SPOUSES ADELINA S.

CUYCO
and FELICIANO U. CUYCO,

G.R. No. 168736

DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the Decision[1] of the Court of Appeals (CA) in CA G.R. CV
No. 62352 dated November 5, 2003 which modified the Decision[2] of the Regional Trial Court (RTC) of
Quezon City, Branch 105 in Civil Case No. Q-97-32130 dated January 27, 1999, as well as the Resolution[3]
dated June 28, 2005 denying the motion for reconsideration thereof.
The facts of the case are as follows:
Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00 from
respondents, spouses Renato and Filipina Cuyco, payable within one year at 18% interest per annum, and secured
by a Real Estate Mortgage[4] over a parcel of land with improvements thereon situated in Cubao, Quezon City
covered by TCT No. RT-43723 (188321).[5]
Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of
P1,250,000.00, broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on July 1, 1992; (3)
P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13,
1993.[6]
Petitioners made payments amounting to P291,700.00,[7] but failed to settle their outstanding loan obligations.
Thus, on September 10, 1997, respondents filed a complaint[8] for foreclosure of mortgage with the RTC of
Quezon City, which was docketed as Civil Case No. Q-97-32130. They alleged that petitioners loans were
secured by the real estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14,
inclusive of the 18% interest compounded monthly; and that petitioners refusal to settle the same entitles the
respondents to foreclose the real estate mortgage.
Petitioners filed a motion to dismiss[9] on the ground that the complaint states no cause of action which was
denied by the RTC[10] for lack of merit.

until fully paid, and in imposing legal interest of 12% per annum on the stipulated interest of 18% from the filing
of the case until fully paid.[15]
On November 5, 2003, the CA partially granted the petition and modified the RTC decision insofar as the
amount of the loan obligations secured by the real estate mortgage. It held that by express intention of the
parties, the real estate mortgage secured the original P1,500,000.00 loan and the subsequent loans of P150,000.00
and P500,000.00 obtained on July 1, 1992 and September 5, 1992, respectively. As regards the loans obtained on
May 31, 1992, October 29, 1992 and January 13, 1993 in the amounts of P150,000.00, P200,000.00 and
P250,000.00, respectively, the appellate tribunal held that the parties never intended the same to be secured by
the real estate mortgage. The Court of Appeals also found that the trial court properly imposed 12% legal interest
on the stipulated interest from the date of filing of the complaint. The dispositive portion of the Decision reads:
WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision of the Regional Trial Court
of Quezon City, Branch 105, in Civil Case No. Q-97-32130 is hereby MODIFIED to read:
WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor of the
plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amount of P2,149,113.92[,]
representing the total outstanding principal loan of the said defendants, plus the stipulated interest at the rate of
18% per annum accruing thereon until fully paid, within a period of one hundred and twenty days from the entry
of judgment, and in case of default of such payment and upon motion, the property, subject of the real estate
mortgage contract, shall be ordered sold at public auction in satisfaction of the mortgage debts.
Defendants are further, ordered to pay the plaintiffs the following:
1.
the legal interest at the rate of 12% per annum on the stipulated interest of 18% per annum, computed from
the filing of the complaint until fully paid;
2.

the sum of P25,000.00 as and for attorneys fees; and

3.

the costs of suit.

In their answer,[11] petitioners admitted their loan obligations but argued that only the original loan of
P1,500,000.00 was secured by the real estate mortgage at 18% per annum and that there was no agreement that
the same will be compounded monthly.

SO ORDERED.[16]

On January 27, 1999, the RTC rendered judgment[12] in favor of the respondents, the dispositive portion of
which reads:

WHETHER OR NOT PETITIONERS MUST PAY RESPONDENTS LEGAL INTEREST OF 12% PER
ANNUM ON THE STIPULATED INTEREST OF 18% PER ANNUM, COMPUTED FROM THE FILING OF
THE COMPLAINT UNTIL FULL PAID.[17]

WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor of the
plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amounts of P6,332,019.84,
plus interest until fully paid, P25,000.00 as attorneys fees, and costs of suit, within a period of one hundred and
twenty (120) days from the entry of judgment, and in case of default of such payment and upon proper motion,
the property shall be ordered sold at public auction to satisfy the judgment. Further, defendants[] counterclaim
is dismissed.
SO ORDERED.[13]

Petitioners appealed to the CA reiterating their previous claim that only the amount of P1,500,000.00 was
secured by the real estate mortgage.[14] They also contended that the RTC erred in ordering the foreclosure of
the real estate mortgage to satisfy the total indebtedness of P6,532,019.84, as of January 10, 1999, plus interest

Hence, the instant petition for review on the sole issue:

Petitioners contend that the imposition of the 12% legal interest per annum on the stipulated interest of
18% per annum computed from the filing of the complaint until fully paid was not provided in the real estate
mortgage contract, thus, the same has no legal basis.
We are not persuaded.
While a contract is the law between the parties,[18] it is also settled that an existing law enters into and
forms part of a valid contract without the need for the parties expressly making reference to it.[19] Thus, the
lower courts correctly applied Article 2212 of the Civil Code as the basis for the imposition of the legal interest
on the stipulated interest due. It reads:
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.

The foregoing provision has been incorporated in the comprehensive summary of existing rules on the
computation of legal interest enunciated by the Court in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] to
wit:
1.
When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall,
in any case, be on the amount finally adjudged.
3.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit. (Emphasis supplied)

In the case at bar, the evidence shows that petitioners obtained several loans from the respondent, some of which
as held by the CA were secured by real estate mortgage and earned an interest of 18% per annum. Upon default
thereof, respondents demanded payment from the petitioners by filing an action for foreclosure of the real estate
mortgage. Clearly, the case falls under the rule stated in paragraph 1.
Applying the rules in the computation of interest, the principal amount of loans subject of the real estate
mortgage must earn the stipulated interest of 18% per annum, which interest, as long as unpaid, also earns legal
interest of 12% per annum, computed from the date of the filing of the complaint on September 10, 1997 until
finality of the Courts Decision. Such interest is not due to stipulation but due to the mandate of the law[21] as
embodied in Article 2212 of the Civil Code. From such date of finality, the total amount due shall earn interest of
12% per annum until satisfied.[22]
Certainly, the computed interest from the filing of the complaint on September 10, 1997 would no longer be true
upon the finality of this Courts decision. In accordance with the rules laid down in Eastern Shipping Lines, Inc.
v. Court of Appeals, we derive the following formula[23] for the RTCs guidance:

In Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation,[24] this Court held that the
total amount due on the contracts of loan may be easily determined by the trial court through a simple
mathematical computation based on the formula specified above. Mathematics is an exact science, the
application of which needs no further proof from the parties.
As regards what loans were secured by the real estate mortgage, respondents contended that all five additional
loans were intended by the parties to be secured by the real estate mortgage. Thus, the CA erred in ruling that
only two of the five additional loans were secured by the real estate mortgage when the documents evidencing
said loans would show at least three loans were secured by the real estate mortgage, namely: (1) P150,000.00
obtained on May 31, 1992; (2) P150,000.00 obtained on July 1, 1992; and (3) P500,000.00 obtained on
September 5, 1992.[25]
In their Reply, petitioners alleged that their petition only raised the sole issue of interest on the interest due, thus,
by not filing their own petition for review, respondents waived their privilege to bring matters for the Courts
review that do not deal with the sole issue raised.
Procedurally, the appellate court in deciding the case shall consider only the assigned errors, however, it is
equally settled that the Court is clothed with ample authority to review matters not assigned as errors in an
appeal, if it finds that their consideration is necessary to arrive at a just disposition of the case.[26]
Moreover, as an exception to the rule that findings of facts of the CA are conclusive and binding on the Court,
[27] an independent evaluation of facts may be done by it when the findings of facts are conflicting,[28] as in this
case.
The RTC held that all the additional loans were secured by the real estate mortgage, thus:
There is, therefore, a preponderance of evidence to show that the parties agreed that the additional loans would be
against the mortgaged property. It is of no moment that the Deed of Mortgage (Exh. B) was not amended and
thereafter annotated at the back of the title (Exh. C) because under Article 2125 of the Civil Code, if the
instrument of mortgage is not recorded, the mortgage is nevertheless binding between the parties. It is extremely
difficult for the court to perceive that the plaintiffs required the defendants to execute a mortgage on the first loan
and thereafter fail to do so on the succeeding loans. Such contrary behavior is unlikely.[29]
The CA modified the RTC decision holding that:
However, the real estate mortgage contract was supplemented by the express intention of the mortgagors
(defendants-appellants) to secure the subsequent loans they obtained from the mortgagees (plaintiffs-appellees),
on 01 July 1992, in the amount of P150,000.00, and on 05 September 1992, in the amount of P500,000.00. The
mortgagors (defendants-appellants) intention to secure a larger amount than that stated in the real estate
mortgage contract was unmistakable in the acknowledgment receipts they issued on the said loans. The
acknowledgment receipts read:
July 1, [1]992

TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial payments made
Interest = principal x 18 % per annum x no. of years from due date until finality of judgment
Interest on interest = Interest computed as of the filing of the complaint (September 10, 1997) x 12% x no. of
years until finality of judgment

Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck # 498243 in the amount of P150,000.00 July 1/92 as
additional loan against mortgaged property TCT No. RT-43723 (188321) Q.C.
(SGD) Adelina S. Cuyco
Sept. 05/92

Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid.
Received from Mr. R. Cuyco the amount of P500,000.00 (five hundred thousand) PCIB Ck # 468657 as
additional loan from mortgage property TCT RT-43723.

(SGD) Adelina S. Cuyco

In such case, the specific amount mentioned in the real estate mortgage contract no longer controls. By express
intention of the mortgagors (defendants-appellants) the real estate mortgage contract, as supplemented, secures
the P1,500,000.00 loan obtained on 25 November 1991; the P150,000.00 loan obtained on 01 July 1992; and the
P500,000.00 loan obtained on 05 September 1992. All these loans are subject to stipulated interest of 18% per
annum provided in the real estate mortgage contract.
With respect to the other subsequent loans of the defendants-appellants in the amount of P150,000.00, obtained
on 31 May 1992; in the amount of P200,000.00, obtained on 29 October 1992; and, in the amount of
P250,000.00, obtained on 13 January 1993, nothing in the records remotely suggests that the mortgagor
(defendants-appellants), likewise, intended the said loans to be secured by the real estate mortgage contract.
Consequently, we rule that the trial court did err in declaring said loans to be secured by the real estate mortgage
contract.[30]
As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract.[31]
However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the
mortgage may stand as security if from the four corners of the instrument the intent to secure future and other
indebtedness can be gathered. This stipulation is valid and binding between the parties and is known in American
Jurisprudence as the blanket mortgage clause, also known as a dragnet clause. [32]
A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available
additional funds without their having to execute additional security documents, thereby saving time, travel, loan
closing costs, costs of extra legal services, recording fees, et cetera.[33]
While a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be
sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly
within the terms of the mortgage contract.[34]
The pertinent provisions of the November 26, 1991 real estate mortgage reads:
That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE MILLION FIVE THOUSAND
PESOS (sic) (1,500,000.00) Philippine Currency, receipt whereof is hereby acknowledged and confessed,
payable within a period of one year, with interest at the rate of eighteen percent (18%) per annum;
That for and in consideration of said indebtedness, the MORTGAGOR does hereby convey and deliver by way of
MORTGAGE unto said MORTGAGEE, the latters heirs and assigns, the following realty together with all the
improvements thereon and situated at Cubao, Quezon City, and described as follows:
xxxx
PROVIDED HOWEVER, that should the MORTGAGOR duly pay or cause to be paid unto the MORTGAGEE
or his heirs and assigns, the said indebtedness of ONE MILLION FIVE HUNDRED THOUSAND PESOS
(1,500,000.00), Philippine Currency, together with the agreed interest thereon, within the agreed term of one year
on a monthly basis then this MORTGAGE shall be discharged, and rendered of no force and effect, otherwise it
shall subsist and be subject to foreclosure in the manner and form provided by law.
It is clear from a perusal of the aforequoted real estate mortgage that there is no stipulation that the mortgaged
realty shall also secure future loans and advancements. Thus, what applies is the general rule above stated.
Even if the parties intended the additional loans of P150,000.00 obtained on May 30, 1992, P150,000.00 obtained
on July 1, 1992, and P500,00.00 obtained on September 5, 1992 to be secured by the same real estate mortgage,

as shown in the acknowledgement receipts, it is not sufficient in law to bind the realty for it was not made
substantially in the form prescribed by law.
In order to constitute a legal mortgage, it must be executed in a public document, besides being recorded. A
provision in a private document, although denominating the agreement as one of mortgage, cannot be considered
as it is not susceptible of inscription in the property registry. A mortgage in legal form is not constituted by a
private document, even if such mortgage be accompanied with delivery of possession of the mortgage property.
[35] Besides, by express provisions of Section 127 of Act No. 496, a mortgage affecting land, whether registered
under said Act or not registered at all, is not deemed to be sufficient in law nor may it be effective to encumber or
bind the land unless made substantially in the form therein prescribed. It is required, among other things, that the
document be signed by the mortgagor executing the same, in the presence of two witnesses, and acknowledged as
his free act and deed before a notary public. A mortgage constituted by means of a private document obviously
does not comply with such legal requirements.[36]
What the parties could have done in order to bind the realty for the additional loans was to execute a new real
estate mortgage or to amend the old mortgage conformably with the form prescribed by the law. Failing to do so,
the realty cannot be bound by such additional loans, which may be recovered by the respondents in an ordinary
action for collection of sums of money.
Lastly, the CA held that to discharge the real estate mortgage, payment only of the principal and the stipulated
interest of 18% per annum is sufficient as the mortgage document does not contain a stipulation that the legal
interest on the stipulated interest due, attorneys fees, and costs of suit must be paid first before the same may be
discharged.[37]
We do not agree.
Section 2, Rule 68 of the Rules of Court provides:
SEC. 2. Judgment on foreclosure for payment or sale. If upon the trial in such action the court shall find the
facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt
or obligation, including interest and other charges as approved by the court, and costs, 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 within a period
of not less than ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment, and
that in default of such payment the property shall be sold at public auction to satisfy the judgment. (Emphasis
added)
Indeed, the above provision of the Rules of Court provides that the mortgaged property may be charged not only
for the mortgage debt or obligation but also for the interest, other charges and costs approved by the court. Thus,
to discharge the real estate mortgage, petitioners must pay the respondents (1) the total amount due, as computed
in accordance with the formula indicated above, that is, the principal loan of P1,500,000.00, the stipulated
interest of 18%, the interest on the stipulated interest due of 12% computed from the filing of the complaint until
finality of the decision less partial payments made, (2) the 12% legal interest on the total amount due from
finality until fully satisfied, (3) the reasonable attorneys fees of P25,000.00 and (4) the costs of suit, within the
period specified by the Rules. Should the petitioners default in the payment thereof, the property shall be sold at
public auction to satisfy the judgment.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA G.R. CV No. 62352 dated
November 5, 2003, which modified the Decision of the Regional Trial Court of Quezon City, Branch 105, in
Civil Case No. Q-97-32130, is AFFIRMED with the MODIFICATIONS that petitioners are ordered to pay the
respondents (1) the total amount due, as computed by the RTC in accordance with the formula specified above,
(2) the legal interest of 12% per annum on the total amount due from such finality until fully paid, (3) the
reasonable amount of P25,000.00 as attorneys fees, and (4) the costs of suit, within a period of not less than 90
days nor more than 120 days from the entry of judgment, and in case of default of such payment the property
shall be sold at public auction to satisfy the judgment.

x x x borrow and/or contract debts and obligations involving, affecting or creating a charge or
liability on, or which may involve, affect or create a liability on the Property and/or my interest therein,
whether or not such debt/s or obligation/s contracted or to be contracted will benefit me or the family, and to
sign, execute and deliver in my name to or in favor of any party, under such terms and conditions as my
attorney-in-fact may deem necessary, appropriate or convenient, any and all documents instruments or
contract/s (including without limitations, promissory notes, loan agreements, assignments, surety or
guaranty undertakings, security agreements) involving, affecting or creating a charge or liability on the
Property.[10]

SO ORDERED.

The liability of the sureties under both CG/CSAs is limited to Php150,000,000.00.[11]

Exhibit G and all the Philippine peso promissory notes, including Exhibit H, are secured not only by the two
CG/CSAs but also by a Real Estate Mortgage executed on February 14, 1997 by Henry, for himself and as the legal guardian of the
minors Henry Paul L. Tanchan and Don Henry L. Tanchan; his wife Ma. Julie Ann; and Spouses Pablo and Milagros Lim, over real
properties registered in their names under Transfer Certificates of Title No. 115804, No. 111149, No. 110672 and No. 3815, all located
in Cebu City.[12]
In separate final demand letters, both dated May 14, 1998, respondent sought from Foremost payment of US$1,054,000.00,
as the outstanding principal balance, exclusive of interest and charges, of its obligations under the seven US$ promissory notes, and
PhP28,900,000.00 under its Philippine peso promissory notes. [13] Separate demands for payment were also made upon
Spouses Tanchan[14] and the petitioners[15] as sureties.
In a letter dated April 6, 1998, Foremost offered to cede to respondent, by way of dacion en pago, the mortgaged real
properties in full payment of its loan obligations.[16]

SPOUSES SANTIAGO and

RUFINA TANCHAN,

G.R. No. 164510

DECISION

AUSTRIA-MARTINEZ, J.:
By way of Petition for Review under Rule 45 of the Rules of Court, spouses Santiago and Rufina Tanchan (petitioners)
seek the modification of the June 15, 2004 Decision [1] of the Court of Appeals (CA) which affirmed the August 3, 2001
Decision[2] and August 8, 2002 Order[3] of Branch 137, Regional Trial Court (RTC), Makati in Civil Case No. 98-2468.[4]

On August 3, 1998, respondent instituted the extra-judicial foreclosure of the real estate mortgage to satisfy its claim against
Foremost in the aggregate amount of Php55,578,826.77, inclusive of interest, other charges and attorney's fees, equivalent to 10% of
the total amount due as of May 3, 1998, plus the costs and expenses of foreclosure.[17] At the public auction sale,respondents bid of
only Php37,745,283.67 for all the mortgaged properties, including the buildings and improvements thereon, [18] was adjudged the sole
and highest bid.
On October 13, 1998, respondent filed with the RTC a Complaint for Collection of Sum of Money with Petition for Issuance
of Writ of Preliminary Injunction against Foremost, SpousesTanchan and herein petitioners (collectively referred to as Foremost, et
al.), praying that they be ordered to pay, jointly and severally, the following amounts: [19]
Promissory Note

Amount

0051-96-09495

US$ 80,000.00 plus interest at the rate of 11.4% per annum from December 29, 1997 until full
paid and a penalty charge on the unpaid interest at the rate of 1% per month reckoned
fromDecember 29, 1997 until fully paid and a penalty charge on the unpaid principal reckoned
from May 28, 1998 until fully paid.

For value received, Cebu Foremost Construction, Inc. (Foremost), through its Chairman and President
Henry Tanchan (Henry) and his spouse, Vice-President and Treasurer Ma. Julie AnnTanchan (Ma. Julie Ann) executed and delivered
to Allied Banking Corporation (respondent) seven US$ promissory notes,[5] including Promissory Note No. 0051-9703696[6] (Exhibit G)for US$379,000.00, at 9.50% interest rate per annum, due on February 9, 1998.

0051-96-17617

US$110,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1%
per month, all reckoned fromDecember 29, 1997 until fully paid.

0051-96-19008

US$250,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1%
per month all reckoned fromNovember 30, 1997 until fully paid.

Foremost also issued to respondent several Philippine peso promissory notes [7] covering various loans in the aggregate
amount of Php28,900,000.00, including Promissory Note No. 0051-97-03688 (Exhibit H) for PhpP16,500,000.00, at an interest
rate of 14.5% per annum, due on February 9, 1998.[8]

0051-96-24801

US$115,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1%
per month all reckoned fromDecember 29, 1997 until fully paid.

0051-96-00603

US$75,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1%
month all reckoned fromDecember 29, 1997 until fully paid.

0051-97-02444

US$45,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1%
month all reckoned fromDecember 29, 1997 until fully paid.

0051-97-03696
(Exhibit G)

US$379,000.00 plus interest at the rate of 11.4% per annum reckoned from January 8, 1998 un
fully paid and a penalty charge at the rate of 1% per month from February 9, 1998 until fully pai

The relevant facts are of record.

