CASE DIGEST - REAL MORTAGAGE

PSB vs. GERONIMO

This petition for review[1] assails the 30 August 2005 Decision[2] and 3 November
2005 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 66672. The Court of
Appeals reversed the decision of Branch 121 of the Regional Trial Court of Caloocan
City, National Capital Region (trial court) by declaring void the questioned
extrajudicial foreclosure of real estate mortgage for non-compliance with the
statutory requirement of publication of the notice of sale.
The Facts
On 9 February 1995, respondents Spouses Dionisio and Caridad Geronimo
(respondents) obtained a loan from petitioner Philippine Savings Bank (petitioner) in
the amount of P3,082,000, secured by a mortgage on respondents land situated in
Barrio Talipapa, Caloocan City and covered by Transfer Certificate of Title No. C50575.[4] Respondents defaulted on their loan, prompting petitioner to initiate the
extra-judicial foreclosure of the real estate mortgage. At the auction sale conducted
on 29 March 1996, the mortgaged property was sold to petitioner,[5] being the
highest bidder, for P3,000,000. Consequently, a Certificate of Sale was issued in
favor of petitioner.[6]
Claiming that the extrajudicial foreclosure was void for non-compliance with the law,
particularly the publication requirement, respondents filed with the trial court a
complaint for the annulment of the extrajudicial foreclosure. [7]
The trial court sustained the validity of the extrajudicial foreclosure, and disposed of
the case as follows: WHEREFORE, premises considered, the instant Complaint for
Annulment of Foreclosure of Mortgage and Damages is hereby DISMISSED for lack of
merit. SO ORDERED.[8]
On appeal, the Court of Appeals held: WHEREFORE, the assailed decision dated 26
November 1999 of the Regional Trial Court of Caloocan City is REVERSED and SET
ASIDE. The Extrajudicial Foreclosure of Mortgage conducted on 29 March 1996 is
declared NULL and VOID. SO ORDERED.[9]The Court of Appeals denied petitioners
motion for reconsideration. Hence, this petition.
The Ruling of the Trial Court
The trial court held that personal notice on the mortgagor is not required under Act
No. 3135. All that is required is the posting of the notices of sale for not less than 20
days in at least three public places in the municipality or city where the property is
situated, and publication once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city, if the property is worth
more than four hundred pesos.
The trial court further ruled there was compliance with the statutory publication
requirement. Since the affidavit of publication was excluded as petitioners evidence,
the trial court relied instead on the positive testimony of Deputy Sheriff Alberto
Castillo, that he caused the publication of the Notice of Sale, in holding there was
publication of the notice of sale in a newspaper of general circulation. In relation to
this, the trial court cited the presumption of regularity in the performance of official
duty. The trial court found that respondents, as plaintiffs, failed to discharge their
burden of proving petitioners alleged non-compliance with the requisite
publication. The trial court stated that the testimony of respondents witness, a
newsstand owner, that he has never sold Ang Pinoynewspaper can never lead to the
conclusion that such publication does not exist.
The Ruling of the Court of Appeals
The Court of Appeals reversed the ruling of the trial court.
The Court of Appeals found no sufficient evidence to prove that Ang Pinoy is a
newspaper of general circulation in Caloocan City. In a Resolution dated 2 February
2005, the Court of Appeals required the then Executive Judge of the Regional Trial
Court of Caloocan City to inform the appellate court of the following facts:

1.

If Ang Pinoy newspaper is a newspaper of general circulation

particularly for the years 1995 and 1996; and
2. If there was compliance with Sec. 2 of P.D. No. 1079 which
provides:
The executive judge of the court of first instance shall designate a
regular working day and a definite time each week during which
the said judicial notices or advertisements shall be distributed
personally by him for publication to qualified newspapers or
periodicals, which distribution shall be done by raffle. [10]
Executive Judge Victoria Isabel A. Paredes (Executive Judge Paredes) complied with
the directive by stating that:
a) Ang Pinoy newspaper is not an accredited periodical in Caloocan
City. Hence, we are unable to categorically state whether it is a
newspaper of general circulation at present or for the years 1995
and 1996 (Certification marked as Annex A)
b) Sec. 2, P.D. No. 1079 is being observed and complied with in that
the raffle of judicial notices for publication, is a permanent agenda
item in the regular raffle with the RTC, Caloocan City, holds every
Monday at 2 oclock in the afternoon at the courtroom of RTC,
Branch 124 (Certification marked as Annex B); and
c) We have no knowledge on whether Ang Pinoy was included in the
raffles conducted in 1995 and 1996, as we do not have the case
record where the information may be verified. [11]
The Court of Appeals concluded that, based on the compliance of Executive
Judge Paredes, Ang Pinoy is not a newspaper of general circulation in
Caloocan City. Therefore, the extrajudicial foreclosure is void for noncompliance with the requirement of the publication of the notice of sale in a
newspaper of general circulation.
The Issue: whether the extra-judicial foreclosure is void for non-compliance with the
publication requirement under Act No. 3135.
The Ruling of the Court: The petition lacks merit.
Section 3 of Act No. 3135 [12] reads: SECTION 3. Notice shall be given by posting
notices of the sale for not less than twenty days in at least three public places of the
municipality or city where the property is situated, and if such property is worth
more than four hundred pesos, such notice shall also be published once a week for
at least three consecutive weeks in a newspaper of general circulation in the
municipality or city.
Petitioner claims that it complied with the above provision in foreclosing
extrajudicially the subject real estate mortgage. To buttress its claim,
petitioner presented the testimony of Deputy Sheriff Alberto Castillo of the
trial court.
On the other hand, respondents dispute the existence of the publication of the
notice of sale. Assuming that the notice of sale was published, respondents contend
that Ang Pinoy, where it was published, is not a newspaper of general circulation. To
bolster their claim of non-publication, respondents offered the testimony of Danilo
Magistrado, a newsstand owner, which pertinently states:
Notwithstanding, petitioner could have easily produced the affidavit of publication
and other competent evidence (such as the published notices) to refute respondents
claim of lack of publication of the notice of sale. In Spouses Pulido v. Court of
Appeals,[18] the Court held: While it may be true that the party alleging noncompliance with the requisite publication has the burden of proof, still negative
allegations need not be proved even if essential to ones cause of action or defense if
they constitute a denial of the existence of a document the custody of which
belongs to the other party.

In relation to the evidentiary weight of the affidavit of publication, the Court

ruled in China Banking Corporation v. Spouses Martir [19] that the affidavit of
publication executed by the account executive of the newspaper is prima
facie proof that the newspaper is generally circulated in the place where the
properties are located.[20]
In the present case, the Affidavit of Publication or Exhibit 8, although formally
offered by petitioner, was excluded by the trial court for being hearsay. [21] Petitioner
never challenged the exclusion of the affidavit of publication. Instead, petitioner
relies solely on the testimony of Deputy Sheriff Alberto Castillo to prove compliance
with the publication requirement under Section 3 of Act No. 3135.However, there is
nothing in such testimony to clearly and convincingly prove that petitioner complied
with the mandatory requirement of publication. When Sheriff Castillo was asked how
he knew that the notice of sale was published, he simply replied that during the
auction sale the mortgagee bank presented the affidavit of publication. [22] Evidently,
such an answer does not suffice to establish petitioners claim of compliance with the
statutory requirement of publication. On the contrary, Sheriff Castillos testimony
reveals that he had no personal knowledge of the actual publication of the notice of
sale, much less the extent of the circulation ofAng Pinoy.
Moreover, the Court notes that Ang Pinoy is a newspaper of general circulation
printed and published in Manila, not in Caloocan City where the mortgaged property
is located, as indicated in the excluded Affidavit of Publication. This is contrary to
the requirement under Section 3 of Act No. 3135 pertaining to the publication of the
notice of sale in a newspaper of general circulation in the city where the property is
situated. Hence, even if the Affidavit of Publication was admitted as part of
petitioners evidence, it would not support petitioners case as it does not clearly
prove petitioners compliance with the publication requirement.
Petitioners invocation of the presumption of regularity in the performance of official
duty on the part of Sheriff Castillo is misplaced.While posting the notice of sale is
part of a sheriffs official functions, [23] the actual publication of the notice of sale
cannot be considered as such, since this concerns the publishers business. Simply
put, the sheriff is incompetent to prove that the notice of sale was actually published
in a newspaper of general circulation.
The Court further notes that the Notice of Extra-Judicial Sale, [24] prepared and posted
by Sheriff Castillo, does not indicate the newspaper where such notice would be
published. The space provided where the name of the newspaper should be was left
blank, with only the dates of publication clearly written. This omission raises serious
doubts as to whether there was indeed publication of the notice of sale.
Once again, the Court stresses the importance of the notice requirement, as
enunciated in Metropolitan Bank and Trust Company, Inc. v. Peafiel,[25] thus: The
object of a notice of sale is to inform the public of the nature and condition of
the property to be sold, and of the time, place and terms of the sale. Notices are
given for the purpose of securing bidders and to prevent a sacrifice [sale] of
the property. The goal of the notice requirement is to achieve a reasonably wide
publicity
of
the
auction
sale.
This
is
why
publication
in
a newspaper of general circulation is required. The Court has previously taken
judicial notice of the far-reaching effects of publishing the notice of sale in
a newspaper of general circulation.
In addition, the Court reminds mortgagees of their duty to comply faithfully with the
statutory requirements of foreclosure. InMetropolitan Bank v. Wong,[26] the Court
declared: While the law recognizes the right of a bank to foreclose a mortgage upon
the mortgagors failure to pay his obligation, it is imperative that such right be
exercised according to its clear mandate. Each and every requirement of the law
must be complied with, lest, the valid exercise of the right would end. It must be
remembered that the exercise of a right ends when the right disappears, and it
disappears when it is abused especially to the prejudice of others.

In sum, petitioner failed to establish its compliance with the publication

requirement under Section 3 of Act No. 3135. Consequently, the questioned
extrajudicial foreclosure of real estate mortgage and sale are void. [27]
WHEREFORE, we DENY the petition. We AFFIRM the 30 August 2005
Decision and 3 November 2005 Resolution of the Court of Appeals in CAG.R. CV No. 66672. SO ORDERED
OCHOA vs. CHINABANK
For resolution is petitioners' motion for reconsideration [1] of our January 17, 2011
Resolution[2]denying their petition for review on certiorari[3] for failing to sufficiently
show any reversible error in the assailed judgment[4] of the Court of Appeals (CA).
Petitioners insist that it was error for the CA to rule that the stipulated exclusive
venue of Makati City is binding only on petitioners' complaint for Annulment of
Foreclosure, Sale, and Damages filed before the Regional Trial Court of Paraaque
City, but not on respondent bank's Petition for Extrajudicial Foreclosure of
Mortgage, which was filed with the same court.
We disagree. The extrajudicial foreclosure sale of a real estate mortgage is governed
by Act No. 3135, as amended by Act No. 4118, otherwise known as "An Act to
Regulate the Sale of Property Under Special Powers Inserted In or Annexed to RealEstate Mortgages." Sections 1 and 2 thereof clearly state: Section 1. When a sale is
made under a special power inserted in or attached to any real-estate mortgage
hereafter made as security for the payment of money or the fulfillment of any other
obligation, the provisions of the following sections shall govern as to the manner in
which the sale and redemption shall be effected, whether or not provision for the
same is made in the power; Sec. 2. Said sale cannot be made legally outside of the
province in which the property sold is situated; and in case the place within said
province in which the sale is to be made is the subject of stipulation, such sale shall
be made in said place or in the municipal building of the municipality in which the
property or part thereof is situated.[5]
The case at bar involves petitioners' mortgaged real property located in Paraaque
City over which respondent bank was granted a special power to foreclose extrajudicially. Thus, by express provision of Section 2, the sale can only be made in
Paraaque City.
The exclusive venue of Makati City, as stipulated by the parties[6] and sanctioned by
Section 4, Rule 4 of the Rules of Court,[7] cannot be made to apply to the Petition for
Extrajudicial Foreclosure filed by respondent bank because the provisions of Rule 4
pertain to venue of actions, which an extrajudicial foreclosure is not.
Pertinent are the following disquisitions in Supena v. De la Rosa: Section 1, Rule 2
[of the Rules of Court] defines an action in this wise: "Action means 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."
Hagans v. Wislizenus does not depart from this definition when it states that "[A]n
action is a formal demand of one's legal rights in a court of justice in the manner
prescribed by the court or by the law." It is clear that the determinative or operative
fact which converts a claim into an "action or suit" is the filing of the same with a
"court of justice." Filed elsewhere, as with some other body or office not a court of
justice, the claim may not be categorized under either term. Unlike an action, an
extrajudicial foreclosure of real estate mortgage is initiated by filing a petition not
with any court of justice but with the office of the sheriff of the province where the
sale is to be made. By no stretch of the imagination can the office of the sheriff
come under the category of a court of justice. And as aptly observed by the
complainant, if ever the executive judge comes into the picture, it is only because
he exercises administrative supervision over the sheriff. But this administrative
supervision, however, does not change the fact that extrajudicial foreclosures are
not judicial proceedings, actions or suits.[9]

These pronouncements were confirmed on August 7, 2001 through A.M. No. 99-1005-0, entitled "Procedure in Extra-Judicial Foreclosure of Mortgage," the significant
portions of which provide: In line with the responsibility of an Executive Judge under
Administrative Order No. 6, date[d] June 30, 1975, for the management of courts
within his administrative area, included in which is the task of supervising directly
the work of the Clerk of Court, who is also the Ex-Office Sheriff, and his staff, and the
issuance of commissions to notaries public and enforcement of their duties under
the law, the following procedures are hereby prescribed in extra-judicial foreclosure
of mortgages:
All applications for extrajudicial foreclosure of mortgage whether under the
direction of the sheriff or a notary public, pursuant to Act 3135, as amended by
Act 4118, and Act 1508, as amended, shall be filed with the Executive Judge,
through the Clerk of Court who is also the Ex-Officio Sheriff.
Verily then, with respect to the venue of extrajudicial foreclosure sales, Act No.
3135, as amended, applies, it being a special law dealing particularly with
extrajudicial foreclosure sales of real estate mortgages, and not the general
provisions of the Rules of Court on Venue of Actions.
Consequently, the stipulated exclusive venue of Makati City is relevant only
to actions arising from or related to the mortgage, such as petitioners'
complaint
for Annulment
of
Foreclosure,
Sale,
and
Damages.
The other arguments raised in the motion are a mere reiteration of those
already raised in the petition for review. As declared in this Court's Resolution
on January 17, 2011, the same failed to show any sufficient ground to warrant
the
exercise
of
our
appellate
jurisdiction.
WHEREFORE, premises considered, the motion for reconsideration is
hereby DENIED. SO ORDERED.
ROYAL SAVINGS BANK vs. ASIA
This is a Petition for Review 1 filed by Royal Savings Bank (petitioner), praying for the
reversal of the Orders dated 4 October 20072 and 25 June 2008,3 which were
rendered by Branch 222 of the RegionTrial Court of Quezon City (RTC) in LRC No. Q22780 (07). These Orders granted respondents' Urgent Motion to Quash the Writ of
Possession and Writ of Execution 4 issued by the then presiding judge of the RTC in
petitioner's favor.
Sometime in January 1974, Paciencia Salita (Salita) and her nephew, Franco
Valenderia (Valenderia), borrowed the amount of ?25,000 from petitioner. The latter
loaned to them an additional ?20,000 in May 1975. To secure the payment of the
aforementioned amounts loaned, Salita executed a Real Estate Mortgage over her
property, which was covered by Transfer Certificate of Title (TCT) No. 103538.
Notwithstanding demands, neither Salita nor Valenderia were able to pay off their
debts.
As a result of their failure to settle their loans, petitioner instituted an extra-judicial
foreclosure proceeding against the Real Estate Mortgage. Pursuant to Act No. 3135,
the mortgaged property was sold at a public auction held on 16 October 1979, at
which petitioner was the highest bidder. On 23 April 1983, the redemption period
expired. Both Salita and Valenderia failed to redeem the foreclosed property. Thus,
TCT No. 103538 was cancelled and a new title covering the same property, TCT No.
299440, was issued in petitioner's name.
Thereafter, on 13 August 1984, Salita filed with the RTC a case for Reconveyance,
Annulment of Title and Damages against petitioner. She prayed for the nullification
of foreclosure proceedings and the reconveyance of the property now covered by
TCT No. 299440. The RTC granted her prayer.
Petitioner appealed to the Court of Appeals (CA), which reversed the Decision of the
RTC. Since Salita did not appeal the CA ruling, it became final and executory.
Accordingly, the Entry of Judgment was issued on 4 June 2002.

