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G.R. No.

110053 October 16, 1995 The loan was then released to respondent spouses on a
staggered basis. After a substantial sum of P118,540.00 had
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, been received by private respondents, they asked for the
vs. release of the remaining amount of the loan. It does not appear
COURT OF APPEALS, CELEBRADA MANGUBAT and that their request was acted upon by DBP, ostensibly because
ABNER MANGUBAT, respondents. the release of the land from the then Ministry of Natural
Resources had not been obtained.

REGALADO, J.: On July 7, 1983, respondent spouses, as plaintiffs, filed a


complaint against DBP in the trial court4 seeking the
This appeal by certiorari sprouted from the judgment of annulment of the subject deed of absolute sale on the ground
respondent Court of Appeals promulgated on September 9, that the object thereof was verified to be timberland and,
1992 in CA-G.R. CV No. 28311, and its resolution dated April therefore, is in law an inalienable part of the public domain.
7, 1993 denying petitioner's motion for reconsideration.1 Said They also alleged that petitioner, as defendant therein, acted
adjudgments, in turn, were rooted in the factual groundwork of fraudulently and in bad faith by misrepresenting itself as the
this case which is laid out hereunder. absolute owner of the land and in incorporating the waiver of
warranty against eviction in the deed of sale.5
On July 20, 1981, herein petitioner Development Bank of the
Philippines (DBP) executed a "Deed of Absolute Sale" in favor In its answer, DBP contended that it was actually the absolute
of respondent spouses Celebrada and Abner Mangubat over a owner of the land, having purchased it for value at an auction
parcel of unregistered land identified as Lot 1, PSU-142380, sale pursuant to an extrajudicial foreclosure of mortgage; that
situated in the Barrio of Toytoy, Municipality of Garchitorena, there was neither malice nor fraud in the sale of the land under
Province of Camarines Sur, containing an area of 55.5057 the terms mutually agreed upon by the parties; that assuming
hectares, more or less. arguendo that there was a flaw in its title, DBP can not be held
liable for anything inasmuch as respondent spouses had full
The land, covered only by a tax declaration, is known to have knowledge of the extent and nature of DBP's rights, title and
been originally owned by one Presentacion Cordovez, who, on interest over the land.
February 4, 1937, donated it to Luciano Sarmiento. On June 8,
1964, Luciano Sarmiento sold the land to Pacifico Chica. It further averred that the annulment of the sale and the return
of the purchase price to respondent spouses would redound to
On April 27, 1965, Pacifico Chica mortgaged the land to DBP their benefit but would result in petitioner's prejudice, since it
to secure a loan of P6,000.00. However, he defaulted in the had already released P118,540.00 to the former while it would
payment of the loan, hence DBP caused the extrajudicial be left without any security for the P140,000.00 loan; and that
foreclosure of the mortgage. In the auction sale held on in the remote possibility that the land is reverted to the public
September 9, 1970, DBP acquired the property as the highest domain, respondent spouses should be made to immediately
bidder and was issued a certificate of sale on September 17, pay, jointly and severally, the total amount of P118,540.00 with
1970 by the sheriff. The certificate of sale was entered in the interest at 15% per annum, plus charges and other expenses.6
Book of Unregistered Property on September 23, 1970.
Pacifico Chica failed to redeem the property, and DBP On May 25, 1990, the trial court rendered judgment annulling
consolidated its ownership over the same. the subject deed of absolute sale and ordering DBP to return
the P25,500.00 purchase price, plus interest; to reimburse to
On October 14, 1980, respondent spouses offered to buy the respondent spouses the taxes paid by them, the cost of the
property for P18,599.99. DBP made a counter-offer of relocation survey, incidental expenses and other damages in
P25,500.00 which was accepted by respondent spouses. The the amount of P50,000.00; and to further pay them attorney's
parties further agreed that payment was to be made within six fees and litigation expenses in the amount of P10,000.00, and
months thereafter for it to be considered as cash payment. On the costs of suit.7
July 20, 1981, the deed of absolute sale, which is now being
assailed herein, was executed by DBP in favor of respondent In its recourse to the Court of Appeals, DBP raised the
spouses. Said document contained a waiver of the seller's following assignment of errors:
warranty against eviction.2
1. The trial court erred in declaring the deed of absolute
Thereafter, respondent spouses applied for an industrial tree sale executed between the parties canceled and annulled on
planting loan with DBP. The latter required the former to submit the ground that therein defendant-appellant had no title over
a certification from the Bureau of Forest Development that the the property subject of the sale.
land is alienable and disposable. However, on October 29,
1981, said office issued a certificate attesting to the fact that 2. The trial court erred in finding that defendant-
the said property was classified as timberland, hence not appellant DBP acted fraudulently and in bad faith or that it had
subject to disposition.3 misrepresented facts since it had prior knowledge that subject
property was part of the public domain at the time of sale to
The loan application of respondent spouses was nevertheless therein plaintiffs-appellees.
eventually approved by DBP in the sum of P140,000.00,
despite the aforesaid certification of the bureau, on the 3. The trial court erred in finding said plaintiffs-appellees'
understanding of the parties that DBP would work for the waiver of warranty against eviction void.
release of the land by the former Ministry of Natural
Resources. To secure payment of the loan, respondent 4. The trial court erred awarding to therein plaintiffs-
spouses executed a real estate mortgage over the land on appellees damages arising from an alleged breach of contract.
March 17, 1982, which document was registered in the
Registry of Deeds pursuant to Act No. 3344.

1
5. The trial court erred in not ordering said plaintiffs- remain in all particulars just as they did before any act was
appellees to pay their loan obligation to defendant-appellant performed in relation thereto. 17
DBP in the amount of P118,540. 8
An action for money had and received lies to recover back
As substantially stated at the outset, respondent Court of money paid on a contract, the consideration of which has
Appeals rendered judgment modifying the disposition of the failed. 18 As a general rule, if one buys the land of another, to
court below by deleting the award for damages, attorney's which the latter is supposed to have a good title, and, in
fees, litigation expenses and the costs, but affirming the same consequence of facts unknown alike to both parties, he has no
in all its other aspects.9 On April 7, 1993, said appellate court title at all, equity will cancel the transaction and cause the
also denied petitioner's motion for reconsideration. 10 purchase money to be restored to the buyer, putting both
parties in status quo. 19
Not satisfied therewith, DBP interposed the instant petition for
review on certiorari, raising the following issues: Thus, on both local and foreign legal principles, the return by
DBP to respondent spouses of the purchase price, plus
1. Whether or not private respondent spouses corresponding interest thereon, is ineluctably called for.
Celebrada and Abner Mangubat should be ordered to pay
petitioner DBP their loan obligation due under the mortgage Petitioner likewise contends that the trial court and respondent
contract executed between them and DBP; and Court of Appeals erred in ordering the reimbursement of taxes
and the cost of the relocation survey, there being no factual or
2. Whether or not petitioner should reimburse legal basis therefor. It argues that private respondents merely
respondent spouses the purchase price of the property and the submitted a "list of damages" allegedly incurred by them, and
amount of P11,980.00 for taxes and expenses for the not official receipts of expenses for taxes and said survey.
relocation Survey. 11 Furthermore, the same list has allegedly not been identified or
even presented at any stage of the proceedings, since it was
Considering that neither party questioned the legality and vigorously objected to by DBP.
correctness of the judgment of the court a quo, as affirmed by
respondent court, ordering the annulment of the deed of Contrary to the claim of petitioner, the list of damages was
absolute sale, such decreed nullification of the document has presented in the trial court and was correspondingly marked as
already achieved finality. We only need "Exhibit P." 20 The said exhibit was, thereafter, admitted by the
trial court but only as part of the testimonial evidence for
The Court of Appeals, after an extensive discussion, found that private respondents, as stated in its Order dated August 16,
there had been no bad faith on the part of either party, and this 1988.21
r, therefore, to dwell on the effects of that declaration of
nullity.emains uncontroverted as a fact in the case at bar. However, despite that admission of the said list of damages as
Correspondingly, respondent court correctly applied the rule evidence, we agree with petitioner that the same cannot
that if both parties have no fault or are not guilty, the constitute sufficient legal basis for an award of P4,000.00 and
restoration of what was given by each of them to the other is P7,980.00 as reimbursement for land taxes and expenses for
consequently in order. 12 This is because the declaration of the relocation survey, respectively. The list of damages was
nullity of a contract which is void ab initio operates to restore prepared extrajudicially by respondent spouses by themselves
things to the state and condition in which they were found without any supporting receipts as bases thereof or to
before the execution thereof. 13 substantiate the same. That list, per se, is necessarily self-
serving and, on that account, should have been declared
We also find ample support for said propositions in American inadmissible in evidence as the factum probans.
jurisprudence. The effect of an application of the aforequoted
rule with respect to the right of a party to recover the amount In order that damages may be recovered, the best evidence
given as consideration has been passed upon in the case of obtainable by the injured party must be presented. Actual or
Leather Manufacturers National Bank vs. Merchants National compensatory damages cannot be presumed, but must be duly
Bank 14 where it was held that: "Whenever money is paid proved, and so proved with a reasonable degree of certainty. A
upon the representation of the receiver that he has either a court cannot rely on speculation, conjecture or guesswork as to
certain title in property transferred in consideration of the the fact and amount of damages, but must depend upon
payment or a certain authority to receive the money paid, when competent proof that they have been suffered and on evidence
in fact he has no such title or authority, then, although there be of the actual amount thereof. If the proof is flimsy and
no fraud or intentional misrepresentation on his part, yet there unsubstantial, no damages will be awarded. 22
is no consideration for the payment, the money remains, in
equity and good conscience, the property of the payer and may Turning now to the issue of whether or not private respondents
be recovered back by him." should be made to pay petitioner their loan obligation
amounting to P118,540.00, we answer in the affirmative.
Therefore, the purchaser is entitled to recover the money paid
by him where the contract is set aside by reason of the mutual In its legal context, the contract of loan executed between the
material mistake of the parties as to the identity or quantity of parties is entirely different and discrete from the deed of sale
the land sold. 15 And where a purchaser recovers the they entered into. The annulment of the sale will not have an
purchase money from a vendor who fails or refuses to deliver effect on the existence and demandability of the loan. One who
the title, he is entitled as a general rule to interest on the has received money as a loan is bound to pay to the creditor
money paid from the time of payment. 16 an equal amount of the same kind and quality. 23

A contract which the law denounces as void is necessarily no The fact that the annulment of the sale will also result in the
contract whatever, and the acts of the parties in an effort to invalidity of the mortgage does not have an effect on the
create one can in no wise bring about a change of their legal validity and efficacy of the principal obligation, for even an
status. The parties and the subject matter of the contract obligation that is unsupported by any security of the debtor

2
may also be enforced by means of an ordinary action. Where a survey, and ordering respondent spouses Celebrada and
mortgage is not valid, as where it is executed by one who is not Abner Mangubat to pay petitioner Development Bank of the
the owner of the Philippines the amount of P118,540.00, representing the total
property, 24 or the consideration of the contract is simulated 25 amount of the loan released to them, with interest of 15% per
or false, 26 the principal obligation which it guarantees is not annum plus charges and other expenses in accordance with
thereby rendered null and void. That obligation matures and their mortgage contract. In all other respects, the said judgment
becomes demandable in accordance with the stipulations of respondent Court of Appeals is AFFIRMED.
pertaining to it.
SO ORDERED.
Under the foregoing circumstances, what is lost is only the right
to foreclose the mortgage as a special remedy for satisfying or
settling the indebtedness which is the principal obligation. In
case of nullity, the mortgage deed remains as evidence or
proof of a personal obligation of the debtor, and the amount
due to the creditor may be enforced in an ordinary personal
action. 27

It was likewise incorrect for the Court of Appeals to deny the


claim of petitioner for payment of the loan on the ground that it
failed to present the promissory note therefor. While
respondent court also made the concession that its judgment
was accordingly without prejudice to the filing by petitioner of a
separate action for the collection of that amount, this does not
detract from the adverse effects of that erroneous ruling on the
proper course of action in this case.

The fact is that a reading of the mortgage contract 28 executed


by respondent spouses in favor of petitioner, dated March 17,
1982, will readily show that it embodies not only the mortgage
but the complete terms and conditions of the loan agreement
as well. The provisions of said contract, specifically paragraphs
16 and 28 thereof, are so precise and clear as to thereby
render unnecessary the introduction of the promissory note
which would merely serve the same purpose.

Furthermore, respondent Celebrada Mangubat expressly


acknowledged in her testimony that she and her husband are
indebted to petitioner in the amount of P118,000.00, more or
less. 29 Admissions made by the parties in the pleadings or in
the course of the trial or other proceedings do not require proof
and can not be contradicted unless previously shown to have
been made through palpable mistake. 30

Thus, the mortgage contract which embodies the terms and


conditions of the loan obligation of respondent spouses, as well
as respondent Celebrada Mangubat's admission in open court,
are more than adequate evidence to sustain petitioner's claim
for payment of private respondents' aforestated indebtedness
and for the adjudication of DBP's claim therefor in the very
same action now before us.

It is also worth noting that the adjustment and allowance of


petitioner's demand by counterclaim or set-off in the present
action, rather than by another independent action, is favored or
encouraged by law. Such a practice serves to avoid circuitry of
action, multiplicity of suits, inconvenience, expense, and
unwarranted consumption of the time of the court. The trend of
judicial decisions is toward a liberal extension of the right to
avail of counterclaims or set-offs. 31

The rules on counterclaim are designed to achieve the


disposition of a whole controversy of the conflicting claims of
interested parties at one time and in one action, provided all
parties can be brought before the court and the matter decided
without prejudicing the rights of any party. 32

WHEREFORE, the judgment appealed from is hereby


MODIFIED, by deleting the award of P11,980.00 as
reimbursement for taxes and expenses for the relocation

3
[G.R. No. 156295. September 23, 2003] 2. STORE/HOUSE – CONSTRUCTED on Lot No. 1103
made of strong materials G.I. roofing situated at Centro I,
MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO Orani, Bataan, x x x containing an area of 30 sq. meters, more
and ROSALINA GALIT, respondents. or less x x x (constructed on TCT No. T40785);

DECISION 3. BODEGA – constructed on Lot 1103, made of strong


materials, G.I. roofing, situated in Centro I, Orani, Bataan, x x x
YNARES-SANTIAGO, J.: with a floor area of 42.75 sq. m. more or less x x x.[11]

Petitioner was issued a writ of possession in Civil Case No. At the sale of the above-enumerated properties at public
6643[1] for Sum of Money by the Regional Trial Court of auction held on December 23, 1998, petitioner was the highest
Balanga, Bataan, Branch 1. The writ of possession was, and only bidder with a bid price of P483,000.00. Accordingly,
however, nullified by the Court of Appeals in CA-G.R. SP No. on February 4, 1999, Deputy Sheriff Robles issued a
65891[2] because it included a parcel of land which was not Certificate of Sale of Execution of Real Property,[12] which
among those explicitly enumerated in the Certificate of Sale reads:
issued by the Deputy Sheriff, but on which stand the
immovables covered by the said Certificate. Petitioner CERTIFICATE OF SALE ON EXECUTION OF REAL
contends that the sale of these immovables necessarily PROPERTY
encompasses the land on which they stand.
TO ALL WHO MAY SEE THESE PRESENTS:
Dissatisfied, petitioner filed the instant petition for review on
certiorari. GREETINGS:

Respondent Ricardo Galit contracted a loan from petitioner I HEREBY that (sic) by virtue of the writ of execution dated
Marcelo Soriano, in the total sum of P480,000.00, evidenced October 16, 1998, issued in the above-entitled case by the
by four promissory notes in the amount of P120,000.00 each HON. BENJAMIN T. VIANZON, ordering the Provincial Sheriff
dated August 2, 1996;[3] August 15, 1996;[4] September 4, of Bataan or her authorized Deputy Sheriff to cause to be
1996[5] and September 14, 1996.[6] This loan was secured by made (sic) the sum of P350,000.00 plus 12% interest to be
a real estate mortgage over a parcel of land covered by computed from the date of maturity of the promissory notes
Original Certificate of Title No. 569.[7] After he failed to pay his until the same are fully paid; P20,000.00 as attorney’s fees
obligation, Soriano filed a complaint for sum of money against plus legal expenses in the implementation of the writ of
him with the Regional Trial Court of Balanga City, Branch 1, execution, the undersigned Deputy Sheriff sold at public
which was docketed as Civil Case No. 6643.[8] auction on December 23, 1998 the rights and interests of
defendants Sps. Ricardo and Rosalina Galit, to the plaintiff
Respondents, the Spouses Ricardo and Rosalina Galit, failed Marcelo Soriano, the highest and only bidder for the amount of
to file their answer. Hence, upon motion of Marcelo Soriano, FOUR HNDRED EIGHTY THREE THOUSAND PESOS
the trial court declared the spouses in default and proceeded to (P483,000.00, Philippine Currency), the following real estate
receive evidence for petitioner Soriano ex parte. properties more particularly described as follows :

On July 7, 1997, the Regional Trial Court of Balanga City, ORIGINAL CERTIFICATE OF TITLE NO. T-569
Branch 1 rendered judgment[9] in favor of petitioner Soriano,
the dispositive portion of which reads: A parcel of land (Homestead Patent No. 14692) situated in the
Bo. of Tapulac, Orani, Bataan, x x x. Bounded on the SW.,
WHEREFORE, judgment is hereby rendered in favor of the along line 1-2 by Lot No. 3, Cad. 145, containing an area of
plaintiff and against the defendant ordering the latter to pay: THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY NINE
(35,759) SQUARE METERS, more or less x x x
1. the plaintiff the amount of P350,000.00 plus 12% interest
to be computed from the dates of maturity of the promissory TAX DEC. NO. – PROPERTY INDEX NO. 018-09-001-02
notes until the same are fully paid;
STOREHOUSE – constructed on Lot 1103, made of strong
2. the plaintiff P20,000.00, as attorney’s fees; and materials G.I. roofing situated at Centro I, Orani, Bataan x x x
containing an area of 30 sq. meters, more or less x x
3. the costs of suit. (constructed on TCT No. 40785)

SO ORDERED.[10] TAX DEC. NO. 86 – PROPERTY INDEX No. 018-09-001-02

The judgment became final and executory. Accordingly, the BODEGA – constructed on Lot 1103, made of strong materials
trial court issued a writ of execution in due course, by virtue of G.I. roofing situated in Centro I, Orani, Bataan, x x x with a
which, Deputy Sheriff Renato E. Robles levied on the following floor area of 42.75 sq. m. more or less x x x
real properties of the Galit spouses:
IT IS FURTHER CERTIFIED, that the aforesaid highest and
1. A parcel of land covered by Original Certificate of Title lone bidder, Marcelo Soriano, being the plaintiff did not pay to
No. T-569 (Homestead Patent No. 14692) situated in the Bo. of the Provincial Sheriff of Bataan the amount of P483,000.00, the
Tapulac, Orani, Bataan. Bounded on the SW, along line 1-2 by sale price of the above-described property which amount was
Lot No. 3, Cad. 145; containing an area of THIRTY FIVE credited to partial/full satisfaction of the judgment embodied in
THOUSAND SEVEN HUNDRED FIFTY NINE (35,759) the writ of execution.
SQUARE METERS, more or less x x x;
The period of redemption of the above described real
properties together with all the improvements thereon will

4
expire One (1) year from and after the registration of this 2. BODEGA constructed on Lot No. 1103 with an area of
Certificate of Sale with the Register of Deeds. 42.75 square meters under Tax Declaration No. 86 situated at
Centro 1, Orani, Bataan;
This Certificate of Sheriff’s Sale is issued to the highest and
lone bidder, Marcelo Soriano, under guarantees prescribed by 3. Original Certificate of Title No. 40785 with an area of 134
law. square meters known as Lot No. 1103 of the Cadastral Survey
of Orani…
Balanga, Bataan, February 4, 1999.
against the mortgagor/former owners Sps. Ricardo and
On April 23, 1999, petitioner caused the registration of the Rosalinda (sic) Galit, her (sic) heirs, successors, assigns and
“Certificate of Sale on Execution of Real Property” with the all persons claiming rights and interests adverse to the
Registry of Deeds. petitioner and make a return of this writ every thirty (30) days
from receipt hereof together with all the proceedings thereon
The said Certificate of Sale registered with the Register of until the same has been fully satisfied.
Deeds includes at the dorsal portion thereof the following entry,
not found in the Certificate of Sale on file with Deputy Sheriff WITNESS THE HONORABLE BENJAMIN T. VIANZON,
Renato E. Robles:[13] Presiding Judge, this 18th day of July 2001, at Balanga City.

ORIGINAL CERTIFICATE OF TITLE NO. T-40785 (Sgd) GILBERT S. ARGONZA

A parcel of land (Lot No. 1103 of the Cadastral Survey of OIC


Orani) , with the improvements thereon, situated in the
Municipality of Orani, Bounded on the NE; by Calle P. Gomez; Respondents filed a petition for certiorari with the Court of
on the E. by Lot No. 1104; on the SE by Calle Washington; and Appeals, which was docketed as CA-G.R. SP No. 65891,
on the W. by Lot 4102, containing an area of ONE HUNDRED assailing the inclusion of the parcel of land covered by Transfer
THIRTY NINE (139) SQUARE METERS, more or less. All Certificate of Title No. T-40785 among the list of real properties
points referred to are indicated on the plan; bearing true; in the writ of possession.[18] Respondents argued that said
declination 0 deg. 40’E., date of survey, February 191-March property was not among those sold on execution by Deputy
1920. Sheriff Renato E. Robles as reflected in the Certificate of Sale
on Execution of Real Property.
On February 23, 2001, ten months from the time the Certificate
of Sale on Execution was registered with the Registry of In opposition, petitioner prayed for the dismissal of the petition
Deeds, petitioner moved[14] for the issuance of a writ of because respondent spouses failed to move for the
possession. He averred that the one-year period of reconsideration of the assailed order prior to the filing of the
redemption had elapsed without the respondents having petition. Moreover, the proper remedy against the assailed
redeemed the properties sold at public auction; thus, the sale order of the trial court is an appeal, or a motion to quash the
of said properties had already become final. He also argued writ of possession.
that after the lapse of the redemption period, the titles to the
properties should be considered, for all legal intents and On May 13, 2002, the Court of Appeals rendered judgment as
purposes, in his name and favor.[15] follows:

On June 4, 2001, the Regional Trial Court of Balanga City, WHEREFORE, the instant petition is hereby GRANTED.
Branch 1 granted the motion for issuance of writ of Accordingly, the writ of possession issued by the Regional Trial
possession.[16] Subsequently, on July 18, 2001, a writ of Court of Balanga City, Branch 1, on 18 July 2001 is declared
possession[17] was issued in petitioner’s favor which reads: NULL and VOID.

WRIT OF POSSESSION In the event that the questioned writ of possession has already
been implemented, the Deputy Sheriff of the Regional Trial
Mr. Renato E. Robles Court of Balanga City, Branch 1, and private respondent
Marcelo Soriano are hereby ordered to cause the redelivery of
Deputy Sheriff Transfer Certificate of Title No. T-40785 to the petitioners.

RTC, Br. 1, Balanga City SO ORDERED.[19]

Greetings : Aggrieved, petitioner now comes to this Court maintaining


that–
WHEREAS on February 3, 2001, the counsel for plaintiff filed
Motion for the Issuance of Writ of Possession; 1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER
RULE 65 IS NOT THE PLAIN, SPEEDY AND ADEQUATE
WHEREAS on June 4, 2001, this court issued an order REMEDY OF THE RESPONDENTS IN ASSAILING THE
granting the issuance of the Writ of Possession; WRIT OF POSSESSION ISSUED BY THE LOWER COURT
BUT THERE WERE STILL OTHER REMEDIES AVAILABLE
WHEREFORE, you are hereby commanded to place the herein TO THEM AND WHICH WERE NOT RESORTED TO LIKE
plaintiff Marcelo Soriano in possession of the property involved THE FILING OF A MOTION FOR RECONSIDERATION OR
in this case situated (sic) more particularly described as: MOTION TO QUASH OR EVEN APPEAL.

1. STORE HOUSE constructed on Lot No. 1103 situated at 2.) THE HONORABLE COURT OF APPEALS GRAVELY
Centro 1, Orani, Bataan covered by TCT No. 40785; ERRED IN DECLARAING THE CERTIFICATE OF SALE ON
EXECUTION OF REAL PROPERTY AS NULL AND VOID

5
AND SUBSEQUENTLY THE WRIT OF POSSESSION dismissed on a technicality and no definitive pronouncement
BECAUSE THE SAME IS A PUBLIC DOCUMENT WHICH on the inadequacy of the price paid for the levied properties
ENJOYS THE PRESUMPTION OF REGULARITY AND IT was ever made. In this regard, it bears stressing that
CANNOT BE OVERCOME BY A MERE STRANGE FEELING procedural rules are not to be belittled or dismissed simply
THAT SOMETHING IS AMISS ON ITS SURFACE SIMPLY because their non-observance may have resulted in prejudice
BECAUSE THE TYPEWRITTEN WORDS ON THE FRONT to a party’s substantive rights as in this case. Like all rules,
PAGE AND AT THE DORSAL PORTION THEREOF IS they are required to be followed except when only for the most
DIFFERENT OR THAT IT IS UNLIKELY FOR THE SHERIFF persuasive of reasons they may be relaxed to relieve a litigant
TO USE THE DORSAL PORTION OF THE FIRST PAGE of an injustice not commensurate with the degree of his
BECAUSE THE SECOND PAGE IS MERELY HALF FILLED thoughtlessness in not complying with the procedure
AND THE NOTATION ON THE DORSAL PORTION COULD prescribed.[29] (emphasis and italics supplied.)
STILL BE MADE AT THE SECOND PAGE.
In short, since rules of procedure are mere tools designed to
On the first ground, petitioner contends that respondents were facilitate the attainment of justice, their strict and rigid
not without remedy before the trial court. He points out that application which would result in technicalities that tend to
respondents could have filed a motion for reconsideration of frustrate rather than promote substantial justice must always
the Order dated June 4, 1999, but they did not do so. be avoided.[30] Technicality should not be allowed to stand in
Respondents could also have filed an appeal but they, the way of equitably and completely resolving the rights and
likewise, did not do so. When the writ of possession was obligations of the parties.[31]
issued, respondents could have filed a motion to quash the
writ. Again they did not. Respondents cannot now avail of the Eschewing, therefore, the procedural objections raised by
special civil action for certiorari as a substitute for these petitioner, it behooves us to address the issue of whether or
remedies. They should suffer the consequences for sleeping not the questioned writ of possession is in fact a nullity
on their rights. considering that it includes real property not expressly
mentioned in the Certificate of Sale of Real Property.
We disagree.
Petitioner, in sum, dwells on the general proposition that since
Concededly, those who seek to avail of the procedural the certificate of sale is a public document, it enjoys the
remedies provided by the rules must adhere to the presumption of regularity and all entries therein are presumed
requirements thereof, failing which the right to do so is lost. It to be done in the performance of regular functions.
is, however, equally settled that the Rules of Court seek to
eliminate undue reliance on technical rules and to make The argument is not persuasive.
litigation as inexpensive as practicable and as convenient as
can be done.[20] This is in accordance with the primary There are actually two (2) copies of the Certificate of Sale on
purpose of the 1997 Rules of Civil Procedure as provided in Execution of Real Properties issued on February 4, 1999
Rule 1, Section 6, which reads: involved, namely: (a) copy which is on file with the deputy
sheriff; and (b) copy registered with the Registry of Deeds. The
Section 6. Construction. – These rules shall be liberally object of scrutiny, however, is not the copy of the Certificate of
construed in order to promote their objective of securing a just, Sale on Execution of Real Properties issued by the deputy
speedy and inexpensive determination of every action and sheriff on February 4, 1999,[32] but the copy thereof
proceeding.[21] subsequently registered by petitioner with the Registry of
Deeds on April 23, 1999,[33] which included an entry on the
The rules of procedure are not to be applied in a very rigid, dorsal portion of the first page thereof describing a parcel of
technical sense and are used only to help secure substantial land covered by OCT No. T-40785 not found in the Certificate
justice. If a technical and rigid enforcement of the rules is of Sale of Real Properties on file with the sheriff.
made, their aim would be defeated.[22] They should be
liberally construed so that litigants can have ample opportunity True, public documents by themselves may be adequate to
to prove their claims and thus prevent a denial of justice due to establish the presumption of their validity. However, their
technicalities.[23] Thus, in China Banking Corporation v. probative weight must be evaluated not in isolation but in
Members of the Board of Trustees of Home Development conjunction with other evidence adduced by the parties in the
Mutual Fund,[24] it was held: controversy, much more so in this case where the contents of a
copy thereof subsequently registered for documentation
…while certiorari as a remedy may not be used as a substitute purposes is being contested. No reason has been offered how
for an appeal, especially for a lost appeal, this rule should not and why the questioned entry was subsequently intercalated in
be strictly enforced if the petition is genuinely meritorious.[25] It the copy of the certificate of sale subsequently registered with
has been said that where the rigid application of the rules the Registry of Deeds. Absent any satisfactory explanation as
would frustrate substantial justice, or bar the vindication of a to why said entry was belatedly inserted, the surreptitiousness
legitimate grievance, the courts are justified in exempting a of its inclusion coupled with the furtive manner of its
particular case from the operation of the rules.[26] (Emphasis intercalation casts serious doubt on the authenticity of
ours) petitioner’s copy of the Certificate of Sale. Thus, it has been
held that while a public document like a notarized deed of sale
Indeed, well-known is the rule that departures from procedure is vested with the presumption of regularity, this is not a
may be forgiven where they do not appear to have impaired guarantee of the validity of its contents.[34]
the substantial rights of the parties.[27] Apropos in this regard
is Cometa v. CA,[28] where we said that – It must be pointed out in this regard that the issuance of a
Certificate of Sale is an end result of judicial foreclosure where
There is no question that petitioners were remiss in attending statutory requirements are strictly adhered to; where even the
with dispatch to the protection of their interests as regards the slightest deviations therefrom will invalidate the proceeding[35]
subject lots, and for that reason the case in the lower court was and the sale.[36] Among these requirements is an explicit

6
enumeration and correct description of what properties are to
be sold stated in the notice. The stringence in the observance xxx xxx
of these requirements is such that an incorrect title number x x x.
together with a correct technical description of the property to
be sold and vice versa is deemed a substantial and fatal error The foregoing provision of the Civil Code enumerates land and
which results in the invalidation of the sale.[37] buildings separately. This can only mean that a building is, by
itself, considered immovable.[39] Thus, it has been held that –
The certificate of sale is an accurate record of what properties
were actually sold to satisfy the debt. The strictness in the . . . while it is true that a mortgage of land necessarily includes,
observance of accuracy and correctness in the description of in the absence of stipulation of the improvements thereon,
the properties renders the enumeration in the certificate buildings, still a building by itself may be mortgaged apart from
exclusive. Thus, subsequently including properties which have the land on which it has been built. Such mortgage would be
not been explicitly mentioned therein for registration purposes still a real estate mortgage for the building would still be
under suspicious circumstances smacks of fraud. The considered immovable property even if dealt with separately
explanation that the land on which the properties sold is and apart from the land.[40] (emphasis and italics supplied)
necessarily included and, hence, was belatedly typed on the
dorsal portion of the copy of the certificate subsequently In this case, considering that what was sold by virtue of the writ
registered is at best a lame excuse unworthy of belief. of execution issued by the trial court was merely the
storehouse and bodega constructed on the parcel of land
The appellate court correctly observed that there was a marked covered by Transfer Certificate of Title No. T-40785, which by
difference in the appearance of the typewritten words themselves are real properties of respondents spouses, the
appearing on the first page of the copy of the Certificate of Sale same should be regarded as separate and distinct from the
registered with the Registry of Deeds[38] and those appearing conveyance of the lot on which they stand.
at the dorsal portion thereof. Underscoring the irregularity of
the intercalation is the clearly devious attempt to let such an WHEREFORE, in view of all the foregoing, the petition is
insertion pass unnoticed by typing the same at the back of the hereby DENIED for lack of merit. The Decision dated May 13,
first page instead of on the second page which was merely 2002 of the Court of Appeals in CA-G.R. SP No. 65891, which
half-filled and could accommodate the entry with room to declared the writ of possession issued by the Regional Trial
spare. Court of Balanga City, Branch 1, on July 18, 2001, null and
void, is AFFIRMED in toto.
The argument that the land on which the buildings levied upon
in execution is necessarily included is, likewise, tenuous. SO ORDERED.
Article 415 of the Civil Code provides:

ART. 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds


adhered to the soil.

xxx xxx
xxx

(3) Everything attached to an immovable in a fixed manner,


in such a way that it cannot be separated therefrom without
breaking them material or deterioration of the object;

(4) Statues, reliefs, paintings or other objects for use or


ornamentation, placed in buildings or on lands by the owner of
the immovable in such a manner that it reveals the intention to
attach them permanently to the tenements;

(5) Machinery, receptacles, instruments or implements


intended by the owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said industry or
works;

(6) Animal houses, pigeon houses, beehives, fish ponds or


breeding places of similar nature, in case their owner has
placed them or preserves them with the intention to have them
permanently attached to the land, and forming a permanent
part of it; the animals in these places are also included;

xxx xxx
xxx

(9) Docks and structures which, though floating, are


intended by their nature and object to remain at a fixed place
on a river, lake or coast;

7
[G.R. No. 116710. June 25, 2001] In a letter dated January 3, 1980 and signed by Branch
Manager Fil S. Carreon Jr., respondent PNB advised petitioner
DANILO D. MENDOZA, also doing business under the name Mendoza that effective December 1, 1979, the bank raised its
and style of ATLANTIC EXCHANGE PHILIPPINES, petitioner, interest rates to 14% per annum, in line with Central Bank's
vs. COURT OF APPEALS, PHILIPPINE NATIONAL BANK, Monetary Board Resolution No. 2126 dated November 29,
FERNANDO MARAMAG, JR., RICARDO G. DECEPIDA and 1979.
BAYANI A. BAUTISTA, respondents.
On March 9, 1981, he wrote a letter to respondent PNB
DECISION requesting for the restructuring of his past due accounts into a
five-year term loan and for an additional LC/TR line of Two
DE LEON, JR., J.: Million Pesos (P2,000,000.00).[8] According to the letter,
because of the shut-down of his end-user companies and the
Before us is a petition for review on certiorari of the Decision[1] huge amount spent for the expansion of his business,
dated August 8, 1994 of the respondent Court of Appeals petitioner failed to pay to respondent bank his LC/TR accounts
(Tenth Division) in CA-G.R. CV No. 38036 reversing the as they became due and demandable.
judgment[2] of the Regional Trial Court (RTC) and dismissing
the complaint therein. Ceferino D. Cura, Branch Manager of PNB Mandaluyong
replied on behalf of the respondent bank and required
Petitioner Danilo D. Mendoza is engaged in the domestic and petitioner to submit the following documents before the bank
international trading of raw materials and chemicals. He would act on his request: 1) Audited Financial Statements for
operates under the business name Atlantic Exchange 1979 and 1980; 2) Projected cash flow (cash in - cash out) for
Philippines (Atlantic), a single proprietorship registered with the five (5) years detailed yearly; and 3) List of additional
Department of Trade and Industry (DTI). Sometime in 1978 he machinery and equipment and proof of ownership thereof.
was granted by respondent Philippine National Bank (PNB) a Cura also suggested that petitioner reduce his total loan
Five Hundred Thousand Pesos (P500,000.00) credit line and a obligations to Three Million Pesos (P3,000,000.00) "to give us
One Million Pesos (P1,000,000.00) Letter of Credit/Trust more justification in recommending a plan of payment or
Receipt (LC/TR) line. restructuring of your accounts to higher authorities of the
Bank."[9]
As security for the credit accommodations and for those which
may thereinafter be granted, petitioner mortgaged to On September 25, 1981, petitioner sent another letter
respondent PNB the following: 1) three (3) parcels of land[3] addressed to PNB Vice-President Jose Salvador, regarding his
with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his request for restructuring of his loans. He offered respondent
house and lot in Quezon City; and 3) several pieces of PNB the following proposals: 1) the disposal of some of the
machinery and equipment in his Pasig coco-chemical plant. mortgaged properties, more particularly, his house and lot and
a vacant lot in order to pay the overdue trust receipts; 2)
The real estate mortgage[4] provided the following escalation capitalization and conversion of the balance into a 5-year term
clause: loan payable semi-annually or on annual installments; 3) a new
Two Million Pesos (P2,000,000.00) LC/TR line in order to
(f) The rate of interest charged on the obligation secured by enable Atlantic Exchange Philippines to operate at full
this mortgage as well as the interest on the amount which may capacity; 4) assignment of all his receivables to PNB from all
have been advanced by the Mortgagee in accordance with domestic and export sales generated by the LC/TR line; and 5)
paragraph (d) of the conditions herein stipulated shall be maintenance of the existing Five Hundred Thousand Pesos
subject during the life of this contract to such increase within (P500,000.00) credit line.
the rates allowed by law, as the Board of Directors of the
Mortgagee may prescribe for its debtors. The petitioner testified that respondent PNB Mandaluyong
Branch found his proposal favorable and recommended the
Petitioner executed in favor of respondent PNB three (3) implementation of the agreement. However, Fernando
promissory notes covering the Five Hundred Thousand Pesos Maramag, PNB Executive Vice-President, disapproved the
(P500,000.00) credit line, one dated March 8, 1979 for Three proposed release of the mortgaged properties and reduced the
Hundred Ten Thousand Pesos (P310,000.00); another dated proposed new LC/TR line to One Million Pesos
March 30, 1979 for Forty Thousand Pesos (P40,000.00); and (P1,000,000.00).[10] Petitioner claimed he was forced to agree
the last dated September 27, 1979 for One Hundred Fifty to these changes and that he was required to submit a new
Thousand Pesos (P150,000.00). The said 1979 promissory formal proposal and to sign two (2) blank promissory notes.
notes uniformly stipulated: "with interest thereon at the rate of
12% per annum, until paid, which interest rate the Bank may, In a letter dated July 2, 1982, petitioner offered the following
at any time, without notice, raise within the limits allowed by revised proposals to respondent bank: 1) the restructuring of
law xxx."[5] past due accounts including interests and penalties into a 5-
year term loan, payable semi-annually with one year grace
Petitioner made use of his LC/TR line to purchase raw period on the principal; 2) payment of Four Hundred Thousand
materials from foreign importers. He signed a total of eleven Pesos (P400,000.00) upon the approval of the proposal; 3)
(11) documents denominated as "Application and Agreement reduction of penalty from 3% to 1%; 4) capitalization of the
for Commercial Letter of Credit,"[6] on various dates from interest component with interest rate at 16% per annum; 5)
February 8 to September 11, 1979, which uniformly contained establishment of a One Million Pesos (P1,000,000.00) LC/TR
the following clause: "Interest shall be at the rate of 9% per line against the mortgaged properties; 6) assignment of all his
annum from the date(s) of the draft(s) to the date(s) of arrival of export proceeds to respondent bank to guarantee payment of
payment therefor in New York. The Bank, however, reserves his loans.
the right to raise the interest charges at any time depending on
whatever policy it may follow in the future."[7] According to petitioner, respondent PNB approved his
proposal. He further claimed that he and his wife were asked to

8
sign two (2) blank promissory note forms. According to
petitioner, they were made to believe that the blank promissory Pursuant to the escalation clauses of the subject two (2)
notes were to be filled out by respondent PNB to conform with promissory notes, the interest rate on the principal amount in
the 5-year restructuring plan allegedly agreed upon. The first Promissory Note No. 127/82 was increased from 21% to 29%
Promissory Note,[11] No. 127/82, covered the principal while on May 28, 1984, and to 32% on July 3, 1984 while the interest
the second Promissory Note,[12] No. 128/82, represented the rate on the accrued interest per Promissory Note No. 128/82
accrued interest. was increased from 18% to 29% on May 28, 1984, and to 32%
on July 3, 1984.
Petitioner testified that respondent PNB allegedly contravened
their verbal agreement by 1) affixing dates on the two (2) Petitioner failed to pay the subject two (2) Promissory Notes
subject promissory notes to make them mature in two (2) years Nos. 127/82 and 128/82 (Exhibits BB and CC) as they fell due.
instead of five (5) years as supposedly agreed upon; 2) Respondent PNB extra-judicially foreclosed the real and chattel
inserting in the first Promissory Note No. 127/82 an interest mortgages, and the mortgaged properties were sold at public
rate of 21% instead of 18%; 3) inserting in the second auction to respondent PNB, as highest bidder, for a total of
Promissory Note No. 128/82, the amount stated therein Three Million Seven Hundred Ninety Eight Thousand Seven
representing the accrued interest as One Million Five Hundred Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50).
Thirty Six Thousand Four Hundred Ninety Eight Pesos and
Seventy Three Centavos (P1,536,498.73) when it should only The petitioner filed in the RTC in Pasig, Rizal a complaint for
be Seven Hundred Sixty Thousand Three Hundred Ninety specific performance, nullification of the extra-judicial
Eight Pesos and Twenty Three Centavos (P760,398.23) and foreclosure and damages against respondents PNB, Fernando
pegging the interest rate thereon at 18% instead of 12%. Maramag Jr., Ricardo C. Decepida, Vice-President for
Metropolitan Branches, and Bayani A. Bautista. He alleged that
The subject Promissory Notes Nos. 127/82 and 128/82 both the Extrajudicial Foreclosure Sale of the mortgaged properties
dated December 29, 1982 in the principal amounts of Two was null and void since his loans were restructured to a five-
Million Six Hundred Fifty One Thousand One Hundred year term loan; hence, it was not yet due and demandable; that
Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and the escalation clauses in the subject two (2) Promissory Notes
One Million Five Hundred Thirty Six Thousand Seven Hundred Nos. 127/82 and 128/82 were null and void, that the total
Ninety Eight and Seventy Three Centavos (P1,536,798.73) amount presented by PNB as basis of the foreclosure sale did
respectively and marked Exhibits BB and CC respectively, not reflect the actual loan obligations of the plaintiff to PNB;
were payable on equal semi-annual amortization and that Bautista purposely delayed payments on his exports and
contained the following escalation clause: caused delays in the shipment of materials; that PNB withheld
certain personal properties not covered by the chattel
x x x which interest rate the BANK may increase within the mortgage; and that the foreclosure of his mortgages was
limits allowed by law at any time depending on whatever policy premature so that he was unable to service his foreign clients,
it may adopt in the future; Provided, that, the interest rate on resulting in actual damages amounting to Two Million Four
this note shall be correspondingly decreased in the event that Thousand Four Hundred Sixty One Pesos (P2,004,461.00).
the applicable maximum interest rate is reduced by law or by
the Monetary Board. In either case, the adjustment in the On March 16, 1992, the trial court rendered judgment in favor
interest rate agreed upon shall take effect on the effectivity of the petitioner and ordered the nullification of the extrajudicial
date of the increase or decrease in the maximum interest rate. foreclosure of the real estate mortgage, the Sheriffs sale of the
xxx mortgaged real properties by virtue of consolidation thereof
and the cancellation of the new titles issued to PNB; that PNB
It appears from the record that the subject Promissory Notes vacate the subject premises in Pasig and turn the same over to
Nos. 127/82 and 128/82 superseded and novated the three (3) the petitioner; and also the nullification of the extrajudicial
1979 promissory notes and the eleven (11) 1979 Application foreclosure and sheriff's sale of the mortgaged chattels, and
and Agreement for Commercial Letter of Credit which the that the chattels be returned to petitioner Mendoza if they were
petitioner executed in favor of respondent PNB. removed from his Pasig premises or be paid for if they were
lost or rendered unserviceable.
According to the petitioner, sometime in June 1983 the new
PNB Mandaluyong Branch Manager Bayani A. Bautista The trial court also ordered respondent PNB to restructure to
suggested that he sell the coco-chemical plant so that he could five-years petitioner's principal loan of Two Million Six Hundred
keep up with the semi-annual amortizations. On three (3) Fifty One Thousand One Hundred Eighteen Pesos and Eighty
occasions, Bautista even showed up at the plant with some Six Centavos (P2,651,118.86) and the accumulated capitalized
unidentified persons who claimed that they were interested in interest on the same in the amount of Seven Hundred Sixty
buying the plant. Thousand Three Hundred Eighty Nine Pesos and Twenty
Three Centavos (P760,389.23) as of December 1982, and that
Petitioner testified that when he confronted the PNB respondent PNB should compute the additional interest from
management about the two (2) Promissory Notes Nos. 127/82 January 1983 up to October 15, 1984 only when respondent
and 128/82 (marked Exhibits BB and CC respectively) which PNB took possession of the said properties, at the rate of 12%
he claimed were improperly filled out, Bautista and Maramag and 9% respectively.
assured him that the five-year restructuring agreement would
be implemented on the condition that he assigns 10% of his The trial court also ordered respondent PNB to grant petitioner
export earnings to the Bank.[13] In a letter dated August 22, Mendoza an additional Two Million Pesos (P2,000,000.00) loan
1983, petitioner Mendoza consented to assign 10% of the net in order for him to have the necessary capital to resume
export proceeds of a Letter of Credit covering goods amounting operation. It also ordered respondents PNB, Bayani A. Bautista
to One Hundred Fourteen Thousand Dollars ($114,000.00).[14] and Ricardo C. Decepida to pay to petitioner actual damages
However, petitioner claimed that respondent PNB in the amount of Two Million One Hundred Thirteen Thousand
subsequently debited 14% instead of 10% from his export Nine Hundred Sixty One Pesos (P2,113,961.00) and the peso
proceeds.[15] equivalent of Six Thousand Two Hundred Fifteen Dollars

9
($6,215.00) at the prevailing foreign exchange rate on October
11, 1983; and exemplary damages in the amount of Two At the request of our client, we would like to furnish you with
Hundred Thousand Pesos (P200,000.00). the following information pertinent to his accounts with us:

Respondent PNB appealed this decision of the trial court to the xxx
Court of Appeals. And the Court of Appeals reversed the
decision of the trial court and dismissed the complaint. Hence, We are currently evaluating the proposal of the client to re-
this petition. structure his accounts with us into a five-year plan.

It is the petitioners contention that the PNB management We hope that the above information will guide you in evaluating
restructured his existing loan obligations to a five-year term the proposals of Mr. Danilo Mendoza.
loan and granted him another Two Million Pesos
(P2,000,000.00) LC/TR line; that the Promissory Notes Nos. xxx
127/82 and 128/82 evidencing a 2-year restructuring period or
with the due maturity date December 29, 1984 were filled out The third document is a letter dated July 8, 1981 addressed to
fraudulently by respondent PNB, and contrary to his verbal petitioner and signed by PNB Assistant Vice-President
agreement with respondent PNB; hence, his indebtedness to Apolonio B. Francisco.
respondent PNB was not yet due and the extrajudicial
foreclosure of his real estate and chattel mortgages was xxx
premature. On the other hand, respondent PNB denies that
petitioner's loan obligations were restructured to five (5) years Considering that your accounts/accommodations were granted
and maintains that the subject two (2) Promissory Notes Nos. and carried in the books of our Mandaluyong Branch, we would
127/82 and 128/82 were filled out regularly and became due as suggest that your requests and proposals be directed to
of December 29, 1984 as shown on the face thereof. Ceferino Cura, Manager of our said Branch.

Respondent Court of Appeals held that there is no evidence of We feel certain that Mr. Cura will be pleased to discuss matters
a promise from respondent PNB, admittedly a banking of mutual interest with you.
corporation, that it had accepted the proposals of the petitioner
to have a five-year restructuring of his overdue loan xxx
obligations. It found and held, on the basis of the evidence
adduced, that "appellee's (Mendoza) communications were Petitioner also presented a letter which he addressed to Mr.
mere proposals while the bank's responses were not Jose Salvador, Vice-President of the Metropolitan Branches of
categorical that the appellee's request had been favorably PNB, dated September 24, 1981, which reads:
accepted by the bank."
Re: Restructuring of our Account into a 5-year Term Loan and
Contending that respondent PNB had allegedly approved his Request for the Establishment of a P2.0 Million LC/TR Line
proposed five-year restructuring plan, petitioner presented
three (3) documents executed by respondent PNB officials. Dear Sir:
The first document is a letter dated March 16, 1981 addressed
to the petitioner and signed by Ceferino D. Cura, Branch In compliance with our discussion last September 17, we would
Manager of PNB Mandaluyong, which states: like to formalize our proposal to support our above requested
assistance from the Philippine National Bank.
x x x In order to study intelligently the feasibility of your above
request, please submit the following documents/papers within xxx
thirty (30) days from the date thereof, viz:
Again we wish to express our sincere appreciation for your
1. Audited Financial Statements for 1979 and 1980; open-minded approach towards the solution of this problem
which we know and will be beneficial and to the best interest of
2. Projected cash flow (cash in - cash out) for five years the bank and mutually advantageous to your client.
detailed yearly; and
xxx
3. List of additional machinery and equipment and proof of
ownership thereof. Petitioner argues that he submitted the requirements according
to the instructions given to him and that upon submission
We would strongly suggest, however, that you reduce your thereof, his proposed five-year restructuring plan was deemed
total obligations to at least P3 million (principal and interest and automatically approved by respondent PNB.
other charges) to give us more justification in recommending a
plan of payment or restructuring of your accounts to higher We disagree.
authorities of this bank.
Nowhere in those letters is there a categorical statement that
The second document is a letter dated May 11, 1981 respondent PNB had approved the petitioners proposed five-
addressed to Mr. S. Pe Benito, Jr., Managing Director of the year restructuring plan. It is stretching the imagination to
Technological Resources Center and signed by said PNB construe them as evidence that his proposed five-year
Branch Manager, Ceferino D. Cura. According to petitioner, restructuring plan has been approved by the respondent PNB
this letter showed that respondent PNB seriously considered which is admittedly a banking corporation. Only an absolute
the restructuring of his loan obligations to a five-year term loan, and unqualified acceptance of a definite offer manifests the
to wit: consent necessary to perfect a contract.[16] If anything, those
correspondences only prove that the parties had not gone
xxx beyond the preparation stage, which is the period from the start

10
of the negotiations until the moment just before the agreement
of the parties.[17] Petitioner claims that the two (2) subject Promissory Notes
Nos. 127/82 and 128/82 were signed by him in blank with the
There is nothing in the record that even suggests that understanding that they were to be subsequently filled out to
respondent PNB assented to the alleged five-year restructure conform with his alleged oral agreements with PNB officials,
of petitioners overdue loan obligations to PNB. However, the among which is that they were to become due only after five
trial court ruled in favor of petitioner Mendoza, holding that (5) years. If petitioner were to be believed, the PNB officials
since petitioner has complied with the conditions of the alleged concerned committed a fraudulent act in filling out the subject
oral contract, the latter may not renege on its obligation to two (2) promissory notes in question. Private transactions are
honor the five-year restructuring period, under the rule of presumed to be fair and regular.[24] The burden of presenting
promissory estoppel. Citing Ramos v. Central Bank,[18] the evidence to overcome this presumption falls upon petitioner.
trial court said: Considering that petitioner imputes a serious act of fraud on
respondent PNB, which is a banking corporation, this court will
The broad general rule to the effect that a promise to do or not not be satisfied with anything but the most convincing
to do something in the future does not work an estoppel must evidence. However, apart from petitioner's self-serving verbal
be qualified, since there are numerous cases in which an declarations, we find no sufficient proof that the subject two (2)
estoppel has been predicated on promises or assurances as to Promissory Notes Nos. 127/82 and 128/82 were completed
future conduct. The doctrine of promissory estoppel is by no irregularly. Therefore, we rule that the presumption has not
means new, although the name has been adopted only in been rebutted.
comparatively recent years. According to that doctrine, an
estoppel may arise from the making of a promise, even though Besides, it could be gleaned from the record that the petitioner
without consideration, if it was intended that the promise is an astute businessman who took care to reduce in writing his
should be relied upon and in fact it was relied upon, and if a business proposals to the respondent bank. It is unthinkable
refusal to enforce it would be virtually to sanction the that the same person would commit the careless mistake of
perpetration of fraud or would result in other injustice. In this leaving his subject two (2) promissory notes in blank in the
respect, the reliance by the promisee is generally evidenced by hands of other persons. As the respondent Court of Appeals
action or forbearance on his part, and the idea has been correctly pointed out:
expressed that such action or forbearance would reasonably
have been expected by the promissor. xxx Surely, plaintiff-appellee who is a C.P.A and a Tax Consultant
(p. 3 TSN, January 9, 1990) will insist that the details of the two
The doctrine of promissory estoppel is an exception to the promissory notes he and his wife executed in 1982 should be
general rule that a promise of future conduct does not specific to enable them to make the precise computation in the
constitute an estoppel. In some jurisdictions, in order to make event of default as in the case at bench. In fact, his alleged
out a claim of promissory estoppel, a party bears the burden of omission as a C.P.A. and a Tax Consultant to insist that the
establishing the following elements: (1) a promise reasonably two promissory notes be filled up on important details like the
expected to induce action or forebearance; (2) such promise rates of interest is inconsistent with the legal presumption of a
did in fact induce such action or forebearance, and (3) the person who takes ordinary care of his concerns (Section 3 (c),
party suffered detriment as a result.[19] Rule 131, Revised Rules on Evidence).

It is clear from the forgoing that the doctrine of promissory As pointed out by the Court of Appeals, Orlando Montecillo,
estoppel presupposes the existence of a promise on the part of Chief, Loans and Discounts, PNB Mandaluyong Branch,
one against whom estoppel is claimed. The promise must be testified that the said Promissory Notes Nos. 127/82 and
plain and unambiguous and sufficiently specific so that the 128/82 were completely filled out when Danilo Mendoza signed
Judiciary can understand the obligation assumed and enforce them (Rollo, p. 14).
the promise according to its terms.[20] For petitioner to claim
that respondent PNB is estopped to deny the five-year In a last-ditch effort to save his five-year loan restructuring
restructuring plan, he must first prove that respondent PNB had theory, petitioner contends that respondent PNB's action of
promised to approve the plan in exchange for the submission withholding 10% from his export proceeds is proof that his
of the proposal. As discussed earlier, no such promise was proposal had been accepted and the contract had been
proven, therefore, the doctrine does not apply to the case at partially executed. He claims that he would not have consented
bar. A cause of action for promissory estoppel does not lie to the additional burden if there were no corresponding benefit.
where an alleged oral promise was conditional, so that reliance This contention is not well taken. There is no credible proof that
upon it was not reasonable.[21] It does not operate to create the 10% assignment of his export proceeds was not part of the
liability where it does not otherwise exist.[22] conditions of the two-year restructuring deal. Considering that
the resulting amount obtained from this assignment of export
Since there is no basis to rule that petitioner's overdue loan proceeds was not even enough to cover the interest for the
obligations were restructured to mature in a period of five (5) corresponding month,[25] we are hard-pressed to construe it
years, we see no other option but to respect the two-year as the required proof that respondent PNB allegedly approved
period as contained in the two (2) subject Promissory Notes the proposed five-year restructuring of petitioners overdue loan
Nos. 127/82 and 128/82, marked as Exhibits BB and CC obligations.
respectively which superseded and novated all prior loan
documents signed by petitioner in favor of respondent PNB. It is interesting to note that in his Complaint, petitioner made no
Petitioner argues, in his memorandum, that "respondent Court mention that the assignment of his export proceeds was a
of Appeals had no basis in saying that the acceptance of the condition for the alleged approval of his proposed five-year
five-year restructuring is totally absent from the record."[23] On loan restructuring plan. The Complaint merely alleged that
the contrary, the subject Promissory Notes Nos. 127/82 and "plaintiff in a sincere effort to make payments on his obligations
128/82 are clear on their face that they were due on December agreed to assign 10% of his export proceeds to defendant
29, 1984 or two (2) years from the date of the signing of the PNB." This curious omission leads the court to believe that the
said notes on December 29, 1982. alleged link between the petitioners assignment of export

11
proceeds and the alleged five-year restructuring of his overdue mortgagor which may be on its hands for deposit or otherwise
loans was more contrived than real. belonging to me/us and for this purpose. Besides the petitioner
executed not only a chattel mortgage but also a real estate
It appears that respondent bank increased the interest rates on mortgage to secure his loan obligations to respondent bank.
the two (2) subject Promissory Notes Nos. 127/82 and 128/82
without the prior consent of the petitioner. The petitioner did not A stipulation in the mortgage, extending its scope and effect to
agree to the increase in the stipulated interest rate of 21% per after-acquired property is valid and binding where the after-
annum on Promissory Note No. 127/82 and 18% per annum on acquired property is in renewal of, or in substitution for, goods
Promissory Note No. 128/82. As held in several cases, the on hand when the mortgage was executed, or is purchased
unilateral determination and imposition of increased interest with the proceeds of the sale of such goods.[30] As earlier
rates by respondent bank is violative of the principle of pointed out, the petitioner did not present any proof as to when
mutuality of contracts ordained in Article 1308 of the Civil the subject movables were acquired.
Code.[26] As held in one case:[27]
More importantly, respondent bank makes a valid argument for
It is basic that there can be no contract in the true sense in the the retention of the subject movables. Respondent PNB
absence of the element of agreement, or of mutual assent of asserts that those movables were in fact "immovables by
the parties. If this assent is wanting on the part of one who destination" under Art. 415 (5) of the Civil Code.[31] It is an
contracts, his act has no more efficacy than if it had been done established rule that a mortgage constituted on an immovable
under duress or by a person of unsound mind. includes not only the land but also the buildings, machinery
and accessories installed at the time the mortgage was
Similarly, contract changes must be made with the consent of constituted as well as the buildings, machinery and
the contracting parties. The minds of all the parties must meet accessories belonging to the mortgagor, installed after the
as to the proposed modification, especially when it affects an constitution thereof.[32]
important aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of interest is Petitioner also contends that respondent PNBs bid prices for
always a vital component, for it can make or break a capital this foreclosed properties in the total amount of Three Million
venture. Seven Hundred Ninety Eight Thousand Seven Hundred
Nineteen Pesos and Fifty Centavos (P3,798,719.50), were
It has been held that no one receiving a proposal to change a allegedly unconscionable and shocking to the conscience of
contract to which he is a party is obliged to answer the men. He claims that the fair market appraisal of his foreclosed
proposal, and his silence per se cannot be construed as an plant site together with the improvements thereon located in
acceptance.[28] Estoppel will not lie against the petitioner Pasig, Metro Manila amounted to Five Million Four Hundred
regarding the increase in the stipulated interest on the subject Forty One Thousand Six Hundred Fifty Pesos (P5,441,650.00)
Promissory Notes Nos. 127/82 and 128/82 inasmuch as he while that of his house and lot in Quezon City amounted to
was not even informed beforehand by respondent bank of the Seven Hundred Twenty Two Thousand Pesos (P722,000.00)
change in the stipulated interest rates. However, we also note per the appraisal report dated September 20, 1990 of Cuervo
that the said two (2) subject Promissory Notes Nos. 127/82 and Appraisers, Inc.[33] That contention is not well taken
128/82 expressly provide for a penalty charge of 3% per considering that:
annum to be imposed on any unpaid amount when due.
1. The total of the principal amounts alone of petitioners
Petitioner prays for the release of some of his movables[29] subject Promissory Notes Nos. 127/82 and 128/82 which are
being withheld by respondent PNB, alleging that they were not both overdue amounted to Four Million One Hundred Eighty
included among the chattels he mortgaged to respondent bank. Seven Thousand Nine Hundred Seventeen Pesos and Fifty
However, petitioner did not present any proof as to when he Nine Centavos (P4,187,917.59).
acquired the subject movables and hence, we are not disposed
to believe that the same were after-acquired chattels not 2. While the appraisal of Cuervo Appraisers, Inc. was
covered by the chattel and real estate mortgages. undertaken in September 1990, the extrajudicial foreclosure of
petitioners real estate and chattel mortgages have been
In asserting its rights over the subject movables, respondent effected way back on October 15, 1984, October 23, 1984 and
PNB relies on a common provision in the two (2) subject December 21, 1984.[34] Common experience shows that real
Promissory Notes Nos. 127/82 and 128/82 which states: estate values especially in Metro Manila tend to go upward due
to developments in the locality.
In the event that this note is not paid at maturity or when the
same becomes due under any of the provisions hereof, we 3. In the public auction/foreclosure sales, respondent PNB, as
hereby authorized the BANK at its option and without notice, to mortgagee, was not obliged to bid more than its claims or more
apply to the payment of this note, any and all moneys, than the amount of petitioners loan obligations which are all
securities and things of value which may be in its hands on overdue. The foreclosed real estate and chattel mortgages
deposit or otherwise belonging to me/us and for this purpose. which petitioner earlier executed are accessory contracts
We hereby, jointly and severally, irrevocably constitute and covering the collaterals or security of his loans with respondent
appoint the BANK to be our true Attorney-in-Fact with full PNB. The principal contracts are the Promissory Notes Nos.
power and authority for us in our name and behalf and without 127/82 and 128/82 which superseded and novated the 1979
prior notice to negotiate, sell and transfer any moneys promissory notes and the 1979 eleven (11) Applications and
securities and things of value which it may hold, by public or Agreements for Commercial Letter of Credit.
private sale and apply the proceeds thereof to the payment of
this note. Finally, the record shows that petitioner did not even attempt to
tender any redemption price to respondent PNB, as highest
It is clear, however, from the above-quoted provision of the bidder of the said foreclosed real estate properties, during the
said promissory notes that respondent bank is authorized, in one-year redemption period.
case of default, to sell things of value belonging to the

12
In view of all the foregoing, it is our view and we hold that the
extrajudicial foreclosure of petitioners real estate and chattel
mortgages was not premature and that it was in fact legal and
valid.

WHEREFORE, the petition is hereby DENIED. The challenged


Decision of the Court of Appeals in CA-G.R. CV No. 38036 is
AFFIRMED with modification that the increase in the stipulated
interest rates of 21% per annum and 18% per annum
appearing on Promissory Notes Nos. 127/82 and 128/82
respectively is hereby declared null and void.

SO ORDERED.

13
SPOUSES LEOPOLDO S. VIOLA and MERCEDITA VIOLA, at 15% interest P1,345,290.38

Petitioners, (c) Penalty at 3% per month

- versus - from 03/31/98 to 02/23/02 P7,896,078.15

EQUITABLE PCI BANK, INC., _____________________

Respondent. P14,024,623.22[3] (Underscoring supplied)

G.R. No. 177886 Respondent thus extrajudicially foreclosed the mortgage


before the Office of the Clerk of Court & Ex-Officio Provincial
Present: Sheriff of the Regional Trial Court (RTC) of Marikina City. The
mortgaged properties were sold on April 10, 2003 for
QUISUMBING, J., Chairperson, P4,284,000.00 at public auction to respondent, after which a
Certificate of Sale dated April 21, 2003[4] was issued.
CARPIO MORALES,
More than five months later or on October 8, 2003, petitioners
TINGA, filed a complaint[5] for annulment of foreclosure sale,
accounting and damages before the Marikina RTC, docketed
VELASCO, JR., and as Civil Case No. 2003-905-MK and raffled to Branch 192.
Petitioners alleged, inter alia, that they had made substantial
BRION, JJ. payments of P3,669,210.67 receipts of which were issued
without respondent specifying whether the payment was for
Promulgated: interest, penalty or the principal obligation; that based on
respondents statement of account, not a single centavo of their
November 27, 2008 payments was applied to the principal obligation; that every
time respondent sent them a statement of account and
x--------------------------------------------- demand letters, they requested for a proper accounting for the
-----x purpose of determining their actual obligation, but all their
requests were unjustifiably ignored on account of which they
DECISION were forced to discontinue payment; that the foreclosure
proceedings and auction sale were not only irregularly and
CARPIO MORALES, J.: prematurely held but were null and void because the mortgage
debt is only P2,224,073.31 on the principal obligation and
Via a contract denominated as CREDIT LINE AND REAL P1,455,137.36 on the interest, or a total of only P3,679,210.67
ESTATE MORTGAGE AGREEMENT FOR PROPERTY as of April 15, 2003, but the mortgaged properties were sold to
LINE[1] (Credit Line Agreement) executed on March 31, 1997, satisfy an inflated and erroneous principal obligation of
Leo-Mers Commercial, Inc., as the Client, and its officers P4,783,254.69, plus 3% penalty fee per month or 33% per year
spouses Leopoldo and Mercedita Viola (petitioners) obtained a and 15% interest per year, which amounted to P14,024,623.22
loan through a credit line facility in the maximum amount of as of September 30, 2002; that the parties never agreed and
P4,700,000.00 from the Philippine Commercial International stipulated in the real estate mortgage contract that the 15%
Bank (PCI Bank), which was later merged with Equitable Bank interest per annum on the principal loan and the 3% penalty
and became known as Equitable PCI Bank, Inc. (respondent). fee per month on the outstanding amount would be covered or
secured by the mortgage; that assuming respondent could
The Credit Line Agreement stipulated that the loan would bear impose such interest and penalty fee, the same are exorbitant,
interest at the prevailing PCIBank lending rate per annum on unreasonable, iniquitous and unconscionable, hence, must be
the principal obligation and a penalty fee of three percent (3%) reduced; and that respondent is only allowed to impose the
per month on the outstanding amount. legal rate of interest of 12% per annum on the principal loan
absent any stipulation thereon.[6]
To secure the payment of the loan, petitioners executed also
on March 31, 1997 a Real Estate Mortgage[2] in favor of In its Answer, respondent denied petitioners assertions,
PCIBank over their two parcels of land covered by Transfer contending, inter alia, that the absence of stipulation in the
Certificates of Title No. N-113861 (consisting of 300 square mortgage contract securing the payment of 15% interest per
meters, more or less ) and N-129036 (consisting of 446 square annum on the principal loan, as well as the 3% penalty fee per
meters, more or less) of the Registry of Deeds of Marikina. month on the outstanding amount, is immaterial since the
mortgage contract is a mere accessory contract which must
Petitioners availed of the full amount of the loan. take its bearings from the principal Credit Line Agreement.[7]
Subsequently, they made partial payments which totaled
P3,669,210.67. By respondents claim, petitioner had since During the pre-trial conference, the parties defined as sole
November 24, 2000 made no further payments and despite issue in the case whether the mortgage contract also secured
demand, they failed to pay their outstanding obligation which, the payment of 15% interest per annum on the principal loan of
as of September 30, 2002, totaled P14,024,623.22, broken P4,700,000.00 and the 3% penalty fee per month on the
down as follows: outstanding amount, which interest and penalty fee are
stipulated only in the Credit Line Agreement.[8]
(a) Principal obligation P4,783,254.69
By Decision[9] of September 14, 2005, the trial court sustained
(b) Past due interest from respondents affirmative position on the issue but found the
11/24/00 to 09/30/02 questioned interest and penalty fee excessive and exorbitant.

14
Thus, it equitably reduced the interest on the principal loan The Court holds not.
from 15% to 12% per annum and the penalty fee per month on
the outstanding amount from 3% to 1.5% per month. A mortgage must sufficiently describe the debt sought to be
secured, which description must not be such as to mislead or
Accordingly, the court nullified the foreclosure proceedings deceive, and an obligation is not secured by a mortgage unless
and the Certificate of Sale subsequently issued, without it comes fairly within the terms of the mortgage.[15]
prejudice to the holding anew of foreclosure proceedings
based on the re-computed amount of the indebtedness, if the In the case at bar, the parties executed two separate
circumstances so warrant. documents on March 31, 1997 the Credit Line Agreement
granting the Client a loan through a credit facility in the
The dispositive portion of the trial courts Decision reads: maximum amount of P4,700,000.00, and the Real Estate
Mortgage contract securing the payment thereof. Undisputedly,
WHEREFORE, judgment is hereby rendered as follows: both contracts were prepared by respondent and written in fine
print, single space.
1) The interest on the principal loan in the amount of Four
Million Seven Hundred Thousand (P4,700,000.00) Pesos The Credit Line Agreement contains the following stipulations
should be recomputed at 12% per annum; on interest and delinquency charges:

2) The 3% per month penalty on delinquent account as A. CREDIT FACILITY


stipulated by the parties in the Credit Line Contract dated
March 31, 1997 is hereby REDUCED to 1.5% per month; 9. INTEREST ON AVAILMENTS

3) The foreclosure sale conducted on April 10, 2003 by the The CLIENT shall pay the BANK interest on each availment
Clerk of Court and Ex-Officio Sheriff of Marikina, to satisfy the against the Credit Facility at the rate of:
plaintiffs mortgage indebtedness, and the Certificate of Sale
issued as a consequence of the said proceedings, are declared PREVAILING PCIBANK LENDING RATE
NULL and VOID, without prejudice to the conduct of another
foreclosure proceedings on the basis of the re-computed for the first interest period as defined in A(10) hereof. x x x.
amount of the plaintiffs indebtedness, if the circumstances so
warrant. xxxx

15. DELINQUENCY
No pronouncement as to costs.
CLIENTs account shall be considered delinquent if the
SO ORDERED. (Underscoring supplied) availments exceed the amount of the line and/or in case the
Account is debited for unpaid interest and the Available
Balance is insufficient to cover the amount debited. In such
Petitioners filed a Motion for Partial Reconsideration,[10] cases, the Available Balance shall become negative and the
contending that the penalty fee per month on the outstanding CLIENT shall pay the deficiency immediately in addition to
amount should have been taken out of the coverage of the collection expenses incurred by the BANK and a penalty fee of
mortgage contract as it was not stipulated therein. By Order three percent (3%) per month of the outstanding amount to be
dated December 6, 2005, the trial court denied the motion. computed from the day deficiency is incurred up to the date of
full payment thereon.
On appeal by petitioners, the Court of Appeals, by
Decision[11] of February 21, 2007, dismissed the same for lack x x x x.[16] (Underscoring supplied)
of merit, holding that the Real Estate Mortgage covers not only The Real Estate Mortgage contract states its coverage, thus:
the principal amount [of P4,700,000.00] but also the interest
and bank charges, which [phrase bank charges] refers to the That for and in consideration of certain loans, credit and other
penalty charges stipulated in the Credit Line Agreement.[12] banking facilities obtained x x x from the Mortgagee, the
principal amount of which is PESOS FOUR MILLION SEVEN
Petitioners Motion for Reconsideration having been denied by HUNDERED THOUSAND ONLY (P4,700,000.00) Philippine
Resolution[13] of May 16, 2007, they filed the present Petition Currency, and for the purpose of securing the payment thereof,
for Review on Certiorari, alleging that including the interest and bank charges accruing thereon, the
costs of collecting the same and of taking possession of and
THE HONORABLE COURT OF APPEALS COMMITTED A keeping the mortgaged propert[ies], and all other expenses to
REVERSIBLE ERROR IN DECIDING THE CASE NOT IN which the Mortgagee may be put in connection with or as an
ACCORD WITH LAW AND APPLICABLE DECISIONS OF incident to this mortgage, as well as the faithful compliance
THE SUPREME COURT BY RULING THAT THERE IS NO with the terms and conditions of this agreement and of the
AMBIGUITY IN separate instruments under which the credits hereby secured
were obtained, the Mortgagor does hereby constitute in favor
CONSTRUING TOGETHER THE CREDIT LINE AND of the Mortgagee, its successors or assigns, a mortgage on the
MORTGAGE CONTRACTS WHICH PROVIDED real property particularly described, and the location of which is
CONFLICTING PROVISIONS AS TO INTEREST AND set forth, in the list appearing at the back hereof and/or
PENALTY.[14] appended hereto, of which the Mortgagor declare that he is the
absolute owner and the one in possession thereof, free and
The only issue is whether the mortgage contract also secured clear of any liens, encumbrances and adverse claims.[17]
the penalty fee per month on the outstanding amount as (Emphasis and underscoring supplied)
stipulated in the Credit Line Agreement.