All the foregoing promissory notes are secured by two Continuing Guaranty/ Comprehensive Surety Agreements
(CG/CSA) executed in the personal capacities of spouses Henry and Ma. Julie Ann (Spouses Tanchan) and Henrys brother, herein
petitioner Santiago Tanchan (Santiago),[9] for himself and as attorney-in-fact of his wife and co-petitioner Rufina Tanchan (Rufina)
under a Special Power of Attorney, dated April 30, 1993, which grants Santiago authority to:

PhpP7,466,795.67 plus interest at the rate of 20% per annum and a penalty charge at the rate of 3% The RTC issued a Pre-trial Order which limited the issues to be resolved to the following:
per month from August 10, 1998. (Emphasis supplied)
1.
Does the [respondent] have a cause of action with respect to the promissory notes marked as
[Exhibits] G[31] and H[32]?
Respondent also prayed for payment of attorney's fees equivalent to 25% of the total amount due, expenses and costs of suit,
In support of its application for issuance of a writ of preliminary attachment, respondent submitted an Affidavit executed by
2.
Is [petitioner] Rufina C. Tanchan liable on the basis of the Continuing
Elmer Elumbaring (Elumbaring), Branch Cashier/Loans Supervisor, Cebu, Jakosalem Branch, stating that:
Guaranty/Comprehensive Surety Agreements because of her authority from [sic] Santiago Tanchan, Jr.
was limited to borrow money only for the benefit of the family?
4. Defendants [Foremost, et al.] committed fraud in contracting the obligations upon which
the action is brought in that: a) to induce plaintiff [respondent] to grant the credit accommodation they
3.
Is the unilateral increase of the interest rate of [respondent] valid?
represented to the plaintiff [respondent] that they were in a financial position to pay their obligations on
maturity date in consideration of which plaintiff [respondent] granted the credit accommodations. It turned
4.
What is the amount and nature of the damages that should be adjudged against the losing party
out, however, that they were not in such financial position when they failed to pay their obligations on
in favor of the prevailing party?[33]
maturity date; b) they falsely represented that the proceeds of the Loan would be used as additional working
capital in consideration of which, plaintiff [respondent] granted the loans but when defendants [Foremost,
As directed by the RTC in its Pre-trial Order, both parties presented affidavits in lieu of direct examination of their
et al.] received the said proceeds, they diverted the same to a purpose other than that for which they were
witnesses.
intended as shown by the fact that defendants [Foremost, et al.] were not able to fully pay the obligations at
its maturity date;
For respondent, Fresnido Bandilla (Bandilla), Manager, Legal Department, testified that the obligations of Foremost which
were secured by the real estate mortgage had amounted to Php61,155,339.36 as of the date of the foreclosure sale, and that
5. There is no security whatsoever for the claim plaintiff [respondent] seeks to enforce by
with respondent's bid of only Php37,745,283.67 being adjudged the lone and highest bid, there remained an unpaid balance of
this action, and only by the issuance of a writ of preliminary attachment can its interest be protected. [20]
Php23,415,115.69.[34] Elumbaring corroborated Bandilla's testimony.[35]
0051-97-03688
(Exhibit H)

The application for writ of preliminary attachment was granted by the RTC in an Order dated November 3, 1998, to wit:
WHEREFORE, finding plaintiff's [respondent's] application for the issuance of a writ of
preliminary attachment sufficient in form and substance, and the ground set forth therein being among
those allowed by the Rules (Rule 57, Sec. 1 [e]), let a Writ of Preliminary Attachment issue against the
properties of defendants Cebu Foremost Construction, Incorporated, Santiago Tanchan,
Jr., Rufina C. Tanchan, HenryTanchan and Ma. Julie Ann T. Tanchan, upon plaintiff's [respondent's] filing
of a bond in the amount of FIFTY-FOUR MILLION (P54,000,000.00) PESOS, conditioned to answer for
whatever damage that the said defendants [Foremost, et al.] may suffer by reason of the issuance of said
writ should the Court finally adjudge that plaintiff [respondent] was not entitled thereto.
SO ORDERED.[21]
Thus, armed with a writ of attachment,[22] the sheriff levied several parcels of land registered in the name of Foremost, et al. [23]
In their Amended Answer with Counterclaim,[24] Foremost, et al. acknowledged the authenticity and due execution of the
promissory notes but denied liability for the amounts alleged in the Complaint, the computation of which they dispute due to the
arbitrariness of the imposition of new interest rates. They impugned the cause of action of respondent to collect the amount due
under Exhibit G and Exhibit H in view of the bank's prior extra-judicial foreclosure of the securities thereon, which recourse
bars collection of the amounts due on the same promissory notes. [25]
Foremost, et al. questioned the inclusion of Rufina as a party-defendant even when she was not bound by the
CG/CSAs which her husband Santiago signed in excess of his authority under the special power of attorney to contract loans for the
family but not to guarantee loans obtained by third persons.[26]
The issuance of the writ of preliminary attachment was likewise objected to by Foremost on the ground that it contracted the
loans in good faith but was prevented from paying the same only because of the economic crisis that beset the country. On the part of
Spouses Tanchan and herein petitioners, they claim that they had no personal participation or influence in the loan transactions except
to ensure its payment; hence, they could not have practiced fraud upon respondent because they did not personally contract the loans
with it.[27] Thus, each sought payment of Php100,000,000.00 as moral damages for the emotional and mental vexation visited upon
them by respondent in causing the unwarranted preliminary attachment of their properties.[28]
At the pre-trial, respondent submitted an Amended Pre-trial Brief where it admitted that Foremost's Exhibit G and Exhibit
H were among those secured by the real estate mortgage [29]that it earlier foreclosed, but the proceeds of the foreclosure sale satisfied
only part of the amounts due on said promissory notes and left a deficiency which is now the subject of their complaint. [30]

On the other hand, Henry averred that even in the wake of the Asian financial crisis, Foremost struggled to meet interest
payments on its loan obligations with respondent, but the point came when there were no more construction jobs to be had,
and Foremost was constrained to default on its obligations.[36]
Santiago testified that he and his spouse could not have defrauded respondent because they did not directly contract the
loans with it but merely acted as sureties. Thus, the issuance of the writ of attachment against their properties was arbitrary, and
brought upon them social humiliation and emotional torment.[37]
After the parties submitted their respective memoranda, [38] the RTC rendered its August 31, 2001 Decision,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering defendants Cebu Foremost
Construction, Inc., Santiago Tanchan, Jr., Rufina C. Tanchan, Henry Tanchan and Ma. Julie
Ann Tanchan, solidarily, [to]pay plaintiff Allied Banking Corporation the following amounts: (1) US
$80,000.00, plus 8.75 % interest per annum from 7 June 1996 to 6 May 1997, 9.5% interest per annum
from 7 May 1997 until fully paid, and 1% penalty per month on the amount due from maturity date and
until fully paid; (2) US $110,00.00, plus 8.75% interest per annum from 24 September to 29 May 1997,
9.5% interest per annum from 30 May 1997 until fully paid, and 1% penalty per month on the amount due
from maturity date until fully paid; (3) US $570,000.00, plus 8.75% interest per annum from 8 October
1996 to 29 May 1997, 9.5% interest per annum from 30 May 1997 until fully paid, and 1% penalty per
month on the amount due from maturity date until fully paid; (4) US $115,000.00 plus 9.5% interest per
month from 12 December 1996 until fully paid, and 1% penalty per month on the amount due from
maturity date until fully paid; (5) US $75,000.00, plus 9.5% interest per annum from 7 January 1997 until
fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (7) US
$379,000.00, plus 9.5% interest per annum from 12 February 1997 to 8 December 1997, 11.4% interest
per annum from 9 December 1997 until fully paid, and 1% penalty per month on the amount due from
maturity date until fully paid; (8) P7,582,945.85, plus 28.5% interest per annum, and 3% penalty per
month, from the foreclosure sale on 10 August 1998 until fully paid; (9) attorney's fees equivalent to 10%
of the amount due plaintiff. However, the liability of defendants' Santiago Tanchan,
Jr., Rufina C. Tanchan, Henry Tanchan and Ma. Julie Ann T. Tanchan is limited toP150,00,000.00 only.
Defendants' counterclaims are dismissed for lack of sufficient merit.
SO ORDERED.[39]

Foremost, et al. filed a Motion for Partial Reconsideration of Decision on the ground that respondent failed to state a cause of
action for the payment of any deficiency account underExhibit G and Exhibit H. Its Complaint does not contain any allegation
regarding a deficiency account; nor even an allusion to the foreclosure sale conducted in partial satisfaction of said promissory
notes. Although in its Amended Pre-trial Brief, respondent mentioned that a deficiency account remained after the foreclosure of the
real estate mortgage, such statement did not have the effect of amending the Complaint itself. Neither did the testimonies
of Bandilla and Elumbaring about a deficiency account take the place of a specific allegation of such cause of action in the
Complaint. Thus, in the absence of an allegation in the Complaint of a cause of action for the payment of a deficiency account, the
RTC had no factual or legal basis to grant such claim.[40]
Spouses Tanchan and herein petitioners also filed a Motion to Lift the Writ of Preliminary Attachment.[41]
The RTC denied the Motion to Lift the Writ of Attachment in an Order[42] dated September 25, 2001, and the Motion for
Partial Reconsideration, in an Order[43] dated August 8, 2002.
Foremost, et al. appealed to the CA under the following assignment of errors:
1.
The lower court erred in not holding that having opted to extra-judicially foreclose the real estate
mortgage which was executed to secure the promissory notes marked as Exhibits G and H, the
[respondent] is barred from filing an action for collection of the same;

Sec. 20. Claim for damages on account of improper, irregular or excessive attachment. - An
application for damages on account of improper, irregular or excessive attachment must be filed before the
trial or before appeal is perfected or before the judgment becomes executory, with due notice to the
attaching obligee or his surety or sureties, setting forth the facts showing his right to damages and the
amount thereof. Such damages may be awarded only after proper hearing and shall be included in the
judgment on the main case.
If the judgment of the appellate court be favorable to the party against whom the attachment
was issued, he must claim damages sustained during the pendency of the appeal by filing an application in
the appellate court with notice to the party in whose favor the attachment was issued or his surety or
sureties, before the judgment of the appellate court becomes executory. The appellate court may allow the
application to be heard and decided by the trial court. [47] (Emphasis supplied)
Records reveal that the RTC issued the writ of preliminary attachment on November 3, 1998,[48] and as early as March 23,
1999, in their Amended Answer with Counterclaim, petitioners already sought the discharge of the writ. [49] Moreover, after the RTC
rendered its Decision on August 3, 2001 but before appeal therefrom was perfected, petitioners filed on August 23, 2001 a Motion
to Lift the Writ of Preliminary Attachment, reiterating their objection to the writ and seeking payment of damages for its wrongful
issuance.[50]
Clearly, petitioners' opposition to the writ was timely.

2.
The lower court erred in not holding that Rufina Tanchan did not authorize her husband,
Santiago J. Tanchan, Jr. to sign the Continuing Guaranty/ Comprehensive Surety Agreement marked as
Exhibit I; and
3.
The lower court erred in not lifting the writ of preliminary attachment and granting the claim for
damages of the individual defendants by virtue of the wrongful issuance of the writ of preliminary
attachment.[44]

The question now is whether petitioner has a valid reason to have the writ discharged and to claim damages.
It should be borne in mind that the questioned writ of preliminary attachment was issued by the RTC under Section 1(d),
Rule 57 of the Rules of Court, to wit Sec. 1. Grounds upon which attachment may issue. - A plaintiff or any proper party may, at the
commencement of the action or at any time thereafter, have the property of the adverse party attached as
security for the satisfaction of any judgment that may be recovered in the following cases:

The CA dismissed the appeal in the June 15, 2004 Decision assailed herein.
xxxx
Only petitioners took the present recourse to raise the following issues:
I.
Whether or not the petitioners as mere sureties of the loans obtained by Cebu Foremost
Construction, Inc. were guilty of fraud in incurring the obligations so that a writ of preliminary attachment
may be issued against them?

(d) In an action against a party who has been guilty of a fraud in contracting the debt or
incurring the obligation upon which the action is brought, or in concealing or disposing of the property for
the taking, detention or conversion of which the action is brought;
x x x x.

II.
Whether or not the respondent may claim for deficiency judgment on its seventh and eight
causes of action, not having alleged in its complaint that said loans were secured by a real estate mortgage
and after the foreclosure there was a deficiency as in fact in its complaint, the respondent sought full
recovery of the promissory notes subject of its seventh and eighth cause of action?
III.
Whether or not the lower court and the Court of Appeals erred in not awarding petitioners
damages for the wrongful issuance of a writ of preliminary attachment against them? [45]
Being interrelated, the first and third issues will be resolved jointly.
The issues involve the validity of the writ of preliminary attachment as against the properties of petitioners only, but
not as against the properties of Foremost and Spouses Tanchan, neither of whom appealed before the Court. The
discussion that follows, therefore, shall pertain only to the effect of the writ on petitioners.
One of the grounds cited by the CA in refusing to discharge the writ of attachment is that it is now too late for [petitioners] to
question the validity of the writ because they waited three long years to have it lifted or discharged. [46]
Under Section 13, Rule 57 of the Rules of Court, a party whose property has been ordered attached may file a motion with
the court in which the action is pending for the discharge of the attachment on the ground that it has been improperly issued or
enforced. In addition, said party may file, under Section 20, Rule 57, a claim for damages on account of improper attachment within
the following periods:

and on the basis solely of respondent's allegations in its Complaint that defendants [Foremost, et al.] failed to pay their obligations on
maturity dates, with the amount of US$1,054,000.00 and Php7,466795.69 remaining unpaid; that defendants are
disposing/concealing their properties with intent to defraud the plaintiff and/or are guilty of fraud in the performance of their
obligations; and that there is no security whatsoever for the claim sought to be enforced. [51]
Petitioners argue that the foregoing allegations are not sufficient to justify issuance of the writ, especially in the absence of
findings that they, as sureties, participated in specific fraudulent acts in the execution and performance of the loan agreements with
respondent. [52]
In refusing to lift the writ, the RTC held that the lack of a specific factual finding of fraud in its decision is not among the
grounds provided under Sections 12 and 13, Rule 57 of the Rules of Court for the discharge of the writ. [53] The CA agreed for the
reason that the RTC's affirmative action on the complaint filed by respondent signifies its agreement with the allegations found
therein that Foremost, et al., including herein petitioners, committed fraudulent acts in procuring loans from respondent.[54]
Both courts are in error.
The present case fits perfectly into the mold of Allied Banking Corporation v. South Pacific Sugar Corporation,[55] where a
writ of preliminary attachment issued in favor of Allied Banking Corporation was discharged by the lower courts for lack of evidence
of fraud. In sustaining the discharge of the writ, the Court held:

Moreover, even a cursory examination of the banks complaint will reveal that it cited no factual
circumstance to show fraud on the part of respondents. The complaint only had a general statement in the
Prayer for the Issuance of a Writ of Preliminary Attachment, reproduced in the attached affidavit of
petitioners witness Go who stated as follows:

and director of the company does not necessarily give rise to the inference that he committed a fraud or
that he connived with the other defendants to commit a fraud. While under certain circumstances,
courts may treat a corporation as a mere aggroupment of persons, to whom liability will directly attach,
this is only done when the wrongdoing has been clearly and convincingly established. (Emphasis
supplied)

xxxx
Indeed, a writ of preliminary attachment is too harsh a provisional remedy to
4. Defendants committed fraud in contracting the obligations upon
which the present action is based and in the performance thereof. Among
others, defendants induced plaintiff to grant the subject loans to defendant
corporation by willfully and deliberately misrepresenting that, one, the proceeds
of the loans would be used as additional working capital and, two, they would be
in a financial position to pay, and would most certainly pay, the loan obligations
on their maturity dates. In truth, defendants had no intention of honoring their
commitments as shown by the fact that upon their receipt of the proceeds of the
loans, they diverted the same to illegitimate purposes and then brazenly ignored
and resisted plaintiffs lawful demands for them to settle their past due loan
obligations
xxxx
Such general averment will not suffice to support the issuance of the writ of preliminary
attachment. It is necessary to recite in what particular manner an applicant for the writ of attachment
was defrauded x x x.
Likewise, written contracts are presumed to have been entered into voluntarily and for a
sufficient consideration. Section 1, Rule 131 of the Rules of Court instructs that each party must prove his
own affirmative allegations. To repeat, in this jurisdiction, fraud is never presumed. Moreover, written
contracts such as the documents executed by the parties in the present case, are presumed to have been
entered into for a sufficient consideration. (Citations omitted)
In the aforecited case -- as in the present case -- the bank presented the testimony of its account officer who processed the
loan application, but the Court discarded her testimony for it did not detail how the corporation induced or deceived the bank into
granting the loans.[56]

be issued based on mere abstractions of fraud. [58] Rather, the rules require that for the writ to issue, there must be a recitation of clear
and concrete factual circumstances manifesting that the debtor practiced fraud upon the creditor at the time of the execution of their
agreement in that said debtor had a pre-conceived plan or intention not to pay the creditor. [59] Being a state of mind, fraud cannot be
merely inferred from a bare allegation of non-payment of debt or non-performance of obligation. [60]
As shown in Ng Wee, the requirement becomes all the more stringent when the application for preliminary attachment is
directed against a defendant officer of a defendant corporation, for it will not be inferred from the affiliation of one to the other that the
officer participated in or facilitated in any fraudulent practice attributed to the corporation. There must be evidence clear and
convincing that the officer committed a fraud or connived with the corporation to commit a fraud; only then may the properties of said
officer, along with those of the corporation, be held under a writ of preliminary attachment.
There is every reason to extend the foregoing rule, by analogy, to a mere surety of the defendant. A surety's involvement
is marginal to the principal agreement between the defendant and the plaintiff; hence, in order for the surety to be subject to a
proceeding for issuance of a writ of preliminary attachment, it must be shown that said surety participated in or facilitated the
fraudulent practice of the defendant, such as by offering a security solely to induce the plaintiff to enter into the agreement with the
defendant.
There is neither allegation nor innuendo in the Complaint of respondent or the Affidavit of Elumbaring that petitioners
as sureties or officers of Foremost participated in or facilitated the commission of fraud by Foremost, et al. against respondent. In fact,
there is no mention of petitioners, much less a recital of their role or influence in the execution of the loan agreements. The RTC cited
an allegation that petitioners are disposing/concealing their properties with intent to defraud respondent, but there is no hint of such
scheme in the five paragraphs of the Complaint [61]or in the four corners of the Affidavit of Elumbaring.[62] All that is alleged is that
Foremost obtained loans from respondent but failed to pay the same, but as the Court has repeatedly held, no fraud can be inferred
from a mere failure to pay a loan.[63]
In fine, there was no factual basis for the issuance of a writ of preliminary attachment against the properties of
petitioners. The immediate dissolution of the writ is called for.

[57]

Also apropos is Ng Wee v. Tankiansee where the appellate court was questioned for discharging a writ of preliminary
attachment to the extent that it affected the properties of respondent Tankiansee, a corporate officer of Wincorp, both defendants in
the complaint for damages which petitioner Ng Wee had filed with the trial court. In holding that the appellate court correctly spared
respondent Tankiansee from the writ of preliminary attachment, the Court cited the following basis:
In the instant case, petitioners October 12, 2000 Affidavit is bereft of any factual statement that
respondent committed a fraud. The affidavit narrated only the alleged fraudulent transaction
between Wincorpand Virata and/or Power Merge, which, by the way, explains why this Court,
in G.R. No. 162928, affirmed the writ of attachment issued against the latter. As to the participation of
respondent in the said transaction, the affidavit merely states that respondent, an officer and director
of Wincorp, connived with the other defendants in the civil case to defraud petitioner of his money
placements. No other factual averment or circumstance details how respondent committed a fraud or
how he connived with the other defendants to commit a fraud in the transaction sued upon. In other
words, petitioner has not shown any specific act or deed to support the allegation that respondent is
guilty of fraud.
The affidavit, being the foundation of the writ, must contain such particulars as to how the fraud
imputed to respondent was committed for the court to decide whether or not to issue the writ. Absent any
statement of other factual circumstances to show that respondent, at the time of contracting the obligation,
had a preconceived plan or intention not to pay, or without any showing of how respondent committed the
alleged fraud, the general averment in the affidavit that respondent is an officer and director
of Wincorp who allegedly connived with the other defendants to commit a fraud, is insufficient to support
the issuance of a writ of preliminary attachment x x x. Verily, the mere fact that respondent is an officer

In so ruling, however, the Court does not go so far as to grant petitioners' claim for moral damages. A wrongful
attachment may give rise to liability for moral damages but evidence must be adduced not only of the torment and humiliation
brought upon the defendant by the attaching party but also of the latter's bad faith or malice in causing the wrongful attachment,
[64]
such as evidence that the latter deliberately made false statements in its application for attachment. [65] Absent such evidence of
malice, the attaching party cannot be held liable for moral damages.[66]
In the present case, petitioners cite the allegations made by respondent in its application for attachment as evidence of
bad faith. However, the allegations in question contain nothing but the stark truth that Foremost obtained loans and that it failed to
pay. The Court fails to see any malice in such bare allegations as would make respondent liable to petitioners for moral damages.
To recapitulate, the Court partly dissolves the writ of preliminary attachment for having wrongfully issued against the
properties of petitioners who were not shown to have committed fraud in the execution of the loan agreements between Foremost and
respondent, but declines to award moral damages to petitioners in the absence of evidence that respondent acted with malice in
causing the wrongful issuance of the writ.
The second issue involves that portion of the August 3, 2001 RTC Decision awarding respondent (7) US $379,000.00, plus
9.5% interest per annum from 12 February 1997 to 8 December 1997, 11.4% interest per annum from 9 December 1997 until fully
paid, and 1% penalty per month on the amount due from maturity date until fully paid under Promissory Note No. 0051-97-03696,
and (8) P7,582,945.85, plus 28.5% interest per annum, and 3% penalty per month, from the foreclosure sale on 10 August 1998
until fully paid under Promissory Note No. 0051-97-03688.

Petitioners argue that respondent is barred from claiming any amount under the Promissory Notes, Exhibits G and
H, because it had already elected to foreclose on the mortgage security, and it failed to allege in its pleadings that a deficiency
remained after the public auction sale of the securities and that what it is seeking is the payment of such deficiency.[67]
There is no question that a mortgage creditor has a single cause of action against a mortgagor debtor, which is to recover the
debt; but it has the option of either filing a personal action for collection of sum of money or instituting a real action to foreclose on the
mortgage security.[68] An election of the first bars recourse to the second; otherwise, there would be multiplicity of suits in which the
debtor would be tossed from one venue to another, depending on the location of the mortgaged properties and the residence of the
parties.[69] On the other hand, a creditor who elects to foreclose on the mortgage may yet file an independent civil action for recovery
of whatever deficiency may remain in the outstanding obligation of the debtor, after deducting the price obtained in the sale of the
mortgaged properties at public auction. [70] The complaint, though, must specifically allege that what is being sought is the recovery
of the deficiency,[71] or that in the pre-trial, such claim be raised as an issue.[72]
Contrary to petitioners' argument, it is clear from the allegations in the Complaint that what respondent sought was the
payment of the deficiency amount under the subject promissory notes. In particular, while the Promissory Note, Exhibit H, is for
the amount of Php16,500,000.00, what respondent sought to recover was only Php7,582,945.85, consistent with the fact that part of
said promissory note has been satisfied from the proceeds of the extra-judicial foreclosure. While the exact phrase deficiency
account is not employed in the Complaint, the intention of respondent to recover the same is borne out by its allegations.
More importantly, in the Pre-trial Order issued by the RTC, the right of respondent to recover the deficiency account under
the subject promissory notes was raised as a specific issue.
WHEREFORE, the petition is PARTLY GRANTED. The June 15, 2004 Decision of the Court of Appeals
is MODIFIED to the effect that the November 3, 1998 Writ of Preliminary Attachment is LIFTED and DISSOLVED insofar as
it affects the properties of petitioners Spouses Santiago and Rufina Tanchan.

Due to the failure of Florencia and the spouses Oliveros to pay their loan obligation when it fell due, Metrobank,
on November 29, 1999, initiated foreclosure proceedings under Act No. 3135, as amended, before the Office of
the Notary Public of Makati City. Subsequently, Metrobank caused the publication of the notice of sale on three
issues of Remate.[3] At the auction sale on January 21, 2000, Metrobank emerged as the highest bidder.
Getting wind of the foreclosure proceedings, Nicholson filed on June 28, 2000, before the RTC in Makati City, a
Complaint to declare the nullity of the mortgage of the disputed property, docketed as Civil Case No. 00-789 and
eventually raffled to Branch 65 of the court. In it, Nicholson alleged that the property, which is still conjugal
property, was mortgaged without his consent.
Metrobank, in its Answer with Counterclaim and Cross-Claim,[4] alleged that the disputed lot, being registered
in Florencias name, was paraphernal. Metrobank also asserted having approved the mortgage in good faith.
Florencia did not file an answer within the reglementary period and, hence, was subsequently declared in default.
The RTC Declared the REM Invalid
After trial on the merits, the RTC rendered, on September 24, 2001, judgment finding for Nicholson. The fallo
reads:

No costs.
SO ORDERED.

METROPOLITAN BANK AND

TRUST CO.,

spouses Oliveros executed several real estate mortgages (REMs) on their properties, including one involving the
lot covered by TCT No. 156283. Among the documents Florencia submitted to procure the loan were a copy of
TCT No. 156283, a photocopy of the marriage-nullifying RTC decision, and a document denominated as
Waiver that Nicholson purportedly executed on April 9, 1995. The waiver, made in favor of Florencia, covered
the conjugal properties of the ex-spouses listed therein, but did not incidentally include the lot in question.

