Filinvest Credit Corp vs.

CA 248 SCRA 549 (1995)

G.R. No. 115902 September 27, 1995
FILINVEST CREDIT CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and SPOUSES EDILBERTO and MARCIANA TADIAMAN, respondents.

DAVIDE, JR., J.:

This petition for review on certiorari seeks to set aside the decision of the Court of Appeals in CA-G.R. CV No.
30231 1 affirming in toto the decision of the Regional Trial Court (RTC) of San Fernando (Pampanga),

Branch 46, in Civil Case No. 6599. 2

The antecedent facts are summarized by the Court of Appeals as follows:
Defendants-appellees, spouses Edilberto and Marciana Tadiaman, residents of Cabanatuan
City, purchased a 10-wheeler Izusu cargo truck from Jordan Enterprises, Inc., in Quezon City,
in installments. Said spouses executed a promissory note for P196,680.00 payable in 24
monthly installments in favor of Jordan Enterprises, Inc., and a Chattel Mortgage over the
motor vehicle purchased to secure the payment of the promissory note. Jordan Enterprises,
Inc. assigned its rights and interests over the said instruments to Filinvest Finance and
Leasing Corporation, which in turn assigned them to plaintiff-appellant Filinvest Credit
Corporation.
Subsequently, the spouses Tadiaman defaulted in the payment of the installments due on the
promissory note, and plaintiff-appellant filed an action for replevin and damages against them
with the court below. Upon motion of the plaintiff-appellant, a writ of replevin was issued, and
the truck was seized in the province of Isabela, by persons who represented themselves to be
special sheriffs of the court, but who turned out to be employees of the plaintiff-appellant. The
truck was brought by such persons all the way back to Metro Manila.
Thereafter, defendant spouses filed a counterbond, and the lower court ordered the return of
the truck. This was not immediately implemented because the defendant spouses were met
with delaying tactics of the plaintiff-appellant, and when they finally recovered the truck, they
found the same to be "cannibalized". This was graphically recounted in the report (Exhibit "3")
of Deputy Sheriff Anastacio Dizon, who assisted the spouses in recovering the vehicle,
excerpts of which are as follows:
On February 14, 1983, the undersigned contacted Mr. Villanueva, Branch
Manager of the FILINVEST at Bo. Dolores, San Fernando, Pampanga and
he gave the information that the said Isuzu Cargo Truck, subject of the
aforesaid Court Order, was already delivered to their main garage at Bo.
Talon, Las Pias; Metro Manila. Mr. Villanueva further told the undersigned
that in order to effectively enforce the aforementioned Court Order, the
undersigned should discuss the matter with Mr. Telesforo (Jun) Isidro,
Collection in-charge, and Mr. Gaspar Antonio delos Santos, Vice President
for Branch Administration of the FILINVEST main office at Makati, Metro
Manila.

On February 18, 1983, defendant Marciana Tadiaman, Atty. Benites and the
undersigned contacted Messrs. Gaspar Antonio delos Santos and Telesforo
(Jun) Isidro at the main office, FILINVEST at Paseo de Roxas, Makati, Metro
Manila and we discussed the smooth retaking of possession by the
defendants of the 10-wheeler Isuzu Cargo Truck with motor No. E 12022041, Serial No. SPM 710164864. Messrs. Delos Santos and Isidro
alternatively argued that the Traveler's Insurance Company is one of the
black listed Insurance firm, so much so, it is only the company's lawyer who
can direct the delivery of the above-cited Cargo Truck to us. They told us to
wait for the arrival of their Lawyer at 5:40 p.m., and we agreed that in the
meantime that their lawyer is not around, the said vehicle would not be
transferred to any other place.
Came 5:30 P.M., but the company's lawyer never arrived and we were told to
go back on February 21, 1983. Mr. delos Santos finally told us that the
company will not deliver to us the said Cargo Truck until and after their
company lawyer would say so.
On February 19, 1983, Mr. Felicisimo Hogaldo, Atty. Benites, defendant
Marciana Tadiaman, three policemen of Las Pinas, Metro Manila, and the
undersigned went directly to the FILINVEST garage at Bo. Talon, Las Pinas,
Metro Manila and there contracted Mr. Ismael Pascual, Custodian of all
repossessed vehicles of the said company, and Mr. Pedro Gervacio, Security
Guard of the company assigned by the Allied Investigation Bureau at 6th
Floor, Ramon Santos Bldg. They told us that the 10-wheeler Cargo Truck
subject of the above-cited court order is not one of the vehicles listed in their
in-coming and out-going ledger books and they told us to examine their
books.
Defendant Marciana Tadiaman told Messrs. Pedro Gervacio and Ismael
Pascual that she saw the above-mentioned Cargo-Truck last February 14,
1983 at the end corner of the garage. And for that purpose she requested us,
including Mr. Pascual and the Security Guard, to inspect the site where the
said truck was supposed to have been placed when she for the first time saw
it on February 14, 1983.
Unexpectedly, she saw and pointed to us on the site oil leaks on the ground
which she believed came from the vehicle we were looking for. We also saw
skid marks of tires of a truck starting from the site where the cargo truck was
previously placed as pointed to by defendant Marciana Tadiaman up to
around 20 meters before reaching the gate of the compound. The other skid
larks of tires of a truck was also seen on a portion of a road leading to a
compound owned by other person.
Mr. Gervacio and Pascual strongly insisted that they do not know the
whereabouts of the said Cargo Truck. The undersigned requested the
Policemen of Las Pinas, Metro Manila, Atty. Benites and defendant Marciana
Tadiaman to see for ourselves the road leading to a compound owned by
another firm, about 1/3 of the Length of which road is completely blocked by
a big and tall building. It was at this portion where the subject Cargo Truck
was placed.

