DEVELOPMENT BANK OF THEPHILIPPINES, Petitioner,

G.R. No. 168779 Present:

made to insure their real and personal properties with [the] DBP Pool of Accredited Insurance Companies for P709,000.00 the net replacement cost of the assets mortgaged. Another provision of the loan contract provided for [the] increase/decrease of interest rates, as follows: The DBP further reserves the right to increase, with notice to the mortgagor, the rate of interest on the loan as well as other fees and charges on loans and advances pursuant to such policy as it may adopt from time to time during the period of the loan. Provided, that the rate of interest on the loan shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board; Provided, further, that the adjustment in the rate of interest shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. [Petitioner] DBP alleged that it was empowered to unilaterally increase or decrease interest rates. In fact, DBP unilaterally increased on August 16, 1984 the interest rate from the original 18% per annum interest rate to 35% per annum, then on September 3, 1984 lowered the 35% per annum interest rate to 29% per annum, and then raised again on August 4, 1985 the 29% per annum interest rate to 30%. [Petitioner] DBP extra-judicially foreclosed on (sic) the mortgaged properties of [private respondents], claiming that [private respondents] had defaulted on their loan contract and on September 30, 1986, the Sheriff sold [private respondents] mortgaged properties at [a] public auction sale to DBP, the highest bidder, at P181,800.00. On February 12, 1987, [private respondents] commenced suit with Branch 145, Regional Trial Court of Makati, docketed as Civil Case No. 15998, to nullify the extrajudicial foreclosure and sale at public auction of [private respondents] mortgaged properties. The Regional Trial Court of Makati issued a Temporary Restraining Order on February 16, 1987 and granted [private respondents] application for preliminary prohibitory injunction onMarch 17, 1987 restraining [petitioner] DBP from consolidating title and the Quezon City Register of Deeds from registering any consolidation of ownership by [the] DBP.[2] On April 30, 1999, the RTC rendered its Decision,[3] the dispositive portion of which WHEREFORE, the above-premises (sic) considered, this Court enters judgment in favor of the plaintiff spouses Go as against defendant Development Bank of the Philippines, Gil V. Corpus, and Samuel Cleofe[,] as well as those defaulting defendants and declares the following:

- versus -

RUBEN S. GO and ANGELITA M. GO, and the HONORABLE COURT OF APPEALS, Respondents.

YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ. Promulgated: September 14, 2007

x------------------------------------------------------------------------------------x DECISION NACHURA, J.:

For this Courts consideration is a Petition for Review on Certiorari filed by the Development Bank of the Philippines (DBP) partially assailing the September 23, 2004 Decision[1] and June 20, 2005 Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 63959. The facts of the case, as found by the CA, are as follows: On August 4, 1982, [private respondents] entered into a contract of loan with [petitioner] DBP for a sum of P494,000.00. The contract was evidenced by two (2) promissory notes, one for P194,000.00, payable quarterly for five (5) years, and the other for P300,000.00, payable quarterly for seven (7) years. The above promissory notes were secured by a mortgage contract over both the real and personal properties of [private respondents]. One of the provisions of the contract contained the stipulated interest rate. Another provision of the contract contained a penalty clause. Both promissory notes had a stipulated interest rate of eighteen percent (18%) per annum interest rate (sic) and a penalty charge in case of default of eight percent (8%) per annum. Another provision of the contract required all mortgagors to insure all real and personal properties mortgaged with the DBP Pool of Accredited Insurance Companies. In this case, [private respondents] were

reads:

1. The interest and penalty charges imposed by defendant DBP on plaintiffs loan is hereby declared null and void; 2. The promissory notes (Exhs. A and B) [are] hereby declared null and void; 3. The insurance premiums and other charges imposed on plaintiffs [are] null and void for having no legal and evidentiary basis. The insurance premiums[,] as well as other additional charges paid[,] are to be reimbursed to the plaintiffs; 4. The extra-judicial foreclosure of the mortgaged properties of the plaintiffs on September 30, 1986 is hereby declared as null and void; 5. Moral damages in the amount of P50,000.00 is hereby awarded to plaintiffs as against defendant DBP. Exemplary damages in the amount of P50,000.00 is further awarded in favor of plaintiffs as against defendant DBP; 6. Attorneys fees in the amount of P100,000.00 is awarded in favor of the plaintiffs as against defendant DBP; 7. Defendant Samuel Cleofe is ordered to refrain registration (sic) of any document consolidating title by defendant DBP over plaintiffs properties; 8. Costs against defendant.

7. 8.

18% interest per annum from the date the loan was granted up to full payment, less payments already made, within ninety (90) days from the finality of this decision, otherwise, the defendantappellant shall be entitled to foreclose the mortgaged properties and sell the same at public auction to satisfy the loan. The awards of moral damages, exemplary damages and attorneys fees are hereby deleted. No pronouncement as to costs. SO ORDERED.[4]

The CA held that the unilateral increases in interest rates were void since these were done without notice and without the corresponding Monetary Board increase in lending rates. The extrajudicial foreclosure was also deemed void because the loan had not yet matured at the time of the foreclosure proceedings. Conversely, the CA held that the stipulated interest rate of 18% was not usurious because it was clearly below the maximum rate fixed by the Monetary Board at that time. As to the penalty charge, the CA held that it was in the nature of liquidated damages, separate and distinct from interest payments. The penalty charge was deemed valid because the law expressly recognized it as an accessory undertaking of the obligor. The CA also held that the promissory note and the real estate mortgage were valid since the principal obligation can stand even though the stipulation on the interest was void. The insurance over the mortgaged property was also held valid because this constituted an additional condition under the mortgage contract. The appellate court likewise ruled that the formation of the DBP Pool of Accredited Insurance Companies did not amount to restraint of trade because it does not exclude other insurance companies from being accredited to be part of the pool so long as they meet the requirements for accreditation. The CA also reversed the RTCs award for damages and attorneys fees finding that there was no basis for such award. Petitioner DBP filed a Motion for Partial Reconsideration.[5] It sought the modification of paragraph 6 of the dispositive portion of the CA Decision. Paragraph 6 allegedly failed to take into consideration and/or incorporate the 8% per annum penalty charge and insurance premiums and other charges stated in paragraphs 2 and 3, respectively. Petitioner also argued that the way paragraph 6 is written will convey the idea that private respondents are only liable to pay the principal amount of the loan plus the regular 18% per annum interest. DBP likewise argues that the provision may be interpreted to mean that in the event of private respondents failure to pay the amount within ninety (90) days from finality of the CA Decision, extrajudicial foreclosure is the only remedy available to it. Thus, petitioner prayed that said paragraph 6 be amended to read as follows: 6. The plaintiffs-appellees are hereby ordered to pay defendantappellant DBP the P494,000.00 principal amount of their loan with 18% interest per annum from the date the loan was granted up to full payment, (plus 8% per annum penalty charge as provided in paragraph 2, supra,) and the total amount of insurance premiums and other charges (as provided in paragraph 3, supra,) less payments already made, within ninety (90) days from the finality of this decision, otherwise, the defendant-appellant DBP

SO ORDERED. The DBP appealed the case to the CA. The CA reversed the decision of the RTC, ruling thus: WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED. The April 30, 1999 Decision of the Regional Trial Court of Makati, Branch 145, in Civil Case No. 15998 is hereby REVERSED and SET ASIDE and a new one is entered as follows: 1. The promissory notes and the real estate mortgage are hereby declared legal and valid; 2. The 8% per annum penalty charge imposed by defendantappellant DBP on plaintiffs-appellees loan is hereby declared legal and valid; 3. The insurance premiums and other charges imposed on plaintiffs are hereby declared legal and valid; 4. The increases in interest rate on the loan are hereby declared null and void; 5. The extra-judicial foreclosure of the mortgaged properties and consequent sale at public auction and issuance of Certificate of Sale, are hereby declared premature and therefore null and void; 6. The plaintiffs-appellees are hereby ordered to pay defendantappellant DBP the P494,000.00 principal amount of their loan with

shall be entitled to a writ of execution to finally judiciallyforeclose the mortgaged properties and sell the same at public auction to satisfy the loan. The CA denied the Motion for Partial Reconsideration for lack of merit in a Resolution[6] dated June 20, 2005. Petitioner DBP now comes to this Court claiming that the CA committed grave abuse of discretion in issuing the assailed Decision.[7] It proffers the same grounds it raised in its Motion for Partial Reconsideration before the CA and reiterates its prayer for the amendment of paragraph 6 of the assailed Decision to read, thus: 6. The plaintiffs-appellees are hereby ordered to pay defendant-appellant DBP the P494,000.00 principal amount of their loan with 18% interest per annum from the date the loan was granted up to full payment, plus 8% per annum penalty charge as provided in paragraph 2, supra, and plus the total amount of insurance premium and other charges as provided in paragraph 3, supra,less payments already made, within ninety (90) days from the finality of this decision, otherwise, the defendant-appellant DBP shall be entitled to a writ of execution to finally judicially foreclose the mortgaged properties and sell the same at public auction to satisfy the loan.[8] The petition is partly meritorious. Initially, we resolve the procedural issues. The petition is captioned as a petition for review. Under Rule 45 of the Revised Rules of Civil Procedure, a petition for review shall raise only questions of law which must be distinctly set forth.[9] A question of law exists when there is doubt or controversy as to what the law is on a certain state of facts. On the other hand, there is a question of fact when the doubt or difference arises as to the truth or the falsehood of the alleged facts. For a question to be one of law, it must involve no examination of the probative value of the evidence presented by the litigants or any of them.[10] Petitioner assails the CA Decision in this wise: Petitioner DBP filed this instant petition on the ground that the latter part of the dispositive portion of the subject DECISION of the Honorable Court of Appeals is not the logical consequence of the earlier part of the same dispositive portion. In other words, the Honorable Court of Appeals committed grave abuse of discretion as shown by the fact that paragraph 6 of the dispositive portion of its DECISION dated September 23, 2004 failed to take into consideration and/or incorporate the decree stated in paragraphs 2 and 3 of the same dispositive portion of the Decision.[11] This issue that petitioner raises before this Court is not a question of law. Petitioner imputes grave abuse of discretion to the CA for its alleged omission in its Decision. In determining the nature of an action, it is not the caption but the averments of the petition and the character of the relief sought that are controlling.[12]Considering that petitioner

charges the CA with acting in grave abuse of discretion, the petition should properly be treated as a special civil action for certiorari under Rule 65 of the Rules of Court.[13] However, even if, in the interest of justice, we treat this as a special civil action for certiorari under Rule 65,[14] the petition nevertheless fails to convince us that the CA committed grave abuse of discretion. It is well-settled that an act of a court or tribunal may only be considered to have been done in grave abuse of discretion when the same was performed in a capricious or whimsical exercise of judgment which is equivalent to lack of jurisdiction. The abuse of discretion must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion or personal hostility.[15] An error of judgment committed in the exercise of its legitimate jurisdiction is not the same as grave abuse of discretion. An abuse of discretion is not sufficient by itself to justify the issuance of a writ of certiorari. The abuse must be grave and patent, and it must be shown that the discretion was exercised arbitrarily and despotically.[16] In fine, certiorari will issue only to correct errors of jurisdiction, not errors of procedure or mistakes in the findings or conclusions of the lower court.[17] In this case, we find no merit in petitioners claim that the CA committed grave abuse of discretion. The CA Decision states clearly and distinctly the facts and laws upon which the judgment was made, and is in accord with existing law and jurisprudence. Petitioner offers no sufficient support for its allegation that the CA committed grave abuse of discretion. The petition contains no explanation of how the CA exercised its judgment capriciously or whimsically or in an arbitrary or despotic manner. Other than the bare assertion of grave abuse of discretion in the section Grounds Relied Upon for the Allowance of the Petition,[18] there is no discussion of the acts and circumstances that would be aptly characterized as grave abuse of discretion by the CA. The loan contract states: Additional conditions 8. Loan amortizations or portions thereof (principal and/or regular interest) in arrears SHALL be subject to the following charges: xxxx b. Penalty charges 8% p.a. on amortization or portion thereof for more than 30 days.[19] The CA correctly held that the 8% penalty charge is valid. This Court has recognized a penalty clause as an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.[20] The enforcement of the penalty can be demanded by the creditor only when the nonperformance is due to the fault or fraud of the debtor. The non-performance gives rise to the

