12. CA Agro Industrial Development Corp., vs Court of Appeals GR# 90027 March 3, 1993 DAVIDE, JR.

, J: Facts: Petitioner and the spouses Ramon and Paula Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of land. Among the terms and conditions of the agreement were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles thereto, and that title shall be deposited in a safety deposit box of any bank. Petitioner and the Pugaos then rented Safety Deposit Box of private respondent Security Bank and Trust Company. Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates. Issue: Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee? Held: The contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribed to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the box.

13. [G.R. No. 160544. February 21, 2005] TRIPLE-V vs. FILIPINO MERCHANTS THIRD DIVISION Gentlemen: Quoted hereunder, for your information, is a resolution of this Court dated FEB 21 2005. G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance Company, Inc. ) Assailed in this petition for review on certiorari is the decision[1] dated October 21, 2003 of the Court of Appeals in CA-G.R. CV No. 71223, affirming an earlier decision of the Regional Trial Court at Makati City, Branch 148, in its Civil Case No. 98-838, an action for damages thereat filed by respondent Filipino Merchants Insurance, Company, Inc., against the herein petitioner, Triple-V Food Services, Inc. On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne De Asis (De Asis) dined at petitioner's Kamayan Restaurant at 15 West Avenue, Quezon City. De Asis was using a Mitsubishi

Galant Super Saloon Model 1995 with plate number UBU 955, assigned to her by her employer Crispa Textile Inc. (Crispa). On said date, De Asis availed of the valet parking service of petitioner and entrusted her car key to petitioner's valet counter. A corresponding parking ticket was issued as receipt for the car. The car was then parked by petitioner's valet attendant, a certain Madridano, at the designated parking area. Few minutes later, Madridano noticed that the car was not in its parking slot and its key no longer in the box where valet attendants usually keep the keys of cars entrusted to them. The car was never recovered. Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino Merchants Insurance Company, Inc. (FMICI). Having indemnified Crispa in the amount of P669.500 for the loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati City an action for damages against petitioner Triple-V Food Services, Inc., thereat docketed as Civil Case No. 98-838 which was raffled to Branch 148. In its answer, petitioner argued that the complaint failed to aver facts to support the allegations of recklessness and negligence committed in the safekeeping and custody of the subject vehicle, claiming that it and its employees wasted no time in ascertaining the loss of the car and in informing De Asis of the discovery of the loss. Petitioner further argued that in accepting the complimentary valet parking service, De Asis received a parking ticket whereunder it is so provided that "[Management and staff will not be responsible for any loss of or damage incurred on the vehicle nor of valuables contained therein", a provision which, to petitioner's mind, is an explicit waiver of any right to claim indemnity for the loss of the car; and that De Asis knowingly assumed the risk of loss when she allowed petitioner to park her vehicle, adding that its valet parking service did not include extending a contract of insurance or warranty for the loss of the vehicle. During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a claim for the loss of the car, arguing that theft is not a risk insured against under FMICI's Insurance Policy No. PC-5975 for the subject vehicle. In a decision dated June 22, 2001, the trial court rendered judgment for respondent FMICI, thus: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff (FMICI) and against the defendant Triple V (herein petitioner) and the latter is hereby ordered to pay plaintiff the following: 1. The amount of P669,500.00, representing actual damages plus compounded (sic); 2. The amount of P30,000.00 as acceptance fee plus the amount equal to 25% of the total amount due as attorney's fees; 3. The amount of P50,000.00 as exemplary damages; 4. Plus, cost of suit. Defendant Triple V is not therefore precluded from taking appropriate action against defendant Armando Madridano. SO ORDERED. Obviously displeased, petitioner appealed to the Court of Appeals reiterating its argument that it was not a depositary of the subject car and that it exercised due diligence and prudence in the safe keeping of the vehicle, in handling the car-napping incident and in the supervision of its employees. It further argued that there was no valid subrogation of rights between Crispa and respondent FMICI. In a decision dated October 21, 2003,[2] the Court of Appeals dismissed petitioner's appeal and affirmed the appealed decision of the trial court, thus: WHEREFORE, based on the foregoing premises, the instant appeal is hereby DISMISSED. Accordingly, the assailed June 22, 2001 Decision of the RTC of Makati City - Branch 148 in Civil Case No. 98-838 is AFFIRMED. SO ORDERED. In so dismissing the appeal and affirming the appealed decision, the appellate court agreed with the findings and conclusions of the trial court that: (a) petitioner was a depositary of the subject vehicle; (b)

petitioner was negligent in its duties as a depositary thereof and as an employer of the valet attendant; and (c) there was a valid subrogation of rights between Crispa and respondent FMICI. Hence, petitioner's present recourse. We agree with the two (2) courts below. When De Asis entrusted the car in question to petitioners valet attendant while eating at petitioner's Kamayan Restaurant, the former expected the car's safe return at the end of her meal. Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot evade liability by arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet parking service. In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and returning the same.[3] A deposit may be constituted even without any consideration. It is not necessary that the depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor. Specious is petitioner's insistence that the valet parking claim stub it issued to De Asis contains a clear exclusion of its liability and operates as an explicit waiver by the customer of any right to claim indemnity for any loss of or damage to the vehicle. The parking claim stub embodying the terms and conditions of the parking, including that of relieving petitioner from any loss or damage to the car, is essentially a contract of adhesion, drafted and prepared as it is by the petitioner alone with no participation whatsoever on the part of the customers, like De Asis, who merely adheres to the printed stipulations therein appearing. While contracts of adhesion are not void in themselves, yet this Court will not hesitate to rule out blind adherence thereto if they prove to be one-sided under the attendant facts and circumstances.[4] Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be allowed to use its parking claim stub's exclusionary stipulation as a shield from any responsibility for any loss or damage to vehicles or to the valuables contained therein. Here, it is evident that De Asis deposited the car in question with the petitioner as part of the latter's enticement for customers by providing them a safe parking space within the vicinity of its restaurant. In a very real sense, a safe parking space is an added attraction to petitioner's restaurant business because customers are thereby somehow assured that their vehicle are safely kept, rather than parking them elsewhere at their own risk. Having entrusted the subject car to petitioner's valet attendant, customer De Asis, like all of petitioner's customers, fully expects the security of her car while at petitioner's premises/designated parking areas and its safe return at the end of her visit at petitioner's restaurant. Petitioner's argument that there was no valid subrogation of rights between Crispa and FMICI because theft was not a risk insured against under FMICI's Insurance Policy No. PC-5975 holds no water. Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains, among others things, the following item: "Insured's Estimate of Value of Scheduled Vehicle- P800.000".[5] On the basis of such item, the trial court concluded that the coverage includes a full comprehensive insurance of the vehicle in case of damage or loss. Besides, Crispa paid a premium of P10,304 to cover theft. This is clearly shown in the breakdown of premiums in the same policy.[6] Thus, having indemnified CRISPA for the stolen car, FMICI, as correctly ruled by the trial court and the Court of Appeals, was properly subrogated to Crispa's rights against petitioner, pursuant to Article 2207 of the New Civil Code[7]. Anent the trial court's findings of negligence on the part of the petitioner, which findings were affirmed by the appellate court, we have consistently ruled that findings of facts of trial courts, more so when affirmed, as here, by the Court of Appeals, are conclusive on this Court unless the trial court itself ignored, overlooked or misconstrued facts and circumstances which, if considered, warrant a reversal of the outcome of the case.[8] This is not so in the case at bar. For, we have ourselves reviewed the records and find no justification to deviate from the trial court's findings. WHEREFORE, petition is hereby DENIED DUE COURSE. SO ORDERED.

Very truly yours, (Sgd.) LUCITA ABJELINA-SORIANO Clerk of Court

14. YHT Realty Corp, et al vs. Court of Appeals G.R. No. 126780. February 17, 2005 Facts: MAURICE McLaughlin is an Australian national who comes to the Philippines for business. During his trips he stays in Tropicana, a hotel recommended to him by Brunhilda Tan. McLaughlin deposited cash and jewelry to the safety deposit box of the Hotel. The safety deposit box cannot be opened unless the key of the guest and that of the management are present. Lainez and Payam are employees of Tropicana who is charged with the custody of the keys. Thereafter, McLaughlin found out that some of the money and jewelry he deposited were missing. Lainez and Payam admitted that they assisted Tan to open his deposit box. Tan admitted that she stole McLaughlins keys. Tan executed a promissory note to cover the amount of the stolen money and jewelry. McLaughlin wanted to make the management liable.

Issue: Whether or not a hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers holding the establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers.

Held: The issue of whether the Undertaking For The Use of Safety Deposit Box executed by McLoughlin is tainted with nullity presents a legal question appropriate for resolution in this petition. Notably, both the trial court and the appellate court found the same to be null and void. We find no reason to reverse their common conclusion. Article 2003 is controlling, thus: Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001[37] is suppressed or diminished shall be void. Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to situations such as that presented in this case. The hotel business like the common carriers business is imbued with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the business. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called undertakings that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature.

15. FIRST DIVISION [G.R. No. 118342. January 5, 1998] DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LYDIA CUBA, respondents. [G.R. No. 118367. January 5, 1998] LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT BANK OF THE PHILIPPINES and AGRIPINA P. CAPERAL, respondents. DECISION DAVIDE, JR., J.: These two consolidated cases stemmed from a complaint[1] filed against the Development Bank of the Philippines (hereafter DBP) and Agripina Caperal filed by Lydia Cuba (hereafter CUBA) on 21 May 1985 with the Regional Trial Court of Pangasinan, Branch 54. The said complaint sought (1) the declaration of nullity of DBPs appropriation of CUBAs rights, title, and interests over a 44 -hectare fishpond located in Bolinao, Pangasinan, for being violative of Article 2088 of the Civil Code; (2) the annulment of the Deed of Conditional Sale executed in her favor by DBP; (3) the annulment of DBPs sale of the subject fishpond to Caperal; (4) the restoration of her rights, title, and interests over the f ishpond; and (5) the recovery of damages, attorneys fees, and expenses of litigation. After the joinder of issues following the filing by the parties of their respective pleadings, the trial court conducted a pre-trial where CUBA and DBP agreed on the following facts, which were embodied in the pretrial order:[2] 1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974 from the Government; 2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977; 3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights;

4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes; 5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question; 6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question; 7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated February 1, 1982; 8. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband; 9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale; 10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as stated in temporary Arrangement dated February 23, 1982; 11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984, and which was received by plaintiff Lydia Cuba; 12. After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond in question; 13. That after defendant DBP took possession of the Leasehold Rights over the fishpond in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to dispose of the property; 14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on August 16, 1984;

15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture and Food. Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-trial order. [3] Trial was thereafter had on other matters. The principal issue presented was whether the act of DBP in appropriating to itself CUBAs leasehold rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and, therefore, invalid. CUBA insisted on an affirmative resolution. DBP stressed that it merely exercised its contractual right under the Assignments of Leasehold Rights, which was not a contract of mortgage. Defendant Caperal sided with DBP. The trial court resolved the issue in favor of CUBA by declaring that DBPs taking possession and ownership of the property without foreclosure was plainly violative of Article 2088 of the Civil Code which provides as follows: ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. It disagreed with DBPs stand that the Assignments of Leasehold Rights were not contracts of mortgage because (1) they were given as security for loans, (2) although the fishpond land in q uestion is still a public land, CUBAs leasehold rights and interest thereon are alienable rights which can be the proper subject of a mortgage; and (3) the intention of the contracting parties to treat the Assignment of Leasehold Rights as a mortgage was obvious and unmistakable; hence, upon CUBAs default, DBPs only right was to foreclose the Assignment in accordance with law. The trial court also declared invalid condition no. 12 of the Assignment of Leasehold Rights for being a clear case of pactum commissorium expressly prohibited and declared null and void by Article 2088 of the Civil Code. It then concluded that since DBP never acquired lawful ownership of CUBAs leasehold rights, all acts of ownership and possession by the said bank were void. Accordingly, the Deed of Conditional Sale in favor of CUBA, the notarial rescission of such sale, and the Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of Leasehold Rights executed by Caperal in favor of DBP, were also void and ineffective. As to damages, the trial court found ample evidence on record that in 1984 the representatives of DBP ejected CUBA and her caretakers not only from the fishpond area but also from the adjoining big house; and

that when CUBAs son and caretaker went there on 15 September 1985, they found the said house unoccupied and destroyed and CUBAs personal belongings, machineries, equipment, tools, and other articles used in fishpond operation which were kept in the house were missing. The missing items were valued at about P550,000. It further found that when CUBA and her men were ejected by DBP for the first time in 1979, CUBA had stocked the fishpond with 250,000 pieces of bangus fish (milkfish), all of which died because the DBP representatives prevented CUBAs men from feeding the fish. At the conservative price of P3.00 per fish, the gross value would have been P690,000, and after deducting 25% of said value as reasonable allowance for the cost of feeds, CUBA suffered a loss of P517,500. It then set the aggregate of the actual damages sustained by CUBA at P1,067,500. The trial court further found that DBP was guilty of gross bad faith in falsely representing to the Bureau of Fisheries that it had foreclosed its mortgage on CUBAs leasehold rights. Such representation induced the said Bureau to terminate CUBAs leasehold rights and to approve the Deed of Conditional Sale in favor of CUBA. And considering that by reason of her unlawful ejectment by DBP, CUBA suffered moral shock, degradation, social humiliation, and serious anxieties for which she became sick and had to be hospitalized the trial court found her entitled to moral and exemplary damages. The trial court also held that CUBA was entitled to P100,000 attorneys fees in view of the considerable expenses she incurred for lawyers fees and in view of the finding that she was entitled to exemplary damages. In its decision of 31 January 1990, [4] the trial court disposed as follows: WHEREFORE, judgment is hereby rendered in favor of plaintiff: 1. DECLARING null and void and without any legal effect the act of defendant Development Bank of the Philippines in appropriating for its own interest, without any judicial or extra-judicial foreclosure, plaintiffs leasehold rights and interest over the fishpond land in question under her Fishpond Lease Agreement No. 2083 (new); 2. DECLARING the Deed of Conditional Sale dated February 21, 1980 by and between the defendant Development Bank of the Philippines and plaintiff (Exh. E and Exh. 1) and the acts of notarial rescission of the Development Bank of the Philippines relative to said sale (Exhs. 16 and 26) as void and ineffective; 3. DECLARING the Deed of Conditional Sale dated August 16, 1984 by and between the Development Bank of the Philippines and defendant Agripina Caperal (Exh. F and Exh. 21), the Fishpond Lease Agreement No. 2083-A dated December 28, 1984 of defendant Agripina Caperal (Exh. 23) and the Assignment of Leasehold Rights dated February 12, 1985 executed by defendant Agripina Caperal in favor of the defendant Development Bank of the Philippines (Exh. 24) as void ab initio;

4. ORDERING defendant Development Bank of the Philippines and defendant Agripina Caperal, jointly and severally, to restore to plaintiff the latters leasehold rights and interests and right of possession over the fishpond land in question, without prejudice to the right of defendant Development Bank of the Philippines to foreclose the securities given by plaintiff; 5. ORDERING defendant Development Bank of the Philippines to pay to plaintiff the following amounts: a) The sum of ONE MILLION SIXTY-SEVEN THOUSAND FIVE HUNDRED PESOS (P1,067,500.00), as and for actual damages; b) The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as moral damages; c) The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for exemplary damages; d) And the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, as and for attorney s fees; 6. And ORDERING defendant Development Bank of the Philippines to reimburse and pay to defendant Agripina Caperal the sum of ONE MILLION FIVE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-FIVE CENTAVOS (P1,532,610.75) representing the amounts paid by defendant Agripina Caperal to defendant Development Bank of the Philippines under their Deed of Conditional Sale. CUBA and DBP interposed separate appeals from the decision to the Court of Appeals. The former sought an increase in the amount of damages, while the latter questioned the findings of fact and law of the lower court. In its decision [5] of 25 May 1994, the Court of Appeals ruled that (1) the trial court erred in declaring that the deed of assignment was null and void and that defendant Caperal could not validly acquire the leasehold rights from DBP; (2) contrary to the claim of DBP, the assignment was not a cession under Article 1255 of the Civil Code because DBP appeared to be the sole creditor to CUBA - cession presupposes plurality of debts and creditors; (3) the deeds of assignment represented the voluntary act of CUBA in assigning her property rights in payment of her debts, which amounted to a novation of the promissory notes executed by CUBA in favor of DBP; (4) CUBA was estopped from questioning the assignment of the leasehold rights, since she agreed to repurchase the said rights under a deed of conditional sale; and (5) condition no. 12 of the deed of assignment was an express authority from CUBA for DBP to sell whatever right she had over the fishpond. It also ruled that CUBA was not entitled to loss of profits for lack of evidence, but agreed with the trial court as to the actual damages of P1,067,500. It, however, deleted the amount of exemplary damages and reduced the award of moral damages from P100,000 to P50,000 and attorneys fees, from P100,000 to P50,000.