Pursuant to Section 7 of Act 3135, petitioner filed with the RTC an Ex-Parte Petition
for the Issuance of a Writ of Possession.5 The Court, through its Order dated 14
February 2007, required petitioner to present its evidence. Petitioner then submitted
a Memorandum of Jurisprudence (In Lieu of Oral
Testimony).6chanroblesvirtualawlibrary
In a Decision dated 28 May 2007,7 the RTC ruled in favor of petitioner and ordered
the issuance of the Writ of Possession in the latter's favor.
Respondents Fernando Asia, Mika Latag, Cornelia Maranan, Jimmy Ong, Conrado
Macaralaya, Rolando Saba, Tomas Gallega, Lilia Fedelimo, Milagros Hagutay and
Norma Gabatic claimed to have been in open, continuous, exclusive and notorious
possession in the concept of owners
of the land in question for 40 years.8 Allegedly, they had no knowledge and notice of
all proceedings involving the property until they were served a Notice to Vacate 9 by
RTC Sheriff IV Neri Loy, on 20 July 2007.10 They further claimed that, prior to the
service of the Notice to Vacate, they had no knowledge or notice of the lower court's
proceedings or the foreclosure suit of petitioner.11chanroblesvirtualawlibrary
The Notice to Vacate gave respondents three days or until 25 July 2007 to voluntarily
vacate the property. In order to prevent the execution of the notice, they filed an
Urgent Motion to Quash Writ of Possession and Writ of Execution 12 on even date.
Petitioner filed their Comment13 on respondents' Motion to Quash on 14 August
2007.
In an Order dated 4 October 2007,14 the RTC granted the Motion to Quash. Petitioner
filed a Motion for Reconsideration (MR),15 to which an Opposition was filed by
respondents.16 Petitioner claimed that, six months after the filing of the Opposition,
there was still no action taken by the RTC on the MR. Thus, it filed a Motion for Early
Resolution17 on 16 June 2008. Through an Order dated 25 June 2008,18 the RTC
denied petitioner's MR.
Claiming that it raises no factual issues, petitioner came straight to this Court
through a Petition for Review under Rule 45 of the Rules on Civil Procedure.
Petitioner insists that because it is a government-owned financial institution, the
general rules on real estate mortgage found in Act 3135 do not apply to it. It prays
that this Court rule that Presidential Decree (P.D.) No. 385 19 the law intended
specifically to govern mortgage foreclosures initiated by government-owned
financial institutions'should be applied to this case.
According to petitioner, when the RTC quashed the Writ of Possession, 20 the latter
violated Section 2 of P.D. 385, which reads:chanroblesvirtualawlibrary
Section 2. No restraining order, temporary or permanent injunction shall be issued
by the court against any government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided in Section 1
hereof, whether such restraining order, temporary or permanent injunction is sought
by the borrower(s) or any third party or parties, except after due hearing in which it
is established by the borrower and admitted by the government financial institution
concerned that twenty percent (20%) of the outstanding arrearages has been paid
after the filing of foreclosure proceedings.
Thus, petitioner is now saying that, as a government financial institution (GFI), it
cannot be enjoined from foreclosing on its delinquent accounts in observance of the
mandate of P.D. 385.
We are not persuaded.
Assuming that petitioner is, as it claims, a GFI protected under P.D. 385, this Court is
still of the opinion and thus rules that the RTC committed no error in granting
respondents' Urgent Motion to Quash Writ of Possession.

Indeed, while this Court had already declared in Philippine National Bank v.
Adil21 that once the property of a debtor is foreclosed and sold to a GFI, it would be
mandatory for the court to place the GFI in the possession and control of the
property pursuant to Section 4 of P.D. No. 385 this rule should not be construed as
absolute or without exception.
The evident purpose underlying P.D. 385 is sufficiently served by allowing
foreclosure proceedings initiated by GFIs to continue until a judgment therein
becomes final and executory, without a restraining order, temporary or permanent
injunction against it being issued. But if a parcel of land is occupied by a party other
than the judgment debtor, the proper procedure is for the court to order a hearing to
determine the nature of said adverse possession before it issues a writ of
possession.22chanroblesvirtualawlibrary
This is because a third party, who is not privy to the debtor, is protected by the law.
Such third party may be ejected from the premises only after he has been given an
opportunity to be heard, to comply with the time-honored principle of due
process.23chanroblesvirtualawlibrary
In the same vein, under Section 33 of Rule 39 of the Rules on Civil Procedure, the
possession of a mortgaged property may be awarded to a purchaser in the
extrajudicial foreclosure, unless a third party is actually holding the property
adversely vis--vis the judgment debtor.24chanroblesvirtualawlibrary
Respondents insist that they are actual possessors in the concept of owners and that
they have been occupying the land in the concept of owners for 40 years
already.25 Furthermore, respondents made it clear in the Motion to Quash that they
were not "claiming rights as attorney-in-fact, nor lessee, nor anything from
Mortgagor PACENCIA SALITA." 26 Thus, whatever rights Salita had over the property
that were acquired by petitioner when the latter purchased it, cannot be used
against respondents, as their claim is adverse to that of Salita.
In the eyes of this Court, the RTC did not err in issuing the herein assailed Orders on
the basis of its initial finding that respondents are third parties who are actually
holding the property adversely vis--vis the judgment debtor. The RTC did not err in
applying the doctrine laid down in Barican v. Intermediate Appellate Court, 27 in which
we ruled that the obligation of a court to issue a writ of possession in favor of the
purchaser in an extrajudicial foreclosure sale ceases to be ministerial, once it
appears that there is a third party who is in possession of the property and is
claiming a right adverse to that of the debtor/mortgagor.
We explained in Philippine National Bank v. Austria28 that the foregoing doctrinal
pronouncements are not without support in substantive law, to
wit:chanroblesvirtualawlibrary
x x x. Notably, the Civil Code protects the actual possessor of a property, to
wit:chanroblesvirtualawlibrary
Art. 433.Actual possession under claim of ownership raises a disputable presumption
of ownership. The true owner must resort to judicial process for the recovery of the
property.
Under the aforequoted provision, one who claims to be the owner of a property
possessed by another must bring the appropriate judicial action for its physical
recovery. The term "judicial process" could mean no less than an ejectment suit or
reivindicatory action, in which the ownership claims of the contending parties may
be properly heard and adjudicated.
We find that it was only proper for the RTC to quash the Writ of Possession until a
determination is made as to who, between petitioner and respondents, has the
better right to possess the property.

Lastly, petitioner alleges that the pairing judge violated the hierarchy of courts when
she quashed the writ of possession validly issued by the then presiding Judge of the
RTC Quezon City, a co-equal body.29chanroblesvirtualawlibrary
No court has the power to interfere by injunction in the issuance or enforcement of a
writ of possession issued by another court of concurrent jurisdiction having the
power to issue that writ.30However, as correctly pointed out by respondents in their
Comment, it was the same trial court and "not another court or co-equal court body
that quashed the subject writ of possession." 31 The pairing judge, who issued the
Order quashing the Writ of Possession, issued it in her capacity as the judge of
Branch 222 of Quezon City-the same branch, albeit then under a different judge,
that issued the Writ of Possession.
With respect to all the arguments raised by the parties to prove their supposed
rightful possession or ownership of the property, suffice it to say that these matters
should be threshed out m an appropriate action filed specifically for their resolution.
WIHEREFORE, the instant Petition is DENIED. The 4 October 2007 and 25 June 2008
Orders issued by Branch 222 of Regional Trial Court of Quezon City in LRC No. Q22780 (07) arc AFFIRMED.
SO ORDERED.
METROBANK vs. CENTRO
The present Petition for Review [1] assails the Court of Appeals (CA)
Decision[2] promulgated on 30 August 2007 and Resolution [3]dated 26 November
2007 in CA-G.R. CV No. 80778. The antecedent facts follow.
On 20 March 1990, in a special meeting of the board of directors of
respondent Centro Development Corporation (Centro), its president Go Eng Uy was
authorized to mortgage its properties and assets to secure the medium-term loan of
84 million of Lucky Two Corporation and Lucky Two Repacking. The properties and
assets consisted of a parcel of land with a building and improvements located at
Salcedo St., Legaspi Village, Makati City, and covered by Transfer Certificate of Title
(TCT) Nos. 139880 and 139881. This authorization was subsequently approved on
the same day by the stockholders.[4] Maria Jacinta V. Go, the corporate secretary,
issued a Secretarys Certificate stating:
I, MARIA JACINTA V. GO, Filipino citizen, of legal age, married and with office
address at Second Floor, CENTRO building, 180 Salcedo Street, Legaspi
Village, Makati, Metro Manila, after being first duly sworn, depose and say:
That at a special meeting of the Board of Directors of the aforesaid
corporation duly called and held on March 20, 1990 and wherein a quorum
was present, the following resolution was unanimously approved pursuant
to the Minutes of the Special Meeting of the Stockholders of Centro
Development Corporation dated March 16, 1990;
RESOLUTION:
RESOLVED, as it is hereby resolved, that the President, GO ENG UY, of
Centro Development Corporation, be as he is hereby authorized to
mortgage and use as collateral the real estate property of the Corporation
identified as a parcel of land with building and improvements located at
Salcedo St., Legaspi Village, Makati, Metro Manila covered by Transfer
Certificate of Title Nos. 139880 and 139881 to secure the medium-term
loan of LUCKY TWO CORPORATION, a corporation duly organized and
existing under the Philippine laws, and LUCKY TWO REPACKING, a single
proprietorship with principal office at Concepcion, Tarlac, with the Bank of
the Philippine Islands for EIGHTY FOUR (84) MILLION PESOS, Philippine
Currency (84,000,000.00); RESOLVED FURTHER, that said GO ENG UY, be
as he is hereby authorized to sign all papers and documents needed and
necessary to carry into effect the aforesaid purpose or undertaking for the

benefit and to the credit of Lucky Two Corporation and Lucky Two
Repacking.
Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy,
executed a Mortgage Trust Indenture (MTI) with the Bank of the Philippines Islands
(BPI).[5] Under the MTI, respondent Centro, together with its affiliates Lucky Two
Corporation and Lucky Two Repacking or Go Eng Uy, expressed its desire to obtain
from time to time loans and other credit accommodations from certain creditors for
corporate and other business purposes.[6] To secure these obligations from different
creditors, respondent Centro constituted a continuing mortgage on all or
substantially all of its properties and assets enumerated above unto and in favor of
BPI, the trustee. Should respondent Centro or any of its affiliates fail to pay their
obligations when due, the trustee shall cause the foreclosure of the mortgaged
property.
Thereafter, the mortgage was duly recorded with the Registry of Deeds of
Makati City.[7] On 31 March 1993, Centro and BPI amended the MTI to allow an
additional loan of 36 million and to include San Carlos Milling Company, Inc. (San
Carlos) as a borrower in addition to Centro, Lucky Two Corp. and Lucky Two
Repacking.[8] Then, on 28 July 1994, Centro and BPI again amended the MTI for
another loan of 24 million, bringing the total obligation to 144 million. [9]
Meanwhile, respondent Centro, represented by Go Eng Uy, approached petitioner
Metropolitan Bank and Trust Company (Metrobank) sometime in 1994 and proposed
that the latter assume the role of successor-trustee of the existing MTI. After
petitioner Metrobank agreed to the proposal, the board of directors of respondent
Centro allegedly resolved on 12 August 1994 to constitute petitioner as successortrustee of BPI.[10] Thereafter, on 27 September 1994, [11] petitioner and respondent
Centro executed the assailed MTI,[12] amending the previous agreements by
appointing the former as the successor-trustee of BPI. It is worth noting that this MTI
did not amend the amount of the total obligations covered by the previous MTIs.
It was only sometime in 1998 that respondents herein, Chongking Kehyeng, Manuel
Co Kehyeng and Quirino Kehyeng, allegedly discovered that the properties of
respondent Centro had been mortgaged, and that the MTI that had been executed
appointing petitioner as trustee. Notably, respondent Chongking Kehyeng had been
a member of the board of directors of Centro since 1989, while the two other
respondents, Manuel Co Kehyeng and Quirino Keyheng, had been stockholders since
1987. Respondents Kehyeng were minority stockholders who owned thirty percent
(30%) of the outstanding capital stock of respondent Centro.
On different dates, 4 September 1998, 9 September 1998 and 2 October 1998, the
Kehyengs allegedly questioned the mortgage of the properties through letters
addressed to Go Eng Uy and Jacinta Go.[13] They alleged that they were not aware of
any board or stockholders meeting held on 12 August 1994, when petitioner was
appointed as successor-trustee of BPI in the MTI. Respondents demanded a copy of
the minutes of the meeting held on that date, but received no response.
Thereafter, on 14 October 1998 and 19 November 1998, the Kehyengs allegedly
wrote to petitioner, informing it that they were not aware of the 12 August 1994
board of directors meeting. Petitioner did not respond to the letters. [14]
Meanwhile, during the period April 1998 to December 1998, San Carlos obtained
loans in the total principal amount of 812,793,513.23 from petitioner Metrobank. [15]
San Carlos failed to pay these outstanding obligations despite demand. Thus,
petitioner, as trustee of the MTI, enforced the conditions thereof and initiated
foreclosure proceedings, denominated as Foreclosure No. S-04-11, on the mortgaged
properties. On 22 June 2000, petitioner Metrobank filed a Petition for Extrajudicial
Foreclosure of Mortgage with the executive judge of the Regional Trial Court (RTC) of
Makati City. Petitioner alleged that the total amount of the Promissory Notes that
San Carlos executed in favor of the former amounted to 812,793,513.23. As of 30
April 2000, the total outstanding obligation, inclusive of interests and penalties, was
1,178,961,181.45.[16]