presumption of fault; in order to avoid the payment of the penalty, the debtor has the burden of proving an excuse the failure of the performance was due to either force majeure or the acts of the creditor himself.[21] In the present case, the non-performance of the obligation is due to the increases in interest rates by DBP, which the CA held were unauthorized and, therefore, void. Thus, the private respondents had no obligation to pay the increased rate. Therefore, the obligation to pay the 8% penalty charge never arose since there was, as yet, no breach that would put the penalty clause in operation. It would have been premature, nay, gross error for the CA to order private respondents to pay the same in the assailed Decision. On the other hand, we agree with the CA in upholding the validity of the insurance over the mortgaged property. The same constitutes an additional condition clearly and explicitly included in the mortgage contract[22] to which private respondents agreed. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.[23] However, we find that, either by mistake or inadvertence, the CA Decision failed to include the obligation to pay the insurance premiums and other charges in the dispositive portion of the assailed Decision. The CA held in paragraph 3 of the dispositive portion that the insurance premium and other charges were valid and legal but failed to give the corresponding executory force to that pronouncement.[24] The dispositive portion, or the fallo, is its decisive resolution and is thus the subject of execution.[25] Since the execution must conform to that which is ordained or decreed in the dispositive portion of the decision,[26] the subject dispositive portion must provide the proper order for execution of the judgment. As we have held in the past, a judgment, if left unexecuted, would be nothing but an empty victory for the prevailing party.[27] Hence, this Court must rectify the error. As to the second part of petitioners prayer seeking to amend the dispositive portion to include entitlement to a writ of execution to judicially foreclose the mortgaged properties, we find no basis to grant the same. The mortgage contract states that petitioner may resort to either judicial or extrajudicial foreclosure in case of default.[28] Petitioner opted for extrajudicial foreclosure. However, both the trial court and the CA declared the extrajudicial foreclosure void for being premature. For all intents and purposes, there has been no foreclosure. Therefore, this Court, or any other court for that matter, cannot issue a writ of execution to judicially foreclose the property. If and when private respondents default on their obligation subject of this decision, then petitioner, once again, shall have the option to resort to either judicial or extrajudicial foreclosure. Should it opt to judicially foreclose the mortgage, it should follow the procedure in Rule 68 of the Rules of Court. We cannot allow the petitioner to resort to short-cuts in the procedure for judicial foreclosure even in the guise of avoiding multiplicity of suits through the mere expediency of amending a duly-promulgated decision of the appellate court. WHEREFORE, premises considered, the petition for review is GRANTED IN PART. Paragraph 6 of the assailed September 23, 2004 Decision of the Court of Appeals is MODIFIED as follows: 6. The plaintiffs-appellees are hereby ordered to pay defendant-appellant DBP the P494,000.00 principal amount of their loan with 18% interest per

annum from the date the loan was granted up to full payment, plus the total amount of insurance premium and other charges as provided in paragraph 3, supra,less payments already made, within ninety (90) days from the finality of this decision, otherwise, the defendant-appellant shall be entitled to foreclose the mortgaged properties and sell the same at public auction to satisfy the loan. No pronouncement as to costs. SO ORDERED.

SECOND DIVISION SPOUSES LEOPOLDO S. VIOLA and MERCEDITA VIOLA, Petitioners, - versus G.R. No. 177886 Present: QUISUMBING, J., Chairperson, CARPIO MORALES, TINGA, VELASCO, JR., and BRION, JJ. Promulgated: (c) Penalty at 3% per month from 03/31/98 to 02/23/02 P7,896,078.15 _____________________ P14,024,623.22[3] (Underscoring supplied) Respondent thus extrajudicially foreclosed the mortgage before the Office of the Clerk of Court & Ex-Officio Provincial Sheriff of the Regional Trial Court (RTC) of Marikina City. The mortgaged properties were sold on April 10, 2003 for P4,284,000.00 at public auction to respondent, after which a Certificate of Sale dated April 21, 2003[4] was issued. More than five months later or on October 8, 2003, petitioners filed a complaint[5] for annulment of foreclosure sale, accounting and damages before the Marikina RTC, docketed as Civil Case No. 2003-905-MK and raffled to Branch 192. Petitioners alleged, inter alia, that they had made substantial payments of P3,669,210.67 receipts of which were issued without respondent specifying whether the payment was for interest, penalty or the principal obligation; that based on respondents statement of account, not a single centavo of their payments was applied to the principal obligation; that every time respondent sent them a statement of account and demand letters, they requested for a proper accounting for the purpose of determining their actual obligation, but all their requests were unjustifiably ignored on account of which they were forced to discontinue payment; that the foreclosure proceedings and auction sale were not only irregularly and prematurely held but were null and void because the mortgage debt is only P2,224,073.31 on the principal obligation and P1,455,137.36 on the interest, or a total of only P3,679,210.67 as of April 15, 2003, but the mortgaged properties were sold to satisfy an inflated and erroneous principal obligation of P4,783,254.69, plus 3% penalty fee per month or 33% per year and 15% interest per year, which amounted to P14,024,623.22 as of September 30, 2002; that the parties never agreed and stipulated in the real estate mortgage contract that the 15% interest per annum on the principal loan and the 3% penalty fee per month on the outstanding amount would be covered or secured by the mortgage; that assuming respondent could impose such interest and penalty fee, the same are exorbitant, unreasonable, iniquitous and unconscionable, hence, must be reduced; and that respondent is only allowed to impose the legal rate of interest of 12% per annum on the principal loan absent any stipulation thereon.[6] In its Answer, respondent denied petitioners assertions, contending, inter alia, that the absence of stipulation in the mortgage contract securing the payment of 15% interest per annum on the principal loan, as well as the 3% penalty fee per month on the outstanding amount, is immaterial since the mortgage contract is a mere accessory contract which must take its bearings from the principal Credit Line Agreement.[7] During the pre-trial conference, the parties defined as sole issue in the case whether the mortgage contract also secured the payment of 15% interest per annum on the principal loan of P4,700,000.00 and the 3% penalty fee per month on the outstanding amount, which interest and penalty fee are stipulated only in the Credit Line Agreement.[8] By Decision[9] of September 14, 2005, the trial court sustained respondents affirmative position on the issue but found the questioned interest and penalty fee excessive and exorbitant. Thus, it equitably reduced the interest on the principal loan from 15% to 12% per annum and the penalty fee per month on the outstanding amount from 3% to 1.5% per month.

EQUITABLE PCI BANK, INC., Respondent.

November 27, 2008 x-------------------------------------------------- x DECISION CARPIO MORALES, J.: Via a contract denominated as CREDIT LINE AND REAL ESTATE MORTGAGE AGREEMENT FOR PROPERTY LINE[1] (Credit Line Agreement) executed on March 31, 1997, Leo-Mers Commercial, Inc., as the Client, and its officers spouses Leopoldo and Mercedita Viola (petitioners) obtained a loan through a credit line facility in the maximum amount of P4,700,000.00 from the Philippine Commercial International Bank (PCI Bank), which was later merged with Equitable Bank and became known as Equitable PCI Bank, Inc. (respondent).

The Credit Line Agreement stipulated that the loan would bear interest at the prevailing PCIBank lending rate per annum on the principal obligation and a penalty fee of three percent (3%) per month on the outstanding amount. To secure the payment of the loan, petitioners executed also on March 31, 1997 a Real Estate Mortgage[2] in favor of PCIBank over their two parcels of land covered by Transfer Certificates of Title No. N-113861 (consisting of 300 square meters, more or less ) and N-129036 (consisting of 446 square meters, more or less) of the Registry of Deeds of Marikina. Petitioners availed of the full amount of the loan. Subsequently, they made partial payments which totaled P3,669,210.67. By respondents claim, petitioner had since November 24, 2000 made no further payments and despite demand, they failed to pay their outstanding obligation which, as of September 30, 2002, totaledP14,024,623.22, broken down as follows: (a) Principal obligation P4,783,254.69

(b) Past due interest from 11/24/00 to 09/30/02 at 15% interest P1,345,290.38

Accordingly, the court nullified the foreclosure proceedings and the Certificate of Sale subsequently issued, without prejudice to the holding anew of foreclosure proceedings based on the re-computed amount of the indebtedness, if the circumstances so warrant. The dispositive portion of the trial courts Decision reads: WHEREFORE, judgment is hereby rendered as follows: 1) The interest on the principal loan in the amount of Four Million Seven Hundred Thousand (P4,700,000.00) Pesos should be recomputed at 12% per annum; 2) The 3% per month penalty on delinquent account as stipulated by the parties in the Credit Line Contract dated March 31, 1997 is hereby REDUCED to 1.5% per month; 3) The foreclosure sale conducted on April 10, 2003 by the Clerk of Court and Ex-Officio Sheriff of Marikina, to satisfy the plaintiffs mortgage indebtedness, and the Certificate ofSale issued as a consequence of the said proceedings, are declared NULL and VOID, without prejudice to the conduc t of another foreclosure proceedings on the basis of the recomputedamount of the plaintiffs indebtedness, if the circumstances so warr ant. No pronouncement as to costs. SO ORDERED. (Underscoring supplied) Petitioners filed a Motion for Partial Reconsideration,[10] contending that the penalty fee per month on the outstanding amount should have been taken out of the coverage of the mortgage contract as it was not stipulated therein. By Order dated December 6, 2005, the trial court denied the motion. On appeal by petitioners, the Court of Appeals, by Decision[11] of February 21, 2007, dismissed the same for lack of merit, holding that the Real Estate Mortgage covers not only the principal amount [of P4,700,000.00] but also the interest and bank charges, which [phrase bank charges] refers to the penalty chargesstipulated in the Credit Line Agreement.[12] Petitioners Motion for Reconsideration having been denied by Resolution[13] of May 16, 2007, they filed the present Petition for Review on Certiorari, alleging that THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN DECIDING THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT BY RULING THAT THERE IS NO AMBIGUITY IN CONSTRUING TOGETHER THE CREDIT LINE AND MORTGAGE CONTRACTS WHICH PROVIDED CONFLICTING PROVISIONS AS TO INTEREST AND PENALTY.[14]

The only issue is whether the mortgage contract also secured the penalty fee per month on the outstanding amount as stipulated in the Credit Line Agreement. The Court holds not. A mortgage must sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage.[15] In the case at bar, the parties executed two separate documents on March 31, 1997 the Credit Line Agreement granting the Client a loan through a credit facility in the maximum amount of P4,700,000.00, and the Real Estate Mortgage contract securing the payment thereof. Undisputedly, both contracts were prepared by respondent and written in fine print, single space. The Credit Line Agreement contains the following stipulations on interest and delinquency charges: A. CREDIT FACILITY 9. INTEREST ON AVAILMENTS The CLIENT shall pay the BANK interest on each availment against the Credit Facility at the rate of: PREVAILING PCIBANK LENDING RATE for the first interest period as defined in A(10) hereof. x x x. xxxx 15. DELINQUENCY CLIENTs account shall be considered delinquent if the availments exceed the amount of the line and/or in case the Account is debited for unpaid interest and the Available Balance is insufficient to cover the amount debited. In such cases, the Available Balance shall become negative and the CLIENT shall pay the deficiency immediately in addition to collection expenses incurred by the BANK and a penalty fee of three percent (3%) per month of the outstanding amount to be computed from the day deficiency is incurred up to the date of full payment thereon. x x x x.[16] (Underscoring supplied) The Real Estate Mortgage contract states its coverage, thus: That for and in consideration of certain loans, credit and other banking facilities obtained x x x from the Mortgagee, the principal amount of which is PESOS FOUR MILLION SEVEN HUNDERED THOUSAND ONLY (P4,700,000.00) Philippine Currency, and for the purpose of securing the payment thereof, including the interest and bank charges accruing thereon, the costs of collecting the same and of taking possession of and keeping the mortgaged propert[ies], and all other expenses to which the Mortgagee may be put in connection with or as an incident to this mortgage, as well as the faithful compliance with the terms and conditions of this agreement and of the separate instruments under which the credits hereby secured were obtained, the Mortgagor does hereby constitute in favor of the Mortgagee, its successors or assigns, a mortgage on the real property particularly described, and the location of which is set forth, in the list appearing at the back hereof and/or appended hereto, of which the Mortgagor declare that he is the absolute owner and the one in possession thereof, free and clear of any liens, encumbrances and adverse claims.[17] (Emphasis and underscoring supplied)

The immediately-quoted provision of the mortgage contract does not specifically mention that, aside from the principal loan obligation, it also secures the payment of a penalty fee of three percent (3%) per month of the outstanding amount to be computed from the day deficiency is incurred up to the date of full payment thereon,which penalty as the above-quoted portion of the Credit Line Agreement expressly stipulates. Since an action to foreclose must be limited to the amount mentioned in the mortgage[18] and the penalty fee of 3% per month of the outstanding obligation is not mentioned in the mortgage, it must be excluded from the computation of the amount secured by the mortgage. The ruling of the Court of Appeals in its assailed Decision that the phrase including the interest and bank charges in the mortgage contract refers to thepenalty charges stipulated in the Credit Line Agreement is unavailing. Penalty fee is entirely different from bank charges. The phrase bank charges is normally understood to refer to compensation for services. A penalty fee is likened to a compensation for damages in case of breach of the obligation. Being penal in nature, such fee must be specific and fixed by the contracting parties, unlike in the present case which slaps a 3% penalty fee per month of the outstanding amount of the obligation. Moreover, the penalty fee does not belong to the species of obligation enumerated in the mortgage contract, namely: loans, credit and other banking facilities obtained x x x from the Mortgagee, . . . including the interest and bank charges, . . . the costs of collecting the same and of taking possession of and keeping the mortgaged properties, and all other expenses to which the Mortgagee may be put in connection with or as an incident to this mortgage . . . In Philippine Bank of Communications v. Court of Appeals[19] which raised a similar issue, this Court held: The sole issue in this case is whether, in the foreclosure of a real estate mortgage, the penalties stipulated in two promissory notes secured by the mortgage may be charged against the mortgagors as part of the sums secured, although the mortgage contract does not mention the said penalties. xxxx We immediately discern that the mortgage contract does not at all mention the penalties stipulated in the promissory notes. However, the petitioner insists that the penalties are covered by the following provision of the mortgage contract: This mortgage is given as security for the payment to the MORTGAGEE on demand or at maturity, as the case may be, of all promissory notes, letters of credit, trust receipts, bills of exchange, drafts, overdrafts and all other obligations of every kind already incurred or which hereafter may be incurred. xxxx

