January 18, 2017 issues either pending in or already resolved adversely by some other court,' Hence, there is a clear
es either pending in or already resolved adversely by some other court,' Hence, there is a clear showing
G.R. No. 207914
FCD PAWNSHOP AND MERCHANDISING COMPANY, FORTUNATO C. DIONISIO, JR., and FRANKLIN C.
DIONISIO, Petitioners,
vs.
UNION BANK OF THE PHILIPPINES, ATTY. NORMAN R. GABRIEL, ATTY. ENGRACIO M. ESCASINAS, JR.,
and THE REGISTRY OF DEEDS FOR MAKATI CITY, Respondents.
DECISION
DEL CASTILLO, J.:
Assailed in this Petition for Review on Certiorari1are the February 28, 2013 Decision2 of the Court of Appeals
(CA) dismissing the herein petitioners' Petition for Certiorari3in CA-,G.R. SP. No. 126075, and its June 28,
2013 Resolution 4 denying their Motion for Reconsideration5 in said case.
Factual Antecedents
Together with Felicitas Dionisio-Juguilon and Adelaida Dionisio, petitioners Fortunato C. Dionisio, Jr,
(Fortunato) and Franklin C. Dionisio (Franklin) owned FCD Pawnshop and Merchandising Company, which
in turn was the registered owner of a pared of fond in Makati under Transfer Certificate of Title No. (168302)
S-3664, or TCT (168302) S-3664.
In 2009, Fortunato and Franklin entrusted the original owner's copy of TCT (168302) S-3664 to Atty. Rowena
Dionisio. It was later discovered that the said title was used as collateral by Sunyang Mining Corporation
(Sunyang) to obtain a 20 million loan from from respondent Union Bank of the Philippines (UBP).
Civil Case No. 11-116 - for annulment of mortgage
On February 9, 2011, Fortunato and Franklin filed against UBP, Sunyang, the Registry of Deeds of Makati, and
several others Civil Case No. 11-116, a Petition6 to annul the Sunyang mortgage and claim for damages, based
on the premise that TCT (168302) S-3664 was fraudulently mortgaged. The case was assigned to Branch 57
of the Regional Trial Court (RTC) of Makati (Branch 57).
Meanwhile, UBP caused the extrajudicial foreclosure of the subject property, and it bought the same at the
auction sale. In the Notice of Extrajudicial Sale 7 published prior to the auction sale, however, the title to the
subject property was at one point erroneously indicated as "Transfer Certificate of Title No. 163302 (S-
3664);" but elsewhere in the notice, the title was correctly indicated as "Transfer Certificate of Title No.
168302 (S-3664)." The publisher later circulated an Erratum8 admitting its mistake, and it made the
corresponding correction.
Civil Case No. 11-1192 - for annulment of foreclosure sale and certificate of sale
On account of perceived irregularities in the foreclosure and sale proceedings, Fortunato and Franklin filed
in December 2011 a Complaint9 against UBP, the Registry of Deeds of Makati, and several others for
annulment of the extrajudicial foreclosure and certificate of sale issued, with injunctive relief The case was
docketed as Civil Case No. l 1 -1192 and assigned to Branch 133 of the Makati RTC (Branch 133).
In a written opposition, UBP claimed that the filing of Civil Case No. 11-1192 violated the rule against forum
shopping.
Ruling of the Regional Trial Court in Civil Case No. l1-1192
On March 26, 2012, Branch 133 issued an Order10 dismissing Civil Case No. 11-1192 on the ground of forum
shopping. It held:
The instant case involves the Annulment of Extra-Judicial Foreclosure Sale and Certificate of Sale with Prayer
for Temporary Restraining Order and Preliminary Injunction, and Damages. However, a case for Annulment
of Mortgage is still pending before the Regional Trial Court Makati City, Branch 57. The Annulment of Extra-
Judicial Foreclosure Sale and the Annulment of Mortgage involves (sic) the same subject property described
in the Transfer Certificate of Title No. (168302)-S-3664. While the plaintiffs alleged that the issue in the case
before HTC 57 deals with the validity of the mortgage and the issue in the instant case deals with the validity
of the foreclosure sale, this Court finds the same to be interrelated. The ruling on the validity of the
Foreclosure Sale would also deal with the validity of the mortgage. Thus, there would be a possibility that the
ruling on the said validity by this Court would be in conflict with ruling on the Annulment of Mortgage case
which is now pending before the RTC Makati Branch 57.
As the Supreme Court consistently held x x x there is forum shopping when a party repetitively avails of
several judicial remedies in different courts, simultaneously or successively, all substantially founded on the
same transactions and the same essential facts and circumstances, and all raising substantially the same
of forum shopping which is a ground for the dismissal of this case.
WHEREFORE, in view of the foregoing[,] the instant case is hereby DISMISSED on the ground of forum
shopping.
SO ORDERED.11
Fortunato and Franklin moved to reconsider, but the trial court, in a June 14, 2012 Order,12 held its ground,
stating among others that-
In the present case, there is no dispute that the plaintiffs clearly violated Section 4, Rule 2, of the Rules of
Court apparently for splitting a cause of action by filing separately and independently the instant action which
can be best pleaded in the annulment of mortgage earlier lodged.
Certainly, it would be for the best interest and benefit of the parties herein if the present action (annulment
of foreclosure proceeding) is just pleaded as plaintiff's cause of action in the annulment of mortgage first
lodged and now pending before RTC Branch 57, instead of being filed separately to save time and effort. x x x
xxxx
In the final analysis, although it may seem that the two cases contain two separate remedies that arc both
available to the plaintiffs, it cannot be said that the two remedies which arose from one wrongful act can be
pursued in two different cases.
The rule against splitting a cause of action is intended to prevent repeated litigation between the same parties
in regard to the same subject of controversy, to protect the defendant from unnecessary vexation; and to
avoid the costs and expenses incident to numerous suits. It comes from the old maxim nemo debet bis vexari,
pro una et eadem causa (no man shall be twice vexed for one and the same cause).13
Ruling of the Court of Appeals
Petitioners filed an original Petition for Certiorari14before the CA docketed as CA-G.R. SP. No. l26075.
Claiming that there is no forum shopping, they argued that Civil Case No. 11-116 (annulment of mortgage)
and Civil Case No. 11-1192 (annulment of foreclosure and sale proceedings) involve different subject matters;
in the first, the subject is the mortgage constituted on the property and its validity, while the second covers
the foreclosure and sale thereof, as well as the validity thereof; that the evidence required to prove the first
case is not the same as that which must prove the second; that judgments obtained in the two cases will not
be inconsistent with each other; and that the causes of action in both cases are not the same, as in fact the
cause of action in the second case did not exist yet when they filed the first, but accrued only later. They added
that there is no splitting of a single cause of action, and that as between the two cases, there is no identity of
reliefs sought.
On February 28, 2013, the CA rendered the assailed Decision dismissing the Petition, stating thus -
In sum, the lone issue to be resolved is whether petitioners Fortunato and Franklin were guilty of forum-
shopping when they successively filed the Annulment of Mortgage case mid Annulment of Foreclosure Sale
case.
xxxx
Given the foregoing considerations, We hold that petitioners Fortunato and Franklin clearly violated the rule
on forum-shopping as the elements of litis pendentia are present in the case at bench. Consider the following:
Firstly, it is undisputed that there is identity of parties representing the same interests in the two cases, both
involving petitioners x x x and private respondent Bank. Notwithstanding that in the first case, FCD Pawnshop
x x x was not indicated as a party and respondent Sunyang was not impleaded therein, it is evident that the
primary litigants in the two actions are the same.
Secondly, in finding that the other elements of litis pendentia were present in the instant case, We deem it
necessary the case of Goodland Company, Inc. vs. Asia United Bank, et al.15
In Goodland, petitioner initially filed a Complaint for Annulment of Mortgage on the ground that the Real
Estate Mortgage (REM) contract was falsified and irregularly executed. Subsequently, it filed a second case
where it prayed for injunctive relief and/or nullification of the extrajudicial foreclosure sale by reason of,
among others, defective publication of the Notice of Sale and falsification of the REM contract which was the
basis of foreclosure, thus, rendering the latter as similarly null and void. The High Court found petitioner
guilty of forum-shopping ratiocinating that there can be no detem1ination of the validity of the extrajudicial
foreclosure and the propriety of the injunction in the Injunction case without necessarily ruling on the validity
of the REM.
We stress, however, that unlike the Goodland case, the instant controversy involved a situation wherein the
allegations in the Complaint for Annulment of Foreclosure did not explicitly and categorically raise the
falsification of the REM contract as one of the grounds for declaring the annulment of the said foreclosure
sale. Here, petitioners anchored their arguments on the alleged irregularities in the foreclosure proceedings,
i.e., different title numbers in the documents used or issued in the auction sale and that the Petition for
Extrajudicial Foreclosure Sale was filed without authority. Nonetheless, after a careful study of the Goodland
case, We are ever more convinced that the same is still instructive on the issue at hand. Consider the following
pertinent portions of the case:
'x x x There can be no dispute that the prayer for relief in the two cases was based on the same attendant facts
in the execution of REMs over petitioner's properties in favor of AUB. While the extrajudicial foreclosure
of mortgage, consolidation of ownership in AUB and issuance of title in the latter's name were set
forth only in the second case x x x, these were simply the expected consequences of the REM
transaction in the first case x x x. These eventualities are precisely what petitioner sought to avert
when it filed the first case. Undeniably then, the injunctive relief sought against the extrajudicial
foreclosure, as well as the cancellation of the new title in the name of the creditor- mortgagee AUB,
were all premised on the alleged nullity of the REM due to its allegedly fraudulent and irregular
execution and registration - the same facts set forth in the first case. In both cases, petitioner asserted
its right as owner of the property subject of the REM, while AUB invoked the rights of a foreclosing
creditor-mortgagee, x x x
x x x In the first case, petitioner alleged the fraudulent and irregular execution and registration of the
REM which violated its right as owner who did not consent thereto, while in the second case petitioner
cited further violation of its right as owner when AUB foreclosed the property, consolidated its
ownership and obtained a new TCT in its name. Considering that the aforesaid violations of
petitioner's right as owner in the two cases both hinge on the binding effect of the REM, i.e., both cases
will rise or fall on the issue of the validity of the REM, it follows that the same evidence will support
and establish the first and second causes of action. The procedural infirmities or non-compliance with
legal requirements for extrajudicial foreclosure raised in second case were but additional grounds in support
of the injunctive relief sought against the foreclosure which was, in the first place, illegal on account of the
mortgage contract's nullity. Evidently, petitioner never relied solely on the alleged procedural irregularities
in the extrajudicial foreclosure when it sought the reliefs in the second case. x x x'
While in the instant case, the Annulment of Foreclosure Sale was merely founded on irregularities in the
foreclosure proceedings, witl1out deliberately raising the alleged nullity of the REM, the foregoing clearly
suggests that in resolving the said Annulment of Foreclosure Sale case, its determination will still be anchored
upon and premised on the issue of the validity of REM. Parenthetically, should it be found that the mortgage
contract is null and void, the proceedings based thereon shall likewise become ineffectual. The resolution of
the Annulment of Foreclosure Sale case, therefore, is inevitably dependent on the effectivity of the REM
transaction, thus, it can be said that both cases shall be substantially founded on the same transactions, same
essential facts and circumstances.
In addition, as correctly pointed out by the private respondent Bank, a careful scrutiny of the Complaint for
Annulment of Foreclosure shows petitioners Fortunato and Franklin's repeated reference to the subject
property as unlawfully and fraudulently mortgaged. As such, insofar as the determination of the validity of
foreclosure proceedings is concerned, same evidence will have to be utilized as the antecedent facts that gave
rise to both cases were the same.
xxxx
Thirdly, a judgment in the Annulment of Mortgage case will amount to res judicata in the Annulment of
Foreclosure Sale case. It is a principle in res judicata that once a final judgment has been rendered, the
prevailing party also has an interest in the stability of that judgment. To allow relitigation creates the risk of
inconsistent results and presents the embarrassing problem of determining which of two conflicting
decisions is to be preferred. Here, conflicting decisions may result should the Annulment of Foreclosure case
be allowed to proceed.
To stress once again, should RTC Br. 57 rule that the REM contract is null and void, the proceedings based
thereon shall likewise become ineffectual.1wphi1 Considering that both RTC Brs. 57 and 133 will be
confronted (sic) to discuss or make any pronouncement regarding the validity of the REM, the possibility of
conflicting rulings or decisions may be rendered with respect to the said issue. With that, We deem it proper
that petitioners Fortunato and Franklin should have just amended their Complaint for Annulment of
Mortgage, pleading therein the subsequent extrajudicial foreclosure and include in the prayer the
nullification of the said extrajudicial foreclosure.
In view of the foregoing, no grave abuse of discretion can be imputed to public respondent RTC Br. 133 in
finding that petitioners Fortunato and Franklin committed forum-shopping. The instant petition, therefore,
indubitably warrants denial.
WHEREFORE, the petition is DENIED. The a5sailed Orders dated March 26, 2012 and June 14, 2012 of the x
x x Regional Trial Court of Makati City, Branch 133, in Civil Case No. 11-1192, are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.16 (Emphasis in the original)
A Motion for Reconsideration was filed, but the same was denied in a June 28, 2013 Resolution of the CA.
Hence, the present Petition.
In a September 1, 2014 Resolution, 17 the Court resolved to give due course to the instant Petition.1wphi1
Issues
Petitioners essentially point out that in maintaining Civil Case Nos. 11-116 and 11-1192, they are not guilty
of forum shopping, nor did they violate the rule on litis pendentia.
Petitioners' Arguments
In praying that the assailed CA dispositions be set aside, petitioners in their Petition and Reply18 reiterate
the arguments in their CA Petition that, as between Civil Case No. 11-116 (annulment of mortgage) and Civil
Case No. 11-1192 (annulment of foreclosure and sale proceedings), there is no identity of causes of action,
subject matter, issues, and reliefs sought; that both cases require different evidence as proof; and that
judgments obtained in the two cases will not be inconsistent with each other, and any decision obtained in
one will not constitute res judicata on the other.
Respondent UBP's Arguments
Respondent UBP, on the other hand, essentially argues in its Comment19 that the Petition should be denied,
for being a mere rehash of the arguments in petitioners' CA Petition which have been thoroughly passed upon
by the appellate court; that as correctly held by the CA, Civil Case No. 11-1192 (annulment of foreclosure and
sale proceedings) is anchored on a determination of the validity or binding effect of the real estate mortgage
in Civil Case No. 11-116 (annulment of mortgage case), and both cases are supported by, and will rise and fall
on, the same evidence; that the necessary consequence of Civil Case No. 11-1192 is determined solely by the
decision in Civil Case No. 11-116 in that if it is found that the mortgage is null and void, then the foreclosure
arid sale proceedings bas thereon would likewise become ineffectual; that the grow1ds for annulment of the
foreclosure and sale proceedings merely constitute additional reasons for seeking injunctive relief: if any, in
the annulment of mortgage case, but cannot form the basis of a separate cause of action; and that a judgment
in Civil Case No. 11-116 on the validity of the mortgage should thus amount to res judicata in Civil Case No.