We note that there are no documents in the records evidencing the amendment of
the MTI to accommodate these additional obligations. As of 27 September 1994, the
date of the last amendment as borne out by the records, the total outstanding
obligation reflected in the MTI amounted to only 144 million. The latest MTI merely
referred to the amendments made on 31 March 1993 and 28 July 1994.
Before the scheduled foreclosure date, on 3 August 2000, respondents herein filed a
Complaint for the annulment of the 27 September 1994 MTI with a prayer for a
temporary restraining order (TRO) and preliminary injunction at Branch 138 of the
RTC of Makati City. Docketed as Civil Case No. 00-942, the Complaint was against
petitioner, Go Eng Uy, Alexander V. Go, Ramon V. Go, Maria Jacinta Go and Enriqueto
Magpantay.
The bone of contention in Civil Case No. 00-942 was that since the
mortgaged properties constituted all or substantially all of the corporate assets, the
amendment of the MTI failed to meet the requirements of Section 40 of the
Corporation Code on notice and voting requirements. Under this provision, in order
for a corporation to mortgage all or substantially all of its properties and assets, it
should be authorized by the vote of its stockholders representing at least 2/3 of the
outstanding capital stock in a meeting held for that purpose. Furthermore, there
must be a written notice of the proposed action and of the time and place of the
meeting. Thus, respondents alleged, the representation of Go Eng Uy that he was
authorized by the board of directors and/or stockholders of Centro was false.
On 15 December 2003, after trial on the merits, the RTC dismissed the
Complaint.[17] It held that the evidence presented by respondents was insufficient to
support their claim that there were no meetings held authorizing the mortgage of
Centros properties. It noted that the stocks of respondents Kehyeng constituted only
30% of the outstanding capital stock, while the Go family owned the majority 70%,
which represented more than the 2/3 vote required by Section 40 of the Corporation
Code. The trial court ruled that respondents Kehyeng, particularly Chongking
Kehyeng, who sat in the board of directors, should have done periodic inquiries and
verifications of documents pertaining to corporate properties. The RTC also held that
laches had attached, considering that eight (8) years had lapsed before respondents
questioned the mortgage executed in 1990.
The trial court also noted the absence of evidence showing the steps
respondents had taken to seek redress for the alleged misrepresentations of Go Eng
Uy and Maria Jacinta Go. On the other hand, the court found that no neglect could be
imputed to petitioner for relying on the Secretarys Certificate, which apparently
established Go Eng Uys authority to mortgage Centros properties and assets.
Respondents subsequently filed an appeal with the CA docketed as CA-G.R.
CV No. 80778. On 26 February 2004, they filed an Urgent Motion for the Issuance of
a Temporary Restraining Order and Writ of Preliminary Injunction seeking to restrain
petitioner, the clerk of court, the ex-officio sheriff of the RTC, and their agents from
foreclosing and selling at public auction on 4 and 22 March 2004 the mortgaged
properties subject of Civil Case No. 00-942. On 3 March 2004, a TRO was issued by
the CA effective for a period of sixty (60) days, unless earlier set aside by a
resolution.[18]
On 19 May 2004, the CA issued a Resolution [19] in CA-G.R. CV No. 80778
denying the application for the issuance of a writ of preliminary injunction.
Not giving up, on 27 May 2004, respondents Centro and San Carlos filed a
Complaint docketed as Civil Case No. 04-612 at Branch 56 of the RTC of Makati City.
They prayed for the nullification of the foreclosure proceedings and prayed for the
issuance of a TRO/injunction. Centro and San Carlos alleged that the total obligation
due was only 657,000,000 and not 812,793,513.23; that the sale of the San
Carlos properties found in Negros Occidental fully satisfied their outstanding
obligations; and that the action to foreclose the Makati properties was illegal and
void.[20]
While Civil Case No. 04-612 was pending, the clerk of court and the exofficio sheriff of the RTC of Makati City held an auction sale of the disputed property,

during which petitioner was adjudged as the highest bidder for 344,700,000. A
Certificate of Sale was accordingly issued on 3 June 2004, which states: [21]
On June 2, 2004, a public auction sale was conducted and METROPOLITAN
BANK & TRUST CO. submitted a bid for the sale to him/it of the mortgaged
property in the amount of 344,700,000 xxx, which was the highest bid
hence declared as the winning bidder and being the creditor he/it did not
delivery or pay cash/monies to the Clerk of Court and Ex-Officio Sheriff the
bid price of 344,700,000 xxx and the selling price was credited as
partial/full satisfaction of indebtedness secured by the mortgage.
In consideration thereof, the Certificate of Sale was issued in favor of
METROPOLITAN BANK& TRUST CO. of Metrobank Plaza, Sen. Gil Puyat Ave.,
Makati. This sale is subject to redemption in the manner provided by law.
Because of this development, the Complaint in Civil Case No. 04-612 was
amended, and Centro and San Carlos prayed for the issuance of a writ of
injunction to prevent the registration of the Certificate of Sale and the
subsequent transfer to petitioner of the title to the properties. However,
Branch 56 of the RTC of Makati City subsequently denied the application.
Respondent Centro thereafter filed before the CA a Petition for Certiorari docketed as
CA-G.R. SP No. 84447. The Petition assailed the Order of the RTC in Civil Case No. 04612. During this time, CA-G.R. CV No. 80778, which involved the legality of the MTI,
was still pending.
On 30 August 2007, the CA promulgated the assailed Decision in CA-G.R.
CV No. 80778. The appellate court first determined whether the requirements of
Section 40 of the Corporation Code on the sale of all or substantially all of the
corporations property were complied with. Based on the 18 August 1994 Secretarys
Certificate, the CA found that only a quorum was present during the stockholders
meeting on 12 August 1994. The appellate court thus held that the 2/3 vote required
by Section 40 was not met. It ruled that the minority stockholders were deprived of
their right to dissent from or to approve the proposed mortgage, considering that
they had not been notified in writing of the meeting in which the corporate action
was to be discussed.
The CA also considered the testimony of Perla Saballe, an officer of
petitioner Metrobank, who opined that the term quorum meant only the majority of
the stockholders.
Furthermore, the appellate court held that petitioner was duty-bound to ensure that
respondent Centro submitted proof that the proposed corporate action had been
duly approved by a vote of the stockholders representing 2/3 of the outstanding
capital stock.
Regarding the issue of whether laches had already attached, the CA ruled that the
MTI could not be ratified, considering that the requirements of the Corporation Code
were not complied with.
Thus, the dispositive portion of the CA Decision in CA-G.R. CV No. 80778 reads: [22]
WHEREFORE,
the Appeal is PARTIALLY
GRANTED. The Judgment dated
15
December 2003 of the Regional Trial Court of Makati City, Branch 138,
is REVERSED and SET ASIDE insofar as the dismissal of the Complaint for
Annulment of Trust Indenture Agreement is concerned. The Trust Indenture executed
on 27 September 1994 is hereby declared NULL and VOID. Accordingly, the
foreclosure of the mortgage and the sale at public auction involving the subject
properties are declared of no force and effect. The certificates of title issued in the
name of Metropolitan Bank and Trust Company are CANCELLED.
Conformably with the foregoing discussion, the appellants prayer for
damages is hereby DENIED. SO ORDERED.
On 14 September 2007, a different Division of the CA rendered a
Decision[23] denying the Petition in CA-G.R. SP No. 84447. That Petition had
questioned the Decision of Branch 56 of the RTC of Makati City denying a Petition to
enjoin the foreclosure of the mortgaged properties on the ground that respondents
Centro and San Carlos had failed to show any clear right of the RTC to issue an

injunctive writ. The CA further ruled that the foreclosure of the property became a
matter of right on the part of petitioner because of respondents failure to pay the
loans due.
On 26 November 2007, the CA in CA-G.R. CV No. 80778 rendered the
assailed Resolution denying petitioners Motion for Reconsideration. Hence, this
Petition. Petitioner contends that the stockholders Resolution No. 005, s. 1994 did
not constitute a new mortgage in favor of petitioner. Instead, the stockholders
merely amended the existing MTI by appointing petitioner as the new trustee for the
MTI, which was already existing and held by BPI. Thus, there was no need to secure
a 2/3 vote from the stockholders. Petitioner posits that the authority to mortgage the
properties was granted in 1990, upon the execution of the first MTI between
respondent Centro and BPI.
Further, petitioner alleges that respondents do not deny or question the previous
MTI and its subsequent amendments. It further alleges that the constituted
mortgage under the MTI was duly annotated with the Registry of Deeds of Makati
City.
Petitioner also maintains that the CA erred in interpreting the phrase at which
meeting a quorum was present contained in the Secretarys Certificate dated 18
August 1994. The bank points out that the phrase indicates that at least a quorum
was present, rather than that only a quorum was present. Thus, the Secretarys
Certificate did not in any way limit the number of those actually present.
Additionally, petitioner argues that Perla Saballe, whose testimony was considered
by the CA, was not a competent witness to interpret the directors Resolution.
Allegedly, she was never present during the meetings of Centro regarding the
present issue, and she was not in a position to answer the questions propounded to
her in relation to the requirements of Section 40 of the Corporation Code.
Moreover, petitioner cites the CA Decision in CA-G.R. SP No. 84447, which upheld
the validity of the foreclosure of the mortgage. It also challenges the CA ruling that
the former failed to exercise due diligence in transacting with respondent
Centro.Finally, petitioner insists that laches attached when respondents failed to
question the MTI and the stockholders Resolution at the earliest possible time.
On the other hand, respondents contend that, based on the Pre-Trial Brief and the
Amended Pre-Trial Order, petitioner admitted that the subject properties were
mortgaged under the MTI of 27 September 1994, and not under that of 21 March
1990.
Second, on the issue of whether the 2/3 voting requirement was met, respondents
claim that petitioner cannot impugn the testimony of its own officer and witness,
Perla Saballe, on the interpretation of the term quorum as referred to in the
Secretarys Certificate dated 18 August 1994.
Respondents also allege that petitioner failed to controvert the testimony of
Chongking Kehyeng, a member and vice-chairperson of the board of directors, that
he was unaware of any stockholders meeting ever being held, and that he and the
other Kehyengs were not informed of that meeting. Respondents further insist that
petitioner was negligent when it merely relied on the Secretarys Certificate, instead
of exercising due diligence to ensure that all legal requirements had been complied
with under the MTI.On the issue of laches, respondents contend that it was not
raised before the trial court, and is thus improperly invoked in the present Petition.
Nevertheless, they allegedly undertook a number of measures to question the
transactions between petitioner and CENTRO. Moreover, they argue that the MTI,
being null and void, cannot be given effect through laches.
The Courts Ruling
In summary, this Court is tasked to resolve the following issues:
1.
Whether the requirements of Section 40 of the Corporation
Code was complied with in the execution of the MTI;
2.
Whether petitioner was negligent or failed to exercise due
diligence;

3.

Whether laches has already attached, such that respondents

can no longer question the MTI.
We shall first discuss the issue of laches.
Laches is defined as the failure or neglect for an unreasonable and
unexplained length of time to do that which, by exercising due diligence, could or
should have been done earlier; it is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either
has abandoned it or declined to assert it.[24]
In the case at bar, the RTC in Civil Case No. 00-942 held that laches
attached when respondents allowed eight (8) years to pass before questioning the
mortgage, which was constituted in 1990. Thus, the trial court said:
As it appears now, the mortgage on the land and building of Centro was first
constituted in 1990 in favor of [the] Bank of the Philippine Islands. Individual
plaintiffs stated that discovery of the mortgage was sometime in 1998, (par.
6, Affidavit of Chongking Kehyeng). He was in the Board of Directors of Centro
and he holds office at the fourth floor of the building on the mortgaged
property. There is evidence that the holding of meetings of the Board of
Directors was irregular and purely reportorial.
Considering that as shown by planitiffs evidence, conduct of business in
Centro was informal, vigilance over its property was required from all
individual plaintiffs, particularly plaintiff Chongking Kehyeng who sits in the
Board of Directors. Periodic inquiries and verification of documents pertaining
to corporate properties should have been done and the existence of the
mortgage was verifiable. A simple inquiry about the status of the title,
information on the title number and actual verification with the Register of
Deeds a task which can be accomplished in an hour or two will provide
information about the existence of the mortgage. None of the individual
plaintiffs did this.
The inaction of the plaintiffs for which no explanation was submitted resulted
in the acquisition of rights by the defendant Bank adverse to them. Such
neglect, taken in conjunction with the lapse of time of about eight (8) years
operates as a bar.[25]
A perusal of the TCTs[26] of the subject properties would reveal that only the
values of the mortgage securing the loans totalling 144 million were annotated,
based on the MTIs executed on 21 March 1990, 31 March 1993 and 28 July 1994. As
for the last annotation, it only stated that petitioner was the successor-trustee to all
obligations due to the creditors. Respondents, in their Complaint, did not question
these mortgages constituted by the MTIs executed on 21 March 1990, 31 March
1993 and 28 July 1994, respectively. What they questioned was the additional loans
granted to San Carlos after the execution of the 27 September 1994 MTI and the
foreclosure of the mortgage resulting from the nonpayment of San Carlos
obligations. Thus, contrary to the finding of the trial court, only four years had
lapsed from the execution of the 27 September 1994 MTI when respondents
questioned the mortgage allegedly constituted to cover these loans.
Furthermore, as mentioned earlier, the TCTs were not accordingly
annotated to cover these additional loans. Also, the mortgage of the property
securing all the loans were not disclosed in Centros financial statements for the
years 1991 to 1998.[27]Thus, absent any proof that the individual respondents were
notified of the stockholders meeting on 12 August 1994 or that they were present
during the meeting, these respondents could not have been informed of the alleged
additional loans and the corresponding mortgage constituted over the properties.
It cannot therefore be said that laches had attached and that respondents were
already barred from assailing the MTI in 1998. We now proceed to discuss the
validity of the challenged MTI.
The 18 August 1994 Secretarys Certificate issued by Maria Jacinta V. Go
reads as follows:[28]