The Court is unconvinced, for the cases relied upon by the petitioner are inapplicable. x x x. xxxx The mortgage contract is also one of adhesion as it was prepared solely by the petitioner and the only participation of the other party was the affixing of his signature or adhesion thereto.Being a contract of adhesion, the mortgage is to be strictly construed against the petitioner, the party which prepared the agreement. A reading, not only of the earlier quoted provision, but of the entire mortgage contract yields no mention of penalty charges. Construing this silence strictly against the petitioner, it can fairly be concluded that the petitioner did not intend to include the penalties on the promissory notes in the secured amount. This explains the finding by the trial court, as affirmed by the Court of Appeals, that penalties and charges are not due for want of stipulation in the mortgage contract. Indeed, a mortgage must sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage. In this case, the mortgage contract provides that it secures notes and other evidences of indebtedness. Under the rule ofejusdem generis, where a description of things of a particular class or kind is accompanied by words of a generic character, the generic words will usually be limited to things of a kindred nature with those particularly enumerated . . . A penalty charge does not belong to the species of obligations enumerated in the mortgage, hence, the said contract cannot be understood to secure the penalty.[20] (Emphasis and underscoring supplied) Respondents contention that the absence in the mortgage contract of a stipulation securing the payment of the 3% penalty fee per month on the outstanding amount is of no consequence, the deed of mortgage being merely an accessory contract that must take its bearings from the principal Credit Line Agreement,[21]fails. Such absence is significant as it creates an ambiguity between the two contracts, which ambiguity must be resolved in favor of petitioners and against respondent who drafted the contracts. Again, as stressed by the Court in Philippine Bank of Communications: There is also sufficient authority to declare that any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it. A mortgage and a note secured by it are deemed parts of one transaction and are construed together, thus, an ambiguity is created when the notes provide for the payment of a penalty but the mortgage contract does not. Construing the ambiguity against the petitioner, it follows that no penalty was intended to be covered by the mortgage. The mortgage contract consisted of three pages with no less than seventeen conditions in fine print; it included provisions for interest and attorneys fees similar to those in the promissory notes; and it even provided for the

payment of taxes and insurance charges. Plainly, the petitioner can be as specific as it wants to be, yet it simply did not specify nor even allude to, that the penalty in the promissory notes would be secured by the mortgage. This can then only be interpreted to mean that the petitioner had no design of including the penalty in the amount secured.[22] (Emphasis and underscoring supplied) WHEREFORE, the assailed Court of Appeals Decision of February 21, 2007 and Resolution of May 16, 2007 in CA-G.R. SP No. CA-G.R. CV No. 86412 affirming the trial courts decision are, in light of the foregoing disquisition, AFFIRMED with MODIFICATION in that the penalty fee per month of the outstanding obligation is excluded in the computation of the amount secured by the Real Estate Mortgage executed by petitioners in respondents favor. SO ORDERED.

SECOND DIVISION [G.R. No. 139479. December 27, 2002] PHILIPPINE NATIONAL BANK, petitioner, vs. NEPOMUCENO PRODUCTIONS, INC., FILM ADVERTISING MEDIA EXHIBITIONS, INC. (FAME), LUIS NEPOMUCENO, AMPARO NEPOMUCENO, and JESUS NEPOMUCENO, respondents. DECISION AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 47500[1] affirming the decision of the Regional Trial Court of Pasig City (Branch 155) in Civil Case No. 28809 which set aside the foreclosure proceedings and auction sale of respondents properties and ordered petitioner to pay attorneys fees. The relevant facts of the case are undisputed. On November 28, 1973, petitioner Philippine National Bank (PNB) granted respondents a 4 Million Pesos (P4,000,000.00) credit line to finance the filming of the movie Pacific Connection.[2] The loan was secured by mortgages on respondents real and personal properties, to wit: (1) a 7,623 square meters parcel of land located in Malugay Street, Makati (referred to as the Malugay property); (2) a 3,000 square meters parcel of land located in North Forbes Park, Makati (referred to as the Forbes property);[3] and (3) several motion picture equipments.[4] The credit line was later increased to 6 Million Pesos (P6,000,000.00) on January 14, 1974,[5] and finally to 7.5 Million Pesos (P7,500,000.00) on September 8, 1974.[6] Respondents defaulted in their obligation. Petitioner sought foreclosure of the mortgaged properties with the Sheriffs Office of Pasig, Rizal. Initially scheduled on August 12, 1976, the auction sale was re-scheduled several times without need of republication of the notice of sale, as stipulated in the Agreement to Postpone Sale,[7] until finally, the auction sale proceeded on December 20, 1976, with petitioner as the highest bidder in the amount of P10,432,776.97.[8] Aggrieved, respondents filed Civil Case No. 28809 with the Regional Trial Court of Pasig (Branch 155), an action for annulment of foreclosure sale and damages with injunction.[9]Respondents contended that the foreclosure sale is null and void because: (1) the obligation is yet to mature as there were negotiations for an additional loan amount of P5,000,000.00; (2) lack of publication; (3) the purchase price was grossly inadequate and unconscionable; and (4) the foreclosure proceedings were initiated by petitioner in bad faith.[10] In its Decision dated September 16, 1992, the court a quo ordered the annulment and setting aside of the foreclosure proceedings and auction sale held on December 20, 1976 on the ground that there was lack of publication of the notice of sale.[11] The court a quo also ordered petitioner to pay P100,000.00 as attorneys fees.[12] Dissatisfied, petitioner elevated the case to the Court of Appeals. During completion stage of the appeal, the appellate court issued a Resolution on January 31, 1996 dismissing petitioners appeal with regard to the Forbes Park property as the same was already the subject of a Deed of Reconveyance executed by petitioner in favor of respondents on November 22, 1994, as well as a Compromise Agreement dated September 13, 1994 between the same parties.[13] Said Resolution having become final and executory on February 26, 1996, entry of judgment was made on March 27, 1996.[14]Hence, resolution of the appeal in the Court of Appeals pertained only to the Malugay property. On December 11, 1998, the appellate court rendered the assailed Decision, which affirmed in toto the decision of the court a quo.[15] Hence, herein petition for review under Rule 45 of the Rules of Court. Petitioner maintains that: I THE COURT OF APPEALS ERRED IN DECLARING PNBS FORECLOSURE SALE OF RESPONDENTS PROPERTIES NULL AND VOID FOR LACK OF REPUBLICATION DESPITE THE PARTIES AGREEMENT TO WAIVE THE REPUBLICATION AND RESPOSTING OF SHERIFFS SALE

II THE COURT OF APPEALS ERRED IN NOT DECLARING THE RESPONDENTS IN ESTOPPEL TO ASSAIL THE VALIDITY OF THE FORECLOSURE SALE AFTER THEY INDUCED PNB TO EXECUTE THE AGREEMENT TO POSTPONE SALE WAIVING THE REPUBLICATION AND REPOSTING OF THE SHERIFFS NOTICE OF SALE III THE COURT OF APPEALS ERRED IN SUSTAINING THAT RESPONDENTS ARE NOT THIRD PERSONS IN CONTEMPLATION OF THE LAW[16] The focal issue in this case is whether the parties to the mortgage can validly waive the posting and publication requirements mandated by Act No. 3135. We answer in the negative. Act. No. 3135, as amended, governing extrajudicial foreclosure of mortgages on real property is specific with regard to the posting and publication requirements of the notice of sale, to wit: Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. On this score, it is well settled that what Act No. 3135 requires is: (1) the posting of notices of sale in three public places; and, (2) the publication of the same in a newspaper of general circulation.[17] Failure to publish the notice of sale constitutes a jurisdictional defect, which invalidates the sale.[18] Petitioner, however, insists that the posting and publication requirements can be dispensed with since the parties agreed in writing that the auction sale may proceed without need of republication and re-posting of the notice of sale.[19] We are not convinced. Petitioner and respondents have absolutely no right to waive the posting and publication requirements of Act No. 3135. In People v. Donato,[20] the Court expounded on what rights and privileges may be waived, viz.: x x x the doctrine of waiver extends to rights and privileges of any character, and, since the word 'waiver' covers every conceivable right, it is the general rule that a person may waive any matter which affects his property, and any alienable right or privilege of which he is the owner or which belongs to him or to which he is legally entitled, whether secured by contract, conferred with statute, or guaranteed by constitution, provided such rights and privileges rest in the individual, are intended for his sole benefit, do not infringe on the rights of others, and further provided the waiver of the right or privilege is not forbidden by law, and does not contravene public policy; and the principle is recognized that everyone has a right to waive, and agree to waive, the advantage of a law or role made solely for the benefit and protection of the individual in his private capacity, if it can be dispensed with and relinquished without infringing on any public right, and without detriment to the community at large x x x. Although the general rule is that any right or privilege conferred by statute or guaranteed by constitution may be waived, a waiver in derogation of a statutory right is not favored, and a waiver will be inoperative and void if it infringes on the rights of others, or would be against public policy or morals and the public interest may be waived. While it has been stated generally that all personal rights conferred by statute and guaranteed by constitution may be waived, it has also been said that constitutional provisions intended to protect property may be waived, and even some of the constitutional rights created to secure personal liberty are subjects of waiver.[21] While it is established that rights may be waived, Article 6 of the Civil Code explicitly provides that such waiver is subject to the condition that it is not contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law.[22]

The principal object of a notice of sale in a foreclosure of mortgage is not so much to notify the mortgagor as to inform the public generally of the nature and condition of the property to be sold, and of the time, place, and terms of the sale. Notices are given to secure bidders and prevent a sacrifice of the property.[23] Clearly, the statutory requirements of posting and publication are mandated, not for the mortgagors benefit, but for the public or third persons. In fact, personal notice to the mortgagor in extrajudicial foreclosure proceedings is not even necessary, unless stipulated.[24] As such, it is imbued with public policy considerations and any waiver thereon would be inconsistent with the intent and letter of Act No. 3135. Moreover, statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with and slight deviations therefrom will invalidate the notice and render the sale at the very least voidable.[25] "Where required by the statute or by the terms of the foreclosure decree, public notice of the place and time of the mortgage foreclosure sale must be given, a statute requiring it being held applicable to subsequent sales as well as to the first advertised sale of the property. It has been held that failure to advertise a mortgage foreclosure sale in compliance with statutory requirements constitutes a jurisdictional defect invalidating the sale and that a substantial error or omission in a notice of sale will render the notice insufficient and vitiate the sale."[26] Thus, in the recent case of Development Bank of the Philippines v. Aguirre,[27] the foreclosure sale held more than two (2) months after the published date of sale was considered void for lack of republication.[28] Similarly, in the instant case, the lack of republication of the notice of the December 20, 1976 foreclosure sale renders it void. The right of a bank to foreclose a mortgage upon the mortgagors failure to pay his obligation must be exercised according to its clear mandate, and every requirement of the law must be complied with, lest the valid exercise of the right would end.[29] The exercise of a right ends when the right disappears, and it disappears when it is abused especially to the prejudice of others.[30] We also cannot accept petitioners argument that respondents should be held in estoppel for inducing the former to re-schedule the sale without need of republication and reposting of the notice of sale. Records show that respondents, indeed, requested for the postponement of the foreclosure sale.[31] That, however, is all that respondents sought. Nowhere in the records was it shown that respondents purposely sought re-scheduling of the sale without need of republication and reposting of the notice of sale. To request postponement of the sale is one thing; to request it without need of compliance with the statutory requirements is another. Respondents, therefore, did not commit any act that would have estopped them from questioning the validity of the foreclosure sale for non-compliance with Act No. 3135. In addition, the Agreement to Postpone Sale signed by respondents was obviously prepared solely by petitioner.[32] A scrutiny of the agreement discloses that it is in a ready-made form and the only participation of respondents is to affix or adhere their signature thereto. It therefore partakes of the nature of a contract of adhesion, i.e., one in which one of the contracting parties imposes a ready-made form of contract which the other party may accept or reject, but cannot modify.[33] One party prepares the stipulation in the contract, while the other party merely affixes his signature or his adhesion thereto, giving no room for negotiation, and depriving the latter of the opportunity to bargain on equal footing.[34] As such, their terms are construed strictly against the party who drafted it.[35] Finally, while we rule that the appellate court did not commit any error in affirming the decision of the court a quo, we find the award of P100,000.00 as attorney's fees to be excessive. Article 2208 of the Civil Code allows the award of such fees when its claimant is compelled to litigate with third persons or to incur expenses to protect its just and valid claim. In view of petitioner's foreclosure of the property without complying with the statutory requirements,[36] the award of attorney's fees of P25,000.00 is just, fair, and reasonable. WHEREFORE, the Decision dated December 10, 1998 in CA-G.R. CV No. 47500 is hereby AFFIRMED with modification that the award of attorneys fees is reduced toP25,000.00.

