
parties, the latter shall prevail over the former.[9] The real nature of a contract may be determined from the express terms of
the agreement, as well as from the contemporaneous and subsequent acts of the parties thereto.[10]

On the other hand, simulation takes place when the parties do not really want the contract they have executed to
produce the legal effects expressed by its wordings.[11] Simulation or vices of declaration may be either absolute or relative.
Article 1345 of the Civil Code distinguishes an absolute simulation from a relative one while Article 1346 discusses their
effects, as follows:

“Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be
bound at all; the latter when the parties conceal their true agreement.

“Art. 1346. An absolutely simulated contract is void. A relative simulation, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their
agreement.”

In Rongavilla v. Court of Appeals,[12] we held that a deed of sale, in which the stated consideration had not in fact
been paid, was “a false contract”; that is “void ab initio.” Furthermore, Ocejo v. Flores,[13] ruled that “a contract of purchase
and sale is null and void and produces no effect whatsoever where it appears that [the] same is without cause or
consideration which should have been the motive thereof, or the purchase price which appears thereon as paid but which in
fact has never been paid by the purchaser to the vendor.”

Although the Deed of Sale[14] between petitioners and Sanchez stipulated a consideration of P150,000, there was
actually no exchange of money between them. Petitioner Edilberto Cruz narrated how the transaction came about:

“ATTY. CABRERA:

Q Why did you execute the deed of sale in favor of Candelaria Sanchez since it was Norma Sulit with whom
you are transacting?

A Because Norma Sulit made the promise to Mrs. Candelaria Sanchez that upon acquiring the title from us,
they can borrow money from the Bank. So it is a way of acquiring the title from us, sir.
 Q. This deed of sale marked Exhibit ‘D’ which you just identified, stipulates a consideration of P150,000.00.
The question, Father, is - did you receive the P150,000.00?

ATTY. AGRAVANTE

Objection, your Honor, the document is the best evidence.

ATTY. CABRERA

This is an action to annul a certain contract.

COURT

He received the consideration stated in the contract. The witness may answer.

WITNESS

A Not a single centavo we received from Candelaria Sanchez as if it is nominal, sir.

ATTY. CABRERA

Q If you did not receive this P150,000.00 stated in this deed of sale that you and your brother executed from
Candelaria Sanchez, did you receive the said amount from Norma Sulit or anybody else for that matter?

A Not a single centavo, sir.”[15]

His claim was corroborated by Sanchez. She likewise said that the Deed of Sale[16] she executed with Sulit, for
which she did not receive any consideration was only for the purpose of placing the title to the property in the latter’s name.
She testified as follows:

“Q And so you transferred the property in favor of Norma Sulit?

A Yes, sir.

Q I am showing to you this document which has already been marked when the representative of the
Register of Deeds produced the pertinent documents before the court as Exhibit “C”, is this that
document that you executed transferring the property in the name of Norma Sulit?

A Yes, sir, this is it.

Q There is a consideration of P150,000.00 stated in this Exhibit “C”, were you paid by Norma Sulit the
amount of P150,000.00 appearing in this Exhibit “C”?

ATTY BUYCO:

The question is leading, Your Honor.

COURT:

Witness may answer.

A No amount was given, sir. We prepared this document to transfer the title [to] her name only.”[17]

Respondent never offered any evidence to refute the foregoing testimonies.[18] On the contrary, it even admitted that
the stipulated consideration of P150,000 in the two Deeds of Sale had never been actually paid by Sanchez to petitioners;
[19] neither by Sulit to the former.[20]

Another telling sign of simulation was the complete absence of any attempt on the part of the buyers -- Sanchez and
Sulit -- to assert their alleged rights of ownership over the subject property.[21] This fact was confirmed by respondent which,
however, tried to justify the non-occupancy of the land by Sanchez and Sulit. Supposedly, because the two failed to pay the
purchase price of the land, they could not force petitioners to vacate it.[22]

The records clearly show that the two Deeds of Absolute Sale were executed over the same property on the same
date, June 21, 1978. Six days thereafter, on June 27, 1978, it was mortgaged by Sulit to Federal Insurance Company for
P500,000. The mortgage was cancelled when she again mortgaged the property to respondent for P569,000 on August 22,
1979. It is also undisputed that petitioners did not receive any portion of the proceeds of the loan.