15
The immediately-quoted provision of the mortgage contract A reading, not only of the earlier quoted provision, but of the
does not specifically mention that, aside from the principal loan entire mortgage contract yields no mention of penalty charges.
obligation, it also secures the payment of a penalty fee of three Construing this silence strictly against the petitioner, it can
percent (3%) per month of the outstanding amount to be fairly be concluded that the petitioner did not intend to include
computed from the day deficiency is incurred up to the date of the penalties on the promissory notes in the secured amount.
full payment thereon, which penalty as the above-quoted This explains the finding by the trial court, as affirmed by the
portion of the Credit Line Agreement expressly stipulates. Court of Appeals, that penalties and charges are not due for
want of stipulation in the mortgage contract.
Since an action to foreclose must be limited to the amount
mentioned in the mortgage[18] and the penalty fee of 3% per Indeed, a mortgage must sufficiently describe the debt sought
month of the outstanding obligation is not mentioned in the to be secured, which description must not be such as to
mortgage, it must be excluded from the computation of the mislead or deceive, and an obligation is not secured by a
amount secured by the mortgage. mortgage unless it comes fairly within the terms of the
mortgage. In this case, the mortgage contract provides that it
The ruling of the Court of Appeals in its assailed Decision that secures notes and other evidences of indebtedness. Under the
the phrase including the interest and bank charges in the rule of ejusdem generis, where a description of things of a
mortgage contract refers to the penalty charges stipulated in particular class or kind is accompanied by words of a generic
the Credit Line Agreement is unavailing. character, the generic words will usually be limited to things of
a kindred nature with those particularly enumerated . . . A
Penalty fee is entirely different from bank charges. The phrase penalty charge does not belong to the species of obligations
bank charges is normally understood to refer to compensation enumerated in the mortgage, hence, the said contract cannot
for services. A penalty fee is likened to a compensation for be understood to secure the penalty.[20] (Emphasis and
damages in case of breach of the obligation. Being penal in underscoring supplied)
nature, such fee must be specific and fixed by the contracting
parties, unlike in the present case which slaps a 3% penalty Respondents contention that the absence in the mortgage
fee per month of the outstanding amount of the obligation. contract of a stipulation securing the payment of the 3%
penalty fee per month on the outstanding amount is of no
Moreover, the penalty fee does not belong to the species of consequence, the deed of mortgage being merely an
obligation enumerated in the mortgage contract, namely: loans, accessory contract that must take its bearings from the
credit and other banking facilities obtained x x x from the principal Credit Line Agreement,[21] fails. Such absence is
Mortgagee, . . . including the interest and bank charges, . . . the significant as it
costs of collecting the same and of taking possession of and
keeping the mortgaged properties, and all other expenses to creates an ambiguity between the two contracts, which
which the Mortgagee may be put in connection with or as an ambiguity must be resolved in favor of petitioners and against
incident to this mortgage . . . respondent who drafted the contracts. Again, as stressed by
the Court in Philippine Bank of Communications:
In Philippine Bank of Communications v. Court of Appeals[19]
which raised a similar issue, this Court held: There is also sufficient authority to declare that any ambiguity
in a contract whose terms are susceptible of different
The sole issue in this case is whether, in the foreclosure of a interpretations must be read against the party who drafted it.
real estate mortgage, the penalties stipulated in two promissory
notes secured by the mortgage may be charged against the A mortgage and a note secured by it are deemed parts of one
mortgagors as part of the sums secured, although the transaction and are construed together, thus, an ambiguity is
mortgage contract does not mention the said penalties. created when the notes provide for the payment of a penalty
but the mortgage contract does not. Construing the ambiguity
xxxx against the petitioner, it follows that no penalty was intended to
We immediately discern that the mortgage contract does not be covered by the mortgage. The mortgage contract consisted
at all mention the penalties stipulated in the promissory notes. of three pages with no less than seventeen conditions in fine
However, the petitioner insists that the penalties are covered print; it included provisions for interest and attorneys fees
by the following provision of the mortgage contract: similar to those in the promissory notes; and it even provided
for the payment of taxes and insurance charges. Plainly, the
This mortgage is given as security for the payment to the petitioner can be as specific as it wants to be, yet it simply did
MORTGAGEE on demand or at maturity, as the case may be, not specify nor even allude to, that the penalty in the
of all promissory notes, letters of credit, trust receipts, bills of promissory notes would be secured by the mortgage. This can
exchange, drafts, overdrafts and all other obligations of every then only be interpreted to mean that the petitioner had no
kind already incurred or which hereafter may be incurred. design of including the penalty in the amount secured.[22]
(Emphasis and underscoring supplied)
xxxx
The Court is unconvinced, for the cases relied upon by the WHEREFORE, the assailed Court of Appeals Decision of
petitioner are inapplicable. x x x. February 21, 2007 and Resolution of May 16, 2007 in CA-G.R.
SP No. CA-G.R. CV No. 86412 affirming the trial courts
xxxx decision are, in light of the foregoing disquisition, AFFIRMED
The mortgage contract is also one of adhesion as it was with MODIFICATION in that the penalty fee per month of the
prepared solely by the petitioner and the only participation of outstanding obligation is excluded in the computation of the
the other party was the affixing of his signature or adhesion amount secured by the Real Estate Mortgage executed by
thereto. Being a contract of adhesion, the mortgage is to be petitioners in respondents favor.
strictly construed against the petitioner, the party which
prepared the agreement. SO ORDERED.

16
G.R. No. 115548 March 5, 1996 1. Ordering respondent, State Investment House, Inc. to
execute a Deed of Conveyance of Lot 1, Block 8, in Capital
STATE INVESTMENT HOUSE INC., petitioner, Park Homes Subdivision in favor of complainants and to deliver
vs. to the latter the corresponding certificate of title;
COURT OF APPEALS, ET AL., respondents.
2. Ordering respondent, Solid Homes, Inc. to pay State
Investment House, Inc. that portion of its loan which
corresponds to the value of the lot as collateral;
FRANCISCO, J.:p
3. Ordering respondent, Solid Homes, Inc. to pay to this
The factual background of the case, aptly summarized in the Board the amount of Six Thousand Pesos (P6,000.00) as
decision of the Office of the President and cited by respondent administrative fine in accordance with Section 25 in relation to
Court of Appeals1 in its assailed decision, and which we have Section 38 of P.D. 957.
verified to be supported by the record is herein reproduced as
follows: Both the STATE and SOLID appealed to the Board of
Commissioners, HLRB, which affirmed on June 5, 1990 the
The uncontroverted facts of the case as recited in the decision OAALA's decision (Annex "C" of the Petition; ibid, p. 34).
of the Office of the President are as follows: Again, both STATE and SOLID appealed the decision of the
Board of Commissioners, HLRB, to the Office of the President
Records show that, on October 15, 1969, Contract to Sell No. which dismissed the twin appeals on February 26, 1993.
36 was executed by the Spouses Canuto and Ma. Aranzazu
Oreta, and the Solid Homes, Inc. (SOLID), involving a parcel of Petitioner filed with the Supreme Court this petition for review
land identified as Block No. 8, Lot No. 1, Phase of the Capitol of decision of the Office of the President where it was docketed
Park Homes Subdivision, Quezon City, containing 511 square as G.R. No. 109364. However, in a resolution dated May 13,
meters for a consideration of P39,347.00. Upon signing of the 1993, the Supreme Court referred this case to this Court for
contract, the spouses Oreta made payment amounting to proper disposition. On the other hand, SOLID does not appear
P7,869.40, with the agreement that the balance shall be to have joined herein petitioner in this petition for review.2
payable in monthly installments of P451.70, at 12% interest per
annum. [Emphasis added.]

On November 4, 1976, SOLID executed several real estate In a decision dated May 19, 1994, respondent court sustained
mortgage contracts in favor of State Investment Homes, (sic) the judgment of the Office of the President. Hence, this petition
Inc. (STATE) over its subdivided parcels of land, one of which substantially anchored on these two alleged errors, namely: (1)
is the subject lot covered by Transfer Certificate of Title No. error in ruling that private respondent spouses Oreta's
209642. unregistered rights over the subject property are superior to the
registered mortgage rights of petitioner State Investment
For Failure of SOLID to comply with its mortgage obligations House, Inc. (STATE); and (2) error in not applying the settled
contract, STATE extrajudicially foreclosed the mortgaged rule that persons dealing with property covered by torrens
properties including the subject lot on April 6, 1983, with the certificate of title are not required to go beyond what appears
corresponding certificate of sale issued therefor to STATE on the face of the title.
annotated at the back of the titles covering the said properties
on October 13, 1983. At the outset, we note that herein petitioner argues more
extensively on the second assigned issue, than on the first. In
On June 23, 1984; SOLID thru a Memorandum of Agreement fact, petitioner admits the superior rights of respondents-
negotiated for the deferment of consolidation of ownership over spouses Oreta over the subject property as it did not pray for
the foreclosed properties by committing to redeem the the nullification of the contract between respondents-spouses
properties from STATE. and SOLID, but instead asked for the payment of the release
value of the property in question, plus interest, attorney's fees
On August 15, 1988, the spouses filed a complaint before the and costs of suit against SOLID or, in case of the latter's
Housing and Land Use Regulatory Board, HLRB, against the inability to pay, against respondents-spouses before it can be
developer SOLID and STATE for failure on the part of SOLID required to release the title of the subject property in favor of
"to execute the respondent spouses.3 And even if we were to pass upon
the necessary absolute deed of sale as well as to deliver title to the first assigned error, we find respondent court's ruling on the
said property . . . in violation of the contract to sell . . .," despite matter to be well-founded. STATE's registered mortgage right
full payment of the purchase price as of January 7, 1981. In its over the property is inferior to that of respondents-spouses'
Answer, SOLID, by way of alternative defense, alleged that the unregistered right. The unrecorded sale between respondents-
obligations under the Contract to Sell has become so difficult . . spouses and SOLID is preferred for the reason that if the
. the herein respondents be partially released from said original owner (SOLID, in this case) had parted with his
obligation by substituting subject lot with another suitable ownership of the thing sold then he no longer had ownership
residential lot from another subdivision which respondents and free disposal of that thing so as to be able to mortgage it
own/operates". Upon the other hand, STATE, to which the again.4 Registration of the mortgage is of no moment since it is
subject lot was mortgaged, averred that unless SOLID pays the understood to be without prejudice to the better right of third
redemption price of P125,1955.00, (sic) it has "a right to hold parties.5
on and not release the foreclosed properties.
Anent the second issue, petitioner asserts that a purchaser or
On May 23, 1989, the Office of Appeals, Adjudication and mortgagee of land/s covered under the Torrens System "is not
Legal Affairs (OAALA) rendered a decision the decretal portion required to do more than rely upon the certificate of title [for] it
of which reads: is enough that the (purchaser or mortgagee] examines the

17
pertinent certificate of title [without] need [of] look[ing] beyond lack of such knowledge due to its negligence, takes the place
such title."6 of registration of the rights of respondents-spouses.
Respondent Court thus correctly ruled that petitioner was not a
As a general rule, where there is nothing in the certificate of purchaser or mortgagee in good faith; hence petitioner can not
title to indicate any cloud or vice in the ownership of the solely rely on what merely appears on the face of the Torrens
property, or any encumbrance thereon, the purchaser is not Title.
required to explore further than what the Torrens Title upon its
face indicates in quest for any hidden defect or inchoate right ACCORDINGLY, finding no reversible error in the assailed
that may subsequently defeat his right thereto. This rule, judgment, the same is hereby AFFIRMED.
however, admits of an exception as where the purchaser or
mortgagee, has knowledge of a defect or lack of title in his SO ORDERED.
vendor, or that he was aware of sufficient facts to induce a
reasonably prudent man to inquire into the status of the title of
the property in litigation.7 In this case, petitioner was well
aware that it was dealing with SOLID, a business entity
engaged in the business of selling subdivision lots. In fact, the
OAALA found that at the time the lot was mortgaged,
respondent State Investment House Inc., [now petitioner] had
been aware of the lot's location and that the said lot formed
part of Capital Park/Homes Subdivision."8 In Sunshine Finance
and Investment Corp. v. Intermediate Appellate Court,9 the
Court noting petitioner therein to be a financing corporation,
deviated from the general rule that a purchaser or mortgagee
of a land is not required to look further that what appears on
the face of the Torrens Title. Thus:

Nevertheless, we have to deviate from the general rule


because of the failure of the petitioner in this case to take the
necessary precautions to ascertain if there was any flaw in the
title of the mortgage. The petitioner is an investment and
financing corporation. We presume it is experienced in its
business. Ascertainment of the status and condition of
properties offerred to it as security for the loans it extends must
be a standard and indispensable part of its operations. Surely,
it cannot simply rely on an examination of a Torrens certificate
to determine what the subject property looks like as its
condition is not apparent in the document. The land might be in
a depressed area. There might be squatters on it. It might be
easily inundated. It might be an interior lot, without convenient
access. These and other similar factors determine the value of
the property and so should be of practical concern to the
petitioner.

xxx xxx xxx

Our conclusion might have been different if the mortgagee


were an ordinary individual or company without the expertise of
the petitioner in the mortgage and sale of registered land or if
the land mortgaged were some distance from the mortgagee
and could not be conveniently inspected. But there were no
such impediments in this case. The facilities of the petitioner
were not so limited as to prevent it from making a more careful
examination of the land to assure itself that there were no
unauthorized persons in possession.10

[Emphasis supplied.]

The above-enunciated rule should apply in this case as


petitioner admits of being a financing institution.11 We take
judicial notice of the uniform practice of financing institutions to
investigate, examine and assess the real property offered as
security for any loan application especially where, as in this
case, the subject property is a subdivision lot located at
Quezon City, M.M. It is a settled rule that a purchaser or
mortgagee cannot close its eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted
in good faith under the belief that there was no defect in the
title of the vendor or mortgagor.12 Petitioner's constructive
knowledge of the defect in the title of the subject property, or

18
[G.R. No. 146997. April 26, 2005] receipt of the decision of the Court of Appeals; that plaintiffs
have no cause of action against defendant Genato; that the
SPOUSES GODOFREDO & DOMINICA FLANCIA, petitioners, alleged plaintiffs Contract to Sell does not appear to have been
vs. COURT OF APPEALS & WILLIAM ONG GENATO, registered with the Register of Deeds of Quezon City to affect
respondents. defendant Genato and the latter is thus not bound by the
plaintiffs Contract to Sell; that the registered mortgage is
DECISION superior to plaintiffs alleged Contract to Sell and it is sufficient
for defendant Genato as mortgagee to know that the subject
CORONA, J.: TCT No. 366380 was clean at the time of the execution of the
mortgage contract with defendant corporation and defendant
Before us is a petition for review under Rule 45 of the Rules of Genato is not bound to go beyond the title to look for flaws in
Court, seeking to set aside the October 6, 2000 decision[1] of the mortgagors title; that plaintiffs alleged Contract to Sell is
the Court of Appeals in CA-G.R. CV No. 56035. neither a mutual promise to buy and sell nor a Contract of Sale.
Ownership is retained by the seller, regardless of delivery and
The facts as outlined by the trial court[2] follow. is not to pass until full payment of the price; that defendant
Genato has not received any advice from plaintiffs to exclude
This is an action to declare null and void the mortgage the subject lot from the auction sale, and by way of
executed by defendant Oakland Development Resources counterclaim, defendant Genato prays for P150,000.00 moral
Corp. xxx in favor of defendant William Ong Genato over the damages and P20,000.00 for attorneys fees.
house and lot plaintiffs spouses Godofredo and Dominica
Flancia purchased from defendant corporation. On the other hand, defendant Oakland Development
Resources Corporation likewise filed its answer and alleged
In the complaint, plaintiffs allege that they purchased from that the complaint states no cause of action; xxx Defendant
defendant corporation a parcel of land known as Lot 12, Blk. 3, corporation also prays for attorneys fees of P20,000.00 in its
Phase III-A containing an area of 128.75 square meters counterclaim.[3]
situated in Prater Village Subd. II located at Brgy. Old Balara,
Quezon City; that by virtue of the contract of sale, defendant After trial, the assisting judge[4] of the trial court rendered a
corporation authorized plaintiffs to transport all their personal decision dated August 16, 1996, the decretal portion of which
belongings to their house at the aforesaid lot; that on provided:
December 24, 1992, plaintiffs received a copy of the execution
foreclosing [the] mortgage issued by the RTC, Branch 98 Wherefore, premises considered, judgment is hereby rendered.
ordering defendant Sheriff Sula to sell at public auction several
lots formerly owned by defendant corporation including subject 1) Ordering defendant Oakland Devt. Resources Corporation
lot of plaintiffs; that the alleged mortgage of subject lot is null to pay plaintiffs:
and void as it is not authorized by plaintiffs pursuant to Art.
2085 of the Civil Code which requires that the mortgagor must a) the amount of P10,000.00 representing payment for the
be the absolute owner of the mortgaged property; that as a option to purchase lot;
consequence of the nullity of said mortgage, the execution
foreclosing [the] mortgage is likewise null and void; that b) the amount of P140,000.00 representing the first
plaintiffs advised defendants to exclude subject lot from the downpayment of the contract price;
auction sale but the latter refused. Plaintiffs likewise prayed for
damages in the sum of P50,000.00. c) the amount of P20,520.80 representing five monthly
amortizations for February, March, April, May and June 1990;
Defendant William Ong Genato filed a motion to dismiss the
complaint which was opposed by the plaintiffs and denied by d) the amount of P3,000.00 representing amortization for
the Court in its Order dated February 16, 1993. November 1990; all plus legal interest from the constitution of
the mortgage up to the time the instant case was filed.
Defendant Genato, then filed his answer averring that on May
19, 1989 co-defendant Oakland Development Resources 2) Ordering said defendant corporation to pay further to
Corporation mortgaged to Genato two (2) parcels of land plaintiffs the sum of P30,000.00 for moral damages,
covered by TCT Nos. 356315 and 366380 as security and P10,000.00 for exemplary damages and P20,000.00 for and as
guaranty for the payment of a loan in the sum of reasonable attorneys fees plus cost;
P2,000,000.00; that it appears in the complaint that the subject
parcel of land is an unsubdivided portion of the aforesaid TCT 3) Dismissing defendant corporations counterclaim;
No. 366380 which covers an area of 4,334 square meters more
or less; that said real estate mortgage has been duly annotated 4) Dismissing defendant Genatos counterclaim.[5]
at the back of TCT No. 366380 on May 22, 1989; that for non-
payment of the loan of P2,000,000.00 defendant Genato filed On motion for reconsideration, the regular presiding judge set
an action for foreclosure of real estate mortgage against co- aside the judgment of the assisting judge and rendered a new
defendant corporation; that after [trial], a decision was one on November 27, 1996, the decretal portion of which read:
rendered by the Regional Trial Court of Quezon City, Branch
98 against defendant corporation which decision was affirmed WHEREFORE, premises considered, the Motion for
by the Honorable Court of Appeals; that the decision of the Reconsideration is hereby GRANTED. The decision dated
Court of Appeals has long become final and thus, the Regional August 16, 1996 is hereby set aside and a new one entered in
Trial Court, Brach 98 of Quezon City issued an Order dated favor of the plaintiffs, declaring the subject mortgage and the
December 7, 1992 ordering defendant Sheriff Ernesto Sula to foreclosure proceedings held thereunder as null and void
cause the sale at public auction of the properties covered by insofar as they affect the superior right of the plaintiffs over the
TCT No. 366380 for failure of defendant corporation to deposit subject lot, and ordering as follows:
in Court the money judgment within ninety (90) days from

19
1. Defendant Oakland Development Resources to pay to intention of Oakland not to transfer ownership to petitioners
plaintiffs the amount of P20,000.00 for litigation-related until full payment of the purchase price was very clear. Acts of
expenses; ownership over the property were expressly withheld by
Oakland from petitioner. All that was granted to them by the
2. Ordering defendant Sheriff Ernesto L. Sula to desist from occupancy permit was the right to possess it.
conducting further proceedings in the extra-judicial foreclosure
insofar as they affect the plaintiffs, or, in the event that title has Specifically, the contract between Oakland and petitioners
been consolidated in the name of defendant William O. stated:
Genato, ordering said defendant to reconvey to plaintiffs the
title corresponding to Lot 12, Blk. 3, Phase III-A of Prater xxx xxx xxx
Village [Subd. II], located in Old Balara, Quezon City,
containing an area of 128.75 square meters; and 7. That the BUYER/S may be allowed to enter into and take
possession of the property upon issuance of Occupancy Permit
3. Dismissing the counterclaims of defendants Oakland and by the OWNER/DEVELOPER exclusively, although title has
Genato and with costs against them.[6] not yet passed to the BUYER/S, in which case his possession
shall be that of a possessor by mere tolerance Lessee, subject
On appeal, the Court of Appeals issued the assailed order: to certain restrictions contained in this deed.

Wherefore, foregoing premises considered, the appeal having xxx xxx xxx
merit in fact and in law is hereby GRANTED and the decision
of the Trial Court dated 27 November 1996 hereby SET ASIDE 13. That the BUYER/S cannot sell, mortgage, cede, transfer,
and REVERSED, and its judgment dated August 16, 1996 assign or in any manner alienate or dispose of, in whole or in
REINSTATED and AFFIRMED IN TOTO. No Costs. part, the rights acquired by and the obligations imposed on the
BUYER/S by virtue of this contract, without the express written
SO ORDERED.[7] consent of the OWNER/DEVELOPER.

Hence, this petition. xxx xxx xxx

For resolution before us now are the following issues: 24. That this Contract to Sell shall not in any way [authorize]
the BUYER/S to occupy the assigned house and lot to them.[9]
(1) whether or not the registered mortgage constituted over the
property was valid; xxx xxx xxx

(2) whether or not the registered mortgage was superior to the Clearly, when the property was mortgaged to Genato in May
contract to sell; and 1989, what was in effect between Oakland and petitioners was
a contract to sell, not a contract of sale. Oakland retained
(3) whether or not the mortgagee was in good faith. absolute ownership over the property.

Under the Art. 2085 of the Civil Code, the essential requisites Ownership is the independent and general power of a person
of a contract of mortgage are: (a) that it be constituted to over a thing for purposes recognized by law and within the
secure the fulfillment of a principal obligation; (b) that the limits established thereby.[10] According to Art. 428 of the Civil
mortgagor be the absolute owner of the thing mortgaged; and Code, this means that:
(c) that the persons constituting the mortgage have the free
disposal of their property, and in the absence thereof, that they The owner has the right to enjoy and dispose of a thing,
be legally authorized for the purpose. without other limitations than those established by law.

All these requirements are present in this case. xxx xxx xxx

FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID? Aside from the jus utendi and the jus abutendi [11] inherent in
the right to enjoy the thing, the right to dispose, or the jus
As to the first essential requisite of a mortgage, it is undisputed disponendi, is the power of the owner to alienate, encumber,
that the mortgage was executed on May 15, 1989 as security transform and even destroy the thing owned.[12]
for a loan obtained by Oakland from Genato.
Because Oakland retained all the foregoing rights as owner of
As to the second and third requisites, we need to discuss the the property, it was entitled absolutely to mortgage it to
difference between a contract of sale and a contract to sell. Genato. Hence, the mortgage was valid.

In a contract of sale, title to the property passes to the vendee SECOND ISSUE: WAS THE REGISTERED MORTGAGE
upon the delivery of the thing sold; in a contract to sell, SUPERIOR TO THE CONTRACT TO SELL?
ownership is, by agreement, reserved by the vendor and is not
to pass to the vendee until full payment of the purchase price. In their memorandum, petitioners cite our ruling in State

Otherwise stated, in a contract of sale, the vendor loses Investment House, Inc. v. Court of Appeals [13] to the effect
ownership over the property and cannot recover it unless and that an unregistered sale is preferred over a registered
until the contract is resolved or rescinded; in a contract to sell, mortgage over the same property. The citation is misplaced.
title is retained by the vendor until full payment of the price.[8]
This Court in that case explained the rationale behind the rule:
In the contract between petitioners and Oakland, aside from
the fact that it was denominated as a contract to sell, the

20
The unrecorded sale between respondents-spouses and WHEREFORE, the petition for review is hereby DENIED. The
SOLID is preferred for the reason that if the original owner xxx decision of the Court of Appeals reinstating the August 16,
had parted with his ownership of the thing sold then he no 1996 decision of the trial court is hereby AFFIRMED.
longer had ownership and free disposal of that thing as to be
able to mortgage it again. SO ORDERED.

State Investment House is completely inapplicable to the case


at bar. A contract of sale and a contract to sell are worlds
apart. State Investment House clearly pertained to a contract of
sale, not to a contract to sell which was what Oakland and
petitioners had. In State Investment House, ownership had
passed completely to the buyers and therefore, the former
owner no longer had any legal right to mortgage the property,
notwithstanding the fact that the new owner-buyers had not
registered the sale. In the case before us, Oakland retained
absolute ownership over the property under the contract to sell
and therefore had every right to mortgage it.

In sum, we rule that Genatos registered mortgage was superior


to petitioners contract to sell, subject to any liabilities Oakland
may have incurred in favor of petitioners by irresponsibly
mortgaging the property to Genato despite its commitments to
petitioners under their contract to sell.

THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH?

The third issue involves a factual matter which should not be


raised in this petition. Only questions of law may be raised in a
Rule 45 petition. This Court is not a trier of facts. The resolution
of factual issues is the function of the lower courts. We
therefore adopt the factual findings of the Court of Appeals and
uphold the good faith of the mortgagee Genato.

RELIANCE ON WHAT APPEARS IN THE TITLE

Just as an innocent purchaser for value may rightfully rely on


what appears in the certificate of title, a mortgagee has the
right to rely on what appears in the title presented to him. In the
absence of anything to arouse suspicion, he is under no
obligation to look beyond the certificate and investigate the title
of the mortgagor appearing on the face of the said certificate.
[14]

We agree with the findings and conclusions of the trial court


regarding the liabilities of Oakland in its August 16, 1996
decision, as affirmed by the Court of Appeals:

Anent [plaintiffs] prayer for damages, the Court finds that


defendant corporation is liable to return to plaintiffs all the
installments/payments made by plaintiffs consisting of the
amount of P10,000.00 representing payment for the option to
purchase lot; the amount of P140,000.00 which was the first
downpayment; the sum of P20,520.80 representing five
monthly amortizations for February, March, April, May and
June 1990 and the amount of P3,000.00 representing
amortization for November 1990 plus legal interest from the
time of the mortgage up to the time this instant case was filed.
Further, considering that defendant corporation wantonly and
fraudulently mortgaged the subject property without regard to
[plaintiffs] rights over the same, said defendant should pay
plaintiffs moral damages in the reasonable amount of
P30,000.00. xxx Furthermore, since defendant [corporations]
acts have compelled the plaintiffs to litigate and incur expenses
to protect their interest, it should likewise be adjudged to pay
plaintiffs attorneys fees of P20,000.00 under Article 2208
paragraph two (2) of the Civil Code.[15]

21
PHILIPPINE NATIONAL BANK, G.R. No. 180945 four months later or on August 10, 1995 the Songcuans took
out a loan of P1.1 million from petitioner Philippine National
AS THE ATTORNEY-IN-FACT OF Bank (PNB) and, to secure payment, they executed a real
estate mortgage on their title. Before granting the loan, the
OPAL PORTFOLIO INVESTMENTS PNB had the title verified and the property inspected.

(SPV-AMC), INC., On November 20, 1995 respondent Corpuz filed, through an


attorney-in-fact, a complaint before the Dagupan Regional Trial
Petitioner, Present: Court (RTC) against Mary Bondoc, the Palaganases, the
Songcuans, and petitioner PNB, asking for the annulment of
Carpio, J., Chairperson, the layers of deeds of sale covering the land, the cancellation
of TCTs 63262, 63466, and 63528, and the reinstatement of
- versus - Brion, TCT 32815 in her name.

Del Castillo, On June 29, 1998 the RTC rendered a decision granting
respondent Corpuzs prayers. This prompted petitioner PNB to
Abad, and appeal to the Court of Appeals (CA). On July 31, 2007 the CA
affirmed the decision of the RTC and denied the motion for its
Perez, JJ. reconsideration, prompting PNB to take recourse to this Court.

MERCEDES CORPUZ, REPRESENTED The Issue Presented

BY HER ATTORNEY-IN-FACT Promulgated: The sole issue presented in this case is whether or not
petitioner PNB is a mortgagee in good faith, entitling it to its
VALENTINA CORPUZ, lien on the title to the property in dispute.

Respondent. February 12, 2010 The Ruling of the Court

x --------------------------------------------------------------------------------- Petitioner PNB points out that, since it did a credit


------ x investigation, inspected the property, and verified the clean
DECISION status of the title before giving out the loan to the Songcuans, it
ABAD, J.: should be regarded as a mortgagee in good faith. PNB claims
that the precautions it took constitute sufficient compliance with
the due diligence required of banks when dealing with
This case is about the need for a mortgagee-bank, faced with registered lands.
suspicious layers of transfers involving a property presented for
mortgage, to exercise proper diligence in ascertaining the bona As a rule, the Court would not expect a mortgagee to conduct
fide status of those transfers. an exhaustive investigation of the history of the mortgagors title
before he extends a loan.[1] But petitioner PNB is not an
The Facts and the Case ordinary mortgagee; it is a bank.[2] Banks are expected to be
more cautious than ordinary individuals in dealing with lands,
On October 4, 1974 respondent Mercedes Corpuz delivered even registered ones, since the business of banks is imbued
her owners duplicate copy of Transfer Certificate of Title (TCT) with public interest.[3] It is of judicial notice that the standard
32815 to Dagupan City Rural Bank as security against any practice for banks before approving a loan is to send a staff to
liability she might incur as its cashier. She later left her job and the property offered as collateral and verify the genuineness of
went to the United States. the title to determine the real owner or owners.[4]

On October 24, 1994 the rural bank where she worked One of the CAs findings in this case is that in the course of its
cancelled its lien on Corpuzs title, she having incurred no verification, petitioner PNB was informed of the previous TCTs
liability to her employer. Without Corpuzs knowledge and covering the subject property.[5] And the PNB has not
consent, however, Natividad Alano, the rural banks manager, categorically contested this finding. It is evident from the faces
turned over Corpuzs title to Julita Camacho and Amparo of those titles that the ownership of the land changed from
Callejo. Corpuz to Bondoc, from Bondoc to the Palaganases, and from
the Palaganases to the Songcuans in less than three months
Conniving with someone from the assessors office, Alano, and mortgaged to PNB within four months of the last transfer.
Camacho, and Callejo prepared a falsified deed of sale,
making it appear that on February 23, 1995 Corpuz sold her The above information in turn should have driven the PNB to
land to one Mary Bondoc for P50,000.00. They caused the look at the deeds of sale involved. It would have then
registration of the deed of sale, resulting in the cancellation of discovered that the property was sold for ridiculously low
TCT 32815 and the issuance of TCT 63262 in Bondocs name. prices: Corpuz supposedly sold it to Bondoc for just
About a month later or on March 27, 1995 the trio executed P50,000.00; Bondoc to the Palaganases for just P15,000.00;
another fictitious deed of sale with Mary Bondoc selling the and the Palaganases to the Songcuans also for just
property to the spouses Rufo and Teresa Palaganas for only P50,000.00. Yet the PNB gave the property an appraised value
P15,000.00. This sale resulted in the issuance of TCT 63466 in of P781,760.00. Anyone who deliberately ignores a significant
favor of the Palaganases. fact that would create suspicion in an otherwise reasonable
person cannot be considered as an innocent mortgagee for
Nine days later or on April 5, 1995 the Palaganases executed value.[6]
a deed of sale in favor of spouses Virgilio and Elena Songcuan
for P50,000.00, resulting in the issuance of TCT 63528. Finally, The Court finds no reason to reverse the CA decision.

22
WHEREFORE, the Court DENIES the petition and AFFIRMS
the decision of the Court of Appeals dated July 31, 2007 and
its resolution dated December 17, 2007 in CA-G.R. CV 60616.

SO ORDERED.

23
G.R. No. 196118 July 30, 2014 In a Decision dated October 16, 2006, the RTC of San Pablo
City ruled in Leonardo’s favor, the dispositive portion of which
LEONARDO C. CASTILLO, represented by LENNARD V. reads:
CASTILLO, Petitioner,
vs. WHEREFORE, judgment is hereby rendered in favor of the
SECURITY BANK CORPORATION, JRC POULTRY FARMS plaintiff Leonardo C. Castillo and against the defendants
or SPOUSES LEON C. CASTILLO, JR., and TERESITA SECURITY BANK CORPORATION, and JRC POULTRY
FLORESCASTILLO, Respondents. FARMS or SPS. LEON C. CASTILLO, JR. and TERESITA
FLORES-CASTILLO declaring as null and void the Real Estate
DECISION Mortgage dated August 5, 1994, the Memorandum of
Agreement dated October 28, 1997 and the Certificate of Sale
PERALTA, J.: dated August 27, 1999 insofar as plaintiff’s property with
Transfer Certificate of Title No. T-28297 is concerned. The
This is a Petition for Review questioning the Decision1 of the Security Bank Corporation is likewise ordered to return the
Court of Appeals (CA) dated November 26, 2010, as well as its ownership of the Transfer Certificate of Title No. T-28297 to
Resolution2 dated March 17, 2011 in CA-G.R. CV No. 88914. plaintiff Leonardo Castillo. Likewise, defendants spouses Leon
The CA reversed and set aside the Decision3 of the Regional C. Castillo, Jr. and Teresita Flores-Castillo are hereby ordered
Trial Court (RTC) of San Pablo City, Laguna, Branch 32, dated to pay plaintiff moral damages in the total amount of
October 16, 2006 in Civil Case No. SP-5882 (02), and ₱500,000.00 and exemplary damages of ₱20,000.00. All other
consequently, upheld the validity of the real estate mortgage claims for damages and attorney’s fees are DENIED for
entered into by respondents spouses Leon C. Castillo, Jr. and insufficiency of evidence.
Teresita Flores-Castillo, and Security Bank Corporation (SBC).
SO ORDERED.7
The facts, as culled from the records, are as follows:
Both parties elevated the case to the CA. On November 26,
Petitioner Leonardo C. Castillo and respondent Leon C. 2010, the CA denied Leonardo’s appeal and granted that of the
Castillo, Jr. are siblings. Leon and Teresita Flores-Castillo (the Spouses Castillo and SBC. It reversed and set aside the RTC
Spouses Castillo) were doing business under the name of JRC Decision, essentially ruling that the August 5, 1994 real estate
Poultry Farms. Sometime in 1994, the Spouses Castillo mortgage isvalid. Leonardo filed a Motion for Reconsideration,
obtained a loan from respondent SBC in the amount of but the same was denied for lack of merit.
₱45,000,000.00. To secure said loan, they executed a real
estate mortgage on August 5, 1994 over eleven (11) parcels of Hence, Leonardo brought the case to the Court and filed the
land belonging to different members of the Castillo family and instant Petition for Review.1âwphi1 The main issue soughtto
which are all located in San Pablo City.4 They also procured a be resolved here is whether or not the real estate mortgage
second loan5 amounting to ₱2,500,000.00, which was covered constituted over the property under TCT No. T-28297 is valid
by a mortgage on a land in Pasay City. Subsequently, the and binding.
Spouses Castillo failed to settle the loan, prompting SBC to
proceed with the foreclosure of the properties. SBC was then The Court finds the petition to be without merit.
adjudged as the winning bidder in the foreclosure sale held on
July 29, 1999. Thereafter, they were able to redeem the As a rule, the jurisdiction of the Court over appealed cases
foreclosed properties, withthe exception of the lots covered by from the CA is limited to the review and revision of errors of law
Torrens Certificate of Title(TCT) Nos. 28302 and 28297. it allegedly committed, as its findings of fact are deemed
conclusive. Thus, the Court is not duty-bound to evaluate and
On January 30, 2002, Leonardo filed a complaint for the partial weigh the evidence all over again which were already
annulment of the real estate mortgage. He alleged that he considered in the proceedings below, except when, as in this
owns the property covered by TCT No. 28297 and that the case, the findings of fact of the CAare contrary to the findings
Spouses Castillo used it as one of the collaterals for a loan and conclusions of the trial court.8
without his consent. He contested his supposed Special Power
of Attorney (SPA) in Leon’s favor, claiming that it is falsified. The following are the legal requisites for a mortgage to be
According to him, the date of issuance of his Community Tax valid:
Certificate (CTC) as indicated on the notarization of said SPA
is January 11, 1993, when he only secured the same on May (1) It must be constituted to secure the fulfillment of a principal
17, 1993. He also assailed the foreclosure of the lots under obligation;
TCT Nos.20030 and 10073 which were still registered in the
name of their deceased father. Lastly, Leonardo attacked (2) The mortgagor must be the absolute owner of the thing
SBC’s imposition of penalty and interest on the loans as being mortgaged;
arbitrary and unconscionable.
(3) The persons constituting the mortgage must have the free
On the other hand, the Spouses Castillo insisted on the validity disposal of their property, and in the absence thereof, they
of Leonardo’s SPA. They alleged that they incurred the loan should be legally authorized for the purpose.9
not only for themselves, but also for the other members of the
Castillo family who needed money at that time. Upon receipt of Leonardo asserts that his signature inthe SPA authorizing his
the proceeds of the loan, they distributed the same to their brother, Leon, to mortgage his property covered by TCT No. T-
family members, as agreed upon. However, when the loan 28297 was falsified. He claims that he was in America at the
became due, their relatives failed to pay their respective shares time of its execution. As proof of the forgery, he focuses on his
such that Leon was forced to use his own money until SBC had alleged CTC used for the notarization10 of the SPA on May 5,
to finally foreclose the mortgage over the lots.6 1993 and points out that it appears to have been issued on
January 11, 1993 when, in fact, he only obtained it on May 17,
1993. But it is a settled rule that allegations of forgery, like all

24
other allegations, must be proved by clear, positive, and consolidating ownership over the same. More importantly,
convincing evidence by the party alleging it. It should not be Leonardo himself admitted on cross-examination that he
presumed, but must beestablished by comparing the alleged granted Leon authority to mortgage, only that, according to
forged signature with the genuine signatures.11 Here, him, he thought it was going to be with China Bank, and not
Leonardo simply relied on his self-serving declarations and SBC.23 But as the CA noted, there is no mention of a
refused to present further corroborative evidence, saying that certainbank in the subject SPA with which Leon must
the falsified document itself is the best evidence.12 He did not specifically deal. Leon, therefore, was simply acting within the
even bother comparing the alleged forged signature on the bounds of the SPA’s authority when hemortgaged the lot to
SPA with samples of his real and actual signature. What he SBC.
consistently utilized as lone support for his allegation was the
supposed discrepancy on the date of issuance of his CTC as True, banks and other financing institutions, in entering into
reflectedon the subject SPA’s notarial acknowledgment. On the mortgage contracts, are expected to exercise due diligence.24
contrary, in view of the great ease with which CTCs are The ascertainment of the status or condition of a property
obtained these days,13 there is reasonable ground to believe offered to it as security for a loan must be a standard and
that, as the CA correctly observed, the CTC could have been indispensable part of its operations.25 In this case, however,
issued with the space for the date left blank and Leonardo no evidence was presented to show that SBC was remiss in
merelyfilled it up to accommodate his assertions. Also, upon the exercise of the standard care and prudence required of it or
careful examination, the handwriting appearing on the space that it was negligent in accepting the mortgage.26 SBC could
for the date of issuance is different from that on the not likewise befaulted for relying on the presumption of
computation of fees, which in turn was consistent with the rest regularity of the notarized SPA when it entered into the subject
of the writings on the document.14 He did not likewise attempt mortgage agreement.
to show any evidence that would back up his claim that at the
time of the execution of the SPA on May 5, 1993, he was Finally, the Court finds that the interest and penalty charges
actually in America and therefore could not have possibly imposed by SBC are just, and not excessive or
appeared and signed the document before the notary. unconscionable.

And even if the Court were to assume, simply for the sake of Section 47 of The General Banking Law of 200027 thus
argument, that Leonardo indeed secured his CTC only on May provides:
17, 1993, this does not automatically render the SPA invalid.
The appellate court aptly held that defective notarization will Section 47. Foreclosure of Real Estate Mortgage.- In the event
simply strip the document of its public character and reduce it of foreclosure, whether judicially or extra-judicially, of any
to a private instrument, but nonetheless, binding, provided its mortgage on real estate which is security for any loan or other
validity is established by preponderance of evidence.15 Article credit accommodation granted, the mortgagor or debtor whose
1358 of the Civil Code requires that the form of a contract that real property has been sold for the full or partial payment of his
transmits or extinguishes real rights over immovable property obligation shall have the right within one year after the sale of
should be in a public document, yet the failure to observethe the real estate, to redeem the property by paying the amount
proper form does not render the transaction invalid.16 The due under the mortgage deed, with interest thereon at the rate
necessity of a public document for said contracts is only for specified in the mortgage, and all the costs and expenses
convenience; it is not essential for validity or enforceability.17 incurred by the bank or institutionfrom the sale and custody of
Even a sale of real property, though notcontained in a public said property less the income derived therefrom. However,the
instrument or formal writing, is nevertheless valid and binding, purchaser at the auction sale concerned whether in a judicial or
for even a verbal contract of sale or real estate produceslegal extra-judicial foreclosure shall have the right to enter upon and
effects between the parties.18 Consequently, when there is a take possession of such property immediately after the date of
defect in the notarization of a document, the clear and the confirmation of the auction sale and administer the same in
convincing evidentiary standard originally attached to a accordance with law. Any petition in court to enjoin or restrain
dulynotarized document is dispensed with, and the measure to the conduct of foreclosure proceedings instituted pursuant to
test the validity of such document is preponderance of this provision shall be given due course only upon the filing by
evidence.19 the petitioner of a bond in an amount fixed by the court
conditioned that he will pay all the damages which the bank
Here, the preponderance ofevidence indubitably tilts in favor of may suffer by the enjoining or the restraint of the foreclosure
the respondents, still making the SPA binding between the proceeding.
parties even with the aforementioned assumed
irregularity.1âwphi1 There are several telling circumstances Notwithstanding Act 3135, juridical persons whose property is
that would clearly demonstrate that Leonardo was aware of the being sold pursuant to an extrajudicial foreclosure, shall have
mortgage and he indeed executed the SPA to entrust Leon the right to redeem the property in accordance with this
with the mortgage of his property. Leon had inhis possession provision until, but not after, the registration of the certificate of
all the titles covering the eleven (11) properties mortgaged, foreclosure sale with the applicable Register of Deeds which in
including that of Leonardo.20 Leonardo and the rest of their no case shall be more than three (3) months after foreclosure,
relatives could not have just blindly ceded their respective whichever is earlier. Owners of property that has been sold in a
TCTs to Leon.21 It is likewise ridiculous how Leonardo seemed foreclosure sale prior to the effectivity of this Act shall retain
to have been totally oblivious to the status of his property for their redemption rights until their expiration.28 Verily, the
eight (8) long years, and would only find outabout the mortgage redemption price comprises not only the total amount due
and foreclosure from a nephew who himself had consented to under the mortgage deed, but also with interest at the rate
the mortgage of his own lot.22 Considering the lapse of time specified in the mortgage, and all the foreclosure expenses
from the alleged forgery on May 5, 1993 and the mortgage on incurred by the mortgagee bank.
August 5, 1994, to the foreclosure on July 29, 1999, and to the
supposed discovery in 2001, it appears that the suit is a mere To sustain Leonardo's claim that their payment of
afterthought or a last-ditch effort on Leonardo’s part to extend ₱45,000,000.00 had already extinguished their entire obligation
his hold over his property and to prevent SBC from with SBC would mean that no interest ever accrued from 1994,

25
when the loan was availed, up to the time the payment of
₱45,000,000.00 was made in 2000-2001.

SBC's 16% rate of interest is not computed per month, but


rather per annum or only 1.33% per month. In Spouses
Bacolor v. Banco Filipino Savings and Mortgage Bank,
Dagupan City Branch,29 the Court held that the interest rate of
24% per annum on a loan of ₱244,000.00 is not considered as
unconscionable and excessive. As such, the Court ruled that
the debtors cannot renege on their obligation to comply with
what is incumbent upon them under the contract of loan as
they are bound by its stipulations. Also, the 24o/o per annum
rate or 2% per month for the penalty charges imposed on
account of default, cannot be considered as skyrocketing. The
enforcement of penalty can be demanded by the creditor in
case of non-performance due to the debtor's fault or fraud. The
nonperformance gives rise to the presumption of fault and in
order to avoid the penalty, the debtor has the burden of proving
that the failure of the performance was due to either force
majeure or the creditor's own acts.30 In the instant case,
petitioner failed to discharge said burden and thus cannot
avoid the payment of the penalty charge agreed upon.

WHEREFORE, premises considered, the petition is DENIED.


The Decision of the Court of Appeals, dated November 26,
2010, as well as its Resolution dated March 17, 2011 in CA-
G.R. CV No. 88914, are hereby AFFIRMED.

SO ORDERED.

26
G.R. No. 112160 February 28, 2000 On January 15, 1983, Osmundo Canlas wrote a letter
informing the respondent bank that the execution of subject
OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner, mortgage over the two parcels of land in question was without
vs. their (Canlas spouses) authority, and request that steps be
COURT OF APPEALS, ASIAN SAVINGS BANK, MAXIMO C. taken to annul and/or revoke the questioned mortgage. On
CONTRARES and VICENTE MAÑOSCA, respondents. January 18, 1983, petitioner Osmundo Canlas also wrote the
office of Sheriff Maximo O. Contreras, asking that the auction
PURISIMA, J.: sale scheduled on February 3, 1983 be cancelled or held in
abeyance. But respondents Maximo C. Contreras and Asian
At bar is a Petition for Review on Certiorari under Rule 45 of Savings Bank refused to heed petitioner Canlas' stance and
the Rules of Court, seeking to review and set aside the proceeded with the scheduled auction sale.7
Decision1 of the Court of Appeals in CA-G.R. CV No. 25242,
which reversed the Decision2 of Branch 59 of the Regional Consequently, on February 3, 1983 the herein petitioners
Trial Court of Makati City in Civil Case No. M-028; the instituted the present case for annulment of deed of real estate
dispositive portion of which reads: mortgage with prayer for the issuance of a writ of preliminary
injunction; and on May 23, 1983, the trial court issued an Order
WHEREFORE, the decision appealed from is hereby restraining the respondent sheriff from issuing the
REVERSED and SET ASIDE and a new one is hereby entered corresponding Certificate of Sheriff's Sale.8
DISMISSING the complaint of the spouses Osmundo and
Angelina Canlas. On the counterclaim of defendant Asian For failure to file his answer, despite several motions for
Savings Bank, the plaintiffs Canlas spouses are hereby extension of time for the filing thereof, Vicente Mañosca was
ordered to pay the defendant Asian Savings Bank the amount declared in default.9
of P50,000.00 as moral and exemplary damages, plus
P15,000.00 as and for attorney's fees. On June 1, 1989, the lower court a quo came out with a
decision annulling subject deed of mortgage and disposing,
With costs against appellees. thus:

SO ORDERED.3 Premises considered, judgment is hereby rendered as


follows.1âwphi1.nêt
The facts that matter:
1. Declaring the deed of real estate mortgage (Exhibit "L")
Sometime in August, 1982, the petitioner, Osmundo S. Canlas, involving the properties of the plaintiffs as null and void;
and private respondent, Vicente Mañosca, decided to venture
in business and to raise the capital needed therefor. The 2. Declaring the public auction sale conducted by the
former then executed a Special Power of Attorney authorizing defendant Sheriff, involving the same properties as illegal and
the latter to mortgage two parcels of land situated in San without binding effect;
Dionisio, (BF Homes) Paranaque, Metro Manila, each lot with
semi-concrete residential house existing thereon, and 3. Ordering the defendants, jointly and severally, to pay the
respectively covered by Transfer Certificate of Title No. 54366 plaintiffs the sum of P20,000.00 representing attorney's fees;
in his (Osmundo's) name and Transfer Certificate of Title No.
S-78498 in the name of his wife Angelina Canlas. 4. On defendant ASB's crossclaim: ordering the cross-
defendant Vicente Mañosca to pay the defendant ASB the sum
Subsequently, Osmundo Canlas agreed to sell the said parcels of P350,000.00, representing the amount which he received as
of land to Vicente Mañosca, for and in consideration of proceeds of the loan secured by the void mortgage, plus
P850,000.00, P500,000.00 of which payable within one week, interest at the legal rate, starting February 3, 1983, the date
and the balance of P350,000.00 to serve as his (Osmundo's) when the original complaint was filed, until the amount is fully
investment in the business. Thus, Osmundo Canlas delivered paid;
to Vicente Mañosca the transfer certificates of title of the
parcels of land involved. Vicente Mañosca, as his part of the 5. With costs against the defendants.
transaction, issued two postdated checks in favor of Osmundo
Canlas in the amounts of P40,000.00 and P460,000.00, SO ORDERED.10
respectively, but it turned out that the check covering the
bigger amount was not sufficiently funded.4 From such Decision below, Asian Savings Bank appealed to
the Court of Appeals, which handed down the assailed
On September 3, 1982, Vicente Mañosca was able to judgment of reversal, dated September 30, 1983, in CA-G.R.
mortgage the same parcels of land for P100,000.00 to a certain CV No. 25242. Dissatisfied therewith, the petitioners found
Attorney Manuel Magno, with the help of impostors who their way to this Court via the present Petition; theorizing that:
misrepresented themselves as the spouses, Osmundo Canlas
and Angelina Canlas.5 I

On September 29, 1982, private respondent Vicente Mañosca RESPONDENT COURT OF APPEALS ERRED IN HOLDING
was granted a loan by the respondent Asian Savings Bank THAT THE MORTGAGE OF THE PROPERTIES SUBJECT
(ASB) in the amount of P500,000.00, with the use of subject OF THIS CASE WAS VALID.
parcels of land as security, and with the involvement of the
same impostors who again introduced themselves as the II
Canlas spouses.6 When the loan it extended was not paid,
respondent bank extrajudicially foreclosed the mortgage. RESPONDENT COURT OF APPEALS ERRED IN HIOLDING
THAT PETITIONERS ARE NOT ENTITLED TO RELIEF

27
BECAUSE THEY WERE NEGLIGENT AND THEREFORE matches with that of the document previously executed by the
MUST BEAR THE LOSS. spouses CANLAS?

III Q: That is the only basis for accepting the signature on


the mortgage, the basis for the recommendation of the
RESPONDENT COURT OF APPEALS ERRED IN HOLDING approval of the loan are the financial statement of MAÑOSCA?
THAT RESPONDENT ASB EXERCISED DUE DILIGENCE IN
GRANTING THE LOAN APPLICATION OF RESPONDENT. A: Yes; among others the signature and TAX Account
Number, Residence Certificate appearing on the previous loan
IV executed by the spouses CANLAS, I am referring to EXHIBIT
5, mortgage to ATTY. MAGNO, those were made the basis.
RESPONDENT COURT OF APPEALS ERRED IN HOLDING
THAT RESPONDENT ASB DID NOT ACT WITH BAD FAITH A: That is just the basis of accepting the signature,
IN PROCEEDING WITH THE FORECLOSURE SALE OF THE because at that time the loan have been approved already on
PROPERTIES. the basis of the financial statement of the client the Bank
Statement. Wneh (sic) it was approved we have to base it on
V the Financial statement of the client, the signatures were
accepted only for the purpose of signing the mortgage not for
RESPONDENT COURT OF APPEALS ERRED IN the approval, we don't (sic) approve loans on the signature.
AWARDING RESPONDENT ASB MORAL DAMAGES.11
ATTY. CLAROS:
The Petition is impressed with merit.
Would you agree that as part of ascertaining the identify of the
Art. 1173 of the Civil Code, provides: parties particularly the mortgage, you don't consider also the
signature, the Residence Certificate, the particular address of
Art. 1173. The fault or negligence of the obligor consist the parties involved.
in the omission of that diligence which is required by the nature
of the obligation and corresponds with the circumstances of the A: I think the question defers (sic) from what you asked a
persons, of the time and of the place. When negligence shows while ago.
bad faith, the provisions of articles 1171 and 2201, paragraph
2, shall apply. Q: Among others?

If the law or contract does not state the diligence which is to be A: We have to accept the signature on the basis of the
observed in the performance, that which is expected of a good other signatures given to us it being a public instrument.
father of a family shall be required. (1104)
ATTY. CARLOS:
The degree of diligence required of banks is more than that of
a good father of a family;12 in keeping with their responsibility You mean to say the criteria of ascertaining the identity of the
to exercise the necessary care and prudence in dealing even mortgagor does not depend so much on the signature on the
on a registered or titled property. The business of a bank is residence certificate they have presented.
affected with public interest, holding in trust the money of the
depositors, which bank deposits the bank should guard against A: We have to accept that.
loss due to negligence or bad faith, by reason of which the
bank would be denied the protective mantle of the land xxx xxx xxx
registration law, accorded only to purchasers or mortgagees for
value and in good faith.13 A: We accepted the signature on the basis of the
mortgage in favor of ATTY. MAGNO duly notarized which I
In the case under consideration, from the evidence on hand it have been reiterrting (sic) entitled to full faith considering that it
can be gleaned unerringly that respondent bank did not is a public instrument.
observe the requisite diligence in ascertaining or verifying the
real identity of the couple who introduced themselves as the ATTY. CARLOS:
spouses Osmundo Canlas and Angelina Canlas. It is worthy to
note that not even a single identification card was exhibited by What other requirement did you take into account in
the said impostors to show their true identity; and yet, the bank ascertaining the identification of the parties particularly the
acted on their representations simply on the basis of the mortgagor in this case.
residence certificates bearing signatures which tended to
match the signatures affixed on a previous deed of mortgage to A: Residence Certificate.
a certain Atty. Magno, covering the same parcels of land in
question. Felizado Mangubat, Assistant Vice President of Q: Is that all, is that the only requirement?
Asian Savings Bank, thus testified inter alia:
A: We requested for others but they could not produce,
xxx xxx xxx and because they presented to us the Residence Certificate
which matches on the signature on the Residence Certificate in
Q: According to you, the basis for your having favor of Atty. Magno.14
recommended for the approval of MANASCO's (sic) loan
particularly that one involving the property of plaintiff in this Evidently, the efforts exerted by the bank to verify the identity
case, the spouses OSMUNDO CANLAS and ANGELINA of the couple posing as Osmundo Canlas and Angelina Canlas
CANLAS, the basis for such approval was that according to fell short of the responsibility of the bank to observe more than
you all the signatures and other things taken into account the diligence of a good father of a family. The negligence of

28
respondent bank was magnified by the fact that the previous issued in the name of Oscar Motorworks, which Osmundo
deed of mortgage (which was used as the basis for checking admits he owns and operates.
the genuineness of the signatures of the supposed Canlas
spouses) did not bear the tax account number of the Collectively, the foregoing circumstances cannot but conjure to
spouses,15 as well as the Community Tax Certificate of a single conclusion that Osmundo active participated in the
Angelina Canlas.16 But such fact notwithstanding, the bank did loan application of defendant Asian Savings Bank, which
not require the impostors to submit additional proof of their true culminated in his receiving a portion of the process thereof:18
identity.
A meticulous and painstaking scrutiny of the Records on hand,
Under the doctrine of last clear chance, which is applicable reveals, however, that the findings arrived at by the Court of
here, the respondent bank must suffer the resulting loss. In Appeals are barren of any sustainable basis. For instance, the
essence, the doctrine of last clear chance is to the effect that execution of the deeds of mortgages constituted by Mañosca
where both parties are negligent but the negligent act of one is on subject pieces of property of petitioners were made possible
appreciably later in point of time than that of the other, or not by the Special Power of Attorney executed by Osmundo
where it is impossible to determine whose fault or negligence Canlas in favor of Mañosca but through the use of impostors
brought about the occurrence of the incident, the one who had who misrepresented themselves as the spouses Angelina
the last clear opportunity to avoid the impending harm but Canlas and Osmundo Canlas. It cannot be said therefore, that
failed to do so, is chargeable with the consequences arising the petitioners authorized Vicente Mañosca to constitute the
therefrom. Stated differently, the rule is that the antecedent mortgage on their parcels of land.
negligence of a person does not preclude recovery of damages
caused by the supervening negligence of the latter, who had What is more, Osmundo Canlas was introduced as "Leonardo
the last fair chance to prevent the impending harm by the Rey" by Vicente Mañosca, only on the occasion of the
exercise of due diligence.17 luncheon meeting at the Metropolitan Club.19 Thereat, the
failure of Osmundo Canlas to rectify Mañosca's
Assuming that Osmundo Canlas was negligent in giving misrepresentations could not be taken as a fraudulent act. As
Vicente Mañosca the opportunity to perpetrate the fraud, by well explained by the former, he just did not want to embarrass
entrusting to latter the owner's copy of the transfer certificates Mañosca, so that he waited for the end of the meeting to
of title of subject parcels of land, it cannot be denied that the correct Mañosca.20
bank had the last clear chance to prevent the fraud, by the
simple expedient of faithfully complying with the requirements Then, too, Osmundo Canlas recounted that during the said
for banks to ascertain the identity of the persons transacting luncheon meeting, they did not talk about the security or
with them. collateral for the loan of Mañosca with ASB.21 So also, Mrs.
Josefina Rojo, who was the Account Officer of Asian Savings
For not observing the degree of diligence required of banking Bank when Mañosca applied for subject loan, corroborated the
institutions, whose business is impressed with public interest, testimony of Osmundo Canlas, she testified:
respondent Asian Savings Bank has to bear the loss sued
upon. xxx xxx xxx

In ruling for respondent bank, the Court of Appeals concluded QUESTION: Now could you please describe out the
that the petitioner Osmundo Canlas was a party to the lunch conference at the Metro Club in Makati?
fraudulent scheme of Mañosca and therefore, estopped from
impugning the validity of subject deed of mortgage; ANSWER: Mr. Mangubat, Mr. Mañosca and I did not
ratiocinating thus: discuss with respect to the loan application and discuss
primarily his business.
xxx xxx xxx
xxx xxx xxx
Thus, armed with the titles and the special power of attorney,
Mañosca went to the defendant bank and applied for a loan. QUESTION: So, what is the main topic of your
And when Mañosca came over to the bank to submit additional discussion during the meeting?
documents pertinent to his loan application, Osmundo Canlas
was with him, together with a certain Rogelio Viray. At that ANSWER: The main topic war then, about his business
time, Osmundo Canlas was introduced to the bank personnel although, Mr. Leonardo Rey, who actually turned out as Mr.
as "Leonardo Rey". Canlas, supplier of Mr. Mañosca.

When he was introduced as "Leonardo Rey" for the first time QUESTION: I see . . . other than the business of Mr.
Osmundo should have corrected Mañosca right away. But he Mañosca, were there any other topic discussed?
did not. Instead, he even allowed Mañosca to avail of his
(Osmundo's) membership privileges at the Metropolitan Club ANSWER: YES.
when Mañosca invited two officers of the defendant bank to a
luncheon meeting which Osmundo also attended. And during QUESTION: And what was the topic:
that meeting, Osmundo did not say who he really is, but even
let Mañosca introduced him again as "Leonardo Rey", which all ANSWER: General Economy then.
the more indicates that he connived with Mañosca in deceiving
the defendant bank. xxx xxx x x x22

Finally after the loan was finally approved, Osmundo Verily, Osmundo Canlas was left unaware of the illicit plan of
accompanied Mañosca to the bank when the loan was Mañosca, explaining thus why he (Osmundo) did not bother to
released. At that time, a manger's check for P200,000.00 was correct what Mañosca misrepresented and to assert ownership
over the two parcels of land in question.

29
Not only that; while it is true that Osmundo Canlas was with
Vicente Mañosca when the latter submitted the documents
needed for his loan application, and when the check of
P200,000.00 was released, the former did not know that the
collateral used by Mañosca for the said loan were their (Canlas
spouses') properties. Osmundo happened to be with Mañosca
at the time because he wanted to make sure that Mañosca
would make good his promise to pay the balance of the
purchase price of the said lots out of the proceeds of the
loan.23

The receipt by Osmundo Canlas of the P200,000.00 check


from ASB could not estop him from assailing the validity of the
mortgage because the said amount was in payment of the
parcels of land he sold to Mañosca.24

What is decisively clear on record is that Mañosca managed to


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

Settled is the rule that a contract of mortgage must be


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

WHEREFORE, the Petition is GRANTED and the Decision of


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

SO ORDERED.1âwphi1.nêt

30
G.R. No. L-13313 April 28, 1960 The registration of a lease or mortgage, or the entry of a
memorial of a lease or mortgage on the register, is not a
AGRICULTURAL CREDIT COOPERATIVE ASSOCIATION OF declaration by the state that such an instrument is a valid and
HINIGARAN, movant-appellee, subsisting interest in land; it is merely a declaration that the
vs. record of the title appears to be burdened with the lease or
ESTANISLAO YULO YUSAY, ET AL., oppositors-appellants. mortgage described, according to the priority set forth in the
certificate.
Aritao, Garcia & Aritao for appellee.
Catalino A. Dayon and Arsenio Al. Acuna for appellant. The mere fact that a lease or mortgage was registered does
not stop any party to it from setting up that it now has no force
LABRADOR, J.: or effect. (Niblack, pp. 134-135, quoted in Francisco Land
Registration Act, l950 ed., p. 348.)
This is an appeal from an order of the Court of First Instance of
Negros Occidental, Hon. Jose S. de la Cruz, presiding the The court below, in ordering the registration and annotation of
Register of Deeds of Negros Occidental to register a mortgage the mortgage, did not pass on its invalidity or effect. As the
executed by Rafael Yulo in favor of the movant covering Lot mortgage is admittedly an act of the registered owner, all that
No. 855, Pontevedra Cadastre, covered by Original Certificate the judge below did and could do, as a registration court, is to
of Title No. 4979. order its registration and annotation on the certificate of title
covering the land mortgaged. By said order the court did not
The records disclose that on July 20, 1952, Rafaela Yulo pass upon the effect or validity of the mortgage — these can
executed in favor of the movant a mortgage for P33,626.29, only be determined in an ordinary case before the courts, not
due from her, her mother, sisters, brothers, and others, which before a court acting merely as a registration court, which did
amount she assumed to pay to the movant. A motion was not have the jurisdiction to pass upon the alleged effect or
presented to the court by the movant demanding the surrender validity.
of the owner's duplicate certificate of title that he may annotate
said mortgage at the back of the certificate. Estanislao Yusay, Wherefore, the order appealed from is hereby affirmed, with
a part owner of the lot, opposed the petition on the ground that costs against oppositors-appellants. So ordered.
he is owner of a part of the property in question; that the
granting of the motion would operate to his prejudice, as he
has not participated in the mortgage cited in the motion; that
Rafaela Yulo is dead; that the motion is not verified and
movant's rights have lapsed by prescription. Finally it is argued
that his opposition raises a controversial matter which the court
has no jurisdiction to pass upon. Margarita, Maria, Elena and
Pilar, all surnamed Yulo, joined the oppositor Estanislao
Yusay, raising the same objections interposed by Yusay.

The existence of the mortgage is not disputed, and neither is


the fact that the mortgagor Rafaela Yulo is part owner of Lot
No. 855 of the Cadastral Survey of Pontevedra. The oppositors
do not dispute that she is such a part owner, and their main
objection to the petition is that as part owners of the property,
the annotation of the mortgage on the common title will affect
their rights.

The court held that even if the ownership of the deceased


Rafaela Yulo over the portion of the lot in question and the
validity of the mortgage are disputed, such invalidity of the
mortgage is no proof of the non-existence of the mortgage nor
a ground for objecting to its registration, citing the case of
Register of Deeds of Manila vs. Maxima Tinoco Vda. de Cruz,
et, al., 95 Phil., 818; 53 Off. Gaz., 2804.

In his Brief before this Court, counsel for appellants argue that
the mortgage sought to be registered was not recorded before
the closing of the intestate proceedings of the deceased
mortgagor, but was so recorded only four months after the
termination of said proceedings, so that the claim of movant
has been reduced to the character of a mere money claim, not
a mortgage, hence the mortgage may not be registered. In the
first place, as the judge below correctly ruled, the proceeding to
register the mortgage does not purport to determine the
supposed invalidity of the mortgage or its effect. Registration is
a mere ministerial act by which a deed, contract or instrument
is sought to be inscribed in the records of the Office of the
Register of Deeds and annotated at the back of the certificate
of title covering the land subject of the deed, contract or
instrument.

31
G.R. No. 212483, October 05, 2016
WHEREFORE, judgment is hereby rendered:
PHILIPPINE NATIONAL BANK, Petitioner, v. VENANCIO C.
REYES, JR., Respondent. chanRoblesvirtualLawlibrary1. Annulling in its entirety the Real
Estate Mortgage Contract and the Amendment thereto, the
DECISION Certificate of Sale issued pursuant to the extra- judicial
foreclosure and the foreclosure proceedings on the subject
LEONEN, J.: properties covered by Transfer Certificates of Title Nos. T-
53994, T-
A spouse's consent is indispensable for the disposition or
encumbrance of conjugal properties. 52812 and T-52813 of the Registry of Deeds of Bulacan for
want of consent on the part of the plaintiff;
This resolves a dispute between petitioner Philippine National
Bank and respondent Venancio C. Reyes, Jr. (Venancio). 2. Making the writ of preliminary injunction permanent and
Philippine National Bank filed a Petition for Review on perpetual conditioned on plaintiffs posting within an
Certiorari1 assailing the Decision2 dated August 22, 2013 and inextendible period of five (5) days from receipt thereof of the
the Resolution3 dated May 5, 2014 of the Court of Appeals. injunctive bond in the amount Eight Hundred Thousand
The assailed Court of Appeals Decision affirmed the Decision (P800,000.00) pesos as contained in the Order dated
and Order of Branch 81 of the Regional Trial Court of Malolos, November 3, 1998;
Bulacan, which annulled the real estate mortgage and the
certificate of sale issued under the extrajudicial foreclosure 3. Ordering defendant Lilia C. Reyes to reimburse the
conducted, and ordered Lilia Reyes (Lilia) to reimburse to defendant Philippine National Bank the total loan account of
Philippine National Bank the total loan amount she borrowed P3,324,771.18 with interest at 6% per annum from the date of
from the bank.4chanrobleslaw the foreclosure sale until finality of this decision. After this
decision has attained finality interest at the rate of 12% per
Venancio is married to Lilia since 1973. During their union, they annum on the principal and interest (or any part thereof) shall
acquired three (3) parcels of land in Malolos, Bulacan. Transfer be imposed until full payment.
Certificates of Title (TCT) Nos. T-52812 and T-52813 were
registered under "Felicidad Pascual and Lilia C. Reyes, SO ORDERED.17
married to Venancio Reyes[,]"5 while TCT No. 53994 was
registered under "Lilia C. Reyes, married to Venancio Aggrieved, Philippine National Bank appealed to the Court of
Reyes."6chanrobleslaw Appeals. On August 22, 2013, the Court of Appeals denied the
appeal18 and affirmed the ruling of the Regional Trial Court.
The properties were mortgaged to Philippine National Bank on The dispositive portion of the Court of Appeals Decision reads:
August 25, 1994 to secure a loan worth P1,100,000.00,7 which
on October 6, 1994 was increased to P3,000,000.00.8 chanRoblesvirtualLawlibrary
According to Philippine National Bank, the Reyes Spouses WHEREFORE, premises considered, the present appeal is
contracted and duly consented to the loan.9chanrobleslaw DENIED. The challenged Decision and Order of the Regional
Trial Court of Malolos, Bulacan, Branch 81 dated May 27, 2009
When the Reyes Spouses failed to pay the loan obligations, and August 4, 2009, respectively, are hereby AFFIRMED.19
Philippine National Bank foreclosed the mortgaged real (Emphasis in the original)
properties.10 The auction sale was held on September 19,
1997. Philippine National Bank emerged as the highest bidder, Philippine National Bank moved for reconsideration, but the
and a certificate of sale was issued in its Motion was denied in the Resolution20 dated May 5, 2014.
favor.11chanrobleslaw
Petitioner Philippine National Bank insists that the Court of
On September 22, 1998, Venancio filed before the Regional Appeals erred in affirming the ruling of the trial court. It argues
Trial Court a Complaint (or Annulment of Certificate of Sale that the real estate mortgage is valid, that the conjugal
and Real Estate Mortgage against Philippine National Bank.12 partnership should be held liable for the loan, and that
Upon order of the trial court, Venancio amended his Complaint respondent Venancio C. Reyes, Jr.'s cause of action should be
to include Lilia and the Provincial Sheriff ofBulacan as deemed barred by laches.21chanrobleslaw
defendants.13chanrobleslaw
Petitioner claims that respondent and his wife both duly
In assailing the validity of the real estate mortgage, Venancio consented to the loan and the mortgage.22 It points to
claimed that his wife undertook the loan and the mortgage respondent's testimony during cross examination where he
without his consent and his signature was falsified on the admitted that he had actual knowledge of the loan as early as
promissory notes and the mortgage.14chanrobleslaw 1996, but only filed the Complaint in 1998.23 Petitioner further
claims that it is impossible for respondent to have no
Since the three (3) lots involved were conjugal properties, he knowledge of the transaction since the ·Reyes Spouses live
argued that the mortgage constituted over them was together in the same house where the notices and demand
void.15chanrobleslaw letters were sent.24 It contends that the Court of Appeals
should not have relied heavily on the testimony of the
On May 27, 2009, Branch 81 of the Regional Trial Court of handwriting expert since jurisprudence show these experts are
Malolos, Bulacan ordered the annulment of the real estate not indispensable in determining a
mortgage and directed Lilia to reimburse Philippine National forgery.25cralawredchanrobleslaw
Bank the loan amount with interest.16 The dispositive portion
reads: Respondent, in his Comment,26 alleges that his wife hid the
transaction from him. Even if they lived under the same roof,
chanRoblesvirtualLawlibrary he was not aware of everything happening in their home

32
because as a practicing lawyer, he was always away at work falsified.34 The Regional Trial Court and the Court of Appeals
from 8 a.m. to 7 p.m.27 He likewise points out that since both both agreed that respondent presented clear and convincing
the Regional Trial Court and the Court of Appeals made a evidence that his signature, as it appeared on the mortgage
factual finding of forgery, this Court should respect this contract, was forged.
finding.28 Respondent contends that the conjugal partnership
cannot be held liable because a void contract has no legal Respondent offered the expert testimony of Efren B. Flores
existence from which an obligation may stem.29chanrobleslaw (Flores) of the Questioned Document Section of the National
Bureau of Investigation. Flores, a handwriting expert,
The issues for resolution are: compared the signature on the loan documents with the
standard signatures of respondent.35 He concluded that they
chanRoblesvirtualLawlibraryFirst, whether the Court of Appeals were not written by the same person through the following
erred in declaring the real estate mortgage void; observations:

Second, whether the conjugal partnership can be held liable for chanRoblesvirtualLawlibraryFirst, the signatures on the loan
the loan contracted unilaterally by Lilia C. Reyes; and documents were executed in a slowly drawn motion of a pen.
cralawlawlibrary This can be observed in the hidden portion of the signature
because the changes in pen pressure were
Lastly, whether respondent is guilty of laches and whether his abrupt.36chanrobleslaw
claim is now barred by estoppel.
Second, respondent's standard signature is written with free
I and well-coordinated strokes.37chanrobleslaw

The real estate mortgage over a conjugal property is void if the Lastly, there were discrepancies in the structural pattern of
non-contracting spouse did not give consent. letter formation of the two (2) sets of signatures. With the
signatures in the loan documents, both the upper and lower
The Court of Appeals committed no reversible error in affirming loops were elongated. On the standard signatures, the upper
the ruling of the Regional Trial Court. The real estate mortgage loop was shorter while the lower loop was
over the conjugal properties is void for want of consent from bigger.38chanrobleslaw
respondent. The Family Code is clear: the written consent of
the spouse who did not encumber the property is necessary Flores was convinced that the variations he noted is "due to
before any disposition or encumbrance of a conjugal property the operation of a different personality and not merely an
can be valid.30chanrobleslaw expected and inevitable variation found in genuine handwriting
of the same writer."39chanrobleslaw
It is not disputed that the Reyes Spouses were married in
1973,31 before the Family Code took effect. Under the Family Likewise telling was petitioner's inability to prove that
Code, their property regime is Conjugal Partnership of Gains; respondent took part in the transactions. Efren Agustin
thus, Article 124 is the applicable provision regarding te (Agustin), Loan and Discount Division Chief of Philippine
administration of their conjugal property. It states: National Bank, admitted that he merely relied on the
documents presented to him,40 and that he never actually saw
chanRoblesvirtualLawlibrary respondent sign the documents, follow up, or inquire about the
Art. 124. The administration and enjoyment of the conjugal loan's status or the mortgage. Agustin only testified to seeing
partnership shall belong to both spouses jointly. In case of Lilia, but not respondent, within the bank's
disagreement, the husband's decision shall prevail, subject to premises.41chanrobleslaw
recourse to the court by the wife for proper remedy, which must
be availed of within five years from the date of the contract This Court is not a trier of facts. In Manotok Realty, Inc. v CLT
implementing such decision. Realty Development Corp.,42 "[w]here ... the findings of fact of
the trial courts are affirmed by the Court of Appeals, the same
In the event that one spouse is incapacitated or otherwise are accorded the highest degree of respect and, generally, will
unable to participate in the administration of the conjugal not be disturbed on appeal. Such findings are binding and
properties, the other spouse may assume sole powers of conclusive on this Court."43chanrobleslaw
administration. These powers do not include disposition or
encumbrance without authority of the court or the written We see no compelling reason to overturn the lower couris'
consent of the other spouse. In the absence of such authority factual findings that the forgery was proven with clear and
or consent, the disposition or encumbrance shall be void. convincing evidence. Having established that his signature was
However, the transaction shall be construed as a continuing forged, respondent proved that he did not consent to the real
offer on the part of the consenting spouse and the third person, estate mortgage. The mortgage unilaterally made by his wife
and may be perfected as a binding contract upon the over their conjugal property is void and legally inexistent.
acceptance by the other spouse or authorization by the court
before the offer is withdrawn by either or both offerors. II

Any disposition or encumbrance of a conjugal property by one The lower courts may have declared the mortgage void, but the
spouse must be consented to by the other; otherwise, it is principal obligation is not affected. It remains valid.
void.32chanrobleslaw
Petitioner contends that the conjugal partnership should be
Petitioner points to respondent's signature on the Promissory made liable to the extent that it redounded to the benefit of the
Notes and Deed of Mortgage to prove that he consented to the family under Article 122 of the Family Code.
transactions.33 For his part, respondent alleges that his
signature was forged and offers testimony from a handwriting Petitioner's reliance on Article 122 to support the validity of the
expert to prove that his signature on the bank documents were mortgage is misplaced.