The Court of Appeals thus declared as valid the following: (1) the act of DBP in appropriating Cubas leasehold rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds of assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale between CUBA and DBP; and (4) the deed of conditional sale between DBP and Caperal, the Fishpond Lease Agreement in favor of Caperal, and the assignment of leasehold rights executed by Caperal in favor of DBP. It then ordered DBP to turn over possession of the property to Caperal as lawful holder of the leasehold rights and to pay CUBA the following amounts: (a) P1,067,500 as actual damages; P50,000 as moral damages; and P50,000 as attorneys fees. Since their motions for reconsideration were denied,[6] DBP and CUBA filed separate petitions for review. In its petition (G.R. No. 118342), DBP assails the award of actual and moral damages and attorneys fees in favor of CUBA. Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the Court of Appeals erred (1) in not holding that the questioned deed of assignment was a pactum commissorium contrary to Article 2088 of the Civil Code; (b) in holding that the deed of assignment effected a novation of the promissory notes; (c) in holding that CUBA was estopped from questioning the validity of the deed of assignment when she agreed to repurchase her leasehold rights under a deed of conditional sale; and (d) in reducing the amounts of moral damages and attorneys fees, in deleting the award of exemplary damages, and in not increasing the amount of damages. We agree with CUBA that the assignment of leasehold rights was a mortgage contract. It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each of which was covered by a promissory note. In all of these notes, there was a provision that: In the event of foreclosure of the mortgage securing this notes, I/We further bind myself/ourselves, jointly and severally, to pay the deficiency, if any. [7] Simultaneous with the execution of the notes was the execution of Assignments of Leasehold Rights [8] where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as borrower; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under condition no. 22 of the deed, it was provided that failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed. And, condition no. 33 provided that if foreclosure is actually accomplished, the usual 10% attorneys fees and 10% liquidated damages of the total obligation shall be imposed. There is, therefore, no shred of doubt that a mortgage was intended.

Besides, in their stipulation of facts the parties admitted that the assignment was by way of security for the payment of the loans; thus: 3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights. In Peoples Bank & Trust Co. vs. Odom,[9] this Court had the occasion to rule that an assignment to guarantee an obligation is in effect a mortgage. We find no merit in DBPs contention that the assignment novated the promissory notes in that the obligation to pay a sum of money the loans (under the promissory notes) was substituted by the assignment of the rights over the fishpond (under the deed of assignment). As correctly pointed out by CUBA, the said assignment merely complemented or supplemented the notes; both could stand together. The former was only an accessory to the latter. Contrary to DBPs submission, the obligation to pay a sum of money remained, and the assignment merely served as security for the loans covered by the promissory notes. Significantly, both the deeds of assignment and the promissory notes were executed on the same dates the loans were granted. Also, the last paragraph of the assignment stated: The assignor further reiterates and states all terms, covenants, and conditions stipulated in the promissory note or notes covering the proceeds of this loan, making said promissory note or notes, to all intent and purposes, an integral part hereof. Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code for the plain and simple reason that there was only one creditor, the DBP. Article 1255 contemplates the existence of two or more creditors and involves the assignment of all the debtors property. Nor did the assignment constitute dation in payment under Article 1245 of the civil Code, which reads: Dation[10] in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales. It bears stressing that the assignment, being in its essence a mortgage, was but a security and not a satisfaction of indebtedness. We do not, however, buy CUBAs argument that condition no. 12 of the deed of assignment constituted pactum commissorium. Said condition reads: 12. That effective upon the breach of any condition of this assignment, the Assignor hereby appoints the Assignee his Attorney-in-fact with full power and authority to take actual possession of the property abovedescribed, together with all improvements thereon, subject to the approval of the Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof and collect rentals, to make repairs or improvements thereon and pay the same, to sell or otherwise dispose of whatever rights the Assignor has or

might have over said property and/or its improvements and perform any other act which the Assignee may deem convenient to protect its interest. All expenses advanced by the Assignee in connection with purpose above indicated which shall bear the same rate of interest aforementioned are also guaranteed by this Assignment. Any amount received from rents, administration, sale or disposal of said property may be supplied by the Assignee to the payment of repairs, improvements, taxes, assessments and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness secured hereby. If after disposal or sale of said property and upon application of total amounts received there shall remain a deficiency, said Assignor hereby binds himself to pay the same to the Assignee upon demand, together with all interest thereon until fully paid. The power herein granted shall not be revoked as long as the Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue of said power are hereby ratified. The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.[11] Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBAs failure to pay the loan on time. It merely provided for the appointment of DBP as attorneyin-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the payment of the loan. This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation. DBP, however, exceeded the authority vested by condition no. 12 of the deed of assignment. As admitted by it during the pre-trial, it had [w]ithout foreclosure proceedings, whether judicial or extrajudicial, appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in question. Its contentio n that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional sale it executed in favor of CUBA. The deed stated: WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor by the herein vendees [Cuba spouses] the former acquired all the rights and interest of the latter over the above-described property;

The title to the real estate property [sic] and all improvements thereon shall remain in the name of the Vendor until after the purchase price, advances and interest shall have been fully paid. (Emphasis supplied). It is obvious from the above-quoted paragraphs that DBP had appropriated and taken ownership of CUBAs leasehold rights merely on the strength of the deed of assignment. DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of appropriating the leasehold rights. As stated earlier, condition no. 12 did not provide that CUBAs default would operate to vest in DBP ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee.[12] At any rate, DBPs act of appropriating CUBAs leasehold rights was violative of Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as security for the payment of a debt. The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBPs act of appropriation. Estoppel is unavailing in this case. As held by this Court in some cases,[13] estoppel cannot give validity to an act that is prohibited by law or against public policy. Hence, the appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel. Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of assignment. But, as admitted by DBP, there was no such foreclosure. Yet, in its letter dated 26 October 1979, addressed to the Minister of Agriculture and Natural Resources and coursed through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21, 1979 for failure of said spouses [Cuba spouces] to pay their loan amortizations.[14] This only goes to show that DBP was aware of the necessity of foreclosure proceedings. In view of the false representation of DBP that it had already foreclosed the mortgage, the Bureau of Fisheries cancelled CUBAs original lease permi t, approved the deed of conditional sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false representation, as well as the subsequent acts emanating from DBPs appropriation of the leasehold rights, should therefore be set aside. To validate these acts would open the floodgates to circumvention of Article 2088 of the Civil Code. Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify the consequent auction sale for failure to comply with the requirements laid down by law, such as Act No. 3135, as

amended.[15] With more reason that the sale of property given as security for the payment of a debt be set aside if there was no prior foreclosure proceeding. Hence, DBP should render an accounting of the income derived from the operation of the fishpond in question and apply the said income in accordance with condition no. 12 of the deed of assignment which provided: Any amount received from rents, administration, may be applied to the pa yment of repairs, improvements, taxes, assessment, and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness. We shall now take up the issue of damages. Article 2199 provides: Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty.[16] A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof.[17] It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne.[18] In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages consisting of P550,000 which represented the value of the alleged lost articles of CUBA and P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the adjoining house. This award was affirmed by the Court of Appeals. We find that the alleged loss of personal belongings and equipment was not proved by clear evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the existence of those items before DBP took over the fishpond in question. As pointed out by DBP, there was not inventory of the alleged lost items before the loss which is normal in a project which sometimes, if not most often, is left to the care of other persons. Neither was a single receipt or record of acquisition presented. Curiously, in her complaint dated 17 May 1985, CUBA included losses of property as among the damages resulting from DBPs take-over of the fishpond. Yet, it was only in September 1985 when her son and a caretaker went to the fishpond and the adjoining house that she came to know of the alleged loss of several

articles. Such claim for losses of property, having been made before knowledge of the alleged actual loss, was therefore speculative. The alleged loss could have been a mere afterthought or subterfuge to justify her claim for actual damages. With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of bangus which died when DBP took possession of the fishpond in March 1979, the same was not called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably. From 1979 until after the filing of her complaint in court in May 1985, CUBA did not bring to the attention of DBP the alleged loss. In fact, in her letter dated 24 October 1979,[19] she declared: 1. That from February to May 1978, I was then seriously ill in Manila and within the same period I neglected the management and supervision of the cultivation and harvest of the produce of the aforesaid fishpond thereby resulting to the irreparable loss in the produce of the same in the amount of about P500,000.00 to my great damage and prejudice due to fraudulent acts of some of my fishpond workers. Nowhere in the said letter, which was written seven months after DBP took possession of the fishpond, did CUBA intimate that upon DBPs take-over there was a total of 230,000 pieces of bangus, but all of which died because of DBPs representatives prevented her men from feeding the fish. The award of actual damages should, therefore, be struck down for lack of sufficient basis. In view, however, of DBPs act of appropriating CUBAs leasehold rights which was contrary to law and public policy, as well as its false representation to the then Ministry of Agriculture and Natural Resources that it had foreclosed the mortgage, an award of moral damages in the amount of P50,000 is in order conformably with Article 2219(10), in relation to Article 21, of the Civil Code. Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way of example or correction for the public good.[20] There being an award of exemplary damages, attorneys fees are also recoverable.[21] WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV No. 26535 is hereby REVERSED, except as to the award of P50,000 as moral damages, which is hereby sustained. The 31 January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is MODIFIED setting aside the finding that condition no. 12 of the deed of assignment constituted pactum commissorium and the award of actual damages; and by reducing the amounts of moral damages from P100,000 to P50,000; the exemplary damages, from P50,000 to P25,000; and the attorneys fees, from P100,000 to P20,000. The Development Bank of the Philippines is hereby ordered to render an accounting of the income derived from the operation of the fishpond in question.

Let this case be REMANDED to the trial court for the reception of the income statement of DBP, as well as the statement of the account of Lydia P. Cuba, and for the determination of each partys financial obligation to one another. SO ORDERED. Bellosillo, Vitug, and Kapunan, JJ., concur.

16. SECOND DIVISION [G.R. No. 172592, July 09, 2008] SPOUSES WILFREDO N. ONG AND EDNA SHEILA PAGUIO-ONG, PETITIONERS, VS. ROBAN LENDING CORPORATION, RESPONDENT. DECISION CARPIO MORALES, J.: On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several loans from Roban Lending Corporation (respondent) in the total amount of P4,000,000.00. These loans were secured by a real estate mortgage on petitioners' parcels of land located in Binauganan, Tarlac City and covered by TCT No. 297840.[1] On February 12, 2001, petitioners and respondent executed an Amendment to Amended Real Estate Mortgage[2] consolidating their loans inclusive of charges thereon which totaled P5,916,117.50. On even date, the parties executed a Dacion in Payment Agreement[3] wherein petitioners assigned the properties covered by TCT No. 297840 to respondent in settlement of their total obligation, and a Memorandum of Agreement[4] reading: That the FIRST PARTY [Roban Lending Corporation] and the SECOND PARTY [the petitioners] agreed to consolidate and restructure all aforementioned loans, which have been all past due and delinquent since April 19, 2000, and outstanding obligations totaling P5,916,117.50. The SECOND PARTY hereby sign [ sic] another promissory note in the amount of P5,916,117.50 (a copy of which is hereto attached and forms xxx an integral part of this document), with a promise to pay the FIRST PARTY in full within one year from the date of the consolidation and restructuring, otherwise the SECOND PARTY agree to have their "DACION IN PAYMENT" agreement, which they have executed and signed today in favor of the FIRST PARTY be enforced[.][5] In April 2002 (the day is illegible), petitioners filed a Complaint,[6] docketed as Civil Case No. 9322, before the Regional Trial Court (RTC) of Tarlac City, for declaration of mortgage contract as abandoned, annulment of deeds, illegal exaction, unjust enrichment, accounting, and damages, alleging that the Memorandum of Agreement and the Dacion in Payment executed are void for being pactum commissorium.[7] Petitioners alleged that the loans extended to them from July 14, 1999 to March 20, 2000 were founded on several uniform promissory notes, which provided for 3.5% monthly interest rates, 5% penalty per month on the total amount due and demandable, and a further sum of 25% attorney's fees thereon, [8] and in addition, respondent exacted certain sums denominated as "EVAT/AR." [9] Petitioners decried these additional charges as "illegal, iniquitous, unconscionable, and revolting to the conscience as they hardly allow any borrower any

chance of survival in case of default."[10] Petitioners further alleged that they had previously made payments on their loan accounts, but because of the illegal exactions thereon, the total balance appears not to have moved at all, hence, accounting was in order.[11] Petitioners thus prayed for judgment: a) Declaring the Real Estate Mortgage Contract and its amendments x x x as null and void and without legal force and effect for having been renounced, abandoned, and given up; b) Declaring the "Memorandum of Agreement" xxx and "Dacion in Payment" x x x as null and void for being pactum commissorium; c) Declaring the interests, penalties, Evat [sic] and attorney's fees assessed and loaded into the loan accounts of the plaintiffs with defendant as unjust, iniquitous, unconscionable and illegal and therefore, stricken out or set aside; d) Ordering an accounting on plaintiffs' loan accounts to determine the true and correct balances on their obligation against legal charges only; and e) Ordering defendant to [pay] to the plaintiffs: -e.1 Moral damages in an amount not less than P100,000.00 and exemplary damages of P50,000.00; e.2 Attorney's fees in the amount of P50,000.00 plus P1,000.00 appearance fee per hearing; and e.3 The cost of suit.[12] as well as other just and equitable reliefs. In its Answer with Counterclaim,[13] respondent maintained the legality of its transactions with petitioners, alleging that: xxxx If the voluntary execution of the Memorandum of Agreement and Dacion in Payment Agreement novated the Real Estate Mortgage then the allegation of Pactum Commissorium has no more legal leg to stand on; The Dacion in Payment Agreement is lawful and valid as it is recognized x x x under Art. 1245 of the Civil Code as a special form of payment whereby the debtor-Plaintiffs alienates their property to the creditorDefendant in satisfaction of their monetary obligation; The accumulated interest and other charges which were computed for more than two (2) years would stand reasonable and valid taking into consideration [that] the principal loan is P4,000,000 and if indeed it became beyond the Plaintiffs' capacity to pay then the fault is attributed to them and not the Defendant[.] [14] After pre-trial, the initial hearing of the case, originally set on December 11, 2002, was reset several times due to, among other things, the parties' efforts to settle the case amicably. [15] During the scheduled initial hearing of May 7, 2003, the RTC issued the following order: Considering that the plaintiff Wilfredo Ong is not around on the ground that he is in Manila and he is attending to a very sick relative, without objection on the part of the defendant's counsel, the initial hearing of this case is reset to June 18, 2003 at 10:00 o'clock in the morning. Just in case [plaintiff's counsel] Atty. Concepcion cannot present his witness in the person of Mr. Wilfredo Ong in the next scheduled hearing, the counsel manifested that he will submit the case for summary judgment. [16] (Underscoring supplied)

It appears that the June 18, 2003 setting was eventually rescheduled to February 11, 2004 at which both counsels were present[17] and the RTC issued the following order: The counsel[s] agreed to reset this case on April 14, 2004, at 10:00 o'clock in the morning. However, the counsels are directed to be ready with their memorand[a] together with all the exhibits or evidence needed to support their respective positions which should be the basis for the judgment on the pleadings if the parties fail to settle the case in the next scheduled setting. x x x x[18] (Underscoring supplied) At the scheduled April 14, 2004 hearing, both counsels appeared but only the counsel of respondent filed a memorandum.[19] By Decision of April 21, 2004, Branch 64 of the Tarlac City RTC, finding on the basis of the pleadings that there was no pactum commissorium, dismissed the complaint.[20] On appeal,[21] the Court of Appeals[22] noted that x x x [W]hile the trial court in its decision stated that it was rendering judgment on the pleadings, x x x what it actually rendered was a summary judgment. A judgment on the pleadings is proper when the answer fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading. However, a judgment on the pleadings would not have been proper in this case as the answer tendered an issue, i.e. the validity of the MOA and DPA. On the other hand, a summary judgment may be rendered by the court if the pleadings, supporting affidavits, and other documents show that, except as to the amount of damages, there is no genuine issue as to any material fact.[23] Nevertheless, finding the error in nomenclature "to be mere semantics with no bearing on the merits of the case",[24] the Court of Appeals upheld the RTC decision that there was no pactum commissorium.[25] Their Motion for Reconsideration[26] having been denied,[27] petitioners filed the instant Petition for Review on Certiorari,[28] faulting the Court of Appeals for having committed a clear and reversible error I. . . . WHEN IT FAILED AND REFUSED TO APPLY PROCEDURAL REQUISITES WHICH WOULD WARRANT THE SETTING ASIDE OF THE SUMMARY JUDGMENT IN VIOLATION OF APPELLANTS' RIGHT TO DUE PROCESS; . . . WHEN IT FAILED TO CONSIDER THAT TRIAL IN THIS CASE IS NECESSARY BECAUSE THE FACTS ARE VERY MUCH IN DISPUTE; . . . WHEN IT FAILED AND REFUSED TO HOLD THAT THE MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN PAGO AGREEMENT (DPA) WERE DESIGNED TO CIRCUMVENT THE LAW AGAINST PACTUM COMMISSORIUM; and . . . WHEN IT FAILED TO CONSIDER THAT THE MEMORANDUM OF AGREEMENT (MOA) AND THE DACION EN PAGO (DPA) ARE NULL AND VOID FOR BEING CONTRARY TO LAW AND PUBLIC POLICY.[29]

II. III.

IV.