Clearly, the Deeds of Sale were executed merely to facilitate the use of the property as collateral to secure a loan from
a bank.[23] Being merely a subterfuge, these agreements could not have been the source of any consideration for the
supposed sales.[24] Indeed, the execution of the two documents on the same day sustains the position of petitioners that the
Contracts of Sale were absolutely simulated, and that they received no consideration therefor.[25]

The failure of Sulit to take possession of the property purportedly sold to her was a clear badge of simulation that
rendered the whole transaction void and without force and effect, pursuant to Article 1409[26] of the Civil Code.[27] The fact
that she was able to secure a Certificate of Title to the subject property in her name did not vest her with ownership over it.
[28] A simulated deed of sale has no legal effect; consequently any transfer certificate of title (TCT) issued in consequence
thereof should be cancelled.[29] A simulated contract is not a recognized mode of acquiring ownership.[30]

Second Issue:
Good Faith of Mortgagee

Petitioners argue that respondent was not a mortgagee in good faith because, at the time it registered the real estate
mortgage over the subject property, their adverse claim and notice of lis pendens had already been annotated on the TCT
(on October 30, 1979 and December 10, 1979, respectively). On the other hand, respondent maintains that petitioners were
the ones in bad faith, because they already had knowledge of the existence of the mortgage over the property when they
caused the annotation of their adverse claim and notice of lis pendens.

As a general rule, every person dealing with registered land may safely rely on the correctness of the certificate of title
and is no longer required to look behind the certificate in order to determine the actual owner.[31] To do so would be contrary
to the evident purpose of Section 39 of Act 496 which we quote hereunder:

“Sec. 39. Every person receiving a certificate of title in pursuance of a decree of registration, and every subsequent
purchaser of registered land who takes a certificate of title for value in good faith shall hold the same free of all
encumbrances except those noted on said certificate, and any of the following encumbrances which may be subsisting,
namely:

“First. Liens, claims, or rights arising or existing under the laws or Constitution of the United States or of the Philippine
Islands which the statutes of the Philippine Islands cannot require to appear of record in the Registry.

“Second. Taxes within two years after the same became due and payable.

“Third. Any public highway, way, private way established by law, or any Government irrigation canal or lateral thereof, where
the certificate of title does not state that the boundaries of such highway, way, or irrigation canal or lateral thereof, have been
determined.

“But if there are easements or other rights appurtenant to a parcel of registered land which for any reason have failed to be
registered, such easements or rights shall remain so appurtenant notwithstanding such failure, and shall be held to pass with
the land until cut off or extinguished by the registration of the servient estate, or in any other manner.”

This rule is, however, subject to the right of a person deprived of land through fraud to bring an action for
reconveyance, provided the rights of innocent purchasers for value and in good faith are not prejudiced. An innocent
purchaser for value or any equivalent phrase shall be deemed, under Section 38 of the same Act,[32] to include an innocent
lessee, mortgagee or any other encumbrancer for value.[33]

Respondent claims that, being an innocent mortgagee, it should not be required to conduct an exhaustive
investigation on the history of the mortgagor’s title before it could extend a loan.[34]

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is
expected to exercise greater care and prudence in its dealings, including those involving registered lands.[35] A banking
institution is expected to exercise due diligence before entering into a mortgage contract.[36] The ascertainment of the status
or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.[37]

In Rural Bank of Compostela v. CA,[38] we held that a bank that failed to observe due diligence was not a mortgagee
in good faith. In the words of the ponencia:

“x x x [T]he rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.

“Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, for
their business is one affected with public interest, keeping in trust money belonging to their depositors, which they should
guard against loss by not committing any act of negligence which amounts to lack of good faith by which they would be
denied the protective mantle of the land registration statute, Act [No.] 496, extended only to purchasers for value and in good
faith, as well as to mortgagees of the same character and description.” (Citations omitted)

Recently, in Adriano v. Pangilinan,[39] we said that the due diligence required of banks extended even to persons
regularly engaged in the business of lending money secured by real estate mortgages.

The evidence before us indicates that respondent bank was not a mortgagee in good faith.[40] First, at the time the
property was mortgaged to it, it failed to conduct an ocular inspection.[41] Judicial notice is taken of the standard practice for
banks before they approve a loan: to send representatives to the premises of the land offered as collateral and to investigate
the ownership thereof.[42] As correctly observed by the RTC, respondent, before constituting the mortgage over the subject
property, should have taken into consideration the following questions:

“1) Was the price of P150,000.00 for a 33.9 hectare agricultural parcel of land not too cheap even in 1978?