33
for the surety or his family. No presumption can be inferred
Article 122 provides: that, when a husband enters into a contract of surety or
accommodation agreement, it is "for the benefit of the conjugal
chanRoblesvirtualLawlibrary partnership." Proof must be presented to establish benefit
ARTICLE 122. The payment of personal debts contracted by redounding to the conjugal partnership.48 (Emphasis supplied)
the husband or the wife before or during the marriage shall not
be charged to the conjugal partnership except insofar as they There are two scenarios considered: one is when the husband,
redounded to the benefit of the family. or in this case, the wife, contracts a loan to be used for the
family business and the other is when she acts as a surety or
Neither shall the fines and pecuniary indemnities imposed guarantor. If she is a mere surety or guarantor, evidence that
upon them be charged to the partnership. the family benefited from the loan need to be presented before
the conjugal partnership can be held liable. On the other hand,
However, the payment of personal debts contracted by either if the loan was taken out to be used for the family business,
spouse before the marriage, that of fines and indemnities there is no need to prove actual benefit. The law presumes the
imposed upon them, as well as the support of illegitimate family benefited from the loan and the conjugal partnership is
children of either spouse, may be enforced against the held liable.
partnership assets after the responsibilities enumerated in the
preceding Article have been covered, if the spouse who is According to petitioner, the Regional Trial Court found49 that
bound should have no exclusive property or if it should be the loan was used as additional working capital for
insufficient; but at the time of the liquidation of the partnership, respondent's printing business. As held in Ayala Investment,
such spouse shall be charged for what has been paid for the since the loaned money is used in the husband's business,
purposes above-mentioned. there is a presumption that it redounded to the benefit of the
family; hence, the conjugal partnership may be held liable for
Article 122 applies to debts that were contracted by a spouse the loan amount.50 Since there is a legal presumption to this
and redounded to the benefit of the family. It applies effect, there is no need to prove actual benefit to the family.
specifically to the loan that respondent's wife Lilia contracted,
but not to the mortgage. What the lower courts declared void was the real estate
mortgage attached to the conjugal property of the Reyes
To be clear, nowhere in the Decision did the Court of Appeals Spouses. Since the real estate mortgage was an encumbrance
state that the principal obligation secured by the mortgage was attached to a conjugal property without the consent of the other
void. The Court of Appeals affirmed the May 27, 2009 Decision spouse, it is void and legally inexistent. Although petitioner
of the Regional Trial Court ordering, respondent's wife to cannot foreclose the mortgage over the conjugal property in
reimburse the petitioner the total loan amount44 "of question, it can still recover the loan amount from the conjugal
P3,324,771.18 with interest at 6% per annum from the date of partnership.
the foreclosure sale until finality of this decision."45 The
Regional Trial Court further imposed interest at 12% per In Philippine National Bank v. Banatao,51 "a mortgage is
annum on the principal and interest, or any part thereof, after merely an accessory agreement and does not affect the
the decision had attained finality and until full principal contract of loan. The mortgages, while void, can still
payment.46chanrobleslaw be considered as instruments evidencing the
indebtedness[.]"52chanrobleslaw
Ayala Investment & Development Corp. v. Court of Appeals47
has explained how Article 121 should be applied: III

chanRoblesvirtualLawlibrary Laches does not apply where the delay is within the period
From the foregoing jurisprudential rulings of this Court, we can prescribed by law.
derive the following conclusions:
Petitioner contends that respondent's action to annul the Deed
chanRoblesvirtualLawlibrary(A) If the husband himself is the of Real Estate Mortgage is already barred by latches.53 This is
principal obligor in the contract, i.e., he directly received the erroneous.
money and services to be used in or for his own business or
his own profession, that contract falls within the term "x x x As found by the trial court, records show that upon learning
obligations for the benefit of the conjugal partnership. " Here, about the mortgage, respondent immediately informed the
no actual benefit may be proved. It is enough that the benefit to bank about his forged signature.54 He filed the Complaint for
the family is apparent at the time of the signing of the contract. Annulment of Certificate of Sale and Real Estate Mortgage
From the very nature of the contract of loan or services, the against petitioner on September 22, 1998, which was still
family stands to benefit from the loan facility or services to be within the prescribed period to redeem a mortgaged
rendered to the business or profession of the husband. It is property.55chanrobleslaw
immaterial, if in the end, his business or profession fails or
does not succeed. Simply stated, where the husband contracts In Torbela v. Rosario:56chanrobleslaw
obligations on behalf of the family business, the law presumes,
and rightly so, that such obligation will redound to the benefit of Laches means the failure or neglect, for an unreasonable and
the conjugal partnership. unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier. It is
(B) On the other hand, if the money or services are given to negligence or omission to assert a right within a reasonable
another person or entity, and the husband acted only as a time, warranting a presumption that the party entitled to assert
surety or guarantor, that contract cannot, by itself, alone be it either has abandoned it or declined to assert it. As the Court
categorized as falling within the context of "obligations for the explained in the preceding paragraphs, the Torbela siblings
benefit of the conjugal partnership." The contract of loan or instituted Civil Case No. U-4359 five years after Dr. Rosario's
services is clearly for the benefit of the principal debtor and not repudiation of the express trust, still within the 10-year

34
prescriptive period for enforcement of such trusts. This does the Family Code governing the Absolute Community of
not constitute an unreasonable delay in asserting one's right. A Property regime, explicitly holds the spouses solidarity liable
delay within the prescriptive period is sanctioned by law and is with each other if the conjugal properties are not enough to
not considered to be a delay that would bar relief Laches apply answer for the liabilities. In this case, if the conjugal properties
only in the absence of a statutory prescriptive period.57 of the Reyes Spouses are not enough to answer for the loan,
(Emphasis supplied) petitioner can recover the remaining unpaid balance from the
separate properties of either respondent or his wife Lilia.
Since respondent filed the Complaint for Annulment of
Certificate of Sale and Real Estate Mortgage within the period WHEREFORE, the Petition is DENIED for failure to show the
of redemption prescribed by law, petitioner fails to convince Court of Appeals committed a reversible error in the assailed
that respondent slept on his right. Decision. The Decision of the Court of Appeals dated August
22, 2013 in CA-G.R. CV No. 94018 is AFFIRMED with
The mortgage over the conjugal property is void and cannot be MODIFICATION, in that Spouses Venancio C. Reyes, Jr. and
foreclosed. However, petitioner can still hold the conjugal Lilia Reyes are declared jointly and solidarity liable with each
partnership liable for the principal obligation since the loan is other with their separate properties if their conjugal partnership
presumed to have redounded to the benefit of the family. If the is insufficient to fully pay for the loan.
conjugal partnership is insufficient to cover the liability, the
husband is solidarity liable with the wife for the unpaid SO ORDERED.chanRoblesvirtualLawlibrary
balance.58chanrobleslaw

The last paragraph of Article 121 of the Family Code is


instructive:

chanRoblesvirtualLawlibrary
Art. 121. The conjugal partnership shall be liable for:

chanRoblesvirtualLawlibrary
(1)
The support of the spouse, their common children, and the
legitimate children of either spouse; however, the support of
illegitimate children shall be governed by the provisions of this
Code on Support;
(2)
All debts and obligations contracted during the marriage by the
designated administrator-spouse for the benefit of the conjugal
partnership of gains, or by both spouses or by one of them with
the consent of the other;
(3)
Debts and obligations contracted by either spouse without the
consent of the other to the extent that the family may have
benefited;
(4)
All taxes, liens, charges, and expenses, including major or
minor repairs upon the conjugal partnership property;
(5)
All taxes and expenses for mere preservation made during the
marriage upon the separate property of either spouse;
(6)
Expenses to enable either spouse to commence or complete a
professional, vocational, or other activity for self-improvement;
(7)
Ante-nuptial debts of either spouse insofar as they have
redounded to the benefit of the family;
(8)
The value of what is donated or promised by both spouses in
favor of their common legitimate children for the exclusive
purpose of commencing or completing a professional or
vocational course or other activity for self-improvement; and
(9)
Expenses of litigation between the spouses unless the suit is
found to groundless.

If the conjugal partnership is insufficient to cover the foregoing


liabilities, the spouses shall be solidarily liable for the unpaid
balance with their separaie properties. (Emphasis supplied)

The last paragraph points to the "subsidiary but solidary liability


of the separate properties"59 of the spouses for liabilities
enumerated in the Article. This Article, similar to Article 94 of

35
G.R. No. 171865, October 12, 2016 null and void, otherwise, it shall remain in full force and
effect.2chanroblesvirtuallawlibrary
PHILIPPINE NATIONAL BANK, Petitioner, v. HEIRS OF The Spouses Alonday made partial payments on the
BENEDICTO AND AZUCENA ALONDAY, Respondent. commercial loan, which they renewed on December 23, 1983
for the balance of P15,950.00. The renewed commercial loan,
DECISION although due on December 25, 1984, was fully paid on July 5,
1984.3chanrobleslaw
BERSAMIN, J.:
On August 6, 1984, respondents Mercy and Alberto Alonday,
The issue is whether the all-embracing or dragnet clause the children of the Spouses Alonday, demanded the release of
contained in the first mortgage contract executed between the the mortgage over the property covered by TCT No. T-66139.
parties for the security of the first loan could authorize the The petitioner informed them, however, that the mortgage
foreclosure of the property under the mortgage to secure a could not be released because the agricultural loan had not yet
second loan despite the full payment of the second loan. been fully paid, and that as the consequence of the failure to
pay, it had foreclosed the mortgage over the property covered
by OCT No. P-3599 on August 17, 1984.
Antecedents
It appeared that notwithstanding such foreclosure, a deficiency
On September 26, 1974, the Spouses Benedicto and Azucena balance of P91,525.22 remained.4 Hence, the petitioner
Alonday (Spouses Alonday) obtained an agricultural loan of applied for the extra-judicial foreclosure of the mortgage on the
P28,000.00 from the petitioner at its Digos, Davao del Sur property covered by TCT No. T-66139. A notice of extra-
Branch, and secured the obligation by constituting a real estate judicial sale was issued on August 20, 1984, and the property
mortgage on their parcel of land situated in Sta. Cruz, Davao covered by TCT No. T-66139 was sold on September 28, 1984
del Sur registered under Original Certificate of Title (OCT) No. to the petitioner in the amount of P29,900.00. Since the
P-3599 of the Registry of Deeds of Davao del Alondays were unable to redeem the property, the petitioner
Sur.1chanrobleslaw consolidated its ownership. Later on, the property was sold for
P48,000.00 to one Felix Malmis on November 10,
On June 11, 1980, the Spouses Alonday obtained a 1989.5chanrobleslaw
commercial loan for P16,700.00 from the petitioner's Davao
City Branch, and constituted a real estate mortgage over their According to the petitioner, the deed of mortgage relating to the
598 square meter residential lot situated in Ulas, Davao City property covered by TCT No. T-66139 included an "all-
registered under Transfer Certificate of Title (TCT) No. T- embracing clause" whereby the mortgage secured not only the
66139 of the Registry of Deeds of Davao City. commercial loan contracted with its Davao City Branch but also
the earlier agricultural loan contracted with its Digos Branch.
It is noted that the mortgage contracts contained the following
identical provision, to wit:ChanRoblesVirtualawlibrary Judgment of the RTC
That for and in consideration of certain loans, overdrafts, and
other credit accommodations, obtained from the Mortgagee, On July 8, 1994, therefore, the respondents instituted a
which is hereby fixed at _________, Philippine Currency, and complaint against the petitioner in the Regional Trial Court
to secure the payment of the same and those others that the (RTC) in Davao City to recover damages and attorney's fees
Mortgagee may extend to the Mortgagor, including interests (Civil Case No. 23,021-94), averring that the foreclosure and
and expenses, and other obligations owing by the Mortgagor to sale of the property covered by TCT No. T-66139 was illegal.
the Mortgagee, whether direct or indirect, principal or
secondary, as appearing in the accounts, books and records of On November 28, 1997, the RTC rendered judgment finding in
the Mortgagee, the Mortgagor does hereby transfer and favor of the respondents,6 and disposed as
convey by way of mortgage unto the Mortgagee, its successors follows:ChanRoblesVirtualawlibrary
or assigns, the parcel of land which is/are described in the list WHEREFORE, judgment is hereby rendered in favor of the
inserted at the back of this document xxx. In case the plaintiffs and against defendant bank, ordering said defendant
Mortgagor executes subsequent promissory note or notes bank:ChanRoblesVirtualawlibrary
either as renewal of the former note, as an extension thereof, To pay plaintiffs the sum of One Million Seven Hundred
or as a new loan, or is given any other kind of accommodation, Thousand (P1,700,000.00) Pesos, representing the value of
xxx, this mortgage shall also stand as security for the payment the land covered by TCT No. T-66139;
of the said promissory note or notes and/or accommodations
without the necessity of executing a new contract and this To pay plaintiffs the sum of P20,000.00 as attorney's fees; and
mortgage shall have the same force and effect as if the said cralawlawlibrary
promissory note or notes and/or accommodations were
existing on the date thereof, notwithstanding full payments of To pay the costs of this suit.
any or all obligations of the Mortgagors. This mortgage shall SO ORDERED.7chanroblesvirtuallawlibrary
also stand as security for said obligations and any and all other The RTC observed that if the petitioner had intended to have
obligations of the Mortgagor to the Mortgagee of whatever kind the second mortgage secure the pre-existing agricultural loan,
and nature, whether such obligations have been contracted it should have made an express reservation to that effect; that
before, during or after the constitution of this mortgage. based on the all-embracing clause, the mortgage was a
However, if the Mortgagor shall pay the Mortgagee, its contract of adhesion, and the ambiguities therein should be
successors or assigns, the obligations secured by this construed strictly against the petitioner; that the last sentence
mortgage, together with interests, costs and other expenses, of the all-embracing clause provided that the mortgage would
on or before the date they are due, and shall keep and perform be null and void upon the payment of the obligations secured
all the covenants and agreements herein contained for the by the mortgage; and that the petitioner was guilty of bad faith
Mortgagor to keep and perform, then this mortgage shall be in refusing to nullify the mortgage despite full payment of the
commercial loan prior to its maturity.

36
The [Mojica] case is not in point since the facts therein are
The RTC also ruled that because the property had already different from the case at bench. In Mojica vs. Court of
been sold to Malmis, a third party not brought within the trial Appeals, the mortgaged real estate property was made to
court's jurisdiction, it could not order the return of the property; answer for future advancement or renewal of the loan, whereas
and that it was ordering the petitioner instead to pay the in the instant case, the foreclosure sale included a property
respondents the value of the property under its present market which was used as a security for a commercial loan which was
valuation. obtained after the agricultural loan.
The mortgage provision relied upon by appellant is known in
Decision of the CA American jurisprudence as a "dragnet" clause, which is
specifically phrased to subsume all debts of past or future
Dissatisfied, the petitioner appealed to the Court of Appeals origin. Such clauses pursuant to the pronouncement of the
(CA). The appeal was docketed as C.A.-G.R. CV No. 60625. Supreme Court in DBP vs. Mirang must be "carefully
scrutinized and strictly construed."12chanrobleslaw
On August 31, 2005, the CA affirmed the RTC,8 observing that
the mortgage, being a contract of adhesion, should be The petitioner wrongly insists that the CA, thr ough the
construed strictly against the petitioner as the patty who had foregoing ratiocination, held that the all-embracing or dragnet
drafted the same; and that although the petitioner had argued, clauses were altogether invalid as to prior obligations. What the
citing Mojica v. Court of Appeals,9 that all-embracing clauses CA, although reiterating that the Court upheld the validity of
were valid to secure past, present and future loans, Mojica v. using real estate mortgages to secure future advancements,
Court of Appeals was not in point inasmuch as the facts therein only thereby pointed out that it could not find similar rulings as
were different from the facts herein. to mortgages executed to secure prior loans.

The petitioner filed a motion for reconsideration, but the CA There is no question, indeed, that all-embracing or dragnet
denied the motion on February 27, 2006.10chanrobleslaw clauses have been recognized as valid means to secure debts
of both future and past origins.13 Even so, we have likewise
Hence, this appeal by petition for review on certiorari. emphasized that such clauses were an exceptional mode of
securing obligations, and have held that obligations could only
Issues be deemed secured by the mortgage if they came fairly within
the terms of the mortgage contract.14 For the all-embracing or
The petitioner assigns the following errors to the CA, to dragnet clauses to secure future loans, therefore, such loans
wit:ChanRoblesVirtualawlibrary must be sufficiently described in the mortgage contract.15 If
The Court of Appeals grievously erred in restricting and the requirement could be imposed on a future loan that was
delimiting the scope and validity of the standard "all-embracing uncertain to materialize, there is a greater reason that it should
clause" in real estate mortgage contracts solely to future be applicable to a past loan, which is already subsisting and
indebtedness and not to prior ones, contrary to leading known to the parties.
Supreme Court decisions on the matter.
Nonetheless, it was undeniable that the petitioner had the
Even assuming arguendo that the xxx decisions are opportunity to include some form of acknowledgement of the
inapplicable to the case at bar, the Court of Appeals grievously previously subsisting agricultural loan in the terms of the
erred in awarding the unsubstantiated amount of P1.7 million in second mortgage contract The mere fact that the mortgage
damages and P20,000.00 as attorney's fees against PNB constituted on the property covered by TCT No. T-66139 made
without factual and legal basis.11 no mention of the pre-existing loan could only strongly indicate
The petitioner submits that Mojica v. Court of Appeals validates that each of the loans of the Spouses Alonday had been
the use of an all-embracing clause in a mortgage agreement to treated separately by the parties themselves, and this
secure not only the amount indicated on the mortgage sufficiently explained why the loans had been secured by
instrument, but also the mortgagor's future and past different mortgages.
obligations; that by denying the applicability to the case of
Mojica v. Court of Appeals and other similar rulings, the CA Another indication that the second mortgage did not extend to
disregarded the principle of stare decisis; and that the CA in the agricultural loan was the fact that the second mortgage was
effect thereby regarded all-embracing clauses invalid as to entered into in connection only with the commercial loan. Our
prior obligations. ruling in Prudential Bank v. Alviar16 is then relevant, to
wit:ChanRoblesVirtualawlibrary
Ruling of the Court xxx The parties having conformed to the "blanket mortgage
clause" or "dragnet clause," it is reasonable to conclude that
The appeal lacks merit. they also agreed to an implied understanding that subsequent
loans need not be secured by other securities, as the
The CA opined as follows:ChanRoblesVirtualawlibrary subsequent loans will be secured by the first mortgage. In
The real estate mortgage on the property covered by TCT No. other words, the sufficiency of the first security is a corollary
T-66139 was specifically constituted to secure the payment of component of the "dragnet clause." But of course, there is no
the commercial loan of the Spouses ALONDAY. In the same prohibition, as in the mortgage contract in issue, against
manner, the real estate mortgage on the property covered by contractually requiring other securities for the subsequent
OCT No. P-3599 was constituted to secure the payment of loans. Thus, when the mortgagor takes another loan for which
their agricultural loan with the PNB. With the execution of another security was given it could not be inferred that such
separate mortgage contracts for the two (2) loans, it is clear loan was made in reliance solely on the original security with
that the intention of the parties was to limit the mortgage to the the "dragnet clause," but rather, on the new security given.
loan for which it was constituted. This is the "reliance on the security test."

xxxx xxx Accordingly, finding a different security was taken for the
second loan no intent that the parties relied on the security of

37
the first loan could be inferred, so it was held. The rationale The petitioner challenges the valuation as devoid of basis. It
involved, the court said, was that the "dragnet clause" in the points out that the complaint of the Spouses Alonday had
first security instrument constituted a continuing offer by the placed the value of the property at P1,200.00/square meter;
borrower to secure further loans under the security of the first and that respondent Alberto Alonday had testified during the
security instrument, and that when the lender accepted a trial that the value of the property had been only
different security he did not accept the P1,200.00/square meter.
offer.17chanroblesvirtuallawlibrary
Although the facts in Prudential Bank were not entirely on all We uphold the challenge by the petitioner.
fours with those of this case because the prior mortgage in
Prudential Bank was sought to be enforced against a We are at a loss at how the RTC had computed and
subsequent loan already secured by other securities, the logic determined the valuation at P3,000.00/square meter. Such
in Prudential Bank is applicable here. The execution of the determination was easily the product of guesswork on the part
subsequent mortgage by the parties herein to secure the of the trial court, for the language employed in its judgment in
subsequenlloan was an indication that they had intended to reference to such value was "could reasonably be."21 On its
treat each loan as distinct from the other, and that they had part, the CA adverted to the valuation as "approximately
intended to secure each of the loans individually and P3,000.00,"22 indicating that its own determination of the fair
separately. market value was of similar tenor as that by the RTC.
Accordingly, the valuation by both lower courts cannot be
We further concur with the CA and the RTC in their holding that upheld, for it is basic enough that in their determination of
the mortgage contracts executed by the Spouses Alonday actual damages, the comis should eschew mere assertions,
were contracts of adhesion exclusively prep red by the speculations, conjectures or guesswork;23 otherwise, they
petitioner. Under Article 1306 of the Civil Code, the contracting would be guilty of arbitrariness and whimsicality.
parties "may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not Moreover, the courts cannot grant reliefs not prayed for in the
contrary to law, morals, good customs, public order or public pleadings or in excess of what is being sought by the
policy." This is an express recognition by the law of the right of party.24chanrobleslaw
the people to enter into all manner of lawful conventions as
part of their safeguarded liberties. The objection against a To accord with what is fair, based on the records, we reduce
contract of adhesion lies most often in its negation of the the basis of the actual damages to P1,200.00/square meter.
autonomy of the will of the parties in contracts. A contract of Such valuation is insulated from arbitrariness because it was
adhesion, albeit valid, becomes objectionable only when it made by the Spouses Alonday themselves in their complaint,
takes undue advantage of one of the parties the weaker party- rendering a total of P717,600.00 as actual damages.
by having such party just adhere to the terms of the contract. In
such situation, the courts go to the succor of the weaker party The lower courts did not impose interest on the judgment
by construing any obscurity in the contract against the party obligation to be paid by the petitioner. Such interest is in the
who prepared the contract, the latter being presumed as the nature of compensatory interest, as distinguished from
stronger party to the agreement, and as the party who caused monetary interest. It is relevant to elucidate on the distinctions
the obscurity.18chanrobleslaw between these kinds of interest. In this regard, the Court has
expounded in Siga-an v. Villanueva:25cralawredcralawred
To reiterate, in order for the all-embracing or dragnet clauses Interest is a compensation fixed by the parties for the use or
to secure future and other loans, the loans thereby secured forbearance of money. This is referred to as monetary interest.
must be sufficiently described in the mortgage contract. Interest may also be imposed by law or by courts as penalty or
Considering that the agricultural loan had been pre-existing indemnity for damages. This is called compensatory interest.
when the mortgage was constituted on the property covered by The right to interest arises only by virtue of a contract or by
TCT No. T-66139, it would have been easy for the petitioner to virtue of damages for delay or failure to pay the principal loan
have expressly incorporated the reference to such agricultural on which interest is demanded.
loan in the mortgage contract covering the commercial loan.
But the petitioner did not. Being the party that had prepared the Article 1956 of the Civil Code, which refers to monetary
contract of mortgage, its failure to do so should be construed interest, specifically mandates that no interest shall be due
that it did not at all contemplate the earlier loan when it entered unless it has been expressly stipulated in writing. As can be
into the subsequent mortgage. gleaned from the foregoing provision, payment of monetary
interest is allowed only if: (1) there was an express stipulation
Anent the value of the property covered by TCT No. T-66139, for the payment of interest; and (2) the agreement for the
the findings of the RTC on the valuation were as payment of interest was reduced in writing. The concurrence of
follows:ChanRoblesVirtualawlibrary the two conditions is required for the payment of monetary
Considering that the property is located at the junction of the interest. Thus, we have held that collection of interest without
roads leading to Toril and Calinan districts with big any stipulation therefor in writing is prohibited by law.
establishments all around, plaintiffs claim that at the time of the
filing of this case which was in 1994, the reasonable market xxxx
value of the land was P1,200.00 per square meter. To date, the
value could reasonably be P3,000.00 per square There are instances in which an interest may be imposed even
meter.19chanroblesvirtuallawlibrary in the absence of express stipulation, verbal or written,
Opining that the respondents should be indemnified the value regarding payment of interest. Article 2209 of the Civil Code
of the loss suffered from the illegal foreclosure of the property states that if the obligation consists in the payment of a sum of
covered by TCT No. T-66139, theCA adopted the valuation by money, and the debtor incurs delay, a legal interest of 12% per
the RTC on the established fair market value of the property annum may be imposed as indemnity for damages if no
being P3,000.00/square meter, for a total of P1,700,000.00 as stipulation on the payment of interest was agreed upon.
damages to be awarded.20chanrobleslaw Likewise, Article 2212 of the Civil Code provides that interest

38
due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.

All the same, the interest under these two instances may be
imposed only as a penalty or damages for breach of
contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. In other
words, the two instances apply only to compensatory interest
and not to monetary interest.26 xxx
The petitioner should be held liable for interest on the actual
damages of P717,600.00 representing the value of the propetiy
with an area 598 square meters that was lost to them through
the unwarranted foreclosure, the same to be reckoned from the
date of judicial demand (i.e., the filing of the action by the
Spouses Alonday). At the time thereof, the rate was 12% per
annum, and such rate shall run until June 30, 2013. Thereafter,
or starting on July 1, 2013, the rate of interest shall be 6% per
annum until full payment of the obligation, pursuant to the
ruling in Nacar v. Gallery Frames,27 which took into
consideration the lowering of interest rates by the Monetary
Board.

In addition, Article 221228 of the Civil Code requires that


interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this
point. Accordingly, the interest due shall itself earn legal
interest of 6% per annum from the date of finality of the
judgment until its full satisfaction, the interim period being
deemed to be an equivalent to a forbearance of
credit.29chanrobleslaw

WHEREFORE, the Court AFFIRMS the decision promulgated


in C.A.-G.R. CV No. 60625 on August 31, 2005 in all respects
subject to the following MODIFICATIONS, namely: (1) the
award of P1,700,000.00 representing the value of the land
covered by Transfer Certificate of Title No. T-66139 of the
Registry of Deeds of Davao City is REDUCED to P717,600.00,
the same to be paid by petitioner Philippine National Bank; (2)
the principal amount of P717,600.00 shall earn interest of 12%
per annum from the filing of the complaint until June 30, 2013,
and interest of 6% per annum from July 1, 2013 until full
payment; and (3) the interests thus earned shall also earn
interest of 6% per annum from the finality of this decision until
full payment.

SO ORDERED.chanRoblesvirtualLawlibrary

39
SECOND DIVISION The averments in the complaint disclosed that plaintiff-appellee
Joe A. Ros obtained a loan of P115,000.00 from PNB Laoag
JOE A. ROS and ESTRELLA AGUETE, Branch on October 14, 1974 and as security for the loan,
plaintiff-appellee Ros executed a real estate mortgage
G.R. No. 170166 involving a parcel of land Lot No. 9161 of the Cadastral Survey
of Laoag, with all the improvements thereon described under
Petitioners, Transfer Certificate of Title No. T-9646.

Present: Upon maturity, the loan remained outstanding. As a result,


PNB instituted extrajudicial foreclosure proceedings on the
CARPIO, J., Chairperson, mortgaged property. After the extrajudicial sale thereof, a
Certificate of Sale was issued in favor of PNB, Laoag as the
- versus - highest bidder. After the lapse of one (1) year without the
property being redeemed, the property was consolidated and
PERALTA, registered in the name of PNB, Laoag Branch on August 10,
1978.
ABAD,
Claiming that she (plaintiff-appellee Estrella Aguete) has no
MENDOZA, and knowledge of the loan obtained by her husband nor she
consented to the mortgage instituted on the conjugal property a
SERENO,* JJ. complaint was filed to annul the proceedings pertaining to the
mortgage, sale and consolidation of the property interposing
PHILIPPINE NATIONAL BANK - the defense that her signatures affixed on the documents were
forged and that the loan did not redound to the benefit of the
LAOAG BRANCH, family.

Respondent. In its answer, PNB prays for the dismissal of the complaint for
lack of cause of action, and insists that it was plaintiffs-
Promulgated: appellees own acts [of]

April 6, 2011 omission/connivance that bar them from recovering the subject
property on the ground of estoppel, laches, abandonment and
x--------------------------------------------- prescription.4
-----x
DECISION
CARPIO, J.: The Trial Courts Ruling

On 29 June 2001, the trial court rendered its Decision5 in


The Case favor of petitioners. The trial court declared that Aguete did not
sign the loan documents, did not appear before the Notary
G.R. No. 170166 is a petition for review1 assailing the Public to acknowledge the execution of the loan documents,
Decision2 promulgated on 17 October 2005 by the Court of did not receive the loan proceeds from PNB, and was not
Appeals (appellate court) in CA-G.R. CV No. 76845. The aware of the loan until PNB notified her in 14 August 1978 that
appellate court granted the appeal filed by the Philippine she and her family should vacate the mortgaged property
National Bank Laoag Branch (PNB). The appellate court because of the expiration of the redemption period. Under the
reversed the 29 June 2001 Decision of Branch 15 of the Civil Code, the effective law at the time of the transaction, Ros
Regional Trial Court of Laoag City (trial court) in Civil Case No. could not encumber any real property of the conjugal
7803. partnership without Aguetes consent. Aguete may, during their
marriage and within ten years from the transaction questioned,
The trial court declared the Deed of Real Estate Mortgage ask the courts for the annulment of the contract her husband
executed by spouses Jose A. Ros3 (Ros) and Estrella Aguete entered into without her consent, especially in the present case
(Aguete) (collectively, petitioners), as well as the subsequent where her consent is required. The trial court, however, ruled
foreclosure proceedings, void. Aside from payment of attorneys that its decision is without prejudice to the right of action of
fees, the trial court also ordered PNB to vacate the subject PNB to recover the amount of the loan and its interests from
property to give way to petitioners possession. Ros.

The dispositive portion reads:


The Facts
WHEREFORE, premises considered, judgment is hereby
The appellate court narrated the facts as follows: rendered:

On January 13, 1983, spouses Jose A. Ros and Estrella 1. DECLARING the Deed of Real Estate Mortgage (Exhibit C)
Aguete filed a complaint for the annulment of the Real Estate and the subsequent foreclosure proceedings conducted
Mortgage and all legal proceedings taken thereunder against thereon NULL and VOID;
PNB, Laoag Branch before the Court of First Instance, Ilocos
Norte docketed as Civil Case No. 7803. 2. ORDERING the Register of Deeds of the City of Laoag to
cancel TCT No. T-15276 in the name of defendant PNB and
The complaint was later amended and was raffled to the revert the same in the name of plaintiffs spouses Joe Ros and
Regional Trial Court, Branch 15, Laoag City. Estrella Aguete;

40
3. ORDERING defendant to vacate and turnover the and setting aside such findings and conclusions without stating
possession of the premises of the property in suit to the specific contrary evidence;
plaintiffs; and
II. The Honorable Court of Appeals erred in declaring the real
4. ORDERING defendant to pay plaintiffs attorneys fee and estate mortgage valid;
litigation expenses in the sum of TEN THOUSAND
(P10,000.00) PESOS. III. The Honorable Court of Appeals erred in declaring, without
basis, that the loan contracted by husband Joe A. Ros with
No pronouncement as to costs. respondent Philippine National Bank Laoag redounded to the
benefit of his family, aside from the fact that such had not been
SO ORDERED.6 raised by respondent in its appeal.14

PNB filed its Notice of Appeal7 of the trial courts decision on 13 The Courts Ruling
September 2001 and paid the corresponding fees. Petitioners
filed on the same date a motion for execution pending appeal,8 The petition has no merit. We affirm the ruling of the appellate
which PNB opposed.9 In their comment to the opposition10 court.
filed on 10 October 2001, petitioners stated that at the hearing
of the motion on 3 October 2001, PNBs lay representative had The Civil Code was the applicable law at the time of the
no objection to the execution of judgment pending appeal. mortgage. The subject property is thus considered part of the
Petitioners claimed that the house on the subject lot is conjugal partnership of gains. The pertinent articles of the Civil
dilapidated, a danger to life and limb, and should be Code provide:
demolished. Petitioners added that they obliged themselves to
make the house habitable at a cost of not less P50,000.00. The Art. 153. The following are conjugal partnership property:
repair cost would accrue to PNBs benefit should the appellate
court reverse the trial court. PNB continued to oppose (1) That which is acquired by onerous title during the marriage
petitioners motion.11 at the expense of the common fund, whether the acquisition be
for the partnership, or for only one of the spouses;
In an Order12 dated 8 May 2002, the trial court found
petitioners motion for execution pending appeal improper (2) That which is obtained by the industry, or work or as salary
because petitioners have made it clear that they were willing to of the spouses, or of either of them;
wait for the appellate courts decision. However, as a court of
justice and equity, the trial court allowed petitioners to occupy (3) The fruits, rents or interest received or due during the
the subject property with the condition that petitioners would marriage, coming from the common property or from the
voluntarily vacate the premises and waive recovery of exclusive property of each spouse.
improvements introduced should PNB prevail on appeal.

The Appellate Courts Ruling Art. 160. All property of the marriage is presumed to belong to
the conjugal partnership, unless it be proved that it pertains
On 17 October 2005, the appellate court rendered its exclusively to the husband or to the wife.
Decision13 and granted PNBs appeal. The appellate court
reversed the trial courts decision, and dismissed petitioners Art. 161. The conjugal partnership shall be liable for:
complaint.
(1) All debts and obligations contracted by the husband for the
The appellate court stated that the trial court concluded benefit of the conjugal partnership, and those contracted by the
forgery without adequate proof; thus it was improper for the wife, also for the same purpose, in the cases where she may
trial court to rely solely on Aguetes testimony that her legally bind the partnership;
signatures on the loan documents were forged. The appellate
court declared that Aguete affixed her signatures on the (2) Arrears or income due, during the marriage, from
documents knowingly and with her full consent. obligations which constitute a charge upon property of either
spouse or of the partnership;
Assuming arguendo that Aguete did not give her consent to
Ros loan, the appellate court ruled that the conjugal (3) Minor repairs or for mere preservation made during the
partnership is still liable because the loan proceeds redounded marriage upon the separate property of either the husband or
to the benefit of the family. The records of the case reveal that the wife; major repairs shall not be charged to the partnership;
the loan was used for the expansion of the familys business.
Therefore, the debt obtained is chargeable against the conjugal (4) Major or minor repairs upon the conjugal partnership
partnership. property;

Petitioners filed the present petition for review before this (5) The maintenance of the family and the education of the
Court on 9 December 2005. children of both husband and wife, and of legitimate children of
one of the spouses;

The Issues 6) Expenses to permit the spouses to complete a professional,


vocational or other course.
Petitioners assigned the following errors:
Art. 166. Unless the wife has been declared a non compos
I. The Honorable Court of Appeals erred in not giving weight to mentis or a spendthrift, or is under civil interdiction or is
the findings and conclusions of the trial court, and in reversing confined in a leprosarium, the husband cannot alienate or

41
encumber any real property of the conjugal partnership without Joe A. Ros in legal effect admitted in the complaint that the
the wifes consent. If she refuses unreasonably to give her signatures of his wife in the questioned documents are forged,
consent, the court may compel her to grant the same. incriminating himself to criminal prosecution. If he were alive
today, he would be prosecuted for forgery. This strengthens
Art. 173. The wife may, during the marriage, and within ten the testimony of his wife that her signatures on the questioned
years from the transaction questioned, ask the courts for the documents are not hers.
annulment of any contract of the husband entered into without
her consent, when such consent is required, or any act or In filing the complaint, it must have been a remorse of
contract of the husband which tends to defraud her or impair conscience for having wronged his family; in forging the
her interest in the conjugal partnership property. Should the signature of his wife on the questioned documents; in
wife fail to exercise this right, she or her heirs after the squandering the P115,000.00 loan from the bank for himself,
dissolution of the marriage may demand the value of the resulting in the foreclosure of the conjugal property; eviction of
property fraudulently alienated by the husband. his family therefrom; and, exposure to public contempt,
embarassment and ridicule.22
There is no doubt that the subject property was acquired
during Ros and Aguetes marriage. Ros and Aguete were The application for loan shows that the loan would be used
married on 16 January 1954, while the subject property was exclusively for additional working [capital] of buy & sell of garlic
acquired in 1968.15 There is also no doubt that Ros & virginia tobacco.23 In her testimony, Aguete confirmed that
encumbered the subject property when he mortgaged it for Ros engaged in such business, but claimed to be unaware
P115,000.00 on 23 October 1974.16 PNB Laoag does not whether it prospered. Aguete was also aware of loans
doubt that Aguete, as evidenced by her signature, consented contracted by Ros, but did not know where he wasted the
to Ros mortgage to PNB of the subject property. On the other money.24 Debts contracted by the husband for and in the
hand, Aguete denies ever having consented to the loan and exercise of the industry or profession by which he contributes
also denies affixing her signature to the mortgage and loan to the support of the family cannot be deemed to be his
documents. exclusive and private debts.25

The husband cannot alienate or encumber any conjugal real If the husband himself is the principal obligor in the contract,
property without the consent, express or implied, of the wife. i.e., he directly received the money and services to be used in
Should the husband do so, then the contract is voidable.17 or for his own business or his own profession, that contract
Article 173 of the Civil Code allows Aguete to question Ros falls within the term x x x x obligations for the benefit of the
encumbrance of the subject property. However, the same conjugal partnership. Here, no actual benefit may be proved. It
article does not guarantee that the courts will declare the is enough that the benefit to the family is apparent at the
annulment of the contract. Annulment will be declared only signing of the contract. From the very nature of the contract of
upon a finding that the wife did not give her consent. In the loan or services, the family stands to benefit from the loan
present case, we follow the conclusion of the appellate court facility or services to be rendered to the business or profession
and rule that Aguete gave her consent to Ros encumbrance of of the husband. It is immaterial, if in the end, his business or
the subject property. profession fails or does not succeed. Simply stated, where the
husband contracts obligations on behalf of the family business,
The documents disavowed by Aguete are acknowledged the law presumes, and rightly so, that such obligation will
before a notary public, hence they are public documents. Every redound to the benefit of the conjugal partnership.26
instrument duly acknowledged and certified as provided by law
may be presented in evidence without further proof, the For this reason, we rule that Ros loan from PNB redounded to
certificate of acknowledgment being prima facie evidence of the benefit of the conjugal partnership. Hence, the debt is
the execution of the instrument or document involved.18 The chargeable to the conjugal partnership.
execution of a document that has been ratified before a notary
public cannot be disproved by the mere denial of the alleged WHEREFORE, we DENY the petition. The Decision of the
signer.19 PNB was correct when it stated that petitioners Court of Appeals in CA-G.R. CV No. 76845 promulgated on 17
omission to present other positive evidence to substantiate October 2005 is AFFIRMED. Costs against petitioners.
their claim of forgery was fatal to petitioners cause.20
Petitioners did not present any corroborating witness, such as
a handwriting expert, who could authoritatively declare that
Aguetes signatures were really forged. SO ORDERED.

A notarized document carries the evidentiary weight conferred


upon it with respect to its due execution, and it has in its favor
the presumption of regularity which may only be rebutted by
evidence so clear, strong and convincing as to exclude all
controversy as to the falsity of the certificate. Absent such, the
presumption must be upheld. The burden of proof to overcome
the presumption of due execution of a notarial document lies
on the one contesting the same. Furthermore, an allegation of
forgery must be proved by clear and convincing evidence, and
whoever alleges it has the burden of proving the same.21

Ros himself cannot bring action against PNB, for no one can
come before the courts with unclean hands. In their
memorandum before the trial court, petitioners themselves
admitted that Ros forged Aguetes signatures.

42
PRODUCERS BANK OF THE G.R. No. 152071 discounted and secured credit accommodation in the amount
of P200,000.00, of which P110,000.00 was outstanding at the
PHILIPPINES, time of the approval of the packing credit line. The loan was
secured by a real estate mortgage dated 05 December 1986
Petitioner, over respondents properties covered by Transfer Certificates of
Titles (TCT) No. N-68661, N-68662, N-68663, N-68664, N-
Present: 68665 and N-68666, all issued by the Register of Deeds of
Marikina.[9]
CARPIO MORALES, J.*,
Significantly, the real estate mortgage contained the following
- versus- Acting Chairperson, clause:

TINGA, For and in consideration of those certain loans, overdraft


and/or other credit accommodations on this date obtained from
VELASCO, JR., the MORTGAGEE, and to secure the payment of the same, the
principal of all of which is hereby fixed at FIVE HUNDRED
LEONARDO-DE CASTRO, and** THOUSAND PESOS ONLY (P500,000.00) Pesos, Philippine
Currency, as well as those that the MORTGAGEE may
EXCELSA INDUSTRIES, INC., BRION, JJ. hereafter extend to the MORTGAGOR, including interest and
expenses or any other obligation owing to the MORTGAGEE,
Respondent. the MORTGAGOR does hereby transfer and convey by way of
mortgage unto the MORTGAGEE, its successors or assigns,
Promulgated: the parcel(s) of land which is/are described in the list inserted
on the back of this document, and/or appended hereto,
May 8, 2009 together with all the buildings and improvements now existing
or which may hereafter be erected or constructed thereon, of
x --------------------------------------------------------------------------------- which the MORTGAGOR declares that he/it is the absolute
-----x owner, free from all liens and encumbrances.[10]
DECISION
TINGA, J.: On 17 March 1987, respondent presented for negotiation to
petitioner drafts drawn under the letter of credit and the
corresponding export documents in consideration for its
This is a petition for review on certiorari[1] under Rule 43 of the drawings in the amounts of US$5,739.76 and US$4,585.79.
1997 Rules of Civil Procedure, assailing the decision[2] and Petitioner purchased the drafts and export documents by
resolution[3] of the Court of Appeals in CA-G.R. CV No. 59931. paying respondent the peso equivalent of the drawings. The
The Court of Appeals decision[4] reversed the decision of the purchase was subject to the conditions laid down in two
Regional Trial Court (RTC), Branch 73, Antipolo, Rizal, separate undertakings by respondent dated 17 March 1987
upholding the extrajudicial foreclosure of the mortgage on and 10 April 1987.[11]
respondents properties, while the resolution denied petitioners
motion for reconsideration.[5] On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner
through cable that the Korean buyer refused to pay
As borne by the records of the case, the following factual respondents export documents on account of typographical
antecedents appear: discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the
export documents.[12]
Respondent Excelsa Industries, Inc. is a manufacturer and
exporter of fuel products, particularly charcoal briquettes, as an Upon learning about the Korean importers non-payment,
alternative fuel source. Sometime in January 1987, respondent respondent sent petitioner a letter dated 27 July 1987,
applied for a packing credit line or a credit export advance with informing the latter that respondent had brought the matter
petitioner Producers Bank of the Philippines, a banking before the Korea Trade Court and that it was ready to liquidate
institution duly organized and existing under Philippines its past due account with petitioner. Respondent sent another
laws.[6] letter dated 08 September 1987, reiterating the same
assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd.
The application was supported by Letter of Credit No. informed petitioner that it would be returning the export
M3411610NS2970 dated 14 October 1986. Kwang Ju Bank, documents on account of the non-acceptance by the
Ltd. of Seoul, Korea issued the letter of credit through its importer.[13]
correspondent bank, the Bank of the Philippine Islands, in the
amount of US$23,000.00 for the account of Shin Sung Petitioner demanded from respondent the payment of the
Commercial Co., Ltd., also located in Seoul, Korea. T.L. World peso equivalent of the export documents, plus interest and
Development Corporation was the original beneficiary of the other charges, and also of the other due and unpaid loans. Due
letter of credit. On 05 December 1986, for value received, T.L. to respondents failure to heed the demand, petitioner moved
World transferred to respondent all its rights and obligations for the extrajudicial foreclosure on the real estate mortgage
under the said letter of credit. Petitioner approved respondents over respondents properties.
application for a packing credit line in the amount of
P300,000.00, of which about P96,000.00 in principal remained Per petitioners computation, aside from charges for attorneys
outstanding.[7] Respondent executed the corresponding fees and sheriffs fees, respondent had a total due and
promissory notes evidencing the indebtedness.[8] demandable obligation of P573,225.60, including interest, in six
different accounts, namely:
Prior to the application for the packing credit line, respondent
had obtained a loan from petitioner in the form of a bill 1) EBP-PHO-87-1121 (US$4,585.97 x 21.212) = P119,165.06

43
represented the facts stated therein and would be accepted
2) EBP-PHO-87-1095 (US$ 5,739.76 x 21.212) = 151,580.97 and paid in accordance with their tenor.[21]

3) BDS-001-87 = 61,777.78 Furthermore, the RTC concluded that petitioner had no


obligation to return the export documents and respondent
4) BDS-030/86 A = 123,555.55 could not expect their return prior to the payment of the export
advances because the drafts and export documents were the
5) BDS-PC-002-/87 = 55,822.91 evidence that respondent received export advances from
petitioner.[22]
6) BDS-005/87 = 61,323.33
The RTC also found that by its admission, respondent had
P573,225.60[14] other loan obligations obtained from petitioner which were due
and demandable; hence, petitioner correctly exercised its right
The total approved bid price, which included the attorneys fees to foreclose the real estate mortgage, which provided that the
and sheriff fees, was pegged at P752,074.63. At the public same secured the payment of not only the loans already
auction held on 05 January 1988, the Sheriff of Antipolo, Rizal obtained but also the export advances.[23]
issued a Certificate of Sale in favor of petitioner as the highest
bidder.[15] The certificate of sale was registered on 24 March Lastly, the RTC found respondent guilty of laches in
1988.[16] questioning the foreclosure sale considering that petitioner
made several demands for payment of respondents
On 12 June 1989, petitioner executed an affidavit of outstanding loans as early as July 1987 and that respondent
consolidation over the foreclosed properties after respondent acknowledged the failure to pay its loans and advances.[24]
failed to redeem the same. As a result, the Register of Deeds
of Marikina issued new certificates of title in the name of The RTC denied respondents motion for reconsideration.[25]
petitioner.[17] Thus, respondent elevated the matter to the Court of Appeals,
reiterating its claim that petitioner was not only a collection
On 17 November 1989, respondent instituted an action for the agent but was considered a purchaser of the export
annulment of the extrajudicial foreclosure with prayer for
preliminary injunction and damages against petitioner and the On 30 May 2001, the Court of Appeals rendered the assailed
Register of Deeds of Marikina. Docketed as Civil Case No. decision, reversing the RTCs decision, thus:
1587-A, the complaint was raffled to Branch 73 of the RTC of
Antipolo, Rizal. The complaint prayed, among others, that the WHEREFORE, the appeal is hereby GRANTED. The decision
defendants be enjoined from causing the transfer of ownership of the trial court dated December 18, 1997 is REVERSED and
over the foreclosed properties from respondent to SET ASIDE. Accordingly, the foreclosure of mortgage on the
petitioner.[18] properties of appellant is declared as INVALID. The issuance
of the writ of possession in favor of appellee is ANNULLED.
On 05 April 1990, petitioner filed a petition for the issuance of The following damages are hereby awarded in favor of
a writ of possession, docketed as LR Case No. 90-787, before appellant:
the same branch of the RTC of Antipolo, Rizal. The RTC
ordered the consolidation of Civil Case No, 1587-A and LR (a) Moral damages in the amount of P100,000.00;
Case No. 90-787.[19]
(b) Exemplary damages in the amount of P100,000.00; and
On 18 December 1997, the RTC rendered a decision
upholding the validity of the extrajudicial foreclosure and (c) Costs.
ordering the issuance of a writ of possession in favor of
petitioner, to wit: SO ORDERED.[26]

WHEREFORE, in Case No. 1587-A, the court hereby rules The Court of Appeals held that respondent should not be
that the foreclosure of mortgage for the old and new obligations faulted for the dishonor of the drafts and export documents
of the plaintiff Excelsa Industries Corp., which has remained because the obligation to collect the export proceeds from
unpaid up to the time of foreclosure by defendant Producers Kwang Ju Bank, Ltd. devolved upon petitioner. It cited the
Bank of the Philippines was valid, legal and in order; In Case testimony of petitioners manager for the foreign currency
No. 787-A, the court hereby orders for the issuance of a writ of department to the effect that petitioner was respondents agent,
possession in favor of Producers Bank of the Philippines after being the only entity authorized under Central Bank Circular
the properties of Excelsa Industries Corp., which were No. 491 to collect directly from the importer the export
foreclosed and consolidated in the name of Producers Bank of proceeds on respondents behalf and converting the same to
the Philippines under TCT No. 169031, 169032, 169033, Philippine currency for remittance to respondent. The appellate
169034 and 169035 of the Register of Deeds of Marikina. court found that respondent was not authorized and even
powerless to collect from the importer and it appeared that
SO ORDERED.[20] respondent was left at the mercy of petitioner, which kept the
export documents during the time that respondent attempted to
The RTC held that petitioner, whose obligation consisted only collect payment from the Korean importer.
of receiving, and not of collecting, the export proceeds for the
purpose of converting into Philippine currency and remitting the The Court of Appeals disregarded the RTCs finding that the
same to respondent, cannot be considered as respondents export documents were the only evidence of respondents
agent. The RTC also held that petitioner cannot be presumed export advances and that petitioner was justified in refusing to
to have received the export proceeds, considering that return them. It opined that granting petitioner had no obligation
respondent executed undertakings warranting that the drafts to return the export documents, the former should have helped
and accompanying documents were genuine and accurately

44
respondent in the collection efforts instead of augmenting We hereby undertake to pay on demand the full amount of the
respondents dilemma. above draft(s) or any unpaid balance thereof, the Philippine
perso equivalent converted at the prevailing selling rate (or
Furthermore, the Court of Appeals found petitioners selling rate prevailing at the date you negotiate our draft,
negligence as the cause of the refusal by the Korean buyer to whichever is higher) allowed by the Central Bank with interest
pay the export proceeds based on the following: first, petitioner at the rate prevailing today from the date of negotiation, plus all
had a hand in preparing and scrutinizing the export documents charges and expenses whatsoever incurred in connection
wherein the discrepancies were found; and, second, petitioner therewith. You shall neither be obliged to contest or dispute
failed to advise respondent about the warning from Kwang Ju any refusal to accept or to pay the whole or any part of the
Bank, Ltd. that the export documents would be returned if no above draft(s), nor proceed in any way against the drawee, the
explanation regarding the discrepancies would be made. issuing bank or any endorser thereof, before making a demand
on us for the payment of the whole or any unpaid balance of
The Court of Appeals invalidated the extrajudicial foreclosure the draft(s).(Emphasis supplied)[31]
of the real estate mortgage on the ground that the posting and
publication of the notice of extrajudicial foreclosure In Velasquez v. Solidbank Corporation,[32] where the drawer
proceedings did not comply with therein also executed a separate letter of undertaking in
consideration for the banks negotiation of its sight drafts, the
the personal notice requirement under paragraph 12[27] of the Court held that the drawer can still be made liable under the
real estate mortgage executed between petitioner and letter of undertaking even if he is discharged due to the banks
respondent. The Court of Appeals also overturned the RTCs failure to protest the non-acceptance of the drafts. The Court
finding that respondent was guilty of estoppel by laches in explained, thus:
questioning the extrajudicial foreclosure sale.
Petitioner, however, can still be made liable under the letter of
Petitioners motion for reconsideration[28] was denied in a undertaking. It bears stressing that it is a separate contract
Resolution dated 29 January 2002. Hence, the instant petition, from the sight draft. The liability of petitioner under the letter of
arguing that the Court of Appeals erred in finding petitioner as undertaking is direct and primary. It is independent from his
respondents agent, which was liable for the discrepancies in liability under the sight draft. Liability subsists on it even if the
the export documents, in invalidating the foreclosure sale and sight draft was dishonored for non-acceptance or non-
in declaring that respondent was not estopped from payment.
questioning the foreclosure sale.[29]
Respondent agreed to purchase the draft and credit petitioner
The validity of the extrajudicial foreclosure of the mortgage is its value upon the undertaking that he will reimburse the
dependent on the following issues posed by petitioner: (1) the amount in case the sight draft is dishonored. The bank would
coverage of the blanket mortgage clause; (2) petitioners failure certainly not have agreed to grant petitioner an advance export
to furnish personal notice of the foreclosure to respondent; and payment were it not for the letter of undertaking. The
(3) petitioners obligation as negotiating bank under the letter of consideration for the letter of undertaking was petitioners
credit. promise to pay respondent the value of the sight draft if it was
dishonored for any reason by the Bank of Seoul.[33]
Notably, the errors cited by petitioners are factual in nature.
Although the instant case is a petition for review under Rule 45 Thus, notwithstanding petitioners alleged failure to comply with
which, as a general rule, is limited to reviewing errors of law, the requirements of notice of dishonor and protest under
findings of fact being conclusive as a matter of general Sections 89[34] and 152,[35] respectively, of the Negotiable
principle, however, considering the conflict between the factual Instruments Law, respondent may not escape its liability under
findings of the RTC and the Court of Appeals, there is a need the separate undertakings, where respondent promised to pay
to review the factual issues as an exception to the general on demand the full amount of the drafts.
rule.[30]
The next question, therefore, is whether the real estate
Much of the discussion has revolved around who should be mortgage also served as security for respondents drafts that
liable for the dishonor of the draft and export documents. In the were not accepted and paid by the Kwang Ju Bank, Ltd.
two undertakings executed by respondent as a condition for
the negotiation of the drafts, respondent held itself liable if the Respondent executed a real estate mortgage containing a
drafts were not accepted. The two undertakings signed by blanket mortgage clause, also known as a dragnet clause. It
respondent are similarly-worded and contained respondents has been settled in a long line of decisions that mortgages
express warranties, to wit: given to secure future advancements are valid and legal
contracts, and the amounts named as consideration in said
In consideration of your negotiating the above described contracts do not limit the amount for which the mortgage may
draft(s), we hereby warrant that the said draft(s) and stand as security if from the four corners of the instrument the
accompanying documents thereon are valid, genuine and intent to secure future and other indebtedness can be
accurately represent the facts stated therein, and that such gathered.[36]
draft(s) will be accepted and paid in accordance with its/their
tenor. We further undertake and agree, jointly and severally, to In Union Bank of the Philippines v. Court of Appeals,[37] the
defend and hold you free and harmless from any and all nature of a dragnet clause was explained, thus:
actions, claims and demands whatsoever, and to pay on
demand all damages actual or compensatory including Is one which is specifically phrased to subsume all debts of
attorneys fees, costs and other awards or be adjudged to pay, past and future origins. Such clauses are carefully scrutinized
in case of suit, which you may suffer arising from, by reason, or and strictly construed. Mortgages of this character enable the
on account of your negotiating the above draft(s) because of parties to provide continuous dealings, the nature or extent of
the following discrepancies or reasons or any other which may not be known or anticipated at the time, and they
discrepancy or reason whatever. avoid the expense and inconvenience of executing a new

45
security on each new transaction. A dragnet clause operates WHEREFORE, the instant petition for review on certiorari is
as a convenience and accommodation to the borrowers as it GRANTED and the decision and resolution of the Court of
makes available additional funds without their Appeals in CA-G.R. CV No. 59931 are REVERSED and SET
ASIDE. The decision of the Regional Trial Court Branch 73,
having to execute additional security documents, thereby Antipolo, Rizal in Civil Case No. 1587-A and LR Case No. 90-
saving time, travel, loan closing costs, costs of extra legal 787 is REINSTATED.
services, recording fees, et cetera.[38]

xxx
Petitioner, therefore, was not precluded from seeking the SO ORDERED.
foreclosure of the real estate mortgage based on the unpaid
drafts drawn by respondent. In any case, respondent had
admitted that aside from the unpaid drafts, respondent also
had due and demandable loans secured from another account
as evidenced by Promissory Notes (PN Nos.) BDS-001-87,
BDS-030/86 A, BDS-PC-002-/87 and BDS-005/87.

However, the Court of Appeals invalidated the extrajudicial


foreclosure of the mortgage on the ground that petitioner had
failed to furnish respondent personal notice of the sale contrary
to the stipulation in the real estate mortgage.

Petitioner, on the other hand, claims that under paragraph


12[39] of the real estate mortgage, personal notice of the
foreclosure sale is not a requirement to the validity of the
foreclosure sale.

A perusal of the records of the case shows that a notice of


sheriffs sale[40] was sent by registered mail to respondent and
received in due course.[41] Yet, respondent claims that it did
not receive the notice but only learned about it from petitioner.
In any event, paragraph 12 of the real estate mortgage
requires petitioner merely to furnish respondent with the notice
and does not oblige petitioner to ensure that respondent
actually receives the notice. On this score, the Court holds that
petitioner has performed its obligation under paragraph 12 of
the real estate mortgage.

As regards the issue of whether respondent may still question


the foreclosure sale, the RTC held that the sale was conducted
according to the legal procedure, to wit:

Plaintiff is estopped from questioning the foreclosure. The


plaintiff is guilty of laches and cannot at this point in time
question the foreclosure of the subject properties. Defendant
bank made demands against the plaintiff for the payment of
plaintiffs outstanding loans and advances with the defendant
as early as July 1997. Plaintiff acknowledged such outstanding
loans and advances to the defendant bank and committed to
liquidate the same. For failure of the plaintiff to pay its
obligations on maturity, defendant bank foreclosed the
mortgage on subject properties on January 5, 1988 the
certificate of sale was annotated on March 24, 1988 and there
being no redemption made by the plaintiff, title to said
properties were consolidated in the name of defendant in July
1989. Undeniably, subject foreclosure was done in accordance
with the prescribed rules as may be borne out by the exhibits
submitted to this Court which are Exhibit 33, a notice of
extrajudicial sale executed by the Sheriff of Antipolo, Exhibit 34
certificate posting of extrajudicial sale, Exhibit 35 return card
evidencing receipt by plaintiff of the notice of extrajudicial sale
and Exhibit 21 affidavit of publication.

The Court adopts and approves the aforequoted findings by


the RTC, the same being fully supported by the evidence on
record.

46
G.R. No. 173171 July 11, 2012 52135, of the Register of Deeds of DAGUPAN CITY, and more
particularly described as follows:
PHILIPPINE CHARITY SWEEPSTAKES OFFICE (PCSO),
Petitioner, xxxx
vs.
NEW DAGUPAN METRO GAS CORPORATION, PURITA E. 4. During the lifetime of this mortgage, the MORTGAGOR shall
PERALTA and PATRICIA P. GALANG, Respondents. not alienate, sell, or in any manner dispose of or encumber the
above-mentioned property, without the prior written consent of
DECISION the MORTGAGEE;

REYES, J.: xxxx

This is a petition for review under Rule 45 of the Rules of 15. Upon payment of the principal amount together with
Court, assailing the Decision1 dated September 29, 2005 and interest and other expenses legally incurred by the
Resolution2 dated June 9, 2006 of the Court of Appeals (CA) in MORTGAGEE, the above undertaking is considered
CA-G.R. CV No. 59590. terminated.6

In the assailed Decision, the CA Affirmed the Decision3 dated On July 31, 1990, Peralta sold, under a conditional sale, the
January 28, 1998 of the Regional Trial Court (RTC), Branch 42 subject property to New Dagupan, the conveyance to be
of Dagupan City in Civil Case No. 94-00200-D, ordering absolute upon the latter’s full payment of the price of
petitioner Philippine Charity Sweepstakes Office (PCSO) to P800,000.00. New Dagupan obliged to pay Peralta
surrender the owner’s duplicate of Transfer P200,000.00 upon the execution of the corresponding deed
and the balance of P600,000.00 by monthly instalments of
Certificate of Title (TCT) No. 52135 to the Register of Deeds of P70,000.00, the first instalment falling due on August 31, 1990.
Dagupan City for cancellation and issuance of a new certificate Peralta showed to New Dagupan a photocopy of TCT No.
of title in the name of respondent New Dagupan Metro Gas 52135, which bore no liens and encumbrances, and undertook
Corporation (New Dagupan). to deliver the owner’s duplicate within three (3) months from
the execution of the contract.7
In its Resolution4 dated June 9, 2006, the CA denied PCSO’s
motion for reconsideration. New Dagupan withheld payment of the last instalment, which
was intended to cover the payment of the capital gains tax, in
The Factual Antecedents view of Peralta’s failure to deliver the owner’s duplicate of TCT
No. 52135 and to execute a deed of absolute sale in its favor.
Respondent Purita E. Peralta (Peralta) is the registered owner Further, New Dagupan, through its President, Julian Ong Cuña
of a parcel of land located at Bonuan Blue Beach Subdivision, (Cuña), executed an affidavit of adverse claim, which was
Dagupan City under TCT No. 52135. On March 8, 1989, a real annotated on TCT No. 52135 on October 1, 1991 as Entry No.
estate mortgage was constituted over such property in favor of 14826.8
PCSO to secure the payment of the sweepstakes tickets
purchased by one of its provincial distributors, Patricia P. In view of Peralta’s continued failure to deliver a deed of
Galang (Galang). The salient provisions of the Deed of absolute sale and the owner’s duplicate of the title, New
Undertaking with First Real Estate Mortgage,5 where Galang, Dagupan filed a complaint for specific performance against her
PCSO and Peralta were respectively designated as "principal", with the RTC on February 28, 1992. New Dagupan’s complaint
"mortgagee" and "mortgagor", are as follows: was raffled to Branch 43 and docketed as Civil Case No. D-
10160.
WHEREAS, the PRINCIPAL acknowledges that he/she has an
outstanding and unpaid account with the MORTGAGEE in the On May 20, 1992, during the pendency of New Dagupan’s
amount of FOUR HUNDRED FIFTY THOUSAND complaint against Peralta, PCSO caused the registration of the
(P450,000.00), representing the balance of his/her mortgage.9
accountabilities for all draws;
On February 10, 1993, PCSO filed an application for the
WHEREAS, the PRINCIPAL agrees to liquidate or pay said extrajudicial foreclosure sale of the subject property in view of
account ten (10) days after each draw with interest at the rate Galang’s failure to fully pay the sweepstakes she purchased in
of 14% per annum. 1992.10 A public auction took place on June 15, 1993 where
PCSO was the highest bidder. A certificate of sale was
xxxx correspondingly issued to PCSO.11

The PRINCIPAL shall settle or pay his/her account of FOUR The certified true copy of TCT No. 52135 that New Dagupan
HUNDRED FIFTY THOUSAND PESOS (P450,000.00) PESOS obtained from the Register of Deeds of Dagupan City for its
with the MORTGAGEE, provided that the said balance shall use in Civil Case No. D-10160 reflected PCSO’s mortgage lien.
bear interest thereon at the rate of 14% per annum; New Dagupan, claiming that it is only then that it was informed
of the subject mortgage, sent a letter to PCSO on October 28,
To secure the faithful compliance and as security to the 1993, notifying the latter of its complaint against Peralta and its
obligation of the PRINCIPAL stated in the next preceding claim over the subject property and suggesting that PCSO
paragraph hereof, the MORTGAGOR hereby convey unto and intervene and participate in the case.
in favor of the MORTGAGEE, its successor and assigns by
way of its first real estate mortgage, a parcel/s of land together On January 21, 1994, the RTC Branch 43 rendered a Decision,
with all the improvements now or hereafter existing thereon approving the compromise agreement between Peralta and
located at BOQUIG, DAGUPAN CITY, covered by TCT No. New Dagupan. Some of the stipulations made are as follows:

47
3. For her failure to execute, sign and deliver a Deed of (d) PCSO no longer has any cause of action against them
Absolute Sale to plaintiff by way of transferring TCT No. 52135 following its decision to foreclose the subject mortgage.
in the name of the latter, defendant hereby waives and
quitclaims the remaining balance of the purchase price in the On March 6, 1996, Civil Case No. 94-00200-D was transferred
amount of P60,000.00 in favor of the plaintiff, it being to Branch 42, after the presiding judge of Branch 43 inhibited
understood that the said amount shall be treated as a penalty himself.
for such failure;
On January 28, 1998, the RTC Branch 42 rendered a
xxxx Decision18 in New Dagupan’s favor, the dispositive portion of
which states:
6. Upon the signing of this compromise agreement, possession
and ownership of the above described property, together with WHEREFORE, judgment is hereby rendered in favor of the
all the improvements existing thereon, are hereby vested petitioner and against the defendant, ordering PCSO to deliver
absolutely upon, and transferred to the plaintiff whom the the owner’s duplicate copy of TCT No. 52135 in its possession
defendant hereby declares and acknowledges to be the to the Registry of Deeds of Dagupan City for the purpose of
absolute owner thereof, now and hereafter; having the decision in favor of the petitioner annotated at the
back thereof. Should said defendant fail to deliver the said title
7. This compromise agreement shall be without prejudice to within 30 days from the date this decision becomes final and
whatever rights and remedies, if any, that the Philippine Charity executory, the said owner’s duplicate certificate of title is
Sweepstakes Office has against the herein defendant and hereby cancelled and the Register of Deeds can issue a new
Patricia P. Galang under the Deed of Undertaking adverted to one carrying all the encumbrances of the original owner’s
under par. 2(f) hereof.12 duplicate subject of this case. Further, the defendant is ordered
to pay to petitioner the sum of Ten Thousand Pesos
As the RTC Branch 43 Decision dated January 21, 1994 (P10,000.00) as attorney’s fees. It is also ordered to pay costs.
became final and executory, New Dagupan once again
demanded Peralta’s delivery of the owner’s duplicate of TCT SO ORDERED.19
No. 52135. Also, in a letter dated March 29, 1994, New
Dagupan made a similar demand from PCSO, who in The RTC Branch 42 ruled that New Dagupan is a buyer in
response, stated that it had already foreclosed the mortgage good faith, ratiocinating that:
on the subject property and it has in its name a certificate of
sale for being the highest bidder in the public auction that took In other words, the evidence of the petitioner would show that
place on June 15, 1993. although the Deed of Undertaking with First Real Estate
Mortgage was executed on March 8, 1989 its annotation was
Thus, on June 1, 1994, New Dagupan filed with the RTC a made long after the conditional sale in favor of the petitioner
petition against PCSO for the annulment of TCT No. 52135 or was executed and annotated at the back of the title in question.
surrender of the owner’s duplicate thereof.13 The petition was Because of the said exhibits, petitioner contended that it was a
docketed as Civil Case No. 94-00200-D and raffled to Branch buyer in good faith and for value.
43.
Defendant, to controvert the aforementioned evidence of the
In an Answer14 dated March 7, 1995, PCSO alleged that: (a) plaintiff, alleged that Exhibits C, C-1 to C-1-C was contrary to
New Dagupan was a buyer in bad faith; (b) New Dagupan and the testimony of Mr. Julian Ong Cuña to the effect that when
Peralta colluded to deprive PCSO of its rights under the subject defendants sold the property to petitioner only the xerox copy
mortgage; (c) New Dagupan is estopped from questioning the of the title was shown and petitioner should have verified the
superior right of PCSO to the subject property when it entered original as it was a buyer in bad faith. Defendant also alleged
into the compromise agreement subject of the RTC Branch 43 that the decision in Civil Case D-10160 dated January 21, 1994
Decision dated January 21, 1994; and (d) New Dagupan is would show that there was a collusion between the petitioner
bound by the foreclosure proceedings where PCSO obtained and the third-party defendants.
title to the subject property.
The Court cannot go along with the reasoning of the defendant
In a Motion for Leave to File Third-Party Complaint15 dated because what was shown to Mr. Cuña by the third-party
April 17, 1995, PCSO sought the inclusion of Peralta and defendants was Exhibit "C" which did not carry any
Galang who are allegedly indispensable parties. In its Third- encumbrance at the back of the subject title and the annotation
Party Complaint,16 PCSO reiterated its allegations in its made on May 20, 1992 in favor of the PCSO. Mr. Cuña verified
Answer dated March 7, 1995 and made the further claim that the title x x x but the encumbrance on the title was not still
the sale of the subject property to New Dagupan is void for there at [that] time. One thing more, there was nothing
being expressly prohibited under the Deed of Undertaking with indicated in the decision in Civil Case No. D-10160 that
First Real Estate Mortgage. petitioner already knew that there was already a mortgage in
favor of the PCSO. Worst, defendant did not even introduce
In their Answer to Third-Party Complaint with Counterclaims17 any oral evidence to show that petitioner was in bad faith
dated January 2, 1996, Peralta and Galang claimed that: (a) except the manifestations of counsel. Unfortunately,
the provision in the Deed of Undertaking with First Real Estate manifestations could not be considered evidence.
Mortgage prohibiting the sale of the subject property is void
under Article 2130 of the Civil Code; (b) PCSO’s failure to xxxx
intervene in Civil Case No. D-10160 despite notice barred it
from questioning the sale of the subject property to New Defendant should not be allowed to profit from its negligence of
Dagupan and the compromise agreement approved by the not registering the Deed of Undertaking with First Real Estate
RTC Branch 43; (c) it was due to PCSO’s very own neglect in Mortgage in its favor.20
registering its mortgage lien that preference is accorded to
New Dagupan’s rights as a buyer of the subject property; and

48
Also, the RTC Branch 42 ruled that the prohibition on the sale impliedly, that would indicate that Peralta agreed to let her
of the subject property is void. Specifically: property be burdened as long as the contract of undertaking
with real estate mortgage was not cancelled or revoked. x x x
Suffice it to say that there is no law prohibiting a mortgagor
from encumbering or alienating the property mortgaged. On the xxxx
contrary, there is a law prohibiting an agreement forbidding the
owner from alienating a mortgaged property. We are referring A perusal of the deed of undertaking between the PCSO and
to Article 2130 of the New Civil Code which provides as Peralta would reveal nothing but the undertaking of Peralta to
follows: guarantee the payment of the pre-existing obligation of Galang,
constituting the unpaid sweepstakes tickets issued to the latter
"A stipulation forbidding the owner from alienating the before the deed of undertaking was executed, with the PCSO
immovable mortgage shall be void."21 in the amount of P450,000.00. No words were added therein to
show the intention of the parties to regard it as a contract of
Moreover, the RTC Branch 42 ruled that PCSO had no right to continuing guaranty. In other jurisdictions, it has been held that
foreclose the subject mortgage as the land in question had the use of the particular words and expressions such as
already been disencumbered after Galang’s full payment of all payment of "any debt", "any indebtedness", "any deficiency", or
the sweepstakes tickets she purchased in 1989 and 1990. "any sum", or the guaranty of "any transaction" or money to be
furnished the principal debtor "at any time", or "on such time"
It should be recalled that Amparo Abrigo, OIC Chief of the that the principal debtor may require, have been construed to
Credit Accounts Division of the PCSO, admitted not only once indicate a continuing guaranty. Similar phrases or words of the
but twice that Patricia Galang has no more liability with the same import or tenor are not extant in the deed of undertaking.
PCSO for the years 1989 and 1990 x x x. Another witness, The deed of undertaking states:
Carlos Castillo who is the OIC of the Sales Department of the
PCSO, joined Amparo Abrigo in saying that Patricia Galang "WHEREAS, the PRINCIPAL acknowledges that he/she has
has already paid her liability with the PCSO for the years 1989 an outstanding and unpaid account with the MORTGAGEE in
and 1990 x x x. Thus, the undertaking was already discharged. the amount of FOUR HUNDRED FIFTY THOUSAND
Both of the said witnesses of the PCSO alleged that the (P450,000.00), representing the balance of his/her ticket
undertaking has been re-used by Patricia Galang for the years accountabilities for all draws."
1991 to 1992 yet there is no proof whatsoever showing that
Purita Peralta consented to the use of the undertaking by xxxx
Patricia Galang for 1991 to 1992. Incidentally, it is not far-
fetched to say that Purita Peralta might have thought that the Upon full payment of the principal obligation, which from the
undertaking was already discharged which was the reason she testimonies of the officers of the PCSO had been paid as early
executed the Deed of Conditional Sale x x x in favor of as 1990, the subsidiary contract of guaranty was automatically
petitioner in 1990. That being the case, the foreclosure sale in terminated. The parties have not executed another contract of
favor of the PCSO has no legal leg to stand as the Deed of guaranty to secure the subsequent obligations of Galang for
Undertaking with First Real Estate Mortgage has already been the tickets issued thereafter. It must be noted that a contract of
discharged before the foreclosure sale was conducted.22 guaranty is not presumed; it must be express and cannot
extend to more than what is stipulated therein.
According to the RTC Branch 42, the intent to use the subject
property as security for Galang’s purchases for the years after xxxx
1989, as PCSO claimed, is not clear from the Deed of
Undertaking with First Real Estate Mortgage: The arguments of PCSO fail to persuade us. The phrase "for
all draws" is limited to the draws covered by the original
Was it not provided in the deed that the undertaking would be transaction. In its pleadings, the PCSO asserted that the
for "all draws". That might be true but the terms of the Contract contract of undertaking was renewed and the collateral was re-
should be understood to mean only to cover the draws relative used by Galang to obtain again tickets from the PCSO after
to the current liabilities of Patricia Galang at the time of the she had settled her account under the original contract. From
execution of the undertaking in 1989. It could have not been such admission, it is thus clear that the contract is not in the
agreed upon that it should also cover her liability for 1991 up to nature of a continuing guaranty. For a contract of continuing
1992 because if that was the intention of the parties, the guaranty is not renewed as it is understood to be of a
undertaking should have so provided expressly. The term of continuing nature without the necessity of renewing the same
the undertaking with respect to the period was ambiguous but every time a new transaction contemplated under the original
any ambiguity in the Contract should be resolved against contract is entered into. x x x 24 (Citations omitted)
PCSO because the form used was a standard form of the
defendant and it appeared that it was its lawyers who prepared In this petition, PCSO claims that the CA erred in holding that
it, therefore, it was the latter which caused the ambiguity.23 the subject mortgage had been extinguished by Galang’s
payment of P450,000.00, representing the amount of the
PCSO’s appeal from the foregoing adverse decision was sweepstakes tickets she purchased in 1989. According to
dismissed. By way of its assailed decision, the CA did not PCSO, the said amount is actually the credit line granted to
agree with PCSO’s claim that the subject mortgage is in the Galang and the phrase "all draws" refers to her ticket
nature of a continuing guaranty, holding that Peralta’s purchases for subsequent years drawn against such credit line.
undertaking to secure Galang’s liability to PCSO is only for a Consequently, PCSO posits, the subject mortgage had not
period of one year and was extinguished when Peralta been extinguished by Peralta’s payment of her ticket
completed payment on the sweepstakes tickets she purchased purchases in 1989 and its coverage extends to her purchases
in 1989. after 1989, which she made against the credit line that was
granted to her. That when Galang failed to pay her ticket
The instant appeal must fail. There is nothing in the Deed of purchases in 1992, PCSO’s right to foreclose the subject
Undertaking with First Real Estate Mortgage, expressly or mortgage arose.