I, JACINTA V. GO, Corporate Secretary of CENTRO DEVELOPMENT CORPORATION, a

corporation duly organized and existing under our laws with principal office located
at the 2nd Floor Centro Buidling, 180 Salcedo St., Legaspi Village, Makati, Metro
Manila, do hereby certify that during a special meeting of the board of Directors of
the Corporation held at its main office in Makati, Metro Manila on August 12, 1994,
at 3:00 p.m., at which meeting a quorum was present, the following resolution was
approved and adopted:
Resolution No. 005, s. 1994
APPOINTING METROBANK TRUST BANKING GROUP AS THE NEW
TRUSTEE FOR THE EXISTING MTI OF CDC REAL ESTATE PROPERTY
RESOLVED, AS IT IS HEREBY RESOLVED, that in connection with the existing
Mortgage Trust Indenture of real estate property covered by Transfer
Certificate of Title Nos. 139880 and 139881 situated at 180 Salcedo St.,
Legaspi Village, Makati, Metro Manila, with an area of 1,608 square meters
more or less, the Corporation be [sic], as it is hereby authorized, to appoint
Metrobank Trust Banking Group (Metrobank) as the new trustee for the
existing mortgage trust indenture presently held by the Bank of the
Philippines Islands; RESOLVED FURTHER, that the President, Mr. Go Eng Uy
be, as he is hereby, authorized and empowered to sign the Real Estate
Mortgage and all documents/instruments with the said bank, for and in
behalf of the Company which are necessary and pertinent thereto;
RESOLVED FINALLY, that any resolution or resolutions heretofore adopted
by this Board, inconsistent with the provisions hereof be, as they hereby
are amended and/or revoked accordingly.
That at the meeting of the Stockholders of said corporation held on August
12, 1994 at 4:00 p.m., at which meeting a quorum was present and acting
throughout, the following resolution was unanimously approved:
STOCKHOLDERS RESOLUTION
RESOLVED, that the stockholders approve, ratify and confirm, as they have
hereby approved, ratified and confirmed, the board resolution dated August
12, 1994 appointing Metrobank Trust Banking Group as the new trustee,
presently held by the Bank of the Philippine Islands, for the existing MTI of
real estate property covered by Transfer Certificate of Title Nos. 139880
and 139881 situated at 180 Salcedo St., Legaspi Village, Makati, Metro
Manila with an area of 1,608 square meters, and that the President, Mr. Go
Eng Uy[,] to sign the Real Estate Mortgage and all documents/ instruments
with the said bank, for and in behalf of the Company which are necessary
and pertinent thereto; xxx.
Reading carefully the Secretarys Certificate, it is clear that the main
purpose of the directors Resolution was to appoint petitioner as the new trustee of
the previously executed and amended MTI. Going through the original and the
revised MTI, we find no substantial amendments to the provisions of the contract.
We agree with petitioner that the act of appointing a new trustee of the MTI was a
regular business transaction. The appointment necessitated only a decision of at
least a majority of the directors present at the meeting in which there was a
quorum, pursuant to Section 25 of the Corporation Code.
The second paragraph of the directors Resolution No. 005, s. 1994, which
empowered Go Eng Uy to sign the Real Estate Mortgage and all
documents/instruments with the said bank, for and in behalf of the Company which
are necessary and pertinent thereto, must be construed to mean that such power
was limited by the conditions of the existing mortgage, and not that a new mortgage
was thereby constituted.
Moreover, it is worthy to note that respondents do not assail the previous
MTI executed with BPI. They do not question the validity of the mortgage constituted
over all or substantially all of respondent Centros assets pursuant to the 21 March
1994 MTI in the amount of 84 million. Nor do they question the additional loans

increasing the value of the mortgage to 144 million; or the use of Centros
properties as collateral for the loans of San Carlos, Lucky Two Corporation, and Lucky
Two Repacking.
Thus, Section 40[29] of the Corporation Code finds no application in the
present case, as there was no new mortgage to speak of under the assailed
directors Resolution.
Nevertheless, while we uphold the validity of the stockholders Resolution appointing
Metrobank as successor-trustee, this is not to say that we uphold the validity of the
extrajudicial foreclosure of the mortgage. After a careful review of the records of this
case, we find that petitioner failed to establish its right to be entitled to the proceeds
of the MTI.There is no evidence that petitioner, as creditor or as trustee, had a cause
of action to move for the extrajudicial foreclosure of the subject properties
mortgaged under the MTI.
The conditions of the MTI are very clear. Section 3.3 of the MTI provides: [30]
It is the intent of the COMPANY that the BORROWERS will obtain additional
loans or credit accommodations from certain other banking or financial
institutions in accordance with arrangements made by the BORROWERS with
the CREDITORS.
ALL OBLIGATIONS covered by this INDENTURE shall be evidenced by
a Mortgage Participation Certificate in the form of Schedule II
hereof, the issuance of which by the TRUSTEE to the participating
CREDITOR/S shall be in accordance with Section 7 of this INDENTURE,
provided the aggregate LOAN VALUES of the COLLATERAL, based on the latest
appraisal thereof, are not exceeded. (Emphasis supplied.)
Section 1.11 of the MTI defines a Mortgage Participation Certificate (MPC) as a
certificate issued by the trustee to a creditor pursuant to the MTI, representing an
aliquot interest in the mortgage created by the MTI. The face amount of the MPC is
the value in money of its holders participation or interest in the mortgaged property.
To address the gaps in the facts as presented by the parties and by the lower
courts, we issued a Resolution [31] on 5 September 2011. We required petitioner to
submit, among others, all amendments to the MTI and all the MPCs issued. Petitioner
failed to comply with this directive. For one reason or another, instead of submitting
MPCs evidencing its interest in the MTI, it submitted to this Court documents
referring to different instruments altogether. [32] Petitioner should have been more
careful in complying with this Courts Orders.
More glaring is the fact that the assailed MTI is not even referred to in the
Promissory Notes executed by petitioner in favor of San Carlos, evidencing the loans
extended by the latter to the former. This omission violated Section 1.13 of the MTI,
which requires that a promissory note must be covered by an outstanding MPC and
secured by the lien of the MTI. The Promissory Notes reveal the following: [33]
Petitioner thus miserably failed to prove that it was entitled to the benefits of the
MTI.
Even if we assume that petitioner was indeed a creditor protected by the
MTI, we find that, as trustee and as creditor, it failed to comply with the MTIs
conditions for granting additional loans to San Carlos additions that brought the total
loan amount to1,178,961,181.45 when it did not amend the MTI to accommodate
the additional loans in excess of 144 million.
In its application for an extrajudicial foreclosure of Centros properties,
petitioner states:[34] We have the honor to request your good Office to
conduct/undertake extrajudicial foreclosure sale proceedings under Act No. 3135, as
amended, and other applicable laws, on the properties covered by the Mortgage
Trust Indenture, dated March 21, 1990, as amended on March 31, 1993 and further
amended on July 28, 1994 executed by the Mortgagor, CENTRO DEVELOPMENT
CORPORATION, in favor of the Former Trustee, BANK OF THE PHILIPPINE ISLANDS
and Trust Indenture, dated September 27, 1994, also executed by
the Mortgagor, CENTRO
DEVELOPMENT
CORPORATION,
in
favor
of
the Mortgagee/Trustee, METROPOLITAN BANK AND TRUST COMPANY-TRUST

BANKING GROUP, to secure among others, several obligations of SAN CARLOS

MILLING CO., INC. under various Promissory Notes, with a total principal amount
of EIGHT HUNDRED TWELVE MILLION SEVEN HUNDRED NINETY-THREE
THOUSAND FIVE HUNDRED THIRTEEN PESOS AND TWENTY-THREE
CENTAVOS (812,793,513.23), for breach of the terms and conditions of the said
Trust Indenture. (Emphasis in the original.)
However, Section 9.4 of the 27 September 1994 MTI clearly states: [35]
The written consent of the COMPANY, the TRUSTEE and all the
CREDITORS shall be required for any amendment of the terms and
conditions of this INDENTURE. Additional loans which will be covered
by the INDENTURE shall require the written consent of the MAJORITY
CREDITORS and shall be within the loan value stipulated in Section
1.8[36] of this INDENTURE. (Emphasis supplied.)
The fact that the foreclosure of the mortgaged property was undertaken
pursuant to the 27 September 1994 MTI is an indication that the parties had failed to
amend it accordingly.
Because the 27 September 1994 MTI was not amended to secure the loan
granted to the debtors, petitioner could not have applied for an extrajudicial
foreclosure on the basis of all the Promissory Notes granted to San Carlos. Instead,
petitioner could have only applied for the foreclosure of the property corresponding
to 144 million, which was the maximum amount embodied in the 27 September
1994 MTI. In other words, as an accommodation debtor, Centros properties may not
be liable for San Carlos debts beyond this maximum amount, pursuant to the MTI
executed with petitioner. In Caltex Philippines v. Intermediate Appellate Court,[37] we
likewise held that the value of the mortgage should be limited only to the amount
provided by the contract between the parties.
Section 4 of Rule 68 of the Rules of Court provides:
Disposition of proceeds of sale - The amount realized from the
foreclosure sale of the mortgaged property shall, after deducting the
costs of the sale, be paid to the person foreclosing the mortgage, and
when there shall be any balance or residue, after paying off the
mortgage debt due, the same shall be paid to junior encumbrancers in
the order of their priority, to be ascertained by the court, or if there be
no such encumbrancers or there be a balance or residue after
payment to them, then to the mortgagor or his duly authorized agent,
or to the person entitled to it.
While it is true that some of the documents required by this Court to be
submitted by the parties were not presented at the trial stage, when the legal issues
raised begs the reception of that evidence especially considering that a case, like
the present one has been pending for more than a decade then the Court may
require the parties to submit such evidence in the interest of justice. This is clearly
provided under Rule 45, Section 7 of the Rules of Court.[38]
On a final note, Republic Act No. 8971, or the General Banking Law of 2000,
recognizes the vital role of banks in providing an environment conducive to the
sustained development of the national economy and the fiduciary nature of banking;
thus, the lawrequires banks to have high standards of integrity and performance.
The fiduciary nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family. [39] In the case at bar, petitioner itself
was negligent in the conduct of its business when it extended unsecured loans to
the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It
was not able to protect the interests of the parties and was even instrumental in
violating the terms of the MTI, to the detriment of the parties thereto. Thus,
petitioner has only itself to blame for being left with insufficient recourse against
petitioner under the assailed MTI.
WHEREFORE, in view of the foregoing, the Petition is hereby PARTLY
GRANTED. The Mortgage Trust Indenture is declared VALID. Nonetheless, for

reasons stated herein, the Decision of the Court of Appeals in CA-G.R. CV No. 80778,
declaring the foreclosure proceedings in Foreclosure No. S-04-011 over TCT Nos.
139880 and 139881 of no force and effect, isAFFIRMED. Likewise, the cancellation
of the Certificates of Title in the name of petitioner Metropolitan Bank and Trust
Company and the denial of the payment of damages are also AFFIRMED.
RURAL BANK vs. CENTENO
Assailed in this Petition for Review on Certiorari1 is the January 31, 2012 Decision2 of
the Cebu City Court of Appeals (CA) in CA-G.R. CV No. 78398 which set aside the
October 8, 2002 Decision of the Regional Trial Court of Barotac Viejo, Iloilo City,
Branch -66 (RTC} in Cadastral Case No. 98-0693and denied the issuance of a writ of
possession for Cadastral Lot Nos. 964, 958 and 959 of the Ajuy, Iloilo Cadastre
(subject lots) in petitioner's favor
The Facts
Spouses Gregorio and Rosario Centeno (Sps. Centeno) were the previous owners of
the subject lots. During that time, they mortgaged the foregoing properties in favor
of petitioner Rural Bank of Sta. Barbara (Iloilo), Inc. as security for a P1,753.65 loan.
Sps. Centeno, however, defaulted on the loan, prompting petitioner to cause the
extrajudicial foreclosure of the said mortgage. Consequently, the subject lots were
sold to petitioner being the highest bidder at the auction sale. On October 10, 1969,
it obtained a Certificate of Sale at Public Auction4 which was later registered with the
Register of Deeds of Iloilo City on December 13, 1971. 5chanroblesvirtualawlibrary
Sps. Centeno failed to redeem the subject lots within the one (1) year redemption
period pursuant to Section 66 of Act No. 3135.7 Nonetheless, they still continued with
the possession and cultivation of the aforesaid properties. Sometime in 1983,
respondent Gerry Centeno, son of Sps. Centeno, took over the cultivation of the
same. On March 14, 1988, he purchased the said lots from his parents. Accordingly,
Rosario Centeno paid the capital gains taxes on the sale transaction and tax
declarations were eventually issued in the name of respondent.8 While the latter was
in possession of the subject lots, petitioner secured on November 25, 1997 a Final
Deed of Sale thereof and in 1998, was able to obtain the corresponding tax
declarations in its name.9chanroblesvirtualawlibrary
On March 19, 1998, petitioner filed a petition for the issuance of a writ of possession
before the RTC, claiming entitlement to the said writ by virtue of the Final Deed of
Sale covering the subject lots.10Respondent opposed the petition, asserting that he
purchased and has, in fact, been in actual, open and exclusive possession of the
same properties for at least fifteen (15) years. 11 He further averred that the
foreclosure sale was null and void owing to the forged signatures in the real estate
mortgage. Moreover, he claims that petitioner's rights over the subject lots had
already prescribed.12chanroblesvirtualawlibrary
Ruling of the RTC
On October 8, 2002, the RTC rendered its Decision 13 in Cadastral Case No. 98-069,
finding petitioner to be the lawful owner of the subject lots whose rights became
absolute due to respondent's failure to redeem the same. Consequently, it found the
issuance of a writ of possession ministerial on its part. 14 Dissatisfied, respondent
appealed to the CA.
Ruling of the CA
The CA, through its January 31, 2012 Decision,15 reversed the RTC and ruled against
the issuance of a writ of possession. It considered respondent as a third party who is
actually holding the property adverse to the judgment obligor and as such, has the
right to ventilate his claims in a proper judicial proceeding i.e., an ejectment suit or
reinvindicatory action.16chanroblesvirtualawlibrary
Aggrieved, petitioner filed the instant petition.
Issue Before The Court