11-1192 on the effect of the foreclosure and sale, but with the pendency of both cases, a possibility of
conflicting rulings by different courts on the validity of the mortgage exists.
Our Ruling
The Court denies the Petition.
This ponente has had the occasion to rule on a case20 where a party instituted two cases against the same set
of defendants - one for the annulment of a real estate mortgage, and a second for injunction and nullification
of the extrajudicial foreclosure and consolidation of title, rooted in the same real estate mortgage - who
moved to dismiss the second case on the ground of forum shopping, claiming that both cases relied on a
determination of the same issue: that is, the validity of the real estate mortgage. The trial court dismissed the
second case, but the CA ordered its reinstatement. This ponente affirmed the trial court, declaring as follows:
There is forum shopping 'when a party repetitively avails of several judicial remedies in different courts,
simultaneously or successively, all substantially founded on the same transactions and the same essential
facts and circumstances, and all raising substantially the same issues either pending in or already resolved
adversely by some other court.' The different ways by which forum shopping may be committed were
explained in Chua v. Metropolitan Bank & Trust Company:
Forum shopping can be committed in three ways: (1) filing multiple cases based on the same cause of action
and with the same prayer, the previous case not having been resolved yet (where the ground for dismissal is
litis pendentia); (2) filing multiple cases based on the same cause of action and the same prayer, the previous
case having been finally resolved (where the ground for dismissal is res judicata); and (3) filing multiple
cases based on the same cause of action but with different prayers (splitting causes of action, where
the ground for dismissal is also either litis pendentia or res judicata).
Common in these types of forum shopping is the identity of the cause of action in the different cases filed.
Cause of action is defined as 'the act or omission by which a party violates the right of another.
The cause of action in the earlier Annulment Case is the alleged nullity of the REM (due to its allegedly
falsified or spurious nature) which is allegedly violative of Goodland's right to the mortgaged
property. It serves as the basis for the prayer for the nullification of the REM. The Injunction Case
involves the same cause of action, inasmuch as it also invokes the nullity of the REM as the basis for
the prayer for the nullification of the extrajudicial foreclosure and for injunction against
consolidation of title. While the main relief sought in the Annulment Case (nullification of the REM) is
ostensibly different from the main relief sought in the Injunction Case (nullification of the
extrajudicial foreclosure and injunction against consolidation of title), the cause of action which
serves as the basis for the said reliefs remains the same - the alleged nullity of the REM. Thus, what is
involved here is the third way of committing forum shopping, i.e., filing multiple cases based on the
same cause of action, but with different prayers. As previously held by the Court, there is still forum
shopping even if the reliefs prayed for in the two cases are different, so long as both cases raise substantially
the same issues.
There can be no determination of the validity of the extrajudicial foreclosure and the propriety of
injunction in the Injunction Case without necessarily ruling on the validity of the REM, which is
already the subject of the Annulment Case. The identity of the causes of action in the two cases entails that
the validity of the mortgage will be ruled upon in both, and creates a possibility that the two rulings will
conflict with each other. This is precisely what is sought to be avoided by the rule against forum
shopping.
The substantial identity of the two cases remains even if the parties should add different grounds or legal
theories for the nullity of the REM or should alter the designation or form of the action. The well-entrenched
rule is that 'a party cannot, by varying the form of action, or adopting a different method of presenting
his case, escape the operation of the principle that one and the same cause of action shall not be twice
litigated.'21 (Emphasis supplied)
SO ORDERED.
G.R. No. 191636, January 16, 2017
PRUDENTIAL BANK (NOW BANK OF THE PHILIPPINE ISLANDS), Petitioner, v. RONALD RAPANOT AND
HOUSING & LAND USE REGULATORY BOARD, Respondents.
DECISION
CAGUIOA, J:
Only questions of law may be raised in petitions for review on certiorari brought before this Court under Rule
45, since this Court is not a trier of facts. While there are recognized exceptions which warrant review of
factual findings, mere assertion of these exceptions does not suffice. It is incumbent upon the party seeking
review to overcome the burden of demonstrating that review is justified under the circumstances prevailing
in his case.
The Case
Before the Court is an Appeal by Certiorari1 under Rule 45 of the Rules of Court (Petition) of the Decision2
dated November 18, 2009 (questioned Decision) rendered by the Court of Appeals - Seventh Division (CA).
The questioned Decision stems from a complaint filed by herein private respondent Ronald Rapanot
(Rapanot) against Golden Dragon Real Estate Corporation (Golden Dragon), Golden Dragon's President Ma.
Victoria M. Vazquez3 and herein petitioner, Bank of the Philippine Islands, formerly known as Prudential
Bank4 (Bank) for Specific Performance and Damages (Complaint) before the Housing and Land Use
Regulatory Board (HLURB).5
The Petition seeks to reverse the questioned Decision insofar as it found that the Bank (i) was not deprived
of due process when the Housing and Land Use Arbiter (Arbiter) issued his Decision dated July 3, 2002
without awaiting submission of the Bank's position paper and draft decision, and (ii) cannot be deemed a
mortgagee in good faith with respect to Unit 2308-B2 mortgaged by Golden Dragon in its favor as collateral.5-
a

The foregoing view was reiterated in a subsequent pronouncement,22 which happens to form the underlying The Facts
premise of the CA's disposition.
The factual milieu in the present case is the same as in the above-cited cases. The plaintiffs in both cases first Golden Dragon is the developer of Wack-Wack Twin Towers Condominium, located in Mandaluyong City. On
filed a case for annulment of the mortgage, followed by the case for annulment of the foreclosure proceedings. May 9, 1995, Rapanot paid Golden Dragon the amount ofP453,329.64 as reservation fee for a 41.1050-square
For this reason, the underlying principle in these previously decided cases must apply equally to the instant meter unit in said condominium, particularly designated as Unit 2308-B2,6 and covered by Condominium
case. Thus, the Court completely agrees with the CA's findings that in the event that the court in Civil Case No. Certificate of Title (CCT) No. 2383 in the name of Golden Dragon. 7
11-116 (annulment of mortgage case) should nullify the Sunyang mortgage, then subsequent proceedings
based thereon, including the foreclosure, shall also be nullified. Notably as well, the CA's observation in Civil On September 13, 1995, the Bank extended a loan to Golden Dragon amounting to P50,000,000.00 8 to be
Case No. 11-1192 (case for annulment of foreclosure and sale) - that since the complaint therein repeatedly utilized by the latter as additional working capital.9 To secure the loan, Golden Dragon executed a Mortgage
makes reference to an "unlawful" and "fraudulent" Sunyang mortgage, then the same evidence in Civil Case Agreement in favor of the Bank, which had the effect of constituting a real estate mortgage over several
No. 11-116 will have to be utilized- is well-taken. condominium units owned and registered under Golden Dragon's name. Among the units subject of the
Petitioners maintain that Civil Case No. 11-1192 (case for annulment of foreclosure and sale) is grounded on Mortgage Agreement was Unit 2308-B2.10 The mortgage was annotated on CCT No. 2383 on September 13,
specific irregularities committed during the foreclosure proceedings. However, their Complaint in said case 1995.11
reiterates the supposed illegality of the Sunyang mortgage, thus presenting the court in said case with the
opportunity and temptation to resolve the issue of validity of the mortgage. There is therefore a danger that On May 21, 1996, Rapanot and Golden Dragon entered into a Contract to Sell covering Unit 2308-B2. On April
a decision might be rendered by the court in Civil Case No. 11-1192 that contradicts the eventual ruling in 23, 1997, Rapanot completed payment of the full purchase price of said unit amounting to P1,511,098.97. 12
Civil Case No. 11-116, or the annulment of mortgage case. Golden Dragon executed a Deed of Absolute Sale in favor of Rapanot of the same date. 13 Thereafter, Rapanot
The rules of procedure are geared toward securing a just, speedy, and inexpensive disposition of every action made several verbal demands for the delivery of Unit 2308-B2.14
and proceeding.23 "Procedural law has its own rationale in the orderly administration of justice, namely, to
ensure the effective enforcement of substantive rights by providing for a system that obviates arbitrariness, Prompted by Rapanot's verbal demands, Golden Dragon sent a letter to the Bank dated March 17, 1998,
caprice, despotism, or whimsicality in the settlement of disputes."24 With these principles in mind, the Court requesting for a substitution of collateral for the purpose of replacing Unit 2308-B2 with another unit with
would rather have petitioners try their cause of action in Civil Case No. 11-116, rather than leave the trial the same area. However, the Bank denied Golden Dragon's request due to the latter's unpaid accounts. 15
court in danger of committing error by issuing a decision or resolving an issue in Civil Case No. 11-1192 that Because of this, Golden Dragon failed to comply with Rapanot's verbal demands.
should properly be rendered or resolved by the court trying Civil Case No. 11-116.
WHEREFORE, the Petition is DENIED. The February 28, 2013 Decision and June 28, 2013 Resolution of the Thereafter, Rapanot, through his counsel, sent several demand letters to Golden Dragon and the Bank,
Court of Appeals in CA-G.R. SP. No. 126075 are AFFIRMED. formally demanding the delivery of Unit 2308-B2 and its corresponding CCT No. 2383, free from all liens and
encumbrances.16 Neither Golden Dragon nor the Bank complied with Rapanot's written demands.17 Decision from the HLURB.31

Proceedings before the HLURB On January 16, 2003, the Bank filed a Petition for Review with the HLURB Board of Commissioners (HLURB
Board) alleging, among others, that it had been deprived of due process when the Arbiter rendered a decision
On April 27, 2001, Rapanot filed a Complaint with the Expanded National Capital Region Field Office of the without affording the Bank the opportunity to submit its position paper and draft decision.
HLURB.18 The Field Office then scheduled the preliminary hearing and held several conferences with a view
of arriving at an amicable settlement. However, no settlement was reached.19 The HLURB Board modified the Arbiter's Decision by: (i) reducing the award for moral damages from
P100,000.00 to P50,000.00, (ii) deleting the award for exemplary damages, (iii) reducing the award for
Despite service of summons to all the defendants named in the Complaint, only the Bank filed its Answer.20 attorney's fees from P50,000.00 to P20,000.00, and (iv) directing Golden Dragon to pay the Bank all the
Thus, on April 5, 2002, the Arbiter issued an order declaring Golden Dragon and its President Maria Victoria damages the latter is directed to pay thereunder, and settle the mortgage obligation corresponding to Unit
Vazquez in default, and directing Rapanot and the Bank to submit their respective position papers and draft 2308-B2.32
decisions (April 2002 Order).21 Copies of the April 2002 Order were served on Rapanot and the Bank via
registered mail.22 However, the envelope bearing the copy sent to the Bank was returned to the Arbiter, Anent the issue of due process, the HLURB Board held, as follows:
bearing the notation "refused to receive".23 chanRoblesvirtualLawlibrary
x x x x
Rapanot complied with the April 2002 Order and personally served copies of its position paper and draft
decision on the Bank on May 22, 2002 and May 24, 2002, respectively.24 In the opening statement of Rapanot's With respect to the first issue, we find the same untenable. Records show that prior to the rendition of its
position paper, Rapanot made reference to the April 2002 Order.25cralawred decision, the office below has issued and duly sent an Order to the parties declaring respondent GDREC in
default and directing respondent Bank to submit its position paper. x x x 33 (Underscoring
On July 3, 2002, the Arbiter rendered a decision (Arbiter's Decision) in favor of Rapanot, the dispositive omitted)ChanRoblesVirtualawlibrary
portion of which reads: Proceedings before the Office of the President
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is hereby rendered as follows: The Bank appealed the decision of the HLURB Board to the Office of the President (OP). On October 10, 2005,
1. Declaring the mortgage over the condominium unit No. 2308-B2 covered by Condominium the OP issued a resolution denying the Bank's appeal. In so doing, the OP adopted the BLURB's findings.34 The
Certificate of Title No. 2383 in favor of respondent Bank as null and void for violation of Section 18 Bank filed a Motion for Reconsideration, which was denied by the OP in an Order dated March 3, 2006. 35
of Presidential Decree No. 957[;]
2. Ordering respondent Bank to cancel the mortgage on the subject condominium unit, and Proceedings before the CA
accordingly, release the title thereof to the complainant;chanrobleslaw
3. Ordering respondents to pay jointly and severally the complainant the following sums: The Bank filed a Petition for Review with the CA on April 17, 2006 assailing the resolution and subsequent
a. P100,000.00 as moral damages, order of the OP. The Bank argued, among others, that the OP erred when it found that the Bank (i) was not
b. P100,000.00 as exemplary damages, denied due process before the HLURB, and (ii) is jointly and severally liable with Golden Dragon for damages
c. P50,000.00 as attorney's fees, due Rapanot.36
d. The costs of litigations (sic), and
e. An administrative fine of TEN THOUSAND PESOS (P10,000.00) payable to this Office After submission of the parties' respective memoranda, the CA rendered the questioned Decision dismissing
fifteen (15) days upon receipt of this decision, for violation of Section 18 in relation to the Bank's Petition for Review. On the issue of due process, the CA held:
Section 38 of PD 957; chanRoblesvirtualLawlibrary
Petitioner asserts that it was denied due process because it did not receive any notice to file its position paper
4. Directing the Register of Deeds of Mandaluyong City to cancel the aforesaid mortgage on the title of nor a copy of the Housing Arbiter's Decision. Rapanot, meanwhile, contends that the Housing Arbiter sent
the subject condominium unit; and petitioner a copy of the April 5, 2002 Order to file position paper by registered mail, as evidenced by the list
5. Immediate[ly] upon receipt by the complainant of the owner's duplicate Condominium Certificate of persons furnished with a copy thereof. However, according to Rapanot, petitioner "refused to receive" it.
of Title of Unit 2308-B2, delivery of CCT No. 2383 over Unit 2308-B2 in favor of the complainant
free from all liens and encumbrances. x x x x
SO ORDERED.26ChanRoblesVirtualawlibrary
On July 25, 2002, the Bank received a copy of Rapanot's Manifestation dated July 24, 2002, stating that he had In the instant case, there is no denial of due process. Petitioner filed its Answer where it was able to explain
received a copy of the Arbiter's Decision.27 On July 29, 2002, the Bank filed a Manifestation and Motion for its side through its special and affirmative defenses. Furthermore, it participated in the preliminary hearing
Clarification,28 requesting for the opportunity to file its position paper and draft decision, and seeking and attended scheduled conferences held to resolve differences between the parties. Petitioner was also
confirmation as to whether a decision had indeed been rendered notwithstanding the fact that it had yet to served with respondent's position paper and draft decision. Having received said pleadings of respondent,
file such submissions. petitioner could have manifested before the Housing Arbiter that it did not receive, if correct, its order
requiring the submission of its pleadings and therefore prayed that it be given time to do so. Or, it could have
Subsequently, the Bank received a copy of Rapanot's Motion for Execution dated September 2, 2002, 29 to filed its position paper and draft decision without awaiting the order to file the same. Under the
which it filed an Opposition dated September 4, 2002.30 circumstances, petitioner was thus afforded and availed of the opportunity to present its side. It cannot make
capital of the defense of denial of due process as a screen for neglecting to avail of opportunities to file other
Meanwhile, the Bank's Manifestation and Motion for Clarification remained unresolved despite the lapse of pleadings.37ChanRoblesVirtualawlibrary
five (5) months from the date of filing. This prompted the Bank to secure a certified true copy of the Arbiter's
With respect to the Bank's liability for damages, the CA held thus:
chanRoblesvirtualLawlibrary In the instant Petition, the Bank avers that the CA misappreciated material facts when it affirmed the OP's
Section 18 of PD 957, requires prior written authority of the HLURB before the owner or developer of a resolution which denied its appeal. The Bank contends that the CA committed reversible error when it
subdivision lot or condominium unit may enter into a contract of mortgage. Hence, the jurisdiction of the concluded that the Bank was properly afforded due process before the HLURB, and when it failed to recognize
HLURB is broad enough to include complaints for annulment of mortgage involving violations of PD 957. the Bank as a mortgagee in good faith. The Bank concludes that these alleged errors justify the reversal of the
questioned Decision, and ultimately call for the dismissal of the Complaint against it.