PREMISES CONSIDERED, the Court renders judgment declaring the real estate mortgage on the property
covered by [TCT] No. 156283 of the Registry of Deeds for the City of Makati as well as all proceedings thereon
null and void.
G.R. No. 163744

DECISION
VELASCO, JR., J.:
Respondent Nicholson Pascual and Florencia Nevalga were married on January 19, 1985. During the union,
Florencia bought from spouses Clarito and Belen Sering a 250-square meter lot with a three-door apartment
standing thereon located in Makati City. Subsequently, Transfer Certificate of Title (TCT) No. S-101473/T-510
covering the purchased lot was canceled and, in lieu thereof, TCT No. 156283[1] of the Registry of Deeds of
Makati City was issued in the name of Florencia, married to Nelson Pascual a.k.a. Nicholson Pascual.
In 1994, Florencia filed a suit for the declaration of nullity of marriage under Article 36 of the Family Code,
docketed as Civil Case No. Q-95-23533. After trial, the Regional Trial Court (RTC), Branch 94 in Quezon City
rendered, on July 31, 1995, a Decision,[2] declaring the marriage of Nicholson and Florencia null and void on the
ground of psychological incapacity on the part of Nicholson. In the same decision, the RTC, inter alia, ordered
the dissolution and liquidation of the ex-spouses conjugal partnership of gains. Subsequent events saw the
couple going their separate ways without liquidating their conjugal partnership.
On April 30, 1997, Florencia, together with spouses Norberto and Elvira Oliveros, obtained a PhP 58 million loan
from petitioner Metropolitan Bank and Trust Co. (Metrobank). To secure the obligation, Florencia and the

The Court further orders defendants [Metrobank and Florencia] jointly and severally to pay plaintiff [Nicholson]:
1.
2.
3.

PhP100,000.00 by way of moral damages;

PhP75,000.00 by way of attorneys fees; and
The costs.

SO ORDERED.[5]

Even as it declared the invalidity of the mortgage, the trial court found the said lot to be conjugal, the same
having been acquired during the existence of the marriage of Nicholson and Florencia. In so ruling, the RTC
invoked Art. 116 of the Family Code, providing that all property acquired during the marriage, whether the
acquisition appears to have been made, contracted or registered in the name of one or both spouses, is presumed
to be conjugal unless the contrary is proved. To the trial court, Metrobank had not overcome the presumptive
conjugal nature of the lot. And being conjugal, the RTC concluded that the disputed property may not be validly
encumbered by Florencia without Nicholsons consent.
The RTC also found the deed of waiver Florencia submitted to Metrobank to be fatally defective. For let alone
the fact that Nicholson denied executing the same and that the signature of the notarizing officer was a forgery,
the waiver document was allegedly executed on April 9, 1995 or a little over three months before the issuance of
the RTC decision declaring the nullity of marriage between Nicholson and Florencia.

The trial court also declared Metrobank as a mortgagee in bad faith on account of negligence, stating the
observation that certain data appeared in the supporting contract documents, which, if properly scrutinized,
would have put the bank on guard against approving the mortgage. Among the data referred to was the date of
execution of the deed of waiver.

b.
Whether or not the [CA] erred in not holding that the declaration of nullity of marriage between the
respondent Nicholson Pascual and Florencia Nevalga ipso facto dissolved the regime of community of property
of the spouses.
c.

Whether or not the [CA] erred in ruling that the petitioner is an innocent purchaser for value.[7]

The RTC dismissed Metrobanks counterclaim and cross-claim against the ex-spouses.
Metrobanks motion for reconsideration was denied. Undeterred, Metrobank appealed to the Court of Appeals
(CA), the appeal docketed as CA-G.R. CV No. 74874.
The CA Affirmed with Modification the RTCs Decision
On January 28, 2004, the CA rendered a Decision affirmatory of that of the RTC, except for the award therein of
moral damages and attorneys fees which the CA ordered deleted. The dispositive portion of the CAs Decision
reads:
WHEREFORE, premises considered, the appealed decision is hereby AFFIRMED WITH MODIFICATION with
respect to the award of moral damages and attorneys fees which is hereby DELETED.
SO ORDERED.[6]
Like the RTC earlier held, the CA ruled that Metrobank failed to overthrow the presumption established in Art.
116 of the Family Code. And also decreed as going against Metrobank was Florencias failure to comply with the
prescriptions of the succeeding Art. 124 of the Code on the disposition of conjugal partnership property. Art. 124
states:
Art. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses
jointly. In case of disagreement, the husbands decision shall prevail, subject to recourse to the court by the wife
for proper remedy x x x.
In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the
conjugal properties, the other spouse may assume sole powers of administration. These powers do not include
disposition or encumbrance without authority of the court or written consent of the other spouse. In the absence
of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be
construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as
a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is
withdrawn by either or both offerors.

As to the deletion of the award of moral damages and attorneys fees, the CA, in gist, held that Metrobank did not
enter into the mortgage contract out of ill-will or for some fraudulent purpose, moral obliquity, or like dishonest
considerations as to justify damages.
Metrobank moved but was denied reconsideration by the CA.
Thus, Metrobank filed this Petition for Review on Certiorari under Rule 45, raising the following issues for
consideration:
a.
Whether or not the [CA] erred in declaring subject property as conjugal by applying Article 116 of
the Family Code.

Our Ruling
A modification of the CAs Decision is in order.
The Disputed Property is Conjugal
It is Metrobanks threshold posture that Art. 160 of the Civil Code providing that [a]ll property of the marriage
is presumed to belong to the conjugal partnership, unless it be prove[n] that it pertains exclusively to the husband
or to the wife, applies. To Metrobank, Art. 116 of the Family Code could not be of governing application
inasmuch as Nicholson and Florencia contracted marriage before the effectivity of the Family Code on August 3,
1988. Citing Manongsong v. Estimo,[8] Metrobank asserts that the presumption of conjugal ownership under Art.
160 of the Civil Code applies when there is proof that the property was acquired during the marriage. Metrobank
adds, however, that for the presumption of conjugal ownership to operate, evidence must be adduced to prove
that not only was the property acquired during the marriage but that conjugal funds were used for the acquisition,
a burden Nicholson allegedly failed to discharge.
To bolster its thesis on the paraphernal nature of the disputed property, Metrobank cites Francisco v. Court of
Appeals[9] and Jocson v. Court of Appeals,[10] among other cases, where this Court held that a property
registered in the name of a certain person with a description of being married is no proof that the property was
acquired during the spouses marriage.
On the other hand, Nicholson, banking on De Leon v. Rehabilitation Finance Corporation[11] and Wong v. IAC,
[12] contends that Metrobank failed to overcome the legal presumption that the disputed property is conjugal.
He asserts that Metrobanks arguments on the matter of presumption are misleading as only one postulate needs
to be shown for the presumption in favor of conjugal ownership to arise, that is, the fact of acquisition during
marriage. Nicholson dismisses, as inapplicable, Francisco and Jocson, noting that they are relevant only when
there is no indication as to the exact date of acquisition of the property alleged to be conjugal.
As a final point, Nicholson invites attention to the fact that Metrobank had virtually recognized the conjugal
nature of the property in at least three instances. The first was when the bank lumped him with Florencia in Civil
Case No. 00-789 as co-mortgagors and when they were referred to as spouses in the petition for extrajudicial
foreclosure of mortgage. Then came the published notice of foreclosure sale where Nicholson was again
designated as co-mortgagor. And third, in its demand-letter[13] to vacate the disputed lot, Metrobank addressed
Nicholson and Florencia as spouses, albeit the finality of the decree of nullity of marriage between them had
long set in.
We find for Nicholson.
First, while Metrobank is correct in saying that Art. 160 of the Civil Code, not Art. 116 of the Family Code, is the
applicable legal provision since the property was acquired prior to the enactment of the Family Code, it errs in its
theory that, before conjugal ownership could be legally presumed, there must be a showing that the property was
acquired during marriage using conjugal funds. Contrary to Metrobanks submission, the Court did not, in
Manongsong,[14] add the matter of the use of conjugal funds as an essential requirement for the presumption of
conjugal ownership to arise. Nicholson is correct in pointing out that only proof of acquisition during the
marriage is needed to raise the presumption that the property is conjugal. Indeed, if proof on the use of conjugal

is still required as a necessary condition before the presumption can arise, then the legal presumption set forth in
the law would veritably be a superfluity. As we stressed in Castro v. Miat:
Petitioners also overlook Article 160 of the New Civil Code. It provides that all property of the marriage is
presumed to be conjugal partnership, unless it be prove[n] that it pertains exclusively to the husband or to the
wife. This article does not require proof that the property was acquired with funds of the partnership. The
presumption applies even when the manner in which the property was acquired does not appear.[15] (Emphasis
supplied.)

Second, Francisco and Jocson do not reinforce Metrobanks theory. Metrobank would thrust on the Court,
invoking the two cases, the argument that the registration of the property in the name of Florencia Nevalga,
married to Nelson Pascual operates to describe only the marital status of the title holder, but not as proof that the
property was acquired during the existence of the marriage.
Metrobank is wrong. As Nicholson aptly points out, if proof obtains on the acquisition of the property during the
existence of the marriage, then the presumption of conjugal ownership applies. The correct lesson of Francisco
and Jocson is that proof of acquisition during the marital coverture is a condition sine qua non for the operation
of the presumption in favor of conjugal ownership. When there is no showing as to when the property was
acquired by the spouse, the fact that a title is in the name of the spouse is an indication that the property belongs
exclusively to said spouse.[16]
The Court, to be sure, has taken stock of Nicholsons arguments regarding Metrobank having implicitly
acknowledged, thus being in virtual estoppel to question, the conjugal ownership of the disputed lot, the bank
having named the former in the foreclosure proceedings below as either the spouse of Florencia or her comortgagor. It is felt, however, that there is no compelling reason to delve into the matter of estoppel, the same
having been raised only for the first time in this petition. Besides, however Nicholson was designated below
does not really change, one way or another, the classification of the lot in question.
Termination of Conjugal Property Regime does
not ipso facto End the Nature of Conjugal Ownership

Metrobank next maintains that, contrary to the CAs holding, Art. 129 of the Family Code is inapplicable. Art.
129 in part reads:

Art. 129. Upon the dissolution of the conjugal partnership regime, the following procedure shall apply:

We again find for Nicholson.

While the declared nullity of marriage of Nicholson and Florencia severed their marital bond and dissolved the
conjugal partnership, the character of the properties acquired before such declaration continues to subsist as
conjugal properties until and after the liquidation and partition of the partnership. This conclusion holds true
whether we apply Art. 129 of the Family Code on liquidation of the conjugal partnerships assets and liabilities
which is generally prospective in application, or Section 7, Chapter 4, Title IV, Book I (Arts. 179 to 185) of the
Civil Code on the subject, Conjugal Partnership of Gains. For, the relevant provisions of both Codes first require
the liquidation of the conjugal properties before a regime of separation of property reigns.
In Dael v. Intermediate Appellate Court, we ruled that pending its liquidation following its dissolution, the
conjugal partnership of gains is converted into an implied ordinary co-ownership among the surviving spouse and
the other heirs of the deceased.[17]
In this pre-liquidation scenario, Art. 493 of the Civil Code shall govern the property relationship between the
former spouses, where:
Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto,
and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except
when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the coowners, shall be limited to the portion which may be allotted to him in the division upon the termination of the
co-ownership. (Emphasis supplied.)

In the case at bar, Florencia constituted the mortgage on the disputed lot on April 30, 1997, or a little less than
two years after the dissolution of the conjugal partnership on July 31, 1995, but before the liquidation of the
partnership. Be that as it may, what governed the property relations of the former spouses when the mortgage was
given is the aforequoted Art. 493. Under it, Florencia has the right to mortgage or even sell her one-half (1/2)
undivided interest in the disputed property even without the consent of Nicholson. However, the rights of
Metrobank, as mortgagee, are limited only to the 1/2 undivided portion that Florencia owned. Accordingly, the
mortgage contract insofar as it covered the remaining 1/2 undivided portion of the lot is null and void, Nicholson
not having consented to the mortgage of his undivided half.
The conclusion would have, however, been different if Nicholson indeed duly waived his share in the conjugal
partnership. But, as found by the courts a quo, the April 9, 1995 deed of waiver allegedly executed by Nicholson
three months prior to the dissolution of the marriage and the conjugal partnership of gains on July 31, 1995 bore
his forged signature, not to mention that of the notarizing officer. A spurious deed of waiver does not transfer any
right at all, albeit it may become the root of a valid title in the hands of an innocent buyer for value.

x x x x
(7) The net remainder of the conjugal partnership properties shall constitute the profits, which shall be divided
equally between husband and wife, unless a different proportion or division was agreed upon in the marriage
settlements or unless there has been a voluntary waiver or forfeiture of such share as provided in this Code.

Apropos the aforequoted provision, Metrobank asserts that the waiver executed by Nicholson, effected as it were
before the dissolution of the conjugal property regime, vested on Florencia full ownership of all the properties
acquired during the marriage.
Nicholson counters that the mere declaration of nullity of marriage, without more, does not automatically result
in a regime of complete separation when it is shown that there was no liquidation of the conjugal assets.

Upon the foregoing perspective, Metrobanks right, as mortgagee and as the successful bidder at the auction of
the lot, is confined only to the 1/2 undivided portion thereof heretofore pertaining in ownership to Florencia. The
other undivided half belongs to Nicholson. As owner pro indiviso of a portion of the lot in question, Metrobank
may ask for the partition of the lot and its property rights shall be limited to the portion which may be allotted to
[the bank] in the division upon the termination of the co-ownership.[18] This disposition is in line with the wellestablished principle that the binding force of a contract must be recognized as far as it is legally possible to do
soquando res non valet ut ago, valeat quantum valere potest.[19]
In view of our resolution on the validity of the auction of the lot in favor of Metrobank, there is hardly a need to
discuss at length whether or not Metrobank was a mortgagee in good faith. Suffice it to state for the nonce that
where the mortgagee is a banking institution, the general rule that a purchaser or mortgagee of the land need not

look beyond the four corners of the title is inapplicable.[20] Unlike private individuals, it behooves banks to
exercise greater care and due diligence before entering into a mortgage contract. The ascertainment of the status
or condition of the property offered as security and the validity of the mortgagors title must be standard and
indispensable part of the banks operation.[21] A bank that failed to observe due diligence cannot be accorded the
status of a bona fide mortgagee,[22] as here.
But as found by the CA, however, Metrobanks failure to comply with the due diligence requirement was not
the result of a dishonest purpose, some moral obliquity or breach of a known duty for some interest or ill-will that
partakes of fraud that would justify damages.
WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision of the CA dated January 28, 2004,
upholding with modification the Decision of the RTC, Branch 65 in Makati City, in Civil Case No. 00-789, is
AFFIRMED with the MODIFICATION that the REM over the lot covered by TCT No. 156283 of the Registry of
Deeds of Makati City is hereby declared valid only insofar as the pro indiviso share of Florencia thereon is
concerned.
As modified, the Decision of the RTC shall read:
PREMISES CONSIDERED, the real estate mortgage on the property covered by TCT No. 156283 of the
Registry of Deeds of Makati City and all proceedings thereon are NULL and VOID with respect to the undivided
1/2 portion of the disputed property owned by Nicholson, but VALID with respect to the other undivided 1/2
portion belonging to Florencia.
The claims of Nicholson for moral damages and attorneys fees are DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.

ROBERTS VS PAPIO
GR NO 166714
DECISION
CALLEJO, SR., J.:
Assailed in this petition for review on certiorari is the Decision[1] of the Court of Appeals (CA), in CA-G.R. CV
No. 69034 which reversed and set aside the Decision[2] of the Regional Trial Court (RTC), Branch 150, Makati
City, in Civil Case No. 01-431. The RTC ruling had affirmed with modification the Decision[3] of the
Metropolitan Trial Court (MeTC), Branch 64, Makati City in Civil Case No. 66847. The petition likewise assails
the Resolution of the CA denying the motion for reconsideration of its decision.
The Antecedents
The spouses Martin and Lucina Papio were the owners of a 274-square-meter residential lot located in Makati
(now Makati City) and covered by Transfer Certificate of Title (TCT) No. S-44980.[4] In order to secure a
P59,000.00 loan from the Amparo Investments Corporation, they executed a real estate mortgage on the property.
Upon Papios failure to pay the loan, the corporation filed a petition for the extrajudicial foreclosure of the
mortgage.
Since the couple needed money to redeem the property and to prevent the foreclosure of the real estate mortgage,
they executed a Deed of Absolute Sale over the property on April 13, 1982 in favor of Martin Papios cousin,
Amelia Roberts. Of the P85,000.00 purchase price, P59,000.00 was paid to the Amparo Investments
Corporation, while the P26,000.00 difference was retained by the spouses.[5] As soon as the spouses had settled
their obligation, the corporation returned the owners duplicate of TCT No. S-44980, which was then delivered to
Amelia Roberts.
Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee) executed a two-year contract of
lease dated April 15, 1982, effective May 1, 1982. The contract was subject to renewal or extension for a like
period at the option of the lessor, the lessee waiving thereby the benefits of an implied new lease. The lessee was
obliged to pay monthly rentals of P800.00 to be deposited in the lessors account at the Bank of America, Makati
City branch.[6]

On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was issued in the name of Amelia
Roberts as owner.[7]
Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and thereafter, for another year.[8] He then
failed to pay rentals, but he and his family nevertheless remained in possession of the property for a period of
almost thirteen (13) years.
In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded Papio that he failed to pay the monthly
rental of P2,500.00 from January 1, 1986 to December 31, 1997, and P10,000.00 from January 1, 1998 to May
31, 1998; thus, his total liability was P410,000.00. She demanded that Papio vacate the property within 15 days

from receipt of the letter in case he failed to settle the amount.[9] Because he refused to pay, Papio received
another letter from Roberts on April 22, 1999, demanding, for the last time, that he and his family vacate the
property.[10] Again, Papio refused to leave the premises.
On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde Aguilar, filed a Complaint[11] for
unlawful detainer and damages against Martin Papio before the MeTC, Branch 64, Makati City. She alleged the
following in her complaint:
Sometime in 1982 she purchased from defendant a 274-sq-m residential house and lot situated at No. 1046 Teresa
St., Brgy. Valenzuela, Makati City.[12] Upon Papios pleas to continue staying in the property, they executed a
two-year lease contract[13] which commenced on May 1, 1982. The monthly rental was P800.00. Thereafter,
TCT No. 114478[14] was issued in her favor and she paid all the realty taxes due on the property. When the term
of the lease expired, she still allowed Papio and his family to continue leasing the property. However, he took
advantage of her absence and stopped payment beginning January 1986, and refused to pay despite repeated
demands. In June 1998, she sent a demand letter[15] through counsel requiring Papio to pay rentals from January
1986 up to May 1998 and to vacate the leased property. The accumulated arrears in rental are as follows: (a)
P360,000.00 from January 1, 1986 to December 31, 1997 at P2,500.00 per month; and (b) P50,000.00, from
January 1, 1998 to May 31, 1998 at P10,000.00 per month.[16] She came to the Philippines but all efforts at an
amicable settlement proved futile. Thus, in April 1999, she sent the final demand letter to defendant directing him
and his family to pay and immediately vacate the leased premises.[17]
Roberts appended to her complaint copies of the April 13, 1982 Deed of Absolute Sale, the April 15, 1982
Contract of Lease, and TCT
No. 114478.
In his Answer with counterclaim, Papio alleged the following:
He executed the April 13, 1982 deed of absolute sale and the contract of lease. Roberts, his cousin who is a
resident of California, United States of America (USA), arrived in the Philippines and offered to redeem the
property. Believing that she had made the offer for the purpose of retaining his ownership over the property, he
accepted. She then remitted P59,000.00 to the mortgagor for his account, after which the mortgagee cancelled the
real estate mortgage. However, he was alarmed when the plaintiff had a deed of absolute sale over the property
prepared (for P83,000.00 as consideration) and asked him to sign the same. She also demanded that the defendant
turn over the owners duplicate of TCT No. S-44980. The defendant was in a quandary. He then believed that if
he signed the deed of absolute sale, Roberts would acquire ownership over the property. He asked her to allow
him to redeem or reacquire the property at any time for a reasonable amount.[18] When Roberts agreed, Papio
signed the deed of absolute sale.
Pursuant to the right to redeem/repurchase given him by Roberts, Papio purchased the property for P250,000.00.
In July 1985, since Roberts was by then already in the USA, he remitted to her authorized representative, Perlita
Ventura, the amount of P150,000.00 as partial payment for the property.[19] On June 16, 1986, she again
remitted P100,000.00, through Ventura. Both payments were evidenced by receipts signed by Ventura.[20]
Roberts then declared that she would execute a deed of absolute sale and surrender the title to the property.
However, Ventura had apparently misappropriated P39,000.00 out of the P250,000.00 that she had received;
Roberts then demanded that she pay the amount misappropriated before executing the deed of absolute sale.
Thus, the sole reason why Roberts refused to abide by her promise was the failure of her authorized
representative to remit the full amount of P250,000.00. Despite Papios demands, Roberts refused to execute a
deed of absolute sale. Accordingly, defendant posited that plaintiff had no cause of action to demand payment of
rental and eject him from the property.
Papio appended to his Answer the following: (1) the letter dated July 18, 1986 of Perlita Ventura to the plaintiff
wherein the former admitted having used the money of the plaintiff to defray the plane fares of Perlitas parents
to the USA, and pleaded that she be allowed to repay the amount within one year; (b) the letter of Eugene
Roberts (plaintiffs husband) to Perlita Ventura dated July 25, 1986 where he accused Ventura of stealing the
money of plaintiff Amelia (thus preventing the latter from paying her loan on her house and effect the
cancellation of the mortgage), and demanded that she deposit the balance;[21] and (c) plaintiffs letter to

defendant Papio dated July 25, 1986 requesting the latter to convince Ventura to remit the balance of
P39,000.00 so that the plaintiff could transfer the title of the property to the defendant.[22]
Papio asserted that the letters of Roberts and her husband are in themselves admissions or declarations against
interest, hence, admissible to prove that he had reacquired the property although the title was still in her
possession.
In her Affidavit and Position Paper,[23] Roberts averred that she had paid the real estate taxes on the
property after she had purchased it; Papios initial right to occupy the property was terminated when the original
lease period expired; and his continued possession was only by mere tolerance. She further alleged that the Deed
of Sale states on its face that the conveyance of the property was absolute and unconditional. She also claimed
that any right to repurchase the property must appear in a public document pursuant to Article 1358, Paragraph 1,
of the Civil Code of the Phililppines.[24] Since no such document exists, defendants supposed real interest over
the property could not be enforced without violating the Statute of Frauds.[25] She stressed that her Torrens title
to the property was an absolute and indefeasible evidence of her ownership of the property which is binding and
conclusive upon the whole world.
Roberts admitted that she demanded P39,000.00 from the defendant in her letter dated July 25, 1986. However,
she averred that the amount represented his back rentals on the property.[26] She declared that she neither
authorized Ventura to sell the property nor to receive the purchase price therefor. She merely authorized her to
receive the rentals from defendant and to deposit them in her account. She did not know that Ventura had
received P250,000.00 from Papio in July 1985 and on June 16, 1986, and had signed receipts therefor. It was
only on February 11, 1998 that she became aware of the receipts when she received defendant Papios letter to
which were appended the said receipts. She and her husband offered to sell the property to the defendant in 1984
for US$15,000.00 on a take it or leave it basis when they arrived in the Philippines in May 1984.[27] However,
defendant refused to accept the offer. The spouses then offered to sell the property anew on December 20, 1997,
for P670,000.00 inclusive of back rentals.[28] However, defendant offered to settle his account with the spouses.
[29] Again, the offer came on January 11, 1998, but it was rejected. The defendant insisted that he had already
purchased the property in
July 1985 for P250,000.00.
Roberts insisted that Papios claim of the right to repurchase the property, as well as his claim of payment
therefor, is belied by his own letter in which he offered to settle plaintiffs claim for back rentals. Even assuming
that the purchase price of the property had been paid through Ventura, Papio did not adduce any proof to show
that Ventura had been authorized to sell the property or to accept any payment thereon. Any payment to Ventura
could have no binding effect on her since she was not privy to the transaction; if at all, such agreement would be
binding only on Papio and Ventura.
She further alleged that defendants own inaction belies his claim of ownership over the property: first, he failed
to cause any notice or annotation to be made on the Register of Deeds copy of TCT No. 114478 in order to
protect his supposed adverse claim; second, he did not institute any action against Roberts to compel the
execution of the necessary deed of transfer of title in his favor; and third, the defense of ownership over the
property was raised only after Roberts demanded him to vacate the property.
Based solely on the parties pleadings, the MeTC rendered its January 18, 2001 Decision[30] in favor of
Roberts. The fallo of the decision reads:
WHEREFORE, premises considered, finding this case for the plaintiff, the defendant is hereby ordered to:
1. Vacate the leased premises known as 1046 Teresa St., Valenzuela, Makati City;
2. Pay plaintiff the reasonable rentals accrual for the period January 1, 1996 to December 13, 1997 at the rate
equivalent to
Php2,500.00 per month and thereafter, Php10,000.00 from January 1998 until he actually
vacates the premises;
3. Pay the plaintiff attorneys fees as Php20,000.00; and

4. Pay the costs

SO ORDERED.[31]

The MeTC held that Roberts merely tolerated the stay of Papio in the property after the expiration of the contract
of lease on May 1, 1984; hence, she had a cause of action against him since the only elements in an unlawful
detainer action are the fact of lease and the expiration of its term. The defendant as tenant cannot controvert the
title of the plaintiff or assert any right adverse thereto or set up any inconsistent right to change the existing
relation between them. The plaintiff need not prove her ownership over the property inasmuch as evidence of
ownership can be admitted only for the purpose of determining the character and extent of possession, and the
amount of damages arising from the detention.
The court further ruled that Papio made no denials as to the existence and authenticity of Roberts title to the
property. It declared that the certificate of title is indefeasible in favor of the person whose name appears therein
and incontrovertible upon the expiration of the one-year period from the date of issue, and that a Torrens title,
which enjoys a strong
presumption of regularity and validity, is generally a conclusive evidence of ownership of the land referred to
therein.
As to Papios claim that the transfer of the property was one with right of repurchase, the MeTC held it to be
bereft of merit since the Deed of Sale is termed as absolute and unconditional. The court ruled that the right to
repurchase is not a right granted to the seller by the buyer in a subsequent instrument but rather, a right reserved
in the same contract of sale. Once the deed of absolute sale is executed, the seller can no longer reserve the right
to repurchase; any right thereafter granted in a separate document cannot be a right of repurchase but some other
right.