The petition is meritorious. Both parties admit the execution and contents of the Memorandum of Agreement and Dacion in Payment. They differ, however, on whether both contracts constitute pactum commissorium or dacion en pago. This Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum commissorium, which is prohibited under Article 2088 of the Civil Code which provides: The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void." The elements of pactum commissorium, which enables the mortgagee to acquire ownership of the mortgaged property without the need of any foreclosure proceedings,[30] are: (1) there should be a property mortgaged

by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.[31] In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain no provisions for foreclosure proceedings nor redemption. Under the Memorandum of Agreement, the failure by the petitioners to pay their debt within the one-year period gives respondent the right to enforce the Dacion in Payment transferring to it ownership of the properties covered by TCT No. 297840. Respondent, in effect, automatically acquires ownership of the properties upon petitioners' failure to pay their debt within the stipulated period. Respondent argues that the law recognizes dacion en pago as a special form of payment whereby the debtor alienates property to the creditor in satisfaction of a monetary obligation.[32] This does not persuade. In a true dacion en pago, the assignment of the property extinguishes the monetary debt.[33] In the case at bar, the alienation of the properties was by way of security, and not by way of satisfying the debt.[34] The Dacion in Payment did not extinguish petitioners' obligation to respondent. On the contrary, under the Memorandum of Agreement executed on the same day as the Dacion in Payment, petitioners had to execute a promissory note for P5,916,117.50 which they were to pay within one year.[35] Respondent cites Solid Homes, Inc. v. Court of Appeals[36] where this Court upheld a Memorandum of Agreement/Dacion en Pago .[37] That case did not involve the issue of pactum commissorium.[38] That the questioned contracts were freely and voluntarily executed by petitioners and respondent is of no moment, pactum commissorium being void for being prohibited by law.[39] Respecting the charges on the loans, courts may reduce interest rates, penalty charges, and attorney's fees if they are iniquitous or unconscionable.[40] This Court, based on existing jurisprudence,[41] finds the monthly interest rate of 3.5%, or 42% per annum unconscionable and thus reduces it to 12% per annum. This Court finds too the penalty fee at the monthly rate of 5% (60% per annum) of the total amount due and demandable principal plus interest, with interest not paid when due added to and becoming part of the principal and likewise bearing interest at the same rate, compounded monthly [42] unconscionable and reduces it to a yearly rate of 12% of the amount due, to be computed from the time of demand.[43] This Court finds the attorney's fees of 25% of the principal, interests and interests thereon, and the penalty fees unconscionable, and thus reduces the attorney's fees to 25% of the principal amount only.[44] The prayer for accounting in petitioners' complaint requires presentation of evidence, they claiming to have made partial payments on their loans, vis a vis respondent's denial thereof.[45] A remand of the case is thus in order. Prescinding from the above disquisition, the trial court and the Court of Appeals erred in holding that a summary judgment is proper. A summary judgment is permitted only if there is no genuine issue as to any material fact and a moving party is entitled to a judgment as a matter of law. [46] A summary judgment is proper if, while the pleadings on their face appear to raise issues, the affidavits, depositions, and admissions presented by the moving party show that such issues are not genuine.[47] A genuine issue, as opposed to a fictitious or contrived one, is an issue of fact that requires the presentation of evidence. [48] As mentioned above, petitioners' prayer for accounting requires the presentation of evidence on the issue of partial payment. But neither is a judgment on the pleadings proper. A judgment on the pleadings may be rendered only when an answer fails to tender an issue or otherwise admits the material allegations of the adverse party's pleadings.[49] In the case at bar, respondent's Answer with Counterclaim disputed petitioners' claims that the Memorandum of Agreement and Dation in Payment are illegal and that the extra charges on the loans are unconscionable.[50] Respondent disputed too petitioners' allegation of bad faith. [51]

WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET ASIDE. The Memorandum of Agreement and the Dacion in Payment executed by petitioner- spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong and respondent Roban Lending Corporation on February 12, 2001 are declared NULL AND VOID for being pactum commissorium. In line with the foregoing findings, the following terms of the loan contracts between the parties are MODIFIED as follows: 1. 2. 3. The monthly interest rate of 3.5%, or 42% per annum, is reduced to 12% per annum; The monthly penalty fee of 5% of the total amount due and demandable is reduced to 12% per annum, to be computed from the time of demand; and The attorney's fees are reduced to 25% of the principal amount only.

Civil Case No. 9322 is REMANDED to the court of origin only for the purpose of receiving evidence on petitioners' prayer for accounting. SO ORDERED. Quisumbing, (Chairperson), Tinga, Velasco, Jr., and Brion, JJ., concur.

17. It must be additionally noted that right of redemption is different from equity of redemption. The Supreme Court in the case of Huerta Alba REsort Inc. v. Court of Appeals, G.R. No. 128567, September 1, 2000, citing therein the ruling in Limpin v.Intermediate Apellate Court, held that: x x x T h e e q u i t y o f r e d e m p t i o n i s , t o b e s u r e , d i f f e r e n t f r o m a n d should not be confused with the right of redemption. The right of redemption in relation to a mortgage - understood in t h e s e n s e o f a p r e r o g a t i v e t o r e acquire mortgaged property after registration of the foreclosure sale - exists only in t h e c a s e o f t h e extrajudicial foreclosure of the mortgage. No such right is recognized i n a j u d i c i a l f o r e c l o s u r e e x c e p t o n l y w h e n t h e m o r t g a g e e i s t h e Philipine National Bank or a bank or banking institution.Where a mortgage is foreclosed extrajudicially, Act 313 grants to the m o r t g a g o r t h e r i g h t o f r e d e m p t i o n w i t h i n o n e ( 1 ) y e a r f r o m t h e registration of the sheriffs certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale 'when confirmed by an order of the court....shall operate to divest the right of all the parties to the action and to vest their rights in thepurchaser, subject to such rights of redemption as may be allowed by l a w . S u c h r i g h t s e x c e p t i o n a l l y a l l o w e d b y l a w ( i . e . e v e n a f t e r confirmation by an order of the court) are those granted by the charter o f t h e P h i l i p p i n e N a t i o n a l B a n k ( A c t s N o . 2 7 4 7 a n d 2 9 3 8 ) , a n d t h e G e n e r a l B a n k i n g A c t ( R . A . N o . 3 3 7 ) . T h e s e l a w s c o n f e r o n t h e mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after confirmation by the court of the foreclosure sale - which right may be exercised within a period of one (1) year, counted from the date of registration of the certificate of sale in the Registry of Property. x x x

HUERTA ALBA RESORT INC. vs. COURT OF APPEALS and SYNDICATED MANAGEMENT GROUP INC. (G.R. No. 128567, September 1, 2000) Security Transactions: Equity of Redemption and Right of Redemption; Estoppel The right of redemption in relation to a mortgage understood in the sense of a prerogative to reacquire mortgaged property after registration of the foreclosure sale exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank or banking institution. Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the registration of the sheriffs certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale when confirmed be an order of the court. . . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law. Such rights exceptionally allowed by law (i.e., even after confirmation by an order of the court) are those granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after confirmation by the court of the foreclosure sale which right may be exercised within a period of one (1) year, counted from the date of registration of the certificate of sale in the Registry of Property. To repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a bank or banking institution. In such a case, the foreclosure sale, when confirmed by an order of the court. . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser. There then exists only what is known as the equity of redemption. This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation.

THIRD DIVISION

[G.R. No. 128567. September 1, 2000]

HUERTA ALBA RESORT, INC., petitioner, vs. COURT OF APPEALS and SYNDICATED MANAGEMENT GROUP, INC., respondents. DECISION

PURISIMA, J.: Litigation must at some time be terminated, even at the risk of occasional errors. Public policy dictates that once a judgment becomes final, executory and unappealable, the prevailing party should not be denied the fruits of his victory by some subterfuge devised by the losing party. Unjustified delay in the enforcement of a judgment sets at naught the role of courts in disposing justiciable controversies with finality.

TheCase

At bar is a petition assailing the Decision, dated November 14, 1996, and Resolution, dated March 11, 1997, of the Court of Appeals in CA-G.R. No. 38747, which set aside the Order, dated July 21, 1995, and Order, dated September 4, 1997, of the Regional Trial Court of Makati City, in Civil Case No. 89-5424. The aforesaid orders of the trial court held that petitioner had the right to redeem subject pieces of property within the oneyear period prescribed by Section 78 of Republic Act No. 337 otherwise known as the General Banking Act. Section 78 of R.A. No. 337 provides that in case of a foreclosure of a mortgage in favor of a bank, banking or credit institution, whether judicially or extrajudicially, the mortgagor shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property.

TheFacts

The facts that matter are undisputed: In a complaint for judicial foreclosure of mortgage with preliminary injunction filed on October 19, 1989, docketed as Civil Case No. 89-5424 before the Regional Trial Court of Makati City, the herein private respondent sought the foreclosure of four (4) parcels of land mortgaged by petitioner to Intercon Fund Resource, Inc. (Intercon). Private respondent instituted Civil Case No. 89-5424 as mortgagee-assignee of a loan amounting to P8.5 million obtained by petitioner from Intercon, in whose favor petitioner mortgaged the aforesaid parcels of land as security for the said loan. In its answer below, petitioner questioned the assignment by Intercon of its mortgage right thereover to the private respondent, on the ground that the same was ultra vires. Petitioner also questioned during the trial the correctness of the charges and interest on the mortgage debt in question. On April 30, 1992, the trial court, through the then Judge now Court of Appeals Justice Buenaventura J. Guerrero, came out with its decision granting herein private respondent SMGIs complaint for jud icial foreclosure of mortgage, disposing as follows: WHEREFORE, judgment is hereby rendered ordering defendant to pay plaintiff the following: (1) P8,500,000.00 representing the principal of the amount due; (2) P850,000.00 as penalty charges with interest at 6% per annum, until fully paid; (3) 22% per annum interest on the above principal from September 6, 1998, until fully paid; (4) 5% of the sum total of the above amounts, as reasonable attorneys fees; and, (5) Costs. All the above must be paid within a period of not less than 150 days from receipt hereof by the defendant. In default of such payment, the four parcels of land subject matter of the suit including its

improvements shall be sold to realize the mortgage debt and costs, in the manner and under the regulations that govern sales of real estate under execution. i[1] Petitioner appealed the decision of the trial court to the Court of Appeals, the appeal docketed as CA-G.R. CV No. 39243 before the Sixth Division of the appellate court, which dismissed the case on June 29, 1993 on the ground of late payment of docket fees. Dissatisfied with the dismissal of CA-G.R. No. 39243, petitioner came to this Court via a petition for certiorari, docketed as G.R. No. 112044, which this court resolved to dismiss on December 13, 1993, on the finding that the Court of Appeals erred not in dismissing the appeal of petitioner. Petitioners motion for reconsideration of the dismissal of its petition in G.R. No. 112044 was denied with finality in this Courts Resolution promulgated on February 16, 1994. On March 10, 1994, leave to present a second motion for reconsideration in G.R. No. 112044 or to submit the case for hearing by the Court en banc was filed, but to no avail. The Court resolved to deny the same on May 11, 1994. On March 14, 1994, the Resolution dated December 13, 1993, in G.R. No. 112044 became final and executory and was entered in the Book of Entries of Judgment. On July 4, 1994, private respondent filed with the trial court of origin a motion for execution of the Decision promulgated on April 30, 1992 in Civil Case No. 89-5424. The said motion was granted on July 13, 1994. Accordingly, on July 15, 1994 a writ of execution issued and, on July 20, 1994, a Notice of Levy and Execution was issued by the Sheriff concerned, who issued on August 1, 1994 a Notice of Sheriffs Sale for the auction of subject properties on September 6, 1994. On August 23, 1994, petitioner filed with the same trial court an Urgent Motion to Quash and Set Aside Writ of Execution ascribing to it grave abuse of discretion in issuing the questioned Writ of Execution. To support its motion, petitioner invited attention and argued that the records of the case were still with the Court of Appeals and therefore, issuance of the writ of execution was premature since the 150-day period for petitioner to pay the judgment obligation had not yet lapsed and petitioner had not yet defaulted in the payment thereof since no demand for its payment was made by the private respondent. In petitione rs own words, the dispute between the parties was principally on the issue as to when the 150 -day period within which Huerta Alba may exercise its equity of redemption should be counted. In its Order of September 2, 1994, the lower court denied petition ers urgent motion to quash the writ of execution in Civil Case No. 89-5424, opining that subject judgment had become final and executory and consequently, execution thereof was a matter of right and the issuance of the corresponding writ of execution became its ministerial duty. Challenging the said order granting execution, petitioner filed once more with the Court of Appeals another petition for certiorari and prohibition with preliminary injunction, docketed as C.A.-G.R. SP No. 35086, predicated on the same grounds invoked for its Motion to Quash Writ of Execution. On September 6, 1994, the scheduled auction sale of subject pieces of properties proceeded and the private respondent was declared the highest bidder. Thus, private respondent was awarded subject bidded pieces of property. The covering Certificate of Sale issued in its favor was registered with the Registry of Deeds on October 21, 1994. On September 7, 1994, petitioner presented an Ex-Parte Motion for Clarification asking the trial court to clarify whether or not the twelve (12) month period of redemption for ordinary execution applied in the case. On September 26, 1994, the trial court ruled that the period of redemption of subject property should be governed by the rule on the sale of judicially foreclosed property under Rule 68 of the Rules of Court. Thereafter, petitioner then filed an Exception to the Order dated September 26, 1994 and Motion to Set Aside Said Order, contending that the said Order materially altered the Decision dated Apri l 30, 1992 which declared that the satisfaction of the judgment shall be in the manner and under the regulation that govern

sale of real estate under execution. Meanwhile, in its Decision of September 30, 1994, the Court of Appeals resolved the issues raised by the petitioner in C.A.-G.R. SP No. 35086, holding that the one hundred-fifty day period within which petitioner may redeem subject properties should be computed from the date petitioner was notified of the Entry of Judgment in G.R. No. 112044; and that the 150-day period within which petitioner may exercise its equity of redemption expired on September 11, 1994. Thus: Petitioner must have received the resolution of the Supreme Court dated February 16, 1994 denying with finality its motion for reconsideration in G.R. No. 112044 before March 14, 1994, otherwise the Supreme Court would not have made an entry of judgment on March 14, 1994. While, computing the 150-day period, petitioner may have until September 11, 1994, within which to pay the amounts covered by the judgment, such period has already expired by this time, and therefore, this Court has no more reason to pass upon the parties opposing contentions, the same having become moot and academic. ii[2](Underscoring supplied). Petitioner moved for reconsideration of the Decision of the Court of Appeals in C.A.-G.R. SP No. 35086. In its Motion for Reconsideration dated October 18, 1994, petitioner theorized that the period of one hundred fifty (150) days should not be reckoned with from Entry of Judgment but from receipt on or before July 29, 1994 by the trial court of the records of Civil Case No. 89-5424 from the Court of Appeals. So also, petitioner maintained that it may not be considered in default, even after the expiration of 150 days from July 29, 1994, because prior demand to pay was never made on it by the private respondent. According to petitioner, it was therefore, premature for the trial court to issue a writ of execution to enforce the judgment. The trial court deferred action on the Motion for Confirmation of the Certificate of Sale in view of the pendency of petitioners Motion for Reconsideration in CA -G.R. SP No. 35086. On December 23, 1994, the Court of Appeals denied petitioners motion for reconsideration in CA -G.R. SP No. 35086. Absent any further action with respect to the denial of the subject motion for reconsideration, private respondent presented a Second Motion for Confirmation of Certificate of Sale before the trial court. As regards the Decision rendered on September 30, 1994 by the Court of Appeals in CA G.R. SP No. 35086 it became final and executory on January 25, 1995. On February 10, 1995, the lower court confirmed the sale of subject properties to the private respondent. The pertinent Order declared that all pending incidents relating to the Order dated September 26, 1994 had become moot and academic. Conformably, the Transfer Certificates of Title to subject pieces of property were then issued to the private respondent. On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification seeking clarification of the date of commencement of the one (1) year period for the redemption of the properties in question. In its Resolution dated March 20, 1995, the Court of Appeals merely noted such Motion for Clarification since its Decision promulgated on September 30, 1994 had already become final and executory; ratiocinating thus: We view the motion for clarification filed by petitioner, purportedly signed by its proprietor, but which we believe was prepared by a lawyer who wishes to hide under the cloak of anonymity, as a veiled attempt to buy time and to delay further the disposition of this case. Our decision of September 30, 1994 never dealt on the right and period of redemption of petitioner, but was merely circumscribed to the question of whether respondent judge could issue a writ of execution in its Civil Case No. 89-5424 xxx. We further ruled that the one-hundred fifty day period within which petitioner may exercise its equity of redemption should be counted, not from the receipt of respondent court of the records of Civil Case No. 895424 but from the date petitioner was notified of the entry of judgment made by the appellate court. But we never made any pronouncement on the one- year right of redemption of petitioner because, in the first place, the foreclosure in this case is judicial, and as such, the mortgagor has only the equity, not the