Petitioner argues that, as a mortgagee in good faith and for value, it must be accorded protection and should
not be held jointly and severally liable with Golden Dragon and its President, Victoria Vasquez. The Court disagrees.

It is true that a mortgagee in good faith and for value is entitled to protection, as held in Rural Bank of Time and again, the Court has emphasized that review of appeals under Rule 45 is "not a matter of right, but
Compostela vs. Court of Appeals but petitioner's dependence on this ruling is misplaced as it cannot be of sound judicial discretion."42 Thus, a petition for review on certiorari shall only be granted on the basis of
considered a mortgagee in good faith. special and important reasons.43

The doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with property covered As a general rule, only questions of law may be raised in petitions filed under Rule 45. 44 However, there are
by a certificate of title, as mortgagees, are not required to go beyond what appears on the face of the title. recognized exceptions to this general rule, namely:
chanRoblesvirtualLawlibrary
However, while a mortgagee is not under obligation to look beyond the certificate of title, the nature of (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference
petitioner's business requires it to take further steps to assure that there are no encumbrances or liens on made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when
the mortgaged property, especially since it knew that it was dealing with a condominium developer. It should the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6)
have inquired deeper into the status of the properties offered as collateral and verified if the HLURB's when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are
authority to mortgage was in fact previously obtained. This it failed to do. contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of specific evidence on which they are
It has been ruled that a bank, like petitioner, cannot argue that simply because the titles offered as security based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not
were clean of any encumbrances or lien, it was relieved of taking any other step to verify the implications disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence
should the same be sold by the developer. While it is not expected to conduct an exhaustive investigation of and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked
the mortgagor's title, it cannot be excused from the duty of exercising the due diligence required of banking certain relevant facts not disputed by the parties, which, if properly considered, would justify a
institutions, for banks are expected to exercise more care and prudence than private individuals in their different conclusion. x x x45 (Emphasis supplied)ChanRoblesVirtualawlibrary
dealings, even those involving registered property, for their business is affected with public interest. The Bank avers that the second, fourth and eleventh exceptions above are present in this case. However, after
a judicious examination of the records of this case and the respective submissions of the parties, the Court
As aforesaid, petitioner should have ascertained that the required authority to mortgage the condominium finds that none of these exceptions apply.
units was obtained from the HLURB before it approved Golden Dragon's loan. It cannot feign lack of
knowledge of the sales activities of Golden Dragon since, as an extender of credit, it is aware of the practices, The Bank was not deprived of due process before the HLURB.
both good or bad, of condominium developers. Since petitioner was negligent in its duty to investigate the
status of the properties offered to it as collateral, it cannot claim that it was a mortgagee in good The Bank asserts that it never received the April2002 Order. It claims that it was taken by surprise on July
faith.38ChanRoblesVirtualawlibrary 25, 2002, when it received a copy of Rapanot's Manifestation alluding to the issuance of the Arbiter's Decision
The Bank filed a Motion for Reconsideration, which was denied by the CA in a Resolution dated March on July 3, 2002. Hence, the Bank claims that it was deprived of due process, since it was not able to set forth
17,2010.39 The Bank received a copy of the resolution on March 22, 2010.39-a its "valid and meritorious" defenses for the Arbiter's consideration through its position paper and draft
decision.46
On April 6, 2010, the Bank filed with the Court a motion praying for an additional period of 30 days within
which to file its petition for review on certiorari.39-b The Court finds these submissions untenable.

On May 6, 2010, the Bank filed the instant Petition. "The essence of due process is to be heard."47 In administrative proceedings, due process entails "a fair and
reasonable opportunity to explain one's side, or an opportunity to seek a reconsideration of the action or
Rapanot filed his Comment to the Petition on September 7, 2010.40 Accordingly, the Bank filed its Reply on ruling complained of. Administrative due process cannot be fully equated with due process in its strict judicial
January 28, 2011.41 sense, for in the former a formal or trial-type hearing is not always necessary, and technical rules of procedure
Issues are not strictly applied."48

Essentially, the Bank requests this Court to resolve the following issues:
1. Whether or not the CA erred when it affirmed the resolution of the OP finding that the Bank had
been afforded due process before the HLURB; and
2. Whether or not the CA erred when it affirmed the resolution of the OP holding that the Bank cannot
be considered a mortgagee in good faith.
The Court's Ruling
As correctly pointed out by the CA in the questioned Decision, the Bank was able to set out its position by
participating in the preliminary hearing and the scheduled conferences before the Arbiter.49 The Bank was
likewise able to assert its special and affirmative defenses in its Answer to Rapanot's Complaint. 50
The fact that the Arbiter's Decision was rendered without having considered the Bank's position paper and
draft decision is of no moment. An examination of the 1996 Rules of Procedure of the HLURB 51 then prevailing
shows that the Arbiter merely acted in accordance therewith when he rendered his decision on the basis of
the pleadings and records submitted by the parties thus far. The relevant rules provide: PD 957 further requires developers to notify buyers of the loan value of their corresponding mortgaged
chanRoblesvirtualLawlibrary properties before the proceeds of the secured loan are released. The relevant provision states:
RULE VI - PRELIMINARY CONFERENCE AND RESOLUTION chanRoblesvirtualLawlibrary
Section 18. Mortgages. - No mortgage on any unit or lot shall be made by the owner or developer without
x x x x prior written approval of the Authority. Such approval shall not be granted unless it is shown that the
proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project
Section 4. Position Papers. - If the parties fail to settle within the period of preliminary conference, then they and effective measures have been provided to ensure such utilization. The loan value of each lot or unit
will be given a period of not more than thirty (30) calendar days to file their respective verified covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release
position papers, attaching thereto the affidavits of their witnesses and documentary evidence. of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who
shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit
In addition, as provided for by Executive Order No. 26, Series of 1992, the parties shall be required to being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full
submit their respective draft decisions within the same thirty (30)-day period. payment thereof.ChanRoblesVirtualawlibrary
In Far East Bank & Trust Co. v. Marquez,58 the Court clarified the legal effect of a mortgage constituted in
Said draft decision shall state clearly and distinctly the findings of facts, the issues and the applicable law and violation of the foregoing provision, thus:
jurisprudence on which it is based. The arbiter may adopt in whole or in part either of the parties' draft chanRoblesvirtualLawlibrary
decision, or reject both and prepare his own decision. The lot was mortgaged in violation of Section 18 of PD 957. Respondent, who was the buyer of the property,
was not notified of the mortgage before the release of the loan proceeds by petitioner. Acts executed against
The party who fails to submit a draft decision shall be fined P2,000.00. the provisions of mandatory or prohibitory laws shall be void. Hence, the mortgage over the lot is null and
void insofar as private respondent is concerned.59 (Emphasis supplied)ChanRoblesVirtualawlibrary
Section 5. Summary Resolution - With or without the position paper and draft decision[,] the Arbiter The Court reiterated the foregoing pronouncement in the recent case of Philippine National Bank v. Lim60 and
shall summarily resolve the case on the basis of the verified pleadings and pertinent records of the again in United Overseas Bank of the Philippines, Inc. v. Board of Commissioners-HLURB.61
Board. (Emphasis and underscoring supplied)ChanRoblesVirtualawlibrary
Clearly, the Arbiter cannot be faulted for rendering his Decision, since the rules then prevailing required him Thus, the Mortgage Agreement cannot have the effect of curtailing Rapanot's right as buyer of Unit 2308-B2,
to do so. precisely because of the Bank's failure to comply with PD 957.

The Bank cannot likewise rely on the absence of proof of service to further its cause. Notably, while the Bank
firmly contends that it did not receive the copy of the April 2002 Order, it did not assail the veracity of the
notation "refused to receive" inscribed on the envelope bearing said order. In fact, the Bank only offered the
following explanation respecting said notation:
chanRoblesvirtualLawlibrary
9. The claim that the Bank "refused to receive" the envelope that bore the Order cannot be given credence
and is belied by the Bank's act of immediately manifesting before the Housing Arbiter that it had not yet
received an order for filing the position paper and draft decision.52ChanRoblesVirtualawlibrary
This is specious, at best. More importantly, the records show that the Bank gained actual notice of the
Arbiter's directive to file their position papers and draft decisions as early as May 22, 2002, when it was
personally served a copy of Rapanot's position paper which made reference to the April 2002 Order. 53 This
shows as mere pretense the Bank's assertion that it learned of the Arbiter's Decision only through Rapanot's
Manifestation.54 Worse, the Bank waited until the lapse of five (5) months before it took steps to secure a
copy of the Arbiter's Decision directly from the HLURB for the purpose of assailing the same before the OP.
The Mortgage Agreement is null and void as against Rapanot, and thus cannot be enforced against him.
The Bank avers that contrary to the CA's conclusion in the questioned Decision, it exercised due diligence
before it entered into the Mortgage Agreement with Golden Dragon and accepted Unit 2308-B2, among other
properties, as collateral.55 The Bank stressed that prior to the approval of Golden Dragon's loan, it deployed
representatives to ascertain that the properties being offered as collateral were in order. Moreover, it
confirmed that the titles corresponding to the properties offered as collateral were free from existing liens,
mortgages and other encumbrances.56 Proceeding from this, the Bank claims that the CA overlooked these
facts when it failed to recognize the Bank as a mortgagee in good faith.
The Court finds the Bank's assertions indefensible.
First of all, under Presidential Decree No. 957 (PD 957), no mortgage on any condominium unit may be
constituted by a developer without prior written approval of the National Housing Authority, now HLURB. 57
Moreover, contrary to the Bank's assertions, it cannot be considered a mortgagee in good faith. The Bank
failed to ascertain whether Golden Dragon secured HLURB's prior written approval as required by PD 957
before it accepted Golden Dragon's properties as collateral. It also failed to ascertain whether any of the
properties offered as collateral already had corresponding buyers at the time the Mortgage Agreement was
executed.
The Bank cannot harp on the fact that the Mortgage Agreement was executed before the Contract to Sell and
Deed of Absolute Sale between Rapanot and Golden Dragon were executed, such that no amount of
verification could have revealed Rapanot's right over Unit 2308-B2.62 The Court particularly notes that
Rapanot made his initial payment for Unit 2308-B2 as early as May 9, 1995, four (4) months prior to the
execution of the Mortgage Agreement. Surely, the Bank could have easily verified such fact if it had simply
requested Golden Dragon to confirm if Unit 2308-B2 already had a buyer, given that the nature of the latter's
business inherently involves the sale of condominium units on a commercial scale.
It bears stressing that banks are required to exercise the highest degree of diligence in the conduct of their
affairs. The Court explained this exacting requirement in the recent case of Philippine National Bank v. Vila,63
thus:
chanRoblesvirtualLawlibrary
In Land Bank of the Philippines v. Belle Corporation, the Court exhorted banks to exercise the highest degree
of diligence in its dealing with properties offered as securities for the loan obligation:
chanRoblesvirtualLawlibrary
When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is
applied more strictly. Being in the business of extending loans secured by real estate mortgage, banks are
presumed to be familiar with the rules on land registration. Since the banking business is impressed with
public interest, they are expected to be more cautious, to exercise a higher degree of diligence, care and
prudence, than private individuals in their dealings, even those involving registered lands. Banks may not
simply rely on the face of the certificate of title. Hence, they cannot assume that, x x x the title offered as
security is on its face free of any encumbrances or lien, they are relieved of the responsibility of taking further
steps to verify the title and inspect the properties to be mortgaged. As expected, the ascertainment of the
status or condition of a property offered to it as security for a loan must be a standard and indispensable part deems it necessary to stress that a person who deliberately ignores a significant fact that could create
of the bank's operations. x x x (Citations omitted)ChanRoblesVirtualawlibrary suspicion in an otherwise reasonable person cannot be deemed a mortgagee in good faith. 68 The nature of
We never fail to stress the remarkable significance of a banking institution to commercial the Bank's business precludes it from feigning ignorance of the need to confirm that such requirements are
transactions, in particular, and to the country's economy in general. The banking system is an complied with prior to the release of the loan in favor of Golden Dragon, in view of the exacting standard of
indispensable institution in the modern world and plays a vital role in the economic life of every diligence it is required to exert in the conduct of its affairs.
civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous presence among the Proceeding from the foregoing, we find that neither mistake nor misapprehension of facts can be ascribed to
people, who have come to regard them with respect and even gratitude and, most of all, confidence. the CA in rendering the questioned Decision. The Court likewise finds that contrary to the Bank's claim, the
Consequently, the highest degree of diligence is expected, and high standards of integrity and CA did not overlook material facts, since the questioned Decision proceeded from a thorough deliberation of
performance are even required, of it.64 (Emphasis and underscoring the facts established by the submissions of the parties and the evidence on record.
supplied)ChanRoblesVirtualawlibrary
In loan transactions, banks have the particular obligation of ensuring that clients comply with all the For these reasons, we resolve to deny the instant Petition for lack of merit.
documentary requirements pertaining to the approval of their loan applications and the subsequent release
of their proceeds.65 WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The Decision dated
November 18, 2009 and Resolution dated March 17, 2010 of the Court of Appeals in CA-G.R. SP No. 93862 are
If only the Bank exercised the highest degree of diligence required by the nature of its business as a financial hereby AFFIRMED.
institution, it would have discovered that (i) Golden Dragon did not comply with the approval requirement
imposed by Section 18 of PD 957, and (ii) that Rapanot already paid a reservation fee and had made several SO ORDERED.
installment payments in favor of Golden Dragon, with a view of acquiring Unit 2308-B2.66
April 6, 2016
The Bank's failure to exercise the diligence required of it constitutes negligence, and negates its assertion G.R. No. 206459
that it is a mortgagee in good faith. On this point, this Court's ruling in the case of Far East Bank & Trust Co. v. SPOUSES FLORANTE E. JONSAY and LUZVIMINDA L. JONSAY and MOMARCO IMPORT CO., INC.,
Marquez67 is instructive: Petitioners,
chanRoblesvirtualLawlibrary vs.