APPELLANT HAD DULY PAID PLAINTIFF-APPELLEE OF THE PURCHASE AMOUNT COVERING THE
SUBJECT PROPERTY.
IV.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT
OUTRIGHT CONSIDERING THAT PLAINTIFF-APPELLEE WHO IS [AN] AMERICAN CITIZEN AND
RESIDENT THEREIN HAD NOT APPEARED IN COURT ONCE, NEITHER WAS HER ALLEGED
ATTORNEY-IN-FACT, MATILDE AGUILAR NOR [DID] THE LATTER EVER [FURNISH] THE LOWER
COURT A SPECIAL POWER OF ATTORNEY AUTHORIZING HER TO APPEAR IN COURT IN BEHALF
OF HER PRINCIPAL.[32]

Papio maintained that Roberts had no cause of action for eviction because she had already ceded her right thereto
when she allowed him to redeem and reacquire the property upon payment of P250,000.00 to Ventura, her duly
authorized representative. He also contended that Robertss claim that the authority of Ventura is limited only to
the collection of the rentals and not of the purchase price was a mere afterthought, since her appended Affidavit
was executed sometime in October 1999 when the proceedings in the MeTC had already started.
On March 26, 2001, Roberts filed a Motion for Issuance of Writ of Execution.[33] The court granted the motion
in an Order[34] dated June 19, 2001. Subsequently, a Writ of Execution[35] pending appeal was issued on
September 28, 2001. On October 29, 2001, Sheriff Melvin M. Alidon enforced the writ and placed Roberts in
possession of the property.
Meanwhile, Papio filed a complaint with the RTC of Makati City, for specific performance with damages against
Roberts. Papio, as plaintiff, claimed that he entered into a contract of sale with pacto de retro with Roberts, and
prayed that the latter be ordered to execute a Deed of Sale over `the property in his favor and transfer the title
over the property to and in his name. The case was docketed as Civil Case No. 01-851.

As to the receipts of payment signed by Ventura, the court gave credence to Robertss declaration in her Affidavit
that she authorized Ventura only to collect rentals from Papio, and not to receive the repurchase price. Papios
letter of January 31, 1998, which called her attention to the fact that she had been sending people without written
authority to collect money since 1985, bolstered the courts finding that the payment, if at all intended for the
supposed repurchase, never redounded to the benefit of the spouses Roberts.

On October 24, 2001, the RTC rendered judgment affirming the appealed decision of the MeTC. The fallo of the
decision reads:[36]

Papio appealed the decision to the RTC, alleging the following:

SO ORDERED.[37]

I.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT
OUTRIGHT ON THE GROUND OF LACK OF CAUSE OF ACTION.
II.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THE DOCUMENTARY EVIDENCE
ADDUCED BY DEFENDANT-APPELLANT WHICH ESTABLISHED THAT A REPURCHASE
TRANSACTION EXISTED BETWEEN THE PARTIES ONLY THAT PLAINTIFF-APPELLEE WITHHELD
THE EXECUTION OF THE ABSOLUTE DEED OF SALE AND THE TRANSFER OF TITLE OF THE SAME
IN DEFENDANT-APPELLANTS NAME.

Being in accordance with law and the circumstances attendant to the instant case, the court finds merit in
plaintiff-appellees claim. Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed in toto.

Both parties filed their respective motions for reconsideration.[38] In an Order[39] dated February 26, 2002, the
court denied the motion of Papio but modified its decision declaring that the computation of the accrued rentals
should commence from January 1986, not January 1996. The decretal portion of the decision reads:
Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed with modification that defendant
pay plaintiff the reasonable rentals accrued for the period January 1, 1986 to December [31, 1997] per month and
thereafter and P10,000.00 [per month] from January 1998 to October 28, 2001 when defendant-appellant
actually vacated the subject leased premises.
SO ORDERED.[40]

III.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THAT THE LETTERS OF PLAINTIFF[APPELLEE] AND OF HER HUSBAND ADDRESSED TO DEFENDANT-APPELLANT AND HIS WIFE
ARE IN THEMSELVES ADMISSION AND/OR DECLARATION OF THE FACT THAT DEFENDANT-

On February 28, 2002, Papio filed a petition for review[41] in the CA, alleging that the RTC erred in not finding
that he had reacquired the property from Roberts for P250,000.00, but the latter refused to execute a deed of
absolute sale and transfer the title in his favor. He insisted that the MeTC and the RTC erred in giving credence

to petitioners claim that she did not authorize Ventura to receive his payments for the purchase price of the
property, citing Roberts letter dated July 25, 1986 and the letter of
Eugene Roberts to Ventura of even date. He also averred that the MeTC and the RTC erred in not considering his
documentary evidence in deciding the case.

II.
THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN REQUIRING
THE M[e]TC AND RTC TO RULE ON A DEFENSE WHICH WAS NEVER AVAILED OF BY RESPONDENT.
[45]

On August 31, 2004, the CA rendered judgment granting the petition. The appellate court set aside the decision
of the RTC and ordered the RTC to dismiss the complaint. The decretal portion of the Decision[42] reads:

Petitioner argues that respondent is barred from raising the issue of equitable mortgage because his defense in the
MeTC and RTC was that he had repurchased the property from the petitioner; by such representation, he had
impliedly admitted the existence and validity of the deed of absolute sale whereby ownership of the property was
transferred to petitioner but reverted to him upon the exercise of said right. The respondent even filed a complaint
for specific performance with damages, which is now pending in the RTC of Makati City, docketed as Civil Case
No. 01-851 entitled Martin B. Papio vs. Amelia Salvador-Roberts. In that case, respondent claimed that his
transaction with the petitioner was a sale with pacto de retro. Petitioner posits that Article 1602 of the Civil Code
applies only when the
defendant specifically alleges this defense. Consequently, the appellate court was proscribed from finding that
petitioner and respondent had entered into an equitable mortgage under the deed of absolute sale.

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE and a new one entered: (1)
rendering an initial determination that the Deed of Absolute Sale dated April 13, 1982 is in fact an equitable
mortgage under Article 1603 of the New Civil Code; and (2) resolving therefore that petitioner Martin B. Papio is
entitled to possession of the property subject of this action; (3) But such determination of ownership and
equitable mortgage are not clothed with finality and will not constitute a binding and conclusive adjudication on
the merits with respect to the issue of ownership and such judgment shall not bar an action between the same
parties respecting title to the land, nor shall it be held conclusive of the facts therein found in the case between
the same parties upon a different cause of action not involving possession. All other counterclaims for damages
are hereby dismissed. Cost against the respondent.
SO ORDERED.[43]

According to the appellate court, although the MeTC and RTC were correct in holding that the MeTC had
jurisdiction over the complaint for unlawful detainer, they erred in ignoring Papios defense of equitable
mortgage, and in not finding that the transaction covered by the deed of absolute sale by and between the parties
was one of equitable mortgage under Article 1602 of the New Civil Code. The appellate court ruled that Papio
retained the ownership of the property and its peaceful possession; hence, the MeTC should have dismissed the
complaint without prejudice to the outcome of Civil Case No. 01-851 relative to his claim of ownership over the
property.
Roberts filed a motion for reconsideration of the decision on the following grounds:
I.
Petitioner did not allege in his Answer the defense of equitable mortgage; hence, the lower courts [should]
not have discussed the same;
II. Even assuming that Petitioner alleged the defense of equitable mortgage, the MeTC could not have ruled upon
the said defense,
III. The M[e]TC and the RTC were not remiss in the exercise of their jurisdiction.[44]
The CA denied the motion.

Petitioner further avers that respondent was ably represented by counsel and was aware of the difference between
a pacto de retro sale and an equitable mortgage; thus, he could not have been mistaken in declaring that he
repurchased the property from her.
As to whether a sale is in fact an equitable mortgage, petitioner claims that the issue should be properly addressed
and resolved by the RTC in an action to enforce ownership, not in an ejectment case before the MeTC where the
main issue involved is possession de facto. According to her, the obvious import of the CA Decision is that, in
resolving an ejectment case, the lower court must pass upon the issue of ownership (in this case, by applying the
presumptions under Art. 1602) which, in effect, would use the same yardstick as though it is the main action. The
procedure will not only promote multiplicity of suits but also place the new owner in the absurd position of
having to first seek the declaration of ownership before filing an ejectment suit.
Respondent counters that the defense of equitable mortgage need not be particularly stated to apprise petitioner of
the nature and character of the repurchase agreement. He contends that he had amply discussed in his pleadings
before the trial and appellate courts all the surrounding circumstances of the case, such as the relative situation of
the parties at the time; their attitude, acts, conduct, and declarations; and the negotiations between them that led
to the repurchase agreement. Thus, he argues that the CA correctly ruled that the contract was one of equitable
mortgage. He insists that petitioner allowed him to redeem and reacquire the property, and accepted his full
payment of the property through Ventura, the authorized representative, as shown by the signed receipts.
The threshold issues are the following: (1) whether the MeTC had jurisdiction in an action for unlawful detainer
to resolve the issue of who between petitioner and respondent is the owner of the property and entitled to the de
facto possession thereof; (2) whether the transaction entered into between the parties under the Deed of Absolute
Sale and the Contract of Lease is an equitable mortgage over the property; and (3) whether the petitioner is
entitled to the material or de facto possession of the property.
The Ruling of the Court

In this petition for review, Amelia Salvador-Roberts, as petitioner, avers that:

I.
THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN DECLARING
THAT THE M[e]TC AN(D) THE RTC WERE REMISS IN THE EXERCISE OF THAT JURISDICTION
ACQUIRED BECAUSE IT DID NOT CONSIDER ALL PETITIONERS DEFENSE OF EQUITABLE
MORTGAGE.

On the first issue, the CA ruling (which upheld the jurisdiction of the MeTC to resolve the issue of who between
petitioner or respondent is the lawful owner of the property, and is thus entitled to the material or de facto
possession thereof) is correct. Section 18, Rule 70 of the Rules of Court provides that when the defendant raises
the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the
issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession. The
judgment rendered in an action for unlawful detainer shall be conclusive with respect to the possession only and
shall in no wise bind the title or affect the ownership of the land or building. Such judgment would not bar an
action between the same parties respecting title to the land or building.[46]

The summary nature of the action is not changed by the claim of ownership of the property of the defendant.[47]
The MeTC is not divested of its jurisdiction over the unlawful detainer action simply because the defendant
asserts ownership over the property.
The sole issue for resolution in an action for unlawful detainer is material or de facto possession of the property.
Even if the defendant claims
juridical possession or ownership over the property based on a claim that his transaction with the plaintiff relative
to the property is merely an equitable mortgage, or that he had repurchased the property from the plaintiff, the
MeTC may still delve into and take cognizance of the case and make an initial or provisional determination of
who between the plaintiff and the defendant is the owner and, in the process, resolve the issue of who is entitled
to the possession. The MeTC, in unlawful detainer case, decides the question of ownership only if it is
intertwined with and necessary to resolve the issue of possession.[48] The resolution of the MeTC on the
ownership of the property is merely provisional or interlocutory. Any question involving the issue of ownership
should be raised and resolved in a separate action brought specifically to settle the question with finality, in this
case, Civil Case No. 01-851 which respondent filed before the RTC.
The ruling of the CA, that the contract between petitioner and respondent was an equitable mortgage, is incorrect.
The fact of the matter is that the respondent intransigently alleged in his answer, and even in his affidavit and
position paper, that petitioner had granted him the right to redeem or repurchase the property at any time and for
a reasonable amount; and that, he had, in fact, repurchased the property in July 1985 for P250,000.00 which he
remitted to petitioner through an authorized representative who signed receipts therefor; he had reacquired
ownership and juridical possession of the property after his repurchase thereof in 1985; and consequently,
petitioner was obliged to execute a deed of absolute sale over the property in his favor.
Notably, respondent alleged that, as stated in his letter to petitioner, he was given the right to reacquire the
property in 1982 within two years upon the payment of P53,000.00, plus petitioners airfare for her trip to the
Philippines from the USA and back; petitioner promised to sign the deed
of absolute sale. He even filed a complaint against the petitioner in the RTC, docketed as Civil Case No. 01-851,
for specific performance with damages to compel petitioner to execute the said deed of absolute sale over the
property presumably on the strength of Articles 1357 and 1358 of the New Civil Code. Certainly then, his claim
that petitioner had given him the right to repurchase the property is antithetical to an equitable mortgage.
An equitable mortgage is one that, although lacking in some formality, form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to change a real property as security for a
debt and contain nothing impossible or contrary to law.[49] A contract between the parties is an equitable
mortgage if the following requisites are present: (a) the parties entered into a contract denominated as a contract
of sale; and (b) the intention was to secure an existing debt by way of mortgage.[50] The decisive factor is the
intention of the parties.
In an equitable mortgage, the mortgagor retains ownership over the property but subject to foreclosure and sale at
public auction upon failure of the mortgagor to pay his obligation.[51] In contrast, in a pacto de retro sale,
ownership of the property sold is immediately transferred to the vendee a retro subject only to the right of the
vendor a retro to repurchase the property upon compliance with legal requirements for the repurchase. The failure
of the vendor a retro to exercise the right to repurchase within the agreed time vests upon the vendee a retro, by
operation of law, absolute title over the property.[52]
One repurchases only what one has previously sold. The right to repurchase presupposes a valid contract of sale
between the same parties.[53] By insisting that he had repurchased the property, respondent thereby
admitted that the deed of absolute sale executed by him and petitioner on April 13, 1982 was, in fact and in law, a
deed of absolute sale and not an equitable mortgage; hence, he had acquired ownership over the property based
on said deed. Respondent is, thus, estopped from asserting that the contract under the deed of absolute sale is an
equitable mortgage unless there is allegation and evidence of palpable mistake on the part of respondent;[54] or a
fraud on the part of petitioner. Respondent made no such allegation in his pleadings and affidavit. On the
contrary, he maintained that petitioner had sold the property to him in July 1985 and acknowledged receipt of the

purchase price thereof except the amount of P39,000.00 retained by Perlita Ventura. Respondent is thus bound by
his admission of petitioners ownership of the property and is barred from claiming otherwise.[55]
Respondents admission that petitioner acquired ownership over the property under the April 13, 1982 deed of
absolute sale is buttressed by his admission in the Contract of Lease dated April 15, 1982 that petitioner was the
owner of the property, and that he had paid the rentals for the duration of the contract of lease and even until
1985 upon its extension. Respondent was obliged to prove his defense that petitioner had given him the right to
repurchase, and that petitioner obliged herself to resell the property for P250,000.00 when they executed the
April 13, 1982 deed of absolute sale.
We have carefully reviewed the case and find that respondent failed to adduce competent and credible evidence
to prove his claim.
As gleaned from the April 13, 1982 deed, the right of respondent to repurchase the property is not incorporated
therein. The contract is one of absolute sale and not one with right to repurchase. The law states that if the terms
of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.[56] When the language of the contract is explicit, leaving no doubt as to the intention
of the drafters, the courts may not read into it any other intention that would contradict its plain import.[57] The
clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the
rule of liberal interpretation justifies the creation of a contract for the parties which they did not make
themselves, or the imposition upon one party to a contract or obligation to assume simply or merely to avoid
seeming hardships.[58] Their true meaning must be enforced, as it is to be presumed that the contracting parties
know their scope and effects.[59] As the Court held in Villarica, et al. v. Court of Appeals:[60]
The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right
thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some
other right like the option to buy in the instant case.[61]
In Ramos v. Icasiano,[62] we also held that an agreement to repurchase becomes a promise to sell when made
after the sale because when the sale is made without such agreement the purchaser acquires the thing sold
absolutely; and, if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the
purchaser as absolute owner. An option to buy or a promise to sell is different and distinct from the right of
repurchase that must be reserved by means of stipulations to that effect in the contract of sale.[63]
There is no evidence on record that, on or before July 1985, petitioner agreed to sell her property to the
respondent for P250,000.00. Neither is there any documentary evidence showing that Ventura was authorized to
offer for sale or sell the property for and in behalf of petitioner for P250,000.00, or to receive the said amount
from respondent as purchase price of the property. The rule is that when a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void[64] and
cannot produce any legal effect as to transfer the property from its lawful owner.[65] Being inexistent and void
from the very beginning, said contract cannot be ratified.[66] Any contract entered into by Ventura for and in
behalf of petitioner relative to the sale of the property is void and cannot be ratified by the latter. A void contract
produces no effect either against or in favor of anyone.[67]
Respondent also failed to prove that the negotiations between him and petitioner has culminated in his offer to
buy the property for P250,000.00, and that they later on agreed to the sale of the property for the same amount.
He likewise failed to prove that he purchased and reacquired the property in July 1985. The evidence on record
shows that petitioner had offered to sell the property for US$15,000 on a take it or leave it basis in May 1984
upon the expiration of the Contract of Lease[68] an offer that was rejected by respondentwhich is why on
December 30, 1997, petitioner and her husband offered again to sell the property to respondent for P670,000.00
inclusive of back rentals and the purchase price of the property under the April 13, 1982 Deed of absolute Sale.
[69] The offer was again rejected by respondent. The final offer appears to have been made on January 11,
1998[70] but again, like the previous negotiations, no contract was perfected between the parties.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to
give something or to render some service.[71] Under Article 1318 of the New Civil Code, there is no contract
unless the following requisites concur:
(1)
(2)
(3)

Consent of the contracting parties;

Object certain which is the subject matter of the contract;
Cause of the obligation which is established.

P39,000.00 without the latters knowledge for the plane fare of Venturas parents. Ventura promised to refund the
amount of P39,000.00, inclusive of interests, within one year.[80] Eugene Roberts berated Ventura and called her
a thief for stealing his and petitioners money and that of respondents wife, Ising, who allegedly told petitioner
that she, Ising, loaned the money to her parents for their plane fare to the USA. Neither Ventura nor Eugene
Roberts declared in their letters that Ventura had used the P250,000.00 which respondent gave to her.
Petitioner in her letter to respondent did not admit, either expressly or impliedly, having received
P211,000.00 from Ventura. Moreover, in her letter to petitioner, only a week earlier, or on July 18, 1986, Ventura
admitted having spent the P39,000.00 and pleaded that she be allowed to refund the amount within one (1) year,
including interests.

Contracts are perfected by mere consent manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract.[72] Once perfected, they bind the contracting parties and the
obligations arising therefrom have the form of law between the parties which must be complied with in good
faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the
consequences which, according to their nature, may be in keeping with good faith, usage and law.[73]

Naririto ang total ng pera mo sa bankbook mo, P55,000.00 pati na yong deposit na sarili mo at bale ang
nagalaw ko diyan ay P39,000.00. Huwag kang mag-alala ibabalik ko rin sa iyo sa loob ng isang taon pati interest.
Ate Per[81]

There was no contract of sale entered into by the parties based on the Receipts dated July 1985 and June 16,
1986, signed by Perlita Ventura and the letter of petitioner to respondent dated July 25, 1986.

It is incredible that Ventura was able to remit to petitioner P211,000.00 before July 25, 1986 when only a
week earlier, she was pleading to petitioner for a period of one year within which to refund the P39,000.00 to
petitioner.

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a
determinate thing and the other, to pay therefor a price certain in money or its equivalent.[74] The absence of
any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in
Boston Bank of the Philippines v. Manalo:[75]

It would have bolstered his cause if respondent had submitted an affidavit of Ventura stating that she had remitted
P211,000.00 out of the P250,000.00 she received from respondent in July 1985 and June 20, 1986.