“2) Why did Candelaria Sanchez sell the property at the same price of P150,000.00 to Norma Sulit on the same date, June
21, 1978 when she supposedly acquired it from the plaintiffs?

“3) Being agricultural land, didn’t it occur to the intervenors that there would be tenants to be compensated or who might
pose as obstacles to the mortgagee’s exercise of acts of dominion?

“4) In an area as big as that property, [why] did they not verify if there were squatters?

“5) What benefits or prospects thereof could the ultimate owner expect out of the property?

“Verily, the foregoing circumstances should have been looked into, for if either or both companies did, they could have
discovered that possession of the land was neither with Candelaria nor with Norma.”[43]

Respondent was clearly wanting in the observance of the necessary precautions to ascertain the flaws in the title of
Sulit and to examine the condition of the property she sought to mortgage.[44] It should not have simply relied on the face of
the Certificate of Title to the property, as its ancillary function of investing funds required a greater degree of diligence.[45]
Considering the substantial loan involved at the time, it should have exercised more caution.[46]

Moreover, the subject property, being situated in Bulacan, could have been easily and conveniently inspected by
respondent. A person who deliberately ignores a significant fact that would create suspicion in an otherwise reasonable
person is not an innocent purchaser for value.[47]

Second, respondent was already aware that there was an adverse claim and notice of lis pendens annotated on the
Certificate of Title when it registered the mortgage on March 14, 1980. Unless duly registered, a mortgage does not affect
third parties like herein petitioners, as provided under Section 51 of PD NO. 1529,[48] which we reproduce hereunder:

“SEC. 51. Conveyance and other dealings by registered owner. - An owner of registered land may convey, mortgage, lease,
charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages,
leases or other voluntary instruments [as] are sufficient in law. But no deed, mortgage, lease, or other voluntary instrument
except a will, purporting to convey or affect registered land, shall take effect as a conveyance or bind the land, but shall
operate only as a contract between the parties and as evidence of authority to the clerk or register of deeds to make
registration.

“The act of registration shall be the operative act to convey and affect the land, and in all cases under this Act the registration
shall be made in the office of the register of deeds for the province or city, where the land lies.”

True, registration is not the operative act for a mortgage to be binding between the parties. But to third persons, it is
indispensible.[49] In the present case, the adverse claim and the notice of lis pendens were annotated on the title on October
30, 1979 and December 10, 1979, respectively; the real estate mortgage over the subject property was registered by
respondent only on March 14, 1980. Settled in this jurisdiction is the doctrine that a prior registration of a lien creates a
preference.[50] Even a subsequent registration of the prior mortgage will not diminish this preference, which retroacts to the
date of the annotation of the notice of lis pendens and the adverse claim.[51] Thus, respondent’s failure to register the real
estate mortgage[52] prior to these annotations, resulted in the mortgage being binding only between it and the mortgagor,
Sulit. Petitioners, being third parties to the mortgage, were not bound by it.[53] Contrary to respondent’s claim that
petitioners were in bad faith because they already had knowledge of the existence of the mortgage in favor of respondent
when they caused the aforesaid annotations, petitioner Edilberto Cruz said that they only knew of this mortgage when
respondent intervened in the RTC proceedings.[54]

On the question of who has a preferential right over the property, the long-standing rule, as provided by Article
2085[55] of the Civil Code,[56] is that only the absolute owner of the property can constitute a valid mortgage on it. In case
of foreclosure, a sale would result in the transmission only of whatever rights the seller had over of the thing sold.[57]

In the instant case, the two Deeds of Sale were absolutely simulated; hence, null and void.[58] Thus, they did not
convey any rights that could ripen into valid titles.[59] Necessarily, the subsequent real estate mortgage constituted by Sulit in
favor of respondent was also null and void, because the former was not the owner thereof. There being no valid real estate
mortgage, there could also be no valid foreclosure or valid auction sale, either. At bottom, respondent cannot be considered
either as a mortgagee or as a purchaser in good faith. This being so, petitioners would be in the same position as they were
before they executed the simulated Deed of Sale in favor of Sanchez. They are still the owners of the property.[60]

WHEREFORE, the Petition is GRANTED and the assailed Decision SET ASIDE. The Decision of the RTC of
Bulacan, (Branch 21) dated January 25, 1996 is REINSTATED. No costs.