right of redemption xxx. While it may be true that under Section 78 of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of a bank, banking or credit institution, whether the foreclosure was done judicially or extrajudicially, has a period of one year from the auction sale within which to redeem the foreclosed property, the question of whether the Syndicated Management Group, Inc., is a bank or credit institution was never brought before us squarely, and it is indeed odd and strange that petitioner would now sarcastically ask a rhetorical question in its motion for clarification. iii[3] (Underscoring supplied). Indeed, if petitioner did really act in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its pretended right under Section 78 of R.A. No. 337 but it never did so. At the earliest opportunity, when it filed its answer to the complaint for judicial foreclosure, petitioner should have averred in its pleading that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337; but again, petitioner did not make any such allegation in its answer. From the said Resolution, petitioner took no further step such that on March 31, 1995, the private respondent filed a Motion for Issuance of Writ of Possession with the trial court. During the hearing called on April 21, 1995, the counsel of record of petitioner entered appearance and asked for time to interpose opposition to the Motion for Issuance of /Writ of Possession. On May 2, 1995, in opposition to private respondents Motion for Issuance of /writ of Possession, petitioner filed a Motion to Compel Private Respondent to Accept Redemption. It was the first time petitioner ever asserted the right to redeem subject properties under Section 78 of R.A. No. 337, the General Banking Act; theorizing that the original mortgagee, being a credit institution, its assignment of the mortgage credit to petitioner did not remove petitioner from the coverage of Section 78 of R.A. No. 337. Therefore, it should have the right to redeem subject properties within one year from registration of the auction sale, theorized the petitioner which concluded that in view of its right of redemption, the issuance of the titles over subject parcels of land to the private respondent was irregular and premature. In its Order of July 21, 1995, the trial court, presided over by Judge Napoleon Inoturan, denied private respondents motion for a writ of possession, opining that Section 78 of the General Banking Act was applicable and therefore, the petitioner had until October 21, 1995 to redeem the said parcels of land, said Order ruled as follows: It is undisputed that Intercon is a credit institution from which defendant obtained a loan secured with a real estate mortgage over four (4) parcels of land. Assuming that the mortgage debt had not been assigned to plaintiff, there is then no question that defendant would have a right of redemption in case of foreclosure, judicially or extrajudicially, pursuant to the above quoted Section 78 of RA 337, as amended. However, the pivotal issue here is whether or not the defendant lost its right of redemption by virtue of the assignment of its mortgage debt by Intercon to plaintiff, which is not a bank or credit institution. The issue is resolved in the negative. The right of redemption in this case is vested by law and is therefore an absolute privilege which defendant may not lose even though plaintiff-assignee is not a bank or credit institution (Tolentino versus Court of Appeals, 106 SCRA 513). Indeed, a contrary ruling will lead to a possible circumvention of Section 78 because all that may be needed to deprive a defaulting mortgagor of his right of redemption is to assign his mortgage debt from a bank or credit institution to one which is not. Protection of defaulting mortgagors, which is the avowed policy behind the provision, would not be achieved if the ruling were otherwise. Consequently, defendant still possesses its right of redemption which it may exercise up to October 21, 1995 only, which is one year from the date of registration of the certificate of sale of subject properties (GSIS versus Iloilo, 175 SCRA 19, citing Limpin versus IAC, 166 SCRA 87). Since the period to exercise defendants right of redemption has not yet expired, the cancellation of defendants transfer certificates of title and the issuance of new ones in l ieu thereof in favor of plaintiff are therefore illegal for being premature, thereby necessitating reconveyance (see Sec. 63 (a) PD 1529, as amended). WHEREFORE, the Court hereby rules as follows: (1) The Motion for Issuance of Writ of Possession is hereby denied;

(2) Plaintiff is directed to accept the redemption on or before October 21, 1995 in an amount computed according to the terms stated in the Writ of Execution dated July 15, 1994 plus all other related costs and expenses mentioned under Section 78, RA 337, as amended; and (3) The Register of Deeds of Valenzuela, Bulacan is directed (a) to reconvey to the defendant the following titles of the four (4) parcels of land, namely TCT Nos. V-38878, V-38879, V-38880, and V-38881, now in the name of plaintiff, and (b) to register the certificate of sale dated October 7, 1994 and the Order confirming the sale dated February 10, 1995 by a brief memorandum thereof upon the transfer certificates of title to be issued in the name of defendant, pursuant to Sec. 63 (a) PD 1529, as amended. The Omnibus Motion dated June 5, 1995, together with the Opposition thereto, is now deemed resolved. SO ORDERED.iv[4] Private respondent interposed a Motion for Reconsideration seeking the reversal of the Order but to no avail. In its Order dated September 4, 1995, the trial court denied the same. To attack and challenge the aforesaid order of July 21, 1995 and subsequent Order of September 4, 1995 of the trial court, the private respondent filed with this court a Petition for Certiorari, Prohibition and Mandamus, docketed as G.R. No. 121893, but absent any special and cogent reason shown for entertaining the same, the Court referred the petition to the Court of Appeals, for proper determination. Docketed as G.R. No. 387457 on November 14, 1996, the Court of Appeals gave due course to the petition and set aside the trial courts Order dated July 21, 1995 and Order dated September 4, 1995. In its Resolution of March 11, 1997, the Court of Appeals denied petitioners Motion for Reconsid eration of the Decision promulgated on November 14, 1996 in CA-G.R. No. 38747. Undaunted, petitioner has come to this Court via the present petition, placing reliance on the assignment of errors, that: I THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE COURT OF APPEALS (TWELFTH DIVISION) IN CA G.R. SP NO. 35086 HAD RESOLVED WITH FINALITY THAT PETITIONER HUERTA ALBA HAD NO RIGHT OF REDEMPTION BUT ONLY THE EQUITY OF REDEMPTION. II THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN IGNORING THAT PETITIONER HUERTA ALBA POSSESSES THE ONE-YEAR RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 (THE GENERAL BANKING ACT). III THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT PRIVATE RESPONDENT SYNDICATED MANAGEMENT GROUP, INC. IS ENTITLED TO THE ISSUANCE OF A WRIT OF POSSESSION OVER THE SUBJECT PROPERTY.v[5] In its comment on the petition, private respondent countered that: A. THE HONORABLE COURT OF APPEALS CORRECTLY HELD THAT IT RESOLV ED WITH FINALITY IN C.A.-G.R. SP NO. 35086 THAT PETITIONER ONLY HAD THE RIGHT OF REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES. B. THE PETITION IS AN INSIDIOUS AND UNDERHANDED ATTEMPT TO EVADE THE FINALITY OF VARIOUS DECISIONS, RESOLUTIONS AND ORDERS WHICH HELD THAT PETITIONER ONLY POSSESSES THE EQUITY OF REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES. C. PETITIONER IS BARRED BY ESTOPPEL FROM BELATEDLY RAISING THE ISSUE OF ITS ALLEGED RIGHT OF REDEMPTION.

D. IN HOLDING THAT THE PETITIONER HAD THE RIGHT OF REDEMPTION OVER THE SUBJECT PROPERTIES, THE TRIAL COURT MADE A MOCKERY OF THE LAW OF THE CASE. vi[6] And by way of Reply, petitioner argued, that: I. THE COURT OF APPEALS IN CA G.R. SP NO. 35086 COULD NOT HAVE POSSIBLY RESOLVED THEREIN WHETHER WITH FINALITY OR OTHERWISE - THE ISSUE OF PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337. II. THERE IS NO ESTOPPEL HERE. PETITIONER HUERTA ALBA INVOKED ITS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IN TIMELY FASHION, i.e., AFTER CONFIRMATION BY THE COURT OF THE FORECLOSURE SALE, AND WITHIN ONE (1) YEAR FROM THE DATE OF REGISTRATION OF THE CERTIFICATE OF SALE. III. THE PRINCIPLE OF THE LAW OF THE CASE HAS ABSOLUTELY NO BEARING HERE: (1) THE RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IS IN FACT PREDICATED UPON THE FINALITY AND CORRECTNESS OF THE DECISION IN CIVIL CASE NO. 89-5424. (2) THUS, THE RTCS ORDER RECOGNIZING PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 37 DOES NOT IN ANY WAY HAVE THE EFFECT OF AMENDING, MODIFYING, OR SETTING ASIDE THE DECISION IN CIVIL CASE NO. 89-5424. The above arguments and counter-arguments advanced relate to the pivotal issue of whether or not the petitioner has the one-year right of redemption of subject properties under Section 78 of Republic Act No. 337 otherwise known as the General Banking Act. The petition is not visited by merit. Petitioners assertion of right of redemption under Section 78 of Republic Act No. 337 is premised on the submission that the Court of Appeals did not resolve such issue in CA-G.R. SP No. 35086; contending thus: (1) BY NO STRETCH OF LOGIC CAN THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 BE INTERPRETED TO MEAN THE COURT OF APPEALS HAD RESOLVED WITH FINALITY THE ISSUE OF WHETHER PETITIONER HUERTA ALBA HAD THE RIGHT OF REDEMPTION WHEN ALL THAT THE RESOLUTION DID WAS TO MERELY NOTE THE MOTION FOR CLARIFICATION. (2) THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 IS NOT A FINAL JUDGMENT, ORDER OR DECREE. IT IS NOT EVEN A JUDGMENT OR ORDER TO BEGIN WITH. IT ORDERS NOTHING; IT ADJUDICATES NOTHING. (3) PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 37 WAS NOT AN ISSUE AND WAS NOT IN ISSUE, AND COULD NOT HAVE POSSIBLY BEEN AN ISSUE NOR IN ISSUE, IN CA G.R. SP NO. 35086. (4)

THE 30 SEPTEMBER 1994 DECISION IN CA G.R. SP NO. 35086 HAVING ALREADY BECOME FINAL EVEN BEFORE THE FILING OF THE MOTION FOR CLARIFICATION, THE COURT OF APPEALS NO LONGER HAD ANY JURISDICTION TO ACT OF THE MOTION OR ANY OTHER MATTER IN CA G.R. SP NO. 35086, EXCEPT TO MERELY NOTE THE MOTION. II. IN STARK CONTRAST, THE ISSUE OF PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 WAS DIRECTLY RAISED AND JOINED BY THE PARTIES, AND THE SAME DULY RESOLVED BY THE TRIAL COURT. III. THE RIGHT OF REDEMPTION UNDER SECTION 78 OF R.A. NO. 337 IS MANDATORY AND AUTOMATICALLY EXISTS BY LAW. THE COURTS ARE DUTY-BOUND TO RECOGNIZE SUCH RIGHT. IV. EQUITABLE CONSIDERATIONS WEIGH HEAVILY IN FAVOR OF PETITIONER HUERTA ALBA, NOT THE LEAST OF WHICH IS THE WELL-SETTLED POLICY OF THE LAW TO AID RATHER THAN DEFEAT THE RIGHT OF REDEMPTION. V. THEREFORE THE 21 JULY 1995 AND 04 SEPTEMBER 1995 ORDERS OF THE TRIAL COURT ARE VALID AND PROPER IN ACCORDANCE WITH THE MANDATE OF THE LAW. From the various decisions, resolutions and orders a quo it can be gleaned that what petitioner has been adjudged to have was only the equity of redemption over subject properties. On the distinction between the equity of redemption and right of redemption, the case of Gregorio Y. Limpin vs. Intermediate Appellate Court,vii[7] comes to the fore. Held the Court in the said case: The equity of redemption is, to be sure, different from and should not be confused with the right of redemption. The right of redemption in relation to a mortgage - understood in the sense of a prerogative to re-acquire mortgaged property after registration of the foreclosure sale - exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank or banking institution. Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the registration of the sheriffs certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale, when confirmed by an order of the court, x x sha ll operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law. Such rights exceptionally allowed by law (i.e., even after confirmation by an order of the court) are those granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure - after confirmation by the court of the foreclosure sale - which right may be exercised within a period of one (1) year, counted from the date of registration of the certificate of sale in the Registry of Property. But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a bank or banking institution. In such a case, the foreclosure sale, when confirmed by an order of the court. x x shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser. There then exists only what is known as the equity of redemption. This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation.

Section 2, Rule 68 provides that x x If upon the trial x x the court shall find the facts set forth in t he complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and costs, and shall render judgment for the sum so found due and order the same to be paid into court within a period of not less than ninety (90) days from the date of the service of such order, and that in default of such payment the property be sold to realize the mortgage debt and costs. This is the mortgagors equity (not right) of redemption which, as above stated, may be exercised by him even beyond the 90-day period from the date of service of the order, and even after the foreclosure sale itself, provided it be before the order of confirmation of the sale. After such order of confirmation, no redemption can be effected any longer.viii[8] (Underscoring supplied) Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337. Petitioner avers in its petition that the Intercom, predecessor in interest of the private respondent, is a credit institution, such that Section 78 of Republic Act No. 337 should apply in this case. Stated differently, it is the submission of petitioner that it should be allowed to redeem subject properties within one year from the date of sale as a result of the foreclosure of the mortgage constituted thereon. The pivot of inquiry here therefore, is whether the petitioner seasonably invoked its asserted right under Section 78 of R.A. No. 337 to redeem subject properties. Petitioner theorizes that it invoked its "right" in "timely fashion", that is, after confirmation by the court of the foreclosure sale, and within one (1) year from the date of registration of the certificate of sale. Indeed, the facts show that it was only on May 2, 1995 when, in opposition to the Motion for Issuance of Writ of Possession, did petitioner file a Motion to Compel Private Respondent to Accept Redemption, invoking for the very first time its alleged right to redeem subject properties under to Section 78 of R.A. No. 337. In light of the aforestated facts, it was too late in the day for petitioner to invoke a right to redeem under Section 78 of R.A. No. 337. Petitioner failed to assert a right to redeem in several crucial stages of the Proceedings. For instance, on September 7, 1994, when it filed with the trial court an Ex-part Motion for Clarification, petitioner failed to allege and prove that private respondent's predecessor in interest was a credit institution and therefore, Section 78 of R.A. No. 337 was applicable. Petitioner merely asked the trial court to clarify whether the sale of subject properties was execution sale or judicial foreclosure sale. So also, when it presented before the trial court an Exception to the Order and Motion to Set Aside Said Order dated October 13, 1994, petitioner again was silent on its alleged right under Section 78 of R.A. No. 337, even as it failed to show that private respondent's predecessor in interest is a credit institution. Petitioner just argued that the aforementioned Order materially altered the trial court's Decision of April 30, 1992. Then, too, nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337 and of the predecessor in interest of private respondent as a credit institution, when the trial court came out with an order on February 10, 1995, confirming the sale of subject properties in favor of private respondent and declaring that all pending incidents with respect to the Order dated September 26, 1994 had become moot and academic. Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of Appeals, seeking "clarification" of the date of commencement of the one (1) year redemption period for the subject properties, petitioner never intimated any alleged right under Section 78 of R.A. No. 337 nor did it invite attention to its present stance that private respondent's predecessor-in-interest was a credit institution. Consequently, in its Resolution dated March 20, 1995, the Court of Appeals ruled on the said motion thus: But we never made any pronouncement on the one-year right of redemption of petitioner because, in the first place, the foreclosure in this case is judicial, and as such, the mortgagor has only the equity, not the right of redemption xxx. While it may be true that under Section 78 of R.A. 337 as amended, otherwise known

as the General Banking Act, a mortgagor of a bank, banking or credit institution, whether the foreclosure was done judicially or extrajudicially, has a period of one year from the auction sale within which to redeem the foreclosed property, the question of whether the Syndicated Management Group, Inc., is bank or credit institution was never brought before us squarely, and it is indeed odd and strange that petitioner would now sarcastically ask a rhetorical question in its motion for clarification. ix[9] (Underscoring supplied). If petitioner were really acting in good faith, it would have ventilated before the Court of Appeals in CAG.R. No. 35086 its alleged right under Section 78 of R.A. No. 337; but petitioner never did do so. Indeed, at the earliest opportunity, when it submitted its answer to the complaint for judicial foreclosure, petitioner should have alleged that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337 but again, it did not make any allegation in its answer regarding any right thereunder. It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual question of whether or not private respondents predecessor in interest was a credit institution. As was held in Limpin, a judicial foreclosure sale, when confirmed by an order of the court, xx shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law,x[10] which confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after confirmation by the court of the judicial foreclosure sale. Thus, the claim that petitioner is entitled to the beneficial provisions of Section 78 of R.A. No. 337 - since private respondents predecessor-in-interest is a credit institution - is in the nature of a compulsory counterclaim which should have been averred in petitioners answer to the compliant for judicial foreclosure. xxx A counterclaim is, most broadly, a cause of action existing in favor of the defendant against the plaintiff. More narrowly, it is a claim which, if established, will defeat or in some way qualify a judgment or relief to which plaintiff is otherwise entitled. It is sometimes defined as any cause of action arising in contract available against any action also arising in contract and existing at the time of the commencement of such an action. It is frequently defined by the codes as a cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiffs claim, or connected with the subject of the action.xi[11] (underscoring supplied) The counterclaim is in itself a distinct and independent cause of action, so that when properly stated as such, the defendant becomes, in respect to the matters stated by him, an actor, and there are two simultaneous actions pending between the same parties, wherein each is at the same time both a plaintiff and a defendant. Counterclaim is an offensive as well as a defensive plea and is not necessarily confined to the justice of the plaintiffs claim. It represents the right of the defendant to have the claims of the parties counterbalanced in whole or in part, and judgment to be entered in excess, if any. A counterclaim stands on the same footing, and is to be tested by the same rules, as if it were an independent action. xii[12] (underscoring supplied) The very purpose of a counterclaim would have been served had petitioner alleged in its answer its purported right under Section 78 of R.A. No. 337: xxx The rules of counterclaim are designed to enable the disposition of a whole controversy of interested parties conflicting claims, at one time and in one action, provided all parties be brought before the court and the matter decided without prejudicing the rights of any party. xiii[13] The failure of petitioner to seasonably assert its alleged right under Section 78 of R.A. No. 337 precludes it from so doing at this late stage of the case. Estoppel may be successfully invoked if the party fails to raise the question in the early stages of the proceedings. xiv[14] Thus, a party to a case who failed to invoked his claim in the main case, while having the opportunity to do so, will be precluded, subsequently, from invoking his claim, even if it were true, after the decision has become final, otherwise the judgment may be reduced to a mockery and the administration of justice may be placed in disrepute. xv[15] All things viewed in proper perspective, it is decisively clear that the trial court erred in still allowing petitioner to introduce evidence that private respondents predecessor-in-interest was a credit institution, and to thereafter rule that the petitioner was entitled to avail of the provisions of Section 78 of R.A. No. 337. In effect, the trial court permitted the petitioner to accomplish what the latter failed to do before the Court of