The sole issue in this case is whether or not petitioner is entitled to a writ of
possession over the subject lots.
The Court's Ruling
The petition is meritorious.
It is well-established that after consolidation of title in the purchaser's name for
failure of the mortgagor to redeem the property, the purchaser's right to possession
ripens into the absolute right of a confirmed owner. At that point, the issuance of a
writ of possession, upon proper application and proof of title, to a purchaser in an
extrajudicial foreclosure sale becomes merely a ministerial function, 17 unless it
appears that the property is in possession of a third party claiming a right adverse to
that of the mortgagor.18 The foregoing rule is contained in Section 33, Rule 39 of the
Rules of Court which partly provides:chanroblesvirtualawlibrary
Sec. 33. Deed and possession to be given at expiration of redemption period; by
whom executed or given.
Upon the expiration of the right of redemption, the purchaser or redemptioner shall
be substituted to and acquire all the rights, title, interest and claim of the judgment
obligor to the property as of the time of the levy. The possession of the property
shall be given to the purchaser or last redemptioner by the same officer unless a
third party is actually holding the property adversely to the judgment obligor.
(Emphasis and underscoring supplied)
In China Banking Corporation v. Lozada,19 the Court held that the phrase "a third
party who is actually holding the property adversely to the judgment obligor"
contemplates a situation in which a third party holds the property by adverse title or
right, such as that of a co-owner, tenant or usufructuary. The co-owner, agricultural
tenant, and usufructuary possess the property in their own right, and they are not
merely the successor or transferee of the right of possession of another co-owner or
the owner of the property.20 Notably, the property should not only be possessed by a
third party, but also held by the third party adversely to the judgment
obligor.21chanroblesvirtualawlibrary
In this case, respondent acquired the subject lots from his parents, Sps. Centeno, on
March 14, 1988 after they were purchased by petitioner and its Certificate of Sale at
Public Auction was registered with the Register of Deeds of Iloilo City in 1971. It
cannot therefore be disputed that respondent is a mere successor-in-interest of Sps.
Centeno. Consequently, he cannot be deemed as a "third party who is actually
holding the property adversely to the judgment obligor" under legal contemplation.
Hence, the RTC had the ministerial duty to issue as it did issue the said writ in
petitioner's favor.
On the issue regarding the identity of the lots as raised by respondent in his
Comment,22 records show that the RTC had already passed upon petitioner's title
over the subject lots during the course of the proceedings. Accordingly, the identity
of the said lots had already been established for the purpose of issuing a writ of
possession. It is hornbook principle that absent any clear showing of abuse,
arbitrariness or capriciousness committed by the lower court, its findings of facts are
binding and conclusive upon the Court,23 as in this case.
Finally, anent the issue of laches, it must be maintained that the instant case only
revolves around the issuance of a writ of possession which is merely ministerial on
the RTC's part as above-explained. As such, all defenses which respondent may raise
including that of laches should be ventilated through a proper proceeding.
WHEREFORE, the petition is GRANTED. The January 31, 2012 Decision of the Cebu
City Court of Appeals in CA-G.R. CV No. 78398 is REVERSED and SET ASIDE.

Accordingly, the October 8, 2002 Decision of the Regional Trial Court of Barotac
Viejo, Iloilo City, Branch 66 in Cadastral Case No. 98-069 is hereby REINSTATED.
SO ORDERED.

LIM vs. DEVELOPMENT BANK OF THE PHILIPPINES

On November 24, 1969, petitioners Carlos, Consolacion, and Carlita, surnamed Lim,
obtained a loan of P40,000.00 (Lim Account) from respondent Development Bank of
the Philippines (DBP) to finance their cattle raising business.
On the same day, they executed a Promissory Note undertaking to pay the annual
amortization with an interest rate of 9% per annum and penalty charge of 11% per
annum.
On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and Edmundo, all
surnamed Lim; Shirley Leodadia Dizon, Arleen Lim Fernandez, Juan S. Chua,6 and
Trinidad D. Chua obtained another loan from DBP in the amount of P960,000.00
(Diamond L Ranch Account).
They also executed a Promissory Note, promising to pay the loan annually from
August 22, 1973 until August 22, 1982 with an interest rate of 12% per annum and a
penalty charge of 1/3% per month on the overdue amortization. Due to violent
confrontations between government troops and Muslim rebels in Mindanao from
1972 to 1977, petitioners were forced to abandon their cattle ranch.13 As a result,
their business collapsed and they failed to pay the loan amortizations.
In 1978, petitioners made a partial payment in the amount of P902,800.00,15
leaving an outstanding loan balance of P610,498.30, inclusive of charges and unpaid
interest, as of September 30, 1978.16
In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested from DBP
Statements of Account for the Lim Account and the Diamond L Ranch Account.
Claiming to have already paid P902,800.00, Edmundo requested for an amended
statement of account. On May 4, 1990, Edmundo made a follow-up on the request
for recomputation of the two accounts. On May 17, 1990, DBPs General Santos
Branch informed Edmundo that the Diamond L Ranch Account amounted to
P2,542,285.60 as of May 31, 199022 and that the mortgaged properties located at
San Isidro, Lagao, General Santos City, had been subjected to Operation Land
Transfer under the Comprehensive Agrarian Reform Program (CARP) of the
government. Edmundo was also advised to discuss with the Department of Agrarian
Reform (DAR) and the Main Office of DBP24 the matter of the expropriated
properties. Edmundo asked DBP how the mortgaged properties were ceded by DAR
to other persons without their knowledge.25 No reply was made. On April 30, 1991,
Edmundo again signified petitioners intention to settle the Diamond L Ranch
Account.27 Again, no reply was made.
On February 21, 1992, Edmundo received a Notice of Foreclosure scheduled the
following day.29 To stop the foreclosure, he was advised by the banks Chief Legal
Counsel to pay an interest covering a 60-days period or the amount of P60,000.00 to
postpone the foreclosure for 60 days. He was also advised to submit a written
proposal for the settlement of the loan accounts. In a letter dated March 20, 1992,
Edmundo proposed the settlement of the accounts through dacion en pago, with the
balance to be paid in equal quarterly payments over five years.
In a reply-letter dated May 29, 1992, DBP rejected the proposal and informed
Edmundo that unless the accounts are fully settled as soon as possible, the bank will
pursue foreclosure proceedings. DBP then sent Edmundo the Statements of
Account34 as of June 15, 1992 which were stamped with the words Errors &
Omissions Excepted/Subject to Audit On June 11, 1992, Edmundo proposed to pay
the principal and the regular interest of the loans in 36 equal monthly installments.
On July 3, 1992, DBP advised Edmundo to coordinate with Branch Head Bonifacio
Tamayo, Jr. (Tamayo). Tamayo promised to review the accounts. On September 21,
1992, Edmundo received another Notice from the Sheriff that the mortgaged

properties would be auctioned on November 22, 1992. Edmundo again paid

P30,000.00 as additional interest to postpone the auction. But despite payment of
P30,000.00, the mortgaged properties were still auctioned with DBP emerging as the
highest bidder in the amount of P1,086,867.26.40 The auction sale, however, was
later withdrawn by DBP for lack of jurisdiction. Thereafter, Tamayo informed
Edmundo of the banks new guidelines for the settlement of outstanding loan
accounts under Board Resolution No. 0290-92.42 Based on these guidelines,
petitioners outstanding loan obligation was computed at P3,500,000.00 plus.
Tamayo then proposed that petitioners pay 10% downpayment and the remaining
balance in 36 monthly installments. He also informed Edmundo that the bank would
immediately prepare the Restructuring Agreement upon receipt of the downpayment
and that the conditions for the settlement have been pre-cleared with the banks
Regional Credit Committee.45 Thus, Edmundo wrote a letter46 on October 30, 1992
manifesting petitioners assent to the proposal.
On November 20, 1992, Tamayo informed Edmundo that the proposal was accepted
with some minor adjustments and that an initial payment should be made by
November 27, 1992.47
On December 15, 1992, Edmundo paid the downpayment of P362,271.7548and was
asked to wait for the draft Restructuring Agreement.4 However, on March 16, 1993,
Edmundo received a letter50 from Tamayo informing him that the Regional Credit
Committee rejected the proposed Restructuring Agreement; that it required
downpayment of 50% of the total obligation; that the remaining balance should be
paid within one year; that the interest rate should be non prime or 18.5%, whichever
is higher; and that the proposal is effective only for 90 days from March 5, 1993 to
June 2, 1993.Edmundo, in a letter dated May 28, 1993, asked for the restoration of
their previous agreement.53 On June 5, 1993, the bank replied,54 viz: This has
reference to your letter dated May 28, 1993, which has connection to your desire to
restructure the Diamond L Ranch/Carlos Lim Accounts.
We wish to clarify that what have been agreed between you and the Branch are not
final until [the] same has been approved by higher authorities of the Bank. We did
[tell] you during our discussion that we will be recommending the restructuring of
your accounts with the terms and conditions as agreed. Unfortunately, our Regional
Credit Committee did not agree to the terms and conditions as recommended,
hence, the subject of our letter to you on March 15, 1993.
Please be informed further, that the Branch cannot do otherwise but to comply with
the conditions imposed by the Regional Credit Committee. More so, the time frame
given had already lapsed on June 2, 1993. Unless we will receive a favorable action
on your part soonest, the Branch will be constrained to do appropriate action to
protect the interest of the Bank.
On July 28, 1993, Edmundo wrote a letter56 of appeal to the Regional Credit
Committee. In a letter57 dated August 16, 1993, Tamayo informed Edmundo that
the previous Restructuring Agreement was reconsidered and approved by the
Regional Credit Committee subject to the following conditions, all of which was not
complied by Edmundo On September 21, 1993, Edmundo received Notice that the
mortgaged properties were scheduled to be auctioned on that day.59 To stop the
auction sale, Edmundo asked for an extension until November 15, 199360 which was
approved subject to additional conditions. Receiving no response, Edmundo
scheduled a meeting with Tamayo in Manila. During their meeting, Tamayo told
Edmundo that he would send the draft of the Restructuring Agreement by courier on
November 15, 1993 to the Main Office of DBP in Makati, and that Diamond L Ranch
need not submit the Board Resolution, the Secretarys Certificate, and the SEC
Registration since it is a single proprietorship.
On November 24, 1993 and December 3, 1993, Edmundo sent telegrams to Tamayo
asking for the draft of the Restructuring Agreement. On November 29, 1993, the
documents were forwarded to the Legal Services Department of DBP in Makati for
the parties signatures. At the same time, Edmundo was required to pay the amount
of P1,300,672.75, plus a daily interest of P632.15 starting November 16, 1993 up to

the date of actual payment of the said amount. On December 19, 1993, Edmundo
received the draft of the Restructuring Agreement. In a letter dated January 6, 1994,
Tamayo informed Edmundo that the bank cancelled the Restructuring Agreement
due to his failure to comply with the conditions within a reasonable time.
On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking that he pay
the outstanding amount of P6,404,412.92, as of November 16, 1993, exclusive of
interest and penalty charges. Edmundo, in a letter70 dated January 18, 1994,
explained that his lawyer was not able to review the agreement due to the
Christmas holidays. He also said that his lawyer was requesting clarification on the
following points: (1) Can the existing obligations of the Mortgagors, if any, be
specified in the Restructuring Agreement already?; (2) Is there a statement showing
all the accrued interest and advances that shall first be paid before the
restructuring shall be implemented? 3. Should Mr. Jun Sarenas Chua and his wife
Mrs. Trinidad Chua be required to sign as Mortgagors considering that Mr. Chua is
deceased and the pasture lease which he used to hold has already expired?
Edmundo also indicated that he was prepared to pay the first quarterly amortization
on March 15, 1994 based on the total obligations of P3,260,445.71, as of December
15, 1992, plus interest.72On January 28, 1994, Edmundo received from the bank a
telegram73 which reads: We refer to your cattle ranch loan carried at our DBP
General Santos City Branch.
Please coordinate immediately with our Branch Head not later than 29 January 1994,
to forestall the impending foreclosure action on your account. Please give the matter
your utmost attention. The bank also answered Edmundos queries, viz: In view of
the extended leave of absence of AVP Bonifacio A. Tamayo, Jr. due to the untimely
demise of his father, we regret [that] he cannot personally respond to your letter of
January 18, 1994. However, he gave us the instruction to answer your letter on
direct to the point basis as follows:
Sheriff of the RTC of General Santos City issued a Notice77 resetting the public
auction sale of the mortgaged properties on July 11, 1994. Said Notice was
published for three consecutive weeks in a newspaper of general circulation in, the
Ex-Officio Sheriff conducted a public auction sale of the mortgaged properties for the
satisfaction of petitioners total obligations in the amount of P5,902,476.34. DBP was
the highest bidder in the amount of P3,310,176.55.79
On July 13, 1994, the Ex-Officio Sheriff issued the Sheriffs Certificate of ExtraJudicial Sale in favor of DBP covering 11 parcels of land.80In a letter81 dated
September 16, 1994, DBP informed Edmundo that their right of redemption over the
foreclosed properties would expire on July 28, 1995, to wit.
On July 28, 1995, petitioners filed before the RTC of General Santos City, a Complaint
against DBP for Annulment of Foreclosure and Damages with Prayer for Issuance of
a Writ of Preliminary Injunction and/or Temporary Restraining Order. Petitioners
alleged that DBPs acts and omissions prevented them from fulfilling their obligation;
thus, they prayed that they be discharged from their obligation and that the
foreclosure of the mortgaged properties be declared void. They likewise prayed for
actual damages for loss of business opportunities, moral and exemplary damages,
attorneys fees, and expenses of litigation. On same date, the RTC issued a
Temporary Restraining Order directing DBP to cease and desist from consolidating
the titles over petitioners foreclosed properties and from disposing the same.
In an Order86 dated August 18, 1995, the RTC granted the Writ of Preliminary
Injunction and directed petitioners to post a bond in the amount of P3,000,000.00.
DBP filed its Answer, arguing that petitioners have no cause of action;that
petitioners failed to pay their loan obligation; that as mandated by Presidential
Decree No. 385, initial foreclosure proceedings were undertaken in 1977 but were
aborted because petitioners were able to obtain a restraining order; that on
December 18, 1990, DBP revived its application for foreclosure but it was again held
in abeyance upon petitioners request; that DBP gave petitioners written and verbal
demands as well as sufficient time to settle their obligations; and that under Act
3135,93 DBP has the right to foreclose the properties.