SO ORDERED.

Melo, (Chairman), Sandoval-Gutierrez, and Carpio, JJ., concur.

Vitug, J., abroad on official business.

G.R. No. 98334 May 8, 1992

MANUEL D. MEDIDA, Deputy Sheriff of the Province of Cebu, CITY SAVINGS BANK (formerly Cebu City Savings and
Loan Association, Inc.) and TEOTIMO ABELLANA, petitioners, vs.COURT OF APPEALS and SPS. ANDRES DOLINO
and PASCUALA DOLINO, respondents.

Gines N. Abellana for petitioners.

Dionisio U. Flores for private respondents.

REGALADO, J.:

The core issue in this case is whether or not a mortgagor, whose property has been extrajudicially foreclosed and sold at the
corresponding foreclosure sale, may validly execute a mortgage contract over the same property in favor of a third party
during the period of redemption.

The present appeal by certiorari assails the decision 1 of respondent Court of Appeals in CA-G.R. CV No. 12678 where it
answered the question posed by the foregoing issue in the negative and modified the decision 2 of the then Court of First
Instance of Cebu in Civil Case No. R-18616 wherein the validity of said subsequent mortgage was assumed and the case
was otherwise disposed of on other grounds.

The facts which gave rise to the institution of the aforesaid civil case in the trial court, as found by respondent Court of
Appeals, are as follows:

On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption over lot 4731 of the Cebu City Cadastre
and embraced under TCT No. 14272 from Mr. Juan Gandioncho, purchaser of the aforesaid lot at the foreclosure sale of the
previous mortgage in favor of Cebu City Development Bank, went to Teotimo Abellana, president of defendant Association, to
obtain a loan of P30,000.00. Prior thereto or on October 3, 1974, their son Teofredo Dolino filed a similar loan application for
Twenty-Five Thousand (P25,000.00) Pesos with lot No. 4731 offered as security for the Thirty Thousand (P30,000.00) Pesos
loan from defendant association. Subsequently, they executed a promissory note in favor of defendant association. Both
documents indicated that the principal obligation is for Thirty Thousand (P30,000.00) Pesos payable in one year with interest
at twelve (12%) percent per annum.

When the loan became due and demandable without plaintiff paying the same, defendant association caused the
extrajudicial foreclosure of the mortgage on March 16, 1976. After the posting and publication requirements were complied
with, the land was sold at public auction on April 19, 1976 to defendant association being the highest bidder. The certificate of
sale was issued on April 20, 1976 and registered on May 10, 1976 with the Register of Deeds of Cebu.

On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT No. 14272 was cancelled and in lieu
thereof TCT No. 68041 was issued in the name of defendant association. 3

xxx xxx xxx

On October 18, 1979, private respondents filed the aforestated Civil Case No. R-18616 in the court a quo for the annulment
of the sale at public auction conducted on April 19, 1976, as well as the corresponding certificate of sale issued pursuant
thereto.

In their complaint, private respondents, as plaintiffs therein, assailed the validity of the extrajudicial foreclosure sale of their
property, claiming that the same was held in violation of Act No. 3135, as amended, and prayed, inter alia, for the
cancellation of Transfer Certificate of Title No. 68041 issued in favor of therein defendant City Savings and Loan Association,
Inc., now known as City Savings Bank and one of the petitioners herein.

In its answer, the defendant association therein denied the material allegations of the complaint and averred, among others,
that the present private respondent spouses may still avail of their right of redemption over the land in question.

On January 12, 1983, after trial on the merits, the court below rendered judgment upholding the validity of the loan and the
real estate mortgage, but annulling the extrajudicial foreclosure sale inasmuch as the same failed to comply with the notice
requirements in Act No. 3135, as amended, under the following dispositive part:

WHEREFORE, the foregoing premises considered and upon the view taken by the Court of this case, judgment is hereby
rendered, as follows:

1. Declaring ineffective the extrajudicial foreclosure of the mortgage over Lot No. 4731 of the Cadastral Survey of Cebu;

2. Ordering the cancellation of Transfer Certificate of Title No. 68041 of the Registry of Deeds of the City of Cebu in the name
of defendant Cebu City Savings and Loan Association, Inc. the corresponding issuance of a new transfer certificate to
contain all the annotations made in TCT No. 14272 of the plaintiffs Pascuala Sabellano, married to Andres Dolino;

3. Ordering the plaintiffs aforenamed to pay the defendant Cebu City Savings and Loan Association, Inc. the unpaid balance
of the loan, plus interest; and reimbursing said defendant the value of any necessary and useful expenditures on the property
after deducting any income derived by said defendant from the property.