Appeals, that is, to invoke its alleged right under Section 78 of R.A. No. 337 although the Court of Appeals in CA-G.R. no. 35086 already found that the question of whether the Syndicated Management Council Group, Inc. is a bank or credit institution was never brought before (the Court of Appeals) squarely. The said pronouncement by the Court of Appeals unerringly signified that petitioner did not make a timely assertion of any right under Section 78 of R.A. No. 337 in all the stages of the proceedings below. Verily, the petitioner has only itself to blame for not alleging at the outset that the predecessor-ininterest of the private respondent is a credit institution. Thus, when the trial court, and the Court of Appeals repeatedly passed upon the issue of whether or not petitioner had the right of redemption or equity of redemption over subject properties in the decisions, resolutions and orders, particularly in Civil Case no. 895424, CA-G.R. CV No. 39243, CA-G.R. SP No. 35086, and CA-G.R. SP No. 38747, it was unmistakable that the petitioner was adjudged to just have the equity of redemption without any qualification whatsoever, that is, without any right of redemption allowed by law. The law of case holds that petitioner has the equity of redemption without any qualification. There is, therefore, merit in private respondents contention that to allow petitioner to belatedly invoke its right under Section 78 of R.A. No. 337 will disturb the law of the case. However, private respondents statement of what constitutes the law of the case is not entirely accurate. The law of the case is not simply that the defendant possesses an equity of redemption. As the Court has stated, the law of the case holds that petitioner has the equity of the redemption without any qualification whatsoever, that is, without the right of redemption afforded by Section 78 of R.A. No. 337. Whether or not the law of the case is erroneous is immaterial, it still remains the law of the case. A contrary rule will contradict both the letter and spirit of the rulings of the Court of Appeals in CA-G.R. SP No. 35086, CA-G.R. CV No. 39243, and CA-G.R. 38747, which clearly saw through the repeated attempts of petitioner to forestall so simple a matter as making the security given for a just debt to answer for its payment. Hence, in conformity with the ruling in Limpin, the sale of the subject properties, as confirmed by the Order dated February 10, 1995 of the trial court in Civil Case No. 89-5424 operated to divest the rights of all the parties to the action and to vest their rights in private respondent. There then existed only what is known as the equity of redemption, which is simply the right of the petitioner to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment became final. There being an explicit finding on the part of the Court of Appeals in its Decision of September 30, 1994 in CA-G.R. No. 35086 - that the herein petitioner failed to exercise its equity of redemption within the prescribed period, redemption can no longer be effected. The confirmation of the sale and the issuance of the transfer certificates of title covering the subject properties to private respondent was then, in order. The trial court therefore, has the ministerial duty to place private respondent in the possession of subject properties. WHEREFORE, the petition is DENIED, and the assailed decision of the Court of Appeals, declaring null and void the Order dated 21 July 1995 and Order dated 4 September 1997 of the Regional Trial Court of Makati City in Civil Case No. 89-5424, AFFIRMED. No pronouncement as to costs. SO ORDERED. Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

18. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 170215 August 28, 2007 SPS. ESMERALDO and ELIZABETH SUICO, Petitioners, vs. PHILIPPINE NATIONAL BANK and HON. COURT OF APPEALS, Respondents. DECISION CHICO-NAZARIO, J.: Herein petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan from the Philippine National Bank (PNB) secured by a real estate mortgage on real properties in the name of the former. The petitioners were unable to pay their obligation prompting the PNB to extrajudicially foreclose the mortgage over the subject properties before the City Sheriff of Mandaue City under EJF Case No. 92-5-15.
1

The petitioners thereafter filed a Complaint against the PNB before the Regional Trial Court (RTC) of Mandaue City, Branch 55, docketed as Civil Case No. MAN-2793 for Declaration of Nullity of Extrajudicial Foreclosure of Mortgage.
2

The Complaint alleged that on 6 May 1992, PNB filed with the Office of the Mandaue City Sheriff a petition for the extrajudicial foreclosure of mortgage constituted on the petitioners properties (subject properties) for an outstanding loan obligation amounting to P1,991,770.38 as of 10 March 1992. The foreclosure case before the Office of the Mandaue City Sheriff, which was docketed as EJF Case No. 92-5-15, covered the following properties: TCT NO. 13196 "A parcel of land (Lot 701, plan 11-5121 Amd-2) situated at Mandaue City, bounded on the NE., and SE., by lot no. 700; on the SW. by lots nos. 688 and 702; on the NW. by lot no. 714, containing an area of 2,078 sq. m. more or less." TAX DECL. NO. 00553 "A parcel of land situated at Tabok, Mandaue City, Cad. Lot No. 700-C-1; bounded on the North by Lot No. 701 & 700-B; on the South by Lot No. 700-C-3; on the East by lot no. 700-C-3 and on the West by Lot no. 688, containing an area of 200 square meters, more or less." TAX DECL. NO. 00721

"Two (2) parcels of land situated at Tabok, Mandaue City, Cad. lot nos. 700-C-3 and 700-C-2; bounded on the North by Lot Nos. 700-C-1 and 700-B; on the South by Lot No. 700-D; on the East by Lot Nos. 695 and 694; and on the West by Lot Nos. 688 and 700-C-1, containing an aggregate area of 1,683 sq. m. more or less." TAX DECL. NO. 0237 "A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-B. Bounded on the NE. by (Lot 699) 109, (Lot No. 69) 110, on the SE (Lot 700-C) 115, on the NW. (Lot 700-A) 112 and on the SW. (Lot 701) 113; containing an area of .1785 HA more or less." TAX DECL. NO. 9267 "A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-A. Bounded on the NE. by (Lot 699) 109, on the South West by (Lot 701) 113, on the SE. by (Lot 700-B) 111, and on the NW. by (lot 714) 040039; containing an area of .1785 HA more or less."
3

Petitioners claimed that during the foreclosure sale of the subject properties held on 30 October 1992, PNB, as the lone bidder, offered a bid in the amount of P8,511,000.00. By virtue of the said bid, a Certificate of Sale of the subject properties was issued by the Mandaue City Sheriff in favor of PNB. PNB did not pay to the Sheriff who conducted the auction sale the amount of its bid which was P8,511,000.00 or give an accounting of how said amount was applied against petitioners outstanding loan, which, as of 10 March 1992, amounted only to P1,991,770.38. Since the amount of the bid grossly exceeded the amount of petitioners outstanding obligation as stated in the extrajudicial foreclosure of mortgage, it was the legal duty of the winning bidder, PNB, to deliver to the Mandaue City Sheriff the bid price or what was left thereof after deducting the amount of petitioners outstanding obligation. PNB failed to deliver the amount of their bid to the Mandaue City Sheriff or, at the very least, the amount of such bid in excess of petitioners outstanding obligation. One year after the issuance of the Certificate of Sale, PNB secured a Certificate of Final Sale from the Mandaue City Sheriff and, as a result, PNB transferred registration of all the subject properties to its name. Owing to the failure of PNB as the winning bidder to deliver to the petitioners the amount of its bid or even just the amount in excess of petitioners obligation, the latter averred that the extrajudicial foreclosure conducted over the subject properties by the Mandaue City Sheriff, as well as the Certificate of Sale and the Certificate of Finality of Sale of the subject properties issued by the Mandaue City Sheriff, in favor of PNB, were all null and void. Petitioners, in their Complaint in Civil Case No. MAN-2793, prayed for: a) Declaring the Nullity of Extra-judicial Foreclosure of Mortgage under EJF Case No. 92-5-15 including the certificate of sale and the final deed of sale of the properties affected;

b) Order[ing] the cancellation of the certificates of titles and tax declaration already in the name of [herein respondent] PNB and revert the same back to herein [petitioners] name; c) Ordering the [PNB] to pay [petitioners] moral damages amounting to more than P1,000,000,00; Exemplary damages of P500,000.00; Litigation expenses of P100,000.00 and attorneys fees of P300,000.00.
4

PNB filed a Motion to Dismiss Civil Case No. MAN-2793 citing the pendency of another action between the same parties, specifically Civil Case No. CEB-15236 before the RTC of Cebu City entitled, PNB v. Sps. Esmeraldo and Elizabeth Suico where PNB was seeking the payment of the balance of petitioners obligation not covered by the proceeds of the auction sale held on 30 October 1992. PNB argued that these two cases involve the same parties. Petitioners opposed the Motion to Dismiss filed by PNB. Subsequently, the Motion to Dismiss Civil Case No. MAN2793 was denied in the Order of the RTC dated 15 July 1997; thus, PNB was constrained to file its Answer.
5 6 7 8

PNB disputed petitioners factual narration. PNB asserted that petitioners had other loans which had likewise become due. Petitioners outstanding obligation of P1,991,770.38 as of 10 March 1992 was exclusive of attorneys fees, and other export related obligations which it did not consider due and demandable as of said date. PNB maintained that the outstanding obligation of the petitioners under their regular and export- related loans was already more than the bid price of P8,511,000.00, contradicting the claim of surplus proceeds due the petitioners. Petitioners were well aware that their total principal outstanding obligation on the date of the auction sale was P5,503,293.21. PNB admitted the non-delivery of the bid price to the sheriff and the execution of the final deed of sale, but claimed that it had not transferred in its name all the foreclosed properties because the petition to register in its name Transfer Certificates of Title (TCT) No. 37029 and No. 13196 were still pending. On 2 February 1999, the RTC rendered its Decision in Civil Case No. MAN-2793 for the declaration of nullity of the extrajudicial foreclosure of mortgage, the dispositive portion of which states:
9

WHEREFORE, based on the foregoing, judgment is rendered in favor of [herein petitioners] Sps. Esmeraldo & Elizabeth Suico and against [herein respondent], Philippine National Bank (PNB), declaring the nullity of Extrajudicial Foreclosure of Mortgage under EJF Case No. 92-5-15, including the certificate of sale and the final deed of sale of the subject properties; ordering the cancellation of the certificates of titles and tax declaration already in the name of [respondent] PNB, if any, and revert the same back to the [petitioners] name; ordering [respondent] PNB to cause a new foreclosure proceeding, either judicially or extra-judicially. Furnish parties thru counsels copy of this order.
10

In granting the nullification of the extrajudicial foreclosure of mortgage, the RTC reasoned that given that petitioners had other loan obligations which had not yet matured on 10 March 1992 but became due by the date of the auction sale on 30 October 1992, it does not justify the shortcut taken by PNB and will not excuse it from paying to the Sheriff who conducted the auction sale the excess bid in the foreclosure sale. To allow PNB to do so would constitute fraud, for not only is the filing fee in the said foreclosure inadequate but, worse, the same constitutes a misrepresentation regarding the amount of the indebtedness to be paid in the foreclosure sale as posted and published in the notice of sale. Such misrepresentation is fatal because in an extrajudicial foreclosure of mortgage, notice of sale is jurisdictional. Any error in the notice of sale is fatal and invalidates the notice.
11 12

When the PNB appealed its case to the Court of Appeals, the appellate court rendered a Decision dated 12 April 2005, the fallo of which provides:
13 14

WHEREFORE, premises considered, the instant appeal is GRANTED. The questioned decision of the Regional Trial Court of Mandaue City, Branch 55 dated February 2, 1999 is hereby REVERSED and SET ASIDE. Accordingly, the extra judicial foreclosure of mortgage under EJF 92-5-15 including the certificate of sale and final deed of sale executed appurtenant thereto are hereby declared to be valid and binding.
15

In justifying reversal, the Court of Appeals held: A careful scrutiny of the evidence extant on record would show that in a letter dated January 12, 1994, [petitioners] expressly admitted that their outstanding principal obligation amounted to P5.4 Million and in fact offered to redeem the properties at P6.5 Million. They eventually increased their offer at P7.5 Million as evidenced by that letter dated February 4, 1994. And finally on May 16, 1994, they offered to redeem the foreclosed properties by paying the whole amount of the obligation by installment in a period of six years. All those offers made by the [petitioners] not only contradicted their very assertion that their obligation is merely that amount appearing on the petition for foreclosure but are also indicative of the fact that they have admitted the validity of the extra judicial foreclosure proceedings and in effect have cured the impugned defect. Thus, for the [petitioners] to insist that their obligation is only over a million is unworthy of belief. Oddly enough, it is evident from their acts that they themselves likewise believe otherwise. Even assuming that indeed there was a surplus and the [PNB] is retaining more than the proceeds of the sale than it is entitled, this fact alone will not affect the validity of the sale but simply gives the [petitioners] a cause of action to recover such surplus. In fine, the failure of the [PNB] to remit the surplus, if any, is not tantamount to a non-compliance of statutory requisites that could constitute a jurisdictional defect invalidating the sale. This situation only gives rise to a cause of action on the part of the [petitioners] to recover the alleged surplus from the [PNB]. This ruling is in harmony with the decisional rule that in suing for the return of the surplus proceeds, the mortgagor is deemed to have affirmed the validity of the sale since nothing is due if no valid sale has been made.
16

Petitioners filed a Motion for Reconsideration of the foregoing Decision, but the Court of Appeals was not persuaded. It maintained the validity of the foreclosure sale and, in its Amended Decision dated 28 September 2005, it merely directed PNB to pay the deficiency in the filing fees, holding thus:
17

WHEREFORE, Our decision dated April 12, 2005 is hereby AMENDED. [Herein respondent PNB] is hereby required to pay the deficiency in the filing fees due on the petition for extra judicial foreclosure sale to be based on the actual amount of mortgage debts at the time of filing thereof. In all other respects, Our decision subject of herein petitioners] motion for reconsideration is hereby AFFIRMED.
18

Unflinching, petitioners elevated the case before this Court via the present Petition for Review essentially seeking the nullification of the extrajudicial foreclosure of the mortgage constituted on the subject properties. Petitioners forward two reasons for declaring null and void the said extrajudicial foreclosure: (1) the alleged defect or misrepresentation in the notice of sheriffs sale; and/or (2) failure of PNB to pay and tender the price of its bid or the surplus thereof to the sheriff. Petitioners argue that since the Notice of Sheriffs Sale stated that their obligation was only P1,991,770.38 and PNB bidded P8,511,000.00, the said Notice as well as the consequent sale of the subject properties were null and void. It is true that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and that even slight deviations therefrom will invalidate the notice and render the sale at least voidable. Nonetheless, we must not also lose sight of the fact that the purpose of the publication of the Notice of Sheriffs Sale is to inform all interested parties of the date, time and place of the foreclosure sale of the real property subject thereof. Logically, this not only requires that the correct date, time and place of the foreclosure sale appear in the notice, but also that any and all interested parties be able to determine that what is about to be sold at the foreclosure sale is the real property in which they have an interest.
19 20

Considering the purpose behind the Notice of Sheriffs Sale, we disagree with the finding of the RTC that the discrepancy between the amount of petitioners obligation as reflected in the Notice of Sale and the amount actually due and collected from the petitioners at the time of the auction sale constitute fraud which renders the extrajudicial foreclosure sale null and void. Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects are attained, immaterial errors and mistakes will not affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which are calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, such mistakes or omissions will be fatal to the validity of the notice, and also to the sale made pursuant thereto.
21