Ruling of the Regional Trial Court : On December 10, 1996, the RTC rendered a
Decision, the dispositive
portion of which reads: WHEREFORE, in light of the foregoing, judgment is hereby
rendered: (1) Declaring that the [petitioners] have fully extinguished and discharged
their obligation to the [respondent] Bank; (2) Declaring the foreclosure of
[petitioners] mortgaged properties, the sale of the properties under the foreclosure
proceedings and the resultant certificate of sale issued by the foreclosing Sheriff by
reason of the foreclosure NULL and VOID; (3) Ordering the return of the [properties]
to [petitioners] free from mortgage liens; (4) Ordering [respondent] bank to pay
[petitioners], actual and compensatory damages. [Respondent] Bank is likewise
ordered to pay the costs of suit.
Ruling of the Court of Appeals: On appeal, the CA reversed and set aside the RTC
Decision. Thus: WHEREFORE, in view of the foregoing, the instant appeal is hereby
GRANTED. The assailed Decision dated 10 December 1996 is hereby REVERSED and
SET ASIDE. A new judgment is hereby rendered. It shall now read as follows:
WHEREFORE, premises considered, judgment is hereby rendered: 1. Ordering the
dismissal of the Complaint in Civil Case No.
5608; 2. Declaring the extrajudicial foreclosure of [petitioners] mortgaged
properties as valid; 3. Ordering [petitioners] to pay the [respondent] the amount of
Two Million Five Hundred Ninety Two Thousand Two Hundred Ninety Nine [Pesos] and
Seventy-Nine Centavos (P2,592,299.79) plus interest and penalties as stipulated in
the Promissory Note computed from 11 July 1994 until full payment; and 4. Ordering
[petitioners] to pay the costs.
Issues Hence, the instant recourse by petitioners raising the following issues:
1. Whether respondents own wanton, reckless and oppressive acts and omissions in
discharging its reciprocal obligations to petitioners effectively prevented the
petitioners from paying their loan obligations in a proper and suitable manner;
2. Whether as a result of respondents said acts and omissions, petitioners
obligations should be deemed fully complied with and extinguished in accordance
with the principle of constructive fulfillment;
3. Whether the return by the trial Court of the mortgaged properties to petitioners
free from mortgage liens constitutes unjust enrichment;
4. Whether the low bid price made by the respondent for petitioners mortgaged
properties during the foreclosure sale is so gross, shocking to the conscience and
inherently iniquitous as to constitute sufficient ground for setting aside the
foreclosure sale;
5. Whether the restructuring agreement reached and perfected between the
petitioners and the respondent novated and extinguished petitioners loan
obligations to respondent under the Promissory Notes sued upon; and
6. Whether the respondent should be held liable to pay petitioners actual and
compensatory damages, temperate damages, moral damages, exemplary damages,
attorneys fees and expenses of litigation.98
Petitioners Arguments
Petitioners seek the reinstatement of the RTC Decision which declared their
obligation fully extinguished and the foreclosure proceedings of their mortgaged
properties void.
Relying on the Principle of Constructive Fulfillment, petitioners insist that their
obligation should be deemed fulfilled since DBP prevented them from performing
their obligation by charging excessive interest and penalties not stipulated in the
Promissory Notes, by failing to promptly provide them with the correct Statements of
Account, and by cancelling the Restructuring Agreement even if they already paid
P362,271.75 as downpayment.99 They likewise deny any fault or delay on their part
in finalizing the Restructuring Agreement. In addition, petitioners insist that the
foreclosure sale is void for lack of personal notice101 and the inadequacy of the bid
price.102 They contend that at the time of the foreclosure, petitioners obligation
was not yet due and demandable,103and that the restructuring agreement novated
and extinguished petitioners loan

obligation. Finally, petitioners claim that DBP acted in bad faith or in a wanton,
reckless, or oppressive manner; hence, they are entitled to actual, temperate, moral
and exemplary damages, attorneys fees, and expenses of litigation.
Respondents Arguments : DBP, on the other hand, denies acting in bad faith or in a
wanton, reckless, or oppressive manner106 and in charging excessive interest and
penalties.107According to it, the amounts in the Statements of Account vary
because the computations were based on different cut-off dates and different
incentive schemes.
DBP further argues that the foreclosure sale is valid because gross inadequacy of
the bid price as a ground for the annulment of the sale applies only to judicial
foreclosure.109 It likewise maintains that the Promissory Notes and the Mortgage
were not novated by the proposed Restructuring Agreement.
As to petitioners claim for damages, DBP contends it is without basis because it did
not act in bad faith or in a wanton, reckless, or oppressive manner.
Our Ruling: The Petition is partly meritorious.
The obligation was not extinguished or discharged. The Promissory Notes subject of
the instant case became due and demandable as early as 1972 and 1976. The only
reason the mortgaged properties were not foreclosed in 1977 was because of the
restraining order from the court.
In 1978, petitioners made a partial payment of P902,800.00. No subsequent
payments were made. It was only in 1989 that petitioners tried to negotiate the
settlement of their loan obligations. And although DBP could have foreclosed the
mortgaged properties, it instead agreed to restructure the loan. In fact, from 1989 to
1994, DBP gave several extensions for petitioners to settle their loans, but they
never did, thus, prompting DBP to cancel the Restructuring Agreement. Petitioners,
however, insist that DBPs cancellation of the Restructuring Agreement justifies the
extinguishment of their loan obligation under the Principle of Constructive Fulfillment
found in Article 1186 of the Civil Code.
We do not agree. As aptly pointed out by the CA, Article 1186 of the Civil Code,
which states that the condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment, does not apply in this case,112 viz: Article 1186
enunciates the doctrine of constructive fulfillment of suspensive conditions, which
applies when the following three (3) requisites concur, viz: (1) The condition is
suspensive; (2) The obligor actually prevents the fulfillment of the condition; and (3)
He acts voluntarily. Suspensive condition is one the happening of which gives rise to
the obligation. It will be irrational for any Bank to provide a suspensive condition in
the Promissory Note or the Restructuring Agreement that will allow the debtorpromissor to be freed from the duty to pay the loan without paying it.113
Besides, petitioners have no one to blame but themselves for the cancellation of the
Restructuring Agreement. It is significant to point out that when the Regional Credit
Committee reconsidered petitioners proposal to restructure the loan, it imposed
additional conditions. In fact, when DBPs General Santos Branch forwarded the
Restructuring Agreement to the Legal Services Department of DBP in Makati,
petitioners were required to pay the amount of P1,300,672.75, plus a daily interest
of P632.15 starting November 16, 1993 up to the date of actual payment of the said
amount.114 This, petitioners failed to do. DBP therefore had reason to cancel the
Restructuring Agreement. Moreover, since the Restructuring Agreement was
cancelled, it could not have novated or extinguished petitioners loan obligation. And
in the absence of a perfected Restructuring Agreement, there was no impediment
for DBP to exercise its right to foreclose the mortgaged properties.11 The foreclosure
sale is not valid. But while DBP had a right to foreclose the mortgage, we are
constrained to nullify the foreclosure sale due to the banks failure to send a notice
of foreclosure to petitioners. We have consistently held that unless the parties
stipulate, personal notice to the mortgagor in extrajudicial foreclosure proceedings
is not necessary116 because Section 3117 of Act 3135 only requires the posting of
the notice of sale in three public places and the publication of that notice in a
newspaper of general circulation.

In this case, the parties stipulated in paragraph 11 of the Mortgage that: All
correspondence relative to this mortgage, including demand letters, summons,
subpoenas, or notification of any judicial or extra-judicial action shall be sent to the
Mortgagor at xxx or at the address that may hereafter be given in writing by the
Mortgagor or the Mortgagee;118However, no notice of the extrajudicial foreclosure
was sent by DBP to petitioners about the foreclosure sale scheduled on July 11,
1994. The letters dated January 28, 1994 and March 11, 1994 advising petitioners to
immediately pay their obligation to avoid the impending foreclosure of their
mortgaged properties are not the notices required in paragraph 11 of the Mortgage.
The failure of DBP to comply with their contractual agreement with petitioners, i.e.,
to send notice, is a breach sufficient to invalidate the foreclosure sale.
In Metropolitan Bank and Trust Company v. Wong, we explained that: a contract is
the law between the parties and, that absent any showing that its provisions are
wholly or in part contrary to law, morals, good customs, public order, or public
policy, it shall be enforced to the letter by the courts. Section 3, Act No. 3135 reads:
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality and city.
The Act only requires (1) the posting of notices of sale in three public places, and (2)
the publication of the same in a newspaper of general circulation. Personal notice to
the mortgagor is not necessary. Nevertheless, the parties to the mortgage contract
are not precluded from exacting additional requirements. In this case, petitioner and
respondent in entering into a contract of real estate mortgage, agreed inter alia: all
correspondence relative to this mortgage, including demand letters, summonses,
subpoenas, or notifications of any judicial or extra-judicial action shall be sent to the
MORTGAGOR at 40-42 Aldeguer St. Iloilo City, or at the address that may hereafter
be given in writing by the MORTGAGOR to the MORTGAGEE.
Precisely, the purpose of the foregoing stipulation is to apprise respondent of any
action which petitioner might take on the subject property, thus according him the
opportunity to safeguard his rights. When petitioner failed to send the notice of
foreclosure sale to respondent, he committed a contractual breach sufficient to
render the foreclosure sale on November 23, 1981 null and void.120 (Emphasis
supplied)
In view of foregoing, the CA erred in finding the foreclosure sale valid. Penalties and
interest rates should be expressly stipulated in writing. As to the imposition of
additional interest and penalties not stipulated in the Promissory Notes, this should
not be allowed. Article 1956 of the Civil Code specifically states that no interest
shall be due unless it has been expressly stipulated in writing. Thus, the payment of
interest and penalties in loans is allowed only if the parties agreed to it and reduced
their agreement in writing.
In this case, petitioners never agreed to pay additional interest and penalties.
Hence, we agree with the RTC that these are illegal, and thus, void. Quoted below
are the findings of the RTC on the matter, to wit: Moreover, in its various statements
of account, [respondent] Bank charged [petitioners] for additional interests and
penalties which were not stipulated in the promissory notes.
The Court finds no basis under the Promissory Note, Exhibit A, for charging the
additional interest in the amount of P2,590,786.26. Moreover, it is incomprehensible
how the penalty charge of 1/3% per month on the overdue amortization could
amount to P1,086,147.19 while the regular interest, which was stipulated at the
higher rate of 12% per annum, amounted to only P561,037.14 or about half of the
amount allegedly due as penalties.
Again, the Court finds no basis in the Promissory Note, Exhibit A, for the imposition
of additional interest on principal in the amount of P1,233,893.79, additional interest
on regular interest in the amount of P859,966.83, penalty charges on regular

interest in the amount of P1,146,622.55 and penalty charges on advances in the

amount of P40,520.53.
Again, this Court notes that the additional interest in the amount of P92,113.56 is
even larger than the regular interest in the amount of P5,046.97. Moreover, based
on the Promissory Note, Exhibit C, if the 11% interest on unpaid amortization is
considered an additional interest, then there is no basis for [respondent] bank to
add penalty charges as there is no other provision providing for this charge. If, on
the other hand, the 11% interest on unpaid amortization is considered the penalty
charge, then there is no basis to separately charge plaintiffs additional interest. The
same provision cannot be used to charge plaintiffs both interest and penalties.
Moreover, [respondent] bank charged [petitioners] twice under the same provisions
in the promissory notes. It categorically admitted that the additional interests and
penalty charges separately being charged [petitioners] referred to the same
provision of the Promissory Notes,
Finally, as to petitioners claim for damages, we find the same devoid of merit. DBP
did not act in bad faith or in a wanton, reckless, or oppressive manner in cancelling
the Restructuring Agreement. As we have said, DBP had reason to cancel the
Restructuring Agreement because petitioners failed to pay the amount required by it
when it reconsidered petitioners request to restructure the loan. Likewise, DBPs
failure to send a notice of the foreclosure sale to petitioners and its imposition of
additional interest and penalties do not constitute bad faith. There is no showing
that these contractual breaches were done in bad faith or in a wanton, reckless, or
oppressive manner.
In Philippine National Bank v. Spouses Rocamora, we said that: 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. 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.
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. 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 circwnstances, neither should they recover attorney's fees
and litigation expense.
These awards are accordingly deleted. WHEREFORE, the Petition is PARTLY
GRANTED. The assailed February 22, 2007 Decision of the Court of Appeals in CAG.R. CV No. 59275 is hereby MODIFIED in accordance with this Decision. The case is
hereby REMANDED to the Regional Trial Court of General Santos City, Branch 22, for
the proper determination of petitioners' total loan obligations based on the interest
and penalties stipulated in the Promissory Notes dated November 24, 1969 and
December 30, 1970. The foreclosure sale of the mortgaged properties held on July
11, 1994 is DECLARED void ab initio for failure to comply with paragraph of the
Mortgage, without prejudice to the conduct of another foreclosure sale based on the
recomputed amount of the loan obligations, if necessary.
ATTY. LEO N. CAUBANG vs> JESUS G. CRISOLOGO and NANETTE B.
CRISOLOGO,
PERALTA, J.:
For the Court's resolution is a Petition for Review under Rule 45 of the Rules of Court
which petitioner Atty. Leo N. Caubang filed, questioning the Decision 1 of the Court of