Petitioner argues that it is an innocent mortgagee whose lien must be respected and protected, since the title SOLIDBANK CORPORATION (now METROPOLITAN BANK AND TRUST COMPANY), Respondent.
offered as security was clean of any encumbrance or lien. We do not agree. DECISION
"x x x As a general rule, where there is nothing on the certificate of title to indicate any cloud or vice in the REYES, J.:
ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further Before this Court is a Petition for Review1 from the Amended Decision2 dated November 26, 2012 of the
than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may Court of Appeals (CA) in CA-G.R. CV No. 94012, which reconsidered its earlier Decision3 therein dated April
subsequently defeat his right thereto. This rule, however, admits of an exception as where the purchaser or 27, 2012, and granted in part the appeal of herein respondent Solidbank Corporation (Solidbank) from the
mortgagee has knowledge of a defect or lack of title in the vendor, or that he was aware of sufficient facts to Amended Decision4 dated July 7, 2009 of the Regional Trial Court (RTC) of Calamba City, Branch 35, in Civil
induce a reasonably prudent man to inquire into the status of the property in Case No. 2912-2000-C, which annulled the extrajudicial foreclosure proceedings instituted by Solidbank
litigation."ChanRoblesVirtualawlibrary against the Spouses Florante E. Jonsay (Florante) and Luzviminda L. Jonsay (Luzviminda) (Spouses Jonsay)
Petitioner bank should have considered that it was dealing with a town house project that was already in and Momarco Import Co., Inc. (Momarco) (petitioners) over the mortgaged properties.
progress. A reasonable person should have been aware that, to finance the project, sources of funds could Factual Antecedents
have been used other than the loan, which was intended to serve the purpose only partially. Hence, there was Momarco, controlled and owned by the Spouses Jonsay, is an importer, manufacturer and distributor of
need to verity whether any part of the property was already the subject of any other contract involving buyers animal health and feedmill products catering to cattle, hog and poultry producers. On November 9, 1995, and
or potential buyers. In granting the loan, petitioner bank should not have been content merely with a again on April 28, 1997, Momarco obtained loans of P40,000,000.00 and P20,000,000.00, respectively, from
clean title, considering the presence of circumstances indicating the need for a thorough investigation Solidbank for which the Spouses Jonsay executed a blanket mortgage over three parcels of land they owned
of the existence of buyers like respondent. Having been wanting in care and prudence, the latter cannot in Calamba City, Laguna registered in their names under Transfer Certificates of Title Nos. T-224751, T-
be deemed to be an innocent mortgagee. 210327 and T-269668 containing a total of 23,733 square meters.5 On November 3, 1997,6 the loans were
consolidated under one promissory note7 for the combined amount of P60,000,000.00, signed by Florante as
Petitioner cannot claim to be a mortgagee in good faith. Indeed it was negligent, as found by the Office President of Momarco, with his wife Luzviminda also signing as co-maker.8 The stipulated rate of interest
of the President and by the CA. Petitioner should not have relied only on the representation of the was 18.75% per annum, along with an escalation clause tied to increases in pertinent Central Bank-declared
mortgagor that the latter had secured all requisite permits and licenses from the government interest rates, by which Solidbank was eventually able to unilaterally increase the interest charges up to 30%
agencies concerned. The former should have required the submission of certified true copies of those per annum. 9
documents and verified their authenticity through its own independent effort. Momarco religiously paid the monthly interests charged by Solidbank from November 199510 until January
1998, when it paid Pl,370,321.09. Claiming business reverses brought on by the 1997 Asian financial crisis,
Having been negligent in finding out what respondent's rights were over the lot, petitioner must be Momarco tried unsuccessfully to negotiate a moratorium or suspension in its interest payments. Due to
deemed to possess constructive knowledge of those rights. (Emphasis persistent demands by Solidbank, Momarco made its next, and its last, monthly interest payment in April
supplied)ChanRoblesVirtualawlibrary 1998 in the amount of Pl,000,000.00. Solidbank applied the said payment to Momarco's accrued interest for
The Court can surely take judicial notice of the fact that commercial banks extend credit accommodations to February 1998. Momarco sought a loan from Landbank of the Philippines to pay off its aforesaid debt but its
real estate developers on a regular basis. In the course of its everyday dealings, the Bank has surely been application fell through. The anticipated expropriation by the Department of Public Works and Highways of
made aware of the approval and notice requirements under Section 18 of PD 957. At this juncture, this Court the mortgaged lots for the extension of the South Luzon Expressway (SLEX) also did not materialize. 11
Solidbank proceeded to extrajudicially foreclose on the mortgage, and at the auction sale held on March 5,
1999, it submitted the winning bid of P82,327,249.54, 12 representing Momarco's outstanding loans,
interests and penalties, plus attorney's fees of P3,600,000.00. But Momarco now claims that on the date of
the auction the fair market value of their mortgaged lots had increased sevenfold to P441,750,000.00. 13 On
March 22, 1999, Sheriff Adelio Perocho (Sheriff Perocho) issued a certificate of sale to Solidbank, duly
annotated on April 15, 1999 on the lots' titles. 14
On March 9, 2000, a month before the expiration of the period to redeem the lots, the petitioners filed a
Complaint15 against Solidbank, Sheriff Perocho and the Register of Deeds of Calamba, Laguna, docketed as
Civil Case No. 2912-2000-C, for Annulment of the Extrajudicial Foreclosure of Mortgage, Injunction, Accounting
and Damages with Prayer for the Immediate Issuance of a Writ of Preliminary Prohibitory Injunction. They
averred that: (a) the amount claimed by Solidbank as Momarco's total loan indebtedness is bloated; (b)
Solidbank's interest charges are illegal for exceeding the legal rate of 12% per annum; (c) the filing fee it
charged has no legal .and factual basis; (d) the attorney's fees of P3,600,000.00 it billed the petitioners is
excessive and unconscionable; (e) their previous payments from 1995 to 1997 were not taken into account
in computing their principal indebtedness; (t) Sheriff Perocho's certificate of posting was invalid; and (g) the
publication of the notice of the auction sale was defective because the Morning Chronicle which published the
said notice was not a newspaper of general circulation in Calamba, Laguna. 16
After Solidbank filed its Answer with Counterclaim 17 on April 12, 2000, the RTC heard and granted the
petitioners' application for temporary restraining order on April 13, 2000, 18 followed on May 2, 200019 by
issuance of a writ of preliminary prohibitory injunction, thus suspending the consolidation of Solidbank's
titles to the subject lots.
The petitioners' principal witness was Florante, whose testimony was summarized by the RTC in its amended
decision, as follows:
[Florante] signed the loan documents in blank and the signing took place at his office in Quezon City; he
asserted that they were able to pay more than Twenty-Four Million Pesos but the same were not deducted
by the bank to arrive at the correct amount of indebtedness. He said that his accountant prepared statement
of payments showing the payments made to the bank. He further claimed that there are still other payments,
the receipts of which are being retrieved by his accountant. He also asserted that the newspaper where the
notice of foreclosure sale was published is not a newspaper of general circulation.
The same cannot be found in a newspaper stand in the place where the mortgaged properties are located; he
further claimed that [he] suffered moral, emotional and mental injury; he is a graduate of Doctor of Veterinary
Medicine; a permanent member of the Philippine Veterinary Medical Association; graduated and passed the
Board; he is the President of [Momarco] and the President of Momarco Resort; he has been engaged in this
line of business for 31 years now; his wife is a graduate of Dental Medicine and partner of [Momarco]; he has
four (4) children three of them had already graduated and one still in college; x x x he is also claiming for
exemplary damages of Five Million Pesos to set an example for other banks like Solidbank, to refrain from
filing acts which are irregular and affect borrowers like him, he claimed also for attorney[']s fees of Three
Million Pesos.20
Solidbank's witnesses, Lela Quijano, head of its collection division, and Benjamin Apan, its senior manager
for retail operations, admitted that the monthly interests it collected from 1995 to 1998 ranged from 18.75%
to 30%, and that for 1998, Momarco paid P2,370,321.09 in interest.21
Ruling of the RTC
On July 7, 2009, the RTC issued its Amended Decision, the fallo of which reads, as follows:
Wherefore, premises considered, judgment is rendered in favor of the [petitioners] and against the
defendant[s] by:
1) Declaring the extra-judicial foreclosure proceedings NULL and VOID and without any legal effect and the
defendants are prohibited to consolidate the titles in the name of [Solidbank] without prejudice to the filing
of the action for collection or recovery of the sum of money secured by the real estate mortgage in the proper
forum;
2) Ordering that the interest rates on the [petitioners'] indebtedness be reduced to 12% per annum;
3) Declaring that the attorney's fees and filing fee being collected by [Solidbank] to be devoid of any legal
basis;
4) Ordering [Solidbank] to pay the [petitioners] the following sums, to wit:
a) Php20,000,000.00 - moral damages;
b) Php2,500,000.00 - exemplary damages;
c) Phpl,[500],000.00 - for attorney's fees.
5) Ordering the dismissal of the counterclaim for lack of merit.
SO ORDERED.22
The RTC ruled that the mortgage contract and the promissory notes prepared by Solidbank, which the
Spouses Jonsay signed in blank, were contracts of adhesion; that Solidbank failed to take into account
Momarcos payments in the two years preceding 1998 totaling P24,277,293.22 (this amount was not
disputed by Solidbank); that the interest rates, ranging from 19% to 30%, as well as the penalties, charges
and attorney's fees imposed by Solidbank, were excessive, unconscionable and immoral, and that Solidbank
has no carte blanche authority under the Usury Law to unilaterally raise the interest rates to levels as to
enslave the borrower and hemorrhage its assets; that Solidbank's verification in its application for
foreclosure of mortgage was defective because it was signed not by its President but only by a vice-president;
that the Morning Chronicle, in which the notice of auction was published, was not a newspaper of general
circulation because it had no bona fide list of paying subscribers; that Solidbank manipulated the foreclosure
sale through a defective publication of the notice of auction and by submitting an unconscionably low bid of
P82,327,000.00, whereas the value of the lots had risen sevenfold since the rehabilitation of the SLEX. 23
Ruling of the CA
On appeal to the CA, Solidbank interposed the following errors of the RTC, to wit:
THE [RTC] GRAVELY ERRED IN NULLIFYING THE FORECLOSURE PROCEEDINGS CONDUCTED AGAINST
[THE PETITIONERS'] PROPERTIES ON THE GROUND THAT THE REAL ESTATE MORTGAGE EXECUTED BY
THE PARTIES WAS A CONTRACT OF ADHESION;
THE [RTC] GRAVELY ERRED IN NULLIFYING THE FORECLOSURE PROCEEDINGS CONDUCTED AGAINST
[THE PETITIONERS'] PROPERTIES ON THE GROUND THAT THE NEWSPAPER WHERE THE NOTICE OF
FORECLOSURE WAS PUBLISHED IS NOT A NEWSPAPER OF GENERAL CIRCULATION;
THE [RTC] GRAVELY ERRED IN NULLIFYING THE FORECLO[S]URE PROCEEDINGS CONDUCTED AGAINST
[THE PETITIONERS'] PROPERTIES ON THE GROUNDS THAT THE INTEREST RATES, PENALTIES,
ATTORNEY'S FEES CHARGED ARE EXCESSIVE, UNCONSCIONABLE AND IMMORAL AND THAT THE
[SOLIDBANK] DID NOT TAKE INTO ACCOUNT [THE PETITIONERS'] PREVIOUS PAYMENT[S] IN THE
AMOUNT OF P24,277,293.27;
THE [RTC] GRAVELY ERRED IN AWARDING MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY'S
FEES IN FAVOR OF THE [PETITIONERS];
THE [RTC] GRAVE[LY] ERRED IN FAILING TO REGARD [THE PETITIONERS] [IN] ESTOPPEL WHEN THE
LATTER DID NOT IMPUGN THE VALIDITY OF THE LOAN AND MORTGAGE DOCUMENTS WITHIN A
REASONABLE TIME.24
On April 27, 2012, the CA rendered judgment affirming the RTC in toto. It agreed that Solidbank did not
comply with the publication requirements under Section 3, Act No. 3135, which provides:
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public
places of the municipality or city where the property is situated, and if such property is worth more than four
hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city.25 (Emphasis ours)
According to the CA, the Morning Chronicle was not a newspaper of general circulation, notwithstanding the
affidavit of publication issued by its publisher, Turing R. Crisostomo (Crisostomo), to that effect as well as the
certification of the Clerk of Court of RTC-Calamba City that it was duly accredited by the court since May 28,
1997 to publish legal notices. The CA ruled that it was not enough for Crisostomo to merely state in his
affidavit that the Morning Chronicle was published and edited in the province of Laguna and in San Pablo City
without a showing that it was published to disseminate local news and general information, that it had a bona
fide list of paying subscribers, that it was published at regular intervals, and that it was in general circulation
in Calamba City where the subject properties are located.26
In Metropolitan Bank and Trust Company, Inc. v. Peafiel, 27 cited by the CA, the Court explained that: (1) the
object of a notice of sale is to achieve a reasonably wide publicity of the auction by informing the public of the
nature and condition of the property to be auctioned, and of the time, place and terms of the sale, and thereby
secure bidders and prevent a sacrifice of the property; (2) a newspaper to be considered one of general
circulation need not have the largest circulation but must be able to appeal to the public in general and thus
ensure a wide readership, and must not be devoted solely to entertainment or the interest of a particular
class, profession, trade, calling, race, or religious denomination; and (3) Section 3 of Act No. 3135, as amended Petition for Review in the Supreme Court
by Act No. 4118, does not only require the newspaper to be of general circulation but also that it is circulated In this petition for review, the petitioners interpose the following assignment of errors, to wit:
in the municipality or city where the property is located. 28 1. WITH ALL DUE RESPECT, THE [CA] GRAVELY ERRED BY RENDERJNG TWO (2) CONFLICTING DECISIONS
The CA held that the accreditation of the Morning Chronicle by the Clerk of Court of the RTC to publish legal ON THE SAME SET OF FACTS AND EVIDENCE. THE AMENDED DECISION IS NOT IN ACCORD WITH LAW AND
notices is not determinative of whether it is a newspaper of general circulation in Calamba City. 29 EXISTING JURJSPRUDENCE[; AND]
Concerning the loans due from the petitioners, the CA noted that under the proforma promissory note which 2. WITH ALL DUE RESPECT, THE [CA] GRAVELY ERRED IN NOT CORRECTLY APPLYING THE LAW AND
Solidbank prepared and which the Spouses Jonsay signed in blank, Solidbank enjoyed unrestrained freedom JURJSPRUDENCE ON EXTRAJUDICIAL FORECLOSURE OF REAL ESTATE MORTGAGE, DAMAGES AND
to unilaterally increase the interest rate in any month. The note gave it authority to increase or decrease the CONTRACT OF ADHESION IN THE AMENDED DECISION.41
interest rate from time to time, "without any advance notice" and "in the event the Monetary Board of the The petitioners decry how, after first declaring that "[a]ll told, we find no reason to disturb, much less reverse,
Central Bank of the Philippines raises or lowers the interest rates on loans." According to the CA, this the assailed decision of the RTC," the CA could now be permitted to make a complete turn-around from its
provision violated the principle of mutuality of contracts embodied in Article 130830 of the Civil Code.31 previous decision over the same set of facts, and declare that the subject foreclosure is valid, order the
The CA also held that the herein petitioners were not in estoppel for failing to seasonably question the validity consolidation of Solidbank's titles, and delete the award of moral and exemplary damages, attorney's fees and
of the mortgage loan since the prescriptive period is reckoned from their notice of the statements of account costs of suit.42
issued by Solidbank showing the unilateral increases in the interest, for only by then would their cause of Ruling of the Court
action have accrued. Since only three years had elapsed from the execution of the mortgage contract to the There is merit in the petition.