49
PCSO also maintains that its rights over the subject property b. There is nothing in the Deed of Undertaking with First Real
are superior to those of New Dagupan. Considering that the Estate Mortgage that would indicate that it is a continuing
contract between New Dagupan is a conditional sale, there security or that there is an intent to secure Galang’s future
was no conveyance of ownership at the time of the execution debts;
thereof on July 31, 1989. It was only on January 21, 1994, or
when the RTC Branch 43 approved the compromise c. Assuming the contrary, New Dagupan is not bound by
agreement, that a supposed transfer of title between Peralta PCSO’s mortgage lien and was a purchaser in good faith and
and New Dagupan took place. However, since PCSO had for value; and
earlier foreclosed the subject mortgage and obtained title to the
subject property as evidenced by the certificate of sale dated d. While the subject mortgage predated the sale of the subject
June 15, 1993, Peralta had nothing to cede or assign to New property to New Dagupan, the absence of any evidence that
Dagupan. the latter had knowledge of PCSO’s mortgage lien at the time
of the sale and its prior registration of an adverse claim created
PCSO likewise attributes bad faith to New Dagupan, claiming a preference in its favor.
that Peralta’s presentation of a mere photocopy of TCT No.
52135, albeit without any annotation of a lien or encumbrance, I
sufficed to raise reasonable suspicions against Peralta’s claim
of a clean title and should have prompted it to conduct an As a general rule, a mortgage liability is usually limited to the
investigation that went beyond the face of TCT No. 52135. amount mentioned in the contract. However, the amounts
named as consideration in a contract of mortgage do not limit
PCSO even assails the validity of the subject sale for being the amount for which the mortgage may stand as security if
against the prohibition contained in the Deed of Undertaking from the four corners of the instrument the intent to secure
with First Real Estate Mortgage. future and other indebtedness can be gathered.26

New Dagupan, in its Comment,25 avers that it was a purchaser Alternatively, while a real estate mortgage may exceptionally
in good faith and it has a superior right to the subject property, secure future loans or advancements, these future debts must
considering that PCSO’s mortgage lien was annotated only on be specifically described in the mortgage contract. An
May 20, 1992 or long after the execution of the conditional sale obligation is not secured by a mortgage unless it comes fairly
on July 31, 1990 and the annotation of New Dagupan’s within the terms of the mortgage contract.27
adverse claim on October 1, 1991. While the subject mortgage
antedated the subject sale, PCSO was already aware of the The stipulation extending the coverage of a mortgage to
latter at the time of its belated registration of its mortgage lien. advances or loans other than those already obtained or
PCSO’s registration was therefore in bad faith, rendering its specified in the contract is valid and has been commonly
claim over the subject property defeasible by New Dagupan’s referred to as a "blanket mortgage" or "dragnet" clause. In
adverse claim. Prudential Bank v. Alviar,28 this Court elucidated on the nature
and purpose of such a clause as follows:
New Dagupan also claims that the subject property had
already been discharged from the mortgage, hence, PCSO had A "blanket mortgage clause," also known as a "dragnet clause"
nothing to foreclose when it filed its application for extra-judicial in American jurisprudence, is one which is specifically phrased
foreclosure on February 10, 1993. The subject mortgage was to subsume all debts of past or future origins. Such clauses are
intended to secure Galang’s ticket purchases that were "carefully scrutinized and strictly construed." Mortgages of this
outstanding at the time of the execution of the same, the character enable the parties to provide continuous dealings,
amount of which has been specified to be P450,000.00 and the nature or extent of which may not be known or anticipated
does not extend to Galang’s future purchases. Thus, upon at the time, and they avoid the expense and inconvenience of
Galang’s full payment of P450,000.00, which PCSO admits, executing a new security on each new transaction. A "dragnet
the subject mortgage had been automatically terminated as clause" operates as a convenience and accommodation to the
expressly provided under Section 15 of the Deed of borrowers as it makes available additional funds without their
Undertaking with First Real Estate Mortgage quoted above. having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal
Issue services, recording fees, et cetera. x x x.29 (Citations omitted)

The rise and fall of this recourse is dependent on the resolution A mortgage that provides for a dragnet clause is in the nature
of the issue who between New Dagupan and PCSO has a of a continuing guaranty and constitutes an exception to the
better right to the property in question. rule than an action to foreclose a mortgage must be limited to
the amount mentioned in the mortgage contract. Its validity is
Our Ruling anchored on Article 2053 of the Civil Code and is not limited to
a single transaction, but contemplates a future course of
PCSO is undeterred by the denial of its appeal to the CA and dealing, covering a series of transactions, generally for an
now seeks to convince this Court that it has a superior right indefinite time or until revoked. It is prospective in its operation
over the subject property. However, PCSO’s resolve fails to and is generally intended to provide security with respect to
move this Court and the ineluctability of the denial of this future transactions within certain limits, and contemplates a
petition is owing to the following: succession of liabilities, for which, as they accrue, the
guarantor becomes liable. In other words, a continuing
a. At the time of PCSO’s registration of its mortgage lien on guaranty is one that covers all transactions, including those
May 20, 1992, the subject mortgage had already been arising in the future, which are within the description or
discharged by Galang’s full payment of P450,000.00, the contemplation of the contract of guaranty, until the expiration or
amount specified in the Deed of Undertaking with First Real termination thereof.30
Estate Mortgage;

50
In this case, PCSO claims the subject mortgage is a continuing 15. Upon payment of the principal amount together with
guaranty. According to PCSO, the intent was to secure interest and other expenses legally incurred by the
Galang’s ticket purchases other than those outstanding at the MORTGAGEE, the above-undertaking is considered
time of the execution of the Deed of Undertaking with First terminated.33
Real Estate Mortgage on March 8, 1989 such that it can
foreclose the subject mortgage for Galang’s non-payment of Section 6234 of Presidential Decree (P.D.) No. 1529 appears
her ticket purchases in 1992. PCSO does not deny and even to require the execution of an instrument in order for a
admits that Galang had already settled the amount of mortgage to be cancelled or discharged. However, this rule
P450,000.00. However, PCSO refuses to concede that the presupposes that there has been a prior registration of the
subject mortgage had already been discharged, claiming that mortgage lien prior to its discharge. In this case, the subject
Galang had unpaid ticket purchases in 1992 and these are mortgage had already been cancelled or terminated upon
likewise secured as evidenced by the following clause in the Galang’s full payment before PCSO availed of registration in
Deed of Undertaking with First Real Estate Mortgage: 1992. As the subject mortgage was not annotated on TCT No.
52135 at the time it was terminated, there was no need for
WHEREAS, the PRINCIPAL agrees to liquidate or pay said Peralta to secure a deed of cancellation in order for such
account ten (10) days after each draw with interest at the rate discharge to be fully effective and duly reflected on the face of
of 14% per annum;31 her title.

This Court has to disagree with PCSO in view of the principles Therefore, since the subject mortgage is not in the nature of a
quoted above. A reading of the other pertinent clauses of the continuing guaranty and given the automatic termination
subject mortgage, not only of the provision invoked by PCSO, thereof, PCSO cannot claim that Galang’s ticket purchases in
does not show that the security provided in the subject 1992 are also secured. From the time the amount of
mortgage is continuing in nature. That the subject mortgage P450,000.00 was fully settled, the subject mortgage had
shall only secure Galang’s liability in the amount of already been cancelled such that Galang’s subsequent ticket
P450,000.00 is evident from the following: purchases are unsecured. Simply put, PCSO had nothing to
register, much less, foreclose.
WHEREAS, the PRINCIPAL acknowledges that he/she has an
outstanding and unpaid account with the MORTGAGEE in the Consequently, PCSO’s registration of its non-existent
amount of FOUR HUNDRED FIFTY THOUSAND mortgage lien and subsequent foreclosure of a mortgage that
(P450,000.00), representing the balance of his/her ticket was no longer extant cannot defeat New Dagupan’s title over
accountabilities for all draws; the subject property.

xxxx II

The PRINCIPAL shall settle or pay his/her account of FOUR Sections 51 and 53 of P.D. No. 1529 provide:
HUNDRED FIFTY THOUSAND PESOS (P450,000.00) PESOS
with the MORTGAGEE, provided that the said balance shall Section 51. Conveyance and other dealings by registered
bear interest thereon at the rate of 14% per annum; owner. An owner of registered land may convey, mortgage,
lease, charge or otherwise deal with the same in accordance
To secure the faithful compliance and as security to the with existing laws. He may use such forms of deeds,
obligation of the PRINCIPAL stated in the next preceding mortgages, leases or other voluntary instrument, except a will
paragraph hereof, the MORTGAGOR hereby convey unto and purporting to convey or affect registered land, but shall operate
in favor of the MORTGAGEE, its successor and assigns by only as a contract between the parties and as evidence of
way of its first real estate mortgage, a parcel/s of land together authority to the Register of Deeds to make registration.
with all the improvements now or hereafter existing thereon,
located at BOQUIG, DAGUPAN CITY, covered by TCT No. The act of registration shall be the operative act to convey or
52135, of the Register of Deeds of DAGUPAN CITY, and more affect the land insofar as third persons are concerned, and in
particularly described as follows:32 all cases under this Decree, the registration shall be made in
the office of the Register of Deeds for the province or city
As the CA correctly observed, the use of the terms where the land lies.
"outstanding" and "unpaid" militates against PCSO’s claim that
future ticket purchases are likewise secured. That there is a Section 52. Constructive notice upon registration. Every
seeming ambiguity between the provision relied upon by PCSO conveyance, mortgage, lease, lien, attachment, order,
containing the phrase "after each draw" and the other judgment, instrument or entry affecting registered land shall, if
provisions, which mention with particularity the amount of registered, filed or entered in the office of the Register of
P450,000.00 as Galang’s unpaid and outstanding account and Deeds for the province or city where the land to which it relates
secured by the subject mortgage, should be construed against lies, be constructive notice to all persons from the time of such
PCSO. The subject mortgage is a contract of adhesion as it registering, filing or entering.
was prepared solely by PCSO and the only participation of
Galang and Peralta was the act of affixing their signatures On the other hand, Article 2125 of the Civil Code states:
thereto.
Article 2125. In addition to the requisites stated in Article 2085,
Considering that the debt secured had already been fully paid, it is indispensable, in order that a mortgage may be validly
the subject mortgage had already been discharged and there is constituted, that the document in which it appears be recorded
no necessity for any act or document to be executed for the in the Registry of Property. If the instrument is not recorded,
purpose. As provided in the Deed of Undertaking with First the mortgage is nevertheless binding between the parties.
Real Estate Mortgage:

51
The persons in whose favor the law establishes a mortgage good faith and for value and is not bound by PCSO’s mortgage
have no other right than to demand the execution and the lien.
recording of the document in which the mortgage is formalized.
A purchaser in good faith and for value is one who buys
Construing the foregoing conjunctively, as to third persons, a property of another, without notice that some other person has
property registered under the Torrens system is, for all legal a right to, or interest in, such property, and pays a full and fair
purposes, unencumbered or remains to be the property of the price for the same, at the time of such purchase, or before he
person in whose name it is registered, notwithstanding the has notice of the claim or interest of some other person in the
execution of any conveyance, mortgage, lease, lien, order or property.39 Good faith is the opposite of fraud and of bad faith,
judgment unless the corresponding deed is registered. and its non-existence must be established by competent
proof.40 Sans such proof, a buyer is deemed to be in good
The law does not require a person dealing with the owner of faith and his interest in the subject property will not be
registered land to go beyond the certificate of title as he may disturbed. A purchaser of a registered property can rely on the
rely on the notices of the encumbrances on the property guarantee afforded by pertinent laws on registration that he
annotated on the certificate of title or absence of any can take and hold it free from any and all prior liens and claims
annotation.35 Registration affords legal protection such that except those set forth in or preserved against the certificate of
the claim of an innocent purchaser for value is recognized as title.41
valid despite a defect in the title of the vendor.36
This Court cannot give credence to PCSO’s claim to the
In Cruz v. Bancom Finance Corporation,37 the foregoing contrary. PCSO did not present evidence, showing that New
principle was applied as follows: Dagupan had knowledge of the mortgage despite its being
unregistered at the time the subject sale was entered into.
Second, respondent was already aware that there was an Peralta, in the compromise agreement, even admitted that she
adverse claim and notice of lis pendens annotated on the did not inform New Dagupan of the subject mortgage.42
Certificate of Title when it registered the mortgage on March PCSO’s only basis for claiming that New Dagupan was a buyer
14, 1980. Unless duly registered, a mortgage does not affect in bad faith was the latter’s reliance on a mere photocopy of
third parties like herein petitioners, as provided under Section TCT No. 52135. However, apart from the fact that the facsimile
51 of PD NO. 1529, which we reproduce hereunder: bore no annotation of a lien or encumbrance, PCSO failed to
refute the testimony of Cuña that his verification of TCT No.
xxxx 52135 with the Register of Deeds of Dagupan City confirmed
Peralta’s claim of a clean title.
True, registration is not the operative act for a mortgage to be
binding between the parties. But to third persons, it is Since PCSO had notice of New Dagupan’s adverse claim prior
indispensible. In the present case, the adverse claim and the to the registration of its mortgage lien, it is bound thereby and
notice of lis pendens were annotated on the title on October thus legally compelled to respect the proceedings on the
30, 1979 and December 10, 1979, respectively; the real estate validity of such adverse claim. It is therefore of no moment if
mortgage over the subject property was registered by PCSO’s foreclosure of the subject mortgage and purchase of
respondent only on March 14, 1980. Settled in this jurisdiction the subject property at the auction sale took place prior to New
is the doctrine that a prior registration of a lien creates a Dagupan’s acquisition of title as decreed in the Decision dated
preference. Even a subsequent registration of the prior January 21, 1994 of RTC Branch 43. The effects of a
mortgage will not diminish this preference, which retroacts to foreclosure sale retroact to the date the mortgage was
the date of the annotation of the notice of lis pendens and the registered.43 Hence, while PCSO may be deemed to have
adverse claim. Thus, respondent’s failure to register the real acquired title over the subject property on May 20, 1992, such
estate mortgage prior to these annotations, resulted in the title is rendered inferior by New Dagupan’s adverse claim, the
mortgage being binding only between it and the mortgagor, validity of which was confirmed per the Decision dated January
Sulit. Petitioners, being third parties to the mortgage, were not 21, 1994 of RTC Branch 43.
bound by it. Contrary to respondent’s claim that petitioners
were in bad faith because they already had knowledge of the Otherwise, if PCSO’s mortgage lien is allowed to prevail by the
existence of the mortgage in favor of respondent when they mere expediency of registration over an adverse claim that was
caused the aforesaid annotations, petitioner Edilberto Cruz registered ahead of time, the object of an adverse claim – to
said that they only knew of this mortgage when respondent apprise third persons that any transaction regarding the
intervened in the RTC proceedings.38 (Citations omitted) disputed property is subject to the outcome of the dispute –
would be rendered naught. A different conclusion would
It is undisputed that it was only on May 20, 1992 that PCSO remove the primary motivation for the public to rely on and
registered its mortgage lien. By that time, New Dagupan had respect the Torrens system of registration. Such would be
already purchased the subject property, albeit under a inconsistent with the well-settled, even axiomatic, rule that a
conditional sale. In fact, PCSO’s mortgage lien was yet to be person dealing with registered property need not go beyond
registered at the time New Dagupan filed its adverse claim on the title and is not required to explore outside the four (4)
October 1, 1991 and its complaint against Peralta for the corners thereof in search for any hidden defect or inchoate
surrender of the owner’s duplicate of TCT No. 52135 on right that may turn out to be superior.
February 28, 1992. It was only during the pendency of Civil
Case No. D-10160, or sometime in 1993, that New Dagupan Worthy of extrapolation is the fact that there is no conflict
was informed of PCSO’s mortgage lien. On the other hand, between the disposition of this case and Garbin v. CA44 where
PCSO was already charged with knowledge of New Dagupan’s this Court decided the controversy between a buyer with an
adverse claim at the time of the annotation of the subject earlier registered adverse claim and a subsequent buyer, who
mortgage. PCSO’s attempt to conceal these damning facts is is charged with notice of such adverse claim at the time of the
palpable. However, they are patent from the records such that registration of her title, in favor of the latter. As to why the
there is no gainsaying that New Dagupan is a purchaser in adverse claim cannot prevail against the rights of the later

52
buyer notwithstanding its prior registration was discussed by
this Court in this wise: At any rate, in Sajonas v.CA,47 this Court clarified that there is
no necessity for a prior judicial determination of the validity of
It is undisputed that the adverse claim of private respondents an adverse claim for it to be considered a flaw in the vendor’s
was registered pursuant to Sec. 110 of Act No. 496, the same title as that would be repugnant to the very purpose thereof.48
having been accomplished by the filing of a sworn statement
with the Register of Deeds of the province where the property WHEREFORE, premises considered, the petition is
was located. However, what was registered was merely the DISMISSED and the Decision dated September 29, 2005 and
adverse claim and not the Deed of Sale, which supposedly Resolution dated June9, 2006 of the Court of Appeals in CA-
conveyed the northern half portion of the subject property. G.R. CV No. 59590 are hereby AFFIRMED.
Therefore, there is still need to resolve the validity of the
adverse claim in separate proceedings, as there is an absence SO ORDERED.
of registration of the actual conveyance of the portion of land
herein claimed by private respondents.

From the provisions of the law, it is clear that mere registration


of an adverse claim does not make such claim valid, nor is it
permanent in character. More importantly, such registration
does not confer instant title of ownership since judicial
determination on the issue of the ownership is still
necessary.45 (Citation omitted)

Apart from the foregoing, the more important consideration was


the improper resort to an adverse claim.1âwphi1 In L.P. Leviste
& Co. v. Noblejas,46 this Court emphasized that the availability
of the special remedy of an adverse claim is subject to the
absence of any other statutory provision for the registration of
the claimant’s alleged right or interest in the property. That if
the claimant’s interest is based on a perfected contract of sale
or any voluntary instrument executed by the registered owner
of the land, the procedure that should be followed is that
prescribed under Section 51 in relation to Section 52 of P.D.
No. 1529. Specifically, the owner’s duplicate certificate must be
presented to the Register of Deeds for the inscription of the
corresponding memorandum thereon and in the entry day
book. It is only when the owner refuses or fails to surrender the
duplicate certificate for annotation that a statement setting forth
an adverse claim may be filed with the Register of Deeds.
Otherwise, the adverse claim filed will not have the effect of a
conveyance of any right or interest on the disputed property
that could prejudice the rights that have been subsequently
acquired by third persons.

What transpired in Gabin is similar to that in Leviste. In Gabin,


the basis of the claim on the property is a deed of absolute
sale. In Leviste, what is involved is a contract to sell. Both are
voluntary instruments that should have been registered in
accordance with Sections 51 and 52 of P.D. No. 1529 as there
was no showing of an inability to present the owner’s duplicate
of title.

It is patent that the contrary appears in this case. Indeed, New


Dagupan’s claim over the subject property is based on a
conditional sale, which is likewise a voluntary instrument.
However, New Dagupan’s use of the adverse claim to protect
its rights is far from being incongruent in view of the undisputed
fact that Peralta failed to surrender the owner’s duplicate of
TCT No. 52135 despite demands.

Moreover, while the validity of the adverse claim in Gabin is not


established as there was no separate proceeding instituted that
would determine the existence and due execution of the deed
of sale upon which it is founded, the same does not obtain in
this case. The existence and due execution of the conditional
sale and Peralta’s absolute and complete cession of her title
over the subject property to New Dagupan are undisputed.
These are matters covered by the Decision dated January 21,
1994 of RTC Branch 43, which had long become final and
executory.

53
PRUDENTIAL BANK, G.R. No. 150197 parcels of land which are described in the list inserted on the
back of this document, and/or appended hereto, together with
Petitioner, all the buildings and improvements now existing or which may
hereafter be erected or constructed thereon, of which the
Present: Mortgagor declares that he/it is the absolute owner free from all
liens and incumbrances. . . .[4]

On 22 October 1976, Don Alviar executed another promissory


PUNO, J., note, PN BD#76/C-345 for P2,640,000.00, secured by D/A
SFDX #129, signifying that the loan was secured by a hold-out
Chairman, on the mortgagors foreign currency savings account with the
bank under Account No. 129, and that the mortgagors
- versus - AUSTRIA-MARTINEZ, passbook is to be surrendered to the bank until the amount
secured by the hold-out is settled.[5]
CALLEJO, SR.,
On 27 December 1976, respondent spouses executed for
TINGA, and Donalco Trading, Inc., of which the husband and wife were
President and Chairman of the Board and Vice President,[6]
CHICO-NAZARIO, JJ. respectively, PN BD#76/C-430 covering P545,000.000. As
provided in the note, the loan is secured by Clean-Phase out
DON A. ALVIAR and GEORGIA TOD CA 3923, which means that the temporary overdraft
incurred by Donalco Trading, Inc. with petitioner is to be
B. ALVIAR, converted into an ordinary loan in compliance with a Central
Bank circular directing the discontinuance of overdrafts.[7]
Respondents. Promulgated:
On 16 March 1977, petitioner wrote Donalco Trading, Inc.,
informing the latter of its approval of a straight loan of
July 28, 2005 P545,000.00, the proceeds of which shall be used to liquidate
the outstanding loan of P545,000.00 TOD. The letter likewise
x-------------------------------------------------------------------x mentioned that the securities for the loan were the deed of
assignment on two promissory notes executed by Bancom
DECISION Realty Corporation with Deed of Guarantee in favor of A.U.
TINGA, J.: Valencia and Co. and the chattel mortgage on various heavy
and transportation equipment.[8]
Before us is a petition for review on certiorari under Rule 45 of
the Rules of Court. Petitioner Prudential Bank seeks the On 06 March 1979, respondents paid petitioner
reversal of the Decision[1] of the Court of Appeals dated 27 P2,000,000.00, to be applied to the obligations of G.B. Alviar
September 2001 in CA-G.R. CV No. 59543 affirming the Realty and Development, Inc. and for the release of the real
Decision of the Regional Trial Court (RTC) of Pasig City, estate mortgage for the P450,000.00 loan covering the two (2)
Branch 160, in favor of respondents. lots located at Vam Buren and Madison Streets, North
Greenhills, San Juan, Metro Manila. The payment was
Respondents, spouses Don A. Alviar and Georgia B. Alviar, acknowledged by petitioner who accordingly released the
are the registered owners of a parcel of land in San Juan, mortgage over the two properties.[9]
Metro Manila, covered by Transfer Certificate of Title (TCT) No.
438157 of the Register of Deeds of Rizal. On 10 July 1975, On 15 January 1980, petitioner moved for the extrajudicial
they executed a deed of real estate mortgage in favor of foreclosure of the mortgage on the property covered by TCT
petitioner Prudential Bank to secure the payment of a loan No. 438157. Per petitioners computation, respondents had the
worth P250,000.00.[2] This mortgage was annotated at the total obligation of P1,608,256.68, covering the three (3)
back of TCT No. 438157. On 4 August 1975, respondents promissory notes, to wit: PN BD#75/C-252 for P250,000.00,
executed the corresponding promissory note, PN BD#75/C- PN BD#76/C-345 for P382,680.83, and PN BD#76/C-340 for
252, covering the said loan, which provides that the loan P545,000.00, plus assessed past due interests and penalty
matured on 4 August 1976 at an interest rate of 12% per charges. The public auction sale of the mortgaged property
annum with a 2% service charge, and that the note is secured was set on 15 January 1980.[10]
by a real estate mortgage as aforementioned.[3] Significantly,
the real estate mortgage contained the following clause: Respondents filed a complaint for damages with a prayer for
That for and in consideration of certain loans, overdraft and the issuance of a writ of preliminary injunction with the RTC of
other credit accommodations obtained from the Mortgagee by Pasig,[11] claiming that they have paid their principal loan
the Mortgagor and/or ________________ hereinafter referred secured by the mortgaged property, and thus the mortgage
to, irrespective of number, as DEBTOR, and to secure the should not be foreclosed. For its part, petitioner averred that
payment of the same and those that may hereafter be the payment of P2,000,000.00 made on 6 March 1979 was not
obtained, the principal or all of which is hereby fixed at Two a payment made by respondents, but by G.B. Alviar Realty and
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Development Inc., which has a separate loan with the bank
Currency, as well as those that the Mortgagee may extend to secured by a separate mortgage.[12]
the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee, On 15 March 1994, the trial court dismissed the complaint and
whether direct or indirect, principal or secondary as appears in ordered the Sheriff to proceed with the extra-judicial
the accounts, books and records of the Mortgagee, the foreclosure.[13] Respondents sought reconsideration of the
Mortgagor does hereby transfer and convey by way of decision.[14] On 24 August 1994, the trial court issued an
mortgage unto the Mortgagee, its successors or assigns, the Order setting aside its earlier decision and awarded attorneys

54
fees to respondents.[15] It found that only the P250,000.00 Banking Corporation v. Court of Appeals,[26] all of which
loan is secured by the mortgage on the land covered by TCT upheld the validity of mortgage contracts securing future
No. 438157. On the other hand, the P382,680.83 loan is advancements.
secured by the foreign currency deposit account of Don A.
Alviar, while the P545,000.00 obligation was an unsecured Anent the Court of Appeals conclusion that the parties did not
loan, being a mere conversion of the temporary overdraft of intend to include PN BD#76/C-345 in the real estate mortgage
Donalco Trading, Inc. in compliance with a Central Bank because the same was specifically secured by a foreign
circular. According to the trial court, the blanket mortgage currency deposit account, petitioner states that there is no law
clause relied upon by petitioner applies only to future loans or rule which prohibits an obligation from being covered by
obtained by the mortgagors, and not by parties other than the more than one security.[27] Besides, respondents even
said mortgagors, such as Donalco Trading, Inc., for which continued to withdraw from the same foreign currency account
respondents merely signed as officers thereof. even while the promissory note was still outstanding,
strengthening the belief that it was the real estate mortgage
On appeal to the Court of Appeals, petitioner made the that principally secured all of respondents promissory
following assignment of errors: notes.[28] As for PN BD#76/C-345, which the Court of Appeals
found to be exclusively secured by the Clean-Phase out TOD
I. The trial court erred in holding that the real estate 3923, petitioner posits that such security is not exclusive, as
mortgage covers only the promissory note BD#75/C-252 for the dragnet clause of the real estate mortgage covers all the
the sum of P250,000.00. obligations of the respondents.[29]

II. The trial court erred in holding that the promissory Moreover, petitioner insists that respondents attempt to evade
note BD#76/C-345 for P2,640,000.00 (P382,680.83 foreclosure by the expediency of stating that the promissory
outstanding principal balance) is not covered by the real estate notes were executed by them not in their personal capacity but
mortgage by expressed agreement. as corporate officers. It claims that PN BD#76/C-430 was in
fact for home construction and personal consumption of
III. The trial court erred in holding that Promissory Note respondents. Thus, it states that there is a need to pierce the
BD#76/C-430 for P545,000.00 is not covered by the real estate veil of corporate fiction.[30]
mortgage.
Finally, petitioner alleges that the mortgage contract was
IV. The trial court erred in holding that the real estate executed by respondents with knowledge and understanding of
mortgage is a contract of adhesion. the dragnet clause, being highly educated individuals,
seasoned businesspersons, and political personalities.[31]
V. The trial court erred in holding defendant-appellant There was no oppressive use of superior bargaining power in
liable to pay plaintiffs-appellees attorneys fees for the execution of the promissory notes and the real estate
P20,000.00.[16] mortgage.[32]

For their part, respondents claim that the dragnet clause


The Court of Appeals affirmed the Order of the trial court but cannot be applied to the subsequent loans extended to Don
deleted the award of attorneys fees.[17] It ruled that while a Alviar and Donalco Trading, Inc. since these loans are covered
continuing loan or credit accommodation based on only one by separate promissory notes that expressly provide for a
security or mortgage is a common practice in financial and different form of security.[33] They reiterate the holding of the
commercial institutions, such agreement must be clear and trial court that the blanket mortgage clause would apply only to
unequivocal. In the instant case, the parties executed different loans obtained jointly by respondents, and not to loans
promissory notes agreeing to a particular security for each obtained by other parties.[34] Respondents also place a
loan. Thus, the appellate court ruled that the extrajudicial premium on the finding of the lower courts that the real estate
foreclosure sale of the property for the three loans is mortgage clause is a contract of adhesion and must be strictly
improper.[18] construed against petitioner bank.[35]

The Court of Appeals, however, found that respondents have The instant case thus poses the following issues pertaining to:
not yet paid the P250,000.00 covered by PN BD#75/C-252 (i) the validity of the blanket mortgage clause or the dragnet
since the payment of P2,000,000.00 adverted to by clause; (ii) the coverage of the blanket mortgage clause; and
respondents was issued for the obligations of G.B. Alviar consequently, (iii) the propriety of seeking foreclosure of the
Realty and Development, Inc.[19] mortgaged property for the non-payment of the three loans.

Aggrieved, petitioner filed the instant petition, reiterating the At this point, it is important to note that one of the loans sought
assignment of errors raised in the Court of Appeals as grounds to be included in the blanket mortgage clause was obtained by
herein. respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-
430 was executed by respondents on behalf of Donalco
Petitioner maintains that the blanket mortgage clause or the Trading, Inc. and not in their personal capacity. Petitioner asks
dragnet clause in the real estate mortgage expressly covers the Court to pierce the veil of corporate fiction and hold
not only the P250,000.00 under PN BD#75/C-252, but also the respondents liable even for obligations they incurred for the
two other promissory notes included in the application for corporation. The mortgage contract states that the mortgage
extrajudicial foreclosure of real estate mortgage.[20] Thus, it covers as well as those that the Mortgagee may extend to the
claims that it acted within the terms of the mortgage contract Mortgagor and/or DEBTOR, including interest and expenses or
when it filed its petition for extrajudicial foreclosure of real any other obligation owing to the Mortgagee, whether direct or
estate mortgage. Petitioner relies on the cases of Lim Julian v. indirect, principal or secondary. Well-settled is the rule that a
Lutero,[21] Tad-Y v. Philippine National Bank,[22] Quimson v. corporation has a personality separate and distinct from that of
Philippine National Bank,[23] C & C Commercial v. Philippine its officers and stockholders. Officers of a corporation are not
National Bank,[24] Mojica v. Court of Appeals,[25] and China personally liable for their acts as such officers unless it is

55
shown that they have exceeded their authority.[36] However, Thus, contrary to the finding of the Court of Appeals, petitioner
the legal fiction that a corporation has a personality separate and respondents intended the real estate mortgage to secure
and distinct from stockholders and members may be not only the P250,000.00 loan from the petitioner, but also
disregarded if it is used as a means to perpetuate fraud or an future credit facilities and advancements that may be obtained
illegal act or as a vehicle for the evasion of an existing by the respondents. The terms of the above provision being
obligation, the circumvention of statutes, or to confuse clear and unambiguous, there is neither need nor excuse to
legitimate issues.[37] PN BD#76/C-430, being an obligation of construe it otherwise.
Donalco Trading, Inc., and not of the respondents, is not within
the contemplation of the blanket mortgage clause. Moreover, The cases cited by petitioner, while affirming the validity of
petitioner is unable to show that respondents are hiding behind dragnet clauses or blanket mortgage clauses, are of a different
the corporate structure to evade payment of their obligations. factual milieu from the instant case. There, the subsequent
Save for the notation in the promissory note that the loan was loans were not covered by any security other than that for the
for house construction and personal consumption, there is no mortgage deeds which uniformly contained the dragnet clause.
proof showing that the loan was indeed for respondents
personal consumption. Besides, petitioner agreed to the terms In the case at bar, the subsequent loans obtained by
of the promissory note. If respondents were indeed the real respondents were secured by other securities, thus: PN
parties to the loan, petitioner, a big, well-established institution BD#76/C-345, executed by Don Alviar was secured by a hold-
of long standing that it is, should have insisted that the note be out on his foreign currency savings account, while PN
made in the name of respondents themselves, and not to BD#76/C-430, executed by respondents for Donalco Trading,
Donalco Trading Inc., and that they sign the note in their Inc., was secured by Clean-Phase out TOD CA 3923 and
personal capacity and not as officers of the corporation. eventually by a deed of assignment on two promissory notes
executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co., and by a chattel
Now on the main issues. mortgage on various heavy and transportation equipment. The
matter of PN BD#76/C-430 has already been discussed. Thus,
A blanket mortgage clause, also known as a dragnet clause in the critical issue is whether the blanket mortgage clause
American jurisprudence, is one which is specifically phrased to applies even to subsequent advancements for which other
subsume all debts of past or future origins. Such clauses are securities were intended, or particularly, to PN BD#76/C-345.
carefully scrutinized and strictly construed.[38] Mortgages of
this character enable the parties to provide continuous Under American jurisprudence, two schools of thought have
dealings, the nature or extent of which may not be known or emerged on this question. One school advocates that a
anticipated at the time, and they avoid the expense and dragnet clause so worded as to be broad enough to cover all
inconvenience of executing a new security on each new other debts in addition to the one specifically secured will be
transaction.[39] A dragnet clause operates as a convenience construed to cover a different debt, although such other debt is
and accommodation to the borrowers as it makes available secured by another mortgage.[44] The contrary thinking
additional funds without their having to execute additional maintains that a mortgage with such a clause will not secure a
security documents, thereby saving time, travel, loan closing note that expresses on its face that it is otherwise secured as
costs, costs of extra legal services, recording fees, et to its entirety, at least to anything other than a deficiency after
cetera.[40] Indeed, it has been settled in a long line of exhausting the security specified therein,[45] such deficiency
decisions that mortgages given to secure future advancements being an indebtedness within the meaning of the mortgage, in
are valid and legal contracts,[41] and the amounts named as the absence of a special contract excluding it from the
consideration in said contracts do not limit the amount for arrangement.[46]
which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and other The latter school represents the better position. The parties
indebtedness can be gathered.[42] having conformed to the blanket mortgage clause or dragnet
clause, it is reasonable to conclude that they also agreed to an
The blanket mortgage clause in the instant case states: implied understanding that subsequent loans need not be
secured by other securities, as the subsequent loans will be
That for and in consideration of certain loans, overdraft and secured by the first mortgage. In other words, the sufficiency of
other credit accommodations obtained from the Mortgagee by the first security is a corollary component of the dragnet clause.
the Mortgagor and/or ________________ hereinafter referred But of course, there is no prohibition, as in the mortgage
to, irrespective of number, as DEBTOR, and to secure the contract in issue, against contractually requiring other
payment of the same and those that may hereafter be securities for the subsequent loans. Thus, when the mortgagor
obtained, the principal or all of which is hereby fixed at Two takes another loan for which another security was given it
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine could not be inferred that such loan was made in reliance
Currency, as well as those that the Mortgagee may extend to solely on the original security with the dragnet clause, but
the Mortgagor and/or DEBTOR, including interest and rather, on the new security given. This is the reliance on the
expenses or any other obligation owing to the Mortgagee, security test.
whether direct or indirect, principal or secondary as appears in
the accounts, books and records of the Mortgagee, the Hence, based on the reliance on the security test, the
Mortgagor does hereby transfer and convey by way of California court in the cited case made an inquiry whether the
mortgage unto the Mortgagee, its successors or assigns, the second loan was made in reliance on the original security
parcels of land which are described in the list inserted on the containing a dragnet clause. Accordingly, finding a different
back of this document, and/or appended hereto, together with security was taken for the second loan no intent that the parties
all the buildings and improvements now existing or which may relied on the security of the first loan could be inferred, so it
hereafter be erected or constructed thereon, of which the was held. The rationale involved, the court said, was that the
Mortgagor declares that he/it is the absolute owner free from all dragnet clause in the first security instrument constituted a
liens and incumbrances. . . .[43] (Emphasis supplied.) continuing offer by the borrower to secure further loans under
the security of the first security instrument, and that when the

56
lender accepted a different security he did not accept the
offer.[47] Even the promissory notes in issue were made on standard
forms prepared by petitioner, and as such are likewise
In another case, it was held that a mortgage with a dragnet contracts of adhesion. Being of such nature, the same should
clause is an offer by the mortgagor to the bank to provide the be interpreted strictly against petitioner and with even more
security of the mortgage for advances of and when they were reason since having been accomplished by respondents in the
made. Thus, it was concluded that the offer was not accepted presence of petitioners personnel and approved by its
by the bank when a subsequent advance was made because manager, they could not have been unaware of the import and
(1) the second note was secured by a chattel mortgage on extent of such contracts.
certain vehicles, and the clause therein stated that the note
was secured by such chattel mortgage; (2) there was no
reference in the second note or chattel mortgage indicating a Petitioner, however, is not without recourse. Both the Court of
connection between the real estate mortgage and the advance; Appeals and the trial court found that respondents have not yet
(3) the mortgagor signed the real estate mortgage by her name paid the P250,000.00, and gave no credence to their claim that
alone, whereas the second note and chattel mortgage were they paid the said amount when they paid petitioner
signed by the mortgagor doing business under an assumed P2,000,000.00. Thus, the mortgaged property could still be
name; and (4) there was no allegation by the bank, and properly subjected to foreclosure proceedings for the unpaid
apparently no proof, that it relied on the security of the real P250,000.00 loan, and as mentioned earlier, for any deficiency
estate mortgage in making the advance.[48] after D/A SFDX#129, security for PN BD#76/C-345, has been
exhausted, subject of course to defenses which are available
Indeed, in some instances, it has been held that in the to respondents.
absence of clear, supportive evidence of a contrary intention, a
mortgage containing a dragnet clause will not be extended to
cover future advances unless the document evidencing the
subsequent advance refers to the mortgage as providing WHEREFORE, the petition is DENIED. The Decision of the
security therefor.[49] Court of Appeals in CA-G.R. CV No. 59543 is AFFIRMED.

It was therefore improper for petitioner in this case to seek


foreclosure of the mortgaged property because of non-payment Costs against petitioner.
of all the three promissory notes. While the existence and
validity of the dragnet clause cannot be denied, there is a need
to respect the existence of the other security given for PN SO ORDERED.
BD#76/C-345. The foreclosure of the mortgaged property
should only be for the P250,000.00 loan covered by PN
BD#75/C-252, and for any amount not covered by the security
for the second promissory note. As held in one case, where
deeds absolute in form were executed to secure any and all
kinds of indebtedness that might subsequently become due, a
balance due on a note, after exhausting the special security
given for the payment of such note, was in the absence of a
special agreement to the contrary, within the protection of the
mortgage, notwithstanding the giving of the special
security.[50] This is recognition that while the dragnet clause
subsists, the security specifically executed for subsequent
loans must first be exhausted before the mortgaged property
can be resorted to.

One other crucial point. The mortgage contract, as well as the


promissory notes subject of this case, is a contract of
adhesion, to which respondents only participation was the
affixing of their signatures or adhesion thereto.[51] A contract
of adhesion is one in which a party imposes a ready-made
form of contract which the other party may accept or reject, but
which the latter cannot modify.[52]

The real estate mortgage in issue appears in a standard form,


drafted and prepared solely by petitioner, and which, according
to jurisprudence must be strictly construed against the party
responsible for its preparation.[53] If the parties intended that
the blanket mortgage clause shall cover subsequent
advancement secured by separate securities, then the same
should have been indicated in the mortgage contract.
Consequently, any ambiguity is to be taken contra
proferentum, that is, construed against the party who caused
the ambiguity which could have avoided it by the exercise of a
little more care.[54] To be more emphatic, any ambiguity in a
contract whose terms are susceptible of different
interpretations must be read against the party who drafted
it,[55] which is the petitioner in this case.

57
G.R. No. 183987 July 25, 2012
On 14 August 1995, Tuble wrote the bank again to follow up
ASIA TRUST DEVELOPMENT BANK, Petitioner, his request to offset the loans. This letter was not immediately
vs. acted upon. It was only on 13 October 1995 that the bank
CARMELO H. TUBLE, Respondent. finally allowed the offsetting of his various claims and liabilities.
As a result, his liabilities were reduced to ₱970,691.46 plus the
DECISION unreturned value of the vehicle.

SERENO, J.: In order to recover the Nissan Vanette, the bank filed a
Complaint for replevin against Tuble. Petitioner obtained a
Before this Court is a Petition for Review on Certiorari under favorable judgment. Then, to collect the liabilities of
Rule 45 of the Revised Rules of Court, seeking to review the respondent, it also filed a Petition for Extra-judicial Foreclosure
Court of Appeals (CA) 28 March 2008 Decision and 30 July of real estate mortgage over his property. The Petition was
2008 Resolution in CA-G.R. CV No. 87410. The CA affirmed based only on his real estate loan, which at that time amounted
the Regional Trial Court (RTC) Decision of 15 May 2006 in to ₱421,800. His other liabilities to the bank were excluded.
Civil Case No. 67973, which granted to respondent the refund The foreclosure proceedings terminated, with the bank
of ₱845,805.491 representing the amount he had paid in emerging as the purchaser of the secured property.
excess of the redemption price.
Thereafter, Tuble timely redeemed the property on 17 March
The antecedent facts are as follows: 2 1997 for ₱1,318,401.91.8 Notably, the redemption price
increased to this figure, because the bank had unilaterally
Respondent Carmelo H. Tuble, who served as the vice- imposed additional interest and other charges.
president of petitioner Asiatrust Development Bank, availed
himself of the car incentive plan and loan privileges offered by With the payment of ₱1,318,401.91, Tuble was deemed to
the bank. He was also entitled to the bank’s Senior Managers have fully paid his accountabilities. Thus, three years after his
Deferred Incentive Plan (DIP). payment, the bank issued him a Clearance necessary for the
release of his DIP share. Subsequently, he received a
Respondent acquired a Nissan Vanette through the company’s Manager’s Check in the amount of ₱166,049.73 representing
car incentive plan. The arrangement was made to appear as a his share in the DIP funds.
lease agreement requiring only the payment of monthly rentals.
Accordingly, the lease would be terminated in case of the Despite his payment of the redemption price, Tuble questioned
employee’s resignation or retirement prior to full payment of the how the foreclosure basis of ₱421,800 ballooned to
price. ₱1,318,401.91 in a matter of one year. Belatedly, the bank
explained that this redemption price included the Nissan
As regards the loan privileges, Tuble obtained three separate Vanette’s book value, the salary loan, car insurance, 18%
loans. The first, a real estate loan evidenced by the 18 January annual interest on the bank’s redemption price of ₱421,800,
1993 Promissory Note No. 01423 with maturity date of 1 penalty and interest charges on Promissory Note No. 0142,
January 1999, was secured by a mortgage over his property and litigation expenses.9 By way of note, from these items, the
covered by Transfer Certificate of Title No. T 145794. No amounts that remained to be collected as stated in the Petition
interest on this loan was indicated. before us, are (1) the 18% annual interest on the redemption
price and (2) the interest charge on Promissory Note No. 0142.
The second was a consumption loan, evidenced by the 10
January 1994 Promissory Note No. 01434 with the maturity Because Tuble disputed the redemption price, he filed a
date of 31 January 1995 and interest at 18% per annum. Aside Complaint for recovery of a sum of money and damages before
from the said indebtedness, Tuble allegedly obtained a salary the RTC. He specifically sought to collect ₱896,602.0210
loan, his third loan. representing the excess charges on the redemption price.
Additionally, he prayed for moral and exemplary damages.
On 30 March 1995, he resigned. Subsequently, he was given
the option to either return the vehicle without any further The RTC ruled in favor of Tuble. The trial court characterized
obligation or retain the unit and pay its remaining book value. the redemption price as excessive and arbitrary, because the
correct redemption price should not have included the above-
Respondent had the following obligations to the bank after his mentioned charges. Moral and exemplary damages were also
retirement: (1) the purchase or return of the Nissan Vanette; (2) awarded to him.
₱100,000 as consumption loan; (3) ₱421,800 as real estate
loan; and (4) ₱16,250 as salary loan.5 According to the trial court,11 the value of the car should not
have been included, considering that the bank had already
In turn, petitioner owed Tuble (1) his pro-rata share in the DIP, recovered the Nissan Vanette. The obligations arising from the
which was to be issued after the bank had given the resigned salary loan and car insurance should have also been excluded,
employee’s clearance; and (2) ₱25,797.35 representing his for there was no proof that these debts existed. The interest
final salary and corresponding 13th month pay. and penalty charges should have been deleted, too, because
Promissory Note No. 0142 did not indicate any interest or
Respondent claimed that since he and the bank were debtors penalty charges. Neither should litigation expenses have been
and creditors of each other, the offsetting of loans could legally added, since there was no proof that the bank incurred those
take place. He then asked the bank to simply compute his DIP expenses.
and apply his receivables to his outstanding loans.6 However,
instead of heeding his request, the bank sent him a 1 June As for the 18% annual interest on the bid price of ₱421,800,
1995 demand letter7 obliging him to pay his debts. The bank the RTC agreed with Tuble that this charge was unlawful. Act
also required him to return the Nissan Vanette. Despite this 313512 as amended, in relation to Section 28 of Rule 39 of the
demand, the vehicle was not surrendered. Rules of Court,13 only allows the mortgagee to charge an

58
interest of 1% per month if the foreclosed property is used as security for an obligation to any bank, banking
redeemed. Ultimately, under the principle of solutio indebiti, the institution, or credit institution, the mortgagor can redeem the
trial court required the refund of these amounts charged in property by paying the amount fixed by the court in the order of
excess of the correct redemption price. execution, with interest thereon at the rate specified in the
mortgage.18
On appeal, the CA affirmed the findings of the RTC.14 The
appellate court only expounded the rule that, at the time of Petitioner is correct. We have already established in Union
redemption, the one who redeemed is liable to pay only 1% Bank of the Philippines v. Court of Appeals,19 citing Ponce de
monthly interest plus taxes. Thus, the CA also concluded that Leon v. Rehabilitation Finance Corporation20 and Sy v. Court
there was practically no basis to impose the additional charges. of Appeals,21 that the General Banking Act – being a special
and subsequent legislation – has the effect of amending
Before this Court, petitioner reiterates its claims regarding the Section 6 of Act No. 3135, insofar as the redemption price is
inclusion in the redemption price of the 18% annual interest on concerned, when the mortgagee is a bank. Thus, the amount
the bid price of ₱421,800 and the interest charges on to be paid in redeeming the property is determined by the
Promissory Note No. 0142. Petitioner emphasizes that an 18% General Banking Act, and not by the Rules of Court in Relation
interest rate allegedly referred to in the mortgage deed is the to Act 3135.
proper basis of the interest. Pointing to the Real Estate
Mortgage Contract, the bank highlights the blanket security The Remedy of Foreclosure
clause or "dragnet clause" that purports to cover all obligations
owed by Tuble:15 In reviewing the bank’s additional charges on the redemption
price as a result of the foreclosure, this Court will first clarify
All obligations of the Borrower and/or Mortgagor, its renewal, certain vital points of fact and law that both parties and the
extension, amendment or novation irrespective of whether courts a quo seem to have missed.
such obligations as renewed, extended, amended or novated
are in the nature of new, separate or additional obligations; Firstly, at the time respondent resigned, which was
chronologically before the foreclosure proceedings, he had
All other obligations of the Borrower and/or Mortgagor in favor several liabilities to the bank. Secondly, when the bank later on
of the Mortgagee, executed before or after the execution of this instituted the foreclosure proceedings, it foreclosed only the
document whether presently owing or hereinafter incurred and mortgage secured by the real estate loan of ₱421,800.22 It did
whether or not arising from or connection with the aforesaid not seek to include, in the foreclosure, the consumption loan
loan/Credit accommodation; x x x. under Promissory Note No. 0143 or the other alleged
obligations of respondent. Thirdly, on 28 February 1996, the
Tuble’s obligations are defined in Promissory Note Nos. 0142 bank availed itself of the remedy of foreclosure and, in doing
and 0143. By way of recap, Promissory Note No. 0142 refers so, effectively gained the property.
to the real estate loan; it does not contain any stipulation on
interest. On the other hand, Promissory Note No. 0143 refers As a result of these established facts, one evident conclusion
to the consumption loan; it charges an 18% annual interest surfaces: the Real Estate Mortgage Contract on the secured
rate. Petitioner uses this latter rate to impose an interest over property is already extinguished.
the bid price of ₱421,800.
In foreclosures, the mortgaged property is subjected to the
Further, the bank sees the inclusion in the redemption price of proceedings for the satisfaction of the obligation.23 As a result,
an addition 12% annual interest on Tuble’s real estate loan. payment is effected by abnormal means whereby the debtor is
forced by a judicial proceeding to comply with the presentation
On top of these claims, the bank raises a new item – the car’s or to pay indemnity.24
rental fee – to be included in the redemption price. In dealing
with this argument raised for the first time on certiorari, this Once the proceeds from the sale of the property are applied to
Court dismisses the contention based on the well-entrenched the payment of the obligation, the obligation is already
prohibition on raising new issues, especially factual ones, on extinguished.25 Thus, in Spouses Romero v. Court of
appeal.16 Appeals,26 we held that the mortgage indebtedness was
extinguished with the foreclosure and sale of the mortgaged
Thus, the pertinent issue in the instant appeal is whether or not property, and that what remained was the right of redemption
the bank is entitled to include these items in the redemption granted by law.
price: (1) the interest charges on Promissory Note No. 0142;
and (2) the 18% annual interest on the bid price of P421,800. Consequently, since the Real Estate Mortgage Contract is
already extinguished, petitioner can no longer rely on it or
RULING OF THE COURT invoke its provisions, including the dragnet clause stipulated
therein. It follows that the bank cannot refer to the 18% annual
The 18% Annual Interest on the Bid interest charged in Promissory Note No. 0143, an obligation
Price of ₱421,800 allegedly covered by the terms of the Contract.

The Applicable Law Neither can the bank use the consummated contract to collect
on the rest of the obligations, which were not included when it
The bank argues that instead of referring to the Rules of Court earlier instituted the foreclosure proceedings. It cannot be
to compute the redemption price, the courts a quo should have allowed to use the same security to collect on the other loans.
applied the General Banking Law,17 considering that petitioner To do so would be akin to foreclosing an already foreclosed
is a banking institution. property.

The statute referred to requires that in the event of judicial or Rather than relying on an expired contract, the bank should
extrajudicial foreclosure of any mortgage on real estate that is have collected on the excluded loans by instituting the proper

59
actions for recovery of sums of money. Simply put, petitioner Here, after reviewing the entire deed, this Court finds that there
should have run after Tuble separately, instead of hostaging is no specific mention of interest to be added in case of either
the same property to cover all of his liabilities. default or redemption. The Real Estate Mortgage Contract
itself is silent on the computation of the redemption price.
The Right of Redemption Although it refers to the Promissory Notes as constitutive of
Tuble’s secured obligations, the said contract does not state
Despite the extinguishment of the Real Estate Mortgage that the interest to be charged in case of redemption should be
Contract, Tuble had the right to redeem the security by paying what is specified in the Promissory Notes.
the redemption price.
In Philippine Banking Communications v. Court of Appeals,34
The right of redemption of foreclosed properties was a we have construed such silence or omission of additional
statutory privilege27 he enjoyed. Redemption is by force of charges strictly against the bank. In that case, we affirmed the
law, and the purchaser at public auction is bound to accept findings of the courts a quo that penalties and charges are not
it.28 Thus, it is the law that provides the terms of the right; the due for want of stipulation in the mortgage contract.
mortgagee cannot dictate them. The terms of this right, based
on Section 47 of the General Banking Law, are as follows: Worse, when petitioner invites us to look at the Promissory
Notes in determining the interest, these loan agreements offer
1. The redemptioner shall have the right within one year after different interest charges: Promissory Note No. 0142, which
the sale of the real estate, to redeem the property. corresponds exactly to the real estate loan, contains no
stipulation on interest; while Promissory Note No. 0143, which
2. The redemptioner shall pay the amount due under the in turn corresponds to the consumption loan, provides a charge
mortgage deed, with interest thereon at rate specified in the of 18% interest per annum.
mortgage, and all the costs and expenses incurred by the bank
or institution from the sale and custody of said property less the Thus, an ambiguity results as to which interest shall be applied,
income derived therefrom. for to apply an 18% interest per annum based on Promissory
Note No. 0143 will negate the existence of the 0% interest
3. In case of redemptioners who are considered by law as charged by Promissory Note No. 0142. Notably, it is this latter
juridical persons, they shall have the right to redeem not after Promissory Note that refers to the principal agreement to which
the registration of the certificate of foreclosure sale with the the security attaches.
applicable Register of Deeds which in no case shall be more
than three (3) months after foreclosure, whichever is earlier. In resolving this ambiguity, we refer to a basic principle in the
law of contracts: "Any ambiguity is to be taken contra
Consequently, the bank cannot alter that right by imposing proferentem, that is, construed against the party who caused
additional charges and including other loans. Verily, the the ambiguity which could have avoided it by the exercise of a
freedom to stipulate the terms and conditions of an agreement little more care."35 Therefore, the ambiguity in the mortgage
is limited by law.29 deed whose terms are susceptible of different interpretations
must be read against the bank that drafted it. Consequently,
Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate we cannot impute grave error on the part of the courts a quo
Appellate Court30 that the power to decide whether or not to for not appreciating a charge of 18% interest per annum.
foreclose is the prerogative of the mortgagee; however, once it
has made the decision by filing a petition with the sheriff, the Furthermore, this Court refuses to be blindsided by the dragnet
acts of the latter shall thereafter be governed by the provisions clause in the Real Estate Mortgage Contract to automatically
of the mortgage laws, and not by the instructions of the include the consumption loan, and its corresponding interest, in
mortgagee. In direct contravention of this ruling, though, the computing the redemption price.
bank included numerous charges and loans in the redemption
price, which inexplicably ballooned to ₱1,318,401.91. On this As we have held in Prudential Bank v. Alviar,36 in the absence
error alone, the claims of petitioner covering all the additional of clear and supportive evidence of a contrary intention, a
charges should be denied. Thus, considering the undue mortgage containing a dragnet clause will not be extended to
inclusions of the additional charges, the bank cannot impose cover future advances, unless the document evidencing the
the 18% annual interest on the redemption price. subsequent advance refers to the mortgage as providing
security therefor.
The Dragnet Clause
In this regard, this Court adopted the "reliance on the security
In any event, assuming that the Real Estate Mortgage Contract test" used in the above-mentioned cases, Prudential Bank37
subsists, we rule that the dragnet clause therein does not and Philippine Bank of Communications.38 In these Decisions,
justify the imposition of an 18% annual interest on the we elucidated the test as follows:
redemption price.
x x x A mortgage with a "dragnet clause" is an "offer" by the
This Court has recognized that, through a dragnet clause, a mortgagor to the bank to provide the security of the mortgage
real estate mortgage contract may exceptionally secure future for advances of and when they were made. Thus, it was
loans or advancements.31 But an obligation is not secured by concluded that the "offer" was not accepted by the bank when
a mortgage, unless, that mortgage comes fairly within the a subsequent advance was made because (1) the second note
terms of the mortgage contract.32 was secured by a chattel mortgage on certain vehicles, and the
clause therein stated that the note was secured by such chattel
We have also emphasized that the mortgage agreement, being mortgage; (2) there was no reference in the second note or
a contract of adhesion, is to be carefully scrutinized and strictly chattel mortgage indicating a connection between the real
construed against the bank, the party that prepared the estate mortgage and the advance; (3) the mortgagor signed
agreement.33 the real estate mortgage by her name alone, whereas the
second note and chattel mortgage were signed by the

60
mortgagor doing business under an assumed name; and (4) (1) That each one of the obligors be bound principally, and that
there was no allegation by the bank, and apparently no proof, he be at the same time a principal creditor of the other;
that it relied on the security of the real estate mortgage in
making the advance.39 (Emphasis supplied) (2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the
Here, the second loan agreement, or Promissory Note No. same quality if the latter has been stated;
0143, referring to the consumption loan makes no reference to
the earlier loan with a real estate mortgage. Neither does the (3) That the two debts be due;
bank make any allegation that it relied on the security of the
real estate mortgage in issuing the consumption loan to Tuble. (4) That they be liquidated and demandable;

It must be remembered that Tuble was petitioner’s previous (5) That over neither of them there be any retention or
vice-president. Hence, as one of the senior officers, the controversy, commenced by third persons and communicated
consumption loan was given to him not as an ordinary loan, but in due time to the debtor. (Emphasis supplied)
as a form of accommodation or privilege.40 The bank’s grant of
the salary loan to Tuble was apparently not motivated by the Liquidated debts are those whose exact amount has already
creation of a security in favor of the bank, but by the fact the he been determined.46 In this case, the receivable of Tuble,
was a top executive of petitioner. including his DIP share, was not yet determined; it was the
petitioner’s policy to compute and issue the computation only
Thus, the bank cannot claim that it relied on the previous after the retired employee had been cleared by the bank. Thus,
security in granting the consumption loan to Tuble. For this Tuble incorrectly invoked legal compensation in addressing this
reason, the dragnet clause will not be extended to cover the issue of default.
consumption loan. It follows, therefore, that its corresponding
interest – 18% per annum – is inapplicable. Consequently, the Nevertheless, based on the findings of the RTC and the CA,
courts a quo did not gravely abuse their discretion in refusing the obligation of Tuble as evidenced by Promissory Note No.
to apply an annual interest of 18% in computing the redemption 0142, was set to mature on 1 January 1999. But then, he had
price. A finding of grave abuse of discretion necessitates that already settled his liabilities on 17 March 1997 by paying
the judgment must have been exercised arbitrarily and without ₱1,318,401.91 as redemption price. Then, in 1999, the bank
basis in fact and in law.41 issued his Clearance and share in the DIP in view of the full
settlement of his obligations. Thus, there being no substantial
The Interest Charges on Promissory delay on his part, the CA did not grievously err in not declaring
Note No. 0142 him to be in default.

In addition to the 18% annual interest, the bank also claims a The Award of Moral and Exemplary
12% interest per annum on the consumption loan. Damages
Notwithstanding that Promissory Note No. 0142 contains no
stipulation on interest payments, the bank still claims that Tuble The courts a quo awarded Tuble ₱200,000 as moral damages
is liable to pay the legal interest. This interest is currently at and ₱50,000 as exemplary damages.1âwphi1 As appreciated
12% per annum, pursuant to Central Bank Circular No. 416 by the RTC, which had the opportunity to examine the
and Article 2209 of the Civil Code, which provides: parties,47 the bank treated Tuble unfairly and unreasonably by
refusing to lend even a little charity and human consideration
If the obligation consists in the payment of a sum of money, when it immediately foreclosed the loans of its previous vice-
and the debtor incurs in delay, the indemnity for damages, president instead of heeding his request to make a
there being no stipulation to the contrary, shall be the payment straightforward calculation of his receivables and offset them
of the interest agreed upon, and in the absence of stipulation, against his liabilities.48
the legal interest, which is six per cent per annum. (Emphasis
supplied) To the mind of the trial court, this was such a simple request
within the control of the bank to grant; and if petitioner had only
While Article 2209 allows the recovery of interest sans acceded, the troubles of the lawsuit would have been
stipulation, this charge is provided not as a form of monetary avoided.1âwphi1
interest, but as one of compensatory interest.42
Moreover, the RTC found that the bank caused Tuble severe
Monetary interest refers to the compensation set by the parties humiliation when the Nissan Vannette was seized from his new
for the use or forbearance of money.43 On the other hand, office at Kuok Properties Philippines. The trial court also
compensatory interest refers to the penalty or indemnity for highlighted the fact that respondent as the previous vice-
damages imposed by law or by the courts.44 Compensatory president of petitioner was no ordinary employee – he was a
interest, as a form of damages, is due only if the obligor is man of good professional standing, and one who actively
proven to have defaulted in paying the loan.45 participated in civic organizations. The RTC then concluded
that a man of his standing deserved fair treatment from his
Thus, a default must exist before the bank can collect the employer, especially since they served common goals.
compensatory legal interest of 12% per annum. In this regard,
Tuble denies being in default since, by way of legal This Court affirms the dispositions of the RTC and the CA.
compensation, he effectively paid his liabilities on time. They correctly ruled that the award of moral damages also
includes cases of besmirched reputation, moral shock, social
This argument is flawed. The bank correctly explains in its humiliation and similar injury. In this regard, the social and
Petition that in order for legal compensation to take effect, financial standings of the parties are additional elements that
Article 1279 of the Civil Code requires that the debts be should be taken into account in the determination of the
liquidated and demandable. This provision reads: amount of moral damages.49 Based on their findings that
Tuble suffered undue embarrassment, given his social

61
standing, the courts a quo had factual Basis50 to justify the
award of moral damages and, consequently, exemplary
damages51 in his favor.

From all the foregoing, we rule that the appellate court correctly
deleted the 18% annual interest charges, albeit for different
reasons. First, the interest cannot be imposed, because any
reference to it under the Real Estate Mortgage Contract is
misplaced, as the contract is already extinguished. Second, the
said interest cannot be collected without any basis in terms of
Tuble's redemption rights. Third, assuming that the Real Estate
Mortgage Contract subsists, the bank cannot collect the
interest because of the contract's ambiguity. Fourth, the
dragnet clause referred to in the contract cannot be presumed
to include the 18% annual interest specified in the consumption
loan. Fifth, with respect to the compensatory interest claimed
by the bank, we hold that neither is the interest due, because
Tuble cannot be deemed to be in default of his obligations.

IN VIEW THEREOF, the assailed 28 March 2008 Decision and


30 July 2008 Resolution of the Court of Appeals in CA-G.R. CV
No. 87410 are hereby AFFIRMED.

SO ORDERED.