All these considered, we are of the view that the Notice of Sale in this case is valid. Petitioners failed to convince this Court that the difference between the amount stated in the Notice of Sale

and the amount of PNBs bid resulted in discouraging or misleading bidders, depreciated the value of the property or prevented it from commanding a fair price. The cases cited by the RTC in its Decision do not apply herein. San Jose v. Court of Appeals refers to a Notice of Sheriffs Sale which did not state the correct number of the transfer certificates of title of the property to be sold. This Court considered the oversight as a substantial and fatal error which resulted in invalidating the entire notice. The case of Community Savings and Loan Association, Inc. v. Court of Appeals is also inapplicable, because the said case refers to an extrajudicial foreclosure tainted with fraud committed by therein petitioners, which denied therein respondents the right to redeem the property. It actually has no reference to a Notice of Sale.
22 23

We now proceed to the effect of the non-delivery by PNB of the bid price or the surplus to the petitioners. The following antecedents are not disputed: For failure to pay their loan obligation secured by a real estate mortgage on the subject properties, PNB foreclosed the said mortgage. In its petition for foreclosure sale under ACT No. 3135 filed before the Mandaue City Sheriff, PNB stated therein that petitioners total outstanding obligation amounted to P1,991,770.38. PNB bidded the amount of P8,511,000.00. Admittedly, PNB did not pay its bid in cash or deliver the excess either to the City Sheriff who conducted the bid or to the petitioners after deducting the difference between the amount of its bid and the amount of petitioners obligation in the Notice of Sale. The petitioners then sought to declare the nullity of the foreclosure, alleging that their loan obligation amounted only to P1,991,770.38 in the Notice of Sale, and that PNB did not pay its bid in cash or deliver to petitioner the surplus, which is required under the law.
24 25

On the other hand, PNB claims that petitioners loan obligation reflected in the Notice of Sale dated 10 March 1992 did not include their other obligations, which became due at the date of the auction sale on 10 October 1992; as well as interests, penalties, other charges, and attorneys fees due on the said obligation.
26

Pertinent provisions under Rule 39 of the Rules of Court on extrajudicial foreclosure sale provide: SEC. 21. Judgment obligee as purchaser. When the purchaser is the judgment obligee, and no third-party claim has been filed, he need not pay the amount of the bid if it does not exceed the amount of his judgment. If it does, he shall pay only the excess. (Emphasis supplied.) SEC. 39. Obligor may pay execution against obligee. After a writ of execution against property has been issued, a person indebted to the judgment obligor may pay to the sheriff holding the writ of execution the amount of his debt or so much thereof as may be necessary to satisfy the judgment, in the manner prescribed in section 9 of this Rule, and the sheriffs receipt shall be a

sufficient discharge for the amount so paid or directed to be credited by the judgment obligee on the execution. Conspicously emphasized under Section 21 of Rule 39 is that if the amount of the loan is equal to the amount of the bid, there is no need to pay the amount in cash. Same provision mandates that in the absence of a third-party claim, the purchaser in an execution sale need not pay his bid if it does not exceed the amount of the judgment; otherwise, he shall pay only the excess.
27
1avvphi1

The raison de etre is that it would obviously be senseless for the Sheriff or the Notary Public conducting the foreclosure sale to go through the idle ceremony of receiving the money and paying it back to the creditor, under the truism that the lawmaking body did not contemplate such a pointless application of the law in requiring that the creditor must bid under the same conditions as any other bidder. It bears stressing that the rule holds true only where the amount of the bid represents the total amount of the mortgage debt.
28

The question that needs to be addressed in this case is: considering the amount of PNBs bid of P8,511,000.00 as against the amount of the petitioners obligation of P1,991,770.38 in the Notice of Sale, is the PNB obliged to deliver the excess? Petitioners insist that the PNB should deliver the excess. On the other hand PNB counters that on the date of the auction sale on 30 October 1992, petitioners other loan obligation already exceeded the amount of P1,991,770.38 in the Notice of Sale. Rule 68, Section 4 of the Rules of Court provides: SEC. 4. Disposition of proceeds of sale.- The amount realized from the foreclosure sale of the mortgaged property shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly authorized agent, or to the person entitled to it. Under the above rule, the disposition of the proceeds of the sale in foreclosure shall be as follows: (a) first, pay the costs (b) secondly, pay off the mortgage debt (c) thirdly, pay the junior encumbrancers, if any in the order of priority (d) fourthly, give the balance to the mortgagor, his agent or the person entitled to it.
29

Based on the foregoing, after payment of the costs of suit and satisfaction of the claim of the first mortgagee/senior mortgagee, the claim of the second mortgagee/junior mortgagee may be satisfied from the surplus proceeds. The application of the proceeds from the sale of the mortgaged property to the mortgagors obligation is an act of payment, not payment by dacion; hence, it is the mortgagees duty to return any surplus in the selling price to the mortgagor. Perforce, a mortgagee who exercises the power of sale contained in a mortgage is considered a custodian of the fund and, being bound to apply it properly, is liable to the persons entitled thereto if he fails to do so. And even though the mortgagee is not strictly considered a trustee in a purely equitable sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of the equity of redemption.
30

Thus it has been held that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply give the mortgagor a cause of action to recover such surplus.
31

In the case before us, PNB claims that petitioners loan obligations on the date of the auction sale were already more than the amount of P1,991,770.38 in the Notice of Sale. In fact, PNB claims that on the date of the auction sale, petitioners principal obligation, plus penalties, interests, attorneys fees and other charges were already beyond the amount of its bid of P8,511,000.00. After a careful review of the evidence on record, we find that the same is insufficient to support PNBs claim. Instead, what is available on record is petitioners Statement of Account as prepared by PNB and attached as Annex A to its Answer with counterclaim. In this Statement of Account, petitioners principal obligation with interest/penalty and attorneys fees as of 30 October 1992 already amounted to P6,409,814.92.
32 33

Although petitioners denied the amounts reflected in the Statement of Account from PNB, they did not interpose any defense to refute the computations therein. Petitioners mere denials, far from being compelling, had nothing to offer by way of evidence. This then enfeebles the foundation of petitioners protestation and will not suffice to overcome the computation of their loan obligations as presented in the Statement of Account submitted by PNB.
34

Noticeably, this Statement of Account is the only piece of evidence available before us from which we can determine the outstanding obligations of petitioners to PNB as of the date of the auction sale on 10 October 1992. It did not escape the attention of this Court that petitioners wrote a number of letters to PNB almost two years after the auction sale, in which they offered to redeem the property. In their last letter, petitioners offered to redeem their foreclosed properties for P9,500,000.00. However, these letters by themselves cannot be used as bases to support PNBs claim that petitioners obligation is more than its bid of P8,500,000.00, without any other evidence. There was no computation presented to show how petitioners obligation already reached P9,500,000.00. Petitioners could very well have offered such an amount on the basis of the value of the foreclosed properties rather than their total obligation to PNB. We cannot take petitioners offer
35

to redeem their properties in the amount of P9,500,000.00 on its face as an admission of the amount of their obligation to PNB without any supporting evidence. Given that the Statement of Account from PNB, being the only existing documentary evidence to support its claim, shows that petitioners loan obligations to PNB as of 30 October 1992 amounted to P6,409,814.92, and considering that the amount of PNBs bid is P8,511,000.00, there is clearly an excess in the bid price which PNB must return, together with the interest computed in accordance with the guidelines laid down by the court in Eastern Shipping Lines v. Court of Appeals, regarding the manner of computing legal interest, viz:
36

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. In Philippine National Bank v. Court of Appeals, it was held that:
37

The rate of 12% interest referred to in Cir. 416 applies only to: Loan or forbearance of money, or to cases where money is transferred from one person to another and the obligation to return the same or a portion thereof is adjudged. Any other monetary judgment which does not involve or which has nothing to do with loans or forbearance of any, money, goods or credit does not fall within its coverage for such imposition is not within

the ambit of the authority granted to the Central Bank. When an obligation not constituting a loan or forbearance of money is breached then an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum in accordance with Art. 2209 of the Civil Code. Indeed, the monetary judgment in favor of private respondent does not involve a loan or forbearance of money, hence the proper imposable rate of interest is six (6%) per cent. Using the above rule as yardstick, since the responsibility of PNB arises not from a loan or forbearance of money which bears an interest rate of 12%, the proper rate of interest for the amount which PNB must return to the petitioners is only 6%. This interest according to Eastern Shipping shall be computed from the time of the filing of the complaint. However, once the judgment becomes final and executory, the "interim period from the finality of judgment awarding a monetary claim and until payment thereof, is deemed to be equivalent to a forbearance of credit." Thus, in accordance with the pronouncement in Eastern Shipping, the rate of 12% per annum should be imposed, to be computed from the time the judgment becomes final and executory until fully satisfied. It must be emphasized, however, that our holding in this case does not preclude PNB from proving and recovering in a proper proceeding any deficiency in the amount of petitioners loan obligation that may have accrued after the date of the auction sale. WHEREFORE, premises considered, the Decision of the Court of Appeals dated 12 April 2005 is MODIFIED in that the PNB is directed to return to the petitioners the amount of P2,101,185.08 with interest computed at 6% per annum from the time of the filing of the complaint until its full payment before finality of judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time the judgment became final and executory until fully satisfied. Costs against private respondent. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice

19.

Apr 28, 2008

Acme Shoe, Rubber and Plastic Corporation v. CA

G.R. No. 103576, Aug. 22, 1996

Contracts of Security: Chattel Mortgage The rule on after-incurred obligations Is a corporation entitled to moral damages?

FACTS: Chua Pac, president and general manager of Acme Shoe, Rubber and Plastic Corporation, executed a chattel mortgage in favor of Producers Bank of the Philippines, as a security for a corporate loan in the amount of P3M. The chattel mortgage contained a clause that provided for the mortgage to stand as security for all other obligations contracted before, during and after the constitution of the mortgage. The P3M was paid. Subsequently, the corporation obtained additional financial accommodations totalling P2.7M. This was also paid on the due date. Again, the bank extended another loan to the corporation in the amount of P1M, covered by four promissory notes. However, the corporation was unable to pay this at maturity. Thereupon, the bank applied for an extra-judicial foreclosure of mortgage. For its part, the corporation filed an action for injunction with prayer for damages. The lower court ultimately dismissed the case and ordered the extra-judicial foreclosure of mortgage. Hence, this appeal. ISSUEs:

HELD: Contracts

W/N extra-judicial foreclosure of the chattel mortgage is proper If not proper, W/N the corporation is entitled to damages as a result of the extra-judicial foreclosure

of

Security

Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or suretyship, the faithful performance of the obligation by the principal debtor is secured by the personal commitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property -- in pledge, the placing of movable property in the possession of the creditor; in chattel mortgage by the execution of the corresponding and substantially in teh form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit -- upon the essential condition that if the obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of the obligation, but that should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory character of the agreement. As the law so puts it, once the obligation is complied with, then the contract of security becomes, ipso facto, null and void.

After-incurred

Obligations

While a pledge, real estate mortgage, or antichresis may exceptionaly secure after-incurred obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covered the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the Chattel Mortgage Law. Refusal on the part of borrower to execute the agreement so as to cover the after-incurred obligation can constitute as an act of default on the part of the borrower of the financing agreement wherein the promise is written, but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. In the case at bar, the chattel mortgage was terminated when payment for the P3M loan was made so there was no chattel mortgage to even foreclose at the time the bank instituted the extra-judicial foreclosure. Damages In its complaint, the corporation asked for moral damages sustained "as a result of the unlawful action taken by the respondent bank against it." The court said -"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills and sorrows and griefs of life -all of which cannot be suffered by respondent bank as an artificial person. "Although Chua Pac was included in the case, he was only so named as a party in representation of the corporation."

G.R. No. 103576. August 22, 1996]

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs. HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY, respondents. DECISION
VITUG, J.:

Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be contracted or incurred? This question is the core issue in the instant petition for review on certiorari. Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic Corporation," executed on 27 June 1978, for and in behalf of the company, a chattel mortgage in favor of private respondent Producers Bank of the

Philippines. The mortgage stood by way of security for petitioner's corporate loan of three million pesos (P3,000,000.00). A provision in the chattel mortgage agreement was to this effect "(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or obligations above-stated according to the terms thereof, then this mortgage shall be null and void. x x x. "In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory note or notes and/or accommodations without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof. This mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracted before, during or after the constitution of this mortgage."iii[1]

In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it obtained from respondent bank additional financial accommodations totalling P2,700,000.00.iii[2] These borrowings were on due date also fully paid. On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one million pesos (P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due to financial constraints, the loan was not settled at maturity. iii[3] Respondent bank thereupon applied for an extrajudicial foreclosure of the chattel mortgage, hereinbefore cited, with the Sheriff of Caloocan City, prompting petitioner corporation to forthwith file an action for injunction, with damages and a prayer for a writ of preliminary injunction, before the Regional Trial Court of Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations, aforequoted, of the chattel mortgage. Petitioner corporation appealed to the Court of Appealsiii[4] which, on 14 August 1991, affirmed, "in all respects," the decision of the court a quo. The motion for reconsideration was denied on 24 January 1992. The instant petition interposed by petitioner corporation was initially denied on 04 March 1992 by this Court for having been insufficient in form and substance. Private respondent filed a motion to dismiss the petition while petitioner corporation filed a compliance and an opposition to private respondent's motion to dismiss. The Court denied petitioner's first motion for reconsideration but granted a second motion for reconsideration, thereby reinstating the petition and requiring private respondent to comment thereon.iii[5] Except in criminal cases where the penalty of reclusion perpetua or death is

imposediii[6] which the Court so reviews as a matter of course, an appeal from judgments of lower courts is not a matter of right but of sound judicial discretion. The circulars of the Court prescribing technical and other procedural requirements are meant to weed out unmeritorious petitions that can unnecessarily clog the docket and needlessly consume the time of the Court. These technical and procedural rules, however, are intended to help secure, not suppress, substantial justice. A deviation from the rigid enforcement of the rules may thus be allowed to attain the prime objective for, after all, the dispensation of justice is the core reason for the existence of courts. In this instance, once again, the Court is constrained to relax the rules in order to give way to and uphold the paramount and overriding interest of justice. Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship, the faithful performance of the obligation by the principal debtor is secured by the personal commitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property - in pledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit upon the essential condition that if the principal obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of the obligation,iii[7] but that should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory characteriii[8] of the agreement. As the law so puts it, once the obligation is complied with, then the contract of security becomes, ipso facto, null and void.iii[9] While a pledge, real estate mortgage, or antichresis may exceptionally secure afterincurred obligations so long as these future debts are accurately described, iii[10] a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law. iii[11] Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an

affidavit is not appended to the agreement, the chattel mortgage would still be valid between the parties (not against third persons acting in good faith iii[12]), the fact, however, that the statute has provided that the parties to the contract must execute an oath that "x x x (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud."iii[13]

makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al., iii[14] the Court said "x x x A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are made and not from the date of the mortgage."iii[15]

The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to exist coincidentally with the full payment of the P3,000,000.00 loan,iii[16] there no longer was any chattel mortgage that could cover the new loans that were concluded thereafter. We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a specific finding on the amount of damages it has sustained "as a result of the unlawful action taken by respondent bank against it." iii[17] This prayer is not reflected in its complaint which has merely asked for the amount of P3,000,000.00 by way of moral damages.iii[18] In LBC Express, Inc. vs. Court of Appeals,iii[19] we have said:
"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life - all of which cannot be suffered by respondent bank as an artificial person."iii[20]

While Chua Pac is included in the case, the complaint, however, clearly states that he has merely been so named as a party in representation of petitioner corporation. Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It instead turned out to be, however, a source of disappointment for this Court to read in petitioner's reply to private respondent's comment on the petition his socalled "One Final Word;" viz:
"In simply quoting in toto the patently erroneous decision of the trial court, respondent Court of Appeals should be required to justify its decision which completely

disregarded the basic laws on obligations and contracts, as well as the clear provisions of the Chattel Mortgage Law and well-settled jurisprudence of this Honorable Court; that in the event that its explanation is wholly unacceptable, this Honorable Court should impose appropriate sanctions on the erring justices. This is one positive step in ridding our courts of law of incompetent and dishonest magistrates especially members of a superior court of appellate jurisdiction."iii[21] (Italics supplied.)

The statement is not called for. The Court invites counsel's attention to the admonition in Guerrero vs. Villamor;iii[22] thus:
"(L)awyers x x x should bear in mind their basic duty `to observe and maintain the respect due to the courts of justice and judicial officers and x x x (to) insist on similar conduct by others.' This respectful attitude towards the court is to be observed, `not for the sake of the temporary incumbent of the judicial office, but for the maintenance of its supreme importance.' And it is `through a scrupulous preference for respectful language that a lawyer best demonstrates his observance of the respect due to the courts and judicial officers x x x.'"iii[23]

The virtues of humility and of respect and concern for others must still live on even in an age of materialism. WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without prejudice to the appropriate legal recourse by private respondent as may still be warranted as an unsecured creditor. No costs. Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the courts. SO ORDERED. Kapunan and Hermosisima, Jr., JJ., concur. Padilla, J., took no part in view of lessor-lessee relationship with respondent bank. Bellosillo, J., on leave.