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real
property because it seriously affects the rights and obligations of the parties. Price is an essential element in the
formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision
of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other,
gives rise to a perfected sale.[76]

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely
an offer by one party without acceptance of the other, there is no contract.[77] When the contract of sale is not
perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the
parties.[78]
Respondents reliance on petitioners letter to him dated July 25, 1986 is misplaced. The letter reads in full:
7-25-86
Dear Martin & Ising,
Enclosed for your information is the letter written by my husband to Perlita. I hope that you will be able to
convince your cousin that its to her best interest to deposit the balance of your payment to me of P39,000.00 in
my bank acct. per our agreement and send me my bank book right away so that we can transfer the title of the
property.
Regards,
Amie [79]
We have carefully considered the letter of Perlita Ventura, dated
July 18, 1986, and the letter of Eugene
Roberts, dated July 25, 1986, where Ventura admitted having used the money of petitioner amounting to

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 69034 is REVERSED and SET ASIDE. The Decision of the Metropolitan Trial
Court, affirmed with modification by the Regional Trial Court, is AFFIRMED.
SO ORDERED.

PRUDENTIAL BANK VS ALVIAR

GR NO. 1509197

covering the two (2) lots located at Vam Buren and Madison Streets, North Greenhills, San Juan, Metro Manila.
The payment was acknowledged by petitioner who accordingly released the mortgage over the two properties.[9]

DECISION
TINGA, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner Prudential
Bank seeks the reversal of the Decision[1] of the Court of Appeals dated 27 September 2001 in CA-G.R. CV No.
59543 affirming the Decision of the Regional Trial Court (RTC) of Pasig City, Branch 160, in favor of
respondents.
Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of a parcel of land in
San Juan, Metro Manila, covered by Transfer Certificate of Title (TCT) No. 438157 of the Register of Deeds of
Rizal. On 10 July 1975, they executed a deed of real estate mortgage in favor of petitioner Prudential Bank to
secure the payment of a loan worth P250,000.00.[2] This mortgage was annotated at the back of TCT No.
438157. On 4 August 1975, respondents executed the corresponding promissory note, PN BD#75/C-252,
covering the said loan, which provides that the loan matured on 4 August 1976 at an interest rate of 12% per
annum with a 2% service charge, and that the note is secured by a real estate mortgage as aforementioned.[3]
Significantly, the real estate mortgage contained the following clause:
That for and in consideration of certain loans, overdraft and other credit accommodations obtained from
the Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as
DEBTOR, and to secure the payment of the same and those that may hereafter be obtained, the principal or all of
which is hereby fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as those
that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other
obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as appears in the accounts,
books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto
the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted on the back
of this document, and/or appended hereto, together with all the buildings and improvements now existing or
which may hereafter be erected or constructed thereon, of which the 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 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 on the mortgagors foreign
currency savings account with the bank under Account No. 129, and that the mortgagors passbook is to be
surrendered to the bank until the amount secured by the hold-out is settled.[5]
On 27 December 1976, respondent spouses executed for Donalco Trading, Inc., of which the husband and
wife were President and Chairman of the Board and Vice President,[6] respectively, PN BD#76/C-430 covering
P545,000.000. As provided in the note, the loan is secured by Clean-Phase out TOD CA 3923, which means
that the temporary overdraft incurred by Donalco Trading, Inc. with petitioner is to be converted into an ordinary
loan in compliance with a Central Bank circular directing the discontinuance of overdrafts.[7]
On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight
loan of P545,000.00, the proceeds of which shall be used to liquidate the outstanding loan of P545,000.00 TOD.
The letter likewise mentioned that the securities for the loan were the 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
the chattel mortgage on various heavy and transportation equipment.[8]
On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to the obligations of G.B.
Alviar Realty and Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan

On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage on the property
covered by TCT No. 438157. Per petitioners computation, respondents had the total obligation of
P1,608,256.68, covering the three (3) promissory notes, to wit: PN BD#75/C-252 for P250,000.00, PN BD#76/C345 for P382,680.83, and PN BD#76/C-340 for P545,000.00, plus assessed past due interests and penalty
charges. The public auction sale of the mortgaged property was set on 15 January 1980.[10]
Respondents filed a complaint for damages with a prayer for the issuance of a writ of preliminary injunction
with the RTC of Pasig,[11] claiming that they have paid their principal loan secured by the mortgaged property,
and thus the mortgage should not be foreclosed. For its part, petitioner averred that the payment of P2,000,000.00
made on 6 March 1979 was not a payment made by respondents, but by G.B. Alviar Realty and Development
Inc., which has a separate loan with the bank secured by a separate mortgage.[12]
On 15 March 1994, the trial court dismissed the complaint and ordered the Sheriff to proceed with the extrajudicial foreclosure.[13] Respondents sought reconsideration of the decision.[14] On 24 August 1994, the trial
court issued an Order setting aside its earlier decision and awarded attorneys fees to respondents.[15] It found
that only the P250,000.00 loan is secured by the mortgage on the land covered by TCT No. 438157. On the other
hand, the P382,680.83 loan is secured by the foreign currency deposit account of Don A. Alviar, while the
P545,000.00 obligation was an unsecured loan, being a mere conversion of the temporary overdraft of Donalco
Trading, Inc. in compliance with a Central Bank circular. According to the trial court, the blanket mortgage
clause relied upon by petitioner applies only to future loans obtained by the mortgagors, and not by parties other
than the said mortgagors, such as Donalco Trading, Inc., for which respondents merely signed as officers thereof.
On appeal to the Court of Appeals, petitioner made the following assignment of errors:
I.
The trial court erred in holding that the real estate mortgage covers only the promissory note
BD#75/C-252 for the sum of P250,000.00.
II.
The trial court erred in holding that the promissory note BD#76/C-345 for P2,640,000.00
(P382,680.83 outstanding principal balance) is not covered by the real estate mortgage by expressed agreement.
III.
The trial court erred in holding that Promissory Note BD#76/C-430 for P545,000.00 is not covered
by the real estate mortgage.
IV.
The trial court erred in holding that the real estate mortgage is a contract of adhesion.
V.
The trial court erred in holding defendant-appellant liable to pay plaintiffs-appellees attorneys fees
for P20,000.00.[16]
The Court of Appeals affirmed the Order of the trial court but deleted the award of attorneys fees.[17] It ruled
that while a continuing loan or credit accommodation based on only one security or mortgage is a common
practice in financial and commercial institutions, such agreement must be clear and unequivocal. In the instant
case, the parties executed different promissory notes agreeing to a particular security for each loan. Thus, the
appellate court ruled that the extrajudicial foreclosure sale of the property for the three loans is improper.[18]
The Court of Appeals, however, found that respondents have not yet paid the P250,000.00 covered by PN
BD#75/C-252 since the payment of P2,000,000.00 adverted to by respondents was issued for the obligations of
G.B. Alviar Realty and Development, Inc.[19]
Aggrieved, petitioner filed the instant petition, reiterating the assignment of errors raised in the Court of Appeals
as grounds herein.
Petitioner maintains that the blanket mortgage clause or the dragnet clause in the real estate mortgage
expressly covers not only the P250,000.00 under PN BD#75/C-252, but also the two other promissory notes
included in the application for extrajudicial foreclosure of real estate mortgage.[20] Thus, it claims that it acted
within the terms of the mortgage contract when it filed its petition for extrajudicial foreclosure of real estate
mortgage. Petitioner relies on the cases of Lim Julian v. Lutero,[21] Tad-Y v. Philippine National Bank,[22]
Quimson v. Philippine National Bank,[23] C & C Commercial v. Philippine National Bank,[24] Mojica v. Court
of Appeals,[25] and China Banking Corporation v. Court of Appeals,[26] all of which upheld the validity of
mortgage contracts securing future advancements.
Anent the Court of Appeals conclusion that the parties did not intend to include PN BD#76/C-345 in the real
estate mortgage because the same was specifically secured by a foreign currency deposit account, petitioner
states that there is no law or rule which prohibits an obligation from being covered by more than one security.[27]
Besides, respondents even continued to withdraw from the same foreign currency account even while the
promissory note was still outstanding, strengthening the belief that it was the real estate mortgage that principally
secured all of respondents promissory 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 3923, petitioner posits that such security is not exclusive, as
the dragnet clause of the real estate mortgage covers all the obligations of the respondents.[29]
Moreover, petitioner insists that respondents attempt to evade foreclosure by the expediency of stating that
the promissory notes were executed by them not in their personal capacity but as corporate officers. It claims that
PN BD#76/C-430 was in fact for home construction and personal consumption of respondents. Thus, it states
that there is a need to pierce the veil of corporate fiction.[30]
Finally, petitioner alleges that the mortgage contract was executed by respondents with knowledge and
understanding of the dragnet clause, being highly educated individuals, seasoned businesspersons, and political
personalities.[31] There was no oppressive use of superior bargaining power in the execution of the promissory
notes and the real estate mortgage.[32]
For their part, respondents claim that the dragnet clause cannot be applied to the subsequent loans
extended to Don Alviar and Donalco Trading, Inc. since these loans are covered by separate promissory notes
that expressly provide for a different form of security.[33] They reiterate the holding of the trial court that the
blanket mortgage clause would apply only to loans obtained jointly by respondents, and not to loans obtained
by other parties.[34] Respondents also place a premium on the finding of the lower courts that the real estate
mortgage clause is a contract of adhesion and must be strictly construed against petitioner bank.[35]
The instant case thus poses the following issues pertaining to: (i) the validity of the blanket mortgage
clause or the dragnet clause; (ii) the coverage of the blanket mortgage clause; and consequently, (iii) the
propriety of seeking foreclosure of the mortgaged property for the non-payment of the three loans.
At this point, it is important to note that one of the loans sought to be included in the blanket mortgage
clause was obtained by respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-430 was executed by
respondents on behalf of Donalco Trading, Inc. and not in their personal capacity. Petitioner asks the Court to
pierce the veil of corporate fiction and hold respondents liable even for obligations they incurred for the
corporation. The mortgage contract states that the mortgage covers as well as those that the Mortgagee may
extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the
Mortgagee, whether direct or indirect, principal or secondary. Well-settled is the rule that a corporation has a
personality separate and distinct from that of its officers and stockholders. Officers of a corporation are not
personally liable for their acts as such officers unless it is shown that they have exceeded their authority.[36]
However, the legal fiction that a corporation has a personality separate and distinct from stockholders and
members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.[37] PN
BD#76/C-430, being an obligation of Donalco Trading, Inc., and not of the respondents, is not within the
contemplation of the blanket mortgage clause. Moreover, petitioner is unable to show that respondents are
hiding behind the corporate structure to evade payment of their obligations. Save for the notation in the
promissory note that the loan was for house construction and personal consumption, there is no proof showing
that the loan was indeed for respondents personal consumption. Besides, petitioner agreed to the terms of the
promissory note. If respondents were indeed the real parties to the loan, petitioner, a big, well-established
institution of long standing that it is, should have insisted that the note be made in the name of respondents
themselves, and not to Donalco Trading Inc., and that they sign the note in their personal capacity and not as
officers of the corporation.
Now on the main issues.
A blanket mortgage clause, also known as a dragnet clause in American jurisprudence, is one which is
specifically phrased to subsume all debts of past or future origins. Such clauses are carefully scrutinized and
strictly construed.[38] Mortgages of this character enable the parties to provide continuous dealings, the nature
or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of
executing a new security on each new transaction.[39] A dragnet clause operates as a convenience and
accommodation to the borrowers as it makes available additional funds without their having to execute additional
security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et

cetera.[40] Indeed, it has been settled in a long line of decisions that mortgages given to secure future
advancements are valid and legal contracts,[41] and the amounts named as consideration in said contracts do not
limit the amount for which the mortgage may stand as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be gathered.[42]
The blanket mortgage clause in the instant case states:
That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the
Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as
DEBTOR, and to secure the payment of the same and those that may hereafter be obtained, the principal or all of
which is hereby fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as those
that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other
obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as appears in the accounts,
books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto
the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted on the back
of this document, and/or appended hereto, together with all the buildings and improvements now existing or
which may hereafter be erected or constructed thereon, of which the Mortgagor declares that he/it is
the
absolute owner free from all liens and incumbrances. . . .[43] (Emphasis supplied.)

Thus, contrary to the finding of the Court of Appeals, petitioner and respondents intended the real estate
mortgage to secure not only the P250,000.00 loan from the petitioner, but also future credit facilities and
advancements that may be obtained by the respondents. The terms of the above provision being clear and
unambiguous, there is neither need nor excuse to construe it otherwise.
The cases cited by petitioner, while affirming the validity of dragnet clauses or blanket mortgage clauses, are
of a different factual milieu from the instant case. There, the subsequent loans were not covered by any security
other than that for the mortgage deeds which uniformly contained the dragnet clause.
In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN
BD#76/C-345, executed by Don Alviar was secured by a hold-out on his foreign currency savings account,
while PN BD#76/C-430, executed by respondents for Donalco Trading, Inc., was secured by Clean-Phase out
TOD CA 3923 and 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 mortgage on various
heavy and transportation equipment. The matter of PN BD#76/C-430 has already been discussed. Thus, the
critical issue is whether the blanket mortgage clause applies even to subsequent advancements for which other
securities were intended, or particularly, to PN BD#76/C-345.
Under American jurisprudence, two schools of thought have emerged on this question. One school advocates
that a dragnet clause so worded as to be broad enough to cover all other debts in addition to the one specifically
secured will be construed to cover a different debt, although such other debt is secured by another mortgage.[44]
The contrary thinking maintains that a mortgage with such a clause will not secure a note that expresses on its
face that it is otherwise secured as to its entirety, at least to anything other than a deficiency after exhausting the
security specified therein,[45] such deficiency being an indebtedness within the meaning of the mortgage, in the
absence of a special contract excluding it from the arrangement.[46]
The latter school represents the better position. The parties having conformed to the blanket mortgage
clause or dragnet clause, it is reasonable to conclude that they also agreed to an implied understanding that
subsequent loans need not be secured by other securities, as the subsequent loans will be secured by the first
mortgage. In other words, the sufficiency of the first security is a corollary component of the dragnet clause.
But of course, there is no prohibition, as in the mortgage contract in issue, against contractually requiring other
securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another security was
given it could not be inferred that such loan was made in reliance solely on the original security with the dragnet
clause, but rather, on the new security given. This is the reliance on the security test.

Hence, based on the reliance on the security test, the California court in the cited case made an inquiry
whether the second loan was made in reliance on the original security containing a dragnet clause.
Accordingly, finding a different security was taken for the second loan no intent that the parties relied on the
security of the first loan could be inferred, so it was held. The rationale involved, the court said, was that the
dragnet clause in the first security instrument constituted a continuing offer by the borrower to secure further
loans under the security of the first security instrument, and that when the lender accepted a different security he
did not accept the offer.[47]
In another case, it was held that a mortgage with a dragnet clause is an offer by the mortgagor to the bank to
provide the security of the mortgage for advances of and when they were made. Thus, it was concluded that the
offer was not accepted by the bank when a subsequent advance was made because (1) the second note was
secured by a chattel mortgage on 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 connection
between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her name
alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an
assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied on the security
of the real estate mortgage in making the advance.[48]
Indeed, in some instances, it has been held that in the 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 security therefor.[49]
It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of nonpayment 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 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.
Even the promissory notes in issue were made on standard forms prepared by petitioner, and as such are likewise
contracts of adhesion. Being of such nature, the same should be interpreted strictly against petitioner and with
even more reason since having been accomplished by respondents in the presence of petitioners personnel and
approved by its manager, they could not have been unaware of the import and extent of such contracts.
Petitioner, however, is not without recourse. Both the Court of Appeals and the trial court found that
respondents have not yet paid the P250,000.00, and gave no credence to their claim that they paid the said
amount when they paid petitioner P2,000,000.00. Thus, the mortgaged property could still be properly subjected

to foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned earlier, for any deficiency after
D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to defenses which are
available to respondents.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 59543 is
AFFIRMED.
Costs against petitioner.
SO ORDERED.

While paragraph (k) of the real estate mortgage deed provided:

(k) INCREASE OF INTEREST RATE
The MORTGAGEE reserves the right to increase the interest rate charged on the obligation secured by this
mortgage including any amount which it may have advanced within the limits allowed by law at any time
depending on whatever policy it may adopt in the future; Provided, that the interest rate on the accommodation/s
secured by the mortgage shall be correspondingly decreased in the event that the applicable maximum interest
rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon
shall take effect on the effectivity date of the increase or decrease in that maximum interest rate. [Emphasis
supplied.]

PHILIPPINE NATIONAL BAN VS ROCAMORA GR NO. 164549

The spouses Rocamora only paid a total of P32,383.65[5] on the loan. Hence, the PNB commenced foreclosure
proceedings in August and October 1990. The foreclosure of the mortgaged properties yielded P75,500.00 as
total proceeds.

BRION, J.:

After the foreclosure, PNB found that the recovered proceeds and the amounts the spouses Rocamora previously
paid were not sufficient to satisfy the loan obligations. PNB thus filed, on January 18, 1994, a complaint for
deficiency judgment[6] before the Regional Trial Court (RTC) of Puerto Princesa City, Branch 48. The PNB
alleged that as of January 7, 1994, the outstanding balance of the spouses Rocamoras loan (including interests
and penalties) was P206,297.47, broken down as follows:

We resolve in this petition for review on certiorari[1] the legal propriety of the deficiency judgment that the
petitioner Philippine National Bank (PNB) seeks against the respondents the spouses Agustin and Pilar
Rocamora (spouses Rocamora).

Principal.............P 79,484.65
Total interest due up to 01-07-94.51,229.35
Total penalty due up to 01-07-94..75,583.47
TOTAL AMOUNT DUE AND PAYABLE P 206,297.47[7]

THE FACTUAL ANTECEDENTS

The PNB claimed that the outstanding principal balance as of foreclosure date (September 19, 1990) was
P79,484.65, plus interest and penalties, for a total due and demandable obligation of P250,812.10. Allegedly,
after deducting the P75,500 proceeds of the foreclosure sale, the spouses Rocamora still owed the bank
P206,297.47.

DECISION

On September 25, 1981, the spouses Rocamora obtained a loan from PNB in the aggregate amount of
P100,000.00 under the Cottage Industry Guarantee and Loan Fund (CIGLF). The loan was payable in five years,
under the following terms: P35,000 payable semi-annually and P65,000 payable annually. In addition to the
principal amount, the spouses Rocamora agreed to pay interest at the rate of 12% per annum, plus a penalty fee of
5% per annum in case of delayed payments. The spouses Rocamora signed two promissory notes[2] evidencing
the loan.
To secure their loan obligations, the spouses Rocamora executed two mortgages: a real estate mortgage[3]
over a property covered by Transfer Certificate of Title No. 7160 in the amount of P10,000, and a chattel
mortgage[4] over various machineries in the amount of P25,000. Payment of the remaining P65,000 was under
the CIGLF guarantee, with the spouses Rocamora paying the required guarantee fee.
Both the promissory note and the real estate mortgage deed contained an escalation clause that allowed
PNB to increase the 12% interest rate at anytime without notice, within the limits allowed by law. The pertinent
portion of the promissory note stated:
For value received, we, jointly and severally, promise to pay to the ORDER of the PHILIPPINE
NATIONAL BANK, at its office in Pto. Princesa City, Philippines, the sum of xxx together with interest thereon
at the rate of 12% per annum until paid, which interest rate the Bank may at any time, without notice, raise within
the limits allowed by law, and I/we also agree to pay jointly and severally, 5% per annum penalty charge, by way
of liquidated damages, should this note be unpaid or is not renewed on due date. [Emphasis supplied.]

The spouses Rocamora refused to pay the amount claimed as deficiency. They alleged that the PNB practically
created the deficiency by (a) increasing the interest rates from 12% to 42% per annum, and (b) failing to
immediately foreclose the mortgage pursuant to Presidential Decree No. 385 (PD 385 or the Mandatory
Foreclosure Law) to prevent the interest and penalty charges from accruing.
The RTC dismissed PNBs complaint in its decision dated November 10, 1999.[8] The trial court invalidated the
escalation clause in the promissory note and the resulting increased interest rates. The court also rejected PNBs
reason for the delay in commencing foreclosure proceedings, ruling that the delay was contrary to the immediate
and mandatory foreclosure that PD 385 required. The finding that the banks actions were contrary to law,
justice, and morals justified the award of actual, moral, and exemplary damages to the spouses Rocamora.
Attorneys fees and costs of suit were also ordered paid.[9]
Except for modifications in the awarded damages, the Court of Appeals (CA) decision of March 23, 2004
affirmed the RTC ruling.[10] The CA held that the PNB effectively negated the principle of mutuality of
contracts when it increased the interest rates without the spouses Rocamoras conformity. The CA also found the
long delay in the foreclosure of the mortgage, apparently a management lapse, prejudicial to the spouses
Rocamoras interests and contrary as well to law and justice. More importantly, the CA found insufficient
evidence to support the P206,297.47 deficiency claim; the banks testimonial and documentary evidence did not
support the deficiency claim that, moreover, was computed based on bloated interest rates. The CA maintained
these rulings despite the motion for reconsideration PNB filed;[11] hence, PNBs present recourse to this Court.
THE PETITION

In insisting that it is entitled to a deficiency judgment of P206,297.47, PNB argues that the RTC and the
CA erred in invalidating the escalation clause in the parties agreement because it fully complied with the
requirements for a valid escalation clause under this Courts following pronouncement in Banco Filipino Savings
and Mortgage Bank v. Navarro:[12]
It is now clear that from March 17, 1980 [the effectivity date of Presidential Decree No. 1684 allowing the
increase in the stipulated rate of interest], escalation clauses, to be valid, should specifically provide: (1) that
there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such
stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the
applicable maximum rate of interest is reduced by law or by the Monetary Board. [Emphasis supplied.]

The PNB posits that the presence of a de-escalation clause (referring to the second of the above requirements,
which was designed to prevent a resulting one-sided situation on the part of the lender-bank) in the real estate
mortgage deed rules out any violation of the principle of mutuality of contracts.
The PNB also contends that it did not unreasonably delay the institution of foreclosure proceedings by
acting three years after the spouses Rocamora defaulted on their obligation. Under Article 1142 of the Civil
Code, a mortgage action prescribes in 10 years; the same 10-year period is provided in Article 1144 (1) for
actions based on written contracts. Thus, the PNB alleges that it had 10 years from 1987 (the time when the
spouses Rocamora allegedly defaulted from paying their loan obligation) to institute the foreclosure proceedings.
Its decision to foreclose in 1990 three years after the default should not be taken against it, especially since
the delay was prompted by the banks sincere desire to assist the spouses Rocamora.
Additionally, the PNB claims that the decision to foreclose is entirely the banks prerogative. The provisions of
PD 385 should not be read as a limitation affecting the right of banks to foreclose within the 10-year period
granted under the Civil Code. While PD 385 requires government banks to immediately foreclose mortgages
under specified conditions, the provision does not limit the period within which the bank can foreclose; to hold
otherwise would be contrary to the stated objectives of PD 385 to enhance the resources of government financial
institutions and to facilitate the financing of essential development programs and projects.
On the basis of these arguments, the PNB contests the damages awarded to the spouses Rocamora, as the
PNB had no malice, nor any furtive design: when it increased the interest rates pursuant to the escalation clause;
when it decided to foreclose the mortgages only in 1990; and when it sought to claim the deficiency. PNB
claimed all these to be proper acts made in the exercise of its rights.
Opposing the PNBs arguments, the spouses Rocamora allege the following:
a. The PNB failed to sufficiently and satisfactorily prove the amount of P250,812.10, claimed to be the total
obligation due at the time of foreclosure, against which the proceeds of the foreclosure sale (P75,500.00) were
deducted and which became the basis of the banks deficiency claim (P206,297.47);
b. The ballooning of the spouses Rocamoras loan obligation was the PNBs own doing when it increased the
interest rates and failed to immediately foreclose the mortgages;
c. The PNBs unilateral increase of interest rates violated the principle of mutuality of contracts;
d. The PNB failed to comply with the immediate and mandatory foreclosure required under PD 385; and
e. The PNB failed to call on the CIGLF which secured the payment of P65,000.00 of the loan.