62
SPS. ANTONIO & LETICIA VEGA, G.R. No. 181672 In 1992, the Vegas learned that Reyes did not update the
amortizations for they received a notice to Reyes from the SSS
Petitioner, concerning it.[8] They told the SSS that they already gave the
payment to Reyes but, since it appeared indifferent, on
Present: January 6, 1992 the Vegas updated the amortization
themselves and paid P115,738.48 to the SSS, through Antonio
Vegas personal check.[9] They negotiated seven additional
CARPIO, J., Chairperson, remittances and the SSS accepted P8,681.00 more from the
Vegas.[10]
- versus - PERALTA,
Meanwhile, on April 16, 1993 respondent Pilar Development
BERSAMIN,* Corporation (PDC) filed an action for sum of money against
Reyes before the Regional Trial Court (RTC) of Manila in Civil
ABAD, and Case 93-6551. PDC claimed that Reyes borrowed from Apex
Mortgage and Loans Corporation (Apex) P46,500.00 to buy the
PEREZ,** JJ. lot and construct a house on it.[11] Apex then assigned Reyes
credit to the PDC on December 29, 1992,[12] hence, the suit
SOCIAL SECURITY SYSTEM (SSS) by PDC for the recovery of the unpaid debt. On August 26,
1993 the RTC rendered judgment, ordering Reyes to pay the
& PILAR DEVELOPMENT Promulgated: PDC the loan of P46,398.00 plus interest and penalties
beginning April 11, 1979 as well as attorneys fees and the
CORPORATION, costs.[13] Unable to do so, on January 5, 1994 the RTC issued
a writ of execution against Reyes and its Sheriff levied on the
Respondents. September 20, 2010 property in Pilar Village.[14]

x --------------------------------------------------------------------------------- On February 16, 1994 the Vegas requested the SSS to


------ x acknowledge their status as subrogees and to give them an
update of the account so they could settle it in full. The SSS did
DECISION not reply. Meantime, the RTC sheriff published a notice for the
ABAD, J.: auction sale of the property on February 24, March 3 and 10,
1994.[15] He also served on the Vegas notice of that sale on or
about March 20, 1994.[16] On April 5, 1994, the Vegas filed an
This case is about the lack of authority of a sheriff to execute affidavit of third party claimant and a motion for leave to admit
upon a property that the judgment obligor had long sold to a motion in intervention to quash the levy on the property.[17]
another although the registered title to the property remained in
the name of the former. Still, stating that Vegas remedy lay elsewhere, the RTC
directed the sheriff to proceed with the execution.[18]
The Facts and the Case Meantime, the Vegas got a telegram dated August 29, 1994,
informing them that the SSS intended to foreclose on the
Magdalena V. Reyes (Reyes) owned a piece of titled land[1] in property to satisfy the unpaid housing debt of P38,789.58.[19]
Pilar Village, Las Pias City. On August 17, 1979 she got a On October 19, 1994 the Vegas requested the SSS in writing
housing loan from respondent Social Security System (SSS) for the exact computation of the indebtedness and for
for which she mortgaged her land.[2] In late 1979, however, assurance that they would be entitled to the discharge of the
she asked the petitioner spouses Antonio and Leticia Vega (the mortgage and delivery of the proper subrogation documents
Vegas) to assume the loan and buy her house and lot since upon payment. They also sent a P37,521.95 managers check
she wanted to emigrate.[3] that the SSS refused to accept.[20]

Upon inquiry with the SSS, an employee there told the Vegas On November 8, 1994 the Vegas filed an action for
that the SSS did not approve of members transferring their consignation, damages, and injunction with application for
mortgaged homes. The Vegas could, however, simply make a preliminary injunction and temporary restraining order against
private arrangement with Reyes provided they paid the monthly the SSS, the PDC, the sheriff of RTC Branch 19, and the
amortizations on time. This practice, said the SSS employee, Register of Deeds before the RTC of Las Pias in Civil Case 94-
was commonplace.[4] Armed with this information, the Vegas 2943. Still, while the case was pending, on December 27, 1994
agreed for Reyes to execute in their favor a deed of the SSS released the mortgage to the PDC.[21] And on August
assignment of real property with assumption of mortgage and 22, 1996 the Register of Deeds issued TCT T-56657 to the
paid Reyes P20,000.00 after she undertook to update the PDC.[22] A writ of possession subsequently evicted the Vegas
amortizations before leaving the country. The Vegas then took from the property.
possession of the house in January 1981.[5]
On May 8, 2002 the RTC decided Civil Case 94-2943 in favor
But Reyes did not readily execute the deed of assignment. of the Vegas. It ruled that the SSS was barred from rejecting
She left the country and gave her sister, Julieta Reyes Ofilada the Vegas final payment of P37,521.95 and denying their
(Ofilada), a special power of attorney to convey ownership of assumption of Reyes debt, given the SSS previous acceptance
the property. Sometime between 1983 and 1984, Ofilada finally of payments directly from them. The Vegas were subrogated to
executed the deed promised by her sister to the Vegas. Ofilada the rights of Reyes and substituted her in the SSS housing
kept the original and gave the Vegas two copies. The latter loan and mortgage contract. That the Vegas had the receipts
gave one copy to the Home Development Mortgage Fund and show that they were the ones who made those payments. The
kept the other.[6] Unfortunately, a storm in 1984 resulted in a RTC ordered the PDC to deliver to the Vegas the certificate of
flood that destroyed the copy left with them.[7] title covering the property. It also held the SSS and PDC
solidarily liable to the Vegas for P300,000.00 in moral

63
damages, P30,000.00 in exemplary damages, and P50,000.00 The CA ruled that, under Article 1237[28] of the Civil Code, the
in attorneys fees and for costs of the suit.[23] Vegas who paid the SSS amortizations except the last on
behalf of Reyes, without the latters knowledge or against her
The SSS appealed to the Court of Appeals (CA) in CA G.R. consent, cannot compel the SSS to subrogate them in her
CV 77582. On August 30, 2007 the latter court reversed the rights arising from the mortgage. Further, said the CA, the
RTC decision[24] for the reasons that the Vegas were unable Vegas claim of subrogation was invalid because it was done
to produce the deed of assignment of the property in their favor without the knowledge and consent of the SSS as required
and that such assignment was not valid as to PDC. Their under the mortgage agreement.[29]
motion for reconsideration having been denied, the Vegas filed
this petition for review on certiorari under Rule 45.[25] But Article 1237 cannot apply in this case since Reyes
consented to the transfer of ownership of the mortgaged
The Issues Presented property to the Vegas. Reyes also agreed for the Vegas to
assume the mortgage and pay the balance of her obligation to
The issues in this case are: SSS. Of course, paragraph 4 of the mortgage contract covering
the property required Reyes to secure SSS consent before
1. Whether or not the Vegas presented adequate proof of selling the property. But, although such a stipulation is valid
Reyes sale of the subject property to them; and binding, in the sense that the SSS cannot be compelled
while the loan was unpaid to recognize the sale, it cannot be
2. In the affirmative, whether or not Reyes validly sold her interpreted as absolutely forbidding her, as owner of the
SSS-mortgaged property to the Vegas; and mortgaged property, from selling the same while her loan
remained unpaid. Such stipulation contravenes public policy,
3. In the affirmative, whether or not the sheriff validly sold the being an undue impediment or interference on the transmission
same at public auction to satisfy Reyes debt to PDC. of property.[30]

Besides, when a mortgagor sells the mortgaged property to a


The Rulings of the Court third person, the creditor may demand from such third person
the payment of the principal obligation. The reason for this is
One. The CA ruled that the Vegas were unable to prove that that the mortgage credit is a real right, which follows the
Reyes assigned the subject property to them, given that they property wherever it goes, even if its ownership changes.
failed to present the deed of assignment in their favor upon a Article 2129[31] of the Civil Code gives the mortgagee, here
claim that they lost it.[26] But the rule requiring the presentation the SSS, the option of collecting from the third person in
of the original of that deed of assignment is not absolute. possession of the mortgaged property in the concept of
Secondary evidence of the contents of the original can be owner.[32] More, the mortgagor-owners sale of the property
adduced, as in this case, when the original has been lost does not affect the right of the registered mortgagee to
without bad faith on the part of the party offering it.[27] foreclose on the same even if its ownership had been
transferred to another person. The latter is bound by the
Here, not only did the Vegas prove the loss of the deed of registered mortgage on the title he acquired.
assignment in their favor and what the same contained, they
offered strong corroboration of the fact of Reyes sale of the After the mortgage debt to SSS had been paid, however, the
property to them. They took possession of the house and lot latter had no further justification for withholding the release of
after they bought it. Indeed, they lived on it and held it in the the collateral and the registered title to the party to whom
concept of an owner for 13 years before PDC came into the Reyes had transferred her right as owner. Under the
picture. They also paid all the amortizations to the SSS with circumstance, the Vegas had the right to sue for the
Antonio Vegas personal check, even those that Reyes conveyance to them of that title, having been validly
promised to settle but did not. And when the SSS wanted to subrogated to Reyes rights.
foreclose the property, the Vegas sent a managers check to it
for the balance of the loan. Neither Reyes nor any of her Three. The next question is: was Reyes sale of the property to
relatives came forward to claim the property. The Vegas amply the Vegas binding on PDC which tried to enforce the judgment
proved the sale to them. credit in its favor on the property that was then still mortgaged
to the SSS?
Two. Reyes acquired the property in this case through a loan
from the SSS in whose favor she executed a mortgage as The CA ruled that Reyes assignment of the property to the
collateral for the loan. Although the loan was still unpaid, she Vegas did not bind PDC, which had a judgment credit against
assigned the property to the Vegas without notice to or the Reyes, since such assignment neither appeared in a public
consent of the SSS. The Vegas continued to pay the document nor was registered with the register of deeds as
amortizations apparently in Reyes name. Meantime, Reyes Article 1625 of the Civil Code required. Article 1625 reads:
apparently got a cash loan from Apex, which assigned the
credit to PDC. This loan was not secured by a mortgage on the Art. 1625. An assignment of a credit, right or action shall
property but PDC succeeded in getting a money judgment produce no effect as against third persons, unless it appears in
against Reyes and had it executed on the property. Such a public instrument, or the instrument is recorded in the
property was still in Reyes name but, as pointed out above, the Registry of Property in case the assignment involves real
latter had disposed of it in favor of the Vegas more than 10 property. (1526)
years before PDC executed on it.
But Article 1625 referred to assignment of credits and other
The question is: was Reyes disposal of the property in favor of incorporeal rights. Reyes did not assign any credit or
the Vegas valid given a provision in the mortgage agreement incorporeal right to the Vegas. She sold the Vegas her house
that she could not do so without the written consent of the and lot. They became owner of the property from the time she
SSS? executed the deed of assignment covering the same in their
favor. PDC had a judgment for money against Reyes only. A

64
courts power to enforce its judgment applies only to the
properties that are indisputably owned by the judgment
obligor.[33] Here, the property had long ceased to belong to
Reyes when she sold it to the Vegas in 1981.

The PDC cannot take comfort in the fact that the property
remained in Reyes name when it bought the same at the
sheriff sale. The PDC cannot assert that it was a buyer in good
faith since it had notice of the Vegas claim on the property prior
to such sale.

Under the circumstances, the PDC must reconvey the subject


property to the Vegas or, if this is no longer possible, pay them
its current market value as the trial court may determine with
interest of 12 percent per annum from the date of the
determination of such value until it is fully paid. Further,
considering the distress to which the Vegas were subjected
after the unlawful levy on their property, aggravated by their
subsequent ouster from it through a writ of possession secured
by PDC, the RTC was correct in awarding the Vegas moral
damages of P300,000.00, exemplary damages of P30,000.00
and attorneys fees of P50,000.00 plus costs of the suit. But
these are to be borne solely by PDC considering that the SSS
had nothing to do with the sheriffs levy on the property. It
released the title to the PDC simply because it had a sheriffs
sale in its favor.

The PDC is, however, entitled to reimbursement from the


Vegas of the sum of P37,820.15 that it paid to the SSS for the
release of the mortgaged title.

WHEREFORE, the Court GRANTS the petition, REVERSES


the assailed decision of the Court of Appeals in CA-G.R. CV
77582 dated August 30, 2007, and in its place DIRECTS
respondent Pilar Development Corporation:

1. To convey to petitioner spouses Antonio and Leticia Vega


the title to and possession of the property subject of this case,
covered by Transfer Certificate of Title 56657 of the Register of
Deeds of Las Pias City, for the issuance of a new title in their
names; and

2. To pay the same petitioner spouses moral damages of


P300,000.00, exemplary damages of P30,000.00, and
attorneys fees of P50,000.00.

On the other hand, the Court DIRECTS petitioner spouses to


reimburse respondent Pilar Development Corp. the sum of
P37,820.15, representing what it paid the respondent SSS for
the release of the mortgaged certificate of title.

SO ORDERED.

65
[G.R. No. 114172. August 25, 2003] Meanwhile, on 8 May 1985, Pineda and Sayoc filed a
complaint before the Regional Trial Court[10] of Cavite City,
JUANITA P. PINEDA, assisted by her husband, CRISPIN docketed as Civil Case No. 4654, against the Spouses Benitez
PINEDA, and LILIA SAYOC, petitioners, vs. COURT OF and Mojica. The complaint prayed for the cancellation of the
APPEALS and TERESITA A. GONZALES, assisted by her second owners duplicate of TCT 8361 and the award of moral
husband, FRANCISCO G. GONZALES, respondents. damages and attorneys fees.

DECISION In their answer, the Spouses Benitez admitted selling to Mojica


the Property which was already subject to a previous mortgage
CARPIO, J.: in favor of Pineda and Sayoc. The Spouses Benitez claimed
that under the Acknowledgment of Indebtedness,[11] Mojica,
The Case with the conformity of Pineda and Sayoc, agreed to assume
the balance of the mortgage debt of the Spouses Benitez to
This petition for review on certiorari[1] seeks to reverse the Pineda and Sayoc.
Decision[2] of the Court of Appeals dated 26 August 1993 in
CA-G.R. SP No. 28651 as well as the Resolution dated 4 The Spouses Benitez denied any knowledge of Mojicas petition
March 1994 denying the motion for reconsideration. In its for the issuance of a second owners duplicate of TCT 8361.
assailed decision, the Court of Appeals declared void the The Spouses Benitez prayed for the dismissal of the complaint
orders[3] of the Regional Trial Court[4] of Cavite City dated 10 and the award of moral damages and attorneys fees. The
January 1992, 5 February 1992 and 30 April 1992, and made Spouses Benitez also prayed that in case the court would
the preliminary injunction permanent. In the first order, the trial render judgment in favor of Pineda and Sayoc, only Mojica
court declared that Teresita A. Gonzales, despite notice, failed should be held liable.
to appear at the hearing of the motion to surrender Transfer
Certificate of Title No. T-16084 and to file opposition to the On the other hand, Mojica denied conspiring with the Spouses
motion. In the second order, the trial court declared void the Benitez and committing fraud in filing the petition for the
original and owners duplicate of Transfer Certificate of Title No. issuance of a second owners duplicate of TCT 8361. Mojica
T-16084 and ordered the reinstatement of Transfer Certificate stated that the Spouses Benitez sold to her the Property.
of Title No. T-8361. In the third order, the trial court denied the Mojica claimed that upon the execution of the deed of sale, the
motions to lift the first order and to reconsider the second Spouses Benitez delivered to her the owners duplicate of TCT
order. 8361. However, Mojica alleged that the owners duplicate of
TCT 8361 was lost.
The Facts
Mojica also asserted that she verified with the Register of
On 4 January 1982, the Spouses Virgilio and Adorita Benitez Deeds of Cavite City the provision in the deed of sale that the
(Spouses Benitez) mortgaged a house and lot (Property) Property was free from all liens and encumbrances and found
covered by Transfer Certificate of Title No. T-8361 (TCT 8361) the same to be true. Mojica added that on learning of the
in favor of Juanita P. Pineda (Pineda) and Leila P. Sayoc Spouses Benitezs mortgage with Pineda and Sayoc, she
(Sayoc). The real estate mortgage secured the Spouses signed the Acknowledgment of Indebtedness. Mojica
Benitezs loan of P243,000 with a one-year maturity period.[5] contended that since Pineda, for herself and Sayoc, conformed
Pineda and Sayoc did not register the mortgage with the to this agreement, Pineda and Sayoc had no personality to file
Register of Deeds. The Spouses Benitez delivered the owners the complaint. Mojica further alleged that Pineda and Sayoc
duplicate of TCT 8361 to Pineda. were in estoppel from challenging the validity of the second
owners duplicate of TCT 8361 because Pineda and Sayoc,
On 9 November 1983, with the consent of Pineda, the Spouses despite notice, failed to oppose the reconstitution of the title.
Benitez sold the house,[6] which was part of the Property, to
Olivia G. Mojica (Mojica). On the same date, Mojica filed a Mojica maintained that the Spouses Benitez are indispensable
petition for the issuance of a second owners duplicate of TCT parties because TCT 8361 was in their name. Mojica also
8361 alleging that she purchased a parcel of land[7] and the asserted that she did not breach the Acknowledgment of
owners duplicate copy of TCT No. T-8361 was lost.[8] Indebtedness since she had paid the Spouses Benitez an
amount more than their debt to Pineda and Sayoc. Mojica
On 7 December 1983, the trial court granted the petition. The contended that had the Spouses Benitez paid the amount to
Register of Deeds of Cavite City issued the second owners Pineda and Sayoc, there would have been no obligation to
duplicate of TCT 8361 in the name of the Spouses Benitez. assume. Mojica prayed for the dismissal of the complaint and
the award of moral and exemplary damages and attorneys
On 12 December 1983, the Spouses Benitez sold the lot[9] fees.
covered by TCT 8361 to Mojica. With the registration of the
deed of sale and presentation of the second owners duplicate During the pendency of the case, Pineda caused the
of TCT 8361, the Register of Deeds cancelled TCT 8361 and annotation on 18 August 1986 of a notice of lis pendens on the
issued Transfer Certificate of Title No. T-13138 (TCT 13138) in original of TCT 8361 with the Register of Deeds.
the name of Mojica.
After trial, the trial court rendered a Decision dated 15 June
On 22 February 1985, Mojica obtained a loan of P290,000 from 1987, the dispositive portion of which reads:
Teresita A. Gonzales (Gonzales). Mojica executed a
promissory note and a deed of mortgage over the Property in WHEREFORE, in view of the foregoing, the Court hereby
favor of Gonzales. Gonzales registered this deed of mortgage renders judgment declaring the second owners duplicate of
with the Register of Deeds of Cavite City who annotated the TCT No. T-8361 of the land records of Cavite as null and void
mortgage on TCT 13138 as Entry No. 33209. and the Register of Deeds of Cavite City is hereby ordered
upon payment of the corresponding legal fees the annotation of
this pronouncement in its record and the revival of the first

66
owners duplicate with the same faith and credit before its TCT 16084 in the name of Gonzales. The trial court ordered
alleged loss. The counterclaim of defendants Benitezes is the reinstatement of TCT 8361 in the name of the Spouses
hereby dismissed. No pronouncement as to costs. Benitez.

SO ORDERED.[12] Gonzales filed a motion for reconsideration of the second


order. On 30 April 1992, the trial court issued an Order (third
On 7 December 1987, Mojica defaulted in paying her obligation order) denying Gonzales motions to lift the first order and to
to Gonzales. Hence, Gonzales extrajudicially foreclosed the reconsider the second order.
mortgage. On 27 January 1988, Gonzales purchased at public
auction the Property for P423,244.88. Aggrieved by the trial courts orders, Gonzales filed with the
Court of Appeals a petition for the issuance of a writ of
For failure of Mojica to redeem the Property, Gonzales prohibitory injunction.
consolidated the title to the Property. On 29 March 1989,
Gonzales executed the corresponding Affidavit of On 26 August 1993, the Court of Appeals rendered a decision
Consolidation. disposing as follows:

On 30 March 1989, the Register of Deeds of Cavite City WHEREFORE, the petition is granted. The assailed orders
cancelled TCT 13138, which was in Mojicas name, and issued dated 10 January 1992, 5 February 1992, and 30 April 1992
Transfer Certificate of Title No. T-16084 (TCT 16084) in the are hereby declared NULL and VOID, and the preliminary
name of Gonzales. TCT 16084 contained Entry No. 35520, the prohibitory injunction is made permanent.
notice of lis pendens dated 18 August 1986 in relation to Civil
Case No. 4654.[13] The Register of Deeds annotated on TCT SO ORDERED.[15]
16084 the notice of lis pendens, even though TCT 13138 did
not contain such annotation. Hence, the instant petition.

Meanwhile, dissatisfied with the trial courts decision, the The Ruling of the Court of Appeals
Spouses Benitez and Mojica appealed to the Court of Appeals,
docketed as CA-G.R. CV No. 15417. On 29 January 1991, the In the Court of Appeals, Gonzales maintained that the trial
Court of Appeals rendered a Decision[14] affirming the trial court had no jurisdiction over her person and property because
courts decision declaring void the second owners duplicate of Pineda and Sayoc did not implead her as a party in Civil Case
TCT 8361. The decision of the Court of Appeals became final No. 4654. Insisting that the questioned orders were procured
and was entered in the Book of Entries of Judgments on 17 through extrinsic or collateral fraud, Gonzales claimed that the
June 1991. orders of the trial court were void. Gonzales further alleged that
she was an innocent purchaser for value making her title to the
The Court of Appeals returned the records of the case to the Property indefeasible and imprescriptible.
trial court on 10 July 1991. On motion of Pineda and Sayoc,
the trial court issued a writ of execution to enforce the Pineda and Sayoc, on the other hand, argued that the notice of
judgment. lis pendens annotated on the title of the Property bound
Gonzales, as subsequent purchaser of the Property, to the
However, the writ of execution was returned unsatisfied. The outcome of the case. Pineda and Sayoc contended that
Sheriffs Return of 12 September 1991 stated that the Register Gonzales was not a purchaser in good faith because Gonzales
of Deeds could not implement the writ of execution. The had constructive notice of the pending litigation when she
Sheriffs Return showed that the Register of Deeds had already purchased the Property.
cancelled TCT 8361 and issued TCT 16084 in the name of
Gonzales by virtue of the consolidation of title dated 29 March Moreover, Pineda and Sayoc argued that no separate action is
1989. necessary to cancel the title because Gonzales is bound by the
outcome of the litigation. They contended that there was no
Consequently, on 6 December 1991, Pineda and Sayoc filed a extrinsic fraud because the notice of lis pendens warned
motion with the trial court for the issuance of an order requiring Gonzales of the pendency of Civil Case No. 4654 where she
Gonzales to surrender the owners duplicate of TCT 16084 to could have intervened. Pineda and Sayoc further alleged that
the Register of Deeds of Cavite City. foreclosure and sale, not a mortgage, vest title on a
mortgagee. Foreclosure and sale, however, are always subject
In its Order dated 10 January 1992 (first order), the trial court to a notice of lis pendens.
declared that Gonzales, despite notice, failed to appear at the
hearing and to oppose the motion to surrender TCT 16084. In In granting the petition, the Court of Appeals ruled that the trial
the same order, the trial court directed Gonzales to file a court erred when it voided TCT 16084 upon a mere motion for
memorandum. Gonzales received this order on 20 January the surrender of the owners duplicate of TCT 16084. The Court
1992. of Appeals further held that the trial court erred in ordering the
reinstatement of TCT 8361 in the name of the Spouses
Subsequently, Gonzales filed a motion to lift the first order Benitez.
alleging that since she was not a party in Civil Case No. 4654,
the decision did not bind her. Gonzales also claimed that she The Court of Appeals held that Pineda and Sayoc should have
did not receive notice of the hearing, copy of the motion to filed the petition to surrender TCT 16084 in the original case
surrender TCT 16084 and the order resetting the hearing where the decree of registration of TCT 16084 was entered
because she was in the United States of America. Gonzales and not in Civil Case No. 4654. The second paragraph of
finally alleged that she was an innocent purchaser for value. Section 108 of Presidential Decree No. 1529[16] (PD 1529)
requires the filing of such separate petition. The appellate court
In an Order dated 5 February 1992 (second order), the trial stated that it was beyond the trial courts authority to act on the
court declared void the original and the owners duplicate of matter on a mere motion to surrender TCT 16084.

67
The Court of Appeals likewise ruled that the trial court did not Mojica was not a purchaser in good faith. Mojica alleged that
acquire jurisdiction over the person of Gonzales because she the Spouses Benitez gave her the owners duplicate of TCT
was not a party in Civil Case No. 4654. The appellate court 8361 on 9 November 1983, the day the Spouses Benitez sold
found that Gonzales could not have known of, and appeared to her the house. However, in her petition for reconstitution,
at, the hearing of the motion to surrender TCT 16084 because which she also filed on the same day, 9 November 1983,
Gonzales was then out of the country. Mojica claimed that the owners duplicate of TCT 8361 was lost.
In effect, Mojica claimed that she received the owners
Assuming that the trial court could validly act on the motion of duplicate of TCT 8361 from the Spouses Benitez, lost the
Pineda and Sayoc, the Court of Appeals declared that the same, and filed the petition for reconstitution, all on the same
orders nevertheless contravened Section 107 of PD 1529. This day, 9 November 1983.
provision of law requires a hearing before the court can act on
a petition to surrender a duplicate certificate of title. In her petition for reconstitution, Mojica also claimed that she
purchased a parcel of land when in fact she only purchased on
The Issues 9 November 1983 the house, and not the lot covered by TCT
8361. Obviously, Mojica procured the reconstitution of the
Petitioners raise the following issues for resolution: second owners duplicate of TCT 8361 through
misrepresentation. Hence, Mojica was not a purchaser in good
1. Whether a notice of lis pendens binds a subsequent faith when she later purchased on 12 December 1983 the lot
purchaser of the property to the outcome of the pending case. since she knew of the irregularity in the reconstitution of the
second owners duplicate of TCT 8361.
2. Whether TCT 13138 and TCT 16084, being derived from the
void second owners duplicate of TCT 8361, are also void. Therefore, TCT 13138 issued in the name of Mojica is void.
However, what is void is the transfer certificate of title and not
3. Whether a separate action should be filed to cancel TCT the title over the Property. The title refers to the ownership of
16084. the Property covered by the transfer certificate of title while the
transfer certificate of title merely evidences that ownership. A
4. Whether Gonzales was an innocent purchaser for value. certificate of title is not equivalent to title as the Court explained
in Lee Tek Sheng v. Court of Appeals:[21]
5. Whether Gonzales was denied due process of law.
xxx The certificate referred to is that document issued by the
The Ruling of the Court Register of Deeds known as the Transfer Certificate of Title
(TCT). By title, the law refers to ownership which is
We deny the petition. represented by that document. Petitioner apparently confuses
certificate with title. Placing a parcel of land under the mantle of
Validity of TCT 13138 and TCT 16084 the Torrens system does not mean that ownership thereof can
no longer be disputed. Ownership is different from a certificate
Mojica filed a petition for reconstitution[17] of the owners of title. The TCT is only the best proof of ownership of a piece
duplicate of TCT 8361 claiming that this owners duplicate was of land. Besides, the certificate cannot always be considered
lost. However, contrary to Mojicas claims, the owners duplicate as conclusive evidence of ownership. Mere issuance of the
of TCT 8361 was not lost but in Pinedas possession. Since the certificate of title in the name of any person does not foreclose
owners duplicate of TCT 8361 was in fact not lost or destroyed, the possibility that the real property may be under co-
there was obviously nothing to reconstitute or replace. ownership with persons not named in the certificate or that the
Therefore, the trial court correctly ruled that the reconstitution registrant may only be a trustee or that other parties may have
proceedings and the second owners duplicate of TCT 8361 are acquired interest subsequent to the issuance of the certificate
void.[18] As the Court held in New Durawood Co., Inc. v. Court of title. To repeat, registration is not the equivalent of title, but
of Appeals:[19] is only the best evidence thereof. Title as a concept of
ownership should not be confused with the certificate of title as
In the instant case, the owners duplicate certificates of title evidence of such ownership although both are
were in the possession of Dy Quim Pong, the petitioners interchangeable. xxx (Emphasis supplied)
chairman of the board and whose family controls the petitioner-
corporation. Since said certificates were not in fact lost or Mojicas Title
destroyed, there was no necessity for the petition filed in the
trial court for the Issuance of New Owners Duplicate The prior mortgage of the Property by the Spouses Benitez to
Certificates of Title . . . In fact, the said court never acquired Pineda and Sayoc did not prevent the Spouses Benitez, as
jurisdiction to order the issuance of new certificates. Hence, the owners of the Property, from selling the Property to Mojica. A
newly issued duplicates are themselves null and void. mortgage is merely an encumbrance on the property and does
(Emphasis supplied) not extinguish the title of the debtor who does not lose his
principal attribute as owner to dispose of the property.[22] The
Mojica registered with the Register of Deeds the deed of sale law even considers void a stipulation forbidding the owner of
executed by the Spouses Benitez conveying the Property to the property from alienating the mortgaged immovable.[23]
her. Mojica also presented to the Register of Deeds the second
owners duplicate of TCT 8361. The Register of Deeds Since the Spouses Benitez were the undisputed owners of the
cancelled TCT 8361 and issued on 14 December 1983 TCT Property, they could validly sell and deliver the Property to
13138 in the name of Mojica. However, since TCT 13138 is Mojica. The execution of the notarized deed of sale between
derived from the void second owners duplicate of TCT 8361, the Spouses Benitez and Mojica had the legal effect of actual
TCT 13138 is also void. No valid transfer certificate of title can or physical delivery. Ownership of the Property passed from
issue from a void transfer certificate of title, unless an innocent the Spouses Benitez to Mojica.[24] The nullity of the second
purchaser for value has intervened.[20]

68
owners duplicate of TCT 8361 did not affect the validity of the passed from Mojica to Gonzales. At this point, therefore,
sale as between the Spouses Benitez and Mojica. Gonzales became the owner of the Property.

Gonzales Title When Gonzales purchased the Property at the auction sale,
Pineda and Sayoc had already annotated the lis pendens on
After the sale of the Property to her, Mojica obtained a loan the original of TCT 8361, which remained valid. However, the
from Gonzales secured by a real estate mortgage over the mortgage of Gonzales was validly registered prior to the
Property. Gonzales registered this mortgage on 22 February notation of the lis pendens. The subsequent annotation of the
1985 with the Register of Deeds who annotated the mortgage lis pendens could not defeat the rights of the mortgagee or the
on the void TCT 13138 in Mojicas name. The nullity of TCT purchaser at the auction sale who derived their rights under a
13138 did not automatically carry with it the nullity of the prior mortgage validly registered. The settled rule is that the
annotation of Gonzales mortgage. The rule is that a mortgage auction sale retroacts to the date of the registration of the
annotated on a void title is valid if the mortgagee registered the mortgage,[28] putting the auction sale beyond the reach of any
mortgage in good faith.[25] In Blanco v. Esquierdo,[26] the intervening lis pendens, sale or attachment. As the Court
Court held: explained in Caviles, Jr. v. Bautista:[29]

That the certificate of title issued in the name of Fructuosa We have also consistently ruled that an auction or execution
Esquierdo is a nullity, the same having been secured thru sale retroacts to the date of levy of the lien of attachment.
fraud, is not here in question. The only question for When the subject property was sold on execution to the
determination is whether the defendant bank is entitled to the petitioners, this sale retroacted to the date of inscription of
protection accorded to innocent purchasers for value, which petitioners notice of attachment on October 6, 1982. The
phrase, according to sec. 38 of the Land Registration Law, earlier registration of the petitioners levy on preliminary
includes an innocent mortgagee for value. The question, in our attachment gave them superiority and preference in rights over
opinion, must be answered in the affirmative. the attached property as against respondents.

The trial court, in the decision complained of, made no finding Accordingly, we rule that the execution sale in favor of the
that the defendant mortgagee bank was a party to the petitioner Caviles spouses was anterior and superior to the
fraudulent transfer of the land to Fructuosa Esquierdo. Indeed, sale of the same property to the respondent Bautista spouses
there is nothing alleged in the complaint which may implicate on October 18, 1982. The right of petitioners to the surrender
said defendant mortgagee in the fraud, or justify a finding that it of the owners duplicate copy of TCT No. 57006 covering the
acted in bad faith. On the other hand, the certificate of title was subject property for inscription of the certificate of sale, and for
in the name of the mortgagor Fructuosa Esquierdo when the the cancellation of said certificate of title and the issuance of a
land was mortgaged by her to the defendant bank. Such being new title in favor of petitioners cannot be gainsaid.
the case, the said defendant bank, as mortgagee, had the right
to rely on what appeared in the certificate and, in the absence A contrary rule would make a prior registration of a mortgage
of anything to excite suspicion, was under no obligation to look or any lien meaningless.[30] The prior registered mortgage of
beyond the certificate and investigate the title of the mortgagor Gonzales prevails over the subsequent notice of lis pendens,
appearing on the face of said certificate. (De Lara, et al. vs. even if the auction sale took place after the notation of the lis
Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838, Joaquin vs. pendens. Consequently, TCT 16084, issued to Gonzales after
Madrid, et al., 106 Phil., 1060). Being thus an innocent she presented the sheriffs certificate of sale and her affidavit of
mortgagee for value, its right or lien upon the land mortgaged consolidation, is valid.
must be respected and protected, even if the mortgagor
obtained her title thereto thru fraud. The remedy of the persons What remained with Pineda and Sayoc after the foreclosure
prejudiced is to bring an action for damages against those was the mortgagors residual rights over the foreclosed
causing the fraud, xxx. (Emphasis supplied) Property, which rights are the equity of redemption[31] and a
share in the surplus fund, if any.[32] Since Mojica was not a
Thus, the annotation of Gonzales mortgage on TCT 13138 was purchaser in good faith, the residual rights of Mojica were
valid and operated to bind the Property and the world, despite subject to the claim of Pineda and Sayoc. Of course, Pineda
the invalidity of TCT 13138. and Sayoc may still file an action to recover the outstanding
debt of the Spouses Benitez, and even go after Mojica for her
Gonzales registered her mortgage in good faith. Gonzales had assumption of obligation under the Acknowledgment of
no actual notice of the prior unregistered mortgage in favor of Indebtedness.
Pineda and Sayoc. To bind third parties to an unregistered
encumbrance, the law requires actual notice.[27] The fact that The Equities Favor Gonzales over Pineda and Sayoc
Mojica, who sold the Property to Gonzales, had actual notice of
the unregistered mortgage did not constitute actual notice to Pineda and Sayoc were negligent in not registering their
Gonzales, absent proof that Gonzales herself had actual notice mortgage, which ultimately led to this controversy. Had Pineda
of the prior mortgage. Thus, Gonzales acquired her rights as a and Sayoc registered their mortgage, their rights as prior
mortgagee in good faith. mortgagees would have prevailed over that of Gonzales.
Pineda and Sayoc were also negligent in not foreclosing their
When Mojica defaulted in paying her debt, Gonzales caused mortgage ahead of Gonzales, when they could have done so
the extrajudicial foreclosure of the mortgaged Property. as early as 4 January 1983 after the Spouses Benitez
Gonzales purchased the mortgaged Property as the sole defaulted on their loan.[33] In contrast, the loan of Mojica fell
bidder at the public auction sale. For Mojicas failure to redeem due only on 7 December 1987.
the foreclosed Property within the prescribed period, Gonzales
consolidated her title to the Property. Absent any evidence to Since Gonzales vigilantly exercised her right to foreclose the
the contrary, the sale at public auction of the Property to mortgaged Property ahead of Pineda and Sayoc, Gonzales
Gonzales was valid. Thus, the title or ownership of the Property mortgage would still prevail over the mortgage of Pineda and
Sayoc even if Gonzales mortgage was not validly registered.

69
The unregistered mortgage of Pineda and Sayoc was
extinguished upon foreclosure of Gonzales mortgage even
assuming for the sake of argument that the latter mortgage
was unregistered. Between two unregistered mortgagees, both
being in good faith, the first to foreclose his mortgage prevails
over the other.

Even assuming that Gonzales mortgage was not validly


registered, the notice of lis pendens could still not defeat
Gonzales right under the foreclosure sale. The effect of the
notice of lis pendens was to subject Gonzales, as the
subsequent purchaser of the Property, to the outcome of the
case. The outcome of the case is the cancellation of the
second owners duplicate of TCT 8361. The complaint of
Pineda and Sayoc simply prayed for the cancellation of the
second owners duplicate of TCT 8361 and the award of
damages.[34]

The notice of lis pendens would only bind Gonzales to the


declaration of nullity of the second owners duplicate of TCT
8361. Gonzales could not use TCT 13138, as a void issue of
the void second owners duplicate of TCT 8361, to secure a
new TCT in her name. This is the legal consequence of the
notice of lis pendens, which would have bound Gonzales had
the registration of her mortgage been void. However, the
declaration of nullity of TCT 13138 would still not make the
mortgage of Pineda and Sayoc preferred over that of
Gonzales. Since Gonzales foreclosed her mortgage ahead of
Pineda and Sayoc, she would still have a better right than
Pineda and Sayoc who slept on their rights as mortgagees.

Conclusion

The nullity of TCT 13138 did not affect the validity of the title or
ownership of Mojica or Gonzales as subsequent transferees of
the Property. What is void is the transfer certificate of title, not
the title or ownership itself of Mojica or Gonzales. The notice of
lis pendens could not defeat Gonzales rights over the Property
for two reasons. First, Gonzales registered in good faith her
mortgage before the notation of the lis pendens, making the
registration of her mortgage valid despite the invalidity of TCT
13138. Second, since Gonzales mortgage was valid, the
auction sale retroacted to the date of registration of her
mortgage, making the auction sale prior in time to the notice of
lis pendens. Thus, TCT 16084, issued to Gonzales as a result
of the foreclosure sale, is valid.

WHEREFORE, the petition is DENIED. The Decision dated 26


August 1993 and the Resolution dated 4 March 1994 of the
Court of Appeals in CAG.R. SP No. 28651 are AFFIRMED.
Petitioners Juanita P. Pineda and Lilia Sayoc are directed to
surrender the owners duplicate of Transfer Certificate of Title
No. 8361 to the Register of Deeds of Cavite City for
cancellation. Transfer Certificate of Title No. 16084 in the name
of Teresita A. Gonzales is declared valid. This is without
prejudice to any action petitioners Juanita P. Pineda and Lilia
Sayoc may file against the Spouses Virgilio and Adorita
Benitez as well as Olivia G. Mojica. No pronouncement as to
costs.

SO ORDERED.

70
[G.R. No. 137792. August 12, 2003] On May 15, 1998, an auction sale of the property was held
wherein petitioners participated. However, the property was
SPOUSES RICARDO ROSALES and ERLINDA SIBUG, sold for P285,000.00 to spouses Alfonso and Lourdes Suba,
petitioners, vs. SPOUSES ALFONSO and LOURDES SUBA, herein respondents, being the highest bidders. On July 15,
THE CITY SHERIFF OF MANILA, respondents. 1998, the trial court issued an order confirming the sale of the
property and directing the sheriff to issue a final deed of sale in
DECISION their favor.

SANDOVAL-GUTIERREZ, J.: On July 28, 1998, Macaspac filed a motion praying for the
release to him of the amount of P176,176.06 from the
Challenged in the instant petition for review on certiorari are proceeds of the auction sale, prompting petitioners to file a
the Resolutions[1] dated November 25, 1998 and February 26, motion praying that an independent certified public accountant
1999 of the Court of Appeals dismissing the petition for be appointed to settle the exact amount due to movant
certiorari in CA G.R. SP No. 49634, Spouses Ricardo Rosales Macaspac.
and Erlinda Sibug vs. Alfonso and Lourdes Suba.
Meanwhile, on August 3, 1998, the Register of Deeds of Manila
On June 13, 1997, the Regional Trial Court, Branch 13, Manila issued a new Transfer Certificate of Title over the subject
rendered a Decision[2] in Civil Cases Nos. 94-72303 and 94- property in the names of respondents.
72379, the dispositive portion of which reads:
On August 18, 1998, respondents filed with the trial court a
WHEREFORE, judgment is rendered: motion for a writ of possession, contending that the
confirmation of the sale effectively cut off petitioners equity of
(1) Declaring the Deed of Sale of Exhibit D, G and I, affecting redemption. Petitioners on the other hand, filed a motion for
the property in question, as an equitable mortgage; reconsideration of the order dated July 15, 1998 confirming the
sale of the property to respondents.
(2) Declaring the parties Erlinda Sibug and Ricardo Rosales,
within 90 days from finality of this Decision, to deposit with the On October 19, 1998, the trial court, acting upon both motions,
Clerk of Court, for payment to the parties Felicisimo Macaspac issued an order (1) granting respondents prayer for a writ of
and Elena Jiao, the sum of P65,000.00, with interest at nine (9) possession and (2) denying petitioners motion for
percent per annum from September 30, 1982 until payment is reconsideration. The trial court ruled that petitioners have no
made, plus the sum of P219.76 as reimbursement for real right to redeem the property since the case is for judicial
estate taxes; foreclosure of mortgage under Rule 68 of the 1997 Rules of
Civil Procedure, as amended. Hence, respondents, as
(3) Directing the parties Felicisimo Macaspac and Elena Jiao, purchasers of the property, are entitled to its possession as a
upon the deposit on their behalf of the amounts specified in the matter of right.
foregoing paragraph, to execute a deed of reconveyance of the
property in question to Erlinda Sibug, married to Ricardo Forthwith, petitioners filed with the Court of Appeals a petition
Rosales, and the Register of Deeds of Manila shall cancel for certiorari, docketed as CA-G.R. SP No. 49634, alleging that
Transfer Certificate of Title No. 150540 in the name of the the trial court committed grave abuse of discretion amounting
Macaspacs (Exh. E) and issue new title in the name of Sibug; to lack or excess of jurisdiction in issuing a writ of possession
to respondents and in denying their motion for reconsideration
(4) For non-compliance by Sibug and Rosales of the directive of the order dated July 15, 1998 confirming the sale of the
in paragraph (2) of this dispositive portion, let the property be property to said respondents.
sold in accordance with the Rules of Court for the release of
the mortgage debt and the issuance of title to the purchaser. On November 25, 1998, the CA dismissed outright the petition
for lack of merit, holding that there is no right of redemption in
SO ORDERED.[3] case of judicial foreclosure of mortgage. Petitioners motion for
reconsideration was also denied.
The decision became final and executory. Spouses Ricardo
and Erlinda Rosales, judgment debtors and herein petitioners, Hence this petition.
failed to comply with paragraph 2 quoted above, i.e., to deposit
with the Clerk of Court, within 90 days from finality of the In the main, petitioners fault the Appellate Court in applying the
Decision, P65,000.00, etc., to be paid to Felicisimo Macaspac rules on judicial foreclosure of mortgage. They contend that
and Elena Jiao. This prompted Macaspac, as judgment their loan with Macaspac is unsecured, hence, its payment
creditor, to file with the trial court a motion for execution. entails an execution of judgment for money under Section 9 in
relation to Section 25, Rule 39 of the 1997 Rules of Civil
Petitioners opposed the motion for being premature, asserting Procedure, as amended,[4] allowing the judgment debtor one
that the decision has not yet attained finality. On March 5, (1) year from the date of registration of the certificate of sale
1998, they filed a manifestation and motion informing the court within which to redeem the foreclosed property.
of their difficulty in paying Macaspac as there is no correct
computation of the judgment debt. Respondents, upon the other hand, insist that petitioners are
actually questioning the decision of the trial court dated June
On February 23, 1998, Macaspac filed a supplemental motion 13, 1997 which has long become final and executory; and that
for execution stating that the amount due him is P243,864.08. the latter have no right to redeem a mortgaged property which
has been judicially foreclosed.
Petitioners failed to pay the amount. On March 25, 1998, the
trial court issued a writ of execution ordering the sale of the Petitioners contention lacks merit. The decision of the trial
property subject of litigation for the satisfaction of the judgment. court, which is final and executory, declared the transaction
between petitioners and Macaspac an equitable mortgage. In

71
Matanguihan vs. Court of Appeals,[5] this Court defined an 2938), and the General Banking Act (R.A.337). These laws
equitable mortgage as one which although lacking in some confer on the mortgagor, his successors in interest or any
formality, or form or words, or other requisites demanded by a judgment creditor of the mortgagor, the right to redeem the
statute, nevertheless reveals the intention of the parties to property sold on foreclosureafter confirmation by the court of
charge real property as security for a debt, and contains the foreclosure salewhich right may be exercised within a
nothing impossible or contrary to law. An equitable mortgage is period of one (1) year, counted from the date of registration of
not different from a real estate mortgage, and the lien created the certificate of sale in the Registry of Property.
thereby ought not to be defeated by requiring compliance with
the formalities necessary to the validity of a voluntary real But, to repeat, no such right of redemption exists in case of
estate mortgage.[6] Since the parties transaction is an judicial foreclosure of a mortgage if the mortgagee is not the
equitable mortgage and that the trial court ordered its PNB or a bank or banking institution. In such a case, the
foreclosure, execution of judgment is governed by Sections 2 foreclosure sale, when confirmed by an order of the court, x x x
and 3, Rule 68 of the 1997 Rules of Civil Procedure, as shall operate to divest the rights of all the parties to the action
amended, quoted as follows: and to vest their rights in the purchaser. There then exists only
what is known as the equity of redemption. This is simply the
SEC. 2. Judgment on foreclosure for payment or sale. If upon right of the defendant mortgagor to extinguish the mortgage
the trial in such action the court shall find the facts set forth in and retain ownership of the property by paying the secured
the complaint to be true, it shall ascertain the amount due to debt within the 90-day period after the judgment becomes final,
the plaintiff upon the mortgage debt or obligation, including in accordance with Rule 68, or even after the foreclosure sale
interest and other charges as approved by the court, and costs, but prior to its confirmation.
and shall render judgment for the sum so found due and order
that the same be paid to the court or to the judgment obligee xxx
within a period of not less that ninety (90) days nor more than
one hundred twenty (120) days from the entry of judgment, and This is the mortgagors equity (not right) of redemption which,
that in default of such payment the property shall be sold at as above stated, may be exercised by him even beyond the
public auction to satisfy the judgment. 90-day period from the date of service of the order, and even
after the foreclosure sale itself, provided it be before the order
SEC. 3. Sale of mortgaged property, effect. When the of confirmation of the sale. After such order of confirmation, no
defendant, after being directed to do so as provided in the next redemption can be effected any longer. (Italics supplied)
preceding section, fails to pay the amount of the judgment
within the period specified therein, the court, upon motion, shall Clearly, as a general rule, there is no right of redemption in a
order the property to be sold in the manner and under the judicial foreclosure of mortgage. The only exemption is when
provisions of Rule 39 and other regulations governing sales of the mortgagee is the Philippine National Bank or a bank or a
real estate under execution. Such sale shall not effect the banking institution. Since the mortgagee in this case is not one
rights of persons holding prior encumbrances upon the of those mentioned, no right of redemption exists in favor of
property or a part thereof, and when confirmed by an order of petitioners. They merely have an equity of redemption, which,
the court, also upon motion, it shall operate to divest the rights to reiterate, is simply their right, as mortgagor, to extinguish the
in the property of all the parties to the action and to vest their mortgage and retain ownership of the property by paying the
rights in the purchaser, subject to such rights of redemption as secured debt prior to the confirmation of the foreclosure sale.
may be allowed by law. However, instead of exercising this equity of redemption,
petitioners chose to delay the proceedings by filing several
x x x. manifestations with the trial court. Thus, they only have
themselves to blame for the consequent loss of their property.
In Huerta Alba Resort, Inc. vs. Court of Appeals,[7] we held
that the right of redemption is not recognized in a judicial WHEREFORE, the petition is DENIED. The Resolutions of the
foreclosure, thus: Court of Appeals dated November 25, 1998 and February 26,
1999 in CA G.R. SP No. 49634 are AFFIRMED.
The right of redemption in relation to a mortgageunderstood in
the sense of a prerogative to re-acquire mortgaged property SO ORDERED.
after registration of the foreclosure saleexists only in the case
of the extrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosure except only where the
mortgagee is the Philippine National bank or a bank or a
banking institution.

Where a mortgage is foreclosed extrajudicially, Act 3135 grants


to the mortgagor the right of redemption within one (1) year
from the registration of the sheriffs certificate of foreclosure
sale.

Where the foreclosure is judicially effected, however, no


equivalent right of redemption exists. The law declares that a
judicial foreclosure sale, when confirmed by an order of the
court, x x x shall operate to divest the rights of all the parties to
the action and to vest their rights in the purchaser, subject to
such rights of redemption as may be allowed by law. Such
rights exceptionally allowed by law (i.e., even after the
confirmation by an order of the court) are those granted by the
charter of the Philippine National Bank (Act Nos. 2747 and

72
[G.R. No. 125838. June 10, 2003] In a letter dated 24 November 1986, ERHC informed DBP of its
intention to lease the foreclosed properties.[7]
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.
COURT OF APPEALS and EMERALD RESORT HOTEL On 22 December 1986, ERHC filed with the Regional Trial
CORPORATION, respondents. Court of Iriga City a complaint for annulment of the foreclosure
sale of the personal and real properties. Subsequently, ERHC
DECISION filed a Supplemental Complaint. ERHC alleged that the
foreclosure was void mainly because (1) DBP failed to comply
CARPIO, J.: with the procedural requirements prescribed by law; and (2) the
foreclosure was premature. ERHC maintained that the loan
The Case was not yet due and demandable because the DBP had
restructured the loan.
This petition for review on certiorari[1] seeks to reverse the
Joint Decision[2] of the Court of Appeals in CA-G.R. CV Nos. DBP moved to dismiss the complaint because it stated no
38569 and 38604 dated 31 January 1996 and the Resolution cause of action and ERHC had waived the alleged procedural
dated 30 July 1996 denying the motion for reconsideration. The defenses. The trial court denied the motion to dismiss.
Court of Appeals affirmed the Decision[3] of the Regional Trial Consequently, DBP filed its answer, claiming that it complied
Court of Iriga City, Branch 36, declaring the foreclosure of the with the legal requirements for a valid foreclosure. DBP further
mortgaged properties void for failure to comply with the claimed that it cancelled the conditional restructuring of ERHCs
statutory requisites. loan because ERHC failed to comply with some material
conditions of the restructuring agreement.
The Facts
Meanwhile, acting on ERHCs application for the issuance of a
Private respondent Emerald Resort Hotel Corporation (ERHC) writ of preliminary injunction, the trial court granted the writ on
obtained a loan from petitioner Development Bank of the 20 August 1990. Accordingly, the trial court enjoined DBP from
Philippines (DBP). DBP released the loan of P3,500,000.00 in enforcing the legal effects of the foreclosure of both the chattel
three installments: P2,000,000.00 on 27 September 1975, and real estate mortgages.
P1,000,000.00 on 14 June 1976 and P500,000.00 on 14
September 1976. To secure the loan, ERHC mortgaged its Thereafter, trial on the merits ensued. After the parties
personal and real properties to DBP. presented their evidence, the trial court rendered a Decision[8]
dated 28 January 1992, the dispositive portion of which reads:
On 18 March 1981, DBP approved a restructuring of ERHCs
loan subject to certain conditions.[4] On 25 August 1981, DBP WHEREFORE, premises considered, judgment is hereby
allegedly cancelled the restructuring agreement for ERHCs rendered in favor of the plaintiff corporation and against the
failure to comply with some of the material conditions[5] of the defendants:
agreement.
1. Declaring as null and void the foreclosure and auction sale
Subsequently, ERHC delivered to DBP three stock certificates of the personal properties of plaintiff corporation held on July
of ERHC aggregating 3,477,052 shares with a par value of 10, 1986;
P1.00 per share. ERHC first delivered to DBP on 20 October
1981 Stock Certificate No. 30 covering 1,862,148 shares. Then 2. Declaring as null and void the foreclosure and auction sale
ERHC delivered on 3 November 1981 Stock Certificate No. 31 of the real properties of plaintiff corporation covered by TCT
covering 691,052 shares, and on 27 November 1981 Stock No. RT-1075 (19980); TCT No. RT-1076 (19981); TCT No. RT-
Certificate No. 32 covering 923,852 shares. 1077 (22367) and TCT No. 10244 of the Register of Deeds of
Camarines Sur (now Iriga City) in the auction sale thereof held
On 5 June 1986, alleging that ERHC failed to pay its loan, DBP on September 11, 1986, and all the improvements therein;
filed with the Office of the Sheriff, Regional Trial Court of Iriga
City, an Application for Extra-judicial Foreclosure of Real 3. Ordering the Register of Deeds of Camarines Sur (now Iriga
Estate and Chattel Mortgages. City) to cancel the annotations of the Sheriffs Certificate of
Sale on the aforestated titles as null and void and without any
Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon legal effect;
issued the required notices of public auction sale of the
personal and real properties. However, Sheriffs Ramos and 4. Ordering the defendant Development Bank of the Philippines
Galeon failed to execute the corresponding certificates of to comply with the restructuring of plaintiff corporations loans
posting of the notices. On 10 July 1986, the auction sale of the retroactively as though the foreclosure had not taken place in
personal properties proceeded. the interest of justice and equity; and

The Office of the Sheriff scheduled on 12 August 1986 the 5. Ordering the defendant DBP to pay plaintiff corporation
public auction sale of the real properties. The Bicol Tribune moral damages in the amount of P500,000.00 for initiating
published on 18 July 1986, 25 July 1986 and 1 August 1986 what was a clearly illegal foreclosure and causing the said
the notice of auction sale of the real properties. However, the plaintiff corporation to suffer needlessly anguish, opprobrium
Office of the Sheriff postponed the auction sale on 12 August and disrepute as a consequence thereto.
1986 to 11 September 1986 at the request of ERHC. DBP did
not republish the notice of the rescheduled auction sale SO ORDERED.
because DBP and ERHC signed an agreement to postpone the
12 August 1986 auction sale.[6] ERHC, however, disputes the Both ERHC and DBP appealed the trial courts decision to the
authority of Jaime Nuevas who signed the agreement for Court of Appeals. ERHC anchored its appeal on the
ERHC. insufficiency of the moral damages awarded by the trial court
and the absence of any award of temperate, nominal or

73
exemplary damages. DBPs appeal, on the other hand, assailed
the decision as well as the order dismissing its petition for a The Issues
writ of possession.
DBP presents the following issues for resolution:
The Court of Appeals, which consolidated the appeals,
affirmed the decision of the trial court.[9] DBP filed a Motion for 1. Whether DBP complied with the posting and publication
Reconsideration which the Court of Appeals denied.[10] requirements under applicable laws for a valid foreclosure.

Hence, this petition. 2. Whether the restructuring agreement between DBP and
ERHC was perfected and implemented by the parties before
The Ruling of the Court of Appeals the foreclosure.

The Court of Appeals sustained the trial courts ruling that the 3. Whether ERHCs offer to lease the foreclosed properties
foreclosure was void. The Court of Appeals affirmed the trial constitutes a waiver of its right to question the validity of the
courts finding that DBP failed to comply with the posting and foreclosure.
publication requirements under the applicable laws. The Court
of Appeals held that the non-execution of the certificate of 4. Whether the award of moral damages to ERHC, a juridical
posting of the notices of auction sale and the non-republication person, is proper.
of the notice of the rescheduled 11 September 1986 auction
sale invalidated the foreclosure. The Courts Ruling

The Court of Appeals also found that the parties perfected the The petition is partly meritorious.
restructuring agreement and that ERHC substantially complied
with its conditions based on the following circumstances: First Issue: Compliance with the posting and publication

(a) The transmittal letter dated October 20, 1981 which relates requirements under applicable laws
to the progress of the restructuring of the mortgage account of
Emerald Resort Hotel Corporation and that the same has been Posting requirement under Acts Nos. 3135 and 1508
approved by the SEC (Exh. D)
In alleging that the foreclosure was valid, DBP maintains that it
(b) The transfer of shares of stocks to appellant DBP, the value complied with the mandatory posting requirement under
of which are broken as follows: applicable laws.[12] DBP insists that the non-execution of the
certificate of posting of the auction sale notices did not
1. Stock certificate No. 30 for 1,862,148 shares worth invalidate the foreclosure.
P1,862,148.00 (Exhs. D and D-1);
We agree.
2. Stock certificate No. 32 for 932,852 shares worth
P953,852.00 (Exhs. F and F-1); This Court ruled in Cristobal v. Court of Appeals[13] that a
certificate of posting is not required, much less considered
3. Stock certificate No. 031, for 691,052 shares worth indispensable for the validity of an extrajudicial foreclosure sale
P691,052.00 (Exhs. M and M-5). of real property under Act No. 3135. Cristobal merely reiterated
the doctrine laid down in Bohanan v. Court of Appeals.[14] In
(c) The acceptance of the foregoing by the DBP without raising the present case, the foreclosing sheriffs failed to execute the
the fact of delay as embodied in condition no. 7 of Exh. B. certificate of posting of the auction sale notices. However, this
fact alone does not prove that the sheriffs failed to post the
(d) No rejection was made by the defendant-appellant DBP at required notices. As held in Bohanan, the fact alone that there
the time the shares of stocks were being held by the latter. is no certificate of posting attached to the sheriff's records is
not sufficient to prove the lack of posting.[15]
(e) The belated rejection of the shares of stocks was
interposed only at the time the instant suit was filed which was Based on the records, DBP presented sufficient evidence to
long after the expiration of the 90-day period extended by DBP prove that the sheriffs posted the notices of the extrajudicial
to Emerald. sale. The trial and appellate courts glaringly erred and gravely
abused its discretion in disregarding the sheriffs partial report
(f) No rejection was also made when plaintiff corporation did and the sheriffs certificate of sale executed after the auction
not avail of the additional loan which was allegedly part of the sale. A careful examination of these two documents clearly
package accommodation.[11] shows that the foreclosing sheriffs posted the required notices
of sale.
The Court of Appeals also affirmed the trial courts award of
moral damages but denied ERHCs claim for temperate and The partial report dated 10 July 1986 signed by both Sheriff
exemplary damages. The Court of Appeals found that DBPs Abel Ramos and Deputy Sheriff Ruperto Galeon states in part:
intrusion, assisted by sheriffs and several armed men, into
Hotel Ibalon and the sheriffs inventory of the hotels furniture That on July 1, 1986, the undersigned sheriffs posted the
and fixtures caused fear and anxiety to the hotel owner, staff notice of public auction sale of chattel mortgage in the
and guests. These acts, according to the Court of Appeals, conspicuous places, and at the Iriga City Hall Bulletin Board,
debased the hotels goodwill and undermined its viability including Ibalon Hotel, Iriga City xxx.[16] (Emphasis supplied)
warranting the award of moral damages.
Similarly, the certificate of sale of the real properties signed by
Finding the foreclosure void, the Court of Appeals also denied both Sheriff Ramos and Deputy Sheriff Galeon on 11
DBPs petition for a deficiency claim and a writ of possession. September 1986 states in part:

74
highest bidder. Aggrieved, respondents sued to nullify the
I, FURTHERMORE CERTIFY that the Notice of Sale was foreclosure sale. The trial court declared the sale void for non-
published in BICOL TRIBUNE, a newspaper of general compliance with Act No. 3135. This decision was affirmed in
circulation in the province of Camarines Sur, for three (3) toto by the Court of Appeals. Upholding the conclusions of the
consecutive weeks and three (3) copies of the notices of sale trial and appellate courts, we held:
were posted in three (3) public places of the City where the
properties are located for no less than twenty (20) days before Petitioner and respondents have absolutely no right to waive
the sale. [17] (Emphasis supplied) the posting and publication requirements of Act No. 3135.

Deputy Sheriff Galeon also testified that he, together with xxx
Sheriff Ramos,[18] actually posted the notices of sale.[19]
Indisputably, there is clear and convincing evidence of the Publication, therefore, is required to give the foreclosure sale a
posting of the notices of sale. What the law requires is the reasonably wide publicity such that those interested might
posting of the notice of sale, which is present in this case, and attend the public sale. To allow the parties to waive this
not the execution of the certificate of posting. jurisdictional requirement would result in converting into a
private sale what ought to be a public auction.
Moreover, ERHC bore the burden of presenting evidence that
the sheriffs failed to post the notices of sale.[20] In the absence DBP further asserts that Section 24, Rule 39 of the Rules of
of contrary evidence, as in this case, the presumption prevails Court, which allows adjournment of execution sales by
that the sheriffs performed their official duty of posting the agreement of the parties, applies to the present case. Section
notices of sale. Consequently, we hold that the non-execution 24 of Rule 39 provides:
of the certificate of posting cannot nullify the foreclosure of the
chattel and real estate mortgages in the instant case. Sec. 24. Adjournment of Sale By written consent of debtor and
creditor, the officer may adjourn any sale upon execution to
Publication requirement under Act No. 3135 any date agreed upon in writing by the parties. Without such
agreement, he may adjourn the sale from day to day, if it
Having shown that there was posting of the notices of auction becomes necessary to do so for lack of time to complete the
sale, we shall now resolve whether there was publication of the sale on the day fixed in the notice.
notice of sale of the real properties in compliance with Act No.
3135.[21] The Court ruled in Ouano that Section 24 of Rule 39 does not
apply to extrajudicial foreclosure sales, thus:
There is no question that DBP published the notice of auction
sale scheduled on 12 August 1986. However, no auction sale Petitioner submits that the language of the abovecited
took place on 12 August 1986 because DBP, at the instance of provision[23] implies that the written request of the parties
ERHC, agreed to postpone the same to 11 September 1986. suffices to authorize the sheriff to reset the sale without
DBP contends that the agreement to postpone dispensed with republication or reposting.
the need to publish again the notice of auction sale. Thus, DBP
did not anymore publish the notice of the 11 September 1986 At the outset, distinction should be made of the three different
auction sale. DBP insists that the law does not require kinds of sales under the law, namely: an ordinary execution
republication of the notice of a rescheduled auction sale. sale, a judicial foreclosure sale, and an extrajudicial foreclosure
Consequently, DBP argues vigorously that the extrajudicial sale. An ordinary execution sale is governed by the pertinent
foreclosure of the real estate mortgage is valid. provisions of Rule 39 of the Rules of Court. Rule 68 of the
Rules of Court applies in cases of judicial foreclosure sale. On
We do not agree. the other hand, Act No. 3135, as amended by Act No. 4118
otherwise known as An Act to Regulate the Sale of Property
The Court held recently in Ouano v. Court of Appeals[22] that under Special Powers Inserted in or Annexed to Real Estate
republication in the manner prescribed by Act No. 3135 is Mortgages applies in cases of extrajudicial foreclosure sale. A
necessary for the validity of a postponed extrajudicial different set of law applies to each class of sale mentioned.
foreclosure sale. Another publication is required in case the The cited provision in the Rules of Court hence does not apply
auction sale is rescheduled, and the absence of such to an extrajudicial foreclosure sale. (Emphasis supplied)
republication invalidates the foreclosure sale.
DBP also maintains that ERHCs act of requesting
The Court also ruled in Ouano that the parties have no right to postponement of the 12 August 1986 auction sale estops
waive the publication requirement in Act No. 3135. The Court ERHC from challenging the absence of publication of the
declared thus: notice of the rescheduled auction sale.

Petitioner further contends that republication may be waived We do not agree.


voluntarily by the parties.
ERHC indeed requested postponement of the auction sale
This argument has no basis in law. The issue of whether scheduled on 12 August 1986.[24] However, the records are
republication may be waived is not novel, as we have passed bereft of any evidence that ERHC requested the postponement
upon the same query in Philippine National Bank v. without need of republication of the notice of sale. In Philippine
Nepomuceno Productions Inc. Petitioner therein sought National Bank v. Nepomuceno Productions Inc.,[25] the Court
extrajudicial foreclosure of respondents mortgaged properties held that:
with the Sheriffs Office of Pasig, Rizal. Initially scheduled on
August 12, 1976, the auction sale was rescheduled several x x x To request postponement of the sale is one thing; to
times without republication of the notice of sale, as stipulated in request it without need of compliance with the statutory
their Agreements to Postpone Sale. Finally, the auction sale requirements is another. Respondents, therefore, did not
proceeded on December 20, 1976, with petitioner as the commit any act that would have estopped them from

75
questioning the validity of the foreclosure sale for non-
compliance with Act No. 3135. x x x Second, the Court hopes to deter the practice of some
mortgagors in requesting postponement of the auction sale of
The form of the notice of extrajudicial sale is now prescribed in real properties, then later attacking the validity of the
Circular No. 7-2002[26] issued by the Office of the Court foreclosure for lack of republication. This practice will only force
Administrator on 22 January 2002. Section 4(a) of Circular No. mortgagees to deny outright requests for postponement by
7-2002 provides that: mortgagors since it will only mean added publication expense
on the part of mortgagees. Such development will eventually
Sec. 4. The Sheriff to whom the application for extra-judicial work against mortgagors because mortgagees will hesitate to
foreclosure of mortgage was raffled shall do the following: grant postponements to mortgagors.

a. Prepare a Notice of Extra-judicial Sale using the following In the instant case, there is no information in the notice of
form: auction sale of any date of a rescheduled auction sale. Even if
such information were stated in the notice of sale, the reposting
NOTICE OF EXTRA-JUDICIAL SALE and republication of the notice of sale would still be necessary
because Circular No. 7-2002 took effect only on 22 April 2002.
Upon extra-judicial petition for sale under Act 3135/1508 filed There were no such guidelines in effect during the questioned
_________ against (name and address of Mortgagor/s) to foreclosure.
satisfy the mortgage indebtedness which as of ___________
amounts to P __________ excluding penalties, charges, Clearly, DBP failed to comply with the publication requirement
attorneys fees and expenses of foreclosure, the undersigned or under Act No. 3135. There was no publication of the notice of
his duly authorized deputy will sell at public auction on (date of the rescheduled auction sale of the real properties. Therefore,
sale) ________ at 10:00 A.M. or soon thereafter at the main the extrajudicial foreclosure of the real estate mortgage is void.
entrance of the ________ (place of sale) to the highest bidder,
for cash or managers check and in Philippine Currency, the
following property with all its improvements, to wit: DBP, however, complied with the mandatory posting of the
notices of the auction sale of the personal properties. Under
(Description of Property) the Chattel Mortgage Law,[27] the only requirement is posting
of the notice of auction sale. There was no postponement of
All sealed bids must be submitted to the undersigned on the the auction sale of the personal properties and the foreclosure
above stated time and date. took place as scheduled. Thus, the extrajudicial foreclosure of
the chattel mortgage in the instant case suffers from no
In the event the public auction should not take place on the procedural infirmity.
said date, it shall be held on ___________,______ without
further notice. Second Issue: Perfection and implementation of the

__________ (date) restructuring agreement between DBP and ERHC

SHERIFF (Emphasis supplied) ERHC consistently argues that its restructuring agreement with
DBP was perfected and even implemented by the parties.
The last paragraph of the prescribed notice of sale allows the ERHC maintains that the delivery of its certificates of stocks to
holding of a rescheduled auction sale without reposting or DBP was part of its compliance with the conditions of the
republication of the notice. However, the rescheduled auction restructuring agreement.
sale will only be valid if the rescheduled date of auction is
clearly specified in the prior notice of sale. The absence of this We do not agree.
information in the prior notice of sale will render the
rescheduled auction sale void for lack of reposting or Contrary to ERHCs allegations and the Court of Appeals
republication. If the notice of auction sale contains this findings, the restructuring agreement was never perfected.
particular information, whether or not the parties agreed to ERHC failed to comply with the material conditions for the
such rescheduled date, there is no more need for the reposting perfection of the restructuring agreement. As specified in DBP
or republication of the notice of the rescheduled auction sale. Resolution No. 956 dated 19 March 1981[28] approving the
restructuring agreement, the following are the conditions for the
The Office of the Court Administrator issued Circular No. 7- restructuring agreement:
2002 pursuant to the 14 December 1999 Resolution of this
Court in A.M. No. 99-10-05-0, as amended by the Resolutions RESOLUTION NO. 956. Emerald Resort Hotel Corporation
of 30 January 2001 and 7 August 2001. The Court issued (Hotel Ibalon) Conversion Into Common and/or Preferred
these Resolutions for two reasons. Shares of P2,786,000.00 Representing 40% of the Total
Outstanding Obligations; a Third Additional Loan of
First, the Court seeks to minimize the expenses which the P679,000.00 and Restructuring of the Account.
mortgagee incurs in publishing the notice of extrajudicial sale.
With the added information in the notice of sale, the mortgagee xxx
need not cause the reposting and republication of the notice of
the rescheduled auction sale. There is no violation of the notice In view thereof and as favorably recommended by the Manager
requirements under Acts Nos. 3135 and 1508 precisely of the Industrial Projects Department III in her memorandum
because the interested parties as well as the public are dated February 24, 1981, the Board, upon motion made and
informed of the schedule of the next auction sale, if the first duly seconded, APPROVED in favor of Emerald Resort Hotel
auction sale does not proceed. Therefore, the purpose of a Corporation (Hotel Ibalon) the following:
notice of sale, which is to notify the mortgagor and the public of
the foreclosure sale, is satisfied.

76
1. Immediate conversion into common and/or preferred shares DBP. ERHC did not present any evidence to show that it
at borrowers option, of P2,786,000.00 representing 40% of the complied with this particular requirement. While it is true that
total outstanding obligation as of May 15, 1980, in the reduced ERHC delivered to DBP certificates of stocks, it was to comply
amount of P6,965,000.00 composed of outstanding principal with ERHCs commitment under the original mortgage
balance of P3,500,000.00 and total arrearages on interest and contracts.[29] ERHC committed to pledge or assign to DBP at
other charges of P3,465,000.00, the conversion price to be least 67 percent of its outstanding shares to secure the original
equal to the par value of the shares; loan accommodation. The original mortgage contracts contain
the following condition:
2. A third additional loan of Six Hundred Seventy-Nine
Thousand Pesos (P679,000.00), payable quarterly under the xxx
same restructured terms of the original and two (2) additional
loans, at 18% interest per annum; and c. By an assignment to the Mortgagee of not less than 67% of
the total subscribed and outstanding voting shares of the
3. Restructuring of the firms total outstanding principal company. The said percentages of shares assigned shall be
obligation of P3,500,000.00 in the form of extension of grace maintained at all times and the said assignment to subsist for
period on principal repayment from two (2) years to nine (9) as long as the Assignee may deem necessary during the
years to make a maximum loan term of nineteen (19) years, existence of the Mortgagees approved accommodation.
regular amortizations to commence three (3) months after the xxx[30]
end of the extended grace period on October 31, 1985 and
payable quarterly at the following interest rates: On 17 April 1985, DBP informed ERHC that it had not complied
with the condition in the original mortgage contract on the
Original Loan - P1,425,800 at 16% interest per annum assignment of 67 percent of its outstanding shares to DBP.
The letter of DBP states in part:
- 574,200 at 18% interest per annum
2. The condition requiring ERHC to assign in favor of DBP at
1st Additional Loan - 1,000,000 at 18% interest per annum least 67% of the subscribed and outstanding voting shares of
company has not been met.
- __ 500,000 at 18% interest per annum
Of the 4,917,500 outstanding voting shares as of December
Total - P3,500,000 31, 1982, only 911,800 shares have been assigned instead of
3,294,725 (67% of 4,917,000), more of the outstanding voting
subject to the following terms and conditions: shares have increased. [31]

A. For the P679,000.00 Additional Loan The deficiency of 2,382,925 shares (3,294,725 - 911,800) may
however be covered by the 2,786,000 shares you transferred
a. That subject-firm shall first pay the amount of P473.00 to in the name of DBP as an alternative compliance with 65%
reduce its total arrearages on interest and other charges of requirement. (Emphasis supplied)
P3,465,473.00 as of May 15, 1980 to P3,465,000.00; and
In its reply letter dated 11 June 1985 to DBP, ERHC signified
b. That the proceeds of this additional loan shall be applied to its readiness to assign 67 percent of its outstanding shares to
subject-firms accrued interest and other charges due DBP as DBP. Thus, ERHCs reply letter, signed by its President Atty.
of May 15, 1980 not otherwise covered by the proposed equity Jose C. Reyes, states in part:
conversion of P2,786,000.00.
With reference to your letter dated 17 April 1985 which could
B. For Both Additional Loan and Restructuring not be seasonably acted upon on account of my absence from
the country for medical reasons, I am pleased to inform your
a. That a quasi-reorganization shall first be undertaken for the goodself of the action taken on the various items thereon
purpose of eliminating existing deficits, which should be enumerated, to wit:
formally authorized by the stockholders of the corporation,
should comply with legal requirements, and should be 1. x x x
approved by the Securities and Exchange Commission which
sees to it that the rights of creditors are not prejudiced. 2. Assignment of 67% of outstanding voting shares.

xxx We are ready to bring up the assigned shares in favor of DBP


to 67% of the corporations outstanding voting shares of
e. That subject-firm shall apply with SEC for an amendment of 4,917,500 as of December 31, 1982 or total of 3,294,725
its authorized capitalization to include preferred shares in case shares.
immediate conversion into equity of 40% of the total
outstanding obligation as of May 15, 1980 will include preferred The corporation will maintain its previous assignment of
shares. 911,800 shares.

xxx (Emphasis supplied) Moreover, the corporation is agreeable that Stock Certificate
No. 030 for 1,862,148 shares which had been transferred to
A careful review of the facts and the evidence presented by the DBP be considered as an alternative compliance to the raising
parties discloses that ERHC failed to comply with the terms of DBPs assigned shares to the full 67% or 3,294,725 shares.
and conditions set forth in DBP Resolution No. 956. Your formal conformity to this arrangement is likewise
requested.
First, ERHC failed to comply with the important condition of
converting into equity 40 percent of its outstanding debt to

77
Finally, the corporation will further assign to DBP another and Exchange Commission there was need to extend our
520,777 shares in exchange of Stock Certificate No. 032 for period of compliance.
923,852 shares which was transferred to DBP conditionally.
This Stock Certificate has to be surrendered to the corporation xxx
for cancellation before we can issue by way of further
assignment the 520,777 shares. In short, the 3 blocks of It will thus be noted from the foregoing communications that we
shares mentioned above would result as follows: have exerted our utmost best to comply with the conditions for
the re-structuring of our loan accounts and all have been
1. 911,800 shares complied, with the exception of the quasi-reorganization, for
reasons beyond our legal control since it is the SEC that
2. 1,862,148 shares passes upon the question as to whether or not we meet the
SEC guidelines for a quasi-reorganization. Unfortunately, for
3. 520,777 shares the reasons stated in Annex H and the enclosures thereto, the
SEC felt that ERHC was not within their guidelines for a quasi-
________ reorganization.[33] (Emphasis supplied)

Total 3,294,725 shares of 67% outstanding The quasi-reorganization is required specifically to eliminate
ERHCs existing deficits. However, the SEC must first approve
voting shares the quasi-reorganization which approval ERHC admittedly
failed to secure. Through no fault of DBP, SEC disapproved
x x x. [32] ERHCs application for quasi-reorganization.