20.

FIRST DIVISION

[G.R. No. 116363. December 10, 1999]

A chattel mortgaged may be sold or alienated by the MORTGAGOR only if consent therefor was given by the MORTGAGEE. The introduction of a new party -- the BUYER -- is tantamount to novation of the

mortgage contract, where the BUYER now becomes the new MORTGAGOR. Thus, the consent of the MORTGAGEE is required to effect the novation (subrogation).

SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner, vs. THE HON. COURT OF APPEALS, JESUS PONCE, and ELIZABETH PONCE, respondents. DECISION
YNARES-SANTIAGO, J.:

This controversy is between a mortgagor who alienated the mortgaged property without the consent of the mortgagee, on the one hand, and the assignee of the mortgagee to whom the latter assigned his credit without notice to the mortgagor, on the other hand. Sometime in 1975, respondent spouses Atty. Jesus and Elizabeth Ponce bought on installment a Holden Torana vehicle from C. R. Tecson Enterprises. They executed a promissory note and a chattel mortgage on the vehicle dated December 24, 1975 in favor of the C. R. Tecson Enterprises to secure payment of the note. The mortgage was registered both in the Registry of Deeds and the Land Transportation Office. On the same date, C.R. Tecson Enterprises, in turn, executed a deed of assignment of said promissory note and chattel mortgage in favor of Filinvest Credit Corporation with the conformity of respondent spouses. The latter were aware of the endorsement of the note and the mortgage to Filinvest as they in fact availed of its financing services to pay for the car. In 1976, respondent spouses transferred and delivered the vehicle to Conrado R. Tecson by way of sale with assumption of mortgage. Subsequently, in 1978, Filinvest assigned all its rights and interest over the same promissory note and chattel mortgage to petitioner Servicewide Specialists Inc. without notice to respondent spouses. Due to the failure of respondent spouses to pay the installments under the promissory note from October 1977 to March 1978, and despite demands to pay the same or to return the vehicle, petitioner was constrained to file before the Regional Trial Court of Manila on May 22, 1978 a complaint for replevin with damages against them, docketed as Civil Case No. 115567. In their answer, respondent spouses denied any liability claiming they had already returned the car to Conrado Tecson pursuant to the Deed of Sale with Assumption of Mortgage. Thus, they filed a third party complaint against Conrado Tecson praying that in case they are adjudged liable to petitioner, Conrado Tecson should reimburse them. After trial, the lower court found respondent spouses jointly and solidarily liable to petitioner, however, the third party defendant Conrado Tecson was ordered to reimburse the respondent spouses for the sum that they would pay to petitioner.v[1] On appeal, the Court of Appeals reversed and set aside the judgment of the court a quo on the principal ground that respondent spouses were not notified of the assignment of the promissory note and chattel mortgage to petitioner.v[2] Hence, this petition for review. The resolution of the petition hinges on whether the assignment of a credit requires notice to the debtor in order to bind him. More specifically, is the debtor-mortgagor who sold the property to another entitled to notice of the assignment of credit made by the creditor to another party

such that if the debtor was not notified of the assignment, he can no longer be held liable since he already alienated the property? Conversely, is the consent of the creditor-mortgagee necessary when the debtor-mortgagor alienates the property to a third person? Only notice to the debtor of the assignment of credit is required. His consent is not required. In contrast, consent of the creditor-mortgagee to the alienation of the mortgaged property is necessary in order to bind said creditor. To evade liability, respondent spouses invoked Article 1626 of the Civil Code which provides that the debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation. They argue that they were not notified of the assignment made to petitioner. This provision, however, is applicable only where the debtor pays the creditor prior to acquiring knowledge of the latters assignment of his credit. It does not apply, nor is it relevant, to cases of non-payment after the debtor came to know of the assignment of credit. This is precisely so since the debtor did not make any payment after the assignment. In the case at bar, what is relevant is not the assignment of credit between petitioner and its assignor, but the knowledge or consent of the creditors assignee to the debtor-mortgagors sale of the property to another. When the credit was assigned to petitioner, only notice to but not the consent of the debtormortgagor was necessary to bind the latter. Applying Article 1627 of the Civil Code,v[3] the assignment made to petitioner includes the accessory rights such as the mortgage. Article 2141, on the other hand, states that the provisions concerning a contract of pledge shall be applicable to a chattel mortgage, such as the one at bar, insofar as there is no conflict with Act No. 1508, the Chattel Mortgage Law. As provided in Article 2096 in relation to Article 2141 of the Civil Code,v[4] a thing pledged may be alienated by the pledgor or owner with the consent of the pledgee. This provision is in accordance with Act No. 1508 which provides that a mortgagor of personal property shall not sell or pledge such property, or any part thereof, mortgaged by him without the consent of the mortgagee in writing on the back of the mortgage and on the margin of the record thereof in the office where such mortgage is recorded.v[5] Although this provision in the chattel mortgage has been expressly repealed by Article 367 of the Revised Penal Code, yet under Article 319 (2) of the same Code, the sale of the thing mortgaged may be made provided that the mortgagee gives his consent and that the same is recorded.v[6] In any case, applying by analogy Article 2128 of the Civil Codev[7] to a chattel mortgage, it appears that a mortgage credit may be alienated or assigned to a third person. Since the assignee of the credit steps into the shoes of the creditor-mortgagee to whom the chattel was mortgaged, it follows that the assignees consent is necessary in order to bind him of the alienation of the mortgaged thing by the debtor-mortgagor. This is tantamount to a novation. As the new assignee, petitioners consent is necessary before respondent spouses alienation of the vehicle can be considered as binding against third persons. Petitioner is considered a third person with respect to the sale with mortgage between respondent spouses and third party defendant Conrado Tecson. In this case, however, since the alienation by the respondent spouses of the vehicle occurred prior to the assignment of credit to petitioner, it follows that the former were not bound to obtain the consent of the latter as it was not yet an assignee of the credit at the time of the alienation of the mortgaged vehicle. The next question is whether respondent spouses needed to notify or secure the consent of

petitioners predecessor to the alienation of the vehicle. The sale with assumption of mortgage made by respondent spouses is tantamount to a substitution of debtors. In such case, mere notice to the creditor is not enough, his consent is always necessary as provided in Article 1293 of the Civil Code.v[8] Without such consent by the creditor, the alienation made by respondent spouses is not binding on the former. On the other hand, Articles 1625,v[9] 1626v[10] and 1627 of the Civil Code on assignment of credits do not require the debtors consent for the validity thereof and so as to render him liable to the assignee. The law speaks not of consent but of notice to the debtor, the purpose of which is to inform the latter that from the date of assignment he should make payment to the assignee and not to the original creditor. Notice is thus for the protection of the assignee because before said date, payment to the original creditor is valid. When Tecson Enterprises assigned the promissory note and the chattel mortgage to Filinvest, it was made with respondent spouses tacit approval. When Filinvest in turn, as assignee, assigned it further to petitioner, the latter should have notified the respondent spouses of the assignment in order to bind them. This, they failed to do. The testimony of petitioners witness that notice of assignment was sent to respondent spouses was stricken off the record. Having asserted the affirmative on the issue of notice, petitioner should have substantiated its allegations in order to obtain a favorable judgment. In civil cases, the burden is on the party who would be defeated if no evidence is given on either side.v[11] Being the plaintiff in the trial below, petitioner must establish its case, relying on the strength of its own evidence and not upon the weakness of that of its opponent.v[12] The consent to the assignment given by respondent spouses to Filinvest cannot be construed as the spouses knowledge of the assignment to petitioner precisely because at the time of the assignment to the latter, the spouses had earlier sold the vehicle to another. One thing, however, that militates against the posture of respondent spouses is that although they are not bound to obtain the consent of the petitioner before alienating the property, they should have obtained the consent of Filinvest since they were already aware of the assignment to the latter. So that, insofar as Filinvest is concerned, the debtor is still respondent spouses because of the absence of its consent to the sale. Worse, Filinvest was not even notified of such sale. Having subsequently stepped into the shoes of Filinvest, petitioner acquired the same rights as the former had against respondent spouses. The defenses that could have been invoked by Filinvest against the spouses can be successfully raised by petitioner. Therefore, for failure of respondent spouses to obtain the consent of Filinvest thereto, the sale of the vehicle to Conrado R. Tecson was not binding on the former. When the credit was assigned by Filinvest to petitioner, respondent spouses stood on record as the debtor-mortgagor. WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial Court is AFFIRMED and REINSTATED. Respondents Jesus Ponce and Elizabeth Ponce are ORDERED to pay petitioner, jointly and severally, the following sums:
a) P26,633,09, plus interest at 14% per annum from April 26, 1978 until fully paid; b) 25% of the above sum in item (a) as liquidated damages; c) P5,000.00 as attorneys fees; and d) costs of suit.

In connection with the Third Party Complaint of the respondents, the third party defendant Conrado Tecson is hereby ordered to reimburse respondents Ponce for all the sums the latter would pay to petitioner, and attorneys fees of P3,000.00. SO ORDERED. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
Facts: D purchased on credit a vehicle from P evidenced by a promissory note to be paid on installments, secured by a chattel mortgage over the vehicle. D failed to pay so P demanded possession of vehicle. A, who bought the vehicle from another 3rd party, filed 3rd a party claim contending absolute ownership over the property.

The central issue is: whether or not petitioner should have applied the installment payments made by private respondents for the payment of the car to the payment of the insurance premiums without prior notice to private respondents. While it is true that the Chattel Mortgage does not say that notice to the mortgagor of the renewal of the insurance premium by the mortgagee is necessary, at the same time, there is no provision that authorizes petitioner to apply the payments made to it for the payment of the chattel to the payment of the said premiums. Furthermore, even if the car were not covered with the proper insurance, there is nothing in the provisions of the Chattel Mortgage that authorizes petitioner to apply previous payments for the car to the insurance. What it states is that petitioner is not obligated to convert any of the installments made by private respondents for the car to the payment for the renewal of the insurance. Should it decide to do so, it has to send notice to private respondents who had already paid in full the principal indebtedness.

21

BPI Family Savings Bank, Inc. Vs. Ma. Arlyn T. Avenido & Pacifico Avenido
Published on March 8th, 2012 Leave your thoughts

Republic of the Philippines Supreme Court Manila FIRST DIVISION G.R. No. 175816 BPI FAMILY SAVINGS BANK, INC., Petitioner - versus MA. ARLYN T. AVENIDO & PACIFICO A. AVENIDO, Respondents Promulgated: December 7, 2011 x- - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION LEONARDO-DE CASTRO, J.: This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the Decision[1] dated March 31, 2006 of the Court of Appeals in CA-G.R. CV No. 79008, which affirmed the Decision[2] dated November 13, 2002 of the Regional Trial Court (RTC), Branch 58 of Cebu City, in Civil Case No. CEB-25629. The RTC dismissed the Complaint for Collection of Deficiency of Mortgage Obligation with Damages filed by petitioner BPI Family Savings Bank (BPI Family) against respondent spouses Pacifico A. Avenido and Ma. Arlyn T. Avenido (spouses Avenido), following the extrajudicial foreclosure of the property given by the latter as security for their loan. The instant Petition likewise challenges the Resolution[3] dated November 16, 2006 of the Court of Appeals in the same case denying the Motion for Reconsideration of BPI Family. The controversy arose from the following facts.

On September 20, 2000, BPI Family filed with the RTC a Complaint for Collection of Deficiency of Mortgage Obligation with Damages against the spouses Avenido, docketed as Civil Case No. CEB-25629. BPI Family alleged in its Complaint that pursuant to a Mortgage Loan Agreement[4] dated April 25, 1996, the spouses Avenido obtained from the bank a loan in the amount of P2,000,000.00, secured by a real estate mortgage on a parcel of land situated in Bais City, which is covered by Transfer Certificate of Title (TCT) No. T-1216 (mortgaged/foreclosed property). The spouses Avenido failed to pay their loan obligation despite demand, prompting BPI Family to institute before the Sheriff of Bais City extrajudicial foreclosure proceedings over the mortgaged property, in accordance with Act No. 3135, otherwise known as an Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. At the public auction sale held on March 8, 1999, BPI Family was the highest bidder for the foreclosed property. The bid price of P2,142,616.00 of BPI Family was applied as partial payment of the mortgage obligation of the spouses Avenido, which had amounted to P2,917,381.43 on the date of the public auction sale, thus, still leaving an unpaid amount of P794,765.43. The Certificate of Sale dated March 8, 1999 was registered on TCT No. T-1216 on May 25, 1999.[5] BPI Family prayed that the RTC order the spouses Avenido to pay the deficiency of their mortgage obligation amounting to P794,765.43, plus legal interest thereon from the date of the filing of the Complaint until full payment; 15% as contractual attorneys fees; P50,000.00 as litigation expenses; and costs of the suit.[6] The spouses Avenido filed their Answer with Special/Affirmative Defenses and Counterclaims on September 18, 2001. The spouses Avenido averred therein that they had already paid a substantial amount to BPI Family, which could not be less than P1,000,000.00, but due to the imposition by BPI Family of unreasonable charges and penalties on their principal obligation, their payments seemed insignificant. Per the Notice of Extrajudicial Sale dated February 4, 1999, the spouses Avenidos indebtedness to BPI Family only amounted to less than P2,000,000.00, and such amount was already fully covered when the foreclosed property was sold at the public auction for P2,142,616.00. The spouses Avenido sought the dismissal of the Complaint for lack of merit, plus the award of P500,000.00 as moral damages and P300,000.00 as exemplary damages given the prejudice and unnecessary expenses they suffered because of the unjustified suit of BPI Family.[7] Failing to reach an amicable settlement during the pre-trial conference, trial ensued. BPI Family submitted the following computation in support of its claim for deficiency mortgage obligation from the spouses Avenido: AUCTION SALE: MARCH 8, 1999 Principal Balance P 1,918,722.47 Interest 266,754.66

Fire Insurance 1997-1998 6,725.00 1998-1999 6,725.00 Unpaid MRI 10,720.00 Late Charges 37,425.46 Less: Unapplied (0.18) Sub-total 2,247,072.41 Foreclosure Expenses Filing Fee P 5,719.60 Sheriffs Fee 1,500.00 Cost of Publication 5,000.00 Interest on Litigation Expenses 232.17 12,451.77 2,259,524.18 Contractual Penalties Attorneys fees 338,928.63 Liquidated Damages 338,928.63 Total 2,937,381.43 Total Appraised Value as of 03/05/99 2,678,270.00 80% of TAV 2,142,616.00