The foreclosure of chattel and real estate mortgages is governed by Act Nos. 1508 and 3135, respectively.
Although both laws do not contain a provision expressly or impliedly authorizing the mortgagee to recover the
deficiency resulting after the foreclosure proceeds are deducted from the principal obligation, the Court has
construed the laws silence as a grant to the mortgagee of the right to maintain an action for the deficiency; the
mortgages are given merely as security, not as settlement or satisfaction of the indebtedness.[13]
As in any claim for payment of money, a mortgagee must be able to prove the basis for the deficiency
judgment it seeks. The right of the mortgagee to pursue the debtor arises only when the proceeds of the
foreclosure sale are ascertained to be insufficient to cover the obligation and the other costs at the time of the
sale.[14] Thus, the amount of the obligation prior to foreclosure and the proceeds of the foreclosure are material
in a claim for deficiency.
In this case, both the RTC and the CA found that PNB failed to prove the claimed deficiency; its own
testimonial and documentary evidence in fact contradicted one another. The PNB alleged that the spouses
Rocamoras obligation at the time of foreclosure (September 19, 1990) amounted to P250,812.10, yet its own
documentary evidence[15] showed that, as of that date, the total obligation was only P206,664.34; the PNBs
own witness, Mr. Reynaldo Caso, testified that the amount due from the spouses Rocamora was only
P206,664.34.
At any rate, whether the total obligation due at the time of foreclosure was P250,812.10 as PNB insisted or
P206,664.34 as its own record disclosed, our own computation of the amounts involved does not add up to the
P206,297.47 PNB claimed as deficiency.[16] We find it significant that PNB has been consistently unable to
provide a detailed and credible accounting of the claimed deficiency. What appears clear is that after adding up
the spouses Rocamoras partial payments and the proceeds of the foreclosure, the PNB has already received a
total of P107,883.68 as payment for the spouses Rocamoras P100,000.00 loan; the claimed P206,297.47
deficiency consisted mainly of interests and penalty charges (or about 61.5% of the amount claimed). The
spouses Rocamora posit that their loan would not have bloated to more than double the original amount if PNB
had not increased the interest rates and had it immediately foreclosed the mortgages.
Escalation clauses do not authorize the unilateral increase of interest rates
Escalation clauses are valid and do not contravene public policy.[17] These clauses are common in credit
agreements as means of maintaining fiscal stability and retaining the value of money on long-term contracts. To
avoid any resulting one-sided situation that escalation clauses may bring, we required in Banco Filipino[18] the
inclusion in the parties agreement of a de-escalation clause that would authorize a reduction in the interest rates
corresponding to downward changes made by law or by the Monetary Board.
The validity of escalation clauses notwithstanding, we cautioned that these clauses do not give creditors the
unbridled right to adjust interest rates unilaterally.[19] As we said in the same Banco Filipino case, any increase
in the rate of interest made pursuant to an escalation clause must be the result of an agreement between the
parties.[20] The minds of all the parties must meet on the proposed modification as this modification affects an
important aspect of the agreement. There can be no contract in the true sense in the absence of the element of an
agreement, i.e., the parties mutual consent. Thus, any change must be mutually agreed upon, otherwise, the
change carries no binding effect.[21] A stipulation on the validity or compliance with the contract that is left
solely to the will of one of the parties is void; the stipulation goes against the principle of mutuality of contract
under Article 1308 of the Civil Code.[22] As correctly found by the appellate court, even with a de-escalation
clause, no matter how elaborately worded, an unconsented increase in interest rates is ineffective if it transgresses
the principle of mutuality of contracts.

THE COURTS RULING

We find no basis to reverse the CAs decision and, consequently, deny the petition.
Proof of Deficiency Claim Necessary

Precisely for this reason, we struck down in several cases many of them involving PNB the increase of
interest rates unilaterally imposed by creditors. In the 1991 case of PNB v. CA and Ambrosio Padilla,[23] we
declared:
In order that obligations arising from contracts may have the force of law between the parties, there must be
mutuality between the parties based on their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void. Hence,

even assuming that the P1.8 million loan agreement between the PNB and private respondent gave the PNB a
license (although in fact there was none) to increase the interest rate at will during the term of the loan, that
license would have been null and void for being violative of the principle of mutuality essential in contracts. It
would have invested the loan agreement with the character of a contract of adhesion, where the parties do not
bargain on equal footing, the weaker partys (the debtor) participation being reduced to the alternative to take it
or leave it. Such a contract is a veritable trap for the weaker party whom the courts of justice must protect
against abuse and imposition.

We repeated this rule in the 1994 case of PNB v. CA and Jayme-Fernandez[24] and the 1996 case of PNB v. CA
and Spouses Basco. [25] Taking no heed of these rulings, the escalation clause PNB used in the present case to
justify the increased interest rates is no different from the escalation clause assailed in the 1996 PNB case;[26] in
both, the interest rates were increased from the agreed 12% per annum rate to 42%. We held:
PNB successively increased the stipulated interest so that what was originally 12% per annum became, after only
two years, 42%. In declaring the increases invalid, we held:
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to
unilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from
private respondents the right to assent to an important modification in their agreement, and would negate the
element of mutuality in contracts.
xxxx
In this case no attempt was made by PNB to secure the conformity of private respondents to the successive
increases in the interest rate. Private respondents' assent to the increases cannot be implied from their lack of
response to the letters sent by PNB, informing them of the increases. For as stated in one case, no one receiving
a proposal to change a contract is obliged to answer the proposal.[27] [Emphasis supplied.]

available to them under their respective contracts with their debtors, including the right to foreclose on loans,
credits, accommodations and/or guarantees on which the arrearages are less than twenty percent (20%).
[Emphasis supplied.]

Under PD 385, government financial institutions which was PNBs status prior to its full privatization in
1996 are mandated to immediately foreclose the securities given for any loan when the arrearages amount to at
least 20% of the total outstanding obligation.[30]
As stated in the narrated facts, PNB commenced foreclosure proceedings in 1990 or three years after the
spouses defaulted on their obligation in 1987. On this factual premise, the PNB now insists as a legal argument
that its right to foreclose should not be affected by the mandatory tenor of PD 385, since it exercised its right still
within the 10-year prescription period allowed under Articles 1142 and 1144 (1) of the Civil Code.
PNBs argument completely misses the point. The issue before us is the effect of the delay in commencing
foreclosure proceedings on PNBs right to recover the deficiency, not on its right to foreclose. The delay in
commencing foreclosure proceedings bears a significant function in the deficiency amount being claimed, as the
amount undoubtedly includes interest and penalty charges which accrued during the period covered by the delay.
The depreciation of the mortgaged properties during the period of delay must also be factored in, as this affects
the proceeds that the mortgagee can recover in the foreclosure sale, which in turn affects its deficiency claim.
There was also, in this case, the four-year gap between the foreclosure proceedings and the filing of the
complaint for deficiency judgment during which time interest, whether at the 12% per annum rate or higher,
and penalty charges also accrued. For the Court to grant the PNBs deficiency claim would be to award it for its
delay and its undisputed disregard of PD 385.
The Award for Damages

On the strength of this ruling, PNBs argument that the spouses Rocamoras failure to contest the increased
interest rates that were purportedly reflected in the statements of account and the demand letters sent by the bank
amounted to their implied acceptance of the increase should likewise fail.
Evidently, PNBs failure to secure the spouses Rocamoras consent to the increased interest rates prompted the
lower courts to declare excessive and illegal the interest rates imposed. To go around this lower court finding,
PNB alleges that the P206,297.47 deficiency claim was computed using only the original 12% per annum interest
rate. We find this unlikely. Our examination of PNBs own ledgers, included in the records of the case, clearly
indicates that PNB imposed interest rates higher than the agreed 12% per annum rate.[28] This confirmatory
finding, albeit based solely on ledgers found in the records, reinforces the application in this case of the rule that
findings of the RTC, when affirmed by the CA, are binding upon this Court.
PD 385 mandates immediate foreclosure of collaterals and securities when the arrearages amount to at least 20%
of the
total outstanding obligation
Another reason that militates against the deficiency claim is PNBs own admitted delay in instituting the
foreclosure proceedings.[29]
Section 1 of PD 385 states:
Section 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the
issuance of this Decree, to foreclose the collaterals and/or securities for any loan, credit, accommodation, and/or
guarantees granted by them whenever the arrearages on such account, including accrued interest and other
charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other
charges, as appearing in the books of account and/or related records of the financial institution concerned. This
shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies

Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if the
defendant acted fraudulently or in bad faith or in wanton disregard of his contractual obligations.[31] The breach
must be wanton, reckless, malicious or in bad faith, and oppressive or abusive. Likewise, a breach of contract
may give rise to exemplary damages only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.[32]
We are not sufficiently convinced that PNB acted fraudulently, in bad faith, or in wanton disregard of its
contractual obligations, simply because it increased the interest rates and delayed the foreclosure of the
mortgages. Bad faith cannot be imputed simply because the defendant acted with bad judgment or with attendant
negligence. Bad faith is more than these; it pertains to a dishonest purpose, to some moral obliquity, or to the
conscious doing of a wrong, a breach of a known duty attributable to a motive, interest or ill will that partakes of
the nature of fraud.[33] Proof of actions of this character is undisputably lacking in this case. Consequently, we
do not find the spouses Rocamora entitled to an award of moral and exemplary damages. Under these
circumstances, neither should they recover attorneys fees and litigation expense.[34] These awards are
accordingly deleted.
WHEREFORE, we DENY the petitioners petition for review on certiorari, and MODIFY the March 23, 2004
decision of the Court of Appeals in CA-G.R. CV No. 66088 by DELETING the moral and exemplary damages,
attorneys fees, and litigation costs awarded to the respondents. All other aspects of the assailed decision are
AFFIRMED. Costs against the petitioner.
SO ORDERED.

raffled to the Regional Trial Court (RTC) of Makati and re-docketed as Civil Case No. 2173, due to the judicial
reorganization in 1983.[5]
On September 1, 1981, a Deed of Absolute Sale with Assumption of Mortgage[6] was executed between
the Maoscas and the spouses German G. Cayton and Cecilia R. Cayton (Caytons) over the subject house and lot
for the amount of one hundred sixty thousand pesos (P160,000.00). As part of the consideration, the Caytons
assumed payment to FSB of the real estate mortgage amortizations on the property. The Caytons also paid the
real estate taxes on the property beginning in 1982.[7] The Deed of Absolute Sale with Assumption of Mortgage
contained the following stipulations:
2.
That the Vendee shall pay Vendors the sum of ONE HUNDRED SIXTY THOUSAND
(P160,000.00) PESOS, the amount of ONE HUNDRED EIGHTEEN THOUSAND FIVE HUNDRED SIXTY
THREE PESOS and SIXTEEN CENTAVOS (P118,563.16) of which have been paid by the former unto the latter
and the balance of FORTY ONE THOUSAND FOUR HUNDRED THIRTY SIX PESOS and EIGHTY FOUR
CENTAVOS (P41,436.84) to be paid by the Vendee unto the Vendors within six (6) months in six equal monthly
installments commencing December 7, 1981 and every 7th of the month thereafter until fully paid, said
installments shall be covered by postdated checks of the Vendee.
3.
That as part of the consideration of this sale, the Vendee agrees to assume as [he] hereby assumes,
all the duties and obligations of the Vendors imposed upon the latter on the Deed of Real Estate Mortgage
executed by the Vendors in favor of Family Savings Bank denominated as Doc. 388; Page No. 79; Book No. V;
Series of 1980 of the Notarial Registry of Notary Public Fe Tengco Becina; that Vendees assumption of the
mortgage obligation shall be limited only to the amortization that will fall due [in] September 1981 and that all
arrears in the amortizations, penalties and charges that have accrued before said date shall be borne and paid by
the Vendors.
xxxx
7.
That Vendors hereby warrant that save to the restrictions annotated in the Transfer of Title, the said
property is free from any lien and encumbrance and that Vendors undertake to defend title to the same from
whatever claim.[8]
CAYTON VS ZEONNIX TRADING CORP

GR NO 169541

DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari assailing the Decision[1] dated September 27, 2004
and the Resolution[2] dated September 5, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 71294.
At the heart of the controversy is a three hundred fifty-seven (357) square meter residential house and lot
located in BF Homes, Phase III, Sucat, Paraaque, covered by Transfer Certificate of Title (TCT) No. S-90836 of
the Registry of Deeds of Manila in the name of Vicente Maosca, married to Lourdes Maosca (Maoscas).[3]
On May 24, 1980, the Maoscas executed a deed of real estate mortgage over the house and lot as security
for the loan of one hundred fifty thousand pesos (P150,000.00) that they obtained from Family Savings Bank
(FSB). On June 2, 1980, the real estate mortgage was annotated on TCT No. S-90836.[4]
On July 21, 1981, a levy on attachment was annotated on TCT No. S-90836 in favor of Zeonnix Trading
Corporation (Zeonnix) pursuant to a writ of preliminary attachment issued by the Court of First Instance of Pasay
City in Civil Case No. 9225-P, a case for recovery of a sum of money, entitled Zeonnix Trading Corporation v.
Vicente D. Maosca, doing business under the name and style of Vic D. Maosca Brokerage. The case was re-

The Caytons failed to register the deed of absolute sale with assumption of mortgage because the owners
duplicate copy of TCT No. S-90836 was in the possession of FSB in view of the loan of the Maoscas wherein
the property was used as security.[9]
Meanwhile, on February 3, 1984, a Decision[10] was rendered by the RTC in Civil Case No. 2173, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered sentencing defendant Vicente D. Maosca, doing business
under the name and style Vic D. Maosca Brokerage to pay plaintiff [Zeonnix] the amount of P167,037.00,
with interest thereon at the rate of 12% per annum from May 12, 1981, until fully paid.
Defendant is likewise ordered to pay plaintiff the amount of P20,000.00 as and for attorneys fees and the
costs of suit.
SO ORDERED.[11]
Subsequently, the Caytons defaulted in the payment to FSB of the monthly amortizations, and the property
was extrajudicially foreclosed. On April 23, 1984, the property was sold at public auction. The Caytons were
declared as the highest bidder, in the amount of ninety-five thousand pesos (P95,000.00). A Certificate of

Sale[12] was issued by the Ex-Officio Sheriff, and the same was annotated on TCT No. S-90836 on April 25,
1984.[13]
On April 15, 1985, the Caytons filed before the RTC of Makati a civil case for quieting of title and/or
removal/prevention of cloud on title against Zeonnix. The case was docketed as Civil Case No. 10316.[14] The
Caytons claimed that, with the execution of the deed of absolute sale with assumption of mortgage, all the rights,
interests and participation over the property had been transferred to them by the Maoscas, including the right of
redemption. Thus, Zeonnix had no more right of redemption to speak of.[15]
On April 17, 1985, the Caytons filed an amended complaint, in which they impleaded the Maoscas and
the then Clerk of Court and the Senior Deputy Sheriff of Makati City, as additional defendants.[16]
On April 18, 1985, Zeonnix, as judgment creditor of the Maoscas in Civil Case No. 2173, offered to
redeem the property by tendering to the Clerk of Court of the RTC of Makati one hundred six thousand four
hundred pesos (P106,400.00) through Managers Check No. DV008913 dated April 15, 1985. The amount
tendered represented the purchase price of the property and interest that had accrued thereon.[17]
On May 7, 1985, the Caytons filed a supplemental complaint in which they alleged that assuming that
Zeonnix had the right of redemption, still the amount it tendered was insufficient to effect a valid redemption
because it failed to include the amount of real estate taxes paid by them, amounting to two thousand one hundred
seventy-five pesos (P2,175.00).[18]
On June 4, 1985, Zeonnix tendered to the Clerk of Court of Makati the additional amount of P2,175.00 to
cover the real estate taxes paid by the Caytons. The latter, however, maintained that the tender of the deficiency
amount representing the real estate taxes did not cure the defect because the payment was done beyond the period
of redemption, which lapsed on April 26, 1985.[19]
On March 20, 2001, the RTC rendered a Decision in Civil Case No. 10316, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiffs
[Caytons] and against the defendant [Zeonnix], holding that:
1)
defendant Zeonnix Trading Corporation has no right of redemption over the property in question as against
the plaintiffs [Caytons];
2)

plaintiffs [Caytons] are the legitimate owners of the property in question.

SO ORDERED.[20]

Zeonnix filed an appeal with the CA, assigning the following errors of the trial court: (1) the RTC erred in
considering the Caytons as owner-bidders in the foreclosure sale of the property and not as ordinary bidders or
buyers; (2) the RTC erred in ruling that Zeonnix was not entitled to redeem the property, which was foreclosed by
FSB; (3) the RTC erred in not finding that Zeonnix had a superior or better right, by virtue of the prior
attachment/lien on the subject property, than the Caytons who were negligent in buying it despite the recorded or
existing attachment lien thereon by Zeonnix; (4) the RTC erred in ruling that the deed of sale with assumption of
mortgage was not spurious or fictitious in character; and (5) the RTC erred in not ruling that Zeonnix was entitled
to damages and attorneys fees.[21]
On September 27, 2004, the CA rendered a Decision,[22] the fallo of which reads:

WHEREFORE, the appeal [is] GRANTED and the appealed Decision is REVERSED and SET ASIDE. In
its place judgment is rendered dismissing the complaint, and ordering the ex-officio Sheriff of Makati to accept
and receipt for the redemption price paid and to issue the corresponding certificate and other papers of
redemption to Zeonnix.
SO ORDERED.[23]
In reversing the decision of the trial court, the CA ratiocinated that:
The levy on attachment was duly annotated and registered in the title of the property on July 21, 1981[,]
while the deed of sale with assumption of mortgage was executed on September 1, 1981. The registration of the
levy created a constructive notice to the whole world and served to protect the interest of Zeonnix. The Caytons
therefore could not raise their mere childlike reliance on the real estate agent to justify their ignorance of the
recorded levy for they should have checked the title with the Register of Deeds (tsn Oct. 3, 1986, p. 28). The
Caytons did not even cause the registration of the deed of sale with assumption of mortgage. Notable too are the
payments of the monthly amortizations by the Caytons with FSB wherein the bank in its receipts simply
acknowledged payments in the following manner: Paid by Cecilia Cayton for the account of Vicente Maosca
x x x. This means that the bank while it received payments from the Caytons, however it did not fully recognize
them as the new owners.[24]

The Caytons filed a motion for reconsideration. However, the CA denied the same in a Resolution[25]
dated September 5, 2005.
Hence, this petition.
The Caytons submitted the following grounds in support of the petition:
I
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER GERMAN CAYTON AND
DECEASED SPOUSE ARE NOT SUCCESSORS-IN-INTEREST WHO HAVE PREFERENTIAL RIGHT
OVER THE SUBJECT PROPERTY THAN A REDEMPTIONER WHOSE RIGHT TO CLAIM AROSE FROM
A MONEY JUDGMENT.
II
THE COURT OF APPEALS ERRED IN RULING THAT THE PAYMENT OF THE INSUFFICIENT
REDEMPTION PRICE BY ZEONNIX AS REDEMPTIONER DID NOT RESULT IN ITS FAILURE TO
PERFECT ITS RIGHT OF REDEMPTION OVER THE SUBJECT PROPERTY.[26]

The petition is without merit and must be denied.

I
Section 27, Rule 39 of the Rules of Court provides:
Sec. 27. Who may redeem real property so sold.

Real property sold as provided in the last preceding section, or any part thereof sold separately, may be
redeemed in the manner hereinafter provided, by the following persons:
(a) The judgment obligor, or his successor in interest in the whole or any part of the property;
(b) A creditor having a lien by virtue of an attachment, judgment or mortgage on the property sold, or on
some part thereof, subsequent to the lien under which the property was sold. Such redeeming creditor is termed a
redemptioner.

Right of redemption is the prerogative to reacquire a mortgaged property after registration of the
foreclosure sale. It exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosure unless the mortgagee is a bank.[27] An attaching creditor acquires the right to
redeem the debtors attached property subsequently foreclosed extra-judicially by a third party.
The successor-in-interest of a judgment debtor includes one to whom the debtor has transferred his
statutory right of redemption; one to whom the debtor has conveyed his interest in the property for the purpose of
redemption; one who succeeds to the interest of the debtor by operation of law; one or more joint debtors who
were joint owners of the property sold; or his spouse or heirs.[28]
A redemptioner, on the other hand, is a creditor with a lien subsequent to the judgment which was the
basis of the execution sale. If the lien of the creditor is prior to the judgment under which the property was sold,
he is not a redemptioner and, therefore, cannot redeem because his interests in his lien are fully protected, since
any purchase at public auction of said property takes the same subject to such prior lien which he has to satisfy.
Unlike the judgment debtor, a redemptioner must prove his right to redeem by producing the documents called
for by Section 30, Rule 39[29] of the Rules of Court.[30]
In the instant case, the Caytons aver that as successor-in-interest of the Maoscas by virtue of the deed of
absolute sale with assumption of mortgage, they have a better right than Zeonnix to redeem the property. This
stance deserves scant consideration.
Indeed, they are successors in interest of the Maoscas. However, their supposed title or right over the
property is unregistered and, as such, the same cannot affect third persons. This is because it is registration that is
the operative act to convey or affect the land insofar as third persons are concerned. A deed, mortgage, lease, or
other voluntary instrument, except a will, purporting to convey or affect conveyance involving registered land,
shall not take effect as a conveyance or bind the land but shall operate only as a contract between the parties and
as evidence of authority of the Register of Deeds to make registration.[31]
The unregistered sale of the house and lot to the Caytons by the Maoscas cannot prejudice the right of
redemption granted by law in favor of Zeonnix. The levy on attachment of Zeonnix on the subject property was
duly recorded on TCT No. S-90836. Thus, the levy on attachment created a constructive notice to all persons
from the time of such registration.[32] The record is notice to the entire world. All persons are charged with the
knowledge of what it contains. All persons dealing with the land so recorded, or any portion of it, must be
charged with notice of whatever it contains. The purchaser is charged with notice of every fact shown by the
record and is presumed to know every fact which the record discloses.[33]
When a conveyance has been properly recorded, such record is constructive notice of its contents and all
interests, legal and equitable, included therein. Under the rule of notice, it is presumed that the purchaser has
examined every instrument of record affecting the title. Such presumption is irrefutable. He is charged with
notice of every fact shown by the record and is presumed to know every fact which an examination of the record
would have disclosed. This presumption may not be overcome by proof of innocence or good faith. Otherwise,
the very purpose and object of the law requiring a record would be destroyed. Such presumption may not be
defeated by proof of want of knowledge of what the record contains, any more than one may be permitted to
show that he was ignorant of the provisions of the law. The rule that all persons must take notice of the facts that

the public record contains is a rule of law. The rule must be absolute. Any variation would lead to endless
confusion and useless litigation.[34]
Zeonnix has acquired by operation of law the right of redemption over the foreclosed properties. By virtue
of the RTC decision in Civil Case No. 2173, it had the right to redeem the property. This is pursuant to Section 6
of Act No. 3135,[35] as amended by Act No. 4118, which provides:
SECTION 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or
any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is
sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such
redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and
sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of
this Act.