filing of the complaint on March 15, 2000, the action was brought within the 10-year prescriptive period.32 There is no legal proscription
Solidbank moved for reconsideration33 of the decision, which the CA granted in part on November 26, 2012, against an adjudicating court
via its Amended Decision, to wit: adopting on motion for
WHEREFORE, premises considered, the Motion is GRANTED IN PART. Our Decision promulgated on April reconsideration by a party a
27, 2012 is hereby amended. Paragraphs 2 and 5 of the dispositive portion of the July 7, 2009 Decision of the position that is completely contrary
[RTC] of Calamba City, Branch 35 remain affirmed. Paragraphs 1, 3 and 4 thereof are hereby reversed and set to one it had previously taken in a case.
aside. The petitioners' dismay over how the same division of the CA could make two opposite and conflicting
SO ORDERED.34 decisions over exactly the same facts is understandable. Yet, what the CA simply did was to admit that it had
Thus, in a complete reversal of its decision, the CA now not only found the parties' mortgage contract valid, committed an error of judgment, one which it was nonetheless fully authorized to correct upon a timely
but also declared that Solidbank's extrajudicial foreclosure of the mortgage enjoyed the presumption of motion for reconsideration. Sections 1, 2 and 3 of Rule 3 7 of the Rules of Court are pertinent:
regularity. It took into account the (a) Affidavit of Publication issued by Crisostomo that it duly published the Sec. 1. Grounds of and period for filing motion for new trial or reconsideration. - x x x.
notice of auction sale on February 8, 15, and 22, 1999, (b) the Certification by the Clerk of Court of the RTC- Within the same period, the aggrieved party may move for reconsideration upon the grounds that the
Calamba City that the Morning Chronicle was duly accredited by the court to publish legal notices, and (c) the damages awarded are excessive, that the evidence is insufficient to justify the decision or final order, or that
Raffle of Publication dated February 1, 1999 showing that the said newspaper participated in and won the the decision or final order is contrary to law.
raffle on February 1, 1999 to publish the subject notice. The CA stressed that since the selection of Morning Sec. 2. Contents of motion for new trial or reconsideration and notice thereof - x x x.
Chronicle to publish the notice was through a court-supervised raffle, Solidbank was fully justified in relying xxxx
on the regularity of the publication of its notice in the aforesaid newspaper, in the choice of which it had no A motion for reconsideration shall point out specifically the findings or conclusions of the judgment or final
hand whatsoever. 35 order which are not supported by the evidence or which are contrary to law[,] making express reference to
The CA further held that no malice can be imputed on Solidbank's refusal to accept the petitioners' offer of the testimonial or documentary evidence or to the provisions of law alleged to be contrary to such findings
dacion en pago, since it was duly authorized under the parties' mortgage contract to extra judicially foreclose or conclusions.
on the mortgage in the event that Momarco defaulted in its interest payments. Thus, when Solidbank opted xxxx
to foreclose on the mortgage, it was merely exercising its contractual right to protept its interest, and Sec. 3. Action upon motion for new trial or reconsideration. - x x x If the court finds that excessive damages
Solidbank's supposed insensitivity or lack of sympathy toward Momarco's financial plight is irrelevant and is have been awarded or that the judgment or final order is contrary to the evidence or law, it may amend such
not indemnifiable as bad faith. 36 judgment or final order accordingly.
On the other hand, the CA pointed out that other than Florante's bare testimonial allegations, the petitioners The rule is that while the decision of a court becomes final upon the lapse of the period to appeal by any party,
failed to adduce evidence to debunk Solidbank's compliance with the publication of its auction notice. They 43 but the filing of a motion for reconsideration or new trial interrupts or suspends the running of the said
were unable to show that the Morning Chronicle was not a newspaper of general circulation in Calamba City, period, and prevents the finality of the decision or order from setting in.44 A motion for reconsideration
that it was not published once a week, or that it could not be found in newsstands. 37 allows a party to request the adjudicating court or quasi-judicial body to take a second look at its earlier
Thus, the CA in its amended decision: (a) upheld the validity of the extrajudicial foreclosure proceedings, the judgment and correct any errors it may have committed.45 As explained in Salcedo II v. COMELEC,46 a motion
consolidation of the titles of Solidbank in the foreclosed properties, and the dismissal of Solidbank's for reconsideration allows the adjudicator or judge to take a second opportunity to review the case and to
counterclaim; (b) ordered the reduction of the interest rates on the petitioners' indebtedness to the legal rate grapple anew with the issues therein, and to decide again a question previously raised, there being no legal
of 12% per annum, thereby affirming that the unilateral increases in the monthly interest rates, which proscription imposed against the deciding body adopting thereby a new position contrary to one it had
averaged 2.19% per month or 26.25% per annum, "without notice to the mortgagors," are void for being previously taken.47
iniquitous, excessive and unconscionable; and (c) upheld the collection by the Solidbank of attorney's fees Solidbank has sufficiently complied
and filing fee. Nonetheless, the CA invalidated for lack of basis the award by the RTC to the petitioners of with the requirement of publication
P20,000,000.00 as moral damages, P2,500,000.00 as exemplary damages, and Pl,500,000.00 as attorney's under Section 3 of Act No. 3135.
fees. 38 In Philippine Savings Bank v. Spouses Geronimo, 48 the Court stressed that the right of a bank to extrajudicially
The petitioners moved for partial reconsideration39 of the CA's Amended Decision dated November 26, 2012, foreclose on a real estate mortgage is well-recognized, provided it faithfully complies with the statutory
but the CA denied the same in its Resolution40 dated March 19, 2013. requirements of foreclosure:
While the law recognizes the right of a bank to foreclose a mortgage upon the mortgagor's failure to pay his In Spouses Geronimo,59 it was held that the affidavit of publication executed by the account executive of the
obligation, it is imperative that such right be exercised according to its clear mandate. Each and every newspaper is prima facie proof that the newspaper is generally circulated in the place where the properties
requirement of the law must be complied with, lest, the valid exercise of the right would end. It must be are located.60 But in substance, all that Crisostomo stated is that his newspaper was ''published and edited in
remembered that the exercise of a right ends when the right disappears, and it disappears when it is abused the province of Laguna and San Pablo City." He did not particularly mention, as the CA seemed to demand in
especially to the prejudice of others. 49 its initial decision, that the Morning Chronicle was published and circulated to disseminate local news and
In Cristobal v. CA, 50 the Court explicitly held that foreclosure proceedings enjoy the presumption of general information in Calamba City where the foreclosed properties are located.
regularity and the mortgagor who alleges the absence of a requisite has the burden of proving such fact: Nonetheless, when the RTC accredited the Morning Chronicle to publish legal notices in Calamba City, it can
Further, as respondent bank asserts, a mortgagor who alleges absence of a requisite has the burden of be presumed that the RTC had made a prior determination that the said newspaper had met the requisites
establishing that fact. Petitioners failed in this regard. Foreclosure proceedings have in their favor the for valid publication of legal notices in the said locality, guided by the understanding that for the publication
presumption of regularility and the burden of evidence to rebut the same is on the petitioners.x x x. 51 of legal notices in Calamba City to serve its intended purpose, it must be in general circulation therein. This
(Citation omitted) presumption lays the burden upon the petitioners to show otherwise, contrary to the CA's first ruling.
The petitioners insist that the CA was correct when it first ruled in its Decision dated April 27, 2012 that there It is true that the Court also held in Peafiel,61 concerning the evidentiary weight of the publisher's affidavit
was no valid publication of the notice of auction, since the Morning Chronicle was not shown to be a of publication, that the accreditation by the RTC executive judge is not decisive on the issue of whether a
newspaper of general circulation in Calamba City. The CA disregarded the affidavit of publication executed newspaper is of general circulation:
by its publisher to that effect, as well as the certification by the Clerk of Court of RTC-Calamba City that the The accreditation of Maharlika Pilipinas by the Presiding Judge of the RTC is not decisive of whether it is a
said paper was duly accredited by the court to publish legal notices. It ruled that there was no showing by the newspaper of general circulation in Mandaluyong City. This Court is not bound to adopt the Presiding Judge's
Solidbank that the Morning Chronicle was published to disseminate local news and general information, that determination, in connection with the said accreditation, that Maharlika Pilipinas is a newspaper of general
it had a bona fide list of paying subscribers, that it was published at regular intervals, and that it was in circulation. The court before which a case is pending is bound to make a resolution of the issues based on the
circulation in Calamba City where the subject properties are located. evidence on record. 62
But in its Amended Decision on November 26, 2012, the CA now ruled that the questioned foreclosure But as the Court has seen, the petitioners failed to present proof to overcome the presumption of regularity
proceedings enjoy the presumption of regularity, and it is the burden of the petitioners to overcome this created by the publisher's affidavit of publication and the accreditation of the Morning Chronicle by the
presumption. The CA stated: RTC.63 Significantly, in A.M. No. 01-1-07-SC,64 the Court now requires all courts beginning in 2001 to
It is an elementary rule that the burden of proof is the duty of a party to present evidence on the facts in issue accredit local newspapers authorized to publish legal notices.65
necessary to establish his claim or defense as required by law. The Court has likewise ruled in previous cases The petitioners' mere proposal to
that foreclosure proceedings enjoy the presumption of regularity and that the mortgagor who alleges absence extinguish their loan obligations by
of a requisite has the burden of proving such fact. 52 (Citation omitted) way of dacion en pago does not
In Fortune Motors (Phils.) Inc. v. Metropolitan Bank and Trust Co., 53 it was stressed that in order for novate the mortgage contract.
publication to serve its intended purpose, the newspaper should be in general circulation in the place where On the question of the petitioners' failed proposal to extinguish their loan obligations by way of dacion en
the foreclosed properties to be auctioned are located.54 But in Metropolitan Bank and Trust Co. v. Spouses pago, no bad faith can be imputed to Solidbank for refusing the offered settlement as to render itself liable
Miranda, 55 the Court also clarified that the matter of compliance with the notice and publication for moral and exemplary damages after opting to extrajudicially foreclose on the mortgage. 66 In Tecnogas
requirements is a factual issue which need not be resolved by the high court: Philippines Manufacturing Corporation v. Philippine National Bank,67 the Court held:
It has been our consistent ruling that the question of compliance or non-compliance with notice and Dacion en pago is a special mode of payment whereby the debtor offers another thing to the creditor who
publication requirements of an extrajudicial foreclosure sale is a factual issue, and the resolution thereof by accepts it as equivalent of payment of an outstanding obligation. The undertaking is really one of sale, that is,
the trial court is generally binding on this Court. The matter of sufficiency of posting and publication of a the creditor is really buying the thing or property of the debtor, payment for which is to be charged against
notice of foreclosure sale need not be resolved by this Court, especially when the findings of the RTC were the debtor's debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and
sustained by the CA. Well-established is the rule that factual findings of the CA are conclusive on the parties cause or consideration must be present. It is only when the thing offered as an equivalent is accepted by the
and carry even more weight when the said court affirms the factual findings of the trial court. 56 (Citation creditor that novation takes place, thereby, totally extinguishing the debt.
omitted) On the first issue, the Court of Appeals did not err in ruling that Tecnogas has no clear legal right to an
In Spouses Miranda, the Court ruled that the foreclosing bank could not invoke the presumption of regularity injunctive relief because its proposal to pay by way of dacion en pago did not extinguish its obligation.
of the publication of the notice of auction absent any proof whatsoever of the fact of publication. 57 In the Undeniably, Tecnogas' proposal to pay by way of dacion en pago was not accepted by PNB. Thus, the
case at bar, there is no dispute that there was publication of the auction notice, which the CA in its amended unaccepted proposal neither novates the parties' mortgage contract nor suspends its execution as there was
decision now held to have sufficiently complied with the requirement of publication under Section 3 of Act no meeting of the minds between the parties on whether the loan will be extinguished by way of dacion en
No. 3135. Unfortunately, against the fact of publication and the presumption of regularity of the foreclosure pago. Necessarily, upon Tecnogas' default in its obligations, the foreclosure of the REM becomes a matter of
proceedings, the petitioners' only contrary evidence is Florante's testimonial assertion that the Morning right on the part of PNB, for such is the purpose of requiring security for the loans.68 (Citation omitted)
Chronicle was not a newspaper of general circulation in Calamba City and that it could not be found in the An escalation clause in a loan
local newsstands. agreement granting the lending
Admittedly, the records are sparse as to the details of the publication. In his Affidavit of Publication, publisher bank authority to unilaterally
Crisostomo stated concerning the circulation of his paper, as follows: increase the interest rate without
I, [CRISOSTOMO], legal age, Filipino, resident of Brgy. III-D, San Pablo City with postal address at San Pablo prior notice to and consent of the
City, after having been duly sworn in accordance to law, depose and say[:] borrower is void.