For this purpose, defendant Association is given 15 days from receipt hereof within which to submit its statement of the
amount due it from the plaintiffs Dolino, with notice to them. The payment to be made by the plaintiffs shall be within ninety
(90) days from their receipt of the order approving the amount due the defendant Cebu City Savings and Loan Association,
Inc.

No award of damages or costs to either party.

SO ORDERED. 4

Not satisfied therewith, herein private respondents interposed a partial appeal to respondent court with respect to the second
and third paragraphs of the aforequoted decretal portion, contending that the lower court erred in (1) declaring that the
mortgage executed by the therein plaintiff spouses Dolino is valid; (2) permitting therein Cebu City Savings and Loan
Association, Inc. to collect interest after the same foreclosure proceedings and auction sale which are null and void from the
beginning; (3) not ordering the forfeiture of the capital or balance of the loan with usurious interest; and (4) not sentencing
therein defendant to pay damages and attorney's fees to plaintiffs. 5

On September 28, 1990, respondent Court of Appeals promulgated its decision modifying the decision of the lower court,
with this adjudication:

WHEREFORE, PREMISES CONSIDERED, the decision appealed from is hereby MODIFIED declaring as void and
ineffective the real estate mortgage executed by plaintiffs in favor of defendant association. With this modification, the
decision is AFFIRMED in other respects. 6

Herein petitioners then filed a motion for reconsideration which was denied by respondent court in its resolution dated March
5, 1991, hence the present petition which, in synthesis, postulates that respondent court erred in declaring the real estate
mortgage void, and also impugns the judgment of the trial court declaring ineffective the extrajudicial foreclosure of said
mortgage and ordering the cancellation of Transfer Certificate of Title No. 68041 issued in favor of the predecessor of
petitioner bank. 7

The first submission assailing the judgment of respondent Court of Appeals is meritorious.

Said respondent court declared the real estate mortgage in question null and void for the reason that the mortgagor spouses,
at the time when the said mortgage was executed, were no longer the owners of the lot, having supposedly lost the same
when the lot was sold to a purchaser in the foreclosure sale under the prior mortgage. This holding cannot be sustained.

Preliminarily, the issue of ownership of the mortgaged property was never alleged in the complaint nor was the same raised
during the trial, hence that issue should not have been taken cognizance of by the Court of Appeals. An issue which was
neither averred in the complaint nor ventilated during the trial in the court below cannot be raised for the first time on appeal
as it would be offensive to the basic rule of fair play, justice and due process. 8

Nonetheless, since respondent Court took cognizance thereof and, in fact, anchored its modificatory judgment on its
ratiocination of that issue, we are inclined to liberalize the rule so that we can in turn pass upon the correctness of its
conclusion. We may consider such procedure as analogous to the rule that an unassigned error closely related to an error
properly assigned, or upon which the determination of the question properly assigned is dependent, may be considered by
an appellate court. 9 We adopt this approach since, after all, both lower courts agreed upon the invalidity of the extrajudicial
foreclosure but differed only on the matter of the validity of the real estate mortgage upon which the extrajudicial foreclosure
was based.

In arriving at its conclusion, respondent court placed full reliance on what obviously is an obiter dictum laid down in the
course of the disquisition in Dizon vs. Gaborro, et al. which we shall analyze. 10 For, as explicitly stated therein by the Court,
"(t)he basic issue to be resolved in this case is whether the 'Deed of Sale with Assumption of Mortgage' and the 'Option to
Purchase Real Estate,' two instruments executed by and between petitioner Jose P. Dizon and Alfredo G. Gaborro
(defendant below) on the same day, October 6, 1959, constitute in truth and in fact an absolute sale of the three parcels of
land therein described or merely an equitable mortgage or conveyance thereof by way of security for reimbursement or
repayment by petitioner Jose P. Dizon of any and all sums which may have been paid to the Development Bank of the
Philippines and the Philippine National Bank by Alfredo G. Gaborro . . . ." Said documents were executed by the parties and
the payments were made by Gaborro for the debt of Dizon to said banks after the Development Bank of the Philippines had
foreclosed the mortgage executed by Dizon and during the period of redemption after the foreclosure sale of the mortgaged
property to said creditor bank.