Appeals (CA), dated May 22, 2006, and its Resolution 2dated August 16, 2006 in CAG.R. CV. No. 68365. The CA affirmed the Decision 3 of the Regional Trial Court (RTC) of
Davao City, Branch 12, dated August 1, 2000, with modifications, in Civil Case No.
27168-99.
The facts, as gathered from the records, are as follows:
On December 17, 1993, respondents spouses Jesus and Nannette Crisologo (the
Spouses Crisologo) obtained an Express Loan in the amount of P200,000.00 from
PDCP Development Bank Inc. (PDCP Bank). On January 26, 1994, the Spouses
Crisologo acquired another loan from the same bank, this time a Term Loan
of P1,500,000.00 covered by a Loan Agreement. As security for both loans,the
spouses mortgaged their property covered by Transfer Certificate of Title (TCT) No. T181103. Upon release of the Term Loan, they were given two (2) promissory notes,
for the amount of P500,000.00 on February 9, 1994 and P1,000,000.00 on February
21, 1994.
Under the promissory notes, the Spouses Crisologo agreed to pay the principal
amount of the loan over a periodof three (3) years in twelve (12) equal quarterly
amortizations. Although they were able to pay the Express Loan, starting August 22,
1994, however, or after payment of the first few installments on the other loans, the
spouses defaulted in the amortizations. Despite several demands made by the
bank,the spouses still failed to pay.
On May 31, 1996, the spouses received a detailed breakdown of their outstanding
obligation. Finding the charges to be excessive, they wrote a letter to the bank
proposing to pay their loan in full with a request that the interest and penalty
charges be waived. The manager of PDCP Bank, Davao Branch, advised them to
deposit theirP1,500,000.00 obligation as manifestation of their intent to pay the
loan. As a counter-offer, the spouses agreed to deposit the amount but on the
condition that the bank should first return to them the title over the mortgaged
property. The bank did not reply until July 7, 1997, where they senta letter denying
the spouses counteroffer and demanding payment of the loan already amounting
to P2,822,469.90. By October 20, 1997, the debt had ballooned to P3,041,287.00.
For failure to settle the account, the Davao branch of the bank recommended the
foreclosure of the mortgage to its head office. On March 20, 1998, PDCP Bank filed a
Petition for the Extrajudicial Foreclosure of the Mortgage.
On June 8, 1998, petitioner Leo Caubang, as Notary Public, prepared the Notices of
Sale, announcing the foreclosure of the real estate mortgage and the sale of the
mortgaged property at public auction on July 15, 1998. He caused the posting of
said notices in three (3) public places: the Barangay Hall of Matina, City Hall of
Davao,and Bangkerohan Public Market. Publication was, likewise, made in the
Oriental Daily Examiner, one of the local newspapers in Davao City.
On July 15, 1998, Caubang conducted the auction sale of the mortgaged property,
with the bank as the only bidder.1wphi1 The bank bidded for P1,331,460.00,
leaving a deficiencyof P2,207,349.97. Thereafter, a Certificate of Sale in favor of the
bank was issued.
Later, the Spouses Crisologo were surprised to learn that their mortgaged property
had already been soldto the bank. Thus, they filed a Complaint for Nullity of
Extrajudicial Foreclosure and Auction Sale and Damages against PDCP Bank and
Caubang.
On August 1, 2000, the Davao RTC rendered a Decision nullifying the extrajudicial
foreclosure of the real estate mortgage for failure to comply with the publication
requirement, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:

1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs property, covered by TCT No. T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. 113255 on TCT No. T-181103, the entry
relative to the Certificate of Sale executed by Atty. Leo Caubang on August 5, 1998, and if a new title has been issued to
defendant PDCP, to cancel the same, and to reinstate TCT No. T-181103 in the name of Nannette B. Crisologo, of legal
age, Filipino, married to Jesus Crisologo, and a resident of Davao City, Philippines.

All the other claims of the parties are disallowed.

No pronouncement as to costs.
SO ORDERED.4
The Spouses Crisologo appealed before the CA, seeking a partial modification of the
RTC Decision, insofar as their claims for moral and exemplary damages, attorneys
fees, and costs of suit were concerned. On May 22, 2006, the appellate court
modified the decretal portion to read: WHEREFORE, judgment is hereby rendered:

1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs property, covered by TCT # T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. T-181103, the entry relative to the Certificate
of Sale executed by Atty. Leo Caubang on August 5, 1998, and if a new title has been issued to defendant PDCP, to
cancel the same, and to reinstate TCT No. T-181103 in the name of Nannette B. Crisologo, of legal age, Filipino, married
to Jesus Crisologo, and a resident of Davao City, Philippines; and
3. Atty. Caubang is ordered to pay appellants the sum of P41,500.00 as attorneys fees and P30,248.50 as litigation
expenses.

All other claims of the parties are disallowed.

SO ORDERED.5
Caubang filed a Motion for Reconsideration, but the same was denied. Hence, he
filed the present petition.
Caubang mainly assails the CAs ruling on the publication of the notices in the
Oriental Daily Examiner. He firmly contends that the CAs finding was based on
assumptions and speculations.
The petition lacks merit.
Under Section 3 of Act No. 3135:6
Section 3. Notice of sale; posting; when publication required. Notice shall be given
by posting notices ofthe sale for not less than twenty days in at least three public
places ofthe municipality or city where the property is situated, and if such property
is worth more than four hundred pesos, such notices shall also be published once a
week for at least three consecutive weeksin a newspaper of general circulation in
the municipality or city.7
Caubang never made an effort toinquire as to whether the Oriental Daily
Examinerwas indeed a newspaper of general circulation, as required by law. It was
shown that the Oriental Daily Examineris not even on the list of newspapers
accredited to publish legal notices, as recorded in the Davao RTCs Office of the
Clerk of Court. It also has no paying subscribers and it would only publish whenever
there are customers. Since there was no proper publication of the notice of sale, the
Spouses Crisologo, as well as the rest of the general public, were never informed
thatthe mortgaged property was about to be foreclosed and auctioned. As a
result,PDCP Bank became the sole bidder. This allowed the bank to bid for a very low
price (P1,331,460.00) and go after the spouses for a bigger amount as
deficiency.1wphi1
The principal object of a notice of sale in a foreclosure of mortgage is not so much to
notify the mortgagor as to inform the public generally of the nature and condition of
the property to be sold, and of the time, place, and terms of the sale. Notices are
given to secure bidders and prevent a sacrifice of the property. Therefore, statutory
provisions governing publication of notice of mortgage foreclosure sales must be
strictly complied with and slight deviations therefrom will invalidate the notice and
render the sale, at the very least, voidable. Certainly, the statutory requirements of
posting and publication are mandated and imbued with public policy considerations.
Failure to advertise a mortgage foreclosure sale in compliance with the statutory
requirements constitutes a jurisdictional defect, and any substantial error in a notice
of sale will render the notice insufficient and will consequently vitiate the sale. 8

Since it was Caubang who caused the improper publication of the notices which, in
turn, compelled the Spouses Crisologo to litigate and incur expenses involving the
declaration of nullity of the auction sale for the protection of their interest on the
property, the CA aptly held that Caubang shall be the one liable for the spouses'
claim for litigation expenses and attorney's fees.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, dated
May 22, 2006, and its Resolution dated August 16, 2006, in CA-G.R. CV. No. 68365,
are hereby AFFIRMED.
SO ORDERED.
BPI vs. REYES
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure of the Decision[1] dated April 30, 2008 of the Court of Appeals in CA-G.R.
CV No. 88004, entitled Bank of the Philippine Islands, as successor-in-interest of Far
East Bank & Trust Company vs. Cynthia L. Reyes which reversed the
Decision[2] dated November 3, 2005 of the Regional Trial Court (RTC) of Makati City,
Branch 148 in Civil Case No. 03-180.
The background facts of this case, as summed by the trial court, follow:
This is an action for sum of money filed [b]y [p]laintiff Bank of the Philippine Islands,
hereinafter referred to as BPI, as successor-in-interest of Far East Bank & Trust
Company, referred hereto as Far East Bank, against defendant Cynthia L. Reyes,
hereinafter referred to as defendant Reyes.
As alleged in the Complaint, defendant Reyes borrowed, renewed and
received from Far East Bank the principal of Twenty Million Nine Hundred
Thousand Pesos [sic] (P20,950,000.00). In support of such allegation, four
promissory notes were presented during the course of the trial of the case.
As security for the obligation, defendant Reyes executed Real Estate
Mortgage Agreements involving twenty[-]two (22) parcels of land. When the
debt became due and demandable, the defendant failed to settle her
obligation and the plaintiff was constrained to foreclose the properties. As
alleged, after due publication, the mortgaged properties were sold at public
auction on December 20, 2001 by the Office of the Clerk of Court & ExOfficio Sheriff of the Regional Trial Court of Malolos, Bulacan.
At the public auction, the mortgaged properties were awarded to BPI in
consideration of its highest bid price amounting to Nine Million Thirty[-]Two
Thousand Nine Hundred Sixty Pesos (P9,032,960.00). On said date, the
obligation already reached Thirty Million Forty (sic) Hundred Twenty
Thousand Forty[-]One & 67/100 Pesos (P30,420,041.67), inclusive of
interest but excluding attorneys fees, publication and other charges. After
applying the proceeds of the public auction to the outstanding obligation,
there remains to be a deficiency and defendant Reyes is still indebted, as of
January 20, 2003, to the plaintiff in the amount of P24,545,094.67, broken
down as follows:
Also included in the prayer of the plaintiff is the payment of attorneys fees
of at least Five Hundred Thousand Pesos and the cost of suit.
In the Answer, the defendant claims that based on the plaintiffs appraisal of
the properties mortgaged to Far East Bank, the twenty[-]two properties
fetched a total appraisal value of P47,436,000.00 as of January 6, 1998.
This appraisal value is evidenced by the Appraisal, which is attached as
Annex 1 of the Answer. Considering the appraisal value and the outstanding
obligation of the defendant, it appears that the mortgaged properties sold
during the public auction are more than enough as payment to the
outstanding obligation of the defendant.[3]

Subsequently, upon petitioners motion, the trial court issued an

Order[4] dated October 6, 2005 recognizing Asset Pool A (SPV-AMC), Inc. as
substitute plaintiff in lieu of petitioner.
After due trial, the trial court rendered its Decision dated November 3, 2005, the
dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiff BANK OF THE PHILIPPINE ISLANDS, as successor-in-interest of Far
East Bank & Trust Company, and against defendant CYNTHIA L. REYES.
Accordingly, the defendant is ordered:
1.
To pay the plaintiff the amount of Php22,083,700.00,
representing said defendants outstanding obligation, plus interest at the
rate of twelve percent (12%) per annum, computed from January 20, 2003
until the whole amount is fully paid;
2.
fees;
3.

WHETHER OR NOT THE PETITION RAISES QUESTIONS OF LAW

AND THE QUESTIONS OF FACT RAISED FALL WITHIN THE
EXCEPTIONS TO THE RULE THAT ONLY QUESTIONS OF LAW
MAY BE REVIEWED BY THIS HONORABLE COURT UNDER RULE
45 OF THE RULES OF COURT.[8]

On the other hand, respondent submits the following issues:

Whether or not the Court of Appeals erred in ruling that
there exists no deficiency owed by mortgagor-debtor as the
mortgagee-creditor bank acquired the mortgaged property at the
foreclosure sale worth P47,536,000 at only P9,032,960;

To pay plaintiff the amount of Php200,000.00 as attorneys

Whether or not the Court of Appeals erred in ruling that

the properties of the respondent were not overvalued
at P47,536,000;

Costs of suit against the defendant.[5]

Whether or not the Court of Appeals erred in entertaining

the issue that the foreclosure sale was null and void;

Respondent filed a motion for reconsideration but the same was denied by
the trial court through an Order[6] dated January 9, 2006.
An appeal with the Court of Appeals was filed by respondent. This resulted
in a reversal of the trial courts judgment via an April 30, 2008 Decision by the Court
of Appeals, the dispositive portion of which states:
WHEREFORE, the instant appeal is GRANTED. The
assailed Decision dated November 3, 2005 is hereby REVERSED
AND SET ASIDE.[7]
Aggrieved, petitioner filed the instant petition in which the following issues
were put into consideration:
A.

E.

WHETHER OR NOT THERE WAS DEFICIENCY WHEN

RESPONDENTS PROPERTY WHICH SHE SUPPOSEDLY VALUED
ATP47,536,000.00 WAS SOLD AT THE EXTRA-JUDICIAL
FORECLOSURE SALE AT ONLY [P9,032,960.00] BY PETITIONER;

B.

WHETHER
OR
NOT
RESPONDENTS
PROPERTY
OVERVALUED WHEN IT WAS MORTGAGED TO FEBTC/BPI;

WAS

C.

WHETHER OR NOT RESPONDENT CAN RAISE THE ISSUE ON

THE NULLITY OF THE EXTRA-JUDICIAL FORECLOSURE SALE IN
AN ACTION FILED BY THE PETITIONER (CREDITORMORTGAGEE) FOR THE RECOVERY OF DEFICIENCY AND FOR
THE FIRST TIME ON APPEAL;

D.

WHETHER OR NOT THE PRICE OF P9,032,960.00 FOR

RESPONDENTS
PROPERTY
AT
THE
EXTRAJUDICIAL
FORECLOSURE SALE WAS UNCONCIONABLE OR SHOCKING TO
THE CONSCIENCE OR GROSSLY INADEQUATE.

Whether or not the Court of Appeals erred in ruling that

the purchase price of P9,032,000 at the foreclosure sale of
respondents mortgaged properties was unconscionable or grossly
inadequate.[9]
After consideration of the issues and arguments raised by the opposing
sides, the Court finds the petition meritorious.
Stripped of surplusage, the singular issue in this case is whether or not
petitioner is entitled to recover the unpaid balance or deficiency from respondent
despite the fact that respondents property, which were appraised by petitioners
predecessor-in-interest atP47,536,000.00, was sold and later bought by petitioner in
an extrajudicial foreclosure sale for only P9,032,960.00 in order to satisfy
respondents outstanding obligation to petitioner which, at the time of the sale,
amounted to P30,420,041.67 inclusive of interest but excluding attorneys fees,
publication and other charges.
There is no dispute with regard to the total amount of the outstanding loan
obligation that respondent owed to petitioner at the time of the extrajudicial
foreclosure sale of the property subject of the real estate mortgage. Likewise, it is
uncontested that by subtracting the amount obtained at the sale of the property, a
loan balance still remains. Petitioner merely contends that, contrary to the ruling of
the Court of Appeals, it has the right to collect from the respondent the remainder of
her obligation after deducting the amount obtained from the extrajudicial
foreclosure sale. On the other hand, respondent avers that since petitioners
predecessors own valuation of the subject property shows that its value is more than
the amount of respondents outstanding obligation, then respondent cannot be held
liable for the balance especially because it was petitioner who bought the property
at the foreclosure sale.
In the recent case of BPI Family Savings Bank, Inc. v. Avenido,[10] we
reiterated the well-entrenched rule that a creditor is not precluded from recovering
any unpaid balance on the principal obligation if the extrajudicial foreclosure sale of
the property subject of the real estate mortgage results in a deficiency, to wit:

It is settled that if the proceeds of the sale are insufficient

to cover the debt in an extrajudicial foreclosure of mortgage, the
mortgagee is entitled to claim the deficiency from the debtor.
While Act No. 3135, as amended, does not discuss the mortgagees
right to recover the deficiency, neither does it contain any
provision expressly or impliedly prohibiting recovery. If the
legislature had intended to deny the creditor the right to sue for
any deficiency resulting from the foreclosure of a security given to
guarantee an obligation, the law would expressly so provide.
Absent such a provision in Act No. 3135, as amended, the creditor
is not precluded from taking action to recover any unpaid balance
on the principal obligation simply because he chose to
extrajudicially foreclose the real estate mortgage.[11]
Furthermore, we have also ruled in Suico Rattan & Buri Interiors, Inc. v.
Court of Appeals[12] that, in deference to the rule that a mortgage is simply a security
and cannot be considered payment of an outstanding obligation, the creditor is not
barred from recovering the deficiency even if it bought the mortgaged property at
the extrajudicial foreclosure sale at a lower price than its market value
notwithstanding the fact that said value is more than or equal to the total amount of
the debtors obligation. We quote from the relevant portion of said decision:
Hence, it is wrong for petitioners to conclude that
when respondent bank supposedly bought the foreclosed
properties at a very low price, the latter effectively
prevented the former from satisfying their whole
obligation. Petitioners still had the option of either redeeming the
properties and, thereafter, selling the same for a price which
corresponds to what they claim as the properties actual market
value or by simply selling their right to redeem for a price which is
equivalent to the difference between the supposed market value
of the said properties and the price obtained during the
foreclosure sale. In either case, petitioners will be able to recoup
the loss they claim to have suffered by reason of the inadequate
price obtained at the auction sale and, thus, enable them to settle
their obligation with respondent bank. Moreover, petitioners are
not justified in concluding that they should be considered as
having paid their obligations in full since respondent bank was the
one who acquired the mortgaged properties and that the price it
paid was very inadequate. The fact that it is respondent bank, as
the mortgagee, which eventually acquired the mortgaged
properties and that the bid price was low is not a valid reason for
petitioners to refuse to pay the remaining balance of their
obligation.Settled is the rule that a mortgage is simply a
security and not a satisfaction of indebtedness.
[13]
(Emphases supplied.)
We are aware of our earlier pronouncements in Cometa v. Court of
Appeals[14] and in Rosales v. Court of Appeals [15] which were cited by the Court of
Appeals in its assailed April 30, 2008 Decision, wherein we declared that a sale price
which is equivalent to more or less twelve percent (12%) of the value of the property
is shockingly low, unconscionable and grossly inadequate, thus, warranting a
nullification of the foreclosure sale. In both cases, we declared that where the
inadequacy of the price is purely shocking to the conscience, such that the mind
revolts at it and such that a reasonable man would neither directly nor indirectly be

likely to consent to it, the sale shall be declared null and void. On the other hand, we
are likewise reminded of our ruling in Cortes v. Intermediate Appellate Court [16] and
in Ponce De Leon v. Rehabilitation Finance Corporation [17] wherein we upheld the
validity of foreclosure sales in which the property subject thereof were sold at 11%
and 17%, respectively, of their value.
In the case at bar, the winning bid price of P9,032,960.00 is nineteen
percent (19%) of the appraised value of the property subject of the extrajudicial
foreclosure sale that is pegged at P47,536,000.00 which amount, notably, is only an
arbitrary valuation made by the appraising officers of petitioners predecessor-ininterest ostensibly for loan purposes only. Unsettled questions arise over the
correctness of this valuation in light of conflicting evidence on record.
Notwithstanding the doubtful validity of the valuation of the property at
issue, the resolution of which is a question of fact that we are precluded from
addressing at this juncture of the litigation, and confronted by the divergent
jurisprudential benchmarks which define what can be considered as shockingly or
unconscionably low price in a sale of property, we, nevertheless, proceed to
adjudicate this case on an aspect in which it is most plain and unambiguous that it
involves a forced sale with a right of redemption.
Throughout a long line of jurisprudence, we have declared that unlike in an
ordinary sale, inadequacy of the price at a forced sale is immaterial and does not
nullify a sale since, in a forced sale, a low price is more beneficial to the mortgage
debtor for it makes redemption of the property easier. [18]
[19]

In the early case of The National Loan and Investment Board v. Meneses,
we also had the occasion to state that:
As to the inadequacy of the price of the sale, this
court has repeatedly held that the fact that a property is sold at
public auction for a price lower than its alleged value, is not of
itself sufficient to annul said sale, where there has been
strict compliance with all the requisites marked out by law
to obtain the highest possible price, and where there is no
showing that a better price is obtainable. (Government of the
Philippines vs. De Asis, G. R. No. 45483, April 12, 1939; Guerrero
vs. Guerrero, 57 Phil., 442; La Urbana vs. Belando, 54 Phil.,
930;Bank of the Philippine Islands v . Green, 52 Phil., 491.)
[20]
(Emphases supplied.)
In Hulst v. PR Builders, Inc.,[21] we further elaborated on this principle:
[G]ross inadequacy of price does not nullify an execution sale. In
an ordinary sale, for reason of equity, a transaction may be
invalidated on the ground of inadequacy of price, or when such
inadequacy shocks ones conscience as to justify the courts to
interfere; such does not follow when the law gives the owner the
right to redeem as when a sale is made at public auction, upon the
theory that the lesser the price, the easier it is for the owner to
effect redemption. When there is a right to redeem,
inadequacy of price should not be material because the
judgment debtor may re-acquire the property or else sell
his right to redeem and thus recover any loss he claims to
have suffered by reason of the price obtained at the
execution sale. Thus, respondent stood to gain rather than

be harmed by the low sale value of the auctioned

properties because it possesses the right of redemption. x
x x[22] (Emphasis supplied.)
It bears also to stress that the mode of forced sale utilized by petitioner was
an extrajudicial foreclosure of real estate mortgage which is governed by Act No.
3135, as amended. An examination of the said law reveals nothing to the effect that
there should be a minimum bid price or that the winning bid should be equal to the
appraised value of the foreclosed property or to the amount owed by the mortgage
debtor. What is clearly provided, however, is that a mortgage debtor is given the
opportunity to redeem the foreclosed property within the term of one year from and
after the date of sale.[23] In the case at bar, other than the mere inadequacy of the
bid price at the foreclosure sale, respondent did not allege any irregularity in the
foreclosure proceedings nor did she prove that a better price could be had for her
property under the circumstances.
Thus, even if we assume that the valuation of the property at issue is
correct, we still hold that the inadequacy of the price at which it was sold at public
auction does not invalidate the foreclosure sale.
Even if we are so inclined out of sympathy for respondents plight, neither
could we temper respondents liability to the petitioner on the ground of equity. We
are barred by our own often repeated admonition that equity, which has been aptly
described as justice outside legality, is applied only in the absence of, and never
against, statutory law or judicial rules of procedure. [24] The law and jurisprudence on
the matter is clear enough to close the door on a recourse to equity.
Moreover, we fail to see any unjust enrichment resulting from upholding the
validity of the foreclosure sale and of the right of the petitioner to collect any
deficiency from respondent. Unjust enrichment exists when a person unjustly retains
a benefit to the loss of another, or when a person retains money or property of
another against the fundamental principles of justice, equity and good governance.
[25]
As discussed above, there is a strong legal basis for petitioners claim against
respondent for the balance of her loan obligation.
WHEREFORE, premises considered, the petition is hereby GRANTED. The
assailed Decision dated April 30, 2008 of the Court of Appeals in CA-G.R. CV No.
88004 is REVERSED and SET ASIDE. The RTCs November 3, 2005 Decision in Civil
Case No. 03-180 is hereby REINSTATED.

DALTON vs. EQUITABLE

In 1999, respondent Equitable PCI Bank extended a P30-million credit line to
Camden Industries, Inc. (CII) allowing the latter to avail of several loans (covered by
promissory notes) and to purchase trust receipts. To facilitate collection, CII executed
a hold-out agreement in favor of respondent authorizing it to deduct from its savings
account any amounts due. To guarantee payment, petitioner GC Dalton Industries,
Inc. executed a third-party mortgage of its real properties in Quezon City [1] and
Malolos, Bulacan[2] as security for CIIs loans.[3]
CII did not pay its obligations despite respondents demands. By 2003, its
outstanding consolidated promissory notes and unpaid trust receipts had reached a
staggering P68,149,132.40.[4]

Consequently, respondent filed a petition for extrajudicial foreclosure of

petitioners Bulacan properties in the Regional Trial Court (RTC) of Bulacan on May 7,
2004.[5] On August 3, 2004, the mortgaged properties were sold at a public auction
where respondent was declared the highest bidder. Consequently, a certificate of
sale[6] was issued in respondents favor on August 3, 2004.
On September 13, 2004, respondent filed the certificate of sale and an
affidavit of consolidation of ownership[7] in the Register of Deeds of Bulacan pursuant
to Section 47 of the General Banking Law.[8] Hence, petitioners TCTs covering the
Bulacan properties were cancelled and new ones were issued in the name of
respondent.[9]
In view of the foregoing, respondent filed an ex parte motion for the
issuance of a writ of possession[10] in the RTC Bulacan, Branch 10 on January 10,
2005.[11]
Previously, however, on August 4, 2004, CII had filed an action for specific
performance and damages[12] in the RTC of Pasig, Branch 71 (Pasig RTC), asserting
that it had allegedly paid its obligation in full to respondent. [13] CII sought to compel
respondent to render an accounting in order to prove that the bank fraudulently
foreclosed on petitioners mortgaged properties.
Because respondent allegedly failed to appear during the trial, the Pasig
RTC rendered a decision on March 30, 2005 [14]based on the evidence presented by
CII. It found that, while CIIs past due obligation amounted only to P14,426,485.66 as
of November 30, 2002, respondent had deducted a total of P108,563,388.06 from
CIIs savings account. Thus, the Pasig RTC ordered respondent: (1) to return to CII the
overpayment with legal interest of 12% per annum amounting to P94,136,902.40;
(2) to compensate it for lost profits amounting to P2,000,000 per month starting
August 2004 with legal interest of 12% per annum until full payment and (3) to
return the TCTs covering the mortgaged properties to petitioner. It likewise awarded
CII P2,000,000 andP300,000, respectively, as moral and exemplary damages
and P500,000 as attorneys fees.
Respondent filed a notice of appeal. CII, on the other hand, moved for the
immediate entry and execution of the abovementioned decision.
In an order dated December 7, 2005,[15] the Pasig RTC dismissed
respondents notice of appeal due to its failure to pay the appellate docket fees. It
likewise found respondent guilty of forum-shopping for filing the petition for the
issuance of a writ of possession in the Bulacan RTC. Thus, the Pasig RTC ordered the
immediate entry of its March 30, 2005 decision. [16]
Meanwhile, in view of the pending case in the Pasig RTC, petitioner opposed
respondents ex parte motion for the issuance of a writ of possession in the Bulacan
RTC. It claimed that respondent was guilty of fraud and forum-shopping, and that it
was not informed of the foreclosure. Furthermore, respondent fraudulently
foreclosed on the properties since the Pasig RTC had not yet determined whether CII
indeed failed to pay its obligations.
In an order dated December 10, 2005, the Bulacan RTC granted the motion
and a writ of possession was issued in respondents favor on December 19, 2005.
Petitioner immediately assailed the December 10, 2005 order of the
Bulacan RTC via a petition for certiorari in the Court of Appeals (CA). It claimed that
the order violated Section 14, Article VIII of the Constitution [17] which requires that
every decision must clearly and distinctly state its factual and legal bases. In a
resolution dated January 13, 2006,[18] the CA dismissed the petition for lack of merit

on the ground that an order involving the issuance of a writ of possession is not a
judgment on the merits, hence, not covered by the requirement of Section 14,
Article VIII of the Constitution.
Petitioner elevated the matter to this Court, assailing the January 13, 2006
resolution of the CA. It insists that the December 10, 2005 order of the Bulacan RTC
was void as it was bereft of factual and legal bases.
Petitioner likewise cites the conflict between the December 10, 2005 order
of the Bulacan RTC and the December 7, 2005 order of the Pasig RTC. Petitioner
claims that, since the Pasig RTC already ordered the entry of its March 30, 2005
decision (in turn ordering respondent to return TCT No. 351231 and all such other
owners documents of title as may have been placed in its possession by virtue of
the subject trust receipt and loan transactions), the same was already final and
executory. Thus, inasmuch as CII had supposedly paid respondent in full, it was
erroneous for the Bulacan RTC to order the issuance of a writ of possession to
respondent.
Respondent, on the other hand, asserts that petitioner is raising a question
of fact as it essentially assails the propriety of the issuance of the writ of possession.
It likewise points out that petitioner did not truthfully disclose the status of the
March 30, 2005 decision of the Pasig RTC because, in an order dated April 4, 2006,
the Pasig RTC partially reconsidered its December 7, 2005 order and gave due
course to respondents notice of appeal. (The propriety of the said April 4, 2006 order
is still pending review in the CA.)
We deny the petition.
The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is
summary and ministerial in nature as such proceeding is merely an incident in the
transfer of title.[19] The trial court does not exercise discretion in the issuance thereof.
[20]
For this reason, an order for the issuance of a writ of possession is not the
judgment on the merits contemplated by Section 14, Article VIII of the Constitution.
Hence, the CA correctly upheld the December 10, 2005 order of the Bulacan RTC.
Furthermore, the mortgagor loses all legal interest over the foreclosed property after
the expiration of the redemption period.[21] Under Section 47 of the General Banking
Law,[22] if the mortgagor is a juridical person, it can exercise the right to redeem the
foreclosed property until, but not after, the registration of the certificate of

foreclosure sale within three months after foreclosure, whichever is earlier.

Thereafter, such mortgagor loses its right of redemption.
Respondent filed the certificate of sale and affidavit of consolidation with the
Register of Deeds of Bulacan on September 13, 2004. This terminated the
redemption period granted by Section 47 of the General Banking Law. Because
consolidation of title becomes a right upon the expiration of the redemption period,
[23]
respondent became the owner of the foreclosed properties. [24] Therefore, when
petitioner opposed the ex parte motion for the issuance of the writ of possession on
January 10, 2005 in the Bulacan RTC, it no longer had any legal interest in the
Bulacan properties.
Nevertheless, even if the ownership of the Bulacan properties had already been
consolidated in the name of respondent, petitioner still had, and could have availed
of, the remedy provided in Section 8 of Act 3135. [25] It could have filed a petition to
annul the August 3, 2004 auction sale and to cancel the December 19, 2005 writ
of possession,[26] within 30 days after respondent was given possession. [27] But it did
not. Thus, inasmuch as the 30-day period to avail of the said remedy had already
lapsed, petitioner could no longer assail the validity of the August 3, 2004 sale.
Any question regarding the validity of the mortgage or its foreclosure
cannot be a legal ground for the refusal to issue a writ of
possession. Regardless of whether or not there is a pending suit for the
annulment of the mortgage or the foreclosure itself, the purchaser is
entitled to a writ of possession, without prejudice, of course, to the
eventual outcome of the pending annulment case. [28]
Needless to say, petitioner committed a misstep by completely relying and
pinning all its hopes for relief on its complaint for specific performance and
damages in the Pasig RTC,[29] instead of resorting to the remedy of
annulment (of the auction sale and writ of possession) under Section 8 of
Act 3135 in the Bulacan RTC. WHEREFORE, the petition is hereby DENIED.
Costs against petitioner. SO ORDERED.