That I am the Publisher of The Morning Chronicle Weekly newspaper of Luzon Province and Greater Manila After annulling the foreclosure of mortgage, the RTC reduced the interest imposable on the petitioners' loans
Area, Cavite, [p ]ublished and edited in the Province of Laguna and San Pablo City. to 12%, the legal interest allowed for a loan or forbearance of credit, citing Medel v. CA.69 In effect, the RTC
x x x x58 voided not just the unilateral increases in the monthly interest, but also the contracted interest of 18.75%.
The implication is to allow the petitioners to recover what they may have paid in excess of what was validly therefore void. Besides, the pro forma promissory notes have the character of a contract d'adhesion, "where
due to Solidbank, if any. the parties do not bargain on equal footing, the weaker party's [the debtor's] participation being reduced to
In Floirendo, Jr. v. Metropolitan Bank and Trust Co., 70 the promissory note provided for interest at 15.446% the alternative 'to take it or leave it."'
per annum for the first 30 days, subject to upward/downward adjustment every 30 days thereafter.71 It was "While the Usury Law ceiling on interest rates was lifted by [Central Bank] Circular No. 905, nothing in the
further provided that: said Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave
The rate of interest and/or bank charges herein stipulated, during the term of this Promissory Note, its their borrowers or lead to a hemorrhaging of their assets." In fact, we have declared nearly ten years ago that
extension, renewals or other modifications, may be increased, decreased, or otherwise changed from time to neither this Circular nor PD 1684, which further amended the Usury Law, "authorized either party to
time by the Bank without advance notice to me/us in the event of changes in the interest rate prescribed by law unilaterally raise the interest rate without the other's consent."
or the Monetary Board of the Central Bank of the Philippines, in the rediscount rate of member banks with the Moreover, a similar case eight years ago pointed out to the same respondent (PNB) that borrowing signified
Central Bank of the Philippines, in the interest rates on savings and time deposits, in the interest rates on the a capital transfusion from lending institutions to businesses and industries and was done for the purpose of
banks borrowings, in the reserve requirements, or in the overall costs of funding or money[.]72 (Italics ours) stimulating their growth; yet respondent's continued "unilateral and lopsided policy" of increasing interest
The Court ordered the "reformation" of the real estate mortgage contract and the promissory note, in that rates "without the prior assent" of the borrower not only defeats this purpose, but also deviates from this
any increases in the interest rate beyond 15.446% per annum could not be collected by respondent bank pronouncement. Although such increases are not usurious, since the "Usury Law is now legally inexistent" -
since it was devoid of prior consent of the petitioner, as well as ordered that the interest paid by the debtor the interest ranging from 26 percent to 35 percent in the statements of account - "must be equitably reduced
in excess of 15.446% be applied to the payment of the principal obligation. 73 for being iniquitous, unconscionable and exorbitant." Rates found to be iniquitous or unconscionable are void,
In Philippine National Bank v. CA, 74 the Court declared void the escalation clause in a credit agreement as if it there were no express contract thereon. Above all, it is undoubtedly against public policy to charge
whereby the "bank reserves the right to increase the interest rate within the limits allowed by law at any time excessively for the use of money. 80 (Citations omitted and emphasis ours)
depending on whatever policy it may adopt in the future x x x."75 The Court said: In New Sampaguita, the Court invoked Article 131081 of the Civil Code which grants courts authority to
It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of reduce or increase interest rates equitably. It eliminated the escalated rates, insurance and penalties and
mutual assent of the parties. If this assent is wanting on the part of one who contracts, his act has no more imposed only the stipulated interest rates of 19.5% and 21.5% on the notes, to be reduced to the legal rate of
efficacy than if it had been done under duress or by a person of unsound mind. 12% upon their automatic conversion into medium-term loans after maturity: 82
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the [T]o give full force to the Truth in Lending Act, only the interest rates of 19.5 percent and 21.5 percent
parties must meet as to the proposed modification, especially when it affects an important aspect of the stipulated in the Promissory Notes may be imposed by respondent on the respective availments. After 730
agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital days, the portions remaining unpaid are automatically converted into medium-term loans at the legal rate of
component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, 12 percent. In all instances, the simple method of interest computation is followed.x x x.83
otherwise, it is bereft of any binding effect. Thus, all payments made by the petitioners were applied pro-rated to the notes, and after eliminating the
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled charges, penalties and insurance, the result of the recomputation was an overcollection by the bank of P3,686,
right to unilaterally upwardly adjust the interest on private respondents' loan. That would completely take 101.52, which the Court ordered refunded to the petitioners with straight interest at 6% per annum from the
away from private respondents the right to assent to an important modification in their agreement, and filing of the complaint until Finality.84
would negate the element of mutuality in contracts. x x x. 76 (Citation omitted and italics in the original) In Equitable PCI Bank v. Ng Sheung Ngor, 85 the Court annulled the escalation clause and imposed the original
In New Sampaguita Builders Construction, Inc. (NSBCJ) v. PNB,77 the Court condemned as the "zenith of stipulated rate of interest on the loan, until maturity, and thereafter, the legal interest of 12% per annum was
farcicality" a mortgage contract whereby the parties "specify and agree upon rates that could be subsequently imposed on the outstanding loans. Thus, the Court ordered the borrower to pay Equitable the stipulated
upgraded at whim by only one party to the agreement."78 The Court declared as a contract of adhesion a pro interest rate of 12.66% per annum for the dollar denominated loans, and the stipulated 20% per annum for
forma promissory note which creates a "take it or leave it" dilemma for borrower and gives the mortgagee the peso denominated loans, up to maturity, and afterwards Equitable was to collect legal interest of 12% per
bank an unbridled right to adjust the interest independently and upwardly, thereby completely taking away annum on all loans due.86 Incidentally, under Monetary Board Circular No. 799, the rate of interest for the
from the borrower the "right to assent to an important modification in their agreement," thus negating the loan or forbearance of money, in the absence of stipulation, shall now be 6% per annum starting July 1,
element of mutuality in their contracts.79 The Court quotes: 2013.87
Increases in Interest Baseless Thus, the Court disregarded the unilaterally escalated interest rates and imposed the mutually stipulated
Promissorv Notes. In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 rates, which it applied up to the maturity of the loans. Thereafter, the Court imposed the legal rate of 12% per
percent in the first, and 21.5 percent in the second and again in the third. However, a uniform clause therein annum on the outstanding loans, or 6% per annum legal rate on the excess of the borrower's payments.
permitted respondent to increase the rate "within the limits allowed by law at any time depending on Attorney's fees do not form an
whatever policy it may adopt in the future x x x," without even giving prior notice to petitioners. The integral part of the cost of
Court holds that petitioners' accessory duty to pay interest did not give respondent unrestrained freedom to borrowing, but arise only when
charge any rate other than that which was agreed upon. No interest shall be due, unless expressly stipulated collecting upon the notes or loans
in writing. It would be the zenith of farcicality to specify and agree upon rates that could be subsequently becomes necessary. Courts have
upgraded at whim by only one party to the agreement. the power to determine their
The "unilateral detennination and imposition" of increased rates is "violative of the principle of mutuality of reasonableness based on quantum
contracts ordained in Article 1308 of the Civil Code." One-sided impositions do not have the force of law meruit and to reduce the amount
between the parties, because such impositions are not based on the parties' essential equality. thereof if excessive.
Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long- Concerning the P3,000,000.00 attorney's fees charged by Solidbank and added to the amount of its auction
term contracts, giving respondent an unbridled right to adjust the interest independently and upwardly bid, as part of the cost of collecting the loans by way of extrajudicial foreclosure, the Court finds no factual
would completely take away from petitioners the "right to assent to an important modification in their basis to justify such an excessive amount. The Court has not hesitated to delete or equitably reduce attorney's
agreement" and would also negate the element of mutuality in their contracts. The clause cited earlier made fees which are baseless or excessive. In New Sampaguita, the Court reduced from 10% to 1% the attorney's
the fulfillment of the contracts "dependent exclusively upon the uncontrolled will" of respondent and was
fees, holding that they are not an integral part of the cost of borrowing but arise only on the basis of quantum awarded by the RTC. Thus, all in all, the petitioners owed the bank P68,226,728.95 (P67,551,216.78 plus
meruit when the lender collects upon the notes. 88 P675,512.17) as of March 5, 1999.1wphi1
Mortgagee institutions are reminded that extrajudicial foreclosure proceedings are not adversarial suits filed (4) Deducting P68,226,728.95 from Solidbank's winning bid of P82,327,000.00 leaves an excess of
before a court. It is not commenced by filing a complaint but an ex-parte application for extra judicial P14,100,271.05 in the proceeds of the auction over the outstanding loan obligation of the petitioners. This
foreclosure of mortgage before the executive judge, pursuant to Act No. 3135, as amended, and special amount must be paid by Solidbank to the petitioners.
administrative orders issued by this Court, particularly Administrative Matter No. 99-10-05-0 (Re: Procedure (5) Since the P14,100,271.05 is the excess in the auction proceeds, thus an ordinary monetary obligation
in Extra-Judicial Foreclosure of Mortgage). The executive judge receives the application neither in a judicial and not a loan or a forbearance of credit, it shall earn simple interest at six percent (6%) per annum from
capacity nor on behalf of the court; the conduct of extrajudicial foreclosure proceedings is not governed by judicial demand up to finality, following Eastern Shipping Lines, Inc. v. Court of Appeals; 94 thereafter, both
the rules on ordinary or special civil actions. The executive judge performs therein an administrative function the said amount and the accumulated interest shall together earn six percent (6%) per annum, pursuant to
to ensure that all requirements for the extrajudicial foreclosure of a mortgage are satisfied before the clerk Monetary Board Circular No. 799, until full satisfaction.
of court, as the ex-officio sheriff, goes ahead with the public auction of the mortgaged property. Necessarily, Thus:
the orders of the executive judge in such proceedings, whether they be to allow or disallow the extrajudicial 1wphi1
foreclosure of the mortgage, are not issued in the exercise of a judicial function but in the exercise of his Particulars Amount
administrative function to supervise the ministerial duty of the Clerk of Court as Ex-Officio Sheriff in the
conduct of an extrajudicial foreclosure sale.89 Solidbanks Winning Bid P82,327,000.00
The recomputation of the
petitioners' total loan indebtedness Less: Amount Due from Petitioners, as March 5, 1999
based on the stipulated interest, and
Loan No. 1 Principal P40,000,000.00
the exclusion of the penalties and
reduction of the attorney's fees Loan No. 2 Principal 20,000,000.00
results in an excess of the auction
proceeds which must be paid to the Total 60,000,000.00
petitioners.
Coming now to the question of whether Solidbank must refund any excess interest to the petitioners, the CA Add: Interest Due
agreed with the RTC that the loans should earn only 12% for Solidbank, which would result in a drastic
reduction in the interest which the petitioners would be obliged to pay to Solidbank. Notwithstanding what Loan No. 1 November 9,
this Court has said concerning the invalidity of the unilateral increases in the interest rates, the ruling 1995
nonetheless violates the contractual agreement of the parties imposing an interest of 18.75% per annum, to March 5, 1999
besides the fact that an interest of 18.75% per annum cannot per se be deemed as unconscionable back in
(P40,000,000.00x18.75%p.a.
1995 or in 1997.
x 3.3178) P24,883,500.00
In the recent cases of Mallari v. Prudential Bank (now Bank of the Philippine Islands)90 and Spouses Villanueva
v. The CA, et al.,91 the Court did not consider unconscionable the contractual interest rates of 23% or 24% Loan No. 2 April 28, 1997
per annum. In Mallari, the Court upheld the loans obtained between 1984 and 1989 which bore interest from to
21 % to 23% per year; in Spouses Villanueva, the loans secured in 1994 carried interest of 24% per year were March 5, 1999
upheld. In Advocates for Truth in Lending, Inc. v. Bangko Sentral Monetary Board,92 the Court noted that in or
the later 1990s, the banks' prime lending rates which they charged to their best borrowers ranged from 26%
(P20,000,000.00 x 18.75%
to 31%.93
p.a. x 1.8520) 6,945,000.00 31,828,500.00
To answer, then, the question of whether Solidbank must refund anything to the petitioners, the contracted
rate of 18.75%, not the legal rate of 12%, will be applied to the petitioners' loans. Any excess either in the Total 91,828,500.00
interest payments of the petitioners or in the auction proceeds, over what is validly due to Solidbank on the
loans, will be refunded or paid to the petitioners. Thus: Less: Interest paid from November 1995 to 24,277,283.22
(1) The first loan of P40,000.000.00 carried a stipulated interest of 18.75% per annum, and from November April 1998
9, 1995 to March 5, 1999, which is the auction date and the date the mortgage was terminated, a period of 3
years and 116 days, or 3.3178 years, and total interest earned by the bank thereon is P24,883,500.00; the Net Amount Due from Petitioners 67,551,216.78
second loan, for P20,000,000.00, was also agreed to earn 18. 75% per annum, and from April 28, 1997 to
Add: Attorneys fees (1% of P67,551,216.78) 675,512.17 68,226,728.95
March 5, 1999, a period of 1 year and 311 days, or 1.8520 years, it earned P6,945,000.00 in interest. In all,
Solidbank earned P31,828,500.00 in interest up to March 5, 1999 from both loans.1wphi1 Balance Payable to Petitioners P14,100,271.05
(2) From November 9, 1995 to April 1998, the petitioners paid monthly interests totaling P24,277,283.22.
Deducting P24,277,283.22 from the sum of the total loan principal of P60,000,000.00 and the total interest
WHEREFORE, premises considered, the Amended Decision dated November 26, 2012 of the Court of Appeals
due of P31,828,500.00, which is P91,828,500.00, leaves the amount of P67,551,216.78 in interest owed by
in CA-G.R. CV No. 94012 is AFFIRMED with MODIFICATION in that the stipulated interest rate on the loan
the petitioners as of March 5, 1999.
obligation of 18.75% shall be applied, resulting in P67,551,216.78 as the amount due from the Spouses
(3) As in New Sampaguita Builders, the Court shall exclude all the penalties or surcharges charged by the
Florante E. Jonsay and Luzviminda L. Jonsay and Momarco Import Co., Inc. to Solidbank Corporation (now
bank, and shall allow the bank to recover only 1% as attorney's fees, or P675,512.17, not the P3,600,000.00
Metropolitan Bank and Trust Company). In addition, the Spouses Florante E. Jonsay and Luzviminda L. Jonsay
and Momarco Import Co., Inc. are ORDERED to PAY atton1ey's fees in the amount of P675,512.17, which is
one percent (1%) of the loan obligation.