Summary: Total Exposure as of 03/08/99 2,937,381.43 Bid Price (lower amt. between total exposure or 80% of TAV) 2,142,616.00 Deficiency 794,765.43 Portion of Principal covered by bid price to be retained in IL 0.00[8] BPI Family presented as witness Alfred Rason (Rason), the Assistant Manager for Operation, who was in charge of keeping track and collecting unpaid obligations of the bank. Rason testified that in the Petition for Extrajudicial Foreclosure, BPI Family reported that the loan obligation of the spouses Avenido amounted to P1,918,722.47, inclusive of interest, penalty charges, insurance, foreclosure expenses, and others, as of November 16, 1998. However, as of the public auction sale of the foreclosed property on March 8, 1999, the total loan obligation of the spouses Avenido already reached P2,937,381.43. The foreclosed property was awarded to BPI Family as the highest bidder at the public auction sale for P2,142,616.00. The bid price was arrived at by BPI Family following bank policy, i.e., total exposure of claim or 80% of the total appraised value of the foreclosed property, whichever is lower. In a letter dated July 8, 2000, sent to the spouses Avenido through registered mail, counsel for BPI family demanded payment of the deficiency balance of P794,766.43 on the loan obligation of said spouses.[9] When respondent Ma. Arlyn T. Avenido (Arlyn) took the witness stand, she admitted that she and her husband, co-respondent Pacifico A. Avenido (Pacifico), obtained from BPI Family a Motor Vehicle Loan in 1995 and a Home Mortgage Loan in 1996. The Home Mortgage Loan was for P2,000,000.00, payable in 15 years through debit memos (or automatic debit arrangement), instead of post-dated checks. The spouses Avenido failed to make some payments in 1998. The spouses Avenido subsequently deposited with their account at BPI Family branch in Bais City, Negros Occidental, the amount of P250,000.00, which would have been sufficient to cover their arrears; as well as made arrangements with Dumaguete City Rural Bank to buy out their loan from BPI Family. Yet, in February 1999, the spouses Avenido learned of the foreclosure proceedings over their mortgaged property only from court personnel. BPI Family never communicated with the spouses Avenido about the foreclosure proceedings except when the former sent the latter a demand letter in July 2000 for the P700,000.00 deficiency. Counsel for the spouses Avenido answered BPI Family through a letter dated August 2, 2000, stating that the demand of the bank for deficiency was not only surprising, but lacked basis in fact and in

law, for the mortgaged property was already foreclosed and sold at the public auction for P2,142,616.00, which was more than the P1,918,722.47 loan obligation of the spouses Avenido. Next thing the spouses Avenido knew, BPI Family had filed Civil Case No. CEB-25629 against them. In addition, the spouses Avenido had already fully paid their Motor Vehicle Loan in 1999, but BPI Family refused to release the Hi-Lux from the mortgage constituted thereon. BPI Family attached the Hi-Lux to cover the deficiency of the spouses Avenido on their home loan obligation. Due to the aforementioned acts of BPI Family, Arlyn suffered sleepless nights and humiliation. Hence, she prayed for the award of moral and exemplary damages and attorneys fees and the release of the Hi-Lux.[10] The RTC rendered its Decision on November 13, 2002. According to the RTC, the principal issue to be resolved was whether or not [BPI Family] is entitled to deficiency judgment, which includes a determination of the existence of the right to recover deficiency, and how much, if any.[11] At the outset, the RTC recognized that in an extrajudicial foreclosure, the mortgagee has a right to recover deficiency where the proceeds of the sale are insufficient to cover the debt: Although Act 3135 is silent on the mortgagees right to recover the deficiency where the proceeds of the sale is insufficient to cover the debt, it is now well-settled that said mortgagee has the right to recover the deficiency. (PB Com v. De Vera, 6 SCRA 1026; DBP v. Vda. de Noel, 43 SCRA 82; DBP v. Zaragosa, 84 SCRA 668.). The reasons advanced are 1) Although Act 3135 discusses nothing as to the mortgagees right to recover such deficiency, neither is there any provision thereunder which expressly or impliedly prohibits such recovery; and 2) now Rule 68 on judicial foreclosure expressly grants to the mortgagee the right to recover deficiency and the underlying principle is the same for extra-judicial foreclosure that the mortgage is but a security and not a satisfaction of indebtedness. In the case of DBP v. Tomeldon, 101 SCRA 171, the Supreme Court ruled that the action to recover the deficiency prescribes after ten (10) years from the time the right to action accrues x x x. Thus, in the case at bar the mortgagees right and the period the said right is enforced are not contested. What is essentially in controversy is whether there is a deficiency and how much.[12] The RTC then determined the total amount of the loan obligation of the spouses Avenido as follows: In the Mortgage Loan Agreement (Exhibits A and I) the due execution and genuineness of which are admitted by both parties, the [spouses Avenido] obligated themselves as BorrowerMortgagor to pay [BPI Family] the aggregate principal amount of TWO HUNDRED TWO MILLION PESOS (P202,000,000.00) and interest on the unpaid balance from the date thereof until paid in full on the repayment dates. It further provides that in case the mortgagee fails to pay any of the sums secured, the mortgagor has the right to declare the entire obligation due and

payable and to foreclose the mortgage. Moreover, Exhibit A-2 shows that the proceeds of sale of the mortgaged property shall be applied as follows: a) to the payment of the expenses and cost of foreclosure and sale, including the attorneys fees as herein provided; b) to the satisfaction of all interest and charges accruing upon the obligation herein and hereby secured; c) to the satisfaction of the principal amount of the obligation herein and hereby secured; d) to the satisfaction of all other obligation then owed to the bank or any of its subsidiaries. The balance, if any, to be due to the mortgagor. Finally, the attorneys fees stipulated is 15% of the total amount claimed by the bank (Exhibit A-3). The Court, however, finds no stipulation as regards liquidated damages. xxxx This Court is not convinced that [spouses Avenidos] total indebtedness should only be ONE MILLION NINE HUNDRED EIGHTEEN THOUSAND SEVEN HUNDRED TWENTY[]TWO [PESOS] AND FORTY[-]SEVEN [CENTAVOS] (P1,918,722.47) because the Notice of Extra-Judicial Sale (Exhibit 3) itself states x x x to satisfy the mortgaged indebtedness which as of November 16, 1998 amount to ONE MILLION NINE HUNDRED EIGHTEEN THOUSAND SEVEN HUNDRED TWENTY[-]TWO AND FORTY[-]SEVEN CENTAVOS (P1,918,722.47) plus interest and penalty charges thereon from June 30, 1998 to date of the foreclosure sale, attorneys fees and necessary expenses for foreclosure x x x. Foreclosure is not a single process and it is not therefore correct to conclude that what is material is the petition for extra-judicial sale nor the date of the filing of the application. Thus, the Court gives credence to [BPI Familys] Exhibit C but not including the claim for liquidated damages in the sum of THREE HUNDRED THIRTY[-]EIGHT THOUSAND NINE HUNDRED TWENTY PESOS AND SIXTY[-]THREE CENTAVOS (P330,920.63) because it has no basis whatsoever. Thus the total amount due is TWO MILLION FIVE HUNDRED NINETY[-]EIGHT THOUSAND FOUR HUNDRED FIFTY[-]TWO PESOS AND EIGHTY CENTAVOS (P2,598,452.80). x x x.[13] More than just reducing the total loan obligation of the spouses Avenido to P2,598,452.80, the RTC, in the end, denied the claim for deficiency of BPI Family based on the following ratiocination: [T]he Court finds very significant the admission by [BPI Familys] witness that the appraised value of the foreclosed property is actually TWO MILLION SIX HUNDRED SEVENTY[]EIGHT THOUSAND TWO HUNDRED SEVENTY PESOS (P2,678,270.00) but [BPI Family] bidded only for 80% of the value as a matter of bank policy (TSN Afredo Rason, Aug. 6, 2002, p. 17). In other words, the actual market value of the property is more than the amount of TWO MILLION FIVE HUNDRED NINETY[-]EIGHT THOUSAND FOUR HUNDRED FIFTY[]TWO PESOS AND EIGHTY CENTAVOS (P2,598,452.80).

Under this circumstance, it would be inequitable to still grant the [BPI Familys] prayer for deficiency as it will be in effect allowing it to unjustly enrich itself at the expense of the [spouses Avenido].[14] Hence, the RTC decreed: Accordingly, the [BPI Familys] complaint and [spouses Avenidos] counterclaim are DISMISSED.[15] Aggrieved by the RTC judgment, BPI Family filed an appeal before the Court of Appeals, docketed as CA-G.R. CV No. 79008, with a lone assignment of error, to wit: THE LOWER COURT ERRED IN NOT HOLDING [THE SPOUSES AVENIDO] LIABLE TO [BPI FAMILY] FOR DEFICIENCY OF THE MORTGAGE OBLIGATION.[16] In its Decision promulgated on March 31, 2006, the Court of Appeals ruled: A careful scrutiny of the arguments presented in the case at bar yields no substantial and convincing reason for us to depart from the ruling found by the trial court x x x. xxxx Indubitably, mortgagors whose properties a foreclosed and are purchased by the mortgagee as highest bidder at the auction sale are decidedly at a great disadvantage because almost invariably, mortgagors forfeit their properties at a great loss as they are purchased at a nominal cost by the mortgagee himself, who ordinarily bids in no more than his credit or the balance thereof at the auction sale. More importantly, the mortgage contract is also one of adhesion as it was prepared solely by [BPI Family] and the only participation of the [spouses Avenido] was the affixing of their signatures or adhesion thereto. Under such contracts, which are common in the Philippines and elsewhere, the lending institutions are free to require borrowers to provide assets, like real property, of much higher value than the desired loan amount, as collateral. Being a contract of adhesion, the mortgage is to be strictly construed against [BPI Family], the party which prepared the agreement. In the case at bar, the intent of [BPI Family] is manifest that the [spouses Avenido] shall assume liability not only for the entire obligation mentioned in the mortgage but beyond, which is improper, as it will defeat the purpose of the foreclosure proceedings which is to answer or satisfy the principal obligation in case of default or non payment thereof. Moreover, for all intents and purposes, we hold that [spouses Avenido] shall not be liable to pay for the deficiency of their mortgage obligation because it will be at their great disadvantage considering that their property was purchased at a nominal cost by [BPI Family] at the auction sale. As a matter [of] fact, there was an admission made by [BPI Familys] witness that the

amount of the bid was only 80% of the actual price of the property. This is unfair on the part of the [spouses Avenido]. Besides, if mortgagees were allowed such right, the debtors would be at the mercy of their creditors considering the summary nature of extrajudicial foreclosure proceedings. It is also worthy to note the limited readership of auction sale notices which lead to the sale. Accordingly, We upheld the ruling of the court a quo in absolving the [spouses Avenido] from any liability corresponding to the amount of deficiency of mortgage obligation as it will in effect be allowing [BPI Family] to unjustly enrich itself at the expense of the [spouses Avenido].[17] The dispositive of the Court of Appeals judgment reads: WHEREFORE, premises considered, the assailed Decision dated November 13, 2002 of the Regional Trial Court, Cebu City, 7th Judicial Region, Branch 58, in Civil Case No. CEB-25629, is hereby AFFIRMED. No pronouncement as to costs.[18] In its Resolution dated November 16, 2006, the Court of Appeals denied the Motion for Reconsideration of BPI Family since the arguments set forth therein were but a rehash, repetition and/or reinstatement of the arguments/matters already passed upon and extensively discussed by the appellate court in its earlier decision. Hence, the present Petition for Review of BPI Family with the following assignment of errors: I WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RENDERING ITS DECISION (ANNEX A) AND RESOLUTION (ANNEX B) DECLARING THAT [BPI FAMILY] IS NOT ENTITLED TO ITS CLAIM AGAINST THE [SPOUSES AVENIDO] FOR DEFICIENCY OF MORTGAGE OBLIGATION DESPITE THE EXPRESS PROVISIONS OF THE MORTGAGE LAW AND NUMEROUS JURISPRUDENCE ENTITLING THE MORTGAGEE-[BPI FAMILY] TO THE SAME. II WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT BASED ITS FINDING THAT THERE IS NO MORE DEFICIENCY OF MORTGAGE OBLIGATION BY COMPARING THE MARKET VALUE OF THE FORECLOSED PROPERTY AGAINST THE LOAN OBLIGATION OF THE MORTGAGORS-RESPONDENTS INSTEAD OF COMPARING THE ACTUAL BID PRICE AT THE AUCTION SALE AGAINST THE LOAN OBLIGATION OF THE MORTGAGORS[SPOUSES AVENIDO].[19]

The primary issue posed before us is whether or not BPI Family is still entitled to collect the deficiency mortgage obligation from the spouses Avenido in the amount ofP455,836.80, plus interest. We answer in the affirmative. It is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. While Act No. 3135, as amended, does not discuss the mortgagees right to recover the deficiency, neither does it contain any provision expressly or impliedly prohibiting recovery. If the legislature had intended to deny the creditor the right to sue for any deficiency resulting from the foreclosure of a security given to guarantee an obligation, the law would expressly so provide. Absent such a provision in Act No. 3135, as amended, the creditor is not precluded from taking action to recover any unpaid balance on the principal obligation simply because he chose to extrajudicially foreclose the real estate mortgage.[20] It is no longer challenged before us that the outstanding loan obligation of the spouses Avenido amounted to P2,598,452.80, inclusive of interests, penalties, and charges, by March 8, 1999. The controversy herein now only revolves around the value to be attributed to the foreclosed property, which would be applied against the outstanding loan obligation of the spouses Avenido to BPI Family. BPI Family insists that it should be P2,142,616.00, its winning bid price for the foreclosed property at the public auction sale, which, being less than the outstanding loan obligation of the spouses Avenido, will still leave a deficiency collectible by BPI Family from the spouses Avenido in the amount ofP455,836.80. The spouses Avenido maintain that, as the RTC and the Court of Appeals ruled, it should be P2,678,270.00, the fair market value of the foreclosed property, which, being more than the outstanding loan obligation of the spouses Avenido, will already fully settle their indebtedness. The spouses Avenido, the RTC, and the Court of Appeals may not have said it outright, but they actually consider the winning bid of BPI Family for the foreclosed property at the public auction sale to be insufficient. They took exception to the fact that the winning bid of BPI Family was equivalent to only 80% of the appraised value of the mortgaged property. The RTC and the Court of Appeals even went as far as to refer to the amount of the winning bid of BPI Family as nominal and unfair and would unjustly enrich the bank at the expense of the spouses Avenido. So the RTC and the Court of Appeals disregarded the winning bid of BPI Family and applied instead the fair market value of the foreclosed property against the outstanding loan obligation of the spouses Avenido. According to Section 4 of Act No. 3135, an extrajudicial foreclosure sale of a mortgaged real property shall be conducted as follows: SEC. 4. Public Auction. The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality in which such sale has to

be made, or a notary public of said municipality, who shall be entitled to collect a fee of five pesos for each day of actual work performed, in addition to his expenses. Notably, the aforequoted provision does not mention any minimum bid at the public auction sale. There is no legal basis for requiring that the bid should at least be equal to the market value of the foreclosed property or the outstanding obligation of the mortgage debtor. We have consistently held in previous cases that unlike in an ordinary sale, inadequacy of the price at a forced sale is immaterial and does not nullify the sale. In fact, in a forced sale, a low price is more beneficial to the mortgage debtor for it makes redemption of the property easier. Section 6 of Act No. 3135 provides for the redemption of an extrajudicially foreclosed property within a one-year period, to wit: Sec. 6. Redemption. In all cases in which an extrajudicial sale is made under the special power herein before referred to, the debtor, his successors-in-interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act. (Emphasis ours.) Republic Act No. 337, the General Banking Act, as amended, in force at the time of the herein transactions, had a specific provision on the redemption of property extrajudicially foreclosed by banks, which reads: Sec. 78. Loans against real estate security shall not exceed seventy percent (70%) of the appraised value of the respective real estate security, plus seventy percent (70%) of the appraised value of the insured improvements, and such loans shall not be made unless title to the real estate shall be in the mortgagor. In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in order of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. However, the purchaser at the auction sale concerned in a judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale by the court and administer the same in accordance with law. (Emphasis ours.)

If the foreclosed property is registered, the mortgagor has one year within which to redeem the property from and after registration of sale with the Register of Deeds.[21] We explained in Prudential Bank v. Martinez[22] that: [T]he fact that the mortgaged property is sold at an amount less than its actual market value should not militate against the right to such recovery. We fail to see any disadvantage going for the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by the reason of the price obtained at the auction sale. Generally, in forced sales, low prices are usually offered and the mere inadequacy of the price obtained at the sheriffs sale unless shocking to the conscience will not be sufficient to set aside a sale if there is no showing that in the event of a regular sale, a better price can be obtained.[23] (Citations omitted.) We elucidated further in New Sampaguita Builders Construction Inc. v. Philippine National Bank[24] that: In the accessory contract of real mortgage, in which immovable property or real rights thereto are used as security for the fulfillment of the principal loan obligation, the bid price may be lower than the propertys fair market value. In fact, the loan value itself is only 70 percent of the appraised value. As correctly emphasized by the appellate court, a low bid price will make it easier for the owner to effect redemption by subsequently reacquiring the property or by selling the right to redeem and thus recover alleged losses. x x x.[25] In Hulst v. PR Builders, Inc.,[26] we reiterated that: [G]ross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks ones conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption. When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption. x x x.[27] In line with the foregoing jurisprudence, we refuse to consider the question of sufficiency of the winning bid price of BPI Family for the foreclosed property; and affirm the application of said winning bid in the amount of P2,142,616.00 against the total outstanding loan obligation of the spouses Avenido by March 8, 1999 in the sum of P2,598,452.80, thus, leaving a deficiency of P455,836.80. BPI Family may still collect the said deficiency without violating the principle of unjust enrichment, as opined by the Court of Appeals.

There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. Article 22 of the Civil Code provides that every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The principle of unjust enrichment under Article 22 requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at anothers expense or damage.[28] There is no unjust enrichment to speak of in this case. There is strong legal basis for the claim of BPI Family against the spouses Avenido for the deficiency of their loan obligation. BPI Family made an extrajudicial demand upon the spouses Avenido for the deficiency mortgage obligation in a letter dated July 8, 2000 and received by the spouses Avenido on July 17, 2000. Consequently, we impose the legal interest of 12% per annum on the deficiency mortgage obligation amounting to P455,836.80 from July 17, 2000 until the finality of this Decision. Thereafter, if the amount adjudged remains unpaid, it will be subject to interest at the rate of 12% per annum computed from the time the judgment became final and executory until fully satisfied. WHEREFORE, the Petition is hereby GRANTED. The assailed Decision dated March 31, 2006 and Resolution dated November 16, 2006 of the Court of Appeals inCA-G.R. CV No. 79008, affirming the Decision dated November 13, 2002 of the Regional Trial Court, Branch 58 of Cebu City, in Civil Case No. CEB-25629, is REVERSEDand SET ASIDE. Respondent spouses Ma. Arlyn T. Avenido and Pacifico A. Avenido are ORDERED to pay petitioner BPI Family Savings Bank, Inc. the deficiency of their mortgage obligation in the amount of P455,836.80, plus legal interest of 12% per annum from July 17, 2000 until the finality of this Decision. Thereafter, the amount adjudged shall be subject to legal interest of 12% per annum from the finality of this Decision up to its satisfaction. No cost. SO ORDERED.