The writ of attachment entitled the attaching creditor to exercise the right to redeem the foreclosed
properties. A writ of attachment that has been levied on real property or any interest therein belonging to the
judgment debtor creates a lien which nothing can destroy but its dissolution.[36]

II
Section 28, Rule 39 of the Rules of Court provides for the manner of payment in redemption:
Section 28. Time and manner of, and amounts payable on, successive redemptions; notice to be given and
filed.
The judgment obligor, or redemptioner, may redeem the property from the purchaser, at any time within
one (1) year from the date of the registration of the certificate of sale, by paying the purchaser the amount of his
purchase, with one per centum per month interest thereon in addition, up to the time of redemption, together with
the amount of any assessments or taxes which the purchaser may have paid thereon after purchase, and interest
on such last named amount at the same rate; and if the purchaser be also a creditor having a prior lien to that of
the redemptioner, other than the judgment under which such purchase was made, the amount of such lien, with
interest.
Property so redeemed may again be redeemed within sixty (60) days after the last redemption upon
payment of the sum paid on the last redemption, with two per centum thereon in addition, and the amount of any
assessments or taxes which the last redemptioner may have paid thereon after redemption by him, with interest
on such last-named amount, and in addition, the amount of any liens held by said last redemptioner prior to his
own, with interest. The property may be again, and as often as a redemptioner is so disposed, redeemed from any
previous redemptioner within sixty (60) days after the last redemption, on paying the sum paid on the last
previous redemption, with two per centum thereon in addition, and the amounts of any assessments or taxes
which the last previous redemptioner paid after the redemption thereon, with interest thereon, and the amount of
any liens held by the last redemptioner prior to his own, with interest.
Written notice of any redemption must be given to the officer who made the sale and a duplicate filed
with the registry of 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 that upon which the redemption was made, notice thereof must in like manner be
given to the officer and filed with the registry of deeds; if such notice be not filed, the property may be redeemed
without paying such assessments, taxes, or liens.

Accordingly, to constitute valid redemption, the amount tendered must comply with the following
requirements: (1) it should constitute the full amount paid by the purchaser; (2) with one percent per month
interest on the purchase price in addition, up to the time of redemption; (3) together with the amount of any
assessments or taxes which the purchaser may have paid thereon after purchase; (4) interest on the taxes paid by
the purchaser at the rate of one percent per month, up to the time of the redemption; and (5) if the purchaser be
also a creditor having a prior lien to that of the redemptioner, other than the judgment under which such purchase
was made, the amount of such other lien, with interest.
In exercising the right of redemption, the tender of payment must be for the full amount of the purchase
price. Otherwise, to allow payment by installments would be to allow the indefinite extension of the redemption
period.[37]

WHEREFORE, in light of the foregoing, the Decision dated September 27, 2004 and the Resolution dated
September 5, 2005 of the Court of Appeals in CA-G.R. CV No. 71294 are hereby AFFIRMED. Costs against
petitioners.
SO ORDERED.
DEVELOPMENT BANK OF THE PHILIPPINES VS ENVIRONMENTAL ACQUATICS, INC.,
GR NO. 174329
DECISION
CARPIO, J.:

The amount tendered by Zeonnix may be considered sufficient for purposes of redemption, although it
failed to include the amount of taxes paid by the Caytons. The payment of the full amount of the purchase price
and interest thereon should be deemed as substantial compliance, considering that Zeonnix immediately paid the
amount of taxes when apprised of the deficiency.
In Estanislao, Jr. v. Court of Appeals,[38] the Court relaxed its rules on the redemptioners failure to pay
the taxes paid by the purchaser. The Court ruled in this wise, viz.:
There are additional amounts to be made in order to effect a valid redemption required by law, but, as
respondent Hi-Yield Realty, Inc. failed to comply with certain requirements, petitioners' failure to pay these
additional amounts may be considered excused. As provided in Rule 39, 30 of the 1964 Rules of Court, the
redemptioner must also pay the assessment or taxes paid by the purchaser. However, the latter must give notice to
the officer who conducted the sale of the assessments or taxes paid by him and file the same with the Registry of
Deeds. x x x.
xxxx
Petitioners were not furnished by respondent Hi-Yield Realty, Inc. such statement of account. Neither was
such statement filed with the Registry of Deeds. Respondent Hi-Yield Realty, Inc. claimed that a statement of
account (Exh. 8-C and Exh. 8-D) was furnished the office of Atty. Basco, the notary public who had conducted
the sale, as received by Elizabeth Roque, an employee therein. However, Atty. Basco denied having received the
statement. Petitioners were therefore justified in not paying any assessments or taxes which respondent Hi-Yield
Realty, Inc. may have paid.[39]

Likewise, in Rosales v. Yboa,[40] the Court ruled that the failure to pay the delinquent real estate taxes on
the property will not render the redemption void. This is in consonance with the policy of the law to aid rather
than to defeat the right of redemption. The pertinent portion of the decision reads:
In fine, We hold that the failure of the mortgagor Pedro Oliverio to tender the amount of P745.47
representing the delinquent real estate taxes of the subject property, the registration fee of P3.00 and the interest
thereon of P0.04, the Sheriff's Commission in the sum of P99.82, and the deficiency interest on the purchase
price of the subject property, will not render the redemption in question null and void, it having been established
that he has substantially complied with the requirements of the law to effect a valid redemption, with his tender
of payment of the purchase price and the interest thereon within twelve (12) months from the date of the
registration of the sale. This ruling is in obedience of the policy of the law to aid rather than to defeat the right of
redemption.

The Case
This is a petition[1] for review on certiorari under Rule 45 of the Rules of Court. The petition challenges
the 16 January 2006 Decision[2] and
16 August 2006 Resolution[3] of the Court of Appeals in CA-G.R.
CV
No. 46207. The Court of Appeals affirmed with modification the 7 January 1994 Decision[4] of the
Regional Trial Court (RTC), National Capital Judicial Region, Branch 84, Quezon City, in Civil Case No. Q-9110563.
The Facts
On 10 September 1976, respondents Environmental Aquatics, Inc. (EAI) and Land Services and
Management Enterprises, Inc. (LSMEI) loaned P1,792,600 from petitioner Development Bank of the Philippines
(DBP). As security for the loan, LSMEI mortgaged to DBP its 411-square meter parcel of land situated in New
Manila, Quezon City, and covered by Transfer Certificate of Title No. 209937.[5] The mortgage contract[6]
stated that:
If at anytime the Mortgagor shall fail or refuse to pay any of the amortization on the indebtedness, or the
interest when due, or whatever other obligation herein secured or to comply with any of the conditions and
stipulations herein agreed, or shall initiate insolvency proceedings or be declared involuntary insolvent (sic), or
uses the proceeds of the loan for purposes other than those specified herein then all the amortizations and other
obligations of the Mortgagor of any nature, shall become due, payable and defaulted and the Mortgagee may
immediately foreclose this mortgage judicially or extrajudicially under Act No. 3135 as amended, or under
Republic Act No. 85, as amended and or under Act No. 1508 as amended.[7]

On 31 August 1981, DBP restructured the loan. In their promissory notes,[8] EAI and LSMEI stated that:
On or before March 14, 1986, for value received, we jointly and severally, promise to pay the
DEVELOPMENT BANK OF THE PHILIPPINES, or at its office at Makati, Metro Manila, Philippines, the sum
of * * ONE MILLION NINE HUNDRED SEVENTY THREE THOUSAND ONE HUNDRED PESOS
(P1,973,100.00), Philippine Currency, with interest at the rate of sixteen per centum (16%) per annum.[9]
On or before March 14, 1986, for value received, we jointly and severally, promise to pay the
DEVELOPMENT BANK OF THE PHILIPPINES, or at its office at Makati, Metro Manila, Philippines, the sum
of * * ONE HUNDRED NINETY THOUSAND SEVEN HUNDRED PESOS * * (P190,700), Philippine
Currency, with interest at the rate of fourteen per centum (14%) per annum.[10]
On or before March 14, 1982, for value received, I/We, jointly and severally, promise to pay the
DEVELOPMENT BANK OF THE PHILIPPINES, or order at its office at Makati, Metro Manila, Philippines, the
sum of * * SIX HUNDRED EIGHTY FOUR THOUSAND SEVEN HUNDRED EIGHTY EIGHT PESOS * *
(P684,788.00), Philippine Currency, with interest at the rate of ________ per centum (___%) per annum.[11]

EAI and LSMEI failed to pay the loan. As of 11 September 1990, the loan had increased to
P16,384,419.90.[12] On 25 October 1990, DBP applied for extrajudicial foreclosure of the real estate mortgage.
In its application letter,[13] DBP stated that:
[W]e request [the ex-officio sheriff] to take possession of the properties described in the above-mentioned
mortgages as well as those embraced in the after acquired properties clause thereof, and sell the same at public
auction in accordance with the provisions of Act 3135, as amended by Act 4118, with respect to the real estate
and Act 1508 with respect to the chattels, as amended by Presidential Decree No. 385 aforecited.[14]
During the 19 December 1990 public auction, the ex-officio sheriff sold the property to DBP as the highest bidder
for P1,507,000.[15]
On 15 May 1991, LSMEI transferred its right to redeem the property to respondent Mario Matute (Matute).
In his 27 July 1991 letter,[16] Atty. Julian R. Vitug, Jr. (Atty. Vitug, Jr.) informed DBP that his client Matute was
interested in redeeming the property by paying the P1,507,000 purchase price, plus other costs. In its 29 August
1991 letter,[17] DBP informed Atty. Vitug, Jr. that Matute could redeem the property by paying the remaining
balance of EAI and LSMEI's loan. As of 31 August 1991, the loan amounted to P19,279,106.22.[18]
On 8 November 1991, EAI, LSMEI and Matute filed with the RTC a complaint[19] praying that DBP be
ordered to accept x x x Matute's bonafide offer to redeem the foreclosed property.[20]
The RTC's Ruling

Rep. Act No. 85. And so, to make the redemption subject to a subsequent law would be obviously prejudicial to
the party exercising the right to redeem. Any change in the law governing redemption that would make it more
difficult than under the law at the time of the mortgage cannot be given retroactive effect.
Under the terms of the mortgage contract, Exh. 2, specifically paragraph 4 thereof:
x x x the Mortgagee may immediately foreclose this mortgage judicially or extrajudicially under Act No. 3135
as amended, or under Republic Act No. 85, as amended and or under Act No. 1508 as amended. x x x x.
Going by the literal terms of this quoted provision of the mortgage contract, defendant DBP stand bound by the
same. When defendant DBP foreclosed the mortgage at issue, it chose Act 3135. That was an option it freely
exercised without the least intervention of plaintiffs. We cannot, therefore, escape the conclusion that what
defendant DBP agreed to in respect to (sic) the possible foreclosure of its mortgage was to subject the same to the
provisions of Act No. 3135, as amended, should the DBP opt to utilize said law. Section 6 of Act No. 3135 very
clearly governs the right of redemption in extrajudicial foreclosures thus:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred
to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person
having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may
redeem the same at any time within the term of one year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.
Sections four hundred sixty-four to four hundred sixty-five, inclusive, of the Code of Civil Procedure, since the
promulgation of the Rules of Court of 1940, became sections 29, 30 and 32 of Rule 39. The same sections were
reproduced in the Revised Rules of Court.

In its 7 January 1994 Decision, the RTC allowed Matute to redeem the property at its P1,507,000 purchase
price. The RTC held that:
The question is whether, as the defendant DBP contends, the redemption should be made by paying to the Bank
the entire amount owed by plaintiffs-corporations in the amount of P18,301,653.11 as of the date of foreclosure
on December 12, 1990, invoking Sec. 16 of Executive Order No. 81 otherwise known as the 1986 Revised
Charter of DBP. On the other hand, the plaintiffs contend that this redemption may be made only by reimbursing
the defendant Bank what it has paid for at the auction sale made to it (sic), in the amount of P1,507,000.00,
pursuant to Section 5 of Act No. 3135 and Sections 26 to 30 of Rule 39 of the Revised Rules of Court.
Plaintiffs are correct. It is to be noted that the mortgage at issue was executed on September 10, 1976,
Exhs. A and 2. Republic Act No. 2081 entitled An Act to Amend Republic Act Numbered Eighty-Five and
Other Pertinent Laws, to Provide Facilities for Intermediate and Long-Term Credit by Converting the
Rehabilitation Finance Corporation into the Development Bank of the Philippines, Authorizing the said Bank to
Aid in the Establishment of Provincial and City Private Development Banks, and for Other Purposes was
approved and made effective on June 14, 1958. It was therefore the law the Charter (sic) of DBP, when in 1976
the mortgage here in issue was executed. On the other hand, Executive Order No. 81, with its Section 16 thereof
(sic) reading as follows:
Sec. 16. Right of Redemption. Any mortgagor of the Bank whose real property has been
extrajudicially sold at public auction shall, within one (1) year counted from the date of registration of the
certificate of sale, have the right to redeem the real property by paying to the Bank all of the latter's claim against
him, as determined by the Bank.
is of recent vintage. Executive Order No. 81, issued by then President Corazon C. Aquino, was made effective
on December 3, 1986. Clearly, the application of Executive Order No. 81 to the mortgage herein involved would
violate the constitutional proscription against the impairment of contracts. Sec. 16 of Executive Order No. 81,
which governs the right of redemption in extrajudicial foreclosures, is not found in Rep. Act No. 2081 or even in

Having thus come to the conclusion that Act 3135 and Sections 29 to 32 of Rule 39 of the Rules of Court
rather than Executive Order No. 81 are the laws applicable to the right of redemption invoke (sic) by plaintiffs in
this case, it would appear that all that remains for this Court to do is to apply the said legal precepts. Pursuant to
Section 30 of Rule 39, the judgment debtor or his successor-in-interest per Sec. 29, here plaintiff Mario
Batute may redeem the property from the purchaser, at any time within twelve months after the sale, on
paying the purchaser the amount of his purchase, with one per centum per month interest thereon in addition, up
to the time of redemption, together with the amount of any assessments or taxes which the purchaser may have
paid thereon after the purchase, and interest on such last-named amount at the same rate; x x x.[21]
DBP appealed to the Court of Appeals.
The Court of Appeals' Ruling
In its 16 January 2006 Decision, the Court of Appeals affirmed with modification the RTC's 7 January 1994
Decision. The Court of Appeals imposed a 16% annual interest on the remaining balance of the loan. The Court
of Appeals held that:
The dearth of merit in appellant bank's position is, however, evident from the fact that, as hereinbefore
quoted, paragraph 4 of the September 10, 1976 Deed of Real Estate Mortgage executed in its favor by appellees
EAI and LSMEI provided for three options by which the extrajudicial foreclosure thereof may be effected.
Thereunder given the choice of resorting to Act No. 3135 as amended, or Republic Act No. 85 as amended, or
Act No. 1508 as amended, appellant bank undoubtedly opted for the first of the aforesaid laws as may be
gleaned from the following prayer it interposed in the application for foreclosure of mortgage it filed with the ExOfficio Sheriff of Quezon City on October 25, 1990, viz:

WHEREFORE, we request you to take possession of the properties described in the above-mentioned
mortgages xxx xxx xxx and sell the same at public auction in accordance with the provisions of Act 3135, as
amended by Act 4118, with respect to the real estate xxx xxx xxx
With appellant bank's categorical election of Act No. 3135 as the controlling law for the extrajudicial foreclosure
of the subject mortgage, it goes without saying that, insofar as the redemption of the subject realty is concerned,
the provisions of said law are deemed written into the parties' agreement and, as such, should be respected as the
law between them.
Anent the redemption of mortgaged properties extrajudicially foreclosed in accordance therewith, Section
6 of Act No. 3135 provides as follows:
Section 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interests (sic) or any judicial creditor or judgment creditor of said debtor,
or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property
is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such
redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred sixty-six,
inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.
As appropriately noted by the trial court, Sections 464, 465 and 466 of the Code of Civil Procedure are now,
respectively, Sections 27, 28 and 30 of the 1997 Rules of Civil Procedure which, under said second provision,
prescribes the following guidelines for redemption, viz:
Section 28. Time and manner of, and amounts payable on, successive redemptions; notice to be given
and filed. The judgment obligor, or redemptioner, may redeem the property from the purchaser, at any time
within one (1) year from the date of the registration of the certificate of sale, by paying the purchaser the amount
of his purchase, with one per centum per month interest thereon in addition, up to the time of redemption,
together with the amount of any assessments or taxes which may have been paid thereon after purchase, and
interest on such last named amount at the same rate; and if the purchaser be also a creditor having a prior lien to
that of the redemptioner, other than the judgment under which such purchase (sic), the amount of such other lien,
with interest.
Written notice of any redemption must be given to the officer who made the sale and a duplicate filed
with the registry of 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 that upon which the redemption was made, notice thereof must in like manner be
given to the officer and filed with the registry of deeds; if such notice be not filed, the property may be redeemed
without paying such assessments, taxes or liens.
In order to effect the redemption of the foreclosed property, the foregoing provision notably requires the payment
to the purchaser of the following sums only: (a) the bid price; (b) the interest on the bid price, computed at one
per centum (1%) per month; and (c) the assessments or taxes, if any, paid by the purchaser, with the same rate of
interest.
When the statute is clear and explicit, the basic principle in legal hermeneutics is to the effect that there is
no need for an extended court ratiocination on the law there is no room for interpretation, vacillation or
equivocation, only application. Having been made in accordance with Act No. 3135, we find that appellee
Matute's offer to redeem the subject property in the amount of P1,672,770.00 was, therefore, unjustifiably refused
by appellant bank. Corollarily, the rule is settled that the person effecting redemption is not mandated to pay the
whole debt since, in redemption of properties, the amount payable is no longer the judgment debt but, rather, the
purchase price thereby fetched at the auction sale.
As for the deficiency x x x, the consistent ruling in a cantena of Supreme Court decisions is to the effect
that the mortgagee has the right to recover the same from the debtor where, in the extrajudicial foreclosure of
mortgage, the proceeds of the sale are insufficient to pay the debt. x x x

Considering, however, that the amount offered by appellee by way of redemption consisted merely of the
purchase price for the foreclosed property, together with the interests thereon, we find that appellant bank
correctly takes exception to the trial court's imposition of legal interest on the balance of the mortgage debt. If
the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest which is six per cent per annum. In the case at bench, the interest
imposable on the balance of the mortgage debt should, therefore, be the sixteen per cent (16%) per annum
provided under the August 31, 1981 Promissory Note appellees EAI and LSMEI executed in favor of appellant.
[22]
DBP filed a motion for reconsideration. In its 16 August 2006 Resolution, the Court of Appeals denied the
motion. Hence, the present petition.
Issues
DBP raises as issues that the lower courts erred in finding that the bank chose Act No. 3135 as the
governing law for the extrajudicial foreclosure of the property, including the determination of the redemption
price, and in ruling that the redemption price is equivalent to the P1,507,000 purchase price.
The Court's Ruling
The petition is meritorious.
Section 16 of Executive Order (EO) No. 81 states that the redemption price for properties mortgaged to and
foreclosed by DBP is equivalent to the remaining balance of the loan. Section 16 states that, Any mortgagor of
the Bank whose property has been extrajudicially sold at public auction shall x x x have the right to redeem the
real property by paying to the Bank all of the latter's claims against him, as determined by the Bank.
In Development Bank of the Philippines v. West Negros College, Inc.,[23] the Court held that the
redemption price for properties mortgaged to and foreclosed by DBP is equivalent to the remaining balance of the
loan, with interest at the agreed rate. The Court held that:
It has long been settled that where the real property is mortgaged to and foreclosed judicially or extrajudicially by
the Development Bank of the Philippines, the right of redemption may be exercised only by paying to the Bank
all the amount he owed the latter on the date of the sale, with interest on the total indebtedness at the rate agreed
upon in the obligation from said date, unless the bidder has taken material possession of the property or unless
this had been delivered to him, in which case the proceeds of the property shall compensate the interest. x x x
The foregoing rule is embodied consistently in the charters of petitioner DBP and its predecessor
agencies. Section 31 of CA 459 creating the Agricultural and Industrial Bank explicitly set the redemption price
at the total indebtedness plus contractual interest as of the date of the auction sale. Under RA 85 the powers
vested in and the duties conferred upon the Agricultural and Industrial Bank by CA 459 as well as its capital,
assets, accounts, contracts, and choses in action were transferred to the Rehabilitation Finance Corporation. It
has been held that among the salutary provisions of CA 459 ceded to the Rehabilitation Finance Corporation by
RA 85 was Sec. 31 defining the manner of redeeming properties mortgaged with the corporation. Subsequently,
by virtue of RA 2081 (1958), the powers, assets, liabilities and personnel of the Rehabilitation Finance
Corporation under RA 85 and CA 459, particularly Sec. 31 thereof, were transferred to petitioner DBP.
Significantly, Sec. 31 of CA 459 has been reenacted substantially in Sec. 16 of the present charter of the DBP,
i.e., EO 81 (1986) as amended by RA 8523 (1998).
xxxx

The unavoidable conclusion is that in redeeming the foreclosed property respondent West Negros College
as assignee of Bacolod Medical Center should pay the balance of the amount owed by the latter to petitioner DBP
with interest thereon at the rate agreed upon as of the date of the public auction on 24 August 1989.[24]
(Emphasis supplied)
In Development Bank of the Philippines v. Mirang,[25] the Court held that the redemption price for
properties morgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan, with interest at
the agreed rate. The Court held that, The unavoidable conclusion is that the appellant, in redeeming the
foreclosed property, should pay the entire amount he owed to the Bank on the date of the sale, with interest
thereon at the rate agreed upon.[26]
As early as 1960, the Court has already settled the issue. In Nepomuceno, et al. v. Rehabilitation Finance
Corporation,[27] the Court held that the redemption price for properties morgaged to and foreclosed by DBP is
equivalent to the remaining balance of the loan, with interest at the agreed rate. The Court held that:
The issue posed in this appeal is: considering that the loan of P300,000.00 was obtained from the
Rehabilitation Finance Corporation [now DBP] by spouses Jose Nepomuceno and Isabela Acua and Jesus
Nepomuceno merely acted as accomodation mortgagor, for what price may the mortgagor redeem his property
after the same has been sold at public auction? Would it be for the price at which the property was sold, as
contended by the mortgagor, or for the balance of the loan obtained by the borrowers from the banking
institution, as contended by appellant?