No pronouncement as to costs. SO ORDERED.

SECOND DIVISION [G.R. No. 118357. May 6, 1997] PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS and INDUSTRIAL ENTERPRISES, INC., respondents. DECISION ROMERO, J.: This is a petition for review on certiorari of the Decision[1] of the Court of Appeals affirming in toto the November 27, 1992 decision[2] of the Regional Trial Court of Makati, Branch 150 which disposed of Civil Case No. 8109, "Industrial Enterprises, Inc. v. Marinduque Mining and Industrial Corporation, Geronimo Velasco (in his capacity as the then Minister of Energy) and Philippine National Bank," an action for rescission of contract and damages, as follows: "WHEREFORE, in the light of the foregoing, and as plaintiff Industrial Enterprises, Inc. was able to establish by preponderant evidence the allegations in its Complaint and causes of action against defendants Marinduque Mining and Industrial Corporation and Philippine National Bank, the Court finds both defendants civilly liable to plaintiff and, therefore, orders them to jointly and severally: 1. pay plaintiff the sum of P31.66 Million as of July 31, 1983, for the expenses invested by plaintiff in the property subject of this case, as computed by Sycip, Gorres, Velayo and Company and brought to current value per SGV formula, as agreed in the Memorandum of Agreement; 2. pay plaintiff the sum of P37,569,733.00, for the indemnification and rehabilitation cost, plus interest at the legal rate from March 31, 1991, until fully paid; 3. pay plaintiff the sum of P120 Million for unrealized profit for five (5) years from August, 1983, the date of defendant MMIC's takeover of the property, to October, 1988, when plaintiff was re-awarded the contract, plus interest at the legal rate, from the date of this decision, until fully paid; 4. pay plaintiff an amount not less than ten (10) percent of the losses it incurred and its unrealized profits as indicated in Numbers 1 to 3, for the injury done to plaintiff's business standing and commercial credit; 5. pay plaintiff an amount not less than five (5) percent of the above obligation as reimbursement to plaintiff for litigation expenses and attorney's fees; and 6. COST OF SUIT. And finally, the extrajudicial foreclosure sale held on August 31, 1984, in Catbalogan, Samar, over the property of plaintiff, part of the Giporlos Coal Project, is hereby declared NULL and VOID. SO ORDERED." Marinduque Mining and Industrial Corporation (MMIC) was founded by Jesus S. Cabarrus in 1949.[3] Four years later or in 1953, Cabarrus established J. Cabarrus, Inc. which subsequently was renamed Industrial Enterprises, Inc. (IEI). During the period when most of the facts relevant to this case transpired, Cabarrus and his family owned about 12% to 14% of the shares of stock in the MMIC[4] where he was the President. He was also the President of IEI. On July 27, 1979, IEI entered into a coal operating contract with the Bureau of Energy Development (BED), with Cabarrus and then Minister of Energy Geronimo Velasco as signatories.[5] The contract was pursuant to the Coal Development Act of 1976 (P.D. No. 972, as amended) and covered 2,000 hectares of two (2) coal blocks in Barrio Carbon, Magsaysay, Eastern Samar. While exploring this area, IEI found the adjacent areas, comprising of three (3) coal blocks, to be likewise coal potentials. Hence, upon confirmation by the BED that these three (3) adjacent coal blocks were in the free area, IEI filed an application for another coal operating contract on August 12, 1981. Simultaneously, IEI applied for the conversion of its July 27, 1979 coal operating contract from exploration to development/production. IEI also followed up its application on the three (3) newly-discovered coal blocks. All of these coal blocks were collectively known as the Giporlos Coal Project.

Sometime in April, 1982, Minister Velasco informed Cabarrus that IEI's application for exploration of the three (3) coal blocks had been disapproved and that, instead, the contract would be awarded to MMIC. Following Cabarrus' letter of May 4, 1982[6] requesting that the rejection of IEI's application be made in writing, Minister Velasco wrote him a letter dated June 2, 1982,[7] where Minister Velasco said: "We appreciate your desire to increase Industrial Enterprises, Inc.'s (IEI) involvement in coal development. In line, however, with the objective of rationalizing the country's overall coal supply-demand balance, we believe that coal users who have the capability to go into coal production themselves should, as much as possible, be encouraged and given the preference to do so. This ensures maximum utilization of local coal and will be beneficial to coal producer/user in the long run. In your area of interest, therefore, we believe that the logical coal operator should be Marinduque Mining and Industrial Corporation (MMIC) which is now developing the Bagacay coal deposit in order to support MMIC's coal conversion program at the Nonoc Nickel Refinery. As a member of the board of MMIC, I am fully aware that this coal conversion program is critical to the profitability and the survival of the Nonoc Nickel Refinery. It is, therefore, imperative that MMIC secure its own coal supply. Consistent with the above rationale, you are aware that MMIC Board has in fact taken concrete steps to consolidate the Giporlos and Bagacay coal areas under MMIC and, for this purpose, has authorized Chairman Cesar C. Zalamea to create a committee (of which I was asked to be Chairman) to evaluate the Giporlos coal blocks of IEI to serve as basis for their acquisition by MMIC. As President of MMIC, you are likewise aware that the Board has recently hired the services of SGV to make an evaluation of the proper pricing for the IEI coal interest to be paid for by MMIC. With these developments indicating the imminent formal acquisition of Giporlos coal areas by MMIC, it would indeed be inconsistent now for us to award additional coal blocks in the same area to IEI. We believe that these additional coal areas, if at all, should be applied for and awarded direct to MMIC. In view of the foregoing, please be advised that we are denying IEI's application, and we suggest instead that MMIC apply for the same blocks." On March 28, 1983, Minister Velasco informed Cesar Zalamea, Chairman of the Board of the Development Bank of the Philippines (DBP) and of the MMIC, that IEI's application for the conversion of its coal operating contract for the Giporlos area from exploration to development/production had been put "under advisement in the light of the ongoing discussion for the transfer of IEI's rights and obligations" to MMIC.[8] Thereafter, MMIC and IEI, through Chairman Zalamea and President Cabarrus,[9] respectively, entered into a Memorandum of Agreement (MOA) whereby IEI assigned to MMIC all its rights and interests under the July 27, 1979 coal operating contract. The MOA provided as follows: "NOW, THEREFORE, the parties have agreed, as hereby they agree, one with the other, as follows: 1. That IEI, subject and conformably with the whereas clauses hereinabove stated, hereby assigns and transfers all its rights and interests on the Coal Operating Contract described in the first whereas clause; and MMIC shall in consideration of the above assignment and transfer (a) Undertake all the obligations required of IEI under said Coal Operating Contract; (b) Reimburse all costs and expenses actually incurred as of 31 July 1983 by IEI on the coal property and brought up to current values, as shall be audited and confirmed by Sycip, Gorres and Velayo as of said date of 31 July 1983; and (c) Pay to IEI the total sum equivalent to P4.17 per ton of proven and positive reserves of coal to be confirmed by an independent geologist who shall be designated and appointed by mutual agreement of the parties. 2. That the total sum due from MMIC to IEI under this agreement shall be paid upon the effectivity of this agreement in the following manner

(a) An assumption by MMIC of the outstanding loan obligation (evidenced by Promissory Note No. 1516 for P3.3 Million and Promissory Note No. 11098 for P5.0 Million) of IEI to Manila Banking Corporation which as of 31 July 1983 stands at P8.3 Million. (b) Payment in cash to IEI of the difference between the above amount of P8.3 Million and the sum total of subparagraphs (b) and (c) par. 1, above. 3. That this agreement shall only become binding and effective upon its approval by the BED, which approval shall be secured jointly by MMIC and IEI." MMIC and IEI, again through Zalamea and Cabarrus, respectively, jointly informed the BED on August 10, 1983, that they had entered into the MOA "at the instance and suggestion of the Hon. Minister of Energy in one of the earlier meetings of the Board of Directors of MMIC."[10] MMIC and IEI were informed of the approval of the MOA on August 29, 1983 by the then Acting BED Director Wenceslao R. de la Paz.[11] MMIC took over possession and control of the two (2) coal blocks even before the MOA was finalized. However, instead of continuing the exploration and development work actively pursued by IEI, MMIC completely stopped all works and dismissed the work force thereon, leaving only a caretaker crew. Consequently, IEI made written demands to MMIC, pursuant to the MOA, for the reimbursement of all costs and expenses it had incurred on the project which, as of July 31, 1983, had amounted to P31.66 million as audited by the Sycip, Gorres and Velayo Company. In view of MMIC's failure to comply with its obligations under the MOA, IEI filed a complaint against MMIC and Minister Velasco on August 7, 1984, for rescission of the MOA and damages, before the Regional Trial Court of Makati, Branch 137. Docketed as Civil Case No. 8109, the complaint alleged that MMIC acted in gross and evident bad faith in entering into the MOA when it had no intention at all to operate the two (2) coal blocks and of complying with any of its obligations under the said agreement. It likewise alleged that Minister Velasco was instrumental in causing the assignment of the coal operating contracts to MMIC when he did not act on complainant IEI's application for conversion of its coal operating contract from exploration to development/production and in rejecting its application for another coal operating contract for the exploration of additional three (3) coal blocks which he had reserved for MMIC. Meanwhile, on July 13, 1981, for various credit accommodations secured from the Philippine National Bank (PNB), aggregating to four billion pesos (P4,000,000,000.00) excluding interest and charges as of November 30, 1980, as well as from the DBP, amounting to two billion pesos (P2,000,000,000.00), MMIC entered into a Mortgage Trust Agreement (MTA)[12]whereby it constituted a mortgage pari passu of its assets in favor of PNB and DBP. These assets are described in the third "whereas clause" of the MTA as follows: "(1) all the MORTGAGOR'S assets described and covered under the Deed of Real Estate and Chattel Mortgage executed by the MORTGAGOR in favor of PNB dated October 9, 1978, acknowledged before Notary Public of Manila, Lucas R. Vidad, as Doc. No. 1004, Page No. 94, Book No. VII, Series of 1978, as amended, which are made integral parts of this Agreement by way of reference; and (2) additional assets of the MORTGAGOR described and identified in the list hereto attached as Annex 'A', including assets of whatever kind, nature or description, which the MORTGAGOR may hereafter acquire whether in substitution of, in replenishment, or in addition thereto, (the 'Mortgaged Properties')."[13] Under the MTA, the PNB was constituted and appointed as the trustee tasked with holding in trust the mortgaged properties "for the equal and ratable benefit of the Beneficiaries in proportion to the amount of the obligation of the MORTGAGOR to each of them" as provided therein.[14] One of the conditions of the mortgage was that: "x x x. Should the MORTGAGORS fail to deliver said properties, as aforestated, the TRUSTEE, through its duly authorized representative, is authorized to take possession of said properties and bring the same to the location of any of their respective offices or to any other place and the expenses of locating and bringing said

properties to such place shall be for the account of the MORTGAGOR and shall form part of the sums secured by this mortgage; Provided, however, that the TRUSTEE shall have the option of selling said properties at any place where their respective offices shall be located or at any place where said properties may be found."[15] (Underscoring supplied.) The MTA also provided that: "For the purpose of extra-judicial foreclosure, the MORTGAGOR hereby appoints the TRUSTEE, through its duly authorized representatives, its attorney-in-fact to sell the mortgaged properties in accordance with the provision of Act No. 3135, as amended, and/or Act No. 1508, as amended, and subject to the stipulations herein set forth, to sign all documents and perform any act requisite or necessary to accomplish said purpose and to appoint their representatives or substitutes as such attorneys-infact with all the powers herein conferred. In extra-judicial foreclosure under Act No. 3135, as amended, the auction sale shall take place in the City or Capital of the Province where the mortgaged properties are situated. In extra-judicial foreclosure under Act No. 1508, as amended, the auction sale shall take place in such City or Municipality as the TRUSTEE at its option, may elect by virtue of the provisions of the first paragraph of this Condition."[16] (Underscoring supplied.) The MTA was amended on April 27, 1984 with PNB Senior Vice President Gerardo Agulto, Jr. and MMIC Senior Vice President Jose Luis Javier as signatories. [17] Premised on the fact that the mortgagor (MMIC) had "acquired additional personal and real properties, including, but not limited to, leasehold rights on mining claims, which pursuant to the terms of the Mortgage Trust Agreement are deemed covered by the mortgage as after-acquired assets," the MTA amended Sec. 2.01 thereof to read as follows: "As security for the prompt and full payment by the MORTGAGOR of the Secured Obligations, the MORTGAGOR hereby establishes and constitutes in favor of the MORTGAGEES a first lien and mortgage of the first rank in and to each and every item of the Mortgaged Properties, together with any and all substitutes or replacements for or renewals of or additions to any thereof, all of which belong to and are in the possession of (or will belong to and will be in the possession of) the MORTGAGOR, free and clear of any liens or encumbrances of any nature whatsoever." (Underscoring supplied.)[18] MMIC defaulted in the payment of its loan obligation with PNB and DBP which, as of July 15, 1984 stood at P23.55 billion. As a consequence thereof, PNB and DBP simultaneously filed in the provinces of Rizal, Samar, Negros and Surigao, joint petitions for sale on foreclosure under Act Nos. 1508 and 3135,[19] of the MMIC assets located at: (a) Island Cement in Antipolo, Rizal; (b) Sipalay Copper Mine in Negros; (c) Bagacay and Giporlos Coal Projects in Samar, and (d) Nonoc Nickel Project in Surigao. The petitions were premised on: (1) the MOA of July 13, 1984 which delineated MMIC's mortgaged properties; (2) the April 27, 1984 amendment to the MTA in favor of DBP and PNB which included in the mortgage MMIC's additional after-acquired assets; (3) the liabilities of MMIC secured by the mortgage being past due, and (4) Presidential Decree No. 385 mandating PNB and DBP to institute foreclosure proceedings when the arrearages of the borrower have exceeded twenty percent (20%) of the principal obligation. Deputy Sheriff Esteban G. Malindog of the Regional Trial Court in Catbalogan, Samar, Branch XXVII, complied with the requirements of the law as to the posting and publication of the notice of sale. Said notice, dated August 15, 1984, set for August 31, 1984 the auction sale of the various mining equipment and other assets of MMIC, including the equipment at the Giporlos Project. On August 15, 1984, IEI advised PNB and DBP at their respective Manila and Makati offices that the purchase price of the Giporlos Coal Project that it had assigned to MMIC per the MOA, was still. unpaid.[20] However, despite said notice, the foreclosure sale proceeded as scheduled and the various machineries and equipment of MMIC were sold to PNB as the sole bidder for P33,940,940.00.