The trial court held that the true agreement between the parties therein was that Gaborro would assume and pay the
indebtedness of Dizon to the banks and, in consideration thereof, Gaborro was given the possession and enjoyment of the
properties in question until Dizon shall have reimbursed him for the amount paid to the creditor banks. Accordingly, the trial
court ordered the reformation of the documents to the extent indicated and such particular relief was affirmed by the Court of
Appeals. This Court held that the agreement between the parties is one of those innominate contracts under Article 1307 of
the Civil Code whereby the parties agreed "to give and to do" certain rights and obligations, but partaking of the nature of
antichresis.

Hence, on appeal to this Court, the judgment of the Court of Appeals in that case was affirmed but with the following
pronouncements:

The two instruments sought to be reformed in this case appear to stipulate rights and obligations between the parties thereto
pertaining to and involving parcels of land that had already been foreclosed and sold extrajudicially, and purchased by the
mortgage creditor, a third party. It becomes, therefore, necessary, to determine the legality of said rights and obligations
arising from the foreclosure and sale proceedings not only between the two contracting parties to the instruments executed
between them but also in so far as the agreement affects the rights of the third party, the purchaser Bank.

xxx xxx xxx

Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in possession of the property
foreclosed and sold, during the period of redemption. If the judgment debtor is in possession of the property sold, he is
entitled to retain it, and receive the fruits, the purchaser not being entitled to such possession. (Riosa vs. Verzosa, 26 Phil.
86; Velasco vs. Rosenberg's, Inc., 32 Phil. 72; Pabico vs. Pauco, 43 Phil. 572; Power vs. PNB, 54 Phil. 54; Gorospe vs.
Gochangco, L-12735, Oct. 30, 1959).
 xxx xxx xxx

Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27, Revised
Rules of Court). After the termination of the period of redemption and no redemption having been made, the purchaser is
entitled to a deed of conveyance and to the possession of the properties. (Section 35, Revised Rules of Court). The weight of
authority is to the effect that the purchaser of land sold at public auction under a writ of execution has only an inchoate right
to the property, subject to be defeated and terminated within the period of 12 months from the date of sale, by a redemption
on the part of the owner. Therefore, the judgment debtor in possession of the property is entitled to remain therein during the
period for redemption. (Riosa vs. Verzosa, 26 Phil. 86, 89; Gonzales vs. Calimbas, 51 Phil. 355).

In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained the right to
redeem the lands, the possession, use and enjoyment of the same during the period of redemption. And these are the only
rights that Dizon could legally transfer, cede and convey unto respondent Gaborro under the instrument captioned Deed of
Sale with Assumption of Mortgage (Exh. A-Stipulation), likewise the same rights that said respondent could acquire in
consideration of the latter's promise to pay and assume the loan of petitioner Dizon with DBP and PNB.

Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land, firstly, because there
was absolutely no money consideration therefor, as admittedly stipulated, the sum of P131,831.91 mentioned in the
document as the consideration "receipt of which was acknowledged" was not actually paid; and, secondly, because the
properties had already been previously sold by the sheriff at the foreclosure sale, thereby divesting the petitioner of his full
right as owner thereof to dispose and sell the lands. (Emphasis ours.)

It was apparently the second reason stated by the Court in said case which was relied upon by respondent court in the
present case on which to premise its conclusion. Yet, as demonstrated by the relevant excerpts above quoted, not only was
that obiter therein unnecessary since evidently no sale was concluded, but even inaccurate, if not inconsistent, when
considered in the context of the discussion in its entirety. If, as admitted, the purchaser at the foreclosure sale merely
acquired an inchoate right to the property which could ripen into ownership only upon the lapse of the redemption period
without his credit having been discharged, it is illogical to hold that during that same period of twelve months the mortgagor
was "divested" of his ownership, since the absurd result would be that the land will consequently be without an owner
although it remains registered in the name of the mortgagor.