Thus, Solidbank Corporation (now Metropolitan Bank and Trust Company) is ORDERED to PAY to the
petitioners the amount of P14,100,271.05, representing the excess of its auction bid over the total loan
obligation due from the petitioners, plus interest at six percent (6%) per annum computed from the date of
filing of the complaint or March 15, 2000 up to finality; and thereafter, both the excess of the auction proceeds
and the cumulative interest shall earn six percent (6%) per annum until fully paid.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
G.R. No. 157163 June 25, 2014
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
HON. JUDGE AGAPITO L. HONTANOSAS, JR., REGIONAL TRIAL COURT, BRANCH 16, CEBU CITY,
SILVERIO BORBON, SPOUSES XERXES AND ERLINDA FACULTAD, AND XM FACULTAD & DEVELOPMENT
CORPORATION, Respondents.
DECISION
BERSAMIN, J.:
Injunction should not issue except upon a clear showing that the applicant has a right in esse to be protected,
and that the acts sought to be enjoined are violative of such right. A preliminary injunction should not
determine the merits of a case, or decide controverted facts, for, being a preventive remedy, it only seeks to
prevent threatened wrong, further injury, and irreparable harm or injustice until the rights of the parties can
be settled.
The Case
Under review at the instance of the defendant, now the petitioner herein, is the decision promulgated on July
9, 2002,1 whereby the Court of Appeals (CA) upheld the order issuedon July 5, 2001 in Civil Case No. CEB-
26468 entitled Spouses Silverio & Zosima Borbon, et al. v. Bank of the Philippine Islandsby the Regional Trial
Court (RTC), Branch 16, in Cebu City, presided by Hon. Judge Agapito L. Hontanosas, Jr.
Antecedents
On May 22, 2001, respondents Spouses Silverio and Zosima Borbon, Spouses Xerxes and Erlinda Facultad,and
XM Facultad and Development Corporation commenced Civil Case No. CEB-26468 to seek the declaration of
the nullity of the promissory notes,real estate and chattel mortgages and continuing surety agreement they
had executed in favor of the petitioner. They further sought damages and attorneys fees, and applied for a
temporary restraining order (TRO) orwrit of preliminary injunction to prevent the petitioner from
foreclosing on the mortgages against their properties.
The complaintalleged that the respondents had obtained a loan from the petitioner, and had executed
promissory notes binding themselves, jointly and severally, to pay the sum borrowed; that as security for the
payment of the loan, they had constituted real estate mortgages on several parcels of land in favor of the
petitioner; and that they had been made to sign a continuing surety agreement and a chattel mortgage on
their Mitsubishi Pajero.
It appears that the respondentsobligation to the petitioner had reached 17,983,191.49, but they had only
been able to pay 13 Million because they had been adversely affected by the economic turmoil in Asia in
1997. The petitioner required them to issue postdated checks to cover the loan under threat of foreclosing
on the mortgages. Thus, the complaint sought a TRO or a writ of preliminary injunction to stay the threatened
foreclosure.
On June 6, 2001, the petitioner filed its answer with affirmative defenses and counterclaim, as well as its
oppositionto the issuance of the writ of preliminary injunction, contending that the foreclosure of the
mortgages was within itslegal right to do.2
Also on June 6, 2001 the petitioner filed a motion to dismiss reiterating its affirmative defenses, to wit:
I) THAT THE COMPLAINT SHOULD BE DISMISSED BECAUSE VENUE IS IMPROPERLYLAID. (RULE 16,
SECITON 1, PARAGRAPH (C);
II) THAT THE COURT HAS NOTACQUIRED JURISDICTION OVER THE SUBJECT MATTER OFTHE CLAIM
BECAUSE THE PROPER LEGAL FEES HAS NOT BEEN PAID IN ACCORDANCE WITH RULE 14, OF THE RULES
OF COURT AND CIRCULAR NO. 7 OF THE SUPREME COURT, SERIES OF 1988;
III) THAT ZOSIMA BORBONS COMPLAINT SHOULD BE DISMISSED BECAUSE PLAINTIFF ZOSIMA BORBON
HAS NO LEGAL PERSONALITY TO SUE BEING DECEASED, SPOUSE OF PLAINTIFF SILVERIO BORBON. (RULE
16, SECTION 1(d);
IV) THAT THE ESTATE OF ZOSIMA BORBON BEING AN INDISPENSABLE PARTY, THE COMPLAINT SHOULD
BE AMENDED TO INCLUDE THE ESTATE OF ZOSIMA BORBON. (RULE 16, SECTION 1(j);
V) THAT THE COMPLAINT OFPLAINTIFF XM FACULTAD AND DEVELOPMENT CORPORATION, SHOULD BE
DISMISSED BECAUSE THERE IS NO BOARD RESOLUTION AUTHORIZING THE FILING OF THIS CASE. [RULE
16, SECTION 1 (d)];
VI) THAT THE PLEADING ASSERTING THE CLAIM STATES NO CAUSE OF ACTION.3
On July 5, 2001, the RTC denied the petitioners motion to dismissfor being unmeritorious,4 but granted the
respondents application for preliminary injunction,5 to wit:
WHEREFORE, premises considered, the application for preliminary injunction is GRANTED. Upon filing by
the plaintiffapplicants of a bond in the amount of 2,000,000 in favor of defendant to the effect that applicants
will pay to adverse party all damages which it may sustain by reason of the injunction, let a writ of preliminary
injunction be issued directing the defendant and its agents or representatives, to cease and desist from
commencing foreclosure and sale proceedings of the mortgaged properties; from taking possession of the
Mitsubishi Pajero subject of the chattel mortgage; and from using the questioned post-dated checks as
evidence for the filing of complaint against plaintiffs Facultad for violation of Batas Pambansa Blg. 22, while
the present case is pending litigation.
This writ of preliminary injunction shall continue until further orders from the Court.
Notify the parties of this Order.
SO ORDERED.6
The RTC later denied the petitioners motion for reconsideration through its order7 of August 22, 2001.
Ruling of the CA
Dissatisfied, the petitioner assailed the orders of the RTC by petition for certiorariin the CA, submitting the
lone issue of:
WHETHER OR NOT THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
ISSUED AN ORDER DENYING THE MOTION TO DISMISS AND GRANTING THE WRIT OF PRELIMINARY
MANDATORY INJUNCTION.
On July 9, 2002, however, the CArendered the adverse decision under review, to wit:
WHEREFORE, premises considered, the assailed order of the Regional Trial Court (RTC) of Cebu City, Branch
16 dated July 5, 2001 and August 22, 2001 are hereby AFFIRMED. Let the original records of this case be
remanded immediately to the court a quo for further proceedings. SO ORDERED.8
The CA held that the petitioners averment of non-payment of the proper docket fee by the respondents asthe
plaintiffs in Civil Case No. CEB-26468 was not substantiated; that even if the correct docket fee was not in
fact paid, the strict application of the rule thereon could be mitigated in the interest of justice;9 and that Civil
Case No. CEB-26468, being a personal action, was properly filed in Cebu City where respondent XM Facultad
and Development Corporations principal office was located.10
The CA further held that ZosimaBorbons death rendered respondent Silverio Borbon, her surviving spouse,
the successor to her estate; that although there was a valid transfer of interest pending the litigation, the
dismissal of the complaintwould not be in order because it was permissible under the rules to continue the
action in the name of the original party;11 and that the RTC did not commit grave abuse of discretion in
issuing the writ of preliminary injunction because it thereby only applied the pertinent law and
jurisprudence.12
The CA denied the petitioners motion for reconsiderationthrough its resolution of February 12, 2003.13
Issues
Hence, this appeal, with the petitioner positing as follows:
1. Whether or not Civil Case No. CEB-26468 should be dismissed for (a) non-payment of the correct amount
of docket fee; and (b) improper venue;14
2. Whether or not the issuance of the writ of preliminary injunction against the petitioner, its agents and
representatives, was in order.
Ruling of the Court
The appeal is partly meritorious.
1. Civil Case No. CEB-26468 was a personal action; hence, venue was properly laid
The CA and the RTC held that Civil Case No. CEB-26468, being for the declaration of the nullity of a contract
of loan and its accompanying continuing surety agreement, and the real estate and chattel mortgages, was a
personal action; hence, its filing in Cebu City, the place of business of one of the plaintiffs, was correct under
Section 2, Rule 4 of the Rules of Court.
The petitioner contends, however, that Civil Case No. CEB-26468 was a real action that should be commenced
and tried in the proper court having jurisdiction over the area wherein the real property involved, or a portion
thereof, was situated; and thatconsequently the filing and docket fees for the complaintshould be based on
the value of the property as stated in the certificate of sale attached thereto.
We sustain the lower courts holdings.
The determinants of whether an action is of a real or a personal nature have been fixed by the Rules of
Courtand relevant jurisprudence. According to Section 1, Rule 4 of the Rules of Court, a real action is one that
affects title to or possession of real property, or an interest therein. Such action is to be commenced and tried
in the proper court having jurisdiction over the area wherein the real property involved, ora portion thereof,
is situated, which explains why the action is also referred to as a localaction. In contrast, the Rules of
Courtdeclares all other actionsas personal actions.15 Such actions may include those brought for the recovery
of personal property, or for the enforcement of some contract or recovery of damages for its breach, or for
the recovery of damages for the commission of an injury to the person or property.16 The venue of a personal
action isthe place where the plaintiff or any of the principal plaintiffs resides,or where the defendant or any
of the principal defendants resides, or in the case of a non-resident defendant where he may be found, at the
election of the plaintiff,17 for which reason the action is considered a transitory one.
The complaintin Civil Case No. CEB-26468 pertinently alleged as follows:18
xxxx
3.1 Plaintiffs signed blank pre-printed forms of promissory note no. 501253-000, continuing surety
agreement, real estate mortgages, chattel mortgage which violates the principle of mutuality of contracts.
These contracts are in the nature of contracts of adhesion with provisions favouring defendant bank and
plaintiffs had nothing to do except to sign the unjust stipulations which should be declared as NULL AND
VOID. These contracts do not reflect the real agreement of the parties and the stipulations are tilted infavor
of defendant bank.
3.2 Moreover, these real estate mortgages, chattel mortgages and continuing surety agreement are securing
specific amounts of obligation and upon the payment of 13,000,000 to defendant bank, automatically, these
became functus de oficioand should be released immediately without the encumbrance.
3.3 As the chattel mortgage involving the Mitsubishi Pajero secured only 600,000.00, upon liquidation of
more than 800,000.00 principal payment, the same became null and void, and defendant bank should be
ordered to cancel the mortgage and to be directed not to take any appropriate action to take possession.
3.4 In addition, Penbank Checks Nos. 11237 to 11242 with amounts of 200,000.00 each and BPI Check Nos.
019098 & 019099 with amounts of 400,000.00 each, issued against the will of plaintiffs Facultad and
without any consideration, should be declared null and void. Defendant bank should be directed not to
deposit the samefor collection with the drawee bank.
xxxx
3.6 Furthermore, the total obligation of plaintiffs is void and baseless because it is based on illegal impositions
of exorbitant interest and excessive charges. Interest was converted into principal which in turn earns
interest. These illegal impositions are considered by law and jurisprudence as null and void. These excessive
interest and charges should be applied to the principal unless there isapplication, defendant bank is enriching
itself at the expense of plaintiffs. x x x x
Based on the aforequoted allegations of the complaintin Civil Case No. CEB-26468, the respondents seek the
nullification of the promissory notes, continuing surety agreement, checks and mortgage agreements for
being executed against their will and vitiated by irregularities, not the recovery of the possession or title to
the properties burdened by the mortgages. There was no allegation that the possession of the properties
under the mortgages had already been transferred to the petitioner in the meantime. Applying the
determinants, Civil Case No. CEB-26468 was unquestionably a personal action, for, as ruled in Chua v. Total
Office Products and Services (Topros),Inc.:19
Well-settled is the rule that an action to annul a contract of loan and its accessory real estate mortgageis a
personal action. In a personal action, the plaintiff seeks the recovery of personal property, the enforcement
of a contractor the recovery of damages. In contrast, in a real action, the plaintiff seeks the recovery of real
property, or, as indicated in Section 2 (a), Rule 4 of the then Rules of Court, a real action is an action affecting
title to real property or for the recovery of possession, or for partition or condemnation of, or foreclosure of
mortgage on, real property.
In the Pascual case, relied upon by petitioner, the contract of sale of the fishpond was assailed as fictitious for
lack of consideration. We held that there being no contract to begin with, there is nothing to annul. Hence, we
deemed the action for annulment of the said fictitious contract therein as one constituting a real action for
the recovery of the fishpond subject thereof.
We cannot, however, apply the foregoing doctrine to the instant case. Note that in Pascual, title to and
possession of the subject fishpond had already passed to the vendee. There was, therefore, a need to recover
the said fishpond. But in the instant case, ownership of the parcels of land subject of the questioned real
estatemortgage was never transferred to petitioner, but remained with TOPROS. Thus, no real action for the
recovery of real property is involved. This being the case, TOPROS action for annulment of the contracts of
loan and real estate mortgage remains a personal action.
xxxx
The Court of Appeals finds that Hernandez v. Rural Bank of Lucena, Inc.provides the proper precedent in this
case. In Hernandez, appellants contended that the action of the Hernandez spouses for the cancellation of the
mortgage on their lots was a real action affecting title to real property, which should have been filed in the
place where the mortgaged lots were situated. Rule 4, Section 2 (a), of the then Rules of Court, was applied,
to wit:
SEC. 2. Venue in Courts of First Instance. (a) Real actions. Actions affecting title to, or for recovery of
possession, or for partition or condemnation of, or foreclosure of mortgage on, real property, shall be
commenced and tried in the province where the property or any part thereof lies.
The Court pointed out in the Hernandezcase that with respect to mortgage, the rule on real actions only
mentions an action for foreclosure of a real estate mortgage. It does not include an action for the cancellation
of a real estate mortgage. Exclusio unios est inclusio alterius. The latter thus falls under the catch-all provision
on personal actions under paragraph (b) of the above-cited section, to wit:
SEC. 2 (b) Personal actions. All other actions may be commenced and tried where the defendant or any of
the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election
of the plaintiff.
In the same vein, the action for annulment of a real estate mortgage in the present case must fall under Section
2 of Rule 4, to wit:
SEC. 2. Venue of personal actions. All other actions may be commenced and tried where the plaintiff or any
of the principal plaintiffs resides, orwhere the defendant or any of the principal defendants resides, or in the
case of a nonresident defendant where he may be found, at the election of the plaintiff.
Thus, Pasig City, where the parties reside, is the proper venue of the action to nullify the subject loan and real
estate mortgage contracts. The Court of Appeals committed no reversible error in upholding the orders of the
Regional Trial Court denying petitioners motion to dismiss the case on the ground of improper venue.
Being a personal action, therefore, Civil Case No. CEB-26468 was properly brought in the RTC in Cebu City,
where respondent XM Facultad and Development Corporation, a principal plaintiff, had its address.