In its letter of September 20, 1984 to PNB and DBP,[21] IEI requested that the movable properties in the Giporlos Coal Project which were detailed in a list attached to its August 15, 1984 letter to said banks, be excluded from the foreclosed assets of MMIC as the purchase price thereof under the MOA had remained unpaid. IEI further informed PNB and DBP that a suit for rescission of the assignment of the Giporlos Coal Project to MMIC (and damages) had been filed before the Regional Trial Court of Makati. On June 24, 1985, in view of the inclusion of the mining equipment and other movable properties at the Giporlos Coal Project in the foreclosure sale of the assets of MMIC, IEI filed an amended complaint impleading the PNB as an additional defendant.[22] The amended complaint was admitted by the trial court on September 23, 1985.[23] On April 23, 1986, the lower court[24] rendered a decision finding that: "With respect to the plaintiff's claim against the Philippine National Bank, the evidence on record is clear that said defendant bank is equally guilty of bad faith because it was advised beforehand that the heavy equipment and movable property which are part of the Giporlos Coal Project were still unpaid; however, despite that actual knowledge or information, the said defendant bank proceeded to extrajudicially foreclose the mortgage on the said properties; moreover, the foreclosure proceedings were held in Catbalogan, Province of Samar, although the said movable properties are actually found or located at Giporlos, Eastern Samar (Exhibit 'OOO'), a province, distinct and separate from, and outside the jurisdiction of, the Province of Samar; these foreclosure proceedings in Catbalogan, Samar, are clearly contrary to the provisions of Act 1508, as amended; likewise, the inclusion of the movable properties which are part of the Giporlos Coal Project is contrary to the provisions of the last paragraph of Sec. 7 of said Act No. 1508, as amended, which provides that a chattel mortgage shall be determined to cover only the properties described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding."[25] Noting the futility of proceeding with the trial of the case because there was "no genuine issue of any material facts," the lower court rendered a summary judgment disposing of Civil Case No. 8109 as follows: "WHEREFORE, judgment is hereby rendered: adeclaring the memorandum agreement, Exhibit 'C' as rescinded or annulled and without further force and effect between the parties thereto; bdeclaring and sustaining the continued efficacy and validity of the coal operating contract, Exhibit 'A' between plaintiff and defendant BED; cordering the reversion or return of the two coal blocks covered by the coal operating contract dated July 27, 1979, Exhibit 'A', from the defendant MMIC to and in favor of the plaintiff together with or including all the pieces of equipment MMIC received by said defendant in virtue of the rescinded memorandum of agreement, Exhibit 'C'; dordering the defendant Bureau of Energy Development to issue its corresponding formal written affirmation and confirmation of the coal operating contract, Exhibit 'A', and to expeditiously cause the conversion thereof from exploration to development/production or exploitation contract in favor of the plaintiff; edirecting the Bureau of Energy Development and the Ministry of Energy to give due course to plaintiff's application for a coal operating contract for the exploration of the three additional coal blocks in the plaintiff's Giporlos Coal Project; fcondemning the defendant MMIC to pay the plaintiff the amount of P3,431,645.00 representing expenditures on the two coal blocks covered by Exhibit 'A' from July 31, 1983 up to May 1984 and such further amounts from said date up to the finality of this decision to be computed in accordance with the formula adopted in the report of Sycip, Gorres and Velayo referred to in paragraph 14 of the Amended Complaint;

gordering the defendant MMIC to pay the plaintiff the sum of P6,500,000.00 representing rehabilitation expenses to be incurred by plaintiff in putting back the two coal blocks and the pieces of equipment thereon in the same workable and operating condition as they were at the time they were taken possession of by said defendant MMIC and the defendant PNB shall be subsidiarily liable therefor; hcondemning the defendants MMIC and PNB jointly and solidarily liable to pay the plaintiff moral damages in the amount of P300,000.00, as exemplary damages of P200,000.00 and the amount ofP200,000.00 as and for attorney's fees; ideclaring the extra-judicial foreclosure sale executed for and in behalf of the defendant Philippine National Bank of the mining equipment and other movable property which are enumerated in Exh. 'OOO' and which are part of the Giporlos Coal Project, as null and void and of no force and effect as against the plaintiff; in the event of the loss or deterioration of the said mining equipment and other movable property, the said defendants PNB and MMIC shall be held jointly and solidarily liable to the plaintiff for the current market value thereof; and jordering the defendants MMIC and PNB to pay the cost of this suit. SO ORDERED."[26] PNB and IEI filed separately motions for the reconsideration of said summary judgment.[27] PNB alleged that the lower court did not have jurisdiction over the subject matter and nature of the action as the MOA between MMIC and IEI was an incident arising out of a mining claim which was within the jurisdiction of the BED. Moreover, the validity of the extrajudicial foreclosure proceedings which PNB effected on said properties was a genuine material issue which was not determinable through summary judgment. Inasmuch as the merit of the case was resolved through summary judgment, PNB was denied its constitutional right to due process. Furthermore, the award of damages to IEI was improper as PNB was not a party to the MOA. For its part, IEI contended that the decision failed to award consequential damages in its favor considering the finding that MMIC and PNB acted in bad faith and that it failed to realize profits of about P14.5 million on the confirmed coal reserves of 3,485,915 metric tons computed at P4.17 per metric ton. On the other hand, the public defendant and MMIC filed their respective notices of appeal to the then Intermediate Appellate Court.[28] On July 14, 1986, IEI filed a motion for execution pending appeal[29] alleging that MMIC had failed and refused to fulfill its obligations under the MOA and that it even allowed the PNB to unlawfully foreclose the mortgage on the heavy equipment and other movable properties in the Giporlos Coal Project. According to IEI, to allow this situation to persist would only aggravate the damages suffered by all concerned parties. It added that the grant of the motion for execution pending appeal would not only stop the continuing injury to the common weal but it would also hasten the day when the coal blocks could be placed in useful production to provide gainful employment to the people in the community. By the same token, IEI averred, granting of the motion would accelerate realization of scarce foreign exchange savings occasioned by the local production of a substitute energy source that would thereby contribute to the relief of an ailing economy. This motion was opposed by the public defendant, the MMIC and the PNB.[30] The public defendant averred that the execution of the decision "would cause great irreparable damage and injury to public interest" and that there were no "good reasons" of superior circumstance that demand urgency of the execution pending appeal. MMIC opposed the motion on the ground that the court had lost jurisdiction after the perfection of its appeal while PNB's objection was on the ground that there were no good reasons to justify the issuance of a writ of execution and that the issuance thereof was premature. In its order of September 15, 1986, the lower court denied the motions for reconsideration of IEI and PNB for lack of merit. It ordered the elevation of the records of the case to the Court of Appeals considering that the MMIC and the public defendant had filed their notices of appeal on time. It likewise directed the issuance of a writ of execution pending appeal to enforce the

April 23, 1986 decision upon the filing of a bond in the amount of five million pesos (P5,000,000.00) conditioned on the payment of damages the defendants might suffer should the court finally rule that the plaintiff was not entitled to the writ. In granting the writ of execution, the court held that "the immediate resumption of operation of the two coal blocks in question became imperative and is of urgent necessity at this time when our government is in dire need of capitalization to encourage the establishment of business to generate employment and dollar-producing energy sources." In the court's perception, this was enough reason to entitle IEI to execution pending appeal pursuant to Sec. 2, Rule 39 of the Rules of Court. The corresponding writ having been issued on September 22, 1986,[31] on September 26, 1986, Pioquinto P. Villapana was appointed Special Sheriff to assist and cooperate with Deputy Sheriff Arturo Flores in its enforcement. However, execution of the writ was curtailed. The appeal to the Court of Appeals was docketed as CA-G.R. CV No. 12660. On October 14, 1988, IEI filed a motion to dismiss the case against Minister Velasco on the grounds of IEI's reapplication for the two coal blocks with the Office of Energy Affairs (OEA) and its loss of interest in pursuing the case against Minister Velasco.[32] The motion was favorably acted upon by the Court of Appeals thereby effectively dropping Minister Velasco as a defendant in Civil Case No. 8109 through the decision of May 29, 1989,[33] where the Court of Appeals disposed of the appeal as follows: "WHEREFORE, the judgment appealed from is hereby reversed and set aside and the appeal of plaintiff Industrial Enterprises, Inc., is DISMISSED. The complaint against the defendants Marinduque Iron Mines Corporation and Minister of Energy is dismissed for lack of jurisdiction. The case against defendant PNB is remanded to the lower court for further proceedings. Cost against appellant Industrial Enterprises, Inc. SO ORDERED."[34] IEI elevated the decision to this Court through a petition for review on certiorari under G.R. No. 88550 while the PNB filed in the Court of Appeals a motion for the reconsideration of the same decision. On September 21, 1989, the Court of Appeals resolved the motion for reconsideration with the following findings: "Considering, therefore, that PNB was impleaded as party defendant only in connection with its foreclosure of the mortgages on the properties of the principal defendant MMIC, and considering that the main action against MMIC has been dismissed for lack of jurisdiction, there appears to be no cogent reason to continue the case against PNB which is merely a secondary defendant. There is thus merit in PNB's contention that since the case against MMIC has been dismissed, the case against PNB should likewise be dismissed, considering that PNB merely stepped into the shoes of MMIC. Moreover, there is no privity of contract between PNB and IEI. Hence, there is no direct cause of action by IEI against PNB independently of MMIC, it being merely a foreclosing mortgage creditor of the latter. At any rate, the record shows that there is an on-going litigation between MMIC stockholders and PNB before the Regional Trial Court of Makati (Civil Case No. 9900) for the annulment of the PNB's extrajudicial foreclosure of MMIC's mortgaged properties."[35] Accordingly, the Court of Appeals modified its decision of May 29, 1989 by dismissing the case against the PNB. Meanwhile, G.R. No. 88550 was eventually decided by this Court on April 18, 1990.[36] In denying the petition of IEI, the Court held: "Clearly, the doctrine of primary jurisdiction finds application in this case since the question of what coal areas should be exploited and developed and which entity should be granted coal operating contracts over said areas involves a technical determination by the BED as the administrative agency in possession of the specialized expertise to act on the matter. The Trial Court does not have the