Clearly, when ERHC delivered the certificates of stocks, it was Considering that ERHC failed to comply with the material
to comply with ERHCs commitment under the original conditions of the restructuring agreement, the agreement was
mortgage contracts, not the restructuring agreement. never implemented or even perfected. The perfection and
implementation of the restructuring agreement were expressly
Besides, there is a vast difference between an assignment of subject to the following conditions embodied in DBP Resolution
shares to DBP by existing stockholders and conversion of No. 956 and in DBPs notice of approval to ERHC, respectively:
DBPs loan into equity of ERHC. In the first, the paid-up capital
of ERHC remains the same. In the latter, the paid-up capital of t. x x x Implementation of the restructuring scheme as
ERHC, as well as its liabilities, changes in that the liabilities are approved shall take effect upon compliance with the terms and
transferred to the capital account to the extent of the conditions and with all the legal and documentation
conversion. The latter case, which is the conversion of debt requirements;[34]
into equity required under the restructuring agreement, never
happened. The delivery to DBP of stock certificates xxxxxxxxx
representing 3,294,725 ERHC shares did not reduce the
liabilities of ERHC. The reason for the requirement to convert 7. All documents for this loan approval shall be executed and
P2,786,000.00 in liabilities of ERHC into equity was to reduce perfected within 90 days from the date of this notice; otherwise,
ERHCs debt to equity ratio, which the assignment and delivery this accommodation shall be automatically cancelled.[35]
of the stock certificates did not and could not have achieved.
The trial and appellate courts gravely misapprehended the
Second, ERHC did not avail of the P679,000.00 additional facts and made manifestly mistaken inferences in finding that
loan, despite this being a material condition of the restructuring the parties had perfected the restructuring agreement.
agreement. ERHC could not simply refuse to avail of the Consequently, when DBP filed the application for extrajudicial
additional loan because the proceeds of this loan were to pay foreclosure of the chattel and real estate mortgages, ERHC
the balance of ERHCs accrued interest and other charges due was already in default in paying its debt to DBP.
DBP as of 15 May 1980. Clearly, ERHCs refusal to avail of the
additional loan, intended to up-date ERHCs loan account, Third Issue: ERHCs offer to lease the foreclosed properties
prevented the perfection of the restructuring agreement.
ERHC offered to lease from DBP the foreclosed properties
Lastly, ERHC failed to comply with the quasi-reorganization after the auction sale. DBP argues that when ERHC offered to
requirement, as clearly admitted in ERHCs letter dated 3 lease from DBP the foreclosed properties, ERHC waived its
November 1982 to DBP, thus: right to question the validity of the foreclosure.

3. On July 31, 1981, we once more communicated with your We do not agree.
Naga Branch advising of the Emerald Resort Hotel
Corporations Stockholders Resolution approving the quasi- To constitute a waiver, the intent to waive must be shown
reorganization and the Petition filed with the Securities and clearly and convincingly.[36] A mere offer to lease the
Exchange Commission requesting approval of the corporations foreclosed properties cannot constitute a waiver of ERHCs
resolution on quasi-reorganization and the transfer of right to contest the validity of the foreclosure on the ground of
1,862,148 shares in favor of the DBP, copy whereof is attached non-compliance with the statutory requisites. ERHCs offer to
as Annex C; lease does not relinquish ERHCs right to challenge the validity
of the foreclosure. The offer to lease the foreclosed properties
4. On September 7, 1981, we received by personal delivery a cannot validate or ratify a void foreclosure. ERHCs intention to
letter from Manager Mario C. Leao, copy whereof is attached lease the foreclosed properties cannot simply outweigh DBPs
as Annex D. In our conversation had on this occasion, I failure to comply with the statutory requisite for a valid
reiterated our request in our letter dated 19 June 1981 that in extrajudicial foreclosure. As the Court of Appeals correctly
view of the circumstances affecting our papers in the Securities ruled, there can be no waiver of the posting and publication

78
requirements in foreclosure proceedings because the same is
contrary to law and public order.

Fourth Issue: Award of moral damages

DBP maintains that ERHC, a juridical person, is not entitled to


moral damages. ERHC counters that its reputation was
debased when the sheriffs and several armed men intruded
into Hotel Ibalons premises and inventoried the furniture and
fixtures in the hotel.

The Court of Appeals erred in awarding moral damages to


ERHC. The Court of Appeals sole basis for its ruling is a
quoted portion of the testimony of ERHCs President, Atty. Jose
Reyes. The testimony was not even offered to prove the
justification and amount of damages which ERHC claims
against DBP. In other words, ERHC failed to present evidence
to warrant the award of moral damages. In a long line of
decisions, this Court has held that the claimant for moral
damages must present concrete proof to justify its award, thus:

xxx while no proof of pecuniary loss is necessary in order that


moral damages may be awarded, the amount of indemnity
being left to the discretion of the court (Art. 2216), it is,
nevertheless, essential that the claimant satisfactorily prove the
existence of the factual basis of the damage (Art. 2217) and its
causal relation to defendants acts. This is so because moral
damages, though incapable of pecuniary estimation, are in the
category of an award designed to compensate the claimant for
actual injury suffered and not to impose a penalty on the
wrongdoer.[37] (Emphasis supplied)

In the body of its decision, the trial court gave no basis to justify
the award of moral damages. The trial court simply awarded
moral damages in the dispositive portion of its decision.[38]

Moreover, as a general rule, moral damages are not awarded


to a corporation, thus:

The award of moral damages cannot be granted in favor of a


corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only
be one having a nervous system. The statement in People v.
Manero and Mambulao Lumber Co. v. PNB that a corporation
may recover moral damages if it has a good reputation that is
debased, resulting in social humiliation is an obiter dictum. On
this score alone the award for damages must be set aside,
since RBS is a corporation.[39]

WHEREFORE, the Joint Decision of the Court of Appeals in


CA-G.R. CV Nos. 38569 and 38604 is AFFIRMED with
MODIFICATION. The extrajudicial foreclosure of the chattel
mortgage is valid whereas the extrajudicial foreclosure of the
real estate mortgage is void. The award of moral damages is
deleted for lack of basis. No costs.

SO ORDERED.

79
[G.R. No. 133079. August 9, 2005] As announced, on 11 August 1993, at 10:00 oclock in the
morning, the public auction sale was held and the mortgaged
SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI, property sold to respondent Carmencita San Diego as the
petitioners, vs. THE HONORABLE COURT OF APPEALS; highest bidder for P2,000,000.00, as evidenced by the Sheriffs
SPS. BENJAMIN SAN DIEGO and CARMENCITA SAN Certificate of Sale issued in her favor on 07 October 1993.
DIEGO; The EX-OFFICIO SHERIFF and CLERK OF COURT
of the Regional Trial Court, Makati City; and the REGISTER On 29 October 1993, respondent San Diego caused the
OF DEEDS, Makati City, respondents. registration of the same sheriffs certificate of sale with the
Office of the Register of Deeds, Makati City, and duly inscribed
DECISION on the same date at the dorsal side of the petitioners TCT No.
(432281) S-21000.
GARCIA, J.:
With the petitioners having failed to redeem their property
Herein petitioners, the spouses Maximo Landrito, Jr. and within the 1-year redemption period from the date of inscription
Pacita Landrito, have come to this Court via this petition for of the sheriffs certificate of sale, as provided for in Act No.
review on certiorari under Rule 45 of the Rules of Court to seek 3135, as amended, the San Diegos caused the consolidation
the reversal and setting aside of the decision dated 12 of title over the foreclosed property in their names.
December 1997[1] and resolution dated 10 March 1998[2] of
the Court of Appeals in CA-G.R. CV No. 48896, affirming an Then, on 09 November 1994, before the Regional Trial Court
earlier order of the Regional Trial Court at Makati City which at Makati City, petitioners filed their complaint for annulment of
granted the motion to dismiss filed by the herein private the extrajudicial foreclosure and auction sale, with damages. In
respondents, the spouses Benjamin San Diego and their complaint, thereat docketed as Civil Case No. 94-2950,
Carmencita San Diego, in its Civil Case No. 94-2950, a petitioners alleged that (1) said foreclosure and auction sale
complaint for annulment of extrajudicial foreclosure and auction were null and void for failure to comply with the requirements of
sale, thereat commenced by them against the San Diegos, the notice and publication, as mandated by Act 3135, as amended;
ex-officio sheriff and the Register of Deeds of Makati City. (2) the mortgaged property was illegally foreclosed in the light
of the settled rule that an action to foreclose a mortgage must
be limited to the amount mentioned in the mortgage document,
The facts: in this case, P1,000,000.00, which amount was allegedly
bloated by respondent Carmencita San Diego to
In July 1990, petitioners obtained a loan of P350,000.00 from P1,950,000.00; and (3) the San Diegos application for
respondent Carmencita San Diego. To secure payment consolidation of title was premature because the husband,
thereof, petitioners executed on 02 August 1990 in favor of the Benjamin San Diego, allegedly granted them an extension of
same respondent a deed of real estate mortgage over their the period of redemption up to 11 November 1994.
parcel of land located at Bayanan, Muntinlupa, Rizal and
registered in their names under Transfer Certificate of Title No. To the complaint, respondents interposed a Motion to Dismiss,
(432281) S-21000. therein alleging that said complaint failed to state a cause of
action as no primary right of the petitioners had been violated
After making substantial payments, petitioners again obtained since they actually failed to exercise their right of redemption
and were granted by Carmencita San Diego an additional loan within the one-year redemption period, adding that petitioners
of One Million Pesos (P1,000,000.00). To secure this additional never took any action which may stall the running of the same
loan, the parties executed on 13 September 1991 an period, thereby leaving them no further right or interest in the
Amendment of Real Estate Mortgage, whereunder they property in question.
stipulated that the loan shall be paid within six (6) months from
16 September 1991, and if not paid within said period, the In an order dated 13 January 1995, the trial court granted
mortgagee shall have the right to declare the mortgage due respondents motion to dismiss and accordingly dismissed
and may immediately foreclose the same judicially or petitioners complaint, saying that the latters cause of action, if
extrajudicially, in accordance with law. any, is already barred by laches on account of their failure or
neglect for an unreasonable length of time to do that which, by
It appears that petitioners defaulted in paying their loan and exercising due diligence, could or should have been done
continuously refused to comply with their obligation despite earlier. Further, the trial court ruled that petitioners inaction
repeated demands therefor, prompting respondent Carmencita constituted a waiver on their part.
San Diego to send them on 27 April 1993, a final notice of
demand requiring them to settle their financial obligation which, Therefrom, petitioners went on appeal to the Court of Appeals
by then, already amounted to P1,950,000.00. in CA-G.R. CV No. 48896.

On 30 June 1993, after her efforts to collect proved futile, As stated at the outset hereof, the appellate court, in its
respondent Carmencita San Diego filed with the Office of the decision of 12 December 1997, dismissed petitioners appeal
Clerk of Court and Ex-Officio Sheriff of RTC-Makati, a petition and affirmed in toto the trial courts order of dismissal. With their
for the extrajudicial foreclosure of the mortgage. motion for reconsideration having been denied by the same
court in its resolution of 10 March 1998,[3] petitioners are now
On 06 July 1993, said office sent to the parties a Notice of with us via the present recourse, faulting the Court of Appeals,
Sheriffs Sale, therein announcing that petitioners mortgaged as follows:
property will be sold in a public auction to be conducted on 11
August 1993 at 10:00 oclock in the morning, copies of which 1. The Court of Appeals gravely erred in avoiding to resolve in
notice were posted in several conspicuous places within the the assailed Decision and in the questioned Resolution the
sheriffs territorial jurisdiction. basic issue as to whether or not the extra-judicial foreclosure
and public auction sale of the subject parcel of land are valid
and lawful when the amount stated in letter-request or the

80
petition for extra-judicial foreclosure and in the notice of sheriff mortgage contract entered into by the parties is evidently silent
sale doubled the amount stipulated in the Amendment of Real on the payment of interest.
Estate Mortgage;
However, contrary to petitioners claim, the appellate court did
2. The Court of Appeals has similarly committed serious error pass upon the legal issue raised by them, albeit ruling that
in considering that the complaint of the petitioner is a complaint petitioners had been barred by laches from raising the same.
for redemption when in the caption; in the body; and in the We quote from the challenged decision:
prayer of the complaint, petitioner spouses have sought the
nullity as void ab initio the extra-judicial foreclosure and auction [Petitioners] next argued that the mortgaged property was
sale of the subject property; illegally foreclosed since it is a well settled rule that an action to
foreclose a mortgage must be limited to the amount mentioned
3. The respondent Appellate Court likewise incredulously erred in the mortgage.
to have resolved the admissibility and probative value of the
statement of account attached as Annex E of the complaint The argument is without merit.
when it was not yet presented in evidence; because the stage
of the case at the time the assailed dismissal order was issued, It appears from the evidence on record that despite due notice
was yet in the period of pleadings; and publication of the same in a newspaper of general
circulation (Exhs. 5, 5-A and 5-B, pp. 53-55, Record),
4. The Court of Appeals has grievously erred in affirming the [petitioners] did not bother to attend the foreclosure sale nor
assailed dismissal order by declaring petitioner spouses to raise any question regarding the propriety of the sale. It was
have been guilty of laches in failing to redeem during the legal only on November 9, 1994, or more than one year from the
period of redemption the foreclosed parcel of land; when the registration of the Sheriffs Certificate of Sale, that [petitioners]
cause of the failure to redeem was the illegal increase by 100% filed the instant complaint. Clearly, [petitioners] had slept on
of the original obligation, stated in the Amendment of Real their rights and are therefore guilty of laches, which is defined
Estate Mortgage and bloating of the redemption price from Two as the failure or neglect for an unreasonable or explained
Million Pesos (P2,000,000.00) to Three Million Four Hundred length of time to do that which, by exercising due diligence,
Ninety One Thousand Two Hundred Twenty Five & 98/100 could or should have been done earlier, failure of which gives
Pesos (P3,491,225.98). rise to the presumption that the person possessed of the right
or privilege has abandoned or has declined to assert the same.
We DENY. (Words in bracket added.)

The records indubitably show that at the time of the foreclosure For sure, in the very petition they filed in this case, petitioners
sale on 11 August 1993, petitioners were already in default in have not offered any valid excuse why, despite notice to them
their loan obligation to respondent Carmencita San Diego. of the petition for extrajudicial foreclosure filed by the
respondents, they failed to attend the proceedings and there
Much earlier, or on 27 April 1993, a final notice of demand for voiced out what they are now claiming. Truly, laches has
payment had been sent to them, despite which they still failed worked against them.
to pay. Hence, respondent Carmencita San Diegos resort to
extrajudicial foreclosure, provided no less in the parties The law on redemption of mortgaged property is clear.
Amendment of Real Estate Mortgage. Republic Act No. 3135 (An Act to Regulate the Sale of Property
Under Special Powers Inserted In Or Annexed to Real Estate
The rule has been, and still is, that in real estate mortgage, Mortgages), as amended by Republic Act No. 4118, provides
when the principal obligation is not paid when due, the in Section 6 thereof, thus:
mortgagee has the right to foreclose on the mortgage and to
have the mortgaged property seized and sold with the view of Sec. 6. In all cases in which an extrajudicial sale is made under
applying the proceeds thereof to the payment of the the special power hereinbefore referred to, the debtor, his
obligation.[4] successors in interest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the
Here, the validity of the extrajudicial foreclosure on 11 August property subsequent to the mortgage or deed of trust under
1993 was virtually confirmed by the trial court when it which the property is sold, may redeem the same at any time
dismissed petitioners complaint, and rightly so, what with the within the term of one year from and after the date of the sale;
fact that petitioners failed to exercise their right of redemption xxx (Emphasis supplied)
within the 1-year period therefor counted from the registration
of the sheriffs certificate of sale. In a long line of cases[5], this Court has consistently ruled that
the one-year redemption period should be counted not from the
It is petitioners main submission, however, that the very reason date of foreclosure sale, but from the time the certificate of sale
why they did not avail of their redemption right is because Mrs. is registered with the Register of Deeds. Here, it is not disputed
San Diego bloated their original loan of P1,000,000.00 to that the sheriffs certificate of sale was registered on 29 October
P1,950,000.00, an issue supposedly not considered and/or 1993.
addressed by the appellate court in the decision under review.
In this regard, petitioners argue that the Court of Appeals, in And under Article 13 of the New Civil Code[6], a year is
sustaining the extrajudicial foreclosure proceedings, thereby go understood to have three hundred sixty-five (365) days each.
against the established jurisprudence that an action for Thus, excluding the first day and counting from 30 October
foreclosure must be limited to the amount mentioned in the 1993 (under paragraph 3 of Article 13 of the New Civil Code),
mortgage document, P1,000,000.00 in this case. and bearing in mind that 1994 was a leap year, petitioners had
only until 29 October 1994, the 365th day after registration of
We do not take issue with petitioners submission that a the sheriffs certificate of sale on 29 October 1993, within which
mortgage may be foreclosed only for the amount appearing in to redeem the foreclosed property in accordance with law. And
the mortgage document, more so where, as here, the since 29 October 1994 fell on a Saturday, petitioners had until

81
the following working day, 31 October 1994, within which to WHEREFORE, the instant petition is DENIED and the
exercise their right of redemption. challenged decision and resolution of the Court of Appeals
AFFIRMED.
From the foregoing, it is clear as day that even the complaint
filed by the petitioners with the trial court on 09 November 1994 No pronouncement as to costs.
was instituted beyond the 1-year redemption period. In fact,
petitioners no less acknowledged that their complaint for SO ORDERED.
annulment of extrajudicial foreclosure and auction sale was
filed about eleven (11) days after the redemption period had
already expired on 29 October 1994[7]. They merely harp on
the alleged increase in the redemption price of the mortgaged
property as the reason for their failure to redeem the same.
However, and as already pointed out herein, they chose not,
despite notice, to appear during the foreclosure proceedings.

Of course, petitioners presently insist that they requested for


and were granted an extension of time within which to redeem
their property, relying on a handwritten note allegedly written
by Mrs. San Diegos husband on petitioners statement of
account, indicating therein the date 11 November 1994 as the
last day to pay their outstanding account in full. Even
assuming, in gratia argumenti, that they were indeed granted
such an extension, the hard reality, however, is that at no time
at all did petitioners make a valid offer to redeem coupled with
a tender of the redemption price.

Even on this score, petitioners case must fall.

For, in Lazo v. Republic Surety & Insurance Co., Inc.[8], this


Court has made it clear that it is only where, by voluntary
agreement of the parties, consisting of extensions of the
redemption period, followed by commitment by the debtor to
pay the redemption price at a fixed date, will the concept of
legal redemption be converted into one of conventional
redemption.

Here, there is no showing whatsoever that petitioners agreed


to pay the redemption price on or before 11 November 1994,
as allegedly set by Mrs. San Diegos husband. On the contrary,
their act of filing their complaint on 09 November 1994 to
declare the nullity of the foreclosure sale is indicative of their
refusal to pay the redemption price on the alleged deadline set
by the husband. At the very least, if they so believed that their
loan obligation was only for P1,000,000.00, petitioners should
have made an offer to redeem within one (1) year from the
registration of the sheriffs certificate of sale, together with a
tender of the same amount. This, they never did.

It must be remembered that the period of redemption is not a


prescriptive period but a condition precedent provided by law to
restrict the right of the person exercising redemption.
Correspondingly, if a person exercising the right of redemption
has offered to redeem the property within the period fixed, he is
considered to have complied with the condition precedent
prescribed by law and may thereafter bring an action to enforce
redemption. If, on the other hand, the period is allowed to lapse
before the right of redemption is exercised, then the action to
enforce redemption will not prosper, even if the action is
brought within the ordinary prescriptive period. Moreover, the
period within which to redeem the property sold at a sheriffs
sale is not suspended by the institution of an action to annul
the foreclosure sale.[9] It is clear, then, that petitioners have
lost any right or interest over the subject property primarily
because of their failure to redeem the same in the manner and
within the period prescribed by law. Their belated attempts to
question the legality and validity of the foreclosure proceedings
and public auction must accordingly fail.

82
G.R. No. 195540 March 13, 2013 In its Answer with Counterclaim,8 respondent pointed out that
petitioner cannot claim that it was unaware of the redemption
GOLDENWAY MERCHANDISING CORPORATION, price which is clearly provided in Section 47 of R.A. No. 8791,
Petitioner, and that petitioner had all the opportune time to redeem the
vs. foreclosed properties from the time it received the letter of
EQUITABLE PCI BANK, Respondent. demand and the notice of sale before the registration of the
certificate of sale. As to the check payment tendered by
DECISION petitioner, respondent said that even assuming arguendo such
redemption was timely made, it was not for the amount as
VILLARAMA, JR., J.: required by law.

Before the Court is a petition for review on certiorari which On January 8, 2007, the trial court rendered its decision
seeks to reverse and set aside the Decision1 dated November dismissing the complaint as well as the counterclaim. It noted
19, 2010 and Resolution2 dated January 31, 2011 of the Court that the issue of constitutionality of Sec. 47 of R.A. No. 8791
of Appeals (CA) in CA-G.R. CV No. 91120. The CA affirmed was never raised by the petitioner during the pre-trial and the
the Decision3 dated January 8, 2007 of the Regional Trial trial. Aside from the fact that petitioner’s attempt to redeem was
Court (RTC) of- Valenzuela City, Branch 171 dismissing the already late, there was no valid redemption made because
complaint in Civil Case No. 295-V -01. Atty. Judy Ann Abat-Vera who talked to Atty. Joseph E.
Mabilog of the Legal Division of respondent bank, was not
The facts are undisputed. properly authorized by petitioner’s Board of Directors to
transact for and in its behalf; it was only a certain Chan Guan
On November 29, 1985, Goldenway Merchandising Pue, the alleged President of petitioner corporation, who gave
Corporation (petitioner) executed a Real Estate Mortgage in instruction to Atty. Abat-Vera to redeem the foreclosed
favor of Equitable PCI Bank (respondent) over its real properties.9
properties situated in Valenzuela, Bulacan (now Valenzuela
City) and covered by Transfer Certificate of Title (TCT) Nos. T- Aggrieved, petitioner appealed to the CA which affirmed the
152630, T-151655 and T-214528 of the Registry of Deeds for trial court’s decision. According to the CA, petitioner failed to
the Province of Bulacan. The mortgage secured the Two justify why Section 47 of R.A. No. 8791 should be declared
Million Pesos (₱2,000,000.00) loan granted by respondent to unconstitutional. Furthermore, the appellate court concluded
petitioner and was duly registered.4 that a reading of Section 47 plainly reveals the intention to
shorten the period of redemption for juridical persons and that
As petitioner failed to settle its loan obligation, respondent the foreclosure of the mortgaged properties in this case when
extrajudicially foreclosed the mortgage on December 13, 2000. R.A. No. 8791 was already in effect clearly falls within the
During the public auction, the mortgaged properties were sold purview of the said provision.10
for ₱3,500,000.00 to respondent. Accordingly, a Certificate of
Sale was issued to respondent on January 26, 2001. On Petitioner’s motion for reconsideration was likewise denied by
February 16, 2001, the Certificate of Sale was registered and the CA.
inscribed on TCT Nos. T-152630, T-151655 and T-214528.5
In the present petition, it is contended that Section 47 of R.A.
In a letter dated March 8, 2001, petitioner’s counsel offered to No. 8791 is inapplicable considering that the contracting
redeem the foreclosed properties by tendering a check in the parties expressly and categorically agreed that the foreclosure
amount of ₱3,500,000.00. On March 12, 2001, petitioner’s of the real estate mortgage shall be in accordance with Act No.
counsel met with respondent’s counsel reiterating petitioner’s 3135. Citing Co v. Philippine National Bank11 petitioner
intention to exercise the right of redemption.6 However, contended that the right of redemption is part and parcel of the
petitioner was told that such redemption is no longer possible Deed of Real Estate Mortgage itself and attaches thereto upon
because the certificate of sale had already been registered. its execution, a vested right flowing out of and made dependent
Petitioner also verified with the Registry of Deeds that title to upon the law governing the contract of mortgage and not on
the foreclosed properties had already been consolidated in the mortgagee’s act of extrajudicially foreclosing the mortgaged
favor of respondent and that new certificates of title were properties. This Court thus held in said case that "Under the
issued in the name of respondent on March 9, 2001. terms of the mortgage contract, the terms and conditions under
which redemption may be exercised are deemed part and
On December 7, 2001, petitioner filed a complaint7 for specific parcel thereof whether the same be merely conventional or
performance and damages against the respondent, asserting imposed by law."
that it is the one-year period of redemption under Act No. 3135
which should apply and not the shorter redemption period Petitioner then argues that applying Section 47 of R.A. No.
provided in Republic Act (R.A.) No. 8791. Petitioner argued 8791 to the present case would be a substantial impairment of
that applying Section 47 of R.A. 8791 to the real estate its vested right of redemption under the real estate mortgage
mortgage executed in 1985 would result in the impairment of contract. Such impairment would be violative of the
obligation of contracts and violation of the equal protection constitutional proscription against impairment of obligations of
clause under the Constitution. Additionally, petitioner faulted contract, a patent derogation of petitioner’s vested right and
the respondent for allegedly failing to furnish it and the Office of clearly changes the intention of the contracting parties.
the Clerk of Court, RTC of Valenzuela City with a Statement of Moreover, citing this Court’s ruling in Rural Bank of Davao City,
Account as directed in the Certificate of Sale, due to which Inc. v. Court of Appeals12 where it was held that "Section 119
petitioner was not apprised of the assessment and fees prevails over statutes which provide for a shorter period of
incurred by respondent, thus depriving petitioner of the redemption in extrajudicial foreclosure sales", and in Sulit
opportunity to exercise its right of redemption prior to the
registration of the certificate of sale. v. Court of Appeals,13 petitioner stresses that it has always
been the policy of this Court to aid rather than defeat the
mortgagor’s right to redeem his property.

83
may suffer by the enjoining or the restraint of the foreclosure
Petitioner further argues that since R.A. No. 8791 does not proceeding.
provide for its retroactive application, courts therefore cannot
retroactively apply its provisions to contracts executed and Notwithstanding Act 3135, juridical persons whose property is
consummated before its effectivity. Also, since R.A. 8791 is a being sold pursuant to an extrajudicial foreclosure, shall have
general law pertaining to the banking industry while Act No. the right to redeem the property in accordance with this
3135 is a special law specifically governing real estate provision until, but not after, the registration of the certificate of
mortgage and foreclosure, under the rules of statutory foreclosure sale with the applicable Register of Deeds which in
construction that in case of conflict a special law prevails over no case shall be more than three (3) months after foreclosure,
a general law regardless of the dates of enactment of both whichever is earlier. Owners of property that has been sold in a
laws, Act No. 3135 clearly should prevail on the redemption foreclosure sale prior to the effectivity of this Act shall retain
period to be applied in this case. their redemption rights until their expiration. (Emphasis
supplied.)
The constitutional issue having been squarely raised in the
pleadings filed in the trial and appellate courts, we shall Under the new law, an exception is thus made in the case of
proceed to resolve the same. juridical persons which are allowed to exercise the right of
redemption only "until, but not after, the registration of the
The law governing cases of extrajudicial foreclosure of certificate of foreclosure sale" and in no case more than three
mortgage is Act No. 3135,14 as amended by Act No. 4118. (3) months after foreclosure, whichever comes first.16
Section 6 thereof provides:
May the foregoing amendment be validly applied in this case
SEC. 6. In all cases in which an extrajudicial sale is made when the real estate mortgage contract was executed in 1985
under the special power hereinbefore referred to, the debtor, and the mortgage foreclosed when R.A. No. 8791 was already
his successors-in-interest or any judicial creditor or judgment in effect?
creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of We answer in the affirmative.

trust under which the property is sold, may redeem the same at When confronted with a constitutional question, it is elementary
any time within the term of one year from and after the date of that every court must approach it with grave care and
the sale; and such redemption shall be governed by the considerable caution bearing in mind that every statute is
provisions of sections four hundred and sixty-four to four presumed valid and every reasonable doubt should be
hundred and sixty-six, inclusive, of the Code of resolved in favor of its constitutionality.17 For a law to be
nullified, it must be shown that there is a clear and unequivocal
Civil Procedure,15 in so far as these are not inconsistent with breach of the Constitution. The ground for nullity must be clear
the provisions of this Act. and beyond reasonable doubt.18 Indeed, those who petition
this Court to declare a law, or parts thereof, unconstitutional
The one-year period of redemption is counted from the date of must clearly establish the basis therefor. Otherwise, the
the registration of the certificate of sale. In this case, the parties petition must fail.19
provided in their real estate mortgage contract that upon
petitioner’s default and the latter’s entire loan obligation Petitioner’s contention that Section 47 of R.A. 8791 violates the
becoming due, respondent may immediately foreclose the constitutional proscription against impairment of the obligation
mortgage judicially in accordance with the Rules of Court, or of contract has no basis.
extrajudicially in accordance with Act No. 3135, as amended.
The purpose of the non-impairment clause of the
However, Section 47 of R.A. No. 8791 otherwise known as Constitution20 is to safeguard the integrity of contracts against
"The General Banking Law of 2000" which took effect on June unwarranted interference by the State. As a rule, contracts
13, 2000, amended Act No. 3135. Said provision reads: should not be tampered with by subsequent laws that would
change or modify the rights and obligations of the parties.21
SECTION 47. Foreclosure of Real Estate Mortgage. — In the Impairment is anything that diminishes the efficacy of the
event of foreclosure, whether judicially or extrajudicially, of any contract. There is an impairment if a subsequent law changes
mortgage on real estate which is security for any loan or other the terms of a contract between the parties, imposes new
credit accommodation granted, the mortgagor or debtor whose conditions, dispenses with those agreed upon or withdraws
real property has been sold for the full or partial payment of his remedies for the enforcement of the rights of the parties.22
obligation shall have the right within one year after the sale of
the real estate, to redeem the property by paying the amount Section 47 did not divest juridical persons of the right to
due under the mortgage deed, with interest thereon at the rate redeem their foreclosed properties but only modified the time
specified in the mortgage, and all the costs and expenses for the exercise of such right by reducing the one-year period
incurred by the bank or institution from the sale and custody of originally provided in Act No. 3135. The new redemption period
said property less the income derived therefrom. However, the commences from the date of foreclosure sale, and expires
purchaser at the auction sale concerned whether in a judicial or upon registration of the certificate of sale or three months after
extrajudicial foreclosure shall have the right to enter upon and foreclosure, whichever is earlier. There is likewise no
take possession of such property immediately after the date of retroactive application of the new redemption period because
the confirmation of the auction sale and administer the same in Section 47 exempts from its operation those properties
accordance with law. Any petition in court to enjoin or restrain foreclosed prior to its effectivity and whose owners shall retain
the conduct of foreclosure proceedings instituted pursuant to their redemption rights under Act No. 3135.
this provision shall be given due course only upon the filing by
the petitioner of a bond in an amount fixed by the court Petitioner’s claim that Section 47 infringes the equal protection
conditioned that he will pay all the damages which the bank clause as it discriminates mortgagors/property owners who are
juridical persons is equally bereft of merit.

84
Court has time and again emphasized, is undeniably imbued
The equal protection clause is directed principally against with public interest.34
undue favor and individual or class privilege.1âwphi1 It is not
intended to prohibit legislation which is limited to the object to Having ruled that the assailed Section 47 of R.A. No. 8791 is
which it is directed or by the territory in which it is to operate. It constitutional, we find no reversible error committed by the CA
does not require absolute equality, but merely that all persons in holding that petitioner can no longer exercise the right of
be treated alike under like conditions both as to privileges redemption over its foreclosed properties after the certificate of
conferred and liabilities imposed.23 Equal protection permits of sale in favor of respondent had been registered.
reasonable classification.24 We have ruled that one class may
be treated differently from another where the groupings are WHEREFORE, the petition for review on certiorari is DENIED
based on reasonable and real distinctions.25 If classification is for lack of merit. The Decision dated November 19, 2010 and
germane to the purpose of the law, concerns all members of Resolution dated January 31, 2011 of the Court of Appeals in
the class, and applies equally to present and future conditions, CA-G.R. CV No. 91120 are hereby AFFIRMED.
the classification does not violate the equal protection
guarantee.26 With costs against the petitioner.

We agree with the CA that the legislature clearly intended to SO ORDERED.


shorten the period of redemption for juridical persons whose
properties were foreclosed and sold in accordance with the
provisions of Act No. 3135.27

The difference in the treatment of juridical persons and natural


persons was based on the nature of the properties foreclosed –
whether these are used as residence, for which the more
liberal one-year redemption period is retained, or used for
industrial or commercial purposes, in which case a shorter term
is deemed necessary to reduce the period of uncertainty in the
ownership of property and enable mortgagee-banks to dispose
sooner of these acquired assets. It must be underscored that
the General Banking Law of 2000, crafted in the aftermath of
the 1997 Southeast Asian financial crisis, sought to reform the
General Banking Act of 1949 by fashioning a legal framework
for maintaining a safe and sound banking system.28 In this
context, the amendment introduced by Section 47 embodied
one of such safe and sound practices aimed at ensuring the
solvency and liquidity of our banks.1âwphi1 It cannot therefore
be disputed that the said provision amending the redemption
period in Act 3135 was based on a reasonable classification
and germane to the purpose of the law.

This legitimate public interest pursued by the legislature further


enfeebles petitioner’s impairment of contract theory.

The right of redemption being statutory, it must be exercised in


the manner prescribed by the statute,29 and within the
prescribed time limit, to make it effective. Furthermore, as with
other individual rights to contract and to property, it has to give
way to police power exercised for public welfare.30 The
concept of police power is well-established in this jurisdiction. It
has been defined as the "state authority to enact legislation
that may interfere with personal liberty or property in order to
promote the general welfare." Its scope, ever-expanding to
meet the exigencies of the times, even to anticipate the future
where it could be done, provides enough room for an efficient
and flexible response to conditions and circumstances thus
assuming the greatest benefits.31

The freedom to contract is not absolute; all contracts and all


rights are subject to the police power of the State and not only
may regulations which affect them be established by the State,
but all such regulations must be subject to change from time to
time, as the general well-being of the community may require,
or as the circumstances may change, or as experience may
demonstrate the necessity.32 Settled is the rule that the non-
impairment clause of the Constitution must yield to the loftier
purposes targeted by the Government. The right granted by
this provision must submit to the demands and necessities of
the State’s power of regulation.33 Such authority to regulate
businesses extends to the banking industry which, as this

85
CITY MAYOR, CITY TREASURER, CITY ASSESSOR, ALL
OF QUEZON CITY, and ALVIN EMERSON S. YU,
On February 10, 2004, the Certificate of Sale of Delinquent
Petitioners, Property was registered with the Office of the Register of
Deeds of Quezon City.
-versus-

RIZAL COMMERCIAL BANKING CORPORATION, On June 10, 2004, respondent tendered payment for all of the
assessed tax delinquencies, interest, and other costs of the
Respondent. subject properties with the Office of the City Treasurer, Quezon
City. However, the Office of the City Treasurer refused to
G.R. No. 171033 accept said tender of payment.

Present:

CARPIO, J., Chairperson, Undeterred, on June 15, 2004, respondent filed before the
Office of the City Treasurer a Petition[2] for the acceptance of
NACHURA, its tender of payment and for the subsequent issuance of the
certificate of redemption in its favor. Nevertheless, respondents
PERALTA, subsequent tender of payment was also denied.

ABAD, and Consequently, respondent filed a Petition for Mandamus with


Prayer for Issuance of a Temporary Restraining Order and a
MENDOZA, JJ. Writ of Preliminary Injunction[3] before the RTC. Petitioners
contended, among other things, that it had until February 10,
Promulgated: 2005, or one (1) year from the date of registration of the
certificate of sale on February 10, 2004, within which to
August 3, 2010 redeem the subject properties, pursuant to Section 78 of
Presidential Decree (P.D.) No. 464 or the Real Property Tax
x---------------------------------------------------------------------------------- Code.
-------x

DECISION
After the parties filed their respective pleadings, the RTC
PERALTA, J.: initially denied the petition in the Order[4] dated December 6,
2004. In denying the petition, the RTC opined that respondents
reliance on Section 78 of P.D. No. 464 as basis of the
reckoning period in counting the one (1) year period within
This is a petition for review on certiorari assailing the which to redeem the subject properties was misplaced, since
Decision[1] dated December 6, 2005, of the Regional Trial P.D. No. 464 has been expressly repealed by Republic Act
Court (RTC), National Capital Judicial Region, Branch 101, (R.A.) No. 7160, or the Local Government Code.
Quezon City, in SP. Civil Action Q-04-53522 for Mandamus
with Prayer for Issuance of a Temporary Restraining Order and
a Writ of Preliminary Injunction.
Aggrieved, respondent filed a Motion for Reconsideration[5]
The procedural and factual antecedents are as follows: questioning the Order, arguing that:

The facts are undisputed. The spouses Roberto and Monette


Naval obtained a loan from respondent Rizal Commercial
Banking Corporation, secured by a real estate mortgage of A.
properties covered by Transfer Certificate of Title (TCT) Nos.
N-167986, N-167987, and N-167988. In 1998, the real estate The Honorable Court committed grave error when it summarily
mortgage was later foreclosed and the properties were sold at denied the petition for Mandamus filed by herein petitioner
public auction with respondent as the highest bidder. The during the hearing on the Motion for Issuance of Temporary
corresponding Certificates of Sale were issued in favor of Restraining Order and/or Issuance of a Writ of Preliminary
respondent on August 4, 1998. However, the certificates of Injunction without conducting a hearing or trial on petition for
sale were allegedly registered only on February 10, 2004. mandamus. The order of the court effectively denied petitioner
its right to due process.
Meanwhile, on May 30, 2003, an auction sale of tax delinquent
properties was conducted by the City Treasurer of Quezon
City. Included in the properties that were auctioned were two
(2) townhouse units covered by TCT Nos. N-167986 and N- B.
167987 and the parcel of land covered by TCT No. N-167988.
For these delinquent properties, Alvin Emerson S. Yu was The principal action subject of the petition for mandamus is the
adjudged as the highest bidder. Upon payment of the tax annulment of the auction sale. Alternatively, petitioner sought
delinquencies, he was issued the corresponding Certificate of the right to consign the redemption price, inclusive of interests
Sale of Delinquent Property. on the basis that it was exercising the right of redemption
within the period provided by law. The Honorable Court ruled

86
only on the repeal of Presidential Decree No. 464 and not the THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON
issues/grounds raised in the temporary restraining order/writ of CITY, DECIDED A QUESTION [OF] LAW CONTRARY TO
preliminary injunction nor on the issues raised in the petition for LAW AND JURISPRUDENCE WHEN IT RAISED THE
mandamus, contrary to law. FOLLOWING ISSUES WHICH DO NOT CONFORM TO THE
PETITION AND ANSWER FILED BY THE PARTIES:
C.
A. WHETHER OR NOT THE RESPONDENT IS ENTITLED
The Honorable Court committed grave error when it sustained TO THE PROTECTION OF ALL THE PROVISIONS OF
the validity of the actions of the City Treasurer with respect to QUEZON CITY TAX ORDINANCE NUMBER SP-91-93,
the auction sale of the properties subject of the petition and its OTHERWISE KNOWN AS QUEZON CITY REVENUE CODE
unlawful refusal to accept the redemption price of the OF 1993, INCLUDING SECTION 14 THEREOF,
properties subject of the auction sale contrary to the provisions PROMULGATED PURSUANT TO R.A. 7160;
of Quezon City Ordinance No. 91-93, in relation to Presidential
Decree No. 464 and the Local Government Code and DOF B. WHETHER THE PERIOD OF REDEMPTION IN A REALTY
Assessment Regulations No. 7-85. TAX SALE IN QUEZON CITY [H]AS TO BE RECKONED
FROM THE DATE OF ANNOTATION OF THE CERTIFICATE
D. OF SALE PURSUANT TO PARAGRAPH 7, SECTION 14 OF
QUEZON CITY TAX ORDINANCE NO. SP-91-93 OR FROM
The Honorable Court committed grave error when it denied THE DATE OF SALE PURSUANT TO SECTION 261 OF R.A.
petitioner its right to consign the payment of the redemption 7160.[9]
price of the properties sold in auction sale without a
determination of the factual issues of the case, contrary to due
process. Petitioners argue that the RTC erred when it ruled that P.D.
No. 464 was not repealed by R.A. No. 7160 and when it
E. concluded that the phrase from the date of sale as appearing in
Section 261 of R.A. No. 7160 means that the counting of the
The legal and factual question of the validity of the notice of the one (1) year redemption period of tax delinquent properties
auction sale cannot be summarily dismissed without hearing sold at public action shall commence from the date of
and ruling on the allegation of lack of notice and fraud raised registration of the certificate of sale.
by petitioner in its petition for mandamus.[6]
Petitioners insist that, since Section 14 (a), Paragraph 7 of the
On December 6, 2005, the RTC rendered a Decision[7] Quezon City Revenue Code of 1993 was not initially alleged in
granting the petition, the decretal portion of which reads: respondents petition and was not used as basis for its filing,
the RTC erred when it took cognizance of it when it rendered
WHEREFORE, premises considered, the above-captioned the assailed decision.
petition for mandamus is hereby granted.
Conversely, respondent argues, among other things, that the
Accordingly, the public respondents are ordered to accept the RTC did not rule that P.D. No. 464 was not repealed by R.A.
petitioners tender of redemption payment, to issue the No. 7160, it merely made reference to Section 78 of P.D. No.
corresponding certificate of redemption in the name of the 464. Respondent maintains that it has not altered its cause of
petitioner and to cancel the certificate of tax sale issued to the action when it cited Section 14 (a), paragraph 7 of the Quezon
private respondent. City Revenue Code of 1993 for the first time in its
memorandum and that its failure to invoke the said provision in
SO ORDERED.[8] the petition for mandamus does not preclude respondent from
invoking it in the later part of the proceedings. Ultimately,
In granting the petition, the RTC ratiocinated that the counting respondent contends that the RTC correctly ruled that it had
of the one (1) year redemption period of tax delinquent timely exercised its right to redeem the subject properties.
properties sold at public auction should start from the date of
registration of the certificate of sale or the final deed of sale in Section 78 of P.D. No. 464 provides for a one-year redemption
favor of the purchaser, so that the delinquent registered owner period for properties foreclosed due to tax delinquency, thus:
or third parties interested in the redemption may be notified
that the delinquent property had been sold, and that they have Sec. 78. Redemption of real property after sale. Within the
one (1) year from said constructive notice of the sale within term of one year from the date of the registration of the sale of
which to redeem the property. The RTC was also of the opinion the property, the delinquent taxpayer or his representative, or
that Section 261, R.A. No. 7160 did not amend Section 78 of in his absence, any person holding a lien or claim over the
P.D. No. 464. property, shall have the right to redeem the same by paying the
provincial or city treasurer or his deputy the total amount of
Hence, the petition raising the following arguments: taxes and penalties due up to the date of redemption, the costs
of sale and the interest at the rate of twenty per centum on the
I purchase price, and such payment shall invalidate the sale
certificate issued to the purchaser and shall entitle the person
THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON making the same to a certificate from the provincial or city
CITY, DECIDED A QUESTION [OF] LAW CONTRARY TO treasurer or his deputy, stating that he had redeemed the
LAW AND JURISPRUDENCE WHEN IT DECIDED THAT property.[10]
SECTION 78 OF P.D. 464 WAS NOT REPEALED BY
REPUBLIC ACT NO. 7160 KNOWN AS THE LOCAL From the foregoing, the owner or any person holding a lien or
GOVERNMENT CODE OF 1991. claim over a tax delinquent property sold at public auction has
one (1) year from the date of registration of sale to redeem the
II property. However, since the passing of R.A. No. 7160, such is

87
no longer controlling. The issue of whether or not R.A No. 7160 delinquent property, as explicitly provided by Section 261 of
or the Local Government Code, repealed P.D. No. 464 or the R.A. No. 7160.
Real Property Tax Code has long been laid to rest by this
Court. Jurisdiction thrives to the effect that R.A. No. 7160 Nonetheless, the government of Quezon City, pursuant to
repealed P.D. No. 464.[11] From January 1, 1992 onwards, the the taxing power vested on local government units by
proper basis for the computation of the real property tax Section 5, Article X of the 1987 Constitution[13] and R.A. No.
payable, including penalties or interests, if applicable, must be 7160, enacted City Ordinance No. SP-91, S-93, otherwise
R. A. No. 7160. Its repealing clause, Section 534, reads: known as the Quezon City Revenue Code of 1993, providing,
among other things, the procedure in the collection of
SECTION 534. Repealing Clause. delinquent taxes on real properties within the territorial
jurisdiction of Quezon City. Section 14 (a), Paragraph 7, the
xxxx Code provides:

(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 7) Within one (1) year from the date of the annotation of the
1939 regarding hospital fund; Section 3, a (3) and b (2) of sale of the property at the proper registry, the owner of the
Republic Act No. 5447 regarding the Special Education Fund; delinquent real property or person having legal interest therein,
Presidential Decree No. 144 as amended by Presidential or his representative, shall have the right to redeem the
Decree Nos. 559 and 1741; Presidential Decree No. 231 as property by paying to the City Treasurer the amount of the
amended; Presidential Decree No. 436 as amended by delinquent tax, including interest due thereon, and the
Presidential Decree No. 558; and Presidential Decrees Nos. expenses of sale plus interest of two percent (2) per month on
381, 436, 464, 477, 526, 632, 752, and 1136 are hereby the purchase price from the date of sale to the date of
repealed and rendered of no force and effect. redemption. Such payment shall invalidate the certificate of
sale issued to the purchaser and the owner of the delinquent
Inasmuch as the crafter of the Local Government Code clearly real property or person having legal interest therein shall be
worded the above-cited Section to repeal P.D. No. 464, it is a entitled to a certificate of redemption which shall be issued by
clear showing of their legislative intent that R.A. No. 7160 was the City Treasurer.
to supersede P.D. No. 464. As such, it is apparent that in case
of sale of tax delinquent properties, R.A. No. 7160 is the xxxx
general law applicable. Consequently, as regards redemption
of tax delinquent properties sold at public auction, the pertinent Verily, the ordinance is explicit that the one-year redemption
provision is Section 261 of R.A. No. 7160, which provides: period should be counted from the date of the annotation of the
sale of the property at the proper registry. At first glance, this
Section 261. Redemption of Property Sold. Within one (1) year provision runs counter to that of Section 261 of R.A. No. 7160
from the date of sale, the owner of the delinquent real property which provides that the one year redemption period shall be
or person having legal interest therein, or his representative, counted from the date of sale of the tax delinquent property.
shall have the right to redeem the property upon payment to There is, therefore, a need to reconcile these seemingly
the local treasurer of the amount of delinquent tax, including conflicting provisions of a general law and a special law.
the interest due thereon, and the expenses of sale from the
date of delinquency to the date of sale, plus interest of not A general statute is one which embraces a class of subjects or
more than two percent (2%) per month on the purchase price places and does not omit any subject or place naturally
from the date of sale to the date of redemption. Such payment belonging to such class. A special statute, as the term is
shall invalidate the certificate of sale issued to the purchaser generally understood, is one which relates to particular persons
and the owner of the delinquent real property or person having or things of a class or to a particular portion or section of the
legal interest therein shall be entitled to a certificate of state only.[14] In the present case, R.A. No. 7160 is to be
redemption which shall be issued by the local treasurer or his construed as a general law, while City Ordinance No. SP-91,
deputy. S-93 is a special law, having emanated only from R.A. No.
7160 and with limited territorial application in Quezon City only.
From the date of sale until the expiration of the period of
redemption, the delinquent real property shall remain in the A general law and a special law on the same subject should
possession of the owner or person having legal interest therein be accordingly read together and harmonized, if possible, with
who shall remain in the possession of the owner or person a view to giving effect to both. Where there are two acts, one of
having legal interest therein who shall be entitled to the income which is special and particular and the other general which, if
and other fruits thereof. standing alone, would include the same matter and thus
conflict with the special act, the special must prevail, since it
The local treasurer or his deputy, upon receipt from the evinces the legislative intent more clearly than that of the
purchaser of the certificate of sale, shall forthwith return to the general statute and must be taken as intended to constitute an
latter the entire amount paid by him plus interest of not more exception to the rule.[15] More so, when the validity of the law
than two percent (2%) per month. Thereafter, the property shall is not in question.
be free from all lien of such delinquent tax, interest due thereon
and expenses of sale.[12] In giving effect to these laws, it is also worthy to note that in
cases involving redemption, the law protects the original
From the foregoing, the owner of the delinquent real property owner. It is the policy of the law to aid rather than to defeat the
or person having legal interest therein, or his representative, owners right. Therefore, redemption should be looked upon
has the right to redeem the property within one (1) year from with favor and where no injury will follow, a liberal construction
the date of sale upon payment of the delinquent tax and other will be given to our redemption laws, specifically on the
fees. Verily, the period of redemption of tax delinquent exercise of the right to redeem.[16]
properties should be counted not from the date of registration
of the certificate of sale, as previously provided by Section 78 To harmonize the provisions of the two laws and to maintain
of P.D. No. 464, but rather on the date of sale of the tax the policy of the law to aid rather than to defeat the owners

88
right to redeem his property, Section 14 (a), Paragraph 7 of SP. Civil Action Q-04-53522, dated December 6, 2005, is
City Ordinance No. SP-91, S-93 should be construed as to AFFIRMED.
define the phrase one (1) year from the date of sale as
appearing in Section 261 of R.A. No. 7160, to mean one (1) SO ORDERED.
year from the date of the annotation of the sale of the property
at the proper registry.

Consequently, the counting of the one (1) year redemption


period of property sold at public auction for its tax delinquency
should be counted from the date of annotation of the certificate
of sale in the proper Register of Deeds. Applying the foregoing
to the case at bar, from the date of registration of the
Certificate of Sale of Delinquent Property on February 10,
2004, respondent had until February 10, 2005 to redeem the
subject properties. Hence, its tender of payment of the subject
properties tax delinquencies and other fees on June 10, 2004,
was well within the redemption period, and it was manifest
error on the part of petitioners to have refused such tender of
payment.

Finally, respondents failure to cite Section 14 (a), Paragraph 7,


City Ordinance No. SP-91, S-93 in its petition for mandamus
does not preclude it from invoking the said provision in the later
part of the judicial proceeding.

The issues in every case are limited to those presented in the


pleadings. The object of the pleadings is to draw the lines of
battle between the litigants and to indicate fairly the nature of
the claims or defenses of both parties.[17] Points of law,
theories, issues and arguments should be brought to the
attention of the trial court to give the opposing party an
opportunity to present further evidence material to these
matters during judicial proceedings before the lower court.
Otherwise, it would be too late to raise these issues during
appeal. A party cannot, on appeal, change fundamentally the
nature of the issue in the case. When a party deliberately
adopts a certain theory and the case is decided upon that
theory in the court below, he will not be permitted to change
the same on appeal, because to permit him to do so would be
unfair to the adverse party.[18]

As early as in its Memorandum to Serve as Draft


Resolution,[19] respondent had brought Section 14 (a),
Paragraph 7 of City Ordinance No. SP-91, S-93, or the Quezon
City Revenue Code of 1993, to the attention of petitioners.
Respondent also reiterated the applicability of the provision to
his claim of redemption in its motion for reconsideration of the
Order initially denying the petition for mandamus. Petitioners
were given every opportunity to counter respondents
allegations, which it in fact did by filing an Opposition[20] to the
motion for reconsideration. Since the inception of the petition in
the lower court, respondent has not changed its preposition
that the one (1) year redemption period shall be counted from
the date of registration of the certificate of sale and not from
the date of sale of the subject properties. Citing the appropriate
provision of the Quezon City Revenue Code of 1993 did not
alter this, but on the contrary, even buttressed its claim.

Furthermore, petitioners cannot feign ignorance of a law that it


has promulgated in the exercise of its local autonomy. Nor can
it be allowed to deny the applicability of Section 14 (a),
Paragraph 7 of the Quezon City Revenue Code of 1993, while
at the same time invoking that it has strictly adhered to the
Quezon City Revenue Code when it conducted the public
auction of the tax delinquent properties.

WHEREFORE, premises considered, the petition is DENIED.


Subject to the above disquisitions, the Decision of the RTC in

89
G.R. No. 129572 June 26, 2000 In a Decision dated September 17, 1993, Provincial
Adjudicator Toribio E. Ilao, Jr. rendered a decision in favor of
PHILBANCOR FINANCE, INC. AND VICENTE HIZON, JR., private respondents, the dispositive portion of which reads:
petitioners,
vs. WHEREFORE, judgment is hereby rendered:
COURT OF APPEALS, THE HONORABLE DEPARTMENT OF
AGRARIAN REFORM ADJUDICATION BOARD (DARAB), 1. Ordering the redemption by the plaintiffs of the land in
ALFREDO PARE, PABLO GALANG and AMADO VIE, question at the price of P201,182.92;
respondents,
2. Ordering the defendant, Philbamcor Finance, Inc., to
PARDO, J.: execute the necessary Deed of Redemption in favor of the
plaintiffs; and
The case before the Court is an appeal via certiorari from the
decision1 of the Court of Appeals dismissing the petition for 3. Ordering the Register of Deeds of the Province of
review of the decision of the Department of Agrarian Reform Pampanga to cause the registration of the land in question to
Adjudication Board sustaining the ruling of the Provincial be conveyed to and redeemed by the plaintiffs;
Agrarian Reform Adjudication Board of San Fernando,
Pampanga allowing the legal redemption by private The counterclaim of the defendant Philbancor Finance, Inc. is
respondents of two parcels of land mortgaged to and acquired hereby dismissed. (Ibid., pp. 81-90)
by petitioner Philbancor at public auction.1âwphi1.nêt
Petitioners filed a motion for reconsideration but the same was
The facts, as found by the Court of Appeals, are as follows: denied by the Provincial Adjudicator (CA Rollo, pp. 108-109).
On appeal, public respondent Department of Agrarian Reform
Private respondents Alfredo Pare, Pablo Galang and Amado Adjudication Board (DARAB) affirmed in toto the findings of the
Vie, as plaintiffs, filed with the Provincial Agrarian Reform Provincial Adjudicator in a Decision dated March 8, 1996 (Ibid.,
Adjudication Board (PARAB) a complaint for maintenance of pp. 26-35).
possession with redemption and tenancy right of pre-emption
against petitioners Philbancor Finance, Inc. and Vicente Hizon, Petitioners' motion for reconsideration was denied by
Jr. Private respondents alleged, inter alia, that petitioner respondent DARAB in a Resolution (Ibid., pp. 36-38) dated
Vicente Hizon, Jr. is the owner of the disputed agricultural July 22, 1996, . . . . 2
lands covered by TCT Nos. 48320 and 48323 located in Balite,
San Fernando, Pampanga and that they (private respondents) On August 14, 1996, petitioners filed with the Court of Appeals
are the legitimate and bonfide tenants thereof; that on October a petition for review of the decision of the DARAB.3
13, 1983, petitioner Hizon, without their knowledge, mortgaged
the disputed lots to petitioner Philbancor Finance, Inc.; that After due proceedings, on March 17, 1997, the Court of
petitioner Hizon failed to pay his obligations to petitioner Appeals rendered a decision dismissing the petition.4
Philbancor, which eventually led to the sale of the mortgaged
lots to the latter; that they came to know of the transaction only On April 18, 1997, petitioners filed with the Court of Appeals a
when they were notified by petitioner Philbancor to vacate the motion for reconsideration of the decision; however, on May
lots; that they have been tenants on the lots for more than fifty 19, 1997, the Court of Appeals denied the motion.5
(50) years; that petitioner Philbancor threatened to take from
them the actual or physical possession of the agricultural lots; Hence, this appeal.6
that unless the threatened acts of petitioner are restrained,
they will suffer substantial and irreparable injury (Complaint, The petition raises three issues; however, the last issue raised
Rollo, pp. 51-55). is decisive, hence, only this issue is herein resolved, that is,
whether or not the private respondents could still exercise their
In his answer, petitioner Hizon admitted that private right of redemption of the parcels of land sold at public auction
respondents are his bonafide and legitimate tenants but he due to foreclosure of the mortgages thereon considering that
averred, by way of affirmative defenses, that he is not they invoked their right to redeem only on July 14, 1992, seven
threatening to take possession of the disputed lots as he is no years after the date of registration of the certificate of sale with
longer the owner thereof after said lots were foreclosed by the Register of Deeds.
petitioner Philbancor; that private respondents were aware
when he mortgaged the lots as they were with him when he We grant the petition.
tried to negotiate for payment of his loan to petitioner
Philbancor (CA Rollo, p. 29). Republic Act No. 3844, Section 12, provides as follows:

In its answer, petitioner Philbancor alleged, among others, that In case the landholding is sold to a third person without the
it has no tenancy or agricultural relationship with private knowledge of the agricultural lessee, the latter shall have the
respondents considering that it acquired ownership over the right to redeem the same at a reasonable price and
disputed lots by virtue of an extra-judicial foreclosure sale consideration. Provided, that the entire landholding sold must
pursuant to Act 3135, as amended; that it is not an agricultural be redeemed. Provided further, that where there are two or
lessor as contemplated in Section 10 of Republic Act (RA) No. more agricultural lessees, each shall be entitled to said right of
3844, as amended; that assuming private respondents have redemption only to the extent of the area actually cultivated by
the right to redeem the lots in question, such right has already him. The right of redemption under this section may be
expired in accordance with Section 12 of R.A. 3844, which exercised within two (2) years from the registration of the sale
states that the right of redemption may be exercised within two and shall have priority over any other right of legal
(2) years from the registration of the sale (CA Rollo, pp. 30-31). redemption.7

90
In this case, the certificate of sale of the subject property,
which was sold at public auction, was registered with the
Register of Deeds of Pampanga on July 31, 1985.8 The two-
year redemption period thus expired on July 31, 1987. The
complaint for redemption was filed by respondents only on July
14, 1992,9 five (5) years after expiration of the redemption
period prescribed by law.

Nonetheless, private respondents may continue in possession


and enjoyment of the land in question as legitimate tenants 10
because the right of tenancy attaches to the landholding by
operation of law. 11 The leasehold relation is not extinguished
by the alienation or transfer of the legal possession of the
landholding. 12

WHEREFORE, the Court hereby GRANTS the petition for


review on certiorari and REVERSES the decision of the Court
of Appeals. The Court orders the dismissal of the complaint for
redemption filed with the Department of Agrarian Reform
Adjudication Board, Region III, San Fernando, Pampanga. This
is without prejudice to the right of the private respondents to
continue as agricultural tenants in peaceful possession and
enjoyment of the land tenanted by them. No costs.1âwphi1.nêt

SO ORDERED.

91
G.R. No. 129279 March 4, 2003
(SGD.) F.B. Briones
ALFREDO M. OUANO, petitioner, Cebu Branch
vs. Branch Attorney
COURT OF APPEALS, and HEIRS OF JULIETA M. OUANO,
respondents. ——————————

AZCUNA, J.: (SGD.) JULIETA M. OUANO


(Mortgagor)
Before us is a petition for review on certiorari against the Address: Opao, Mandaue City
decision and resolution of the Court of Appeals on CA-GR CV
No. 334991 affirming the decision of the Regional Trial Court of On December 3, 1980, two days prior to the date of the sale as
Cebu, Branch 19, in Civil Case No. CEB-596, which set aside published, the parties executed and filed with the sheriff the
the extrajudicial foreclosure proceedings involving Agreement to Postpone Sale moving the date of sale from
respondents' properties. December 5, 1980 to February 5, 1981.8 On February 5, 1981,
however, no sale occurred.
From the documentary evidence and the Stipulation of Facts2
filed by the parties before the Regional Trial Court of Cebu, the Eight days later, on February 13, 1981, the parties executed
facts of the case are, as follows: and filed for the second time a similar agreement moving the
date of sale to February 28, 1981.9 Again, on February 28,
On June 8, 1977, respondent Julieta M. Ouano (Julieta), now 1981, no sale occurred.
deceased, obtained a loan from the Philippine National Bank
(PNB) in the amount of P104,280.00. As security for said loan, Ten days later, on March 10, 1981, the parties executed and
she executed a real estate mortgage over two parcels of land filed for the third time a similar agreement moving the date of
located at Opao, Mandaue City.3 She defaulted on her sale to March 30, 1981.10 No sale occurred on this date.
obligation. On September 29, 1980, PNB filed a petition for
extrajudicial foreclosure with the City Sheriff of Mandaue City. On March 30, 1981, the parties executed for the fourth time a
similar agreement moving the date of sale to May 29, 1981.11
On November 4, 1980, the sheriff prepared a notice of sale This agreement was filed with the sheriff on April 30, 1981.
setting the date of public auction of the two parcels of land on
December 5, 1980 at 9:00 a.m. to 4:00 p.m.4 He caused the In all these postponements, no new notice of sale was issued,
notice to be published in the Cebu Daily Times, a newspaper of nor was there any republication or reposting of notice for the
general circulation in Mandaue City, in its issues of November rescheduled dates.
13, 20 and 27, 1980.5 He likewise posted copies thereof in
public places in Mandaue City and in the place where the Finally, on May 29, 1981, the sheriff conducted the auction
properties are located.6 sale, awarding the two parcels of land to PNB, the only bidder.
He executed a Certificate of Sale certifying the sale for and in
However, the sale as scheduled and published did not take consideration of P195, 510.50.12
place as the parties, on four separate dates, executed
Agreements to Postpone Sale (Agreements).7 These As Julieta failed to redeem the properties within the one year
Agreements were addressed to the sheriff, requesting the latter period from registration of sale, PNB consolidated its title on
to defer the auction sale to another date at the same time and February 12, 1983.13 On February 23 of the same year, it
place, "without any further republication of the Notice." The first conveyed the properties to herein petitioner Alfredo Ouano, the
of the four pro-forma Agreements reads, as follows: brother of Julieta, under a Deed of Promise to Sell payable in
five years.14
AGREEMENT TO POSTPONE SALE
On March 28, 1983, Julieta sent demand letters to PNB and
Provincial Sheriff petitioner, pointing out irregularities in the foreclosure sale.15
Mandaue City On April 18, 1983, Julieta filed a complaint with the Regional
Trial Court (RTC) of Cebu for the nullification of the May 29,
Sir: 1981 foreclosure sale.16 Petitioner filed a motion for leave to
intervene in said case, and filed his Answer in Intervention to
In accordance with this agreement of the parties in the above protect his rights over the properties.17
named case, it is respectfully requested that the auction sale of
the properties of the mortgagor, scheduled to take place on While the case was pending, on February 25, 1986, PNB
December 5 1980 at 9:00 o'clock in the morning at Office of the executed a Deed of Sale in favor of petitioner.18 The Register
City Sheriff of Mandaue City be postponed to February 5, of Deeds of Mandaue City accordingly cancelled the TCTs in
1981, at the same time and place, without any further PNB's name and issued in lieu thereof TCTs in the name of
republication of the notice of sale as required by law. [italics petitioner over the two parcels of land.19
supplied]
On January 29, 1990, the Regional Trial Court of Cebu
Cebu City, December 11, 1980. rendered a decision in favor of Julieta, holding that the lack of
republication rendered the foreclosure sale void. The
PHILIPPINE NATIONAL BANK dispositive portion of said decision state:
(Mortgagee)
WHEREFORE, judgment is hereby rendered,
By:
1. declaring as null and void:
——————————

92
a) the auction sale by the City Sheriff of Mandaue City PUBLICATION OF NOTICE OF SALE ON THE ORIGINALLY
on May 29, 1981 over the aforesaid properties of plaintiff INTENDED DATE [WERE] FULLY COMPLIED WITH.
Julieta Ouano;
II. RESPONDENT COURT OF APPEALS ERRED IN
b) the Certificate of Sale (Exhibit K) issued by the City HOLDING THAT THE PROVISION OF SEC. 24, RULE 39 OF
Sheriff of Mandaue City on May 29, 1981, in favor of the THE RULES OF COURT WHICH ALLOWS THE SHERIFF TO
Philippine National Bank; ADJOURN ANY SALE UPON EXECUTION TO ANY DATE
AGREED UPON BY THE PARTIES IS NOT APPLICABLE TO
c) the Deed of Sale (Exhibit L) executed by PNB to itself; THIS CASE.

d) the Deed of Promise to Sell (Exhibit O) executed by III. RESPONDENT COURT OF APPEALS ERRED IN
PNB on February 23, 1983 in favor of Alfredo Ouano HOLDING THAT JULIETA M. OUANO IS NOT ESTOPPED
FROM CHALLENGING THE VALIDITY OF THE AUCTION
e) the Deed of Sale (Exhibit 24) executed by PNB on SALE SINCE THE SALE WAS REPEATEDLY POSTPONED
February 5, 1986 in favor of Alfredo Ouano; UPON HER REQUEST AND WRITTEN AGREEMENT[S]
THAT THERE WOULD BE NO REPUBLICATION OF THE
f) TCT No. 17929 (Exhibit M) and TCT No. 17930 NOTICE OF SALE.
(Exhibit N) in the name of PNB;
IV. RESPONDENT COURT OF APPEALS ERRED IN
g) TCT No. 21982 (Exhibit 21) and TCT No. 21987 AFFIRMING THE DECISION OF THE LOWER COURT
(Exhibit 22) in the name of Alfredo Ouano; ALTHOUGH JULIETA M. OUANO FILED HER COMPLAINT
AFTER ALMOST TWO YEARS FROM THE DATE OF THE
2. ordering the Register of Deeds of Mandaue City to AUCTION SALE.25
cancel the aforementioned titles (TCT Nos. 17929 and 17930,
as well as TCT Nos. 21982 and 21987), and to reinstate TCT The main issue before us is whether or not the requirements of
Nos. 15724 (5033) and 24377 (6876) in the name of Julieta Act No. 3135 were complied with in the May 29, 1981
Ouano; foreclosure sale.

3. ordering the City Sheriff of Mandaue City to conduct a The governing law for extrajudicial foreclosures is Act No. 3135
new auction sale strictly complying with the requirements for as amended by Act No. 4118. The provision relevant to this
publication and posting as required by Act 3135, as amended case is Section 3, which provides:
by Act 4118;
SEC. 3. Notice shall be given by posting notices of the sale for
4. ordering PNB to return to Alfredo Ouano all amounts not less than twenty (20) days in at least three public places of
the latter has paid to the said bank; the municipality or city where the property is situated, and if
such property is worth more than four hundred pesos, such
5. ordering Alfredo Ouano to vacate the premises in notice shall also be published once a week for at least three
question and turn them over to Julieta Ouano; consecutive weeks in a newspaper of general circulation in the
municipality of city.
6. ordering PNB to pay the plaintiff the sum equivalent to
10% of the market value of the properties in question as It is a well-settled rule that statutory provisions governing
indicated in Tax Declaration Nos. 01134 and 00510, as publication of notice of mortgage foreclosure sales must be
attorney's fees, and to pay the costs. strictly complied with, and that even slight deviations therefrom
will invalidate the notice and render the sale at least
SO ORDERED.20 voidable.26 In a number of cases, we have consistently held
that failure to advertise a mortgage foreclosure sale in
Not satisfied, PNB and petitioner brought the case to the Court compliance with statutory requirements constitutes a
of Appeals.21 In its decision dated February 17, 1997, said jurisdictional defect invalidating the sale.27 Consequently, such
court affirmed the trial court's ruling on the same ground that defect renders the sale absolutely void and no title passes.28
there was no compliance with the mandatory requirements of
posting and publication of notice of sale.22 Petitioner filed a Petitioner, however, insists that there was substantial
motion for reconsideration, which was denied for lack of merit compliance with the publication requirement, considering that
by the same court on April 15, 1997.23 prior publication and posting of the notice of the first date were
made.
PNB and petitioner filed their own petitions for review on
certiorari before us. PNB's petition however was dismissed on In Tambunting v. Court of Appeals,29 we held that
July 21, 1997 for being filed out of time and for lack of republication in the manner prescribed by Act No. 3135 is
certification of non-forum-shopping.24 The petition herein necessary for the validity of a postponed extrajudicial
remaining is the one filed by petitioner. foreclosure sale. Thus we stated:

Petitioner assigns the following errors: Where required by the statute or by the terms of the
foreclosure decree, public notice of the place and time of the
I. RESPONDENT COURT OF APPEALS ERRED IN mortgage foreclosure sale must be given, a statute requiring it
SUSTAINING THE FINDING OF THE LOWER COURT THAT being held applicable to subsequent sales as well as to the first
THE POSTPONED AUCTION SALE OF SUBJECT advertised sale of the property. [emphasis supplied].
PROPERTIES HELD ON MAY 29, 1981 UPON WRITTEN
AGREEMENT OF THE PARTIES WAS NULL AND VOID FOR Petitioner further contends that republication may be waived
LACK OF PUBLICATION OF NOTICE OF SALE ON THE voluntarily by the parties.30
SAID DATE ALTHOUGH THE REQUIREMENTS OF

93
This argument has no basis in law. The issue of whether Second, we observe that the Agreements were executed and
republication may be waived is not novel, as we have passed filed with the sheriff several days after each rescheduled date.
upon the same query in Philippine National Bank v. As stated in the facts, the first agreement was timely filed, two
Nepomuceno Productions Inc,.31 Petitioner therein sought days prior to the originally scheduled sale on December 5,
extrajudicial foreclosure of respondent's mortgaged properties 1980. The second agreement, however, was executed and
with the Sheriff's Office of Pasig, Rizal. Initially scheduled on filed eight days after the rescheduled sale on February 5, 1981.
August 12, 1976, the auction sale was rescheduled several The third agreement was executed and filed ten days after the
times without republication of the notice of sale, as stipulated in rescheduled sale on February 28, 1981. The fourth agreement
their Agreements to Postpone Sale. Finally, the auction sale was timely executed, but was filed with the sheriff one month
proceeded on December 20, 1976, with petitioner as the after the rescheduled sale on March 30, 1981. On the
highest bidder. Aggrieved, respondents sued to nullify the rescheduled dates, therefore, no public sale occurred, nor was
foreclosure sale. The trial court declared the sale void for non- there any request to postpone filed with the sheriff, except for
compliance with Act No. 3135. This decision was affirmed in the first one. In short, the Agreements are clearly defective for
toto by the Court of Appeals. Upholding the conclusions of the having been belatedly executed and filed with the sheriff. The
trial and appellate court, we categorically held: party who may be said to be at fault for this failure, and who
should bear the consequences, is no other than PNB, the
Petitioner and respondents have absolutely no right to waive mortgagee in the case at bar. It is the mortgagee who causes
the posting and publication requirements of Act No. 3135. the mortgaged property to be sold, and the date of sale is fixed
upon his instruction.33 We have held that the mortgagee's right
In People v. Donato, the Court expounded on what rights and to foreclose a mortgage must be exercised according to the
privileges may be waived, viz.: clear mandate of the law. Every requirement of the law must be
complied with, lest the valid exercise of the right would end.34
xxx xxx xxx PNB's inaction on the scheduled date of sale and belated filing
of requests to postpone may be deemed as an abandonment
[T]he principle is recognized that everyone has a right to waive, of the petition to foreclose it filed with the sheriff. Consequently,
and agree to waive, the advantage of a law or rule made solely its right to foreclose the mortgage based on said petition
for the benefit and protection of the individual in his private lapsed.
capacity, if it can be dispensed with and relinquished without
infringing on any public right, and without detriment to the In a vain attempt to uphold the validity of the aforesaid waiver,
community at large. petitioner asserts that the Court of Appeals should have
applied Rule 39, Section 24 of the Rules of Court, which allows
xxx xxx xxx adjournment of execution sales by agreement of the parties.
The said provision provides:
Although the general rule is that any right or privilege conferred
by statute or guaranteed by constitution may be waived, a Sec. 24. Adjournment of Sale — By written consent of debtor
waiver in derogation of a statutory right is not favored, and a and creditor, the officer may adjourn any sale upon execution
waiver will be inoperative and void if it infringes on the rights of to any date agreed upon in writing by the parties. Without such
others, or would be against public policy or morals and the agreement, he may adjourn the sale from day to day, if it
public interest may be waived. becomes necessary to do so for lack of time to complete the
sale on the day fixed in the notice.35
xxx xxx xxx
Petitioner submits that the language of the abovecited
The principal object of a notice of sale in a foreclosure of provision implies that the written request of the parties suffices
mortgage is not so much to notify the mortgagor as to inform to authorize the sheriff to reset the sale without republication or
the public generally of the nature and condition of the property reposting.36
to be sold, and of the time, place, and terms of the sale.
Notices are given to secure bidders and prevent a sacrifice of At the outset, distinction should be made of the three different
the property. Clearly, the statutory requirements of posting and kinds of sales under the law, namely: an ordinary execution
publication are mandated, not for the mortgagor's benefit, but sale, a judicial foreclosure sale, and an extrajudicial foreclosure
for the public or third persons. In fact, personal notice to the sale. An ordinary execution sale is governed by the pertinent
mortgagor in extrajudicial foreclosure proceedings is not even provisions of Rule 39 of the Rules of Court. Rule 68 of the
necessary, unless stipulated. As such, it is imbued with public Rules of Court applies in cases of judicial foreclosure sale. On
policy considerations and any waiver thereon would be the other hand, Act No. 3135, as amended by Act No. 4118
inconsistent with the intent and letter of Act No. 3135. otherwise known as "An Act to Regulate the Sale of Property
under Special Powers Inserted in or Annexed to Real Estate
Publication, therefore, is required to give the foreclosure sale a Mortgages" applies in cases of extrajudicial foreclosure sale. A
reasonably wide publicity such that those interested might different set of law applies to each class of sale mentioned.37
attend the public sale.32 To allow the parties to waive this The cited provision in the Rules of Court hence does not apply
jurisdictional requirement would result in converting into a to an extrajudicial foreclosure sale.
private sale what ought to be a public auction.
Moreover, even assuming that the aforecited provision applies,
Moreover, assuming arguendo that the written waivers are all it authorizes is the adjournment of the execution sale by
valid, we find noticeable flaws that would nevertheless agreement of the parties. Nowhere does it state that
invalidate the foreclosure proceedings. First, the Agreements, republication and reposting of notice for the postponed sale
as worded, only waived "further republication of the notice of may be waived. Thus, it cannot, by any means, sanction the
sale." Nothing in the Agreements indicates that the parties waiver in the case at bar.
likewise dispensed with the reposting of the notices of sale. As
there was no reposting of notice of the May 29, 1981 sale, the Next, petitioner maintains that Julieta's act of requesting the
foreclosure fell short of the requirements of Act No. 3135. postponement and repeatedly signing the Agreements had

94
placed her under estoppel, barring her from challenging the SO ORDERED.
lack of publication of the auction sale.38

We rule otherwise. Julieta did request for the postponement of


the foreclosure sale to extend the period to settle her
obligation.39 However, the records do not show that she
requested the postponement without need of republication and
reporting of notice of sale. In Nepomuceno,40 we held:

. . . To request postponement of the sale is one thing; to


request it without need of compliance with the statutory
requirements is another. Respondents, therefore, did not
commit any act that would have estopped them from
questioning the validity of the foreclosure sale for non-
compliance with Act No. 3135. . . .