In its 10 October 2006 petition, DBP claims that when it resorted to Act No. 3135 in order to sell the
mortgaged property extrajudicially, it did so merely to find a proceeding for the sale. DBP stated that:
[W]hen herein petitioner resorted to Act 3135 in its application for extrajudicial foreclosure of the subject
mortgaged real estate, it did so only to find a proceeding for the extrajudicial sale. The Court of Appeals should
have noted that neither Republic Act No. 85 (the Charter of the Rehabilitation Finance Corporation) nor Act 1508
(Chattel Mortgage Law) prescribe a procedure for extrajudicial foreclosure of real estate mortgage as provided
under Act 3135. Such action, therefore, cannot be construed to mean a waiver of petitioner's right to demand the
payment of respondents' entire obligation as the proper redemption price. There is no such waiver on the part of
the petitioner.
xxxx
[I]t is hereby stressed that DBP did not elect Act 3135 to the exclusion of other laws in the extrajudicial
foreclosure of the subject mortgaged real property. Such a conclusion is definitely contrary to law and
jurisprudence, which settled the rule that Act 3135 is the general law that governs the procedure and requirements
in extra-judicial foreclosure of real estate mortgage, but in determining the redemption price of the property
mortgaged to the Development Bank of the Philippines, the DBP Charter shall prevail.
It is of judicial notice that Act 3135 is the only law governing the proceedings in extrajudicial foreclosure
of real estate mortgage. Act No. 1508, on the other hand, governs the extrajudicial foreclosure of chattel
mortgage, and should not be in issue in the instant case which involves a real estate mortgage.

xxxx
[T]he inescapable conclusion is that the mortgagor herein or his assignees cannot redeem the property in dispute
without paying the balance of the total indebtedness then outstanding on the date of the sale to the Rehabilitation
Finance Corporation.[28] (Emphasis supplied)
The lower courts ruled that the redemption price for the property is equivalent to the P1,507,000 purchase
price because DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure. The RTC and
Court of Appeals, respectively, stated that:
When defendant DBP foreclosed the mortgage at issue, it chose Act 3135. That was an option it freely exercised
without the least intervention of plaintiffs. We cannot, therefore, escape the conclusion that what defendant DBP
agreed to in respect to (sic) the possible foreclosure of its mortgage was to subject the same to the provisions of
Act No. 3135, as amended, should the DBP opt to utilize said law.[29]
Thereunder given the choice of resorting to Act No. 3135 as amended, or Republic Act No. 85 as amended, or
Act No. 1508 as amended, appellant bank undoubtedly opted for the first of the aforesaid laws as may be
gleaned from the following prayer it interposed in the application for foreclosure of mortgage it filed with the ExOfficio Sheriff of Quezon City on October 25, 1990.[30]
The Court disagrees. Republic Act (RA) No. 85 and Act No. 1508 do not provide a procedure for
extrajudicial foreclosure of real estate mortgage. When DBP stated in its letter to the ex-officio sheriff that the
property be sold at public auction in accordance with the provisions of Act 3135, it did so merely to find a
proceeding for the sale.
In Development Bank of the Philippines v. Zaragoza,[31] Development Bank of the Philippines v. Mirang,
[32] and Development Bank of the Philippines v. Jimenez, et al.,[33] the Court held that when the bank resorted
to Act No. 3135 in order to sell the mortgaged property extrajudicially, it did so merely to find a proceeding for
the sale.

It should likewise be of judicial notice that Republic Act No. 85 is the charter of the Rehabilitation
Finance Corporation, predecessor of appellant DBP. RA 85 prescribes the redemption price, not the proceedings
and requirements in an extrajudicial foreclosure of real estate mortgage such as those found in Act 3135.
x x x When appellant DBP cited Act 3135 in its Deed of Real Estate Mortgage or even in the application
for foreclosure of mortgage, it was not a matter of making an exclusive option or choice because Act 3135
governs the procedure and requirements for an extrajudicial foreclosure or real estate mortgage. In citing said
law, Appellant DBP was merely finding a proceeding for extra-judicial foreclosure sale x x x. And while the said
Act 3135 provides for redemption, such provision will not apply in the determination of the redemption price on
[sic] mortgages to DBP. In the latter case, the DBP Charter will prevail.[34]
Even assuming that DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure, the
redemption price would still be equvalent to the remaining balance of the loan. EO No. 81, being a special and
subsequent law, amended Act No. 3135 insofar as the as redemption price is concerned.
In Sy v. Court of Appeals,[35] the Court held that RA No. 337 amended Act No. 3135 insofar as the
redemption price is concerned. The Court held that:
[T]he General Banking Act partakes of the nature of an amendment to Act No. 3135 insofar as the redemption
price is concerned, when the mortgagee is a bank or banking or credit institution, Section 6 of Act No. 3135
being, in this respect, inconsistent with Section 78 of the General Banking Act. Although foreclosure and sale of
the subject property was done by SIHI pursuant to Act. No. 3135, x x x Section 78 of the General Banking Act, as
amended provides the amount at which the subject property is redeemable from SIHI, which is, in this case, the
amount due under the mortgage deed, or the outstanding obligation of Carlos Coquinco, plus interest and
expenses.[36] (Emphasis supplied)
In Ponce de Leon v. Rehabilitation Finance Corporation,[37] the Court held that RA No. 337, being a
special and subsequent law, amended Act No. 3135 insofar as the redemption price is concerned. The Court held
that:

Rep. Act No. 337, otherwise known as The General Banking Act, is entitled An Act Regulating Banks and
Banking Institutions and for other purposes. Section 78 thereof limits the amount of the loans that may be given
by banks and banking or credit institutions on the basis of the appraised value of the property given as security, as
well as provides that, in the event of foreclosure of a real estate mortgage to said banks or institutions, the
property sold may be redeemed by paying the amount fixed by the court in the order of execution, or the
amount judicially adjudicated to the creditor bank. This provision had the effect of amending Section 6 of Act
No. 3135, insofar as the redemption price is concerned, when the mortgagee is a bank or a banking or credit
institution, said Section 6 of Act No. 3135 being, in this respect, inconsistent with the above-quoted portion of
Section 78 of Rep. Act No. 337. In short, the Paraaque property was sold pursuant to said Act No. 3135, but the
sum for which it is redeemable shall be governed by Rep. Act No. 337, which partakes of the nature of an
amendment to Act No. 3135, insofar as mortgages to banks or banking or credit institutions are concerned, to
which class the RFC belongs. At any rate, the conflict between the two (2) laws must be resolved in favor of
Rep. Act No. 337, both as a special and as the subsequent legislation.[38] (Emphasis supplied)
WHEREFORE, the Court GRANTS the petition. The Court PARTIALLY SETS ASIDE the 16 January
2006 Decision and 16 August 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 46207. The Court
gives respondent Mario Matute a grace period of 60 calendar days from notice of finality of this Decision to
redeem the property, by paying petitioner Development Bank of the Philippines the remaining balance of
respondents Environmental Aquatics, Inc. and Land Services and Management Enterprises, Inc.'s loan, plus
expenses and interest at the agreed rate computed from the 19 December 1990 public auction. If the bank has
taken material possession of the property, the possession of the property shall compensate for the interest during
the period of possession.
SO ORDERED.

METROPOLITAN BANK AND TRUST CO. VS SANTOS

GR NO 157867
D E C I S I O N
BRION, J.:

This petition for review on certiorari,[1] seeks to reverse and set aside the decision dated November 21,
2002 and subsequent ruling on motion for reconsideration of the Court of Appeals (CA) in CA-G.R. SP No.
62325.[2] The CA decision affirmed the order of the Regional Trial Court (RTC) of Makati City, Branch 65,[3]
dismissing the petition filed by Metropolitan Bank & Trust Company (Metrobank) for the issuance of a writ of
possession of a condominium unit it had previously foreclosed. This dismissal was based on the finding that the
petition contained a false certification against forum shopping.
FACTUAL ANTECEDENTS
Respondent Manfred Jacob De Koning (De Koning) obtained a loan from Metrobank in the principal
amount of Two Million, Nineteen Thousand Pesos (P2,019,000.00), evidenced by promissory note No. TLS/97039/382599 dated July 24, 1997. To secure the payment of this loan, De Koning executed a real estate mortgage
(REM) in favor of Metrobank dated July 22, 1996 over a condominium unit and all its improvements. The unit is
located at Unit 1703 Cityland 10 Tower 1, H.V. Dela Costa Street, Makati City, and is covered by Condominium
Certificate of Title No. 10681.

I.
THE COURT OF APPEALS AND THE LOWER COURT, CONTRARY TO THE APPLICABLE DECISIONS
OF THIS HONORABLE COURT, RULED THAT THE EX PARTE PETITION FOR THE ISSUANCE OF A
WRIT OF POSSESSION IS AN INITIATORY PLEADING ASSERTING A CLAIM.
II.
THE COURT OF APPEALS, IN UPHOLDING THE RULING OF THE LOWER COURT, DELIBERATELY
IGNORED THE FACT THAT THE PETITION FOR THE ISSUANCE OF A WRIT OF POSSESSION IS EX
PARTE IN NATURE.
III.
THE COURT OF APPEALS COMMITTED A MISAPPREHENSION OF FACTS.

When De Koning failed to pay his loan despite demand, Metrobank instituted extrajudicial foreclosure
proceedings against the REM. Metrobank was the highest bidder at the public auction of the condominium unit
held on November 24, 1998 and a Certificate of Sale was issued in the bank's favor. Metrobank duly registered
this Certificate of Sale with the Registry of Deeds for Makati City on January 18, 2000.

Metrobank claims that an ex parte petition for the issuance of a writ of possession is not an initiatory pleading
asserting a claim. Rather, it is a mere incident in the transfer of title over the real property which was acquired by
Metrobank through an extrajudicial foreclosure sale, in accordance with Section 7 of Act No. 3135, as amended.
Thus, the petition is not covered by Section 5, Rule 7 of the Rules and a certification against forum shopping is
not required.

The redemption period lapsed without De Koning redeeming the property. Thus, Metrobank demanded that
he turn over possession of the condominium unit. When De Koning refused, Metrobank filed on July 28, 2000
with the RTC Makati, Branch 65, an ex parte petition for a writ of possession over the foreclosed property,
pursuant to Act No. 3135, as amended.

Metrobank further argues that considering the ex parte nature of the proceedings, De Koning was not even
entitled to be notified of the resulting proceedings, and the lower court and the CA should have disregarded De
Konings motion to dismiss.

On August 1, 2000, the lower court issued an order setting the ex parte hearing of Metrobanks petition and
directing that a copy of the order be given to De Koning to inform him of the existence of the proceedings.
During the scheduled ex parte hearing on August 18, 2000, De Konings counsel appeared and manifested
that he filed a motion to dismiss on the ground that Metrobanks petition violated Section 5, Rule 7 of the Rules
of Court (Rules)[4] which requires the attachment of a certification against forum shopping to a complaint or
other initiatory pleading. According to De Koning, Metrobanks petition for the issuance of a writ of possession
involved the same parties, the same issues and the same subject matter as the case he had filed on October 30,
1998 with the RTC of Makati,[5] to question Metrobanks right to foreclose the mortgage. De Koning also had a
pending petition for certiorari with the CA,[6] which arose from the RTC case he filed. When Metrobank failed
to disclose the existence of these two pending cases in the certification attached to its petition, it failed to comply
with the mandatory requirements of the Rules so that its petition should be dismissed.
The RTC agreed with De Koning and dismissed Metrobanks petition in its September 18, 2000 order on the
ground De Koning cited, i.e.,for having a false certification of non-forum shopping. The lower court denied
Metrobanks motion for reconsideration. Metrobank thus elevated the matter to the CA on a petition for certiorari
on January 5, 2001.
The CA affirmed the dismissal of Metrobanks petition. It explained that Section 5, Rule 7 of the Rules is not
limited to actions, but covers any initiatory pleading that asserts a claim for relief. Since Metrobanks petition
for writ of possession is an initiatory pleading, it must perforce be covered by this rule. Thus, Metrobanks
failure to disclose in the verification and certification the existence of the two cases filed by De Koning,
involving the issue of Metrobanks right to foreclose on the property, rendered the petition dismissible.

Lastly, Metrobank posits that the CA misapprehended the facts of the case when it affirmed the lower courts
finding that Metrobanks petition and the two cases filed by De Koning involved the same parties. There could be
no identity of parties in these cases for the simple reason that, unlike the two cases filed by De Koning,
Metrobanks petition is a proceeding ex parte which did not involve De Koning as a party. Nor could there be an
identity in issues or subject matter since the only issue involved in Metrobanks petition is its entitlement to
possess the property foreclosed, whereas De Konings civil case involved the validity of the terms and conditions
of the loan documents. Furthermore, the extra-judicial foreclosure of the mortgaged property and De Konings
petition for certiorari with the CA involved the issue of whether the presiding judge in the civil case acted with
grave abuse of discretion when he denied De Konings motion to set for hearing the application for preliminary
injunction.
De Koning, in opposition, maintains that Metrobanks petition was fatally defective for violating the strict
requirements of Section 5, Rule 7 of the Rules. As noted by both the lower court and the CA's ruling that
Metrobank failed to disclose the two pending cases he previously filed
before the RTC and the CA, which
both involved the banks right to foreclose and, ultimately, the banks right to a writ of possession by virtue of
foreclosure.
De Koning also asserts that Metrobank should have appealed the lower courts decision and not filed a special
civil action for certiorari since the order being questioned is one of dismissal and not an interlocutory order.
According to De Koning, since the filing of a petition for certiorari cannot be a substitute for a lost appeal and
does not stop the running of the period of appeal, the questioned RTC order has now become final and executory
and the present petition is moot and academic.
THE COURTS RULING

The CA denied Metrobanks subsequent motion for reconsideration. Hence, this petition for review on certiorari,
raising the following issues:

We find Metrobanks petition meritorious.

ISSUES

Procedural Issue

Section 1, Rule 65 of the Rules, clearly provides that a petition for certiorari is available only when there is no
appeal, or any plain, speedy and adequate remedy in the ordinary course of law. A petition for certiorari cannot
coexist with an appeal or any other adequate remedy. The existence and the availability of the right to appeal are
antithetical to the availment of the special civil action for certiorari. As we have long held, these two remedies
are mutually exclusive.[7]
Admittedly, Metrobanks petition for certiorari before the CA assails the dismissal order of the RTC and, under
normal circumstances, Metrobank should have filed an appeal.

office of any register of deeds in accordance with any existing law, and in each case the clerk of the court shall,
upon the filing of such 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 sixtysix, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff
of the province in which the property is situated, who shall execute said order immediately.

However, where the exigencies of the case are such that the ordinary methods of appeal may not prove adequate
-- either in point of promptness or completeness, so that a partial if not a total failure of justice could result - a
writ of certiorari may still be issued.[8] Other exceptions, Justice Florenz D. Regalado listed are as follows:

Based on this provision, a writ of possession may issue either (1) within the one year redemption period, upon the
filing of a bond, or (2) after the lapse of the redemption period, without need of a bond.[13] In order to obtain a
writ of possession, the purchaser in a foreclosure sale must file a petition, in the form of an ex parte motion, in
the registration or cadastral proceedings of the registered property. The reason why this pleading, although
denominated as a petition, is actually considered a motion is best explained in Sps. Arquiza v. CA,[14] where we
said:

(1) where the appeal does not constitute a speedy and adequate remedy (Salvadades vs. Pajarillo, et al., 78 Phil.
77), as where 33 appeals were involved from orders issued in a single proceeding which will inevitably result in a
proliferation of more appeals (PCIB vs. Escolin, et al., L-27860 and 27896, Mar. 29, 1974); (2) where the orders
were also issued either in excess of or without jurisdiction (Aguilar vs. Tan, L-23600, Jun 30, 1970, Cf. Bautista,
et al. vs. Sarmiento, et al., L-45137, Sept. 231985); (3) for certain special consideration, as public welfare or
public policy (See Jose vs. Zulueta, et al. -16598, May 31, 1961 and the cases cited therein); (4) where in
criminal actions, the court rejects rebuttal evidence for the prosecution as, in case of acquittal, there could be no
remedy (People vs. Abalos, L029039, Nov. 28, 1968); (5) where the order is a patent nullity (Marcelo vs. De
Guzman, et al., L-29077, June 29, 1982); and (6) where the decision in the certiorari case will avoid future
litigations (St. Peter Memorial Park, Inc. vs. Campos, et al., L-38280, Mar. 21, 1975).[9] [Emphasis supplied.]

The certification against forum shopping is required only in a complaint or other initiatory pleading. The ex parte
petition for the issuance of a writ of possession filed by the respondent is not an initiatory pleading. Although the
private respondent denominated its pleading as a petition, it is, nonetheless, a motion. What distinguishes a
motion from a petition or other pleading is not its form or the title given by the party executing it, but rather its
purpose. The office of a motion is not to initiate new litigation, but to bring a material but incidental matter
arising in the progress of the case in which the motion is filed. A motion is not an independent right or remedy,
but is confined to incidental matters in the progress of a cause. It relates to some question that is collateral to the
main object of the action and is connected with and dependent upon the principal remedy. An application for a
writ of possession is a mere incident in the registration proceeding. Hence, although it was denominated as a
petition, it was in substance merely a motion. Thus, the CA correctly made the following observations:

Grave abuse of discretion may arise when a lower court or tribunal violates or contravenes the
Constitution, the law or existing jurisprudence.[10] As will be discussed in greater detail below, the RTC decision
dismissing Metrobanks petition was patently erroneous and clearly contravened existing jurisprudence. For this
reason, we cannot fault Metrobank for resorting to the filing of a petition for certiorari with the CA to remedy a
patent legal error in the hope of obtaining a speedy and adequate remedy.

Such petition for the issuance of a writ of possession is filed in the form of an ex parte motion, inter alia, in the
registration or cadastral proceedings if the property is registered. Apropos, as an incident or consequence of the
original registration or cadastral proceedings, the motion or petition for the issuance of a writ of possession, not
being an initiatory pleading, dispels the requirement of a forum-shopping certification. Axiomatic is that the
petitioner need not file a certification of non-forum shopping since his claims are not initiatory in character
(Ponciano vs. Parentela, Jr., 331 SCRA 605 [2000]) [Emphasis supplied.]

Nature of a petition for a writ of possession

A writ of possession is defined as "a writ of execution employed to enforce a judgment to recover the
possession of land. It commands the sheriff to enter the land and give its possession to the person entitled under
the judgment."[11]
There are three instances when a writ of possession may be issued: (a) in land registration proceedings
under Section 17 of Act No. 496; (b) in judicial foreclosure, provided the debtor is in possession of the
mortgaged realty and no third person, not a party to the foreclosure suit, had intervened; and (c) in extrajudicial
foreclosure of a real estate mortgage under Section 7 of Act No. 3135, as amended by Act No. 4118.[12] The
present case falls under the third instance.
The procedure for obtaining a writ of possession in extrajudicial foreclosure cases is found in Section 7 of
Act No. 3135, as amended by Act No. 4118, which states:
Section 7. In any sale made under the provisions of this Act, the 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 period, furnishing bond in an amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage
or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form
of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special
proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninetyfour of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the

The right to possess a property merely follows the right of ownership. Thus, after the consolidation of title in the
buyers name for failure of the mortgagor to redeem, the writ of possession becomes a matter of right and its
issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial function.[15] Sps. Arquiza v. CA
further tells us:[16]
Indeed, it is well-settled that an ordinary action to acquire possession in favor of the purchaser at an extrajudicial
foreclosure of real property is not necessary. There is no law in this jurisdiction whereby the purchaser at a
sheriffs sale of real property is obliged to bring a separate and independent suit for possession after the one-year
period for redemption has expired and after he has obtained the sheriffs final certificate of sale. The basis of this
right to possession is the purchasers ownership of the property. The mere filing of an ex parte motion for the
issuance of the writ of possession would suffice, and no bond is required. [Emphasis supplied.]

Since a petition for a writ of possession under Section 7 of Act No. 3135, as amended, is neither a
complaint nor an initiatory pleading, a certificate against non-forum shopping is not required. The certificate that
Metrobank attached to its petition is thus a superfluity that the lower court should have disregarded.
No intervention allowed in ex parte proceedings

We also find merit in Metrobanks contention that the lower court should not have allowed De Koning to
intervene in the proceedings.
A judicial proceeding, order, injunction, etc., is ex parte when it is taken or granted at the instance and for the
benefit of one party only, and without notice to, or contestation by, any person adversely interested.[17]
Given that the proceeding for a writ of possession, by the terms of Section 7 of Act No. 3135, is undoubtedly ex
parte in nature, the lower court clearly erred not only when it notified De Koning of Metrobanks ex parte petition
for the writ of possession, but also when it allowed De Koning to participate in the proceedings and when it took
cognizance and upheld De Konings motion to dismiss.
As we held in Ancheta v. Metropolitan Bank and Trust Company, Inc.:[18]
In GSIS v. Court of Appeals, this Court discussed the inappropriateness of intervening in a summary proceeding
under Section 7 of Act No. 3135:
The proceedings in which respondent Knecht sought to intervene is an ex parte proceeding pursuant to Sec. 7 of
Act No. 3135, and, as pointed out by petitioner, is a judicial proceeding brought for the benefit of one party
only, and without notice to, or consent by any person adversely interested (Stella vs. Mosele, 19 N.E., 2d. 433,
435, 299 III App. 53; Imbrought v. Parker, 83 N.E. 2d 42, 43, 336 III App. 124; City Nat. Bank & Trust Co. v.
Aavis Hotel Corporation, 280 III App. 247), x x x or a proceeding wherein relief is granted without an
opportunity for the person against whom the relief is sought to be heard (Restatement, Torts, S 674, p. 365,
Rollo).
xxx
Intervention is defined as a proceeding in a suit or action by which a third person is permitted by the court to
make himself a party, either joining plaintiff in claiming what is sought by the complaint, or uniting with
defendant in resisting the claims of plaintiff, or demanding something adversely to both of them; the act or

proceeding by which a third person becomes a party in a suit pending between others; the admission, by leave of
court, of a person not an original party to pending legal proceedings, by which such person becomes a party
thereto for the protection of some right of interest alleged by him to be affected by such proceedings (33 C.J.,
477, cited in Eulalio Garcia, et al. vs. Sinforoso David, et al., 67 Phil. 279, at p. 282).
Action, under Rule 2, Sec. 1, is defined as an ordinary suit in a court of justice, by which one party prosecutes
another for the enforcement or protection of a right, or the prevention or redress of a wrong.
From the aforesaid definitions, it is clear that intervention contemplates a suit, and is therefore exercisable during
a trial and, as pointed out by petitioner is one which envisions the introduction of evidence by the parties, leading
to the rendition of the decision in the case (p. 363, Rollo). Very clearly, this concept is not that contemplated by
Sec. 7 of Act No. 3135, whereby, under settled jurisprudence, the Judge has to order the immediate issuance of a
writ of possession 1) upon the filing of the proper motion and 2) the approval of the corresponding bond. The
rationale for the mandate is to allow the purchaser to have possession of the foreclosed property without delay,
such possession being founded on his right of ownership. A trial which entails delay is obviously out of the
question. [Emphasis supplied.]

WHEREFORE, premises considered, we GRANT the petition. The Decision of the Court of Appeals in CA-G.R.
SP No. 62325 dated November 21, 2002, as well as the orders of the Regional Trial Court of Makati City, Branch
65 in LRC Case No. M-4068 dated September 18, 2000 and October 23, 2000, is REVERSED and SET ASIDE.
LRC Case No. M-4068 is ordered remanded to the Regional Trial Court of Makati City, Branch 65, for further
proceedings and proper disposition. Costs against respondent Manfred Jacob De Koning.

SO ORDERED.