competence to decide matters concerning activities relative to the exploration, exploitation, development and extraction of mineral resources like coal. These issues preclude an initial judicial determination. It behooves the courts to stand aside even when apparently they have statutory power to proceed in recognition of the primary jurisdiction of an administrative agency. 'One thrust of the multiplication of administrative agencies is that the interpretation of contracts and the determination of private rights thereunder is no longer a uniquely judicial function, exercisable only by our regular courts' (Antipolo Realty Corp. v. National Housing Authority, 153 SCRA 399, at 407). The application of the doctrine of primary jurisdiction, however, does not call for the dismissal of the case below. It need only be suspended until after the matters within the competence of the BED are threshed out and determined. Thereby, the principal purpose behind the doctrine of primary jurisdiction is salutarily served." Pursuant to this Decision, IEI lodged a complaint against MMIC and PNB before the OEA. After due hearing, a decision was issued by Executive Director W. R. de la Paz on January 25, 1991, with a decretal portion which reads: "Wherefore, in the light of the foregoing, insofar as the Memorandum of Agreement is concerned, such agreement may already be deemed rescinded and of no force and effect in view of the re-award made in IEI's favor of the same coal areas subject of this dispute. However, on the issue of the effects and consequences of the right to claim damages for unpaid financial obligations and such other damages incidental thereto, by one party as against the other, this matter may be referred to the regular courts for appropriate adjudication. Similarly, this likewise holds true insofar as the foreclosed properties involved in this case are concerned where respondent Philippine National Bank was impleaded."[37] In accordance with this ruling of the OEA, on March 1, 1991, IEI filed in the lower court a motion to set Civil Case No. 8109 for hearing.[38] On June 17, 1991, PNB filed a motion to dismiss[39] alleging that the issue in this case, i.e., the validity of the foreclosure of MMIC's assets, was virtually the same issue raised before the Regional Trial Court of Makati in Civil Case No. 9900, "Jesus S. Cabarrus, Jesus Cabarrus, Jr., Jaime T. Cabarrus, Jose Miguel Cabarrus, Alejandro S. Pastor, Jr., Antonio U. Miranda & Manuel M. Antonio v. Development Bank of the Philippines and Philippine National Bank," a case filed by the plaintiffs as stockholders of MMIC in their behalf as well as in behalf of other stockholders, which prayed, among others, that the foreclosures effected by DBP and PNB on the assets of MMIC be declared null and void. [40] The motion to dismiss was denied by the lower court on July 10, 1991 on the ground that there was no substantial identity in the cause of action, the relief sought and the parties in the two cases.[41] As aforestated, the lower court rendered the decision of November 27, 1992 finding MMIC and PNB jointly and severally liable to IEI for damages and declaring null and void the August 31, 1984 extrajudicial foreclosure sale in Catbalogan, Samar. This was affirmed on December 20, 1994 by the Court of Appeals under CA-G.R. CV No. 40836. MMIC did not interpose an appeal from the Decision of the Court of Appeals but the PNB filed the instant petition for review on certiorari questioning the following "conclusions" of the Court of Appeals: (1) there was implied conspiracy or community of design among the defendants to ruin IEI; (2) PNB acted in bad faith in including the IEI Giporlos equipment at the extrajudicial foreclosure sale on August 31, 1984, and (3) PNB is liable for a quasi-delict. Petitioner PNB also contends that the Court of Appeals erred in not holding that (a) because Minister Velasco had been dropped as party defendant, PNB was also absolved from liability because it was solidarily liable with Minister Velasco, and (b) IEI's claim against PNB for actual,

consequential and moral damages including attorney's fees, litigation expenses and costs of suit, has neither legal nor factual bases.[42] In its comment on the petition, private respondent IEI contends in the main that the issues raised by petitioner PNB are all factual in nature and, therefore, they have no place before this Court. We hold otherwise. At the core of the instant petition is the legal question of ownership of the chattels involved at the time of foreclosure. This issue appears to have been glossed over by the courts below. Equally appropriate for determination by this Court is the legality of the foreclosure proceedings on the assets of the MMIC. These two issues are the keys to the resolution of the instant petition. Privity between MMIC and private respondent was established by the execution of the MOA. An important issue then is whether or not the chattels mortgaged to petitioner were covered by the MOA so as to legally subject the same chattels to MMIC's ownership and, eventually, to the foreclosure proceedings. The MOA was an assignment of private respondent's "rights and interests on the Coal Operating Contract described in the first whereas clause" thereof. In its most general and comprehensive sense, an assignment is "a transfer or making over to another of the whole of any property, real or personal, in possession or in action, or of any estate or right therein. It includes transfers of all kinds of property, and is peculiarly applicable to intangible personal property and, accordingly, it is ordinarily employed to describe the transfer of non-negotiable choses in action and of rights in or connected with property as distinguished from the particular item or property."[43] An assignment is a contract between the assignor and the assignee. It generally operates by way of such contract or agreement. It is subject to the same requisites as to validity of contracts.[44] Whether or not a transfer of a particular right or interest is an assignment or some other transactions depends, not on the name by which it calls itself, but on the legal effect of its provisions. This rule applies in determining whether a particular transaction is an assignment or a sale.[45] As the aforequoted portions of the MOA state, its subject is described in the "whereas clauses" thereof as follows: "WHEREAS, IEI is the duly authorized operator over two coal blocks over an area outlined and more particularly described in Annex 'A' of the Coal Operating Contract entered into on the 27th day of July 1979 and between the Ministry of Energy, through the Bureau of Energy Development ('BED'), and IEI; the Coal Operating Contract and Annex A thereof being hereto attached and made an integral part of this contract;" Annex "A" of the coal operating contract is the technical description of the 2,000-hectare coalbearing land in Carbon, Magsaysay, Eastern Samar. Therefore, as expressed in the MOA, the subject of the assignment was only private respondent's rights and interests over the coal operating contract covering said coal-rich land in Eastern Samar. However, a close scrutiny of the contract reveals that the MOA includes all tangible things found in the coal-bearing land. Unquestionably, rights may be assigned as they are intangible personal properties. The term "interests," on the other hand, is broader and more comprehensive than the word "title" and its definition in a narrow sense by lexicographers as any right in the nature of property less than title, indicates that the terms are not considered synonymous.[46] It is practically synonymous, however, with the word "estate" which is the totality of interest which a person has from absolute ownership down to naked possession.[47] An "interest" in land is the legal concern of a person in the thing or property, or in the right to some of the benefits or uses from which the property is inseparable.[48] That the MOA conveyed to MMIC more than the title to or rights over the coal operating contract but also the "things" covered thereby, is manifest in the manner by which the parties, particularly private respondent IEI, implemented the MOA. It disclosed the intention to include in the MOA the equipment and machineries used in coal exploration. This intention is evident in

the following letters of private respondent: (1) letter of April 16, 1984 to Alfredo Velayo, President of MMIC, where private respondent, through Cabarrus, included in the conditions for the negotiated rescission of the MOA, the payment to private respondent of the amount of ten million pesos (P10,000,000.00) for expenses such as those for the "recondition (of) the equipment which have been left to the elements;"[49] (2) letter of May 2, 1984 to Velayo, where private respondent mentioned a "list of probable equipment(s) that IEI would be interested to apply as part payment in the event of rescission of contract;"[50] (3) letter of June 4, 1984 to Zalamea as Chairman of the Board of the MMIC,[51] where private respondent attached an updated statement of account and the expenses for rehabilitation of equipment, and (4) letter of August 15, 1984 to petitioner and the DBP where private respondent enclosed a copy of "the movable properties included in said Memorandum of Agreement" of August 1983.[52] Notably, all these listed equipment were sold at the foreclosure sale initiated by petitioner.[53] Also worth noting is the absence of proof that, like a good father of the family, private respondent exerted some effort to take the chattels out of the premises upon the execution of the MOA. All that private respondent proved, through the testimony of Cabarrus, was that the equipment and machineries were taken over by MMIC, piled up and left to rot that trees even grew on them.[54] Coupled with this is private respondents' failure to prove the presence of insurmountable force[55] that would have prevented it from retrieving its equipment and machineries from the Giporlos Project area. All these show that private respondent considered these chattels as subjects of the MOA. Private respondent had all the right to exclude these chattels from the MOA because they were not expressly stipulated therein. However, its sheer inaction upon the execution of the MOA and its subsequent admissions through the aforesaid letters, conclusively show that these equipment and machineries were subjects of the assignment of rights to MMIC. It was only when the foreclosure sale was about to take place that private respondent lifted a finger to object thereto on the ground that the consideration stipulated in the MOA had not yet been paid by MMIC. Moreover, while the MOA was expressly a contract for the assignment of rights and interests, it is in fact a contract of sale. Under Art. 1458 of the Civil Code, by the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. By the MOA, private respondent obligated itself to transfer ownership of the coal operating contract and the properties found therein. The coal operating contract is a determinate thing as it has been particularly designated in the MOA. The subject of the coal operating contract was physically segregated from all other pieces of coal-rich Eastern Samar property by the technical description attached to said contract.[56] A list of the equipment and machineries found on the property might not have been attached to the MOA but these were itemized with specificity in private respondent's letter of August 15, 1984. Private respondent delivered the properties subject of the contract to MMIC, which immediately gained control and possession of the Giporlos Project. This is explicit in private respondent's numerous demand letters[57] which are exemplified by its letter of February 7, 1984 to Zalamea which states: "Considering that all details necessary to determine the final purchase price are in place; considering that the property has already been transferred in your name; and considering finally that cash payment is stipulated in the contract, demand is hereby respectfully made for the payment of the purchase price soonest."[58] (Underscoring supplied.) Another very telling letter of private respondent is that of April 16, 1984 to Mr. Alfredo Velayo, President of MMIC, which partly reads: "After the Memorandum of Agreement was signed, BED promptly approved the transfer from IEI to MMIC. After the price was fixed with the assistance of SGV and BED, MMIC took over the entire project last July 1983. x x x."[59]

For its part, MMIC never denied that it had taken possession and control over the Giporlos Project. In its replies to private respondent's demand letters, MMIC in fact acknowledged its obligations under the MOA while professing incapacity to fulfill the same. If the MOA merely embodied an assignment of rights over the coal-operating contract and the properties found in the Giporlos Project and not a sale thereof, then private respondent would not have insisted on the payment of MMIC's obligations under the MOA by attaching a statement of account to most of its demand letters.[60] In assignments, a consideration is not always a requisite, unlike in sales. Thus, an assignee may maintain an action based on his title and it is immaterial whether or not he paid any consideration therefor.[61] Furthermore, in an assignment, title is transferred but possession need not be delivered.[62] In this case, private respondent transferred possession over the subjects of the "assignment" to MMIC. Since the MOA was actually a contract of sale, MMIC acquired ownership over the Giporlos Project when private respondent delivered it to MMIC. Under the Civil Code, unless the contract contains a stipulation that ownership of the thing sold shall not pass to the purchaser until he has fully paid the price,[63] ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.[64] In other words, payment of the purchase price is not essential to the transfer of ownership as long as the property sold has been delivered.[65] Such delivery (traditio) operated to divest the vendor of title to the property which may not be regained or recovered until and unless the contract is resolved or rescinded in accordance with law.[66] Consequently, the properties in the Giporlos Project were, therefore, owned by MMIC notwithstanding its failure to pay the consideration stipulated in the MOA. Private respondent, after such delivery and MMIC's continuous refusal to pay the consideration for the contract, correctly opted to rescind the contract.[67] That private respondent did not succeed in collecting payment prior to the filing of the complaint for rescission with damages is a fault entirely attributable to MMIC which at the time, acted upon the orders of government authorities. It is erroneous for private respondent and the courts below to impute bad faith on the part of petitioner for foreclosing the properties in the Giporlos Project. Petitioner was simply acting in accordance with its rights as a mortgagee. The MTA, as amended, clearly provides that the mortgage covers even "after- acquired" properties. Because petitioner was simply implementing this contractual provision of the MTA, its knowledge that MMIC had not yet paid the consideration stipulated in the MOA could not have resulted in foreclosure in bad faith. After all, petitioner was a total stranger as regards the MOA. Similarly, neither may petitioner be deemed to have conspired with MMIC and government authorities in divesting private respondent of its rights over the Giporlos Project. Petitioner's involvement consisted in its exercising its right to foreclose the mortgage only after the MOA, which effectively wrenched the Giporlos Project from private respondent's control, had become a fait accompli. A lawful act, done in a lawful way, no matter how damaging the result, never lays the basis for a claim of fraudulent conspiracy.[68] That a scheme to favor the financially strapped MMIC over private respondent had been hatched and was in existence when the MOA was executed is now beyond this Court's adjudicatory power. Suffice it to state that an action may be maintained against persons who falsely and fraudulently recommend an insolvent person as worthy of credit, by reason of which plaintiff is induced to trust him.[69] In view of the noninvolvement of petitioner in the alleged conspiracy to strip private respondent of the its rights over the Giporlos Project, petitioner cannot be made solidarily liable with the MMIC for damages. However, although petitioner's rights to foreclose the mortgage and to subject the equipment of private respondent to the foreclosure sale are unassailable, we find that the foreclosure proceedings fell short of the requirements of the law. The provision of the MTA vesting petitioner as trustee with the authority to choose the place where the sale of the properties involved therein should be made is clearly in contravention of the following provisions of Act No. 3135 as amended: "SEC. 2. Said sale cannot be made legally outside the province in which the property sold is situated; and in case the place within said province in which the sale is

to be made is the subject of stipulation, such sale shall be made in said place or in the municipal building of the municipality in which the property or part thereof is situated." The Giporlos Project is situated in Eastern Samar, a province separate and distinct from Samar where the foreclosure sale took place.[70] Hence, the foreclosure sale is null and void. Even the Chattel Mortgage Law (Act No. 1508) relied upon by private respondent in assailing the propriety of the public auction sale in Samar, provides that the said sale should be made "in the municipality where the mortgagor resides" or "where the property is situated."[71] It has not been established that petitioner considered Catbalogan, Samar where the foreclosure sale was conducted, as its "residence." Moreover, the designation of a special sheriff to conduct the foreclosure sale is questionable. According to Sheriff Malindog, he was designated as a special sheriff by the judge of the Regional Trial Court of Samar, through the clerk of court, upon the request of petitioner's counsel, one Atty. Aliena, even though there was a sheriff in Eastern Samar.[72] Appointment of special sheriffs for the service of writs of execution or for the purpose of conducting a foreclosure sale under Act No. 3135 is allowed only when there is no sheriff in the area where the property involved is located or when the sheriff himself is involved in the action. This restriction is founded on the requirement of law that sheriffs who take delivery of money or property in trust must be duly bonded.[73] The said situations calling for the appointment of a special sheriff being absent in this case, the appointment of Malindog as a special sheriff by the judge of the Regional Trial Court of Samar is unauthorized. Such lack of authority resulted in the nullification of the foreclosure sale conducted by Malindog. Ordinarily, by the nullification of the foreclosure sale, the properties involved would revert to their original status of being mortgaged.[74] However, the situation in this case is an exception to that rule. The MOA, the source of MMIC's right of ownership over the properties sold at the foreclosure sale, has been rescinded. Consequently, petitioner should exclude said properties from the MMIC's properties which were mortgaged pari passu to the petitioner and DBP through the MTA. However, since the foreclosed properties had been turned over to the Asset Privatization Trust,[75] petitioner must reimburse private respondent the value thereof at the time of the foreclosure sale. WHEREFORE, the Decision of the Court of Appeals is hereby REVERSED and SET ASIDE insofar as it renders petitioner solidarily liable with Marinduque Mining and Industrial Corporation for damages and AFFIRMED insofar as it nullifies the foreclosure sale of August 31, 1984. Petitioner Philippine National Bank shall exclude the properties sold at the foreclosure sale from the mortgaged properties of Marinduque Mining and Industrial Corporation and return the same to private respondent Industrial Enterprises Inc. or, should such return be not feasible, reimburse said private respondent the value thereof at the time of the foreclosure sale. SO ORDERED.