In addition, we observe herein that the Agreements prepared


by the counsel of PNB were in standard forms of the bank,
labeled as "Legal Form No.41." The Nepomuceno41 case
likewise involved an "Agreement to Postpone Sale" that was in
a ready-made form, and the only participation of respondents
therein was to affix or "adhere" their signatures thereto. We
therefore held that said agreement partakes of the nature of a
contract of adhesion, i.e., one in which one of the contracting
parties imposes a ready-made form of contract which the other
party may accept or reject, but cannot modify. One party
prepares the stipulation in the contract, while the other party
merely affixes his signature or his "adhesion" thereto, giving no
room for negotiation, and depriving the latter of the opportunity
to bargain on equal footing.42 As such, their terms are
construed strictly against the party who drafted it.43

More importantly, the waiver being void for being contrary to


the express mandate of Act No. 3135, such cannot be ratified
by estoppel.44 Estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy.45 Neither
can the defense of illegality be waived.46

Petitioner, moreover, makes much of the fact that Julieta filed


her complaint with the trial court after almost two years from
the May 29, 1981 auction sale, thus arguing that the delayed
filing was a clear case of laches.47

Laches is the failure or neglect, for an unreasonable and


unexplained length of time, to do that which by exercising due
diligence, could or should have been done earlier.48 In the
case at bar, Julieta only realized the defect in the foreclosure
sale upon conferring with her counsel who discovered the
irregularity.49 Thus, on March 25, 1983, Julieta filed her
adverse claim with the Registrar of Deeds.50 Three days after,
she sent demand letters to PNB and petitioner.51 Soon after
they replied on April 6 and 7, 1983,52 she promptly sued to
nullify the foreclosure sale in the Regional Trial Court of
Mandaue City on April 20, 1983.53 She likewise filed a suit for
forcible entry against petitioner in the Municipal Trial Court of
Mandaue City.54 Considering all these, we find the delay of
almost two years not unreasonable. Julieta cannot be guilty of
laches. Her prompt actions upon discovering her cause of
action negate the claim that she has abandoned her right to
claim the properties. Besides, this defense lacks merit in light
of the Civil Code stating that an action or defense for the
declaration of the inexistence of a contract does not
prescribe.55

WHEREFORE, premises considered, the Decision dated


February 17, 1997 in CA-G.R. CV No. 33499 and the
Resolution therein dated April 15, 1997 are AFFIRMED. No
costs.

95
G.R. No. 133366 August 5, 1999 true owners of the property mortgaged and insisting on the
invalidity of both the mortgage and its subsequent extrajudicial
UNIONBANK OF THE PHILIPPINES, petitioner, foreclosure. They claimed that the original title, TCT No.
vs. 61571, was entrusted to a certain Atty. Reynaldo Singson
THE COURT OF APPEALS and FERMINA S. DARIO and preparatory to its administrative reconstitution after a fire gutted
REYNALDO S. DARIO, respondents. the Quezon City Hall building. Mortgagor Leopoldo, private
respondent Fermina's son, obtained the property from Atty.
DAVIDE, JR., CJ.: Singson, had the title reconstituted under his name without
private respondents' knowledge, executed an ante-dated deed
Unionbank of the Philippines (hereafter UNIONBANK) appeals, of sale in his favor and mortgaged the property to
by way of certiorari, the Decision1 of the Court of Appeals (CA) UNIONBANK.
of 26 June 1997 and its Resolution of 7 April 19982. The CA
nullified the Regional Trial Court's (RTC) Order3 of 7 August On 19 December 1994, Judge Ignacio M. Capulong to whom
1995 denying private respondents' application for preliminary this case was assigned admitted the aforementioned amended
injunction as UNIONBANK's consolidation of ownership complaint and set the application for writ of preliminary
divested private respondents of their property without due injunction for hearing. After UNIONBANK's motion for
process of law. It also ordered the register of deeds to cancel reconsideration of said Order was denied on 17 January 1995,
UNIONBANK's title and the trial court to hear private it filed a petition for certiorari with the CA questioning the
respondents prayer for injunctive relief.1âwphi1.nêt admission of the amended complaint. The CA upheld Judge
Capulong's order admitting the amended complaint on 24 April
This case stemmed from a real estate mortgage executed on 1995, UNIONBANK thereafter elevated its cause to this Court.
17 December 1991 by spouses Leopoldo and Jessica Dario
(hereafter mortgagors) in favor of UNIONBANK to secure a P3 Meanwhile, on 9 February 1995 UNIONBANK filed its answer
million loan, including interest and other charges. The ad cautelam asserting its status as an innocent mortgagee for
mortgage covered a Quezon City property with Transfer value whose right or lien upon the property mortgaged must be
Certificate of Title (TCT) No. 41828 in Leopoldo Dario's name respected even if, the mortgagor obtained his title through
and was annotated on the title on 18 December 1991. For non- fraud. It also averred that the action had become "moot and
payment of the principal obligation, UNIONBANK extrajudicially academic by the consolidation of the foreclosed property on 24
foreclosed the property mortgaged on 12 August 1993 and sold October 1994" in its name, resulting to the issuance of TCT
the same at public auction, with itself posting the highest bid. No. 120929 by the Register of Deeds of Quezon City. In
reaction to UNIONBANK's revelation, private respondents
On 4 October 1994, one week before the one-year redemption moved to declare UNIONBANK's counsel in indirect contempt
period expired, private respondents filed a complaint with the attacking his disobedience to the TRO.
RTC of Quezon City against the mortgagors, UNIONBANK, the
Register of Deeds and the City Sheriff of Quezon City. On 19 May 1995, private respondents moved to declare the
Docketed as Civil Case No. Q-94-21830, the complaint was for other defendants in default for their non-filing of responsive
annulment of sale and real estate mortgage reconveyance and pleadings within the mandatory period and to set the
prayer for restraining notice of lis pendens was annotated on application for preliminary injunction and indirect contempt for
the title. pre-trial and trial.

On 10 October 1994, RTC, Branch 81, through Presiding On 14 June 1995 the second division of this Court denied the
Judge (later CA Justice) Celia Lipana-Reyes, issued a petition for certiorari, which it considered as a petition for
temporary restraining order (TRO) enjoining the redemption of review under Rule 45, "for failure to show that the CA had
property within the statutory period and its consolidation under committed any reversible error" in judgment.
UNIONBANK's name. At a hearing four days later,
UNIONBANK's counsel orally moved for dismissal of the In its 19 August 1995 Order, the RTC held the mortgagors and
complaint alleging that a certification of non-forum shopping-is the City Sheriff of Quezon City in default and sustained
prescribed by SC-Circular 4-944 was not attached thereto. UNIONBANK's contention that the act sought to be enjoined
Judge Lipana-Reyes settled the motion in favor of had been enforced, negating the need of hearing the
UNIONBANK and dismissed5 the complaint on 17 October application for preliminary injunction. Private respondents filed
1994. a lengthy motion for reconsideration to this Order.

Aggrieved, private respondents filed a motion for The annulment case was re-raffled to Branch 227 under
reconsideration6 of the dismissal on 20 October 1994 and Presiding Judge Vicente Q. Roxas upon the creation of new
prayed that they be permitted to amend their verified complaint salas. Judge Roxas, on 25 March 1996, denied the motion to
to comply with the requisites of Circular 4-94. Upon the reconsider the 19 August 1995 Order but suggested that
appointment of Judge Lipana-Reyes to the CA, pairing Judge private respondents amend their application from prohibitory to
Agustin S. Dizon took over the case and on 15 November 1994 mandatory injunction.
allowed private respondents to incorporate the mandatory
formal requirements of SC Administrative Circular 4-94 to their As private respondents were unable to amend their application,
complaint. the RTC denied the motion for reconsideration and their motion
for indirect contempt, "in the interest of free speech and
In the meantime, without notifying private respondents, tolerance" on 9 July 1996. Asserting grave abuse of discretion,
UNIONBANK consolidated its title over the foreclosed property private respondents brought the denial of their motion for
on 24 October 1994, TCT No. 41828 was cancelled and TCT reconsideration with the Court of Appeals on 6 September
No. 120929 in UNIONBANK's name was issued in its stead. 1996.

Private respondents filed an amended complaint7 on 9 After considering the arguments presented by the parties, the
December 1994, alleging that they, not the mortgagors, are the CA ruled that despite its knowledge that the ownership of the

96
property was being questioned, UNIONBANK took advantage
of private respondents' procedural error by consolidating title to The motion for reconsideration and to amend complaint filed by
the property, which "smack[ed] of bad faith" and "evince[d] a private respondent on 20 October 1994 was of no moment, this
reprobate disposition of the part of its counsel to advance his Court recognizing that "a dismissal, discontinuance or non-suit
client's cause by fair means or foul." As a result thereof the of an action in which a restraining order or temporary injunction
transfer of title was vitiated by non-adherence to procedural has been granted operates as a dissolution of the restraining
due process.8 order or temporary injunction,"9 regardless of whether the
period for filing a motion for reconsideration of the order
dismissing the case or appeal therefrom has expired.10 The
On 26 June 1997, CA nullified the consolidation of ownership, rationale therefor is that even in cases where an appeal is
ordered the Register of Deeds to cancel the certificate of title in taken from a judgment dismissing an action on the merits, the
UNIONBANK's name and to reinstate TCT No. 41828 with the appeal does not suspend the judgment, hence the general rule
notice of lis pendens annotated at the back. The CA also set applies that a temporary injunction terminates automatically on
aside the portion of the assailed RTC Orders that declared the dismissal of the action.11
private respondents' prayer for writ of preliminary injunction as
moot and academic. UNIONBANK's motion for reconsideration We disagree with the appellate court's observation that
of the above-mentioned decision was likewise rejected for lack consolidation deprived private respondents of their property
of merit on 7 April 1998. without due process. It is settled that the buyer in a foreclosure
sale becomes the absolute owner of the property purchased if
Hence, UNIONBANK came to this Court claiming to be a it is not redeemed during the period of one year after the
mortgagee in good faith and for value with a right to registration of the sale.12 Consolidation took place as a matter
consolidate ownership over the foreclosed property with the of right since there was no redemption of the foreclosed
redemption period having expired and there having been no property and the TRO expired upon dismissal of the complaint.
redemptioners. UNIONBANK contends that the TRO which UNIONBANK need not have informed private respondent that it
provisionally enjoined the tolling of the redemption period was was consolidaint its title over the property, upon the expiration
automatically dissolved upon dismissal of the complaint on 17 of the redemption period, without the judgment debtor having
October 1994. Conformably, consolidation of title in its name made use of his right of redemption, the ownership of the
and the issuance of TCT No. 120929 rendered further property sold becomes consolidated in the purchaser.13 Notice
proceedings on the application for injunction academic. to the mortgagors and with more reason, to private
Moreover, the alleged fraudulent mortgage was facilitated respondents who are not even parties to the mortgage contract
through private respondents' negligence so they must bear the nor to the extra judicial sale is not necessary.
loss. It also contends that since private respondents had filed
several pleadings, due process, being an opportunity to be In real estate mortgage, when the principal obligation is not
heard either through pleadings or oral arguments, was paid when due, the mortgage has the right to foreclose the
observed. mortgage and to have the property seized and sold with a view
to applying the proceeds to the payment of the principal
Private respondents maintain that UNIONBANK's consolidation obligation.14 Foreclosure may be effected either judicially or
of the title in its name was in bad faith, vitiated a standing court extrajudicially.
order, is against the law, thus void ab initio. The application for
preliminary injunction was not rendered moot and academic by In a public bidding during extra-judicial foreclosure, the creditor
consolidation, which took place during the lifetime of the TRO, —mortgagee, trustee, or other person authorized to act for the
and did not follow the proper legal procedure due to the creditor may participate and purchase the mortgaged property
surreptitious manner it was accomplished. By treating the as any other bidder. Thereafter the mortgagor has one year
application for preliminary injunction as moot and academic within which to redeem the property from and after registration
and denying the motion for indirect contempt without hearing, of sale with the Register of Deeds.15 In case of non-
the RTC order ran afoul with the requirements of due process. redemption, the purchaser at foreclosure sale shall file with the
Register of Deeds, either a final deed of sale executed by the
Two main issues can be gleaned from the posturing and claims person authorized by virtue of the power of attorney embodied
of the parties, to wit, was the consolidation of title in in the deed or mortgage, or his sworn statement attesting to
UNIONBANK's name proper, and was the dismissal of the the fact of non-redemption; whereupon, the Register of Deeds
application for preliminary prohibitory injunction valid. Shall issue a new certificate of title in favor of the purchaser
after the owner's duplicate of the certificate has been
The issues must be answered in the affirmative. previously delivered and canceled.16 Thus, upon failure to
redeem foreclosed realty, consolidation of title becomes a
UNIONBANK's consolidation of title over the property on 24 matter of right on the part of the auction buyer,17 and the
October 1994 was proper, though precipitate. Contrary to issuance of a certificate of title in favor of the purchaser
private respondents' allegation UNIONBANK violated no becomes ministerial upon the Register of Deeds.
standing court order. The only bar to consolidation was the
temporary restraining order issued by Justice Lipana-Reyes on There is, moreover, nothing erroneous with the denial of
10 October 1994 which effectively halted the tolling of the private respondents' application for preliminary prohibitory
redemption period 7 days short of its expiration. When private injunction. The acts complained of have already been
respondents' original complaint was dismissed on 17 October consummated. It is impossible to restrain the performance of
1994 for failure to append a certification of non-forum consummated acts through the issuance of prohibitory
shopping, the TRO, as an ancillary order that cannot stand injunction. When the act sought to be prevented had long been
independent of the main proceeding, became functus officio. consummated, the remedy of injunction could no longer be
Thus the tolling of the 12-month redemption period, interrupted entertained,18 hearing the application for preliminary injunction
by the filing of the complaint and the TRO, recommenced and would just be an exercise in futility.
eventually expired 7 days thereafter or on 24 October 1994,
the date of the disputed consolidation.

97
In addition, to be entitled to the injunctive writ, movant must
show that there exists a right to be protected which is directly
threatened by an act sought to be enjoined. Furthermore, there
must be a showing that the invasion of the right is material and
substantial and that there is an urgent and paramount
necessity for the writ to prevent a serious damage.19 The
injunctive remedy prevents a threatened or continuous
irremediable injury to some of the parties before their claim can
be thoroughly investigated and advisedly adjudicated; it is
resorted to only when there is a pressing necessity to avoid
injurious consequences which cannot be remedied under any
standard compensation.20

In the case at bar, the consolidation of ownership over the


mortgaged property in favor of UNIONBANK and the issuance
of a new title in its name during the pendency of an action for
annulment and reconveyance will not cause irreparable injury
to private respondents who are plaintiffs in the said preliminary
injunction. This is because .as purchaser at a public auction,
UNIONBANK is only substituted to and acquires the right, title,
interest and claim of the judgment debtors or mortgagors to the
property at the time of levy.21 Perforce, the judgment in the
main action for reconveyance will not be rendered ineffectual
by the consolidation of ownership and the issuance of title in
the name of UNIONBANK.

More importantly, with the main action for reconveyance


pending before the RTC, the notice of lis pendens, which
despite consolidation remains annotated on UNIONBANK's
transfer certificate of title subject to the outcome of the
litigation, sufficiently protects private respondents interest over
the property. A transferee pendente lite stands exactly in the
shoes of the transferor and is bound by any judgment or
decree which may be rendered for or against the transferor.
Once a notice of lis pendens has been duly registered, any
cancellation or issuance of the title of the land involved as well
as any subsequent transaction affecting the same, would have
to be subject to the outcome of the litigation. In other words,
upon the termination of the litigation there can be no risk of
losing the property or any part thereof as a result of any
conveyance of the land or any encumbrance that may be made
thereon posterior to the filing of the notice of lis pendens.22

Finally, as to the issue of who between private respondents


and UNIONBANK is negligent and hence must bear the loss,
the same is not the proper subject of the present petition and
can only be resolved by the trial court after the trial on the merit
of the main case.

WHEREFORE, the assailed Decision of the Court of Appeals


of 26 June 1997 nullifying the consolidation of ownership and
ordering the Register of Deeds of Quezon City to cancel TCT
No. 120929 and reinstate TCT No. 41828 is hereby
REVERSED and SET ASIDE. The order of the trial court dated
7 August 1999, declaring UNIONBANK's prayer for writ of
preliminary injunction moot and academic, is hereby
REINSTATED. Let this case be remanded to the Regional Trial
Court for trial on the merits.

No pronouncement as to costs.1âwphi1.nêt

SO ORDERED.

98
CUA LAI CHU, CLARO G. CASTRO, G.R. No. 169190 of sale was annotated as Entry No. 1855[11] on TCT No.
22990 covering the foreclosed property.
and JUANITA CASTRO,
After the lapse of the one-year redemption period, private
Petitioners, Present: respondent filed in the Registry of Deeds of Quezon City an
affidavit of consolidation to consolidate its ownership and title
CARPIO, J., Chairperson, to the foreclosed property. Forthwith, on 8 July 2003, the
Register of Deeds cancelled TCT No. 22990 and issued in its
- versus - BRION, stead TCT No. 251835[12] in the name of private respondent.

DEL CASTILLO, On 18 August 2004, private respondent applied for the


issuance of a writ of possession of the foreclosed property.[13]
ABAD, and Petitioners filed an opposition.[14] The trial court granted
private respondents motion for a declaration of general default
HON. HILARIO L. LAQUI, Presiding PEREZ, JJ. and allowed private respondent to present evidence ex parte.
The trial court denied petitioners notice of appeal.
Judge, Regional Trial Court, Branch 218,
Undeterred, petitioners filed in the Court of Appeals a petition
Quezon City and PHILIPPINE BANK Promulgated: for certiorari. The appellate court dismissed the petition. It also
denied petitioners motion for reconsideration.
OF COMMUNICATION,

Respondents. February 11, 2010 The Orders of the Trial Court

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The 8 October 2004 Order[15] granted private respondents


------x motion for a declaration of general default and allowed private
DECISION respondent to present evidence ex parte. The 6 January 2005
CARPIO, J.: Order[16] denied petitioners motion for reconsideration of the
prior order. The 24 February 2005 Order[17] denied petitioners
notice of appeal.
The Case

This is a petition for review[1] of the 29 April 2005 and 4


August 2005 Resolutions[2] of the Court of Appeals in CA-G.R. The Ruling of the Court of Appeals
SP No. 88963. In its 29 April 2005 Resolution, the Court of
Appeals dismissed the petition for certiorari[3] of petitioner The Court of Appeals dismissed on both procedural and
spouses Claro G. Castro and Juanita Castro and petitioner substantive grounds the petition for certiorari filed by
Cua Lai Chu (petitioners). In its 4 August 2005 Resolution, the petitioners. The appellate court noted that the counsel for
Court of Appeals denied petitioners motion for reconsideration. petitioners failed to indicate in the petition the updated PTR
Number, a ground for outright dismissal of the petition under
The Facts Bar Matter No. 1132. Ruling on the merits, the appellate court
held that a proceeding for the issuance of a writ of possession
In November 1994, petitioners obtained a loan in the amount of is ex parte in nature. As such, petitioners right to due process
P3,200,000 from private respondent Philippine Bank of was not violated even if they were not given a chance to file
Communication. To secure the loan, petitioners executed in their opposition. The appellate court also ruled that there was
favor of private respondent a Deed of Real Estate Mortgage[4] no violation of the rule against forum shopping since the
over the property of petitioner spouses covered by Transfer application for the issuance of a writ of possession is not
Certificate of Title No. 22990. In August 1997, petitioners affected by a pending case questioning the validity of the
executed an Amendment to the Deed of Real Estate extrajudicial foreclosure sale.
Mortgage[5] increasing the amount of the loan by P1,800,000,
bringing the total loan amount to P5,000,000.

For failure of petitioners to pay the full amount of the The Issue
outstanding loan upon demand,[6] private respondent applied
for the extrajudicial foreclosure of the real estate mortgage.[7] Petitioners raise the question of whether the writ of possession
Upon receipt of a notice[8] of the extrajudicial foreclosure sale, was properly issued despite the pendency of a case
petitioners filed a petition to annul the extrajudicial foreclosure questioning the validity of the extrajudicial foreclosure sale and
sale with a prayer for temporary restraining order (TRO). The despite the fact that petitioners were declared in default in the
petition for annulment was filed in the Regional Trial Court of proceeding for the issuance of a writ of possession.
Quezon City and docketed as Q-02-46184.[9]

The extrajudicial foreclosure sale did not push through as


originally scheduled because the trial court granted petitioners The Courts Ruling
prayer for TRO. The trial court subsequently lifted the TRO and
reset the extrajudicial foreclosure sale on 29 May 2002. At the The petition has no merit.
foreclosure sale, private respondent emerged as the highest
bidder. A certificate of sale[10] was executed on 4 June 2002
in favor of private respondent. On 7 June 2002, the certificate Petitioners contend they were denied due process of law when
they were declared in default despite the fact that they had filed

99
their opposition to private respondents application for the period, furnishing bond in an amount equivalent to the use of
issuance of a writ of possession. Further, petitioners point out the property for a period of twelve months, to indemnify the
that the issuance of a writ of possession will deprive them not debtor in case it be shown that the sale was made without
only of the use and possession of their property, but also of its violating the mortgage or without complying with the
ownership. Petitioners cite Bustos v. Court of Appeals[18] and requirements of this Act. Such petition shall be made under
Vda. De Legaspi v. Avendao[19] in asserting that physical oath and filed in form of an ex parte motion x x x and the court
possession of the property should not be disturbed pending the shall, upon approval of the bond, order that a writ of
final determination of the more substantial issue of ownership. possession issue, addressed to the sheriff of the province in
Petitioners also allege forum shopping on the ground that the which the property is situated, who shall execute said order
application for the issuance of a writ of possession was filed immediately. (Emphasis supplied)
during the pendency of a case questioning the validity of the
extrajudicial foreclosure sale. In the present case, the certificate of sale of the foreclosed
property was annotated on TCT No. 22990 on 7 June 2002.
Private respondent, on the other hand, maintains that the The redemption period thus lapsed on 7 June 2003, one year
application for the issuance of a writ of possession in a from the registration of the sale.[26] When private respondent
foreclosure proceeding is ex parte in nature. Hence, petitioners applied for the issuance of a writ of possession on 18 August
right to due process was not violated even if they were not 2004, the redemption period had long lapsed. Since the
given a chance to file their opposition. Private respondent foreclosed property was not redeemed within one year from the
argues that the issuance of a writ of possession may not be registration of the extrajudicial foreclosure sale, private
stayed by a pending case questioning the validity of the respondent had acquired an absolute right, as purchaser, to
extrajudicial foreclosure sale. It contends that the former has the writ of possession. It had become the ministerial duty of the
no bearing on the latter; hence, there is no violation of the rule lower court to issue the writ of possession upon mere motion
against forum shopping. Private respondent asserts that there pursuant to Section 7 of Act No. 3135, as amended.
is no judicial determination involved in the issuance of a writ of
possession; thus, the same cannot be the subject of an appeal. Moreover, once ownership has been consolidated, the
issuance of the writ of possession becomes a ministerial duty
At the outset, we must point out that the authorities relied upon of the court, upon proper application and proof of title.[27] In
by petitioners are not in point and have no application here. In the present case, when private respondent applied for the
Bustos v. Court of Appeals,[20] the Court simply ruled that the issuance of a writ of possession, it presented a new transfer
issue of possession was intertwined with the issue of certificate of title issued in its name dated 8 July 2003. The
ownership in the consolidated cases of unlawful detainer and right of private respondent to the possession of the property
accion reinvindicatoria. In Vda. De Legaspi v. Avendao,[21] the was thus founded on its right of ownership. As the purchaser of
Court merely stated that in a case of unlawful detainer, the property at the foreclosure sale, in whose name title over
physical possession should not be disturbed pending the the property was already issued, the right of private respondent
resolution of the issue of ownership. Neither case involved the over the property had become absolute, vesting in it the
right to possession of a purchaser at an extrajudicial corollary right of possession.
foreclosure of a mortgage.
Petitioners are wrong in insisting that they were denied due
Banco Filipino Savings and Mortgage Bank v. Pardo[22] process of law when they were declared in default despite the
squarely ruled on the right to possession of a purchaser at an fact that they had filed their opposition to the issuance of a writ
extrajudicial foreclosure of a mortgage. This case involved a of possession. The application for the issuance of a writ of
real estate mortgage as security for a loan obtained from a possession is in the form of an ex parte motion. It issues as a
bank. Upon the mortgagors default, the bank extrajudicially matter of course once the requirements are fulfilled. No
foreclosed the mortgage. At the auction sale, the bank was the discretion is left to the court.[28]
highest bidder. A certificate of sale was duly issued and
registered. The bank then applied for the issuance of a writ of Petitioners cannot oppose or appeal the courts order granting
possession, which the lower court dismissed. The Court the writ of possession in an ex parte proceeding. The remedy
reversed the lower court and held that the purchaser at the of petitioners is to have the sale set aside and the writ of
auction sale was entitled to a writ of possession pending the possession cancelled in accordance with Section 8 of Act No.
lapse of the redemption period upon a simple motion and upon 3135, as amended, to wit:
the posting of a bond.
SEC. 8. The debtor may, in the proceedings in which
In Navarra v. Court of Appeals,[23] the purchaser at an possession was requested, but not later than thirty days after
extrajudicial foreclosure sale applied for a writ of possession the purchaser was given possession, petition that the sale be
after the lapse of the one-year redemption period. The Court set aside and the writ of possession cancelled, specifying the
ruled that the purchaser at an extrajudicial foreclosure sale has damages suffered by him, because the mortgage was not
a right to the possession of the property even during the one- violated or the sale was not made in accordance with the
year redemption period provided the purchaser files an provisions hereof. x x x
indemnity bond. After the lapse of the said period with no
redemption having been made, that right becomes absolute Any question regarding the validity of the extrajudicial
and may be demanded by the purchaser even without the foreclosure sale and the resulting cancellation of the writ may
posting of a bond. Possession may then be obtained under a be determined in a subsequent proceeding as outlined in
writ which may be applied for ex parte pursuant to Section 7 of Section 8 of Act No. 3135, as amended. Such question should
Act No. 3135,[24] as amended by Act No. 4118,[25] thus: not be raised as a justification for opposing the issuance of a
writ of possession since under Act No. 3135, as amended, the
SEC. 7. In any sale made under the provisions of this Act, the proceeding for this is ex parte.
purchaser may petition the Court of First Instance of the
province or place where the property or any part thereof is
situated, to give him possession thereof during the redemption

100
Further, the right to possession of a purchaser at an
extrajudicial foreclosure sale is not affected by a pending case
questioning the validity of the foreclosure proceeding. The
latter is not a bar to the former. Even pending such latter
proceeding, the purchaser at a foreclosure sale is entitled to
the possession of the foreclosed property.[29]

Lastly, we rule that petitioners claim of forum shopping has no


basis. Under Act No. 3135, as amended, a writ of possession
is issued ex parte as a matter of course upon compliance with
the requirements. It is not a judgment on the merits that can
amount to res judicata, one of the essential elements in forum
shopping.[30]

The Court of Appeals correctly dismissed the petition for


certiorari filed by petitioners for lack of merit.

WHEREFORE, we DENY the petition for review. We AFFIRM


the 29 April 2005 and 4 August 2005 Resolutions of the Court
of Appeals in CA-G.R. SP No. 88963.

SO ORDERED.

101
ELIGIO P. MALLARI, G.R. No. 157659 taking his payments of P30,000.00 made in 1978 into account).
On December 13, 1984, GSIS responded to his request and
Petitioner, rendered a detailed explanation of the account. On May 30,
1985, it sent another updated statement of account. On July
Present: 21, 1986, it finally commenced extrajudicial foreclosure
proceedings against him because he had meanwhile made no
further payments.

PUNO, C.J., On August 22, 1986, the petitioner sued GSIS and the
Chairperson, Provincial Sheriff of Pampanga in the Regional Trial Court
(RTC), Branch 44, in San Fernando, Pampanga, docketed as
-versus- CARPIO- Civil Case No. 7802,[2] ostensibly to enjoin them from
MORALES, proceeding against him for injunction (with an application for
preliminary injunction). The RTC ultimately decided Civil Case
LEONARDO-DE No. 7802 in his favor, nullifying the extrajudicial foreclosure and
CASTRO, auction sale; cancelling Transfer Certificate of Title (TCT) No.
284272-R and TCT No. 284273-R already issued in the name
BERSAMIN, and of GSIS; and reinstating TCT No. 61171-R and TCT No.
54835-R in his and his wife’s names.[3]
VILLARAMA, JR., JJ.
GSIS appealed the adverse decision to the CA, which reversed
GOVERNMENT SERVICE the RTC on March 27, 1996.[4]

INSURANCE SYSTEM and The petitioner elevated the CA decision to this Court via
petition for review on certiorari (G.R. No. 124468).[5]
THE PROVINCIAL SHERIFF Promulgated:
On September 16, 1996, this Court denied his petition for
OF PAMPANGA, review.[6] On January 15, 1997, this Court turned down his
motion for reconsideration.[7]
Respondents. January 25, 2010
As a result, the CA decision dated March 27, 1996 became
x---------------------------------------------------------------------------------- final and executory, rendering unassailable both the
-------x extrajudicial foreclosure and auction sale held on September
DECISION 22, 1986, and the issuance of TCT No. 284272-R and TCT No.
284273-R in the name of GSIS.
BERSAMIN, J.:
GSIS thus filed an ex parte motion for execution and for a writ
of possession on September 2, 1999.[8] Granting the ex parte
By petition for review on certiorari, the petitioner appeals the motion on October 8, 1999,[9] the RTC issued a writ of
decision promulgated on March 17, 2003, whereby the Court of execution cum writ of possession on October 21, 1999,[10]
Appeals (CA) dismissed his petition for certiorari. ordering the sheriff to place GSIS in possession of the
properties.

Antecedents The sheriff failed to serve the writ, however, partly because of
the petitioner’s request for an extension of time within which to
In 1968, the petitioner obtained two loans totaling P34,000.00 vacate the properties. It is noted that GSIS acceded to the
from respondent Government Service Insurance System request.[11]
(GSIS). To secure the performance of his obligations, he
mortgaged two parcels of land registered under his and his Yet, the petitioner did not voluntarily vacate the properties, but
wife Marcelina Mallari’s names. However, he paid GSIS about instead filed a motion for reconsideration and/or to quash the
ten years after contracting the obligations only P10,000.00 on writ of execution on March 27, 2000.[12] Also, the petitioner
May 22, 1978 and P20,000.00 on August 11, 1978.[1] commenced a second case against GSIS and the provincial
sheriff in the RTC in San Fernando, Pampanga (Civil Case No.
What followed thereafter was the series of inordinate moves of 12053), ostensibly for consignation (coupled with a prayer for a
the petitioner to delay the efforts of GSIS to recover on the writ of preliminary injunction or temporary restraining order).
debt, and to have the unhampered possession of the However, the RTC dismissed Civil Case No. 12053 on
foreclosed property. November 10, 2000 on the ground of res judicata, impelling
him to appeal the dismissal to the CA (C.A.-G.R. CV No.
After reminding the petitioner of his unpaid obligation on May 2, 70300).[13]
1979, GSIS sent on November 2, 1981 a telegraphic demand
to him to update his account. On November 10, 1981, he In the meanwhile, the petitioner filed a motion dated April 5,
requested a final accounting, but did not do anything more. 2000 in Civil Case No. 7802 to hold GSIS, et al.[14] in
Nearly three years later, on March 21, 1984, GSIS applied for contempt of court for painting the fence of the properties during
the extrajudicial foreclosure of the mortgage by reason of his the pendency of his motion for reconsideration and/or to quash
failure to settle his account. On November 22, 1984, he the writ of execution.[15] He filed another motion in the same
requested an updated computation of his outstanding account. case, dated April 17, 2000, to hold GSIS and its local manager
On November 29, 1984, he persuaded the sheriff to hold the Arnulfo B. Cardenas in contempt of court for ordering the
publication of the foreclosure notice in abeyance, to await electric company to cut off the electric services to the
action on his pending request for final accounting (that is,

102
properties during the pendency of his motion for As succinctly put in Tag Fibers, Inc. vs. National Labor
reconsideration and/or to quash the writ of execution.[16] Relations Commission, the Supreme Court is emphatic in
saying that “the finality of a decision is a jurisdictional event
To prevent the Presiding Judge of Branch 44 of the RTC from that cannot be made to depend on the convenience of a party.”
resolving the pending incidents in Civil Case No. 7802, GSIS
moved to inhibit him for alleged partiality towards the petitioner We find no cogent reason to discompose the findings of the
as borne out by his failure to act on the motion for court below. Thus, we sustain the assailed Orders of the court
reconsideration and/or to quash writ of execution, motions for a quo since no abuse of discretion has been found to have
contempt of court, and motion for issuance of break open order been committed by the latter in their issuance. Moreover, this
for more than a year from their filing, praying that the case be Court finds this petition to be part of the dilatory tactics of the
re-raffled to another branch of the RTC.[17] Consequently, petitioner to stall the execution of a final and executory
Civil Case No. 7802 was re-assigned to Branch 48, whose decision in Civil Case No. 7802 which has already been
Presiding Judge then denied the motions for contempt of court resolved with finality by no less than the highest tribunal of the
on July 30, 2001, and directed the Branch Clerk of Court to land.
cause the re-implementation of the writ of execution cum writ of
possession dated October 21, 1999.[18] WHEREFORE, premises considered, the instant petition is
hereby DISMISSED for lack of merit. Costs against the
The petitioner sought reconsideration,[19] but the Presiding petitioner.
Judge of Branch 48 denied his motion for reconsideration on
February 11, 2002.[20] SO ORDERED.[23]

Issues
Ruling of the CA
Hence, this appeal.
By petition for certiorari dated March 15, 2002 filed in the CA,
the petitioner assailed the orders of February 11, 2002, July The petitioner insists herein that the CA gravely erred in
30, 2001, October 21, 1999, and October 8, 1999.[21] refusing “to accept the nullity of the following orders” of the
RTC, to wit:
On March 17, 2003, however, the CA dismissed the petition
for certiorari for lack of merit,[22] stating:
1. THE ORDER OF THE TRIAL COURT DATED
We find the instant petition patently devoid of merit. This OCTOBER 8, 1999, GRANTING THE EX-PARTE MOTION
Court is not unaware of the legal tactics and maneuvers FOR EXECUTION AND/OR ISSUANCE OF THE WRIT OF
employed by the petitioner in delaying the disposition of the EXECUTION OF POSSESSION IN FAVOR OF THE
subject case (Civil Case No. 7802) which has already become RESPONDENT GSIS;
final and executory upon the final resolution by the Supreme
Court affirming the judgment rendered by the Court of Appeals. 2. THE ORDER OF THE TRIAL COURT DATED
We construe the actuation of the petitioner in resorting to all OCTOBER 21, 1999 GRANTING THE ISSUANCE AND
kinds of avenues accorded by the Rules of Court, through the IMPLEMENTATION OF THE WRIT OF EXECUTION CUM
filing of several pleadings and/or motions in litigating this case, WRIT OF POSSESSION IN FAVOR OF RESPONDENT GSIS;
as running counter to the intendment of the Rules to be utilized
in promoting the objective of securing a just, speedy and 3. THE ORDER OF THE TRIAL COURT DATED JULY 30,
inexpensive disposition of every action and proceeding. 2001 DIRECTING TO CAUSE THE RE-IMPLEMENTATION
OF THE WRIT OF EXECUTION CUM WRIT OF
The issues raised in the present controversy have already POSSESSION IN FAVOR OF THE RESPONDENT GSIS; and
been settled in our existing jurisprudence on the subject. In the
case of De Jesus vs. Obnamia, Jr., the Supreme Court ruled 4. THE ORDER OF THE TRIAL COURT DATED
that “generally, no notice or even prior hearing of a motion for FEBRUARY 11, 2002, DENYING THE MOTION FOR
execution is required before a writ of execution is issued when RECONSIDERATION OF THE ORDER DATED SEPTEMBER
a decision has already become final.” 14, 2001, IN RELATION TO THE COURT ORDER DATED
JULY 30, 2001.[24]
The recent accretion to the corpus of our jurisprudence has
established the principle of law, as enunciated in Buaya vs.
Stronghold Insurance Co., Inc. that “once a judgment becomes
final and executory, the prevailing party can have it executed Ruling of the Court
as a matter of right, and the issuance of a Writ of Execution
becomes a ministerial duty of the court.” The petition for review on certiorari absolutely lacks merit.

The rule is also firmly entrenched in the aforecited Buaya case I


that “the effective and efficient administration of justice requires
that once a judgment has become final, the prevailing party Petition for Certiorari in CA
should not be deprived of the fruits of the verdict by
subsequent suits on the same issues filed by the same parties. Was Filed Beyond Reglementary Period
Courts are duty-bound to put an end to controversies. Any
attempt to prolong, resurrect or juggle them should be firmly The petition assailed before the CA on certiorari the following
struck down. The system of judicial review should not be orders of the RTC, to wit:
misused and abused to evade the operation of final and
executory judgments.”

103
1. The order dated October 8, 1999 (granting the ex parte A writ of possession, which commands the sheriff to place a
motion for execution and/or issuance of the writ of execution person in possession of real property, may be issued in: (1)
cum writ of possession of GSIS);[25] land registration proceedings under Section 17 of Act No. 496;
(2) judicial foreclosure, provided the debtor is in possession of
2. The order dated October 21, 1999 (directing the issuance the mortgaged property, and no third person, not a party to the
of the writ of execution cum writ of possession in favor of foreclosure suit, had intervened; (3) extrajudicial foreclosure of
GSIS);[26] a real estate mortgage, pending redemption under Section 7 of
Act No. 3135, as amended by Act No. 4118; and (4) execution
3. The order dated July 30, 2001 (requiring the Branch Clerk sales, pursuant to the last paragraph of Section 33, Rule 39 of
of Court to cause the re-implementation of the writ of execution the Rules of Court.[31]
cum writ of possession, and dismissing the motions to hold
GSIS, et al. in contempt);[27] and Anent the redemption of property sold in an extrajudicial
foreclosure sale made pursuant to the special power referred
4. The order dated February 11, 2002 (denying the motion to in Section 1[32] of Act No. 3135,[33] as amended, the
for reconsideration dated August 17, 2001 seeking the debtor, his successor-in-interest, or any judicial creditor or
reconsideration of the order dated July 30, 2001).[28] judgment creditor of said debtor, or any person having a lien on
the property subsequent to the mortgage or deed of trust under
which the property is sold has the right to redeem the property
The July 30, 2001 order denied the petitioner’s motion for at anytime within the term of one year from and after the date
reconsideration and/or to quash writ of execution, and motion of the sale, such redemption to be governed by the
to hold GSIS, Tony Dimatulac, et al. and Arnulfo Cardenas in provisions of Section 464 to Section 466 of the Code of Civil
contempt; and declared GSIS’s motion for issuance of break Procedure, to the extent that said provisions were not
open order and for designation of special sheriff from GSIS inconsistent with the provisions of Act 3135.[34]
Legal Services Group as premature. In turn, the motion for
reconsideration and/or to quash writ of execution denied by the In this regard, we clarify that the redemption period envisioned
order of July 30, 2001 had merely challenged the orders of under Act 3135 is reckoned from the date of the registration of
October 8, 1999 and October 21, 1999 (granting the writ of the sale, not from and after the date of the sale, as the text of
execution cum writ of possession as a matter of course). Act 3135 shows. Although the original Rules of Court (effective
on July 1, 1940) incorporated Section 464 to Section 466 of the
Considering that the motion for reconsideration dated August Code of Civil Procedure as its Section 25 (Section 464);
17, 2001 denied by the order dated February 11, 2002 was in Section 26 (Section 465); and Section 27 (Section 466) of
reality and effect a prohibited second motion for Rule 39, with Section 27 still expressly reckoning the
reconsideration vis-à-vis the orders dated October 21, 1999 redemption period to be “at any time within twelve months after
and October 8, 1999, the assailed orders dated July 30, 2001, the sale;” and although the Revised Rules of Court (effective
October 21, 1999, and October 8, 1999 could no longer be on January 1, 1964) continued to provide in Section 30 of Rule
subject to attack by certiorari. Thus, the petition for certiorari 39 that the redemption be made from the purchaser “at any
filed only in March 2002 was already improper and tardy for time within
being made beyond the 60-day limitation defined in Section 4,
Rule 65, 1997 Rules of Civil Procedure, as amended,[29] twelve (12) months after the sale,”[35] the 12-month period of
which requires a petition for certiorari to be filed “not later than redemption came to be held as beginning “to run not from the
sixty (60) days from notice of the judgment, order or date of the sale but from the time of registration of the sale in
resolution,” or, in case a motion for reconsideration or new trial the Office of the Register of Deeds.”[36] This construction was
is timely filed, whether such motion is required or not, “the sixty due to the fact that the sheriff’s sale of registered (and
(60) day period shall be counted from notice of the denial of unregistered) lands did not take effect as a conveyance, or did
the said motion.” not bind the land, until the sale was registered in the Register
of Deeds.[37]
It is worth emphasizing that the 60-day limitation is considered
inextendible, because the limitation has been prescribed to Desiring to avoid any confusion arising from the conflict
avoid any unreasonable delay that violates the constitutional between the texts of the Rules of Court (1940 and 1964) and
rights of parties to a speedy disposition of their cases.[30] Act No. 3135, on one hand, and the jurisprudence clarifying the
reckoning of the redemption period in judicial sales of real
property, on the other hand, the Court has incorporated in
II Section 28 of Rule 39 of the current Rules of Court (effective
on July 1, 1997) the foregoing judicial construction of reckoning
Nature of the Writ of Possession the redemption period from the date of the registration of the
certificate of sale, to wit:
and its Ministerial Issuance
Sec. 28. Time and manner of, and amounts payable on,
The petitioner claims that he had not been notified of the successive redemptions; notice to be given and filed. — The
motion seeking the issuance of the writ of execution cum writ of judgment obligor, or redemptioner, may redeem the property
possession; hence, the writ was invalid. from the purchaser, at any time within one (1) year from the
date of the registration of the certificate of sale, by paying the
As earlier shown, the CA disagreed with him. purchaser the amount of his purchase, with one per centum
per month interest thereon in addition, up to the time of
We sustain the CA, and confirm that the petitioner, as redemption, together with the amount of any assessments or
defaulting mortgagor, was not entitled under Act 3135, as taxes which the purchaser may have paid thereon after
amended, and its pertinent jurisprudence to any prior notice of purchase, and interest on such last named amount at the same
the application for the issuance of the writ of possession. rate; and if the purchaser be also a creditor having a prior lien

104
to that of the redemptioner, other than the judgment under even without giving an opportunity to be heard to the person
which such purchase was made, the amount of such other lien, against whom the relief is sought.[43] Its nature as an ex parte
with interest. petition under Act No. 3135, as amended, renders the
application for the issuance of a writ of possession a non-
Property so redeemed may again be redeemed within sixty litigious proceeding.[44]
(60) days after the last redemption upon payment of the sum
paid on the last redemption, with two per centum thereon in It is clear from the foregoing that a non-redeeming mortgagor
addition, and the amount of any assessments or taxes which like the petitioner had no more right to challenge the issuance
the last redemptioner may have paid thereon after redemption of the writ of execution cum writ of possession upon the ex
by him, with interest on such last-named amount, and in parte application of GSIS. He could not also impugn anymore
addition, the amount of any liens held by said last redemptioner the extrajudicial foreclosure, and could not undo the
prior to his own, with interest. The property may be again, and consolidation in GSIS of the ownership of the properties
as often as a redemptioner is so disposed, redeemed from any covered by TCT No. 284272-R and TCT No. 284273-R, which
previous redemptioner within sixty (60) days after the last consolidation was already irreversible. Hence, his moves
redemption, on paying the sum paid on the last previous against the writ of execution cum writ of possession were
redemption, with two per centum thereon in addition, and the tainted by bad faith, for he was only too aware, being his own
amounts of any assessments or taxes which the last previous lawyer, of the dire consequences of his non-redemption within
redemptioner paid after the redemption thereon, with interest the period provided by law for that purpose.
thereon, and the amount of any liens held by the last
redemptioner prior to his own, with interest.
III
Written notice of any redemption must be given to the officer
who made the sale and a duplicate filed with the registry of Dismissal of Petitioner’s Motion for Indirect Contempt
deeds of the place, and if any assessments or taxes are paid
by the redemptioner or if he has or acquires any lien other than Was Proper and In Accord with the Rules of Court
that upon which the redemption was made, notice thereof must
in like manner be given to the officer and filed with the registry The petitioner insists that the RTC gravely erred in
of deeds; if such notice be not filed, the property may be dismissing his charges for indirect contempt against GSIS, et
redeemed without paying such assessments, taxes, or liens. al.; and that the CA should have consequently granted his
(30a) (Emphasis supplied). petition for certiorari.

Accordingly, the mortgagor or his successor-in-interest must The petitioner’s insistence is plainly unwarranted.
redeem the foreclosed property within one year from the
registration of the sale with the Register of Deeds in order to First of all, Section 4, Rule 71, 1997 Rules of Civil Procedure,
avoid the title from consolidating in the purchaser. By failing to provides as follows:
redeem thuswise, the mortgagor loses all interest over the
foreclosed property.[38] The purchaser, who has a right to Section 4. How proceedings commenced. — Proceedings for
possession that extends beyond the expiration of the indirect contempt may be initiated motu proprio by the court
redemption period, becomes the absolute owner of the against which the contempt was committed by an order or any
property when no redemption is made,[39] that it is no longer other formal charge requiring the respondent to show cause
necessary for the purchaser to file the bond required under why he should not be punished for contempt.
Section 7 of Act No. 3135, as amended, considering that the
possession of the land becomes his absolute right as the land’s In all other cases, charges for indirect contempt shall be
confirmed owner.[40] The consolidation of ownership in the commenced by a verified petition with supporting particulars
purchaser’s name and the issuance to him of a new TCT then and certified true copies of documents or papers involved
entitles him to demand possession of the property at any time, therein, and upon full compliance with the requirements for
and the issuance of a writ of possession to him becomes a filing initiatory pleadings for civil actions in the court concerned.
matter of right upon the consolidation of title in his name. If the contempt charges arose out of or are related to a
principal action pending in the court, the petition for contempt
The court can neither halt nor hesitate to issue the writ of shall allege that fact but said petition shall be docketed, heard
possession. It cannot exercise any discretion to determine and decided separately, unless the court in its discretion orders
whether or not to issue the writ, for the issuance of the writ to the consolidation of the contempt charge and the principal
the purchaser in an extrajudicial foreclosure sale becomes a action for joint hearing and decision. (n) (Emphasis supplied).
ministerial function.[41] Verily, a marked distinction exists
between a discretionary act and a ministerial one. A purely Indeed, a person may be charged with indirect contempt only
ministerial act or duty is one that an officer or tribunal performs by either of two alternative ways, namely: (1) by a verified
in a given state of facts, in a prescribed manner, in obedience petition, if initiated by a party; or (2) by an order or any other
to the mandate of a legal authority, without regard to or the formal charge requiring the respondent to show cause why he
exercise of his own judgment upon the propriety or impropriety should not be punished for contempt, if made by a court
of the act done. If the law imposes a duty upon a public officer against which the contempt is committed. In short, a charge of
and gives him the right to decide how or when the duty shall be indirect contempt must be initiated through a verified petition,
performed, such duty is discretionary, not ministerial. The duty unless the charge is directly made by the court against which
is ministerial only when its discharge requires neither the the contemptuous act is committed.
exercise of official discretion nor the exercise of judgment.[42]
Justice Regalado has explained why the requirement of the
The proceeding upon an application for a writ of filing of a verified petition for contempt is mandatory:[45]
possession is ex parte and summary in nature, brought for the
benefit of one party only and without notice being sent by the 1. This new provision clarifies with a regulatory norm the
court to any person adverse in interest. The relief is granted proper procedure for commencing contempt proceedings.

105
While such proceeding has been classified as a special civil
action under the former Rules, the heterogeneous practice,
tolerated by the courts, has been for any party to file a mere His conduct contravened Rule 10.03, Canon 10 of the Code of
motion without paying any docket or lawful fees therefor and Professional Responsibility, by which he was enjoined as a
without complying with the requirements for initiatory lawyer to “observe the rules of procedure and xxx not [to]
pleadings, which is now required in the second paragraph of misuse them to defeat the ends of justice.” By his dilatory
this amended section. Worse, and as a consequence of moves, he further breached and dishonored his Lawyer’s Oath,
unregulated motions for contempt, said incidents sometimes particularly:[47]
remain pending for resolution although the main case has
already been decided. There are other undesirable aspects
but, at any rate, the same may now be eliminated by this
amendatory procedure. xxx I will not wittingly or willingly promote or sue any
groundless, false or unlawful suit, nor give aid nor consent to
Henceforth, except for indirect contempt proceedings initiated the same; I will delay no man for money or malice, and will
motu proprio by order of or a formal charge by the offended conduct myself as a lawyer according to the best of my
court, all charges shall be commenced by a verified petition knowledge and discretion with all good fidelity as well to the
with full compliance with the requirements therefor and shall be courts as to my clients xxx
disposed of in accordance with the second paragraph of this
section. (Emphasis supplied).

Clearly, the petitioner’s charging GSIS, et al. with indirect


contempt by mere motions was not permitted by the Rules of
Court. We stress that the petitioner’s being the party litigant himself
did not give him the license to resort to dilatory moves. His zeal
And, secondly, even assuming that charges for contempt could to defend whatever rights he then believed he had and to
be initiated by motion, the petitioner should have tendered filing promote his perceived remaining interests in the property
fees. The need to tender filing fees derived from the fact that already lawfully transferred to GSIS should not exceed the
the procedure for indirect contempt under Rule 71, Rules of bounds of the law, for he remained at all times an officer of the
Court was an independent special civil action. Yet, the Court burdened to conduct himself “with all good fidelity as well
petitioner did not tender and pay filing fees, resulting in the trial to the courts as to [his] clients.”[48] His true obligation as a
court not acquiring jurisdiction over the action. Truly, the lawyer should not be warped by any misplaced sense of his
omission to tender filing fees would have also warranted the rights and interests as a litigant, because he was, above all,
dismissal of the charges. bound not to unduly delay a case, not to impede the execution
of a judgment, and not to misuse Court processes.[49]
It seems to be indubitable from the foregoing that the petitioner Consequently, he must be made to account for his misconduct
initiated the charges for indirect contempt without regard to the as a lawyer.
requisites of the Rules of Court simply to vex the adverse
party. He thereby disrespected the orderly administration of
justice and committed, yet again, an abuse of procedures.
WHEREFORE, we deny the petition for review on certiorari for
lack of merit, and affirm the decision of the Court of Appeals
IV promulgated on March 17, 2003, with the costs of suit to be
paid by the petitioner.
Petitioner Was Guilty of

Misconduct As A Lawyer
The Committee on Bar Discipline of the Integrated Bar of the
The CA deemed it unavoidable to observe that the petition for Philippines is directed to investigate the petitioner for what
certiorari brought by the petitioner to the CA was “part of the appear to be (a) his deliberate disregard of the Rules of Court
dilatory tactics of the petitioner to stall the execution of a final and jurisprudence pertinent to the issuance and
and executory decision in Civil Case No. 7802 which has implementation of the writ of possession under Act No. 3135,
already been resolved with finality by no less than the highest as amended; and (b) his witting violations of the Lawyer’s Oath
tribunal of the land.”[46] and the Code of Professional Responsibility.

The observation of the CA deserves our concurrence.

Verily, the petitioner wittingly adopted his aforedescribed SO ORDERED.


worthless and vexatious legal maneuvers for no other purpose
except to delay the full enforcement of the writ of possession,
despite knowing, being himself a lawyer, that as a non-
redeeming mortgagor he could no longer impugn both the
extrajudicial foreclosure and the ex parte issuance of the writ of
execution cum writ of possession; and that the enforcement of
the duly-issued writ of possession could not be delayed. He
thus deliberately abused court procedures and processes, in
order to enable himself to obstruct and stifle the fair and quick
administration of justice in favor of mortgagee and purchaser
GSIS.

106
G.R. No. 198800 December 11, 2013 The trial court ruled that the extrajudicial foreclosure
proceedings were null and void and the certificate of sale is
JOSE T. RAMIREZ, Petitioner, invalid. The fallo of the Decision14 dated June 30, 2003 of the
vs. Regional Trial Court, Branch 193, Marikina City, in Civil Case
THE MANILA BANKING CORPORATION, Respondent. No. 2001-701-MK reads:

DECISION Premises considered, judgment is hereby rendered in favor of


the plaintiff [Ramirez] and against the defendant [bank], whose
VILLARAMA, JR., J.: counterclaim is hereby dismissed, declaring the Certificate of
Sale of the properties covered by TCT Nos. N-10722 and N-
We have consistently held that unless the parties stipulate, 23033, as null and void and ordering the defendant [bank] to
personal notice to the mortgagor in extrajudicial foreclosure pay the following:
proceedings is not necessary because Section 31 of Act No.
31352 only requires the posting of the notice of sale in three 1) One Hundred Thousand (₱100,000.00) Pesos as moral
public places and the publication of that notice in a newspaper damages;
of general circulation.3
2) Fifty Thousand (₱50,000.00) Pesos as exemplary damages;
Before us is a petition for review on certiorari under Rule 45 of
the Decision4 dated November 26, 2010 and Resolution5 3) Fifty Thousand (₱50,000.00) Pesos as Attorney’s fees; and
dated September 28, 2011 of the Court of Appeals (CA) in CA-
G.R. CV No. 80616. 4) Costs of suit.

The facts of the case are as follows: SO ORDERED.15

Petitioner Jose T. Ramirez mortgaged two parcels of land The CA reversed the trial court’s decision and ruled that
located at Bayanbayanan, Marikina City and covered by absence of personal notice of foreclosure to Ramirez as
Transfer Certificate of Title (TCT) Nos. N-107226 and N- required by paragraph N of the real estate mortgage is not a
230337 in favor of respondent The Manila Banking Corporation ground to set aside the foreclosure sale.16 The fallo of the
to secure his ₱265,000 loan. The real estate mortgage assailed CA Decision reads:
provides that all correspondence relative to the mortgage
including notifications of extrajudicial actions shall be sent to WHEREFORE, the appealed decision dated June 30, 2003 of
petitioner Ramirez at his given address, to wit: the Regional Trial Court of Marikina, Branch 193 is hereby
REVERSED and SET ASIDE, and a new one is entered
N) All correspondence relative to this MORTGAGE, including AFFIRMING the validity of the Certificate of Sale of the
demand letters, summons, subpoenas or notifications of any properties covering TCT Nos. N-10722 and N-23033.
judicial or extrajudicial actions shall be sent to the
MORTGAGOR at the address given above or at the address SO ORDERED.17
that may hereafter be given in writing by the MORTGAGOR to
the MORTGAGEE, and the mere act of sending any Ramirez’s motion for reconsideration was denied in the
correspondence by mail or by personal delivery to the said assailed CA Resolution.
address shall be valid and effective notice to the
MORTGAGOR for all legal purposes and the fact that any Hence, this petition raising a lone issue:
communication is not actually received by the MORTGAGOR,
or that it has been returned unclaimed to the MORTGAGEE, or What is the legal effect of violating paragraph N of the deed of
that no person was found at the address given, or that the mortgage which requires personal notice to the petitioner-
address is fictitious or cannot be located, shall not excuse or mortgagor by the respondent-mortgagee bank?18
relieve the MORTGAGOR from the effects of such notice.8
Ramirez insists that the auction sale as well as the certificate of
Respondent filed a request for extrajudicial foreclosure of real sale issued to respondent are null and void since no notice of
estate mortgage9 before Atty. Hipolito Sañez on the ground the foreclosure and sale by public auction was personally given
that Ramirez failed to pay his loan despite demands. During to him in violation of paragraph N of the real estate mortgage
the auction sale on September 8, 1994, respondent was the which requires personal notice to him of said extrajudicial
only bidder for the mortgaged properties.10 Thereafter, a foreclosure.19
certificate of sale11 was issued in its favor as the highest
bidder. In its comment, respondent counters that under Section 3 of
Act No. 3135, no personal notice to the mortgagor is required
In 2000, respondent demanded that Ramirez vacate the in case of a foreclosure sale. The bank claims that paragraph
properties.12 N of the real estate mortgage does not impose an additional
obligation to it to provide personal notice to the mortgagor
Ramirez sued respondent for annulment of sale and prayed Ramirez.20
that the certificate of sale be annulled on the ground, among
others, that paragraph N of the real estate mortgage was We agree with Ramirez and grant his petition.
violated for he was not notified of the foreclosure and auction
sale.13 The CA erred in ruling that absence of notice of extrajudicial
foreclosure sale to Ramirez as required by paragraph N of the
In its answer, respondent claimed that the foreclosure real estate mortgage will not invalidate the extrajudicial
proceedings were valid. foreclosure sale. We rule that when respondent failed to send
the notice of extrajudicial foreclosure sale to Ramirez, it
committed a contractual breach of said paragraph N sufficient

107
to render the extrajudicial foreclosure sale on September 8, Ramirez. In granting said monetary awards, the trial court
1994 null and void. Thus, we reverse the assailed CA Decision noted that if the bank followed strictly the procedure in the
and Resolution. extrajudicial foreclosure of the real estate mortgage and had
not filed prematurely an unlawful detainer case against
In Carlos Lim, et al. v. Development Bank of the Philippines,21 Ramirez, he would not have been forced to litigate and incur
we held that unless the parties stipulate, personal notice to the expenses.25
mortgagor in extrajudicial foreclosure proceedings is not
necessary because Section 3 of Act No. 3135 only requires the We delete aforesaid monetary awards, except the award of
posting of the notice of sale in three public places and the costs of suit. Nothing supports the trial court’s award of moral
publication of that notice in a newspaper of general circulation. damages. There was no testimony of any physical suffering,
In this case, the parties stipulated in paragraph N of the real mental anguish, fright, serious anxiety, besmirched reputation,
estate mortgage that all correspondence relative to the wounded feelings, moral shock, social humiliation, and similar
mortgage including notifications of extrajudicial actions shall be injury26 suffered by Ramirez. The award of moral damages
sent to mortgagor Ramirez at his given address. Respondent must be anchored on a clear showing that Ramirez actually
had no choice but to comply with this contractual provision it experienced mental anguish, besmirched reputation, sleepless
has entered into with Ramirez. The contract is the law between nights, wounded feelings or similar injury.27 Ramirez’s
them. Hence, we cannot agree with the bank that paragraph N testimony28 is also wanting as to the moral damages he
of the real estate mortgage does not impose an additional suffered.
obligation upon it to provide personal notice of the extrajudicial
foreclosure sale to the mortgagor Ramirez. Similarly, no exemplary damages can be awarded since there
is no basis for the award of moral damages and there is no
As we explained in Metropolitan Bank v. Wong,22 the bank’s award of temperate, liquidated or compensatory damages.29
violation of paragraph N of the real estate mortgage is Exemplary damages are imposed by way of example for the
sufficient to invalidate the extrajudicial foreclosure sale: public good, in addition to moral, temperate, liquidated or
compensatory damages.30
[A] contract is the law between the parties and … absent any
showing that its provisions are wholly or in part contrary to law, We likewise delete the trial court’s award of attorney’s fees
morals, good customs, public order, or public policy, it shall be since the trial court failed to state in the body of its decision the
enforced to the letter by the courts. Section 3, Act No. 3135 factual or legal reasons for said award.31
reads:
Indeed, even the instant petition32 does not offer any
"Sec. 3. Notice shall be given by posting notices of the sale for supporting fact or argument for us to affirm the award of moral
not less than twenty days in at least three public places of the and exemplary damages and attorney’s fees.
municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice However, we agree, with the trial court’s award of costs of suit
shall also be published once a week for at least three to Ramirez. Costs shall be allowed to the prevailing party as a
consecutive weeks in a newspaper of general circulation in the matter of course unless otherwise provided in the Rules of
municipality and city." Court.33 These costs Ramirez may recover are those stated in
Section 10, Rule 142 of the Rules of Court.34 For instance,
The Act only requires (1) the posting of notices of sale in three Ramirez may recover the lawful fees he paid in docketing his
public places, and (2) the publication of the same in a action for annulment of sale before the trial court. We add
newspaper of general circulation. Personal notice to the thereto the amount of ₱3,530 or the amount of docket and
mortgagor is not necessary. Nevertheless, the parties to the lawful fees paid by Ramirez for filing this petition before this
mortgage contract are not precluded from exacting additional Court.35 We deleted the award of moral and exemplary
requirements. In this case, petitioner and respondent in damages; hence, the restriction under Section 7, Rule 142 of
entering into a contract of real estate mortgage, agreed inter the Rules of Court36 would have prevented Ramirez to recover
alia: any cost of suit. But we certify, in accordance with said Section
7, that Ramirez’s action for annulment of sale involved a
"all correspondence relative to this mortgage, including substantial and important right such that he is entitled to an
demand letters, summonses, subpoenas, or notifications of any award of costs of suit. Needless to stress, the purpose of
judicial or extra-judicial action shall be sent to the paragraph N of the real estate mortgage is to apprise the
MORTGAGOR…." mortgagor, Ramirez, of any action that the mortgagee-bank
might take on the subject properties, thus according him the
Precisely, the purpose of the foregoing stipulation is to apprise opportunity to safeguard his rights. 37
respondent of any action which petitioner might take on the
subject property, thus according him the opportunity to WHEREFORE, we GRANT the petition, REVERSE and SET
safeguard his rights. When petitioner failed to send the notice ASIDE the Decision dated November 26, 2010 and Resolution
of foreclosure sale to respondent, he committed a contractual dated September 28, 2011 of the Court of Appeals in CA-G.R.
breach sufficient to render the foreclosure sale on November CV No. 80616. The extrajudicial foreclosure proceedings and
23, 1981 null and void.1âwphi1 auction sale conducted by Atty. Hipolito Safiez on September
8, 1994 and the Certificate of Sale over the mortgaged
We reiterated the Wong ruling in Global Holiday Ownership properties covered by TCT Nos. N-10722 and N-23033, issued
Corporation v. Metropolitan Bank and Trust Company23 and in favor of respondent The Manila Banking Corporation, are
recently, in Carlos Lim, et al. v. Development Bank of the hereby DECLARED NULL and VOID.
Philippines.24 Notably, all these cases involved provisions
similar to paragraph N of the real estate mortgage in this case. Costs against respondent The Manila Banking Corporation.

On another matter, we note that the trial court awarded moral SO ORDERED.
and exemplary damages, attorney’s fees and costs of suit to

108
G.R. No. 196864 July 8, 2015 was entered on 18October 2000, no contract of loan was yet
executed by the parties. It was only on 19 December 2003 that
SPOUSES VICTOR P. DULNUAN and JACQUELINE P. they received the proceeds of the loan, as evidenced by the
DULNUAN, Petitioners, Promissory Note. In other words, there is no principal
vs. obligation upon which the ancillary contract of mortgage was
METROPOLITAN BANK & TRUST COMPANY, Respondent. attached to.

DECISION Upon motion of the Spouses Dulnuan, Civil Case No. 08-CV-
2470 was consolidated before Branch 63 of the RTC wherein
PEREZ, J.: the LRC Case No. 08-60 was pending. After summary hearing,
the court a quoin an Order dated 5 November 2008, issued a
This is a Petition for Review on Certiorari1 filed by petitioners Temporary Restraining Order and set the hearing for the
Spouses Victor Dulnuan and Jacqueline Dulnuan (Spouses issuance of Writ of Preliminary Injunction. Both parties
Dulnuan) seeking to reverse and set aside the 14 January proceeded to adduce evidence for and against the issuance of
2011 Decision2 of the Court of Appeals. and its 29 April 2011 the writ of preliminary injunction.
Resolution3 in CA-G.R. SP No. 108628. The assailed decision
and resolution reversed the 3 December 2008 Order of the Finding an imperative need to protect and preserve the rights
Regional Trial Court (RTC) of La Trinidad, Benguet, which, in of the Spouses Dulnuan during the pendency of the principal
turn, enjoined the extrajudicial foreclosure sale or' a parcel of action, the RTC issued an Order dated 3 December 2008,
land covered by Transfer Certificate of Title (TCT) No. T-46390 enjoining Metrobank from taking possession of the subject
registered under the name of the Spouses Dulnuan. The property until the final disposition of the annulment of mortgage
dispositive portion of the Court of Appeals Decision reads: case. The decretal portion of the Order reads:

WHEREFORE, the petition is GRANTED. The Order dated WHEREFORE, premises considered, and finding compelling
December 3, 2008 of the Regional Trial Court, Branch 63 of La reason at this point in time to grant for the application for
Trinidad, Benguet in Civil Case No. 08-CV-2470 which granted preliminary injunction, the same is hereby granted upon
[the Spouses Dulnuan’s] application for writ of preliminary posting of preliminary injunction bond in the amount of
injunction and the RTC’s Order dated March 24, 2009, which ₱200,000.00 duly approved by the court, let the writ of
denied [Metropolitan Bank and Trust Company’s] motion for preliminary injunction be issued to take effect pendente lite,
reconsideration, are hereby REVERSED and SET ASIDE.4 commanding the [Metrobank] including its agents and
representatives, as well as persons acting under its control,
The Facts supervision, instruction, order or authorization, to desist from
entering, occupying, possessing, using, or from performing any
On several occasions, the Spouses Dulnuan obtained loans act of possession and occupation of the aforedescribed
from Metropolitan Bank and Trust Company (Metrobank), the property, as well as from causing the cancellation of the
total of which reached the sum ₱3,200,000.00, as evidenced existing transfer certificate of title of the [Spouses Dulnuan] and
by promissory notes executed by them.5 from securing in lieu thereof a transfer certificate of title over
the aforedescribed property in its favor.10
As a security for the loan obligations, the Spouses Dulnuan
executed a Real Estate Mortgage (REM) over a parcel of land In an Order dated 24 March 2009, the RTC refused to
covered by TCT No. 46390 registered under their names and reconsider its earlier Order.
located at La Trinidad, Benguet with an area of 392 square
meters (subject property).6 Subsequently, however, the Arguing that the RTC gravely abused its discretion in enjoining
Spouses Dulnuan incurred default and therefore the loan its taking of possession over the subject realties, Metrobank
obligations became due and demandable. filed a Petition for Certiorari before the Court of Appeals.

On 22 April 2008, Metrobank filed an application for extra- On 14 January 2011, the Court of Appeals rendered a Decision
judicial foreclosure proceedings over the subject property reversing the questioned Orders and declared that the
before the RTC of La Trinidad, Benguet. After due notice and issuance of the writ of preliminary injunction is unjustified under
publication, the mortgaged property was sold at a public the circumstances. The appellate court made a pronouncement
auction where Metrobank was declared as the highest bidder that as the highest bidder at the auction sale, Metrobank is
after tendering the bid of ₱6,189,000.00, as shown in the entitled to occupy the subject property, and, any question
Certificate of Sale.7 In order to validly effect the foreclosure, a regarding the validity of the mortgage or the foreclosure thereof
copy of the said Notice of Public Auction Sale was posted on shall not preclude the purchaser from taking possession. The
the bulletin boards of Barangay Betag, Municipal Hall of La disquisition the Court of Appeals reads:
Trinidad, Benguet, Provincial Capitol Benguet.8 Before the
expiration of the one-year redemption period allowed by law, WHEREFORE, the petition is GRANTED. The Order dated
Metrobank filed a Petition for the Issuance of Writ of December 3, 2008 of the Regional Trial Court, Branch 63 of La
Possession docketed as LRC Case No. 08-60 which was Trininidad, Benguet in Civil Case 08-CV-2470 which granted
raffled before Branch 63 of the RTC.9 respondents’ application for writ of preliminary injunction and
the RTC’s Order dated March 24, 2009 which denied
On 30 September 2008, the Spouses Dulnuan instituted a [Metrobank’s] motion for reconsideration are hereby
Complaint seeking the issuance of a temporary restraining RESERVED and SET ASIDE.11
order and preliminary and final injunction and, for the
annulment of extra-judicial foreclosure and real estate For lack of merit, the Spouses Dulnuan’s Motion for
mortgage before the RTC of LaTrinidad, Benguet, Branch 10, Reconsideration was denied by the Court of Appeals in a
which case was docketed as Civil Case No. 08-CV-2470. The Resolution dated 29 April 2011.
complaint alleged that the mortgage constituted over the
property is null and void because at the time the agreement

109
The Spouses Dulnuan is now before this Court via this instant
Petition for Review on Certiorari seeking the reversal of the (c) That a party, court, agency or a person is doing,
Court of Appeals Decision and Resolution on the following threatening, or is attempting to do, or is procuring or suffering
grounds: to be done, some act or acts probably in violation of the rights
of the applicant respecting the subject of the action or
I. proceeding, and tending to render the judgment ineffectual.