Upon the same consideration, the petitioners contention that the filing and docket fees for the
complaintshould be based on the assessed values of the mortgaged real properties due to Civil Case No. CEB-
26468 being a real action cannot be upheld for lack of factual and legal bases.
2. Respondents were not entitled to the writ of preliminary injunction
In their application for the issuance of the writ of preliminary injunction, the respondents averred that the
nullity of the loan and mortgage agreements entitled them to the relief of enjoining the petitioner from: (a)
foreclosing the real estateand chattel mortgages; (b)taking possession, by replevin, of the Mitsubishi Pajero;
and (c) depositing the postdated checks; that respondents Spouses Facultad would suffer injustice and
irreparable injury should the petitioner foreclose the mortgages and file criminal complaints for violation of
Batas Pambansa Blg.22 against them; and that such threatened acts, if done, would render ineffectual the
judgment of the trial court.20 They prayed that the petitioner be enjoined from doing acts that would disturb
their material possession of the mortgaged properties, manifesting their willingness to post a bond for the
issuance of the writ of preliminary injunction.21
As mentioned, the RTC issued the writ of preliminary injunction on July 16, 2001 based on the foregoing
allegations of the respondents application,22 and the CA upheld the issuance in its assailed July 9, 2002
decision.23
The petitioner submits that the issuance of the writ of preliminary injunction constituted a violation of
Administrative Circular (AC) No. 07-99 dated June 25, 1999, and thus subjected respondent Judge to
administrative sanction;24 that injunction could not issue to enjoin the prosecution of the criminal offenses
because such prosecution was imbued with public interest;25 and that the petitioner, as the mortgagee, could
not be prohibited from exercising its legal right to foreclose the mortgages because foreclosure of the
mortgages was its proper remedy under the law.26
AC No. 07-99 was issued as a guideline for lower court judges in the issuance of TROs and writs of preliminary
injunctions to prevent the implementation of infrastructure projects, or the seizure and forfeiture
proceedings by the Bureau of Customs, viz:
ADMINISTRATIVE CIRCULAR NO. 07-99 June 25, 1999
TO: ALL JUDGES OF LOWER COURTS RE: EXERCISE OF UTMOST CAUTION, PRUDENCE, AND JUDICIOUSNESS
IN ISSUANCE OF TEMPORARY RESTRAINING ORDERS AND WRITS OF PRELIMINARY INJUNCTIONS
Despite well-entrenched jurisprudence and circulars regarding exercise of judiciousness and care in the
issuance of temporary restraining orders (TRO) or grant of writs ofpreliminary injunction, reports or
complaints on abuses committed by trial judges in connection therewith persist. Some even intimated
thatirregularities, including corruption, might have influenced the issuance ofthe TRO or the writ of
preliminary injunction.
No less than the President of the Philippines has requested this Court to issue a circular reminding judges to
respect P.D. No. 1818, which prohibits the issuance of TROs in cases involving implementation of government
infrastructure projects. The Office of the President has likewise brought to the attention of this Court orders
of judges releasing imported articles under seizure and forfeiture proceedings by the Bureau of Customs.
Judges are thus enjoined to observe utmost caution, prudence and judiciousness in the issuance of TRO and
in the grant of writs of preliminary injunction to avoid any suspicion that its issuance or grant was for
considerations other than the strict merits of the case.
Judges should bear in mind that in Garcia v. Burgos(291 SCRA 546, 571-572 [1998]), this Court explicitly
stated:
Sec. 1 of PD 1818 distinctly provides that "[n]o court in the Philippines shall have jurisdiction to issue any
restraining order, preliminary injunction, or preliminary mandatory injunction in any case, dispute,
orcontroversy involvingan infrastructure project . . . of the government, . . . to prohibit any person or persons,
entity or government official from proceeding with, or continuing the execution or implementation of any
such project . . . or pursuing any lawful activity necessary for such execution, implementation or operation."
At the risk of being repetitious, we stress that the foregoing statutory provision expressly deprives courts of
jurisdiction to issue injunctive writs against the implementation or execution of an infrastructure project.
Their attention is further invited to Circular No. 68-94, issued on 3 November 1994 by the OCA OIC Deputy
Court Administrator Reynaldo L. Suarez, on the subject "Strict Observance of Section 1 of P.D. 1818
Envisioned by Circular No. 13-93 dated March 5, 1993, and Circular No. 20-92 dated March 24, 1992.
Finally, judges should never forget what the Court categorically declared in Mison v. Natividad(213 SCRA 734,
742 [1992] that "[b]y express provision of law, amply supported by well-settled jurisprudence, the Collector
of Customs has exclusive jurisdiction over seizure and forfeiture proceedings, and regular courts cannot
interfere with his exercise thereof or stifleor put it to naught."
The Office of the Court Administrator shall see to it that this circular is immediately disseminated and shall
monitor implementation thereof.
STRICT OBSERVANCE AND COMPLIANCE of this Circular is hereby enjoined.
AC No. 07-99 was irrelevant herein, however, because Civil Case No. CEB-26468 did not involve the
implementation of infrastructure projects, or the seizure and forfeiture proceedings by the Bureau of
Customs. Consequently, the petitioners urging that respondent Judge be held administratively liable for
violating AC No. 07-99 was misplaced.
However, the RTCs issuance of the writ of preliminary injunction to enjoin the petitioner from proceeding
withthe foreclosure of the mortgages was plainly erroneous and unwarranted.
A preliminary injunction is an order granted at any stage of an action prior to the judgment or final order
requiring a party or a court, agency or a person to refrain from a particular act or acts.27 It is the "strong arm
of equity," an extraordinary peremptory remedy that must be used with extreme caution, affecting as it does
the respective rights of the parties.28 The requirements for the issuance of a writ of preliminary injunction
or TRO are enumerated in Section 3, Rule 58 of the Rules of Court, to wit:
Section 3. Grounds for issuance of preliminary injunction. - A preliminary injunction may be granted when it
is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in
restraining the commission or continuance of the act or acts complained of, or in requiring the performance
of an act or acts, eitherfor a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject
of the action or proceeding, and tending to render the judgment ineffectual.
In City Government of Butuan v. Consolidated Broadcasting System (CBS), Inc.,29 the Court restated the
nature and concept of a writ of preliminary injunction, as follows:
A preliminary injunction is an order granted at any stage of an action or proceeding prior to the judgment
orfinal order requiring a party or a court, an agency, or a person to refrain from a particular act or acts. It may
also require the performance of a particular act or acts, in which case it is known as a preliminary mandatory
injunction. Thus, a prohibitory injunction is one that commands a party to refrain from doing a particular act,
while a mandatory injunction commands the performance of some positive act to correct a wrong in the past.
As with all equitable remedies, injunction must be issued only at the instance of a party who possesses
sufficient interest in or title to the right or the property sought to be protected. It is proper only when the
applicant appears to be entitled to the relief demanded in the complaint, which must aver the existence of the
right and the violation of the right, or whose averments must in the minimum constitute a prima facieshowing
of a right to the final relief sought. Accordingly, the conditions for the issuance of the injunctive writ are: (a)
that the right to be protected exists prima facie; (b) that the act sought to be enjoined is violative of that right;
and (c) that there is an urgent and paramount necessity for the writ to prevent serious damage. An injunction
will not issue to protect a right not in esse, or a right which is merely contingent and may never arise; or to
restrain an act which does not give rise to a cause of action; or to prevent the perpetration of an act prohibited
bystatute. Indeed, a right, to be protected by injunction, means a right clearly founded on or granted by law
or is enforceable as a matter of law. (Bold emphasis supplied)
Under the circumstances averred in the complaintin Civil Case No. CEB-26468, the issuance ofthe writ of
preliminary injunction upon the application of the respondents was improper. They had admittedly
constituted the real estate and chattel mortgages to secure the performance of their loan obligation to the
petitioner, and, as such, they were fully aware of the consequences on their rights in the properties given as
collaterals should the loan secured be unpaid. The foreclosure of the mortgages would be the remedy
provided by law for the mortgagee to exact payment.30 In fact, they did not dispute the petitionersallegations
that they had not fully paid their obligation, and that Civil Case No. CEB-26468 was precisely brought by them
in order to stave off the impending foreclosure of the mortgages based on their claim that they had been
compelled to sign pre-printed standard bank loan forms and mortgage agreements.
It is true that the trial courts are given generous latitude to act on applications for the injunctive writ for the
reason that conflicting claims in an application for the writ more often than not involve a factual
determination that is not the function of the appellate courts;31 and that the exercise of sound discretion by
the issuing courts in injunctive matters ought not to be interfered with exceptwhen there is manifest abuse.32
Nonetheless, the exercise of such discretion must be sound, that is, the issuance of the writ, though
discretionary, should be upon the grounds and in the manner provided by law.33 Judges should always bear
in mind that the writ of preliminary injunction is issued uponthe satisfaction of two requisite conditions,
namely: (1) the right to be protected exists prima facie; and (2) the acts sought to be enjoined are violative of
that right. According toSaulog v. Court of Appeals,34 the applicant must have a sufficient interest or right to
be protected, but it is enough that:-
x x x for the court to act, there must be an existing basis of facts affording a present right which is directly
threatened by an act sought to be enjoined. And while a clear showing ofthe right claimed is necessary, its
existence need not be conclusively established. In fact, the evidence to be submitted to justify preliminary delicate, which requires greater caution and deliberation, or is more dangerous in a doubtful case, than the
injunction at the hearing thereon need not be conclusive or complete but need only be a "sampling" intended issuance of an injunction.51
merely to give the court an idea of the justification for the preliminary injunction pending the decision of the In view of the foregoing, the CA grossly erred in not declaring that the RTC committed grave abuse of
case on the merits. This should really be so since our concern here involves only the propriety of the discretion in granting the application of the respondents as the plaintiffs in Civil Case No. CEB-26468. The
preliminary injunction and not the merits of the case still pending with the trial court. RTC apparently disregarded the aforecited well-known norms and guidelines governing the issuance of the
Thus, to be entitled to the writ ofpreliminary injunction, the private respondent needs only to show that it writ of injunction. Thereby, the RTC acted capriciously and arbitrarily. Grave abuse of discretion means either
has the ostensible right to the final relief prayed for in its complaint x x x. that the judicial or quasi-judicial power was exercised in an arbitrary or despotic manner by reason of passion
It is also basic that the power to issue a writ of injunction is to be exercised only where the reason and or personal hostility, or that the respondent judge, tribunal or board evaded a positive duty, or virtually
necessity therefor are clearly established, and only in cases reasonably free from doubt.35 For, truly, a refused to perform the duty enjoined or to act in contemplation of law, such as when such judge, tribunal or
preliminary injunction should not determine the merits of a case,36 or decide controverted facts.37 As a board exercising judicial or quasi-judicial powers acted in a capricious or whimsical manner as to be
preventive remedy, injunction only seeks to prevent threatened wrong,38 further injury,39 and irreparable equivalent to lack of jurisdiction.52
harm40 or injustice41 until the rights of the parties can be settled.1wphi1 As an ancillary and preventive WHEREFORE, the Court PARTIALLY GRANTS the petition for review on certiorari; MODIFIES the decision
remedy, it may be resorted to by a party to protect or preserve his rights during the pendency of the principal promulgated on July 9, 2002 by annulling and setting aside the writ of preliminary injunction in Civil Case
action, and for no other purpose.42 Such relief will accordingly protect the ability of the court to render a No. CEB-26468 issued by the Regional Trial Court, Branch 16, in Cebu City for being devoid of factual and
meaningful decision;43 it will further serve to guard against a change of circumstances that will hamper legal bases; ORDERS the Regional Trial Court, Branch 16, in Cebu City to proceed with dispatch in Civil Case
orprevent the granting of proper relief after a trial on the merits.44 Verily, its essential function is to preserve No. CEB-26468; and DIRECTS the respondents to pay the costs of suit.
the status quo between the parties until the merits of the case can be heard.45 SO ORDERED.
Moreover, the applicant must prove that the violation sought to be prevented would cause an irreparable
injustice.46 But the respondents failed to establish the irreparable injury they would suffer should the writ
of preliminary injunction not be issued. Theyprincipally feared the loss of their possession and ownership of
the mortgaged properties, and faced the possibility of a criminal prosecution for the post-dated checks they
issued. But such fear of potential loss ofpossession and ownership, or facing a criminal prosecution did not
constitute the requisite irreparable injury that could have warranted the issuance of the writ of injunction.
"An injury is considered irreparable," according to Philippine National Bank v. Castalloy Technology
Corporation,47
x x x if it is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor
ina court of law, or where there is no standard by which their amount canbe measured with reasonable
accuracy, that is, it is not susceptible of mathematical computation. The provisional remedy of preliminary
injunction may only be resorted to when there is a pressing necessity to avoid injurious consequences which
cannot be remedied under any standard of compensation.
The injury being fearedby the herein respondents is not of such nature. Ultimately, the amount to which the
mortgagee-bank shall be entitled will be determined by the disposition of the trial court in the main issue of
the case. We have explained in Equitable PCI Bank, Inc. v. OJMark Trading, Inc.that all is not lost for defaulting
mortgagors whose properties were foreclosed by creditors-mortgagees. The respondents will not be
deprived outrightly of their property, given the right of redemption granted to them under the law. Moreover,
in extrajudicial foreclosures, mortgagors have the right toreceive any surplus in the selling price. Thus, 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 will give the mortgagor a cause of action to recover such surplus.
As a general rule, the courts will not issue writs of prohibition or injunction whether preliminary or final
in order to enjoin or restrain any criminal prosecution.48 But there are extreme cases in which exceptions to
the general rule have been recognized, including: (1) when the injunction is necessary to afford adequate
protection to the constitutional rights of the accused; (2) when it is necessary for the orderly administration
of justice or to avoid oppression or multiplicity of actions; (3) when there is a prejudicial question that is sub
judice; (4) when the acts of the officer are without or in excess of authority; (5) when the prosecution is under
an invalid law, ordinance or regulation; (6) when double jeopardy is clearly apparent; (7) when the court has
no jurisdiction over the offense; (8) when it is a case of persecution rather than prosecution; (9) when the
charges are manifestly false and motivated by the lust for vengeance; and (10) when there is clearly no prima
faciecase against the accused and a motion to quash on that ground has been denied.49 However, the
respondents did not sufficiently show that Civil Case No. CEB-26468 came under any of the foregoing
exceptions. Hence, the issuance by the RTC of the writ of preliminary injunction to enjoin the petitioner from
instituting criminal complaints for violation of BP No. 22 against the respondents was unwarranted.
Every court should remember that an injunction should not be granted lightly or precipitately because it isa
limitation upon the freedom of the defendant's action. It should be granted only when the court is fully
satisfied that the law permits it and the emergency demands it,50 for no power exists whose exercise is more