SECOND DIVISION PHILIPPINE SAVINGS BANK, Petitioner, G.R. No. 170241 Present: CARPIO, J., Chairperson, BRION, DEL CASTILLO, ABAD, and PEREZ, JJ.

WHEREFORE, premises considered, the instant Complaint for Annulment of Foreclosure of Mortgage and Damages is hereby DISMISSED for lack of merit. SO ORDERED.[8] On appeal, the Court of Appeals held: WHEREFORE, the assailed decision dated 26 November 1999 of the Regional Trial Court of Caloocan City is REVERSED and SET ASIDE. The Extrajudicial Foreclosure of Mortgage conducted on 29 March 1996 is declared NULL and VOID. SO ORDERED.[9] The Court of Appeals denied petitioners motion for reconsideration. Hence, this petition.

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SPOUSES DIONISIO GERONIMO Promulgated: and CARIDAD GERONIMO, Respondents. April 19, 2010 x-----------------------------------------------------------------------------------------x DECISION CARPIO, J.: The Case This petition for review[1] assails the 30 August 2005 Decision[2] and 3 November 2005 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 66672. The Court of Appeals reversed the decision of Branch 121 of the Regional Trial Court of Caloocan City, National Capital Region (trial court) by declaring void the questioned extrajudicial foreclosure of real estate mortgage for non-compliance with the statutory requirement of publication of the notice of sale. The Facts On 9 February 1995, respondents Spouses Dionisio and Caridad Geronimo (respondents) obtained a loan from petitioner Philippine Savings Bank (petitioner) in the amount of P3,082,000, secured by a mortgage on respondents land situated in Barrio Talipapa, Caloocan City and covered by Transfer Certificate of Title No. C-50575.[4] Respondents defaulted on their loan, prompting petitioner to initiate the extra-judicial foreclosure of the real estate mortgage. At the auction sale conducted on 29 March 1996, the mortgaged property was sold to petitioner,[5] being the highest bidder, for P3,000,000. Consequently, a Certificate of Sale was issued in favor of petitioner.[6] Claiming that the extrajudicial foreclosure was void for non-compliance with the law, particularly the publication requirement, respondents filed with the trial court a complaint for the annulment of the extrajudicial foreclosure.[7] The trial court sustained the validity of the extrajudicial foreclosure, and disposed of the case as follows:

The Ruling of the Trial Court The trial court held that personal notice on the mortgagor is not required under Act No. 3135. All that is required is the posting of the notices of sale for not less than 20 days in at least three public places in the municipality or city where the property is situated, and publication once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city, if the property is worth more than four hundred pesos. The trial court further ruled there was compliance with the statutory publication requirement. Since the affidavit of publication was excluded as petitioners evidence, the trial court relied instead on the positive testimony of Deputy Sheriff Alberto Castillo, that he caused the publication of the Notice of Sale, in holding there was publication of the notice of sale in a newspaper of general circulation. In relation to this, the trial court cited the presumption of regularity in the performance of official duty. The trial court found that respondents, as plaintiffs, failed to discharge their burden of proving petitioners alleged non-compliance with the requisite publication. The trial court stated that the testimony of respondents witness, a newsstand owner, that he has never sold Ang Pinoy newspaper can never lead to the conclusion that such publication does not exist. The Ruling of the Court of Appeals The Court of Appeals reversed the ruling of the trial court. The Court of Appeals found no sufficient evidence to prove that Ang Pinoy is a newspaper of general circulation in Caloocan City. In a Resolution dated 2 February 2005, the Court of Appeals required the then Executive Judge of the Regional Trial Court of Caloocan City to inform the appellate court of the following facts: 1. 2. If Ang Pinoy newspaper is a newspaper of general circulation particularly for the years 1995 and 1996; and If there was compliance with Sec. 2 of P.D. No. 1079 which provides:

The executive judge of the court of first instance shall designate a regular working day and a definite time each week during which the said judicial notices or advertisements shall be distributed personally by him for publication to qualified newspapers or periodicals x x x, which distribution shall be done by raffle.[10] Executive Judge Victoria Isabel A. Paredes (Executive Judge Paredes) complied with the directive by stating that: a) Ang Pinoy newspaper is not an accredited periodical in Caloocan City. Hence, we are unable to categorically state whether it is a newspaper of general circulation at present or for the years 1995 and 1996 (Certification marked as Annex A) Sec. 2, P.D. No. 1079 is being observed and complied with in that the raffle of judicial notices for publication, is a permanent agenda item in the regular raffle with the RTC, Caloocan City, holds every Monday at 2 oclock in the afternoon at the courtroom of RTC, Branch 124 (Certification marked as Annex B); and We have no knowledge on whether Ang Pinoy was included in the raffles conducted in 1995 and 1996, as we do not have the case record where the information may be verified.[11]

Do you remember having come across a certain property owned by spouses Geronimo covered by TCT No. 50576 of the Register of Deeds of Caloocan City? xxxx A. Yes, sir.

ATTY. DAVIS: Q. In what connection? A. In connection with the extra judicial foreclosure filed by the PS Bank, sir. xxxx Q. A. When this was assigned to you what action did you take thereon? I prepared the notice of sale having published in the newspaper which the executive judge awarded it. Sent notice to the said parties and posted it to the three conspicuous places of Caloocan City, sir. You mentioned about your issuance of Notice of Sale I am referring you now to the document previously marked as Exhibit 6. What relation is this if any to the one you have mentioned? This is the Notice of Sale I have prepared, sir. Now you also mentioned that you have caused the publication of this Notice of Sheriffs Sale to a newspaper of general circulation, do you remember what newspaper it was? Ang Pinoy, sir. How come that this newspaper was selected for purposes of publication? It was the executive judge who awarded that publication, sir. How do you know particularly that this notice was published in the newspaper? That during the auction sale the mortgagee bank presented affidavit of publication, sir.[13]

b)

c)

Q. A.

The Court of Appeals concluded that, based on the compliance of Executive Judge Paredes, Ang Pinoy is not a newspaper of general circulation in Caloocan City. Therefore, the extrajudicial foreclosure is void for non-compliance with the requirement of the publication of the notice of sale in a newspaper of general circulation. The Issue Basically, the issue in this case is whether the extra-judicial foreclosure is void for noncompliance with the publication requirement under Act No. 3135. The Ruling of the Court The petition lacks merit. Section 3 of Act No. 3135[12] reads: SECTION 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. (Emphasis supplied) Petitioner claims that it complied with the above provision in foreclosing extrajudicially the subject real estate mortgage. To buttress its claim, petitioner presented the testimony of Deputy Sheriff Alberto Castillo of the trial court, the pertinent portion of which states: ATTY. DAVIS:

Q. A. Q. A. Q. A.

On the other hand, respondents dispute the existence of the publication of the notice of sale. Assuming that the notice of sale was published, respondents contend that Ang Pinoy, where it was published, is not a newspaper of general circulation. To bolster their claim of nonpublication, respondents offered the testimony of Danilo Magistrado, a newsstand owner, which pertinently states: ATTY. SAYA: Do you know by chance the Pinoy Newspaper? ATTY. DAVIS: No basis. COURT:

Objection overruled. Witness may answer. A. None, sir. I do not sell Pinoy Newspaper, sir.

Notwithstanding, petitioner could have easily produced the affidavit of publication and other competent evidence (such as the published notices) to refute respondents claim of lack of publication of the notice of sale. In Spouses Pulido v. Court of Appeals,[18] the Court held: While it may be true that the party alleging non-compliance with the requisite publication has the burden of proof, still negative allegations need not be proved even if essential to ones cause of action or defense if they constitute a denial of the existence of a document the custody of which belongs to the other party. In relation to the evidentiary weight of the affidavit of publication, the Court ruled in China Banking Corporation v. Spouses Martir[19] that the affidavit of publication executed by the account executive of the newspaper is prima facie proof that the newspaper is generally circulated in the place where the properties are located.[20] In the present case, the Affidavit of Publication or Exhibit 8, although formally offered by petitioner, was excluded by the trial court for being hearsay.[21] Petitioner never challenged the exclusion of the affidavit of publication. Instead, petitioner relies solely on the testimony of Deputy Sheriff Alberto Castillo to prove compliance with the publication requirement under Section 3 of Act No. 3135. However, there is nothing in such testimony to clearly and convincingly prove that petitioner complied with the mandatory requirement of publication. When Sheriff Castillo was asked how he knew that the notice of sale was published, he simply replied that during the auction sale the mortgagee bank presented the affidavit of publication.[22] Evidently, such an answer does not suffice to establish petitioners claim of compliance with the statutory requirement of publication. On the contrary, Sheriff Castillos testimony reveals that he had no personal knowledge of the actual publication of the notice of sale, much less the extent of the circulation of Ang Pinoy. Moreover, the Court notes that Ang Pinoy is a newspaper of general circulation printed and published in Manila, not in Caloocan City where the mortgaged property is located, as indicated in the excluded Affidavit of Publication. This is contrary to the requirement under Section 3 of Act No. 3135 pertaining to the publication of the notice of sale in a newspaper of general circulation in the city where the property is situated. Hence, even if the Affidavit of Publication was admitted as part of petitioners evidence, it would not support petitioners case as it does not clearly prove petitioners compliance with the publication requirement. Petitioners invocation of the presumption of regularity in the performance of official duty on the part of Sheriff Castillo is misplaced. While posting the notice of sale is part of a sheriffs official functions,[23] the actual publication of the notice of sale cannot be considered as such, since this concerns the publishers business. Simply put, the sheriff is incompetent to prove that the notice of sale was actually published in a newspaper of general circulation. The Court further notes that the Notice of Extra-Judicial Sale,[24] prepared and posted by Sheriff Castillo, does not indicate the newspaper where such notice would be published. The space provided where the name of the newspaper should be was left blank, with only the dates of publication clearly written. This omission raises serious doubts as to whether there was indeed publication of the notice of sale. Once again, the Court stresses the importance of the notice requirement, as enunciated in Metropolitan Bank and Trust Company, Inc. v. Peafiel,[25] thus:

ATTY. SAYA: Why do you say that you do not know Pinoy Newspaper? A. From the time I sold newspapers, sir, I have not seen Pinoy Newspaper. ATTY. SAYA: That would be all, your Honor. Before resolving the principal issue, we must point out the requirement of accreditation was imposed by the Court only in 2001, through A.M. No. 01-1-07-SC or the Guidelines in the Accreditation of Newspapers and Periodicals Seeking to Publish Judicial and Legal Notices and Other Similar Announcements and in the Raffle Thereof.[14] The present case involves an extrajudicial foreclosure conducted in 1996; thus, there were no such guidelines in effect during the questioned foreclosure. At any rate, the accreditation by the Executive Judge is not decisive of whether a newspaper is of general circulation.[15] It is settled that for the purpose of extrajudicial foreclosure of mortgage, the party alleging non-compliance with the requisite publication has the burden of proving the same.[16] In this case, respondents presented the testimony of a newsstand owner to prove that Ang Pinoy is not a newspaper of general circulation. However, this particular evidence is unreliable, as the same witness testified that he sells newspapers in Quezon City, not in Caloocan City, and that he is unaware of Ang Pinoynewspaper simply because he is not selling the same and he had not heard of it. His testimony states: Q. A. Q. A. Q. A. xxxx COURT: Clarificatory question. Q. You said that there is no Pinoy magazine simply because you are not selling Pinoy magazine? A. Yes, your Honor. Q. But you are not certain that there is really no Pinoy magazine? Where is this place that you traditionally or usually sell newspaper? Corner of A. Bonifacio and 6th Avenue. This is in Quezon City? Yes, sir. Not in Caloocan? In Quezon City, sir.