THE HONORABLE COURT OF APPEALS COMMITTED Thus, to be entitled to the injunctive writ, petitioners must show
GRAVE AND SERIOUS ERROR IN OVERLOOKING THE that (1) there exists a clear and unmistakable right to be
UNDISPUTED FACT THAT THE PETITION FOR WRIT OF protected; (2) this right is directly threatened by an act sought
POSSESSION WAS FILED DURING THE REDEMPTION to be enjoined; (3) the invasion of the right is material and
PERIOD AND NO BOND HAD BEEN POSTED BY substantial; and (4) there is an urgent and paramount necessity
RESPONDENT TO WARRANT ITS ISSUANCE; AND for the writ to prevent serious and irreparable damage.17

II. As such, a writ of preliminary injunction may be issued only


upon clear showing of an actual existing right to be protected
THE HONORABLE COURT OF APPEALS COMMITTED A during the pendency of the principal action. The requisites of a
GRAVE AND SERIOUS ERROR IN OVERLOOKING THE valid injunction are the existence of the right and its actual or
FACT THAT CIVIL CASE NO. 08-CV-2470 AND LRC CASE threatened violations. Thus, to be entitled to an injunctive writ,
NO. 08-60 WERE CONSOLIDATED.12 the right to be protected and the violation against the right must
be shown.18
The Court's Ruling
Extant from the pleadings of the parties is the failure of the
The Court is urged to resolve the issue of whether or not the Spouses Dulnuan to establish the essential requisites for the
Court of Appeals erred in dissolving the writ of preliminary issuance of the writ of preliminary injunction.
injunction issued against Metrobank. The writ of preliminary
injunction enjoined Metrobank from entering, occupying, First. The court a quo cannot enjoin Metrobank, at the instance
possessing, using, or performing any act of possession and of the Spouses Dulnuan, from taking possession of the subject
occupation over the subject property. Without going into the property simply because the period of redemption has not yet
merits of this case, the Court will confine itself in the expired. As the highest bidder in the foreclosure sale upon
determination of the propriety of the preliminary injunction, whom a certificate sale was issued by the sheriff, Metrobank
such being a preservative remedy for the protection of has the right to be placed in possession of the subject property
substantive rights or interests, is not a cause of action in itself even during the redemption period provided that the necessary
but merely a provisional remedy, an adjunct to a main suit.13 amount of bond is posted. As elucidated by the Court in
Spouses Tolosa v. United Coconut Planters Bank:19
A writ of preliminary injunction and a TRO are injunctive reliefs
and preservative remedies for the protection of substantive A writ of possession is simply an order by which the sheriff is
rights and interests.1âwphi1 An application for the issuance of commanded by the court to place a person in possession of a
a writ of preliminary injunction and/or TRO may be granted real or personal property. Under Section 7 of Act No. 3135, as
upon the filing of a verified application showing facts entitling amended, a writ of possession may be issued in favor of a
the applicant to the relief demanded.14 The purpose of purchaser in a foreclosure sale either (1) within the one-year
injunction is to prevent threatened or continuous irremediable redemption period, upon the filing of a bond; or (2) after the
injury to some of the parties before their claims can be lapse of the redemption period, without need of a bond. Within
thoroughly studied and educated. Its sole aim is to preserve the one-year redemption period, the purchaser may apply for a
the status quo until the merits of the case is heard fully.15 writ of possession by filing a petition in the form of an ex parte
motion under oath, in the registration or cadastral proceedings
The status quo is the last actual, peaceable and uncontested of the registered property. The law requires only that the proper
situation which precedes a controversy.16 The status quo motion be filed, the bond approved and no third person is
should be that existing at the time of the filing of the case. A involved. After the consolidation of title in the buyer’s name for
preliminary injunction should not establish new relations failure of the mortgagor to redeem the property, entitlement to
between the parties, but merely maintain or re-establish the the writ of possession becomes a matter of right. In the latter
pre-existing relationship between them. case, the right of possession becomes absolute because the
basis thereof is the purchaser’s ownership of the property.
Pertinent are the provisions of Section 3, Rule 58 of the Rules
of Court, enumerates the grounds for the issuance of a writ of It is an established rule that the purchaser in an extra-judicial
preliminary injunction, to wit: foreclosure sale is entitled to the possession of the property
and can demand that he be placed in possession of the same
SEC. 3. Grounds for issuance of preliminary injunction.— A either during (with bond) or after the expiration (without bond)
preliminary injunction may be granted when it is established: of the redemption period therefor.20 The non-expiration of the
period of redemption shall not preclude the purchaser from
(a) That the applicant is entitled to the relief demanded, and taking possession of the property provided that the necessary
the whole or part of such relief consists in restraining the is posted. The buyer can in fact demand possession of the land
commission or continuance of the act or acts complained of, or even during the redemption period except that he has to post a
in requiring the performance of an act or acts, either for a bond in accordance with Section 721 of Act No. 3135, as
limited period or perpetually; amended. In the case at bar, Metrobank manifested its
willingness to post a bond but its application for the issuance of
(b) That the commission, continuance or non-performance of the writ of possession was unjustly denied by the RTC.
the act or acts complained of during the litigation would
probably work injustice to the applicant; or

110
Second. The pendency of the action assailing the validity of the
mortgage should not bar the issuance of the writ of
possession.1âwphi1 A pending action for annulment of
mortgage or foreclosure does not stay the issuance of a writ of
possession.22 Regardless of the pendency of such suit, the
purchaser remains entitled to a writ of possession, without
prejudice, of course, to the eventual outcome of the pending
annulment case. Emphatic to the point is the ruling of the Court
in Spouses Fortaleza v. Spouses Lapitan:23

Lastly, we agree with the CA that any question regarding the


regularity and validity of the mortgage or its foreclosure cannot
be raised as a justification for opposing the petition for the
issuance of the writ of possession. The said issues may be
raised and determined only after the issuance of the writ of
possession. Indeed, "[t]he judge with whom an application for
writ of possession is filed need not look into the validity of the
mortgage or the manner of its foreclosure." The writ issues as
a matter of course. "The rationale for the rule is to allow the
purchaser to have possession of the foreclosed property
without delay, such possession being founded on the right of
ownership."

Without prejudice to the final disposition of the annulment case,


Metrobank is entitled to the writ of possession and cannot be
barred from enjoying the property, possession being one of the
essential attributes of ownership.

Third. While the grant or denial of the preliminary injunction


rests on the sound discretion of the court taking cognizance of
the case, and judicial discretion of the court in injunctive
matters should not be interfered with,24 in the absence of clear
and legal right, however, the issuance of a writ of injunction
constitutes a grave abuse of discretion.25

Grave abuse of discretion in the issuance of writs of


preliminary injunction implies a capricious and whimsical
exercise of judgment equivalent to lack of jurisdiction; or the
exercise of power in an arbitrary despotic manner by reason of
passion, prejudice or personal aversion amounting to an
evasion of a positive duty or to a virtual refusal to perform a
duty enjoined or to act at all in contemplation of law.26 The
burden is thus on petitioner to show in his application that there
is meritorious ground for the issuance of TRO in his favor.27
When the complainant’s right is doubtful or disputed, he does
not have a clear legal right and, therefore, the issuance of
injunctive writ is improper.28 Herein, the Spouses Dulnuan
failed to show that they have clear and unmistakable right to
the issuance of writ in question.

In fine, we find that the Court of Appeals committed no


reversible error in reversing the injunction issued by the RTC.
The record shows that Metrobank caused the extrajudicial
foreclosure of the mortgage on the subject realties as a
consequence of the Spouses Dulnuan's default on their
mortgage obligation. As the highest bidder at the foreclosure
sale, Metrobank can exercise its right of possession over the
subject realty, and the issuance of writ of preliminary injunction,
enjoining the bank from occupying the property in question, is
erroneous. WHEREFORE, premises considered, the instant
petition is hereby . DENIED. The assailed Decision dated 14
January 2011 and Resolution dated 29 April 2011 of the Court
of Appeals in CA-G.R. SP No. 108628 are hereby AFFIRMED.

SO ORDERED.

111
[G.R. No. 199747, April 03, 2013] Petitioners further claim that on the day that the above new
titles were issued, they caused the annotation thereon of their
TEODORO DARCEN, MAMERTO DARCEN, JR., NESTOR hereditary claim in their father’s estate.8 On December 4,
DARCEN, BENILDA DARCEN-SANTOS, AND ELENITA 2000, Flora died.
DARCEN-VERGEL, Petitioners, v. V. R. GONZALES CREDIT
ENTERPRISES, INC., REPRESENTED BY ITS PRESIDENT, Sometime in January 2007, Gonzales appeared and, claiming
VERONICA L. GONZALES, Respondent. that the petitioners’ late mother Flora had mortgaged the above
properties to respondent company in 1995, demanded
DECISION payment from the petitioners of several loans allegedly taken
out by Flora, as follows:9cralawvllred
REYES, J.:
(i)
Before this Court is a Petition for Review on Certiorari1 under P3,000,000.00, borrowed by Flora on January 30, 1995
Rule 45 of the 1997 Rules of Civil Procedure of the Decision2 secured by a mortgage contract over TCT No. T-19269;
of the Court of Appeals (CA) in CA-G.R. SP No. 114265 dated (ii)
July 20, 2011, denying herein petitioners’ petition for certiorari P3,500,000.00, taken out on July 12, 1995 by Flora upon a
and prohibition which sought to annul and set aside the Orders mortgage over TCT No. T-19267;
dated March 16, 20103 and May 4, 20104 of the Regional Trial (iii)
Court (RTC) of the City of Malolos, Bulacan, Branch 81, in P- P500,000.00, also borrowed on July 12, 1995 by Flora secured
826-2009, entitled, “In Re: Ex-Parte Petition for Issuance of a by a mortgage over TCT No. T-19268;
Writ of Possession, V.R. Gonzalez Credit Enterprises, Inc., as
represented by its President Veronica Gonzalez, Petitioner, On Februry 16, 2007, the petitioners were able to verify from
Teodoro Darcen, et al., Oppositors.” the Register of Deeds of Bulacan that the above properties had
indeed been mortgaged to respondent company in 1995, but
Antecedent Facts they now say that they “immediately noted that the purported
signatures of their mother on the three (3) mortgage contracts
The spouses Mamerto Darcen (Mamerto) and Flora De were actually forgeries, and that the mortgage contracts did not
Guzman (Flora) were married on February 2, 1947, and they state when the supposed loan obligations would become due
begot seven (7) children, namely: Teodoro, Mamerto, Jr., and demandable.”10 They maintain that their mother did not
Nestor, Benilda, and Elenita (the petitioners), and their brothers contract the loans, and they point to their brothers Manuel and
Arturo and Manuel. Mamerto died on September 18, 1986, Arturo, whose signatures appear as witnesses on the mortgage
leaving behind an estate consisting of three titled parcels of documents, as guilty of forging her signatures and of receiving
land located in Baliuag, Bulacan and covered by Transfer the proceeds of the loans. The petitioners also disclaim any
Certificate of Title (TCT) No. RT-19565 (T-41394), TCT No. knowledge of the loans, or of their consent thereto, either
RT-19566 (T-11678), and TCT No. RT-19564 (T-193099), all before or after.
under the name “Mamerto Darcen married to Flora de
Guzman.” The respondent company extrajudicially foreclosed on the
mortgage over the aforesaid lots sometime in 2007, but
According to the petitioners, sometime in 1990 their late meanwhile, on June 8, 2007, the petitioners filed Civil Case
brother Manuel borrowed money from Veronica Gonzales No. 333-M-200711 with the RTC-Branch 78, for “Annulment of
(Gonzales), president of V.R. Gonzales Credit Enterprises, Inc. Mortgage, Extra-Judicial Foreclosure, Auction Sale, Certificate
(respondent company). Manuel sought their consent in of Sale, and Damages,” seeking to void the real estate
constituting a mortgage over the above properties of their mortgages, the extrajudicial foreclosure and the auction sale of
father, but the petitioners refused. Manuel then caused the the lots. Named defendants were respondent company and
execution of an Extra-Judicial Settlement of Estate with Waiver their brothers Manuel and Arturo.
by forging the signatures of the petitioners and their mother
Flora. In the said instrument, the petitioners and their siblings After posting and publication of the notice of sheriff’s sale
were said to have waived their shares in their father’s estate in dated October 20, 2008, the three properties were sold at
favor of their mother, thus making Flora the sole owner of the auction held on November 18, 2008 for a total price of
three lots.5 Meanwhile, fire had razed part of the Office of the P8,000,000, with the respondent company as the highest
Register of Deeds of Bulacan and destroyed the titles to the bidder. A certificate of sale was issued by Ex-Officio Sheriff
said parcels. After the reconstitution of the titles on April 7, Emmanuel Ortega on November 20, 2008, duly annotated on
1992,6 new titles were issued in the name of “Flora de the titles on November 28, 2008.12cralawvllred
Guzman, Filipino, of legal age, widow,” to
wit:chanroblesvirtuallawlibrary The one-year period to redeem lapsed. Respondent company
executed an affidavit of consolidation of ownership. On
(1) TCT No. T-19267, which is a transfer from TCT No. RT- December 8, 2009, it filed an ex parte petition for issuance of a
19565 (T-41394), containing an area of 512 square meters, writ of possession in the RTC-Branch 81 docketed as P-826-
located in Barangay Sabang, Baliuag, Bulacan;cralawlibrary 2009.13 In its Order14 dated December 17, 2009, the court set
the petition for hearing on February 26, 2010. Meanwhile, on
(2) TCT No. T-19268, which is a transfer from TCT No. RT- February 25, 2010, the petitioners were able to file an
19566 (T-116789), covering an area of 478.4 sq m, located at Opposition15 to the petition, praying for the outright denial
P. Angeles St., Baliuag, Bulacan; and thereof on the ground of forum shopping because the
respondent company did not disclose the pendency of Civil
(3) TCT No. T-19269, which is a transfer from TCT No. RT- Case No. 333-M-2007 in its certification against forum-
19564 (T-193099), covering an area of 580 sq m, located in shopping. On March 10, 2010, V.R. Gonzales filed a Comment
Baliuag, Bulacan.7 to the Opposition,16 to which the petitioners filed a Reply17 on
March 23, 2010.

112
In its Order18 dated March 16, 2010, the RTC-Branch 81
denied the petitioners’ opposition and ruled that the respondent Petition for Review in the Supreme Court
company was not guilty of forum shopping. Citing Sps. Ong v.
CA,19 it held that the issuance of the writ of possession was a On December 12, 2011, the CA denied the petitioners’ Motion
mere ministerial function of the court, and was summary in for Reconsideration from its above decision.24 Hence, this
nature.20 Not being a judgment on the merits, litis pendentia or petition for review.
res judicata would not set in to bar the filing of Civil Case No.
333-M-2007. The petitioners now contend that the CA erred in failing to take
into account the fact that they, against whom the writ of
Petitioners’ motion for reconsideration was denied in the possession issued by the RTC in P-826-2009 was directed, are
court’s Order21 dated May 4, 2010. adverse claimants who are third parties and strangers to the
real estate mortgages executed by their mother. They cite
On June 2, 2010, the petitioners filed a petition for certiorari22 Villanueva v. Cherdan Lending Investors Corporation,25 where
in the CA docketed as CA-G.R. SP No. 114265, whose it was reiterated that the issuance of a writ of possession in
decision therein, dated July 20, 2011, is now the subject of this favor of the purchaser in an extrajudicial foreclosure sale
Petition. ceases to be ministerial where the property is in the
possession of a third party who holds the property under a
Meanwhile, on February 28, 2011, the RTC-Branch 81 granted claim adverse to that of the debtor/mortgagor.26cralawvllred
the writ of possession sought by the respondent company in P-
826-2009. The notice to vacate was issued on April 26, 2011 The petitioners maintain that they knew nothing about the
against the petitioners. mortgage contracts, whose validity is now the subject of their
appeal in CA-G.R. CV No. 96251. They further claim that their
In a related development, on August 10, 2010, the RTC-Branch signatures in the Extrajudicial Settlement of Estate with Waiver,
78 dismissed the complaint in Civil Case No. 333-M-2007, which they supposedly executed in favor of their mother Flora,
holding that the mortgage contracts executed by Flora in favor were forged. As co-heirs and co-owners with their mother of
of the respondent company over TCT Nos. T-19267, T-19268, the subject lots, they have a claim directly adverse to hers, and
and T-19269 are valid, and declaring valid the extrajudicial therefore, also directly adverse to her successor-in-interest, the
foreclosure and auction sale of the said properties. The respondent company. Consequently, the duty of the RTC to
decision is now pending appeal in the CA, docketed as CA- issue the writ of possession to respondent company ceases to
G.R. CV No. 96251. be ministerial.

Petition for Certiorari in the CA Our Ruling

In CA-G.R. SP No. 114265,23 the petitioners reiterated their We dismiss the petition.
arguments: (1) that due to identity of parties and cause of
action, the respondent company committed forum shopping for The long-settled rule in extrajudicial foreclosure of real estate
failing to disclose the pendency of Civil Case No. 333-M-2007; mortgage is that after consolidation of ownership of the
(2) that due to the pendency of Civil Case No. 333-M-2007, the foreclosed property, it is the ministerial duty of the court to
RTC-Branch 81 has no jurisdiction over the ex parte petition for issue, as a matter of right, an ex parte writ of possession to the
writ of possession, since the question of possession was buyer.
already laid before the RTC-Branch 78; and (3) that the issue
of validity of the mortgage contracts executed by Flora and the
foreclosure of the mortgages are material to the issue of
possession. The established rule is that the purchaser in an extrajudicial
foreclosure sale becomes the absolute owner of the property if
On April 25, 2011, the CA denied petitioners’ urgent motion for no redemption is made within one (1) year from the registration
writ of preliminary injunction and/or Temporary Restraining of the certificate of sale by those who are entitled to redeem.27
Order. Possession being a recognized essential attribute of
ownership,28 after consolidation of title the purchaser may
On July 20, 2011, the CA rendered its now assailed decision demand possession as a matter of right.29 Under Section 7 of
denying the petition in CA-G.R. SP No. 114265, ruling that Act No. 3135, as amended by Act No. 4118, the issuance of
respondent company was not guilty of forum shopping since the writ is merely a ministerial function of the RTC, which the
the ex parte petition for writ of possession it filed in P-826-2009 new owner may obtain through an ex parte motion.30 Section
is not an initiatory pleading as to require that a certification of 7 of Act No. 3135 provides:chanroblesvirtuallawlibrary
non-forum shopping be attached thereto; that the issuance of
the writ of possession is merely a ministerial function of the Sec. 7. In any sale made under the provisions of this Act, the
court a quo, the possession being incidental to the transfer of purchaser may petition the Court of First Instance of the
title to the new owner; that the issuance of the writ is summary province or place where the property or any part thereof is
in nature and is not a judgment on the merits. situated, to give him possession thereof during the redemption
period, furnishing bond in an amount equivalent to the use of
The CA further explained that the ex parte writ of possession is the property for a period of twelve months, to indemnify the
for the sole benefit of the new owner, without need of notice to debtor in case it be shown that the sale was made without
or consent by any party who might be adversely affected. violating the mortgage or without complying with the
Thus, notwithstanding the pendency of a suit to annul the real requirements of this Act. Such petition shall be made under
estate mortgage and the extrajudicial foreclosure and auction oath and filed in form of an ex parte motion in the registration
sale, the purchaser is entitled to a writ of possession, without or cadastral proceedings if the property is registered, or in
prejudice to the outcome in the annulment case, which can special proceedings in the case of property registered under
proceed without encroaching on the jurisdiction of the court the Mortgage Law or under section one hundred and ninety-
resolving the ex parte petition for writ of possession. four of the Administrative Code, or of any other real property

113
encumbered with a mortgage duly registered in the office of third party in possession of the property, who is a stranger to
any register of deeds in accordance with any existing law, and the mortgage and who claims a right adverse to that of the
in each case the clerk of the court shall, upon the filing of such debtor/ mortgagor.
petition, collect the fees specified in paragraph eleven of
section one hundred and fourteen of Act numbered Four
hundred and ninety-six, as amended by Act numbered Twenty-
eight hundred and sixty-six, and the court shall, upon approval Section 33, Rule 39 of the Rules of Court provides that in an
of the bond, order that a writ of possession issue, addressed to execution sale, the possession of the property shall be given to
the sheriff of the province in which the property is situated, who the purchaser or last redemptioner, unless a third party is
shall execute said order immediately. actually holding the property adversely to the judgment
obligor:chanroblesvirtuallawlibrary
The possession may be granted to the buyer either (a) within
the one-year redemption period, upon the filing by the Sec. 33. Deed and possession to be given at expiration of
purchaser of a bond, or (b) after the lapse of the redemption redemption period; by whom executed or given.—If no
period, without need of a bond.31 As explained in Spouses redemption be made within one (1) year from the date of the
Arquiza v. CA:32cralawvllred registration of the certificate of sale, the purchaser is entitled to
a conveyance and possession of the property; or, if so
Indeed, it is well-settled that an ordinary action to acquire redeemed whenever sixty (60) days have elapsed and no other
possession in favor of the purchaser at an extrajudicial redemption has been made, and notice thereof given, and the
foreclosure of real property is not necessary. There is no law in time for redemption has expired, the last redemptioner is
this jurisdiction whereby the purchaser at a sheriff’s sale of real entitled to the conveyance and possession; but in all cases the
property is obliged to bring a separate and independent suit for judgment obligor shall have the entire period of one (1) year
possession after the one-year period for redemption has from the date of the registration of the sale to redeem the
expired and after he has obtained the sheriff’s final certificate property. The deed shall be executed by the officer making the
of sale. The basis of this right to possession is the purchaser’s sale or by his successor in office, and in the latter case shall
ownership of the property. The mere filing of an ex parte have the same validity as though the officer making the sale
motion for the issuance of the writ of possession would suffice, had continued in office and executed it.
and no bond is required.33 (Citations omitted and underscoring
ours) Upon the expiration of the right of redemption, the purchaser or
redemptioner shall be substituted to and acquire all the rights,
We repeated the above rule in Asia United Bank v. Goodland title, interest and claim of the judgment obligor to the property
Company, Inc.,34 in this wise:chanroblesvirtuallawlibrary as of the time of the levy. The possession of the property shall
be given to the purchaser or last redemptioner by the same
It is a time-honored legal precept that after the consolidation of officer unless a third party is actually holding the property
titles in the buyer’s name, for failure of the mortgagor to adversely to the judgment obligor.
redeem, entitlement to a writ of possession becomes a matter
of right. As the confirmed owner, the purchaser’s right to The application of the above Section has been extended to
possession becomes absolute. There is even no need for him extrajudicial foreclosure sales pursuant to Section 6 of Act No.
to post a bond, and it is the ministerial duty of the courts to 3135, to wit:chanroblesvirtuallawlibrary
issue the same upon proper application and proof of title. To
accentuate the writ’s ministerial character, the Court has Sec. 6. In all cases in which an extrajudicial sale is made under
consistently disallowed injunction to prohibit its issuance the special power hereinbefore referred to, the debtor, his
despite a pending action for annulment of mortgage or the successors in interest or any judicial creditor or judgment
foreclosure itself. creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under
The nature of an ex parte petition for issuance of the which the property is sold, may redeem the same at any time
possessory writ under Act No. 3135 has been described as a within the term of one year from and after the date of sale; and
non-litigious proceeding and summary in nature. As an ex such redemption shall be governed by the provisions of section
parte proceeding, it is brought for the benefit of one party only, four hundred and sixty-four to four hundred and sixty-six,
and without notice to or consent by any person adversely inclusive, of the Code of Civil Procedure, in so far as these are
interested.35 (Citations omitted) not inconsistent with the provisions of this Act.

Moreover, we made it clear in the recent case of BPI Family Thus emboldened by Section 33 of Rule 39, the petitioners
Savings Bank, Inc. v. Golden Power Diesel Sales Center, have persisted in making the point that they are strangers to
Inc.,36 that not even a pending action for annulment of the mortgage contracts executed by their mother over their
mortgage or foreclosure sale will stay the issuance of the writ father’s lots, which they claim to co-own with her, an interest
of possession:chanroblesvirtuallawlibrary adverse to that of the respondent company. In Villanueva,38
they found support for their
Furthermore, it is settled that a pending action for annulment of contention:chanroblesvirtuallawlibrary
mortgage or foreclosure sale does not stay the issuance of the
writ of possession. The trial court, where the application for a It is settled that the buyer in a foreclosure sale becomes the
writ of possession is filed, does not need to look into the absolute owner of the property purchased if it is not redeemed
validity of the mortgage or the manner of its foreclosure. The within one year after the registration of the sale. As such, he is
purchaser is entitled to a writ of possession without prejudice to entitled to the possession of the property and can demand that
the outcome of the pending annulment case.37 (Citations he be placed in possession at any time following the
omitted) consolidation of ownership in his name and the issuance to him
of a new TCT. Time and again, we have held that it is
Nonetheless, the ministerial duty of the court to issue an ex ministerial upon the court to issue a writ of possession after the
parte writ of possession ceases once it appears that there is a foreclosure sale and during the period of redemption. Upon the

114
filing of an ex parte motion and the approval of the The exception provided under Section 33 of Rule 39 of the
corresponding bond, the court issues the order for a writ of Revised Rules of Court contemplates a situation in which a
possession. The writ of possession issues as a matter of third party holds the property by adverse title or right, such as
course even without the filing and approval of a bond after that of a co-owner, tenant or usufructuary. The co-owner,
consolidation of ownership and the issuance of a new TCT in agricultural tenant, and usufructuary possess the property in
the name of the purchaser. their own right, and they are not merely the successor or
transferee of the right of possession of another co-owner or the
This rule, however, is not without exception. Under Section 33, owner of the property. x x x.43 (Citations omitted)
Rule 39 of the Rules of Court, which is made to apply
suppletorily to the extrajudicial foreclosure of real estate Thus, it was held in BPI Family Savings Bank, Inc. that to be
mortgages by Section 6, Act 3135, as amended, the error for the court to issue an ex parte writ of possession to the
possession of the mortgaged property may be awarded to a purchaser in an extrajudicial foreclosure, or to refuse to abate
purchaser in the extrajudicial foreclosure unless a third party is one already granted, where a third party claimant in actual
actually holding the property adversely to the judgment debtor. possession has raised, in an opposition to the writ or in a
Section 33 provides:cralaw motion to quash the same, the matter of his actual possession
upon a claim of ownership or a right adverse to that of the
xxxx debtor or mortgagor. The procedure, accordingly to Unchuan v.
CA,44 is for the trial court to order a hearing to determine the
The same issue had been raised in Bank of the Philippine nature of the adverse possession:45cralawvllred
Islands v. Icot, Development Bank of the Philippines v. Prime
Neighborhood Association, Dayot v. Shell Chemical Company Note, however, that a third party not privy to the debtor is
(Phils.), Inc., and Philippine National Bank v. Court of Appeals, protected by the law. He may be ejected from the premises
and we uniformly held that the obligation of the court to issue only after he has been given an opportunity to be heard,
an ex parte writ of possession in favor of the purchaser in an conformably with the time-honored principle of due process.
extrajudicial foreclosure sale ceases to be ministerial once it “Where a parcel of land levied on execution is occupied by a
appears that there is a third party in possession of the property party other than the judgment debtor, the proper procedure is
who is claiming a right adverse to that of the debtor/mortgagor. for the court to order a hearing to determine the nature of said
adverse possession.”46 (Citations omitted)
The purchaser’s right of possession is recognized only as
against the judgment debtor and his successor-in-interest but We find no proof that the petitioners are adverse third-party
not against persons whose right of possession is adverse to claimants entitled to be retained in possession.
the latter. In this case, petitioner opposed the issuance of the
writ of possession on the ground that he is in actual possession
of the mortgaged property under a claim of ownership. He The RTC’s chief consideration for granting to the respondent
explained that his title to the property was cancelled by virtue company a writ of possession was that the assailed mortgages
of a falsified deed of donation executed in favor of spouses purportedly executed by Flora in 1995 were constituted on
Peñaredondo. Because of this falsification, he filed civil and properties covered by certificates of title issued solely in her
criminal cases against spouses Peñaredondo to nullify the name.
deed of donation and to punish the party responsible for the
falsified document. Petitioner’s claim that he is in actual It will be noted that it was only in June 2007, after respondent
possession of the property is not challenged, and he has come company had threatened them with extrajudicial foreclosure
to court asserting an ownership right adverse to that of the and eviction, or after 12 years had passed, that the petitioners
mortgagors, the spouses Peñaredondo.39 (Citations omitted) brought an action to annul the real estate mortgages, and
meanwhile, Flora had obtained several loans totaling P7.5
But in China Banking Corporation v. Lozada,40 the Supreme million from the respondent company in 1995. It took
Court clarified that it is not enough that the property be petitioners even longer, 15 years, to assail the validity of the
possessed by a third party, but the same must also held by the alleged Extrajudicial Settlement of Estate with Waiver, which
third party adversely to the gave Flora sole title to the subject lots under the new titles
debtor/mortgagor:chanroblesvirtuallawlibrary issued to her in April 1992.

Where a parcel levied upon on execution is occupied by a Realizing that their claim of forgery of their mother’s signature
party other than a judgment debtor, the procedure is for the in the mortgage contracts was tenuous after the RTC-Branch
court to order a hearing to determine the nature of said 78 dismissed Civil Case No. 333-M-2007, the petitioners now
adverse possession. Similarly, in an extrajudicial foreclosure of claim that an earlier instrument, an Extrajudicial Settlement of
real property, when the foreclosed property is in the Estate with Waiver, was falsified by their brothers Manuel and
possession of a third party holding the same adversely to the Arturo who forged their signatures. Yet, why the said
defaulting debtor/mortgagor, the issuance by the RTC of a writ instrument named neither Manuel nor Arturo but their mother
of possession in favor of the purchaser of the said real property Flora as the sole beneficiary of the heirs’ waiver, the petitioners
ceases to be ministerial and may no longer be done ex parte. did not explain. Thus, through the said instrument, on April 7,
For the exception to apply, however, the property need not only 1992, TCT No. RT-19565 (T-41394), TCT No. RT-19566 (T-
be possessed by a third party, but also held by the third party 11678), and TCT No. RT-19564 (T-193099), all under the
adversely to the debtor/mortgagor.41 (Citation omitted and name of “Mamerto Darcen married to Flora de Guzman,” were
emphasis ours) cancelled and replaced with TCT Nos. T-19267, T-19268, and
T-19269, respectively, now in the name solely of “Flora de
The Court then discussed the meaning of “third party who is Guzman, Filipino, of legal age, widow.”
actually holding the property adversely to the judgment
obligor,”42 thus:chanroblesvirtuallawlibrary Considering that the petitioners are now stridently asserting
that their signatures in the aforesaid Extrajudicial Settlement of
Estate with Waiver had been forged, it is inexplicable why they

115
failed to attach a copy thereof either to their Opposition to the respondent company filed its comment to petitioners’
ex parte petition for writ of possession, or to this petition. All Opposition.54 On March 23, 2010, the petitioners filed their
that they could say about this “oversight” is that they “were reply.55cralawvllred
never able to insist on the presentation of the said document
because they were never parties in the case for writ of In its Order dated March 16, 2010, the RTC-Branch 81 held
possession. Besides, the case for writ of possession is that respondent company was not guilty of forum shopping,
summary and non-adversarial.”47cralawvllred citing Sagarbarria v. Philippine Business Bank,56 as
follows:chanroblesvirtuallawlibrary
But this is a lie and an obvious subterfuge, for the fact is that
the RTC set a hearing on February 26, 2010 to hear out the [A]ct No. 3135, as amended by Act No. 4118, is categorical in
petitioners on the nature of their claimed adverse possession. stating that the purchaser must first be placed in possession of
They appeared with their lawyer, and had an opportunity to lay the mortgaged property pending proceedings assailing the
out the complete facts and present whatever pertinent issuance of the writ of possession.
documents were in their possession. They did no such thing,
and only affirmed the contents of their Opposition, wherein they Consequently, the RTC under which the application for the
chiefly asserted their defense of lack of jurisdiction of the RTC- issuance of a writ of possession over the subject property is
Branch 81 and forum shopping. pending cannot defer the issuance of the said writ in view of
the pendency of an action for annulment of mortgage and
Not only did petitioners not sue to annul the extrajudicial foreclosure sale. The judge with whom an application for a writ
settlement, but on the very day, April 7, 1992, that the new of possession is filed need not look into the validity of the
titles were issued to Flora, an inscription appears in the said mortgage or the manner of its foreclosure.
titles announcing that one-half (½) of the lots would be bound
for the next two years to possible claims by other heirs or Any question regarding the validity of the mortgage or its
unknown creditors against the estate of Mamerto, pursuant to foreclosure cannot be a legal ground for the refusal to issue a
Section 4 of Rule 74 of the Rules of Court. All three titles bear writ of possession. Regardless of whether or not there is a
this same inscription,48 which the petitioners admit that they pending suit for the annulment of the mortgage or the
themselves had caused to be annotated on their mother’s foreclosure itself, the purchaser is entitled to a writ of
titles,49 in the following words:chanroblesvirtuallawlibrary possession without prejudice, of course, to the eventual
outcome of the pending annulment case.57 (Underscoring
Entry No. 7550 – The ½ portion of the land described herein is ours)
subject to the provision of Sec. 4, Rule 74 of the Rules with
respect to the inheritance left by the deceased Mamerto On April 8, 2010, petitioners filed their Motion for
Darcen. Reconsideration58 from the denial of their opposition, but it
was denied on May 4, 2010.
Date of instrument – March 7, 1992
Date of inscription – April 7, 1992 at 9:35 a.m.50 Even granting that the petitioners should be allowed to retain
possession, the petition has been rendered moot and
All the above leave little doubt that the petitioners had always academic by the issuance and satisfaction of the writ of
known about, and had consented to, the extrajudicial possession issued in P-826-2009.
settlement of the estate of their father Mamerto, as well as
waiver by them of their shares therein in favor of their mother
Flora. For this very reason, they cannot now be permitted to
interpose an adverse claim in the subject mortgaged lots and As the petitioners have themselves admitted in their Petition,59
defeat the writ of possession issued to the respondent the RTC-Branch 81, issued a Writ of Possession60 dated April
company. 18, 2011, and on October 4, 2011 they were physically evicted
from the disputed lots by the Sheriff, and the respondent
The petitioners were accorded an opportunity to be heard on company was placed in possession thereof, per the Sheriff’s
the nature of their claimed adverse possession, conformably report dated October 4, 2011.61 With the writ of possession
with the time-honored principle of due process. having been served and fully satisfied, the instant petition has
ceased to present a justiciable controversy for this Court to
resolve, and a declaration thereon would be of no practical use
or value,62 in view of the pendency in the CA of the petitioners’
On December 17, 2009, the RTC-Branch 81 set for hearing on appeal from the decision in Civil Case No. 333-M-2007 on the
February 26, 2010 the petition for writ of possession in P-826- question of the ownership of the subject mortgaged lots, and
2009.51 On February 25, 2010, the petitioners were able to file thus of the rightful possession thereover. As we have reiterated
their Opposition52 to the said petition, wherein they asserted in Madriaga, Jr. v. China Banking Corporation:63cralawvllred
that they are co-owners of the properties, being heirs of the
deceased Mamerto; that they filed a case, Civil Case No. 333- Judicial power presupposes actual controversies, the very
M-2007, to annul the mortgages over the three lots on account antithesis of mootness. Where there is no more live subject of
of forgery; and that the extrajudicial foreclosure sale of the lots controversy, the Court ceases to have a reason to render any
was invalid. They, thus, prayed for outright denial of the writ on ruling or make any pronouncement. Courts generally decline
the ground of forum shopping, because respondent company jurisdiction on the ground of mootness – save when, among
did not disclose the pendency of Civil Case No. 333-M-2007 in others, a compelling constitutional issue raised requires the
its certification against forum shopping. formulation of controlling principles to guide the bench, the bar
and the public; or when the case is capable of repetition yet
At the hearing on February 26, 2010, the petitioners appeared evading judicial review, which are not extant in this case.64
with their counsel, Atty. Enrique dela Cruz, Jr. They did not (Citations omitted)
however present any documents, and only affirmed their
Opposition already in the records.53 On March 11, 2010,

116
What is now left for the petitioners to do is to await the
resolution of their appeal in Civil Case No. 333-M-2007. Their
restoration to possession may then be sought therein as an
incident or relief, if justified.

WHEREFORE, premises considered, the Petition for Review


on Certiorari is DENIED.???ñr?bl?š ??r†??l l?? l?br?rÿ

SO ORDERED.

117
G.R. No. 191540, January 21, 2015
Ruling of the Regional Trial Court
SPOUSES JOSE O. GATUSLAO AND ERMILA LEONILA
LIMSIACO-GATUSLAO, Petitioners, v. LEO RAY V. YANSON, The RTC granted the issuance of the writ of possession in an
Respondent. Order16 dated December 8, 2009. It cited the Court’s
pronouncement in China Banking Corporation v.
DECISION Lozada,17viz:chanroblesvirtuallawlibrary

DEL CASTILLO, J.: The Court recognizes the rights acquired by the purchaser of
the foreclosed property at the public auction sale upon the
Petitioners spouses Jose O. Gatuslao and Ermila Leonila consolidation of his title when no timely redemption of the
Limsiaco-Gatuslao (petitioners) are assailing the December 8, property was made, x x x.
20091 Order of the Regional Trial Court (RTC) of Bacolod City,
Branch 49 in Cad. Case No. 09-2802 which granted It is thus settled that the buyer in a foreclosure sale becomes
respondent Leo Ray2 Yanson’s (respondent) Ex Parte Motion the absolute owner of the property purchased if it is not
for the Issuance of Writ of Possession over the properties redeemed during the period of one year after the registration of
being occupied by petitioners, as well as the February 26, 2010 the sale. As such, he is entitled to the possession of the said
RTC Order3 denying petitioners’ motion for reconsideration property and can demand it at any time following the
thereto. consolidation of ownership in his name and the issuance to him
of a new transfer certificate of title. x x x Possession of the land
Factual Antecedents then becomes an absolute right of the purchaser as confirmed
owner. Upon proper application and proof of title, the issuance
Petitioner Ermila Leonila Limsiaco-Gatuslao is the daughter of of the writ of possession becomes a ministerial duty of the
the late Felicisimo Limsiaco (Limsiaco) who died intestate on court.
February 7, 1989. Limsiaco was the registered owner of two
parcels of land with improvements in the City of Bacolod The purchaser, therefore, in the public auction sale of a
described as Lots 10 and 11, Block 8 of the subdivision plan foreclosed property is entitled to a writ of possession x x x.18
Psd-38577 and covered by Transfer Certificates of Title (TCT)
Nos. T-334294 and T-24331.5chanRoblesvirtualLawlibrary PNB, therefore, as the absolute owner of the properties is
entitled to a writ of possession. And since respondent
Limsiaco mortgaged the said lots along with the house purchased the properties from PNB, the former has necessarily
standing thereon to Philippine National Bank (PNB). Upon stepped into the shoes of the latter. Otherwise stated,
Limsiaco’s failure to pay, PNB extrajudicially foreclosed on the respondent, by subrogation, has the right to pursue PNB’s
mortgage and caused the properties’ sale at a public auction claims against petitioners as though they were his own.
on June 24, 1991 where it emerged as the highest bidder.
When the one-year redemption period expired without The dispositive portion of the above Order
Limsiaco’s estate redeeming the properties, PNB caused the reads:chanroblesvirtuallawlibrary
consolidation of titles in its name. Ultimately, the Registry of
Deeds of Bacolod City cancelled TCT Nos. T-33429 and T- WHEREFORE, premises considered, the Court hereby issues
24331 and in lieu thereof issued TCT Nos. T-3088186 and T- a writ of possession in favor of movant Leo Ray V. Yanson
3088197 in PNB’s name on October 25, 2006. ordering Spouses Jose and Mila Gatuslao, their heirs, assigns,
successors-in-interest, agents, representatives and/or any and
On November 10, 2006, a Deed of Absolute Sale8 was all other occupants or persons claiming any interest or title of
executed by PNB conveying the subject properties in favor of the subject property to deliver the possession of said property
respondent. As a consequence thereof, the Registry of Deeds to the herein movant/ petitioner.
of Bacolod City issued TCT Nos. T-3111259 and T-31112610
in respondent’s name in lieu of PNB’s titles. SO ORDERED.19
Petitioners moved for reconsideration20 which was denied in
Then, as a registered owner in fee simple of the contested an Order21 dated February 26, 2010,
properties, respondent filed with the RTC an Ex-Parte Motion thus:chanroblesvirtuallawlibrary
for Writ of Possession11 pursuant to Section 7 of Act No.
3135,12 as amended by Act No. 4118 (Act No. 3135, as WHEREFORE, the Motion for Reconsideration filed by
amended),13 docketed as Cad. Case No. 09-2802. Oppositors is hereby DENIED. Thus, the Order dated
December 8, 2009 stands.
In their Opposition,14 petitioners argued that the respondent is
not entitled to the issuance of an ex-parte writ of possession SO ORDERED.22
under Section 7 of Act No. 3135 since he was not the buyer of
the subject properties at the public auction sale and only Respondent on March 19, 2010 moved to execute the
purchased the same through a subsequent sale made by PNB. possessory writ23 while petitioners on April 15, 2010 filed with
Not being the purchaser at the public auction sale, respondent this Court the present Petition for Review on Certiorari.
cannot file and be granted an ex parte motion for a writ of
possession. Petitioners also asserted that the intestate estate On September 30, 2010, the RTC issued an Order24 directing
of Limsiaco has already instituted an action for annulment of the implementation of the writ. And per Sheriff’s Return of
foreclosure of mortgage and auction sale affecting the Service,25 the same was fully implemented on March 14,
contested properties.15 They argued that the existence of the 2011.cralawred
said civil suit bars the issuance of the writ of possession and
that whatever rights and interests respondent may have Issues
acquired from PNB by virtue of the sale are still subject to the
outcome of the said case.

118
According to petitioners, the pending action for annulment of Clearly, petitioners’ argument is devoid of merit.
foreclosure of mortgage and the corresponding sale at public
auction of the subject properties operates as a bar to the Petitioners are not strangers or third
issuance of a writ of possession; parties to the foreclosure sale; they
were not deprived of due process.
Claiming violation of their right to due process, petitioners
likewise assert that as they were not parties to the foreclosure Section 7 of Act No. 3135, as amended, sets forth the following
and are, thus, strangers or third parties thereto, they may not procedure in the availment of and issuance of a writ of
be evicted by a mere ex parte writ of possession; and possession in cases of extrajudicial foreclosures,
viz:chanroblesvirtuallawlibrary
Lastly, petitioners argue that respondent, a mere purchaser of
the contested properties by way of a negotiated sale between SECTION 7. In any sale made under the provisions of this Act,
him and PNB, may not avail of a writ of possession pursuant to the purchaser may petition the Court of First Instance
Section 7 of Act No. 3135, as amended, as he is not the (Regional Trial Court) of the province or place where the
purchaser at the public auction sale. Petitioners further contend property or any part thereof is situated, to give him possession
that respondent has no right to avail of the writ even by way of thereof during the redemption period, furnishing bond in an
subrogation. amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that
Our Ruling the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall
Preliminarily, we note that petitioners’ direct resort to this Court be made under oath and filed in form of an ex parte motion in
from the assailed Orders of the RTC violates the rule on the registration or cadastral proceedings if the property is
hierarchy of courts. Their remedy lies with the Court of registered, or in special proceedings in the case of property
Appeals. Considering however the length of time this case has registered under the Mortgage Law or under section one
been pending and in view of our January 26, 2011 hundred and ninety-four of the Administrative Code, or of any
Resolution26 giving due course to the Petition, we deem it other real property encumbered with a mortgage duly
proper to adjudicate the case on its merits. registered in the office of any register of deeds in accordance
with any existing law, and in each case the clerk of the court
The Petition is denied. shall, upon the filing of such petition, collect the fees specified
in paragraph eleven of section one hundred and fourteen of Act
It is settled that the issuance of a Writ of Numbered Four hundred and ninety-six, as amended by Act
Possession may not be stayed by a pending Numbered Twenty-eight hundred and sixty-six, and the court
action for annulment of mortgage or the shall, upon approval of the bond, order that a writ of
foreclosure itself. possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order
It is petitioners’ stand that the pending action for annulment of immediately.
foreclosure of mortgage and of the corresponding sale at public
auction of the subject properties operates as a bar to the Although the above provision clearly pertains to a writ of
issuance of a writ of possession. possession availed of and issued within the redemption period
of the foreclosure sale, the same procedure also applies to a
The Court rules in the negative. BPI Family Savings Bank, Inc. situation where a purchaser is seeking possession of the
v. Golden Power Diesel Sales Center, Inc.27 reiterates the foreclosed property bought at the public auction sale after the
long-standing rule that:chanroblesvirtuallawlibrary redemption period has expired without redemption having been
made.30 The only difference is that in the latter case, no bond
[I]t is settled that a pending action for annulment of mortgage is required therefor, as held in China Banking Corporation v.
or foreclosure sale does not stay the issuance of the writ of Lozada,31 thus:chanroblesvirtuallawlibrary
possession. The trial court, where the application for a writ of
possession is filed, does not need to look into the validity of the It is thus settled that the buyer in a foreclosure sale becomes
mortgage or the manner of its foreclosure. The purchaser is the absolute owner of the property purchased if it is not
entitled to a writ of possession without prejudice to the redeemed during the period of one year after the registration of
outcome of the pending annulment case. the sale. As such, he is entitled to the possession of the said
property and can demand it at any time following the
This is in line with the ministerial character of the possessory consolidation of ownership in his name and the issuance to him
writ. Thus, in Bank of the Philippine Islands v. Tarampi,28 it of a new transfer certificate of title. The buyer can in fact
was held:chanroblesvirtuallawlibrary demand possession of the land even during the redemption
period except that he has to post a bond in accordance with
To stress the ministerial character of the writ of possession, the Section 7 of Act No. 3135, as amended. No such bond is
Court has disallowed injunction to prohibit its issuance, just as required after the redemption period if the property is not
it has held that its issuance may not be stayed by a pending redeemed. x x x32 (Emphasis supplied)
action for annulment of mortgage or the foreclosure itself.
Upon the expiration of the period to redeem and no redemption
Clearly then, until the foreclosure sale of the property in was made, the purchaser, as confirmed owner, has the
question is annulled by a court of competent jurisdiction, the absolute right to possess the land and the issuance of the writ
issuance of a writ of possession remains the ministerial duty of of possession becomes a ministerial duty of the court upon
the trial court. The same is true with its implementation; proper application and proof of
otherwise, the writ will be a useless paper judgment – a result title.33chanRoblesvirtualLawlibrary
inimical to the mandate of Act No. 3135 to vest possession in
the purchaser immediately.29 (Emphases supplied) Nevertheless, where the extrajudicially foreclosed real property
is in the possession of a third party who is holding the same

119
adversely to the judgment debtor or mortgagor, the RTC’s duty PNB. As such, he is necessarily entitled to avail of the
to issue a writ of possession in favor of the purchaser of said provisions of Section 7 of Act No. 3135, as amended, as if he
real property ceases to be ministerial and, as such, may no is PNB. This is apparent in the Deed of Absolute Sale46
longer proceed ex parte.34 In such a case, the trial court must between the two, viz:chanroblesvirtuallawlibrary
order a hearing to determine the nature of the adverse
possession.35 For this exception to apply, however, it is not The Vendor hereby sells, transfer[s] and convey[s] unto[, and]
enough that the property is in the possession of a third party, in favor of the Vendee, and the latter’s assigns and
the property must also be held by the third party adversely to successors-in-interest, all of the former’s rights and title to,
the judgment debtor or mortgagor,36 such as a co-owner, interests and participation in the Property on an “AS IS,
agricultural tenant or WHERE IS” basis. It is thus understood that the Vendee has
usufructuary.37chanRoblesvirtualLawlibrary inspected the Property and has ascertained its condition.
xxxx
In this case, petitioners do not fall under any of the above The Vendor is selling only whatever rights and title to, interests
examples of such a third party holding the subject properties and participation it has acquired over the Property, and the
adversely to the mortgagor; nor is their claim to their right of Vendee hereby acknowledges full knowledge of the nature and
possession analogous to the foregoing situations. Admittedly, extent of the Vendor’s rights and title to, [and] interests and
they are the mortgagor Limsiaco’s heirs. It was precisely participation in the Property.
because of Limsiaco’s death that petitioners obtained the right
to possess the subject properties and, as such, are considered x x x The Vendee further agrees to undertake, at its/his/her
transferees or successors-in-interest of the right of possession expense, the ejectment of any occupant of the Property.47
of the latter. As Limsiaco’s successors-in-interest, petitioners (Emphases in the original)
merely stepped into his shoes and are, thus, compelled not
only to acknowledge but, more importantly, to respect the Verily, one of the rights that PNB acquired as purchaser of the
mortgage he had earlier executed in favor of respondent.38 subject properties at the public auction sale, which it could
They cannot effectively assert that their right of possession is validly convey by way of its subsequent sale of the same to
adverse to that of Limsiaco as they do not have an respondent, is the availment of a writ of possession. This can
independent right of possession other than what they acquired be deduced from the above-quoted stipulation that “[t]he
from him.39 Not being third parties who have a right contrary [v]endee further agrees to undertake, at xxx his expense, the
to that of the mortgagor, the trial court was thus justified in ejectment of any occupant of the [p]roperty.” Accordingly,
issuing the writ and in ordering its implementation. respondent filed the contentious ex parte motion for a writ of
possession to eject petitioners therefrom and take possession
Petitioners’ claim that their right to due process was violated by of the subject properties.
the mere issuance of the writ of possession must likewise fail.
As explained, petitioners were not occupying the properties Further, respondent may rightfully take possession of the
adversely to the mortgagor, hence, a writ of possession may subject properties through a writ of possession, even if he was
be issued ex parte. And precisely because of this ex parte not the actual buyer thereof at the public auction sale, in
nature of the proceedings no notice is needed to be served40 consonance with our ruling in Ermitaño v. Paglas.48 In the
upon them. It has been stressed time and again that “the ex said case, therein respondent was petitioner’s lessee in a
parte nature of the proceeding does not deny due process to residential property owned by the latter. During the lifetime of
the petitioners because the issuance of the writ of possession the lease, respondent learned that petitioner mortgaged the
does not prevent a separate case for annulment of mortgage subject property in favor of Charlie Yap (Yap) who eventually
and foreclosure sale.”41 Consequently, the RTC may grant foreclosed the same. Yap was the purchaser thereof in an
the petition even without petitioners’ participation. extrajudicial foreclosure sale. Respondent ultimately bought
Nevertheless, even if the proceedings in this case was the property from Yap. However, it was stipulated in the deed
supposed to be ex parte, the records of the case would show of sale that the property was still subject to petitioner’s right of
that petitioners’ side on this controversy was actually heard as redemption. Subsequently and despite written demands to pay
evidenced by the numerous pleadings42 filed by them in the the amounts corresponding to her monthly rental of the subject
lower court. In fact, in its July 27, 2009 Order,43 the RTC property, respondent did not anymore pay rents. Meanwhile,
expressly directed respondent, “in observance of equity and petitioner’s period to redeem the foreclosed property expired
fair play x x x to furnish [petitioners] with a copy of his on February 23, 2001. Several months after, petitioner filed a
motion/petition and to show x x x proof of compliance thereof x case for unlawful detainer against respondent. When the case
x x.”44 Then and now, the Court holds that a party cannot reached this Court, it ruled that therein respondent’s basis for
invoke denial of due process when he was given an denying petitioner’s claim for rent was insufficient as the latter,
opportunity to present his side.45chanRoblesvirtualLawlibrary during the period for which payment of rent was being
demanded, was still the owner of the foreclosed property. This
Respondent is entitled to the is because at that time, the period of redemption has not yet
issuance of writ of possession. expired. Thus, petitioner was still entitled to the physical
possession thereof subject, however, to the purchaser’s right to
Petitioners insist that respondent is not entitled to the issuance petition the court to give him possession and to file a bond
of the writ of possession under Section 7 of Act No. 3135 as he pursuant to the provisions of Section 7 of Act No. 3135, as
is only a buyer of the subject properties in a contract of sale amended. However, after the expiration of the redemption
subsequently executed in his favor by the actual purchaser, period without redemption having been made by petitioner,
PNB. To them, it is only the actual purchaser of a property at respondent became the owner thereof and consolidation of title
the public auction sale who can ask the court and be granted a becomes a right. Being already then the owner, respondent
writ of possession. became entitled to possession. Consequently, petitioner’s
ejectment suit was held to have been rendered moot by the
This argument is not tenable. Respondent, as a transferee or expiration of the period of redemption without petitioner
successor-in-interest of PNB by virtue of the contract of sale redeeming the properties. This is considering that petitioner
between them, is considered to have stepped into the shoes of

120
already lost his possessory right over the property after the
expiration of the said period.

Although the main issue in Ermitaño was whether respondent


was correct in refusing to pay rent to petitioner on the basis of
her having bought the latter’s foreclosed property from whom it
was mortgaged, the case is enlightening as it acknowledged
respondent’s right, as a subsequent buyer of the properties
from the actual purchaser of the same in the public auction
sale, to possess the property after the expiration of the period
to redeem sans any redemption. Verily, Ermitaño
demonstrates the applicability of the provisions of Section 7 of
Act No. 3135 to such a subsequent purchaser like respondent
in the present case.

All told, the Court affirms the RTC’s issuance of the Writ of
Possession in favor of respondent.chanrobleslaw

WHEREFORE, the Petition is hereby DENIED. The December


8, 2009 and February 26, 2010 Orders of the Regional Trial
Court of Bacolod City, Branch 49 in Cad. Case No. 09-2802
are AFFIRMED.

SO ORDERED.cralawlawlibrary

121
G.R. No. 196040 August 26, 2014
I
FE H. OKABE, Petitioner,
vs. HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER
ERNESTO A. SATURNINO, Respondent. THE FACT THAT PRIVATE RESPONDENT WAS ALREADY
ESTOPPED FROM ASKING FOR THE ISSUANCE OF A
DECISION WRIT OF POSSESSION CONSIDERING THAT THE VERY
DEED OF ABSOLUTE SALE FROM WHICH HER ALLEGED
PERALTA, J.: RIGHT EMANATES EXPLCITLY (sic) GAVE HER THE ONLY
OPTION OF FILING AN EJECTMENT SUIT.
Before us is a Petition for Review on Certiorari under Rule 45
of the Rules of Court seeking the reversal of the Decision1 II
dated September 24, 2010 and Resolution2 dated March 9,
2011 of the Court of Appeals (CA) in CA-G.R. SP No. 110029. HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER
THAT SECTION 7 OF ACT NO. 3135, AS AMENDED BY ACT
The facts, as culled from the records, are as follows: 4118 SHOULD BE CONSTRUED STRICTLY.15

The subject of the controversy is an eighty-one (81)square Respondent prayed, among other things, that the CA reverse
meter property located in Barangay San Antonio, Makati City, and set aside the assailed Orders and thata Temporary
which was initially covered by Transfer Certificate of Title (TCT) Restraining Order (TRO) be issued enjoining the RTC from
No. 175741under the name of the wife of respondent Ernesto hearing the petition for the issuance of a writ of possession.
A. Saturnino. Sometime in 1994, the couple obtained a loan
with the Philippine National Bank (PNB), which was secured by Meanwhile, on November 23, 2009, the RTC rendered a
the subject property. Because of the couple’s failure to settle Decision16 in favor of petitioner, which granted her ex-parte
their loan obligation with the bank, PNB extrajudicially petition and ordered that the corresponding writ of possession
foreclosed the mortgage. over the subject property be issued in her favor. The decretal
portion of which reads:
On August 24, 1999, the Certificate ofSale was inscribed on
TCT No. 175741. Considering that the property was not WHEREFORE, premises considered, and in accordance with
redeemedby respondent during the redemption period, Section 7 of Act No. 3135, as amended, the instant petition [is]
consolidation of ownership was inscribed on October 13, 2006 hereby GRANTED.
and a new TCT was issued in favor of PNB. Without taking
possession of the subject property, PNB sold the land to Let the corresponding Writ be issued in favor of the herein
petitioner Fe H. Okabe on June 17, 2008. TCT No. 225265 petitioner Fe H. Okabe to place her inpossession of the subject
was later issued in petitioner’s name on August 13, 2008. property. No bond is required to be posted by petitioner Fe H.
Okabe, she, being the successor-in-interest of Philippine
On November 27, 2008, petitioner filed with the Regional Trial National Bank, the purchaser in the foreclosure sale, which had
Court (RTC) of Makati City an Ex-Parte Petition for Issuance of consolidated that title on the subject property in its name prior
Writ of Possession3 over the subject property, to which to the herein petitioner.
respondent submitted an Opposition with Motion to Dismiss.4
Petitioner filed her Reply to/ Comment on the Opposition with Furnish copies of this Decision to the parties and their
Motion to Dismiss,5 while respondent submitted his Oppositor- respective counsels.
Movant’sRejoinder with Motion for Postponement.6
SO ORDERED.17
On April 30 2009, the RTC issued an Order7 denying
respondent’s Opposition with Motion to Dismiss for lack of Respondent filed a motion to set aside the said Decision, but
merit. The RTC, citing the case of Ramos v. Mañalac and the same was denied by the RTC in its Order18 dated April 27,
Lopez8 opined that the issuance of a writ of possession in 2010.
favor of the petitioner was merely a ministerial and
complementary duty of the court. On May 13, 2010, petitioner filed a Motion for Execution of
Judgment.
Respondent then filed an Urgent Motion for Clarification (of the
Order dated 30 April 2009),9 then a Motion for On July 8, 2010, the RTC issued an Order19 granting the
Reconsideration,10 which was followed by a Supplement to the motion. On even date, the branch clerk of court issued a Writ of
Motion for Reconsideration11 which petitioner likewise Possession20 addressed to the Sheriff ordering the latter
opposed.12 toplace petitioner in possession of the subject property.

On July 29, 2009, the RTC issued an Order13 denying On July 14, 2010, the Sheriff, together with petitioner, tried to
respondent’s Motion for Reconsideration and the Supplement cause the service of the notice to vacate upon the respondent,
to the Motion for Reconsideration. The RTC ruled, among other but the property was already abandoned by its occupants. The
things, that the right of the petitioner to be placed in absolute Sheriff, with the assistance of barangay officials, thus, posted
possession of the subject property was a consequence of her the notice to vacate together with the writ of possession in front
right of ownership and that petitioner cannot be deprived of of the gate of the subject property.21
said possession being now the registered owner of the
property. On July 20, 2010, the Sheriff,the petitioner, and the barangay
officials returned to the property to cause the implementation of
Dismayed, respondent filed on August 17, 2009 a Petition for the writ of possession. After finding that no onewas occupying
Certiorari14 with the CA questioning the Orders of the RTC the property, the Sheriff turned over possession of the subject
based on the following grounds:

122
property to the petitioner free and clear of occupants and
personal property.22 I

In the proceedings before the CA, respondent filed a Motion to RESPONDENT IS WELL AWARE OF THE FACT THAT
Admit Herein Memorandum of Authorities in OWNERSHIP HAD TRANSFERRED TO PETITIONER AND
Amplification/Support of the Position of Petitioner in this Case THAT HIS POSSESSION OF THE PROPERTY HAD
and Reiterating Prayer for Issuance of a Temporary BECOME ILLEGAL.
Restraining Order and/or Writ of Preliminary Injuction.23 In the
said motion, respondent alleged that the RTC was about to II
issue the writ of possession prayed for by the petitioner and
that a TRO was necessary to prevent great and irreparable PETITIONER, AS THE REGISTERED OWNER OF THE
injury which respondent may suffer if removed from possession PROPERTY, IS ENJOYING POSSESSION OF THE
of the property in question. PROPERTY IN THE CONCEPT OF AN OWNER AND A
RULING OFTHIS HONORABLE COURT REGARDING THE
On July 19, 2010, the CA issued a Resolution24 granting the PROCEDURE PERTAINING TO PETITIONER’S
issuance of a TRO in favor of the respondentand commanding POSSESSION OF THE PROPERTY IS MOOT AND
petitioner and the RTC to refrain from committing any acts ACADEMIC.27
relative to the proceedings before it upon the posting of a bond.
Petitioner argues that her possession of the subject property as
In a Manifestation25 dated July 21, 2010 the RTC Presiding its registered owner should not be disturbed. Petitioner posits
Judge informed the CA that as much as the court would like to that considering that respondent failed to redeem the subject
comply with its directive, it can no longer do so because the property within the redemption period, respondent should not
writ of possession had already been implemented by the be granted a favor nor rewarded for his failure to redeem and
Branch Sheriff on July 20, 2010. for his illegal occupation of the property. Petitioner contends
that the issue regarding possession ofthe property has become
On September 24, 2010, the CA rendered the assailed moot and academic since she, being the registered owner of
Decision which granted respondent’s petition and vacatedthe the property, has been in possession thereof since July 20,
challenged orders of the RTC. The falloreads: 2010. Petitioner stresses that the ruling of the CA, that she is
"permanently enjoined from proceeding against the
WHEREFORE,we resolve to GRANTthe instant petition. The [respondent] via an ex-partemotion for a writ of possession,"
challenged orders below are consequently vacated. The would result in an absurdity since she is already in possession
respondents are permanently enjoined from proceeding of the land.
against the petitioner via an expartemotion for a writ of
possession. Petitioner now prays that the Court rectify the situation and for
it to reverse the ruling of the CA based on the fact that the
IT IS SO ORDERED.26 proceedings for the expartemotion for a writ of possession has
already been terminated and possession of the subject
The CA opined, among other things, that although it may be property was awarded by the lower court in her favor, thus
true that by virtue of the contract of sale, petitioner obtained the rendering the arguments raised by respondent in his petition
same rights of a purchaser-owner and which rights she derived for certiorari before the CA moot and academic.
from erstwhile mortgagee turned owner PNB, this does not
mean that the right to file an ex-parte motion for a writ of In essence, the issue is whether or not, in the case at bar, an
possession under Act 3135 had also been transferred to the ex-parte petition for the issuance of a writ of possession was
petitioner. Such a special right isgranted only to purchasers in the proper remedy of the petitioner in obtaining possession of
a sale made under the provisions of Act 3135. The CA ruled the subject property.
that to allow a second, third, or even tenth subsequent buyer of
the foreclosed property to evict the mortgagor-debtor or his Section 7 of Act No. 3135,28 as amended by Act No. 4118,29
successor-in-interest from the said property or wrench away states:
possession from them via a mere ex-partemotion is to trample
upon due process because whatever defenses that the owner Section 7. In any sale made under the provisions of this Act,
mortgagor/actual possessor may have would have been the purchaser may petition the Court of First Instance of the
drowned and muted by the ex-partewrit of possession. province or place where the property or any part thereof is
Considering that the transaction between PNB and the situated, to give him possession thereof during the redemption
petitioner was by an ordinary contract of sale, an ex-partewrit period, furnishing bond in an amount equivalent to the use of
of possession may not therefore be issued in favor of the latter. the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without
Unfazed, petitioner filed a Motion for Reconsideration on the violating the mortgage or without complying with the
ground that respondent’s possession of the property had requirements of this Act. Such petition shall be made under
become illegal and that the procedure affecting his possession oath and filed in the form of an ex partemotion x x x and the
was moot and academic for he was no longer in possession of court shall, upon approval of the bond, order that a writ of
the subject property. possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order
In a Resolution dated March 9, 2011, the CA denied immediately.
petitioner’s
Under the provision cited above, the purchaser or the
Motion for Reconsideration. mortgagee who is also the purchaser in the foreclosure sale
may apply for a writ of possession during the redemption
Hence, the present petition wherein petitioner raises the period,30 upon an ex-partemotion and after furnishing a bond.
following arguments to support its petition:

123
In GC Dalton Industries, Inc. v. Equitable PCI Bank,31 the Nevertheless, the purchaser is not left without any remedy.
Court held that the issuance of a writ of possession to a Section 6 of Act No. 3135, as amended by Act No. 4118,
purchaser in an extrajudicial foreclosureis summary and provides:
ministerial in nature as such proceeding is merely an incident
in the transfer of title. Also, in China Banking Corporation v. SEC. 6. In all cases in which anextrajudicial sale is made under
Ordinario,32 we held that under Section 7 of Act No. 3135, the the special power hereinbefore referred to, the debtor, his
purchaser in a foreclosure saleis entitled to possession of the successor-ininterest or any judicial creditor or judgment
property. creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under
In the recent case of Spouses Nicasio Marquez and Anita which the property is sold, may redeem the same at any time
Marquez v. Spouses Carlito Alindog and Carmen Alindog,33 within the term of one year from and after the date of the sale;
although the Court allowed the purchaser in a foreclosure sale and such redemption shall be governed by the provisions of
to demand possession of the land during the redemption sections four hundred and sixty-six, inclusive, of the Code
period, it still required the posting ofa bond under Section 7 of ofCivil Procedure, in so far as these are not inconsistent with
Act No. 3135. Thus: the provisions of this Act.

It is thus settled that the buyer in a foreclosure sale becomes Consequently, the provision of Section 33, Rule 39 of the
the absolute owner of the property purchased if it is not Rules of Court relative to an execution sale ismade applicable
redeemed during the period of one year after the registration of to extrajudicial foreclosure of real estate mortgages by virtue of
the sale. As such, he is entitled to the possession of the said Section 6 of Act No. 3135, as amended.37
property and can demand it at any time following the
consolidation of ownership in his name and the issuance to him Section 33, Rule 39 of the Rules of Court provides: SEC. 33.
of a new transfer certificate oftitle. The buyer can in fact Deed and possession to be given at expiration of redemption
demand possession of the land even during the redemption period; by whom executed or given. – If no redemption be
period except that he has to post a bond in accordance with made within one (1) year from the dateof registration of the
Section 7 of Act No. 3135, as amended. No such bond is certificate of sale, the purchaser is entitled toa conveyance and
required after the redemption period if the property is not possession of the property; or, if so redeemed whenever sixty
redeemed. Possession of the land then becomes an absolute (60) days have elapsed and no other redemption has been
right of the purchaser as confirmed owner. Upon proper made, and notice thereof given, and the time for redemption
application and proof of title, the issuance of the writ of has expired, the lastredemptioner is entitled to the conveyance
possession becomes a ministerial duty of the court.34 and possession; but in all cases the judgment obligor shall
have the entire period of one (1) year from the date of
Here, petitioner does not fall under the circumstances of the registration of the sale to redeem the property. The deed shall
aforequoted case and the provisions of Section 7 of Act No. be executed by the officer making the sale or his successor in
3135, as amended, since she bought the property long after office,and in the latter case shall have the same validity as
the expiration of the redemption period. Thus, it is PNB, if it though the officermaking the sale had continued in office and
was the purchaser in the foreclosure sale, or the purchaser executed it.
during the foreclosure sale, who can file the ex-parte petition
for the issuance of writ of possession during the redemption Upon the expiration of the right of redemption, the purchaser or
period, but it will only issue upon compliance with the redemptioner shall be substituted to and acquire all the rights,
provisions of Section 7 of Act No. 3135. title, interest and claim of the judgment obligor to the property
as of the time of the levy. The possession of the property shall
In fact, the Real Estate Mortgage35 contains a waiver be given to the purchaser or last redemptioner by the same
executed by the mortgagor in favor of the mortgagee, wherein officer unless a third party is actually holding the property
the mortgagor even waives the issuance of the writ of adversely to the judgment obligor.38
possession in favor of the mortgagee. The contract provides
that "effective upon the breach of any condition ofthe mortgage From the foregoing, upon the expiration of the right of
and in addition to the remedies hereinstipulated, the mortgagee redemption, the purchaser or redemptioner shall besubstituted
is hereby likewise appointed Attorney-in-Fact of the to and acquire all the rights, title, interest and claim of the
Mortgagor/s with full power and authority with the use of force, judgment debtor to the property, and its possession shall be
if necessary, to take actual possession of the mortgaged given to the purchaser or last redemptioner unless a third party
property/ies without the necessity of any judicial order or is actually holding the property adversely to the judgment
permission, or power, to collect rents, to eject tenants, to lease debtor. In which case, the issuance of the writ of possession
or sell the mortgaged property/ies or any part thereof at a ceases to be ex-parte and non-adversarial. Thus, where the
private sale without previous notice or advertisement of any property levied upon on execution is occupied by a party other
kind and execute the corresponding bills of sale, lease or other than a judgment debtor, the procedure is for the court to
agreement that may be deemed convenient to make repairs or conduct a hearing to determine the nature of said possession,
improvements on the mortgaged property/ies and pay for the i.e., whether or not he is in possession of the subject property
same and perform any other act which the Mortgagee may under a claim adverse to that of the judgment debtor.
deem convenient for the proper administration of the
mortgaged property/ies."36 It is but logical that Section 33, Rule 39 of the Rules of Court
be applied to cases involving extrajudicially foreclosed
Moreover, even without the waiver, the issuance of the writ of properties that were bought by a purchaser and later sold to
possession is ministerial and non-adversarial for the only issue third-party-purchasers after the lapse of the redemption period.
involved is the purchaser’s right to possession; thus, an ex- The remedy of a writ of possession, a remedy that is available
parteproceeding is allowed.1âwphi1 to the mortgagee-purchaser to acquire possession of the
foreclosed property from the mortgagor, is made available to a
subsequent purchaser, butonly after hearing and after
determining that the subject property is still in the possession

124
of the mortgagor. Unlike if the purchaser is the mortgagee or a
third party during the redemption period, a writ of possession
may issue ex-parte or without hearing. In other words, if the
purchaser is a third party who acquired the property after the
redemption period, a hearing must be conducted to determine
whether possession over the subject property is still with the
mortgagor or is already in the possession of a third party
holding the same adversely to the defaulting debtor or
mortgagor. If the property is in the possession of the
mortgagor, a writ of possession could thus be issued.
Otherwise, the remedy of a writ of possession is no longer
available to such purchaser, but he can wrest possession over
the property through an ordinary action of ejectment.

To be sure, immediately requiring the subsequent purchaser to


file a separate case of ejectment instead of a petition for the
issuance of a writ of possession, albeit not ex-parte, will only
prolong the proceedings and unduly deny the subsequent
purchaser of possession of the property which he already
bought.

WHEREFORE, premises considered, the instant petition is


GRANTED. The Decision dated September 24, 2010 and
Resolution dated March 9, 2011 of the Court of Appeals in CA-
G.R. SP No. 110029 are hereby REVERSED AND SET
ASIDE.

SO ORDERED.

125
G.R. No. 204672, February 18, 2015 the registration of the certificate of sale, but will still expire five
(5) years therefrom, or on August 25, 2006.20 They further
SPOUSES RODOLFO AND MARCELINA GUEVARRA, averred that they pleaded to be allowed to redeem the subject
Petitioners, v. THE COMMONER LENDING CORPORATION, property but TCLC unjustifiably refused the same, constraining
INC., Respondent. them to file said p