That is why the discussion in said case carefully and felicitously states that what is divested from the mortgagor is only his
"full right as owner thereof to dispose (of) and sell the lands," in effect, merely clarifying that the mortgagor does not have the
unconditional power to absolutely sell the land since the same is encumbered by a lien of a third person which, if unsatisfied,
could result in a consolidation of ownership in the lienholder but only after the lapse of the period of redemption. Even on that
score, it may plausibly be argued that what is delimited is not the mortgagor's jus dispodendi, as an attribute of ownership,
but merely the rights conferred by such act of disposal which may correspondingly be restricted.

At any rate, even the foregoing considerations and arguments would have no application in the case at bar and need not
here be resolved since what is presently involved is a mortgage, not a sale, to petitioner bank. Such mortgage does not
involve a transfer, cession or conveyance of the property but only constitutes a lien thereon. There is no obstacle to the legal
creation of such a lien even after the auction sale of the property but during the redemption period, since no distinction is
made between a mortgage constituted over the property before or after the auction sale thereof.

Thus, a redemptioner is defined as a creditor having a lien by attachment, judgment or mortgage on the property sold, or on
some part thereof, subsequent to the judgment under which the property was sold. 11 Of course, while in extrajudicial
foreclosure the sale contemplated is not under a judgment but the proceeding pursuant to which the mortgaged property was
sold, a subsequent mortgage could nevertheless be legally constituted thereafter with the subsequent mortgagee becoming
and acquiring the rights of a redemptioner, aside from his right against the mortgagor.

In either case, what bears attention is that since the mortgagor remains as the absolute owner of the property during the
redemption period and has the free disposal of his property, there would be compliance with the requisites of Article 2085 of
the Civil Code for the constitution of another mortgage on the property. To hold otherwise would create the inequitable
situation wherein the mortgagor would be deprived of the opportunity, which may be his last recourse, to raise funds
wherewith to timely redeem his property through another mortgage thereon.

Coming back to the present controversy, it is undisputed that the real estate mortgage in favor of petitioner bank was
executed by respondent spouses during the period of redemption. We reiterate that during said period it cannot be said that
the mortgagor is no longer the owner of the foreclosed property since the rule up to now is that the right of a purchaser at a
foreclosure sale is merely inchoate until after the period of redemption has expired without the right being exercised. 12 The
title to land sold under mortgage foreclosure remains in the mortgagor or his grantee until the expiration of the redemption
period and conveyance by the master's deed. 13 To repeat, the rule has always been that it is only upon the expiration of the
redemption period, without the judgment debtor having made use of his right of redemption, that the ownership of the land
sold becomes consolidated in the purchaser. 14

Parenthetically, therefore, what actually is effected where redemption is seasonably exercised by the judgment or mortgage
debtor is not the recovery of ownership of his land, which ownership he never lost, but the elimination from his title thereto of
the lien created by the levy on attachment or judgment or the registration of a mortgage thereon. The American rule is
similarly to the effect that the redemption of property sold under a foreclosure sale defeats the inchoate right of the purchaser
and restores the property to the same condition as if no sale had been attempted. Further, it does not give to the mortgagor a
new title, but merely restores to him the title freed of the encumbrance of the lien foreclosed. 15

We cannot rule on the plaint of petitioners that the trial court erred in declaring ineffective the extrajudicial foreclosure and the
sale of the property to petitioner bank. The court below spelled out at length in its decision the facts which it considered as
violative of the provisions of Act No. 3135, as amended, by reason of which it nullified the extrajudicial foreclosure proceeding
and its effects. Such findings and ruling of the trial court are already final and binding on petitioners and can no longer be
modified, petitioners having failed to appeal therefrom.

An appellee who has not himself appealed cannot obtain from the appellate court any affirmative relief other than the ones
granted in the decision of the court below. 16 He cannot impugn the correctness of a judgment not appealed from by him. He
cannot assign such errors as are designed to have the judgment modified. All that said appellee can do is to make a counter-
assignment of errors or to argue on issues raised at the trial only for the purpose of sustaining the judgment in his favor, even
on grounds not included in the decision of the court a quo nor raised in the appellant's assignment of errors or arguments. 17

WHEREFORE, the decision of respondent Court of Appeals, insofar as it modifies the judgment of the trial court, is
REVERSED and SET ASIDE. The judgment of said trial court in Civil Case No. R-18616, dated January 12, 1983, is hereby
REINSTATED.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Nocon, JJ., concur.