COURT: But have you heard about Pinoy magazine or Pinoy newspaper? A. I have not heard, your Honor.[17]

The object of a notice of sale is to inform the public of the nature and condition of the property to be sold, and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders and to prevent a sacrifice [sale] of the property. The goal of the notice requirement is to achieve a reasonably wide publicity of the auction sale. This is why publication in anewspaper of general circulation is required. The Court has previously taken judicial notice of the far-reaching effects of publishing the notice of sale in a newspaper of general circulation. In addition, the Court reminds mortgagees of their duty to comply faithfully with the statutory requirements of foreclosure. In Metropolitan Bank v. Wong,[26] the Court declared: While the law recognizes the right of a bank to foreclose a mortgage upon the mortgagors failure to pay his obligation, it is imperative that such right be exercised according to its clear mandate. Each and every requirement of the law must be complied with, lest, the valid exercise of the right would end. It must be remembered that the exercise of a right ends when the right disappears, and it disappears when it is abused especially to the prejudice of others.

In sum, petitioner failed to establish its compliance with the publication requirement under Section 3 of Act No. 3135. Consequently, the questioned extrajudicial foreclosure of real estate mortgage and sale are void.[27] WHEREFORE, we DENY the petition. We AFFIRM the 30 August 2005 Decision and 3 November 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 66672. SO ORDERED.

FIRST DIVISION [G.R. No. 122079. June 27, 1997] SPOUSES ANTONIO E.A. CONCEPCION and MANUELA S. CONCEPCION, petitioners, vs. HON. COURT OF APPEALS, HOME SAVINGS BANK AND TRUST COMPANY, and as nominal party-defendants, THE SHERIFF ASSIGNED TO SAN JUAN, METRO MANILA, and who conducted the auction sale and the REGISTER OF DEEDS or his representative of San Juan, Metro Manila, and ASAJE REALTY CORPORATION, respondents. DECISION VITUG, J.: The spouses Antonio E.A. Concepcion and Manuela S. Concepcion assail, via the instant petition for review on certiorari, the decision,[1] dated 15 September 1995, of the Court of Appeals, affirming with modification the judgment of the Regional Trial Court ("RTC"),[2] Branch 157, of Pasig City,[3] that dismissed the complaint of herein petitioners against private respondents. The facts, hereunder narrated, are culled from the findings of the appellate court. On 17 January 1979, the Home Savings Bank and Trust Company (now Insular Life Savings and Trust Company) granted to the Concepcions a loan amounting to P1,400,000.00. The Concepcions, in turn, executed in favor of the bank a promissory note and a real estate mortgage over their property located at 11 Albany St., Greenhills, San Juan, Metro Manila. The loan was payable in equal quarterly amortizations for a period of fifteen (15) years and carried an interest rate of sixteen percent (16%) per annum. The promissory note provided that the Concepcions had authorized "x x x the Bank to correspondingly increase the interest rate presently stipulated in this transaction without advance notice to me/us in the event the Central Bank of the Philippines raises its rediscount rate to member banks, and/or the interest rate on savings and time deposit, and/or the interest rate on such loans and/or advances."[4] In accordance with the above provision, the bank unilaterally increased the interest rate from 16% to 21% effective 17 February 1980; from 21% to 30% effective 17 October 1984; and from 30% to 38% effective 17 November 1984, increasing the quarterly amortizations from P67,830.00 to, respectively, P77,619.72, P104,661.10, and P123,797.05 for the periods aforestated. The Concepcions paid, under protest, the increased amortizations of P77,619.72 and P104,661.10 until January 1985 but thereafter failed to pay the quarterly amortization of P123,797.05 (starting due date of 17 April 1985). In a letter, dated 15 July 1985, the bank's President made a demand on the Concepcions for the payment of the arrearages. The Concepcions failed to pay, constraining the bank's counsel to send a final demand letter, dated 26 August 1985, for the payment of P393,878.81, covering the spouses' due account for three quarterly payments plus interest, penalty, and service charges. Still, no payment was received. On 14 April 1986, the bank finally filed with the Office of the Provincial Sheriff of Pasig City a petition for extrajudicial foreclosure of the real estate mortgage executed by the Concepcions. A notice of sale was issued on 15 May 1986, setting the public auction sale on 11 June 1986. The notice was published in the newspaper "Mabuhay." A copy of the notice was sent to the Concepcions at 59 Whitefield St., White Plains Subdivision, Quezon City and/or at 11 Albany St., Greenhills Subdivision, San Juan, Metro Manila. The public auction sale went on as scheduled with the bank emerging as the highest bidder. A Certificate of Sale was issued in favor of the bank. The Concepcions were unable to exercise their right of redemption within the one-year period provided under Act No. 3135. The bank thus consolidated its title over the property and, after the cancellation of the title in the name of the Concepcions, a new transfer certificate of title (No. 090-R) was issued in the name of Home Savings Bank and Trust Company. On 31 July 1987, the bank executed a Deed of Absolute Sale in favor of Asaje Realty Corporation and a new certificate of title was issued in the latter's name.

Meanwhile, on 29 July 1987, the Concepcions filed an action against Home Savings Bank and Trust Company, the Sheriff of San Juan, Metro Manila, and the Register of Deeds of San Juan, Metro Manila, for the cancellation of the foreclosure sale, the declaration of nullity of the consolidation of title in favor of the bank, and the declaration of nullity of the unilateral increases of the interest rates on their loan. The spouses likewise claimed damages against the defendants. The Concepcions, having learned of the sale of the property to Asaje Realty Corporation, filed an amended complaint impleading the realty corporation and so praying as well for the cancellation of the sale executed between said corporation and the bank and the cancellation of the certificate of title issued in the name of Asaje. On 31 August 1992, the trial court found for the defendants and ruled: "In view of all the foregoing premises, this Court finally concludes that the plaintiffs have no cause of action either against defendant Home Savings Bank & Trust Company or defendant Asaje Realty Corporation; and under the circumstances of this case, it deems it just and equitable that attorney's fees and expenses of litigation should be recovered by said defendants. "WHEREFORE, judgment is hereby rendered dismissing the amended complaint of plaintiffs Spouses Antonio E.A. Concepcion and Manuela S. Concepcion against the defendants for lack of merit, and ordering the said plaintiffs to pay attorney's fees and expenses of litigation in the sum of P30,000.00 to defendant Home Savings Bank & Trust Company and in the amount of P25,000.00 to defendant Asaje Realty Corporation, in addition to their respective costs of suit. "SO ORDERED."[5] The Concepcions went to the Court of Appeals. On 15 September 1995, the appellate court affirmed the trial court's decision, with modification, as follows: "Under the facts and circumstances of the case at bench, the award of attorney's fees, expenses of litigation and costs of suit in favor of defendant-appellee should be deleted. It is not a sound policy to place a penalty on the right to litigate, nor should counsel's fees be awarded everytime a party wins a suit (Arenas vs. Court of Appeals, 169 SCRA 558). "WHEREFORE, the appealed judgment is AFFIRMED with the modification that the award of attorneys fees, litigation expenses and costs of suit in favor of defendant-appellees are deleted from the dispositive portion. "SO ORDERED."[6] The Concepcions forthwith filed with this Court a petition for review on certiorari, contending that they have been denied their contractually stipulated right to be personally notified of the foreclosure proceedings on the mortgaged property. There is some merit in the petition. The three common types of forced sales arising from a failure to pay a mortgage debt include (a) an extrajudicial foreclosure sale, governed by Act No. 3135; (b) a judicial foreclosure sale, regulated by Rule 68 of the Rules of Court; and (c) an ordinary execution sale, covered by Rule 39 of the Rules of Court.[7] Each mode, peculiarly, has its own requirements. In an extrajudicial foreclosure, such as here, Section 3 of Act No. 3135[8] is the law applicable;[9] the provision reads: "Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city." The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of the same in a newspaper of general circulation.[10] Personal notice to the mortgagor is not necessary.[11] Nevertheless, the parties to the mortgage contract are not precluded from exacting additional requirements. In the case at bar, the mortgage contract stipulated that "All correspondence relative to this Mortgage, including demand letters, summons, subpoenas, or notifications of any judicial or extrajudicial actions shall be sent to the Mortgagor at the address

given above or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the Mortgagor for all legal purposes, and fact that any communication is not actually received by the Mortgagor, or that it has been returned unclaimed to the Mortgagee, or that no person was found at the address given, or that the address is fictitious or cannot be located, shall not excuse or relieve Mortgagor from the effects of such notice."[12] The stipulation, not being contrary to law, morals, good customs, public order or public policy, is the law between the contracting parties and should be faithfully complied with.[13] Private respondent bank maintains that the stipulation that "all correspondence relative to (the) Mortgage x x x shall be sent to the Mortgagor at the address given above or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee"[14] gives the mortgagee an alternative to send its correspondence either at the old or the new address given.[15] This stand is illogical. It could not have been the intendment of the parties to defeat the very purpose of the provision referred to which is obviously to apprise the mortgagors of the bank's action that might affect the property and to accord to them an opportunity to safeguard their rights. The Court finds the bank's failure to comply with its agreement with petitioners an inexcusable breach of the mortgagee's covenant. Neither petitioners' subsequent opportunity to redeem the property nor their failed negotiations with the bank for a new schedule of payments,[16] can be a valid justification for the breach. The foregoing notwithstanding, petitioners may no longer seek the reconveyance of the property from private respondent Asaje Realty Corporation, the latter having been, evidently, an innocent purchaser in good faith.[17] The realty corporation purchased the property when the title was already in the name of the bank. It was under no obligation to investigate the title of the bank or to look beyond what clearly appeared to be on the face of the certificate.[18] Private respondent bank, however, can still be held to account for the bid price of Asaje Realty Corporation over and above, if any, the amount due the bank on the basis of the original interest rate, the unilateral increases made by the bank having been correctly invalidated by the Court of Appeals. The validity of "escalation" or "escalator" clauses in contracts, in general, was upheld by the Supreme Court in Banco Filipino Savings and Mortgage Bank vs. Hon. Navarro and Del Valle.[19] Hence: "Some contracts contain what is known as an `escalator clause,' which is defined as one in which the contract fixes a base price but contains a provision that in the event of specified cost increases, the seller or contractor may raise the price up to a fixed percentage of the base. Attacks on such a clause have usually been based on the claim that, because of the open price-provision, the contract was too indefinite to be enforceable and did not evidence an actual meeting of the minds of the parties, or that the arrangement left the price to be determined arbitrarily by one party so that the contract lacked mutuality. In most instances, however, these attacks have been unsuccessful. "The Court further finds as a matter of law that the cost of living index adjustment, or escalator clause, is not substantively unconscionable. "Cost of living index adjustment clauses are widely used in commercial contracts in an effort to maintain fiscal stability and to retain `real dollar' value to the price terms of long term contracts. The provision is a common one, and has been universally upheld and enforced. Indeed, the Federal government has recognized the efficacy of escalator clauses in tying Social Security benefits to the cost of living index, 42 U.S.C.s 415(i). Pension benefits and labor contracts negotiated by most of the major labor unions are other examples. That inflation, expected or otherwise, will cause a particular bargain to be more costly in terms of total dollars than originally contemplated can be of little solace to the plaintiffs."[20] In Philippine National Bank vs. Court of Appeals,[21] the Court further elucidated, as follows: "It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is wanting on the part of one who

contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind. "Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect. "We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterally upwardly adjust the interest on private respondents' loan. That would completelytake away from private respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held "`x x x (T)he unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the mutuality of contracts ordained in Article 1308 of the Civil Code: "`ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.' "In order that obligations arising from contracts may have the force or law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void x x x. Hence, even assuming that the x x x loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative `to take it or leave it' x x x. Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. (Citations omitted.)"[22] Even if we were to consider that petitioners were bound by their agreement allowing an increase in the interest rate despite the lack of advance notice to them, the escalation should still be subject, as so contractually stipulated, to a corresponding increase by the Central Bank of its rediscount rate to member banks, or of the interest rate on savings and time deposit, or of the interest rate on such loans and advances. The notices sent to petitioners merely read: Letter of 19 July 1984: "Please be informed that the Bank has increased the interest rate of your existing loan from 21 to 30% per annum beginning October 17, 1984. This increase of interest rate is in accordance with the provision of Section 2 of Presidential Decree No. 1684[23] amending Act No. 2655. This provision of the decree is reiterated under paragraph 1 of your Promissory Note. Your quarterly amortization has been increased to P104,661.10. "We trust that you will be guided accordingly."[24] Letter of 14 November 1984: "On account of the prevailing business and economic condition, we are compelled to increase the interest rate of your existing loan from 30% to 38% per annum effective November 17, 1984. This increase is in accordance with your agreement (escalation clause) in your promissory note/s. "In view of this increase in the interest rate of your loan, your Quarterly amortization correspondingly increased to P123,797.05 commencing on April 17, 1985. "We trust that you will understand our position and please be guided accordingly."[25] Given the circumstances, the Court sees no cogent reasons to fault the appellate court in its finding that there are no sufficient valid justifications aptly shown for the unilateral increases by private respondent bank of the interest rates on the loan.

WHEREFORE, the decision of the appellate court is AFFIRMED subject to the MODIFICATION that private respondent Home Savings Bank and Trust Company shall pay to petitioners the excess, if any, of the bid price it received from Asaje Realty Corporation for the foreclosed property in question over and above the unpaid balance of the loan computed at the original interest rate. This case is REMANDED to the trial court for the above determination. No costs. SO ORDERED.