Mr. Ismael Pascual called their main office, FILINVEST, by telephone about
the discovery of the whereabouts of said cargo truck by the undersigned.
Defendant Marciana Tadiaman to
Mr. Pascual that there were missing parts and that other parts of the truck
were completely changed with worn-out spare parts.
Mr. Pascual told the undersigned that he will only affix his signature on the
acknowledgment receipt, below the line "GIVEN BY", if the missing parts and
replaced parts were not mentioned in said receipt.
It was because of the said actuations of the plaintiff-appellant that the defendants-appellee
[sic] filed a counterclaim for damages. . . . 3
After trial, the trial court rendered a decision the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered on the main action, in favor of plaintiff and
against defendants, ordering the latter, jointly and severally, to pay the plaintiff the following
sums:
(a) The sum of P88,333.32 which is the balance of the promissory note as of
September 26, 1982, with interest thereon at 14% per annum from said date.
(b) The sum equivalent to 25% of the amount sued upon, as and for
attorney's fees, that is P88,333.32 plus the stipulated interest; and
(c) The costs of suit.
On the Counterclaim:
Plaintiff not having successfully rebutted the defendants' evidence respecting damages
caused to them by virtue of the illegal seizure of the property, and hiding the truck in some
other place not their garage, feigning knowledge that the same had been recorded in their
incoming ledger books, the "cannibalizing" done while the truck was in the custody of plaintiff's
garage, the frustrations which the defendants had to undergo for two weeks before the truck
was finally placed in the hands of Sheriff Dizon, all point to the liability of plaintiff for its failure
intentionally or otherwise "to observe certain norms that spring from the fountain of good
conscience and guide human conduct to the end that law may approach its supreme ideal,
which is the sway and dominance of justice.
WHEREFORE, judgment is rendered in favor of counter-claimants defendants and against
plaintiff, ordering the latter to pay to the defendants the following sums:
(1) Actual damages representing lost spare parts while in the custody of
plaintiff in its garage being hidden from defendants, in the sum of
P50,000.00;
(2) P50,000.00 as moral damages;
(3) P20,000.00 as exemplary damages;
(4) P20,000.00 as attorney's fee; and

(5) Proportionate part of the costs adjudged against plaintiff.

SO ORDERED. 4
Petitioner Filinvest Credit Corporation (hereinafter Filinvest) appealed that portion of the judgment on the
counterclaim to the Court of Appeals (CA-G.R. CV No. 30231) and assigned the following errors of the lower
court:
I
THE TRIAL COURT ERRED IN AWARDING DAMAGES; ACTUAL, MORAL, EXEMPLARY
AND ATTORNEY'S FEES AND PROPORTIONATE PART OF THE COSTS IN FAVOR OF
THE DEFENDANTS IN THEIR COUNTER-CLAIMS IN THE ABSENCE OF ANY
ACTIONABLE LOSS SUSTAINED BY THEM FOR IT WAS THE DEFENDANTS WHO
VIOLATED THEIR PROMISSORY NOTE AND CHATTEL MORTGAGE WITH THE
PLAINTIFF.
II
THE TRIAL COURT ERRED IN HOLDING THAT THE PLAINTIFF OR ANY OF ITS
REPRESENTATIVES HAD NO RIGHT TO TAKE THE MORTGAGED PROPERTY AFTER
THE BREACH OF THE CONDITIONS IN THE PROMISSORY NOTE AND CHATTEL
MORTGAGE BY THE DEFENDANTS. 5
In its decision of 26 May 1994, the Court of Appeals affirmed in toto the decision of the trial court. It found no
merit in the appeal. Thus:
The plaintiff-appellant argues that it had the right to seize the truck from the moment that the
defendants-appellees defaulted in the payment of the monthly installments, and to institute an
action for replevin preliminary to effecting a foreclosure of the property mortgaged
extrajudicially. The plaintiff-appellant misses the point entirely. In the first place, it has not been
held liable for filing an action for replevin in order to recover possession of the truck prior to its
foreclosure, but for the manner in which it carried out the seizure of the vehicle. It is ironic
that, in spite of plaintiff-appellant's apparent recognition of the necessity of legal means for the
recovery of the truck, in the end, it utilized illegal means in the actual seizure of the vehicle by
having its employees pose as special agents of the court in effecting the same. Plaintiffappellant even went to the extent of asking the appointment of a special sheriff to enforce the
order of seizure, but still had the truck seized by its own people instead. It is as if the plaintiffappellant utilized the court only to clothe its employees with apparent authority to seize the
vehicle concerned.
In the second place, plaintiff-appellant was held liable for hiding the truck and making it
difficult for the defendants-appellees to recover the same. Defendants-appell[ees] were able
to have the writ of seizure quashed on the basis of a counterbond. Plaintiff-appellant should
have been the first to obey the order for the return of the seized truck, considering its avowed
adherence to law and order. And yet, it made it difficult for the defendants-appellees to
actually recover the vehicle, as reported by the deputy sheriff above.
In the third place, there is unrebutted evidence that the truck was "cannibalized" while in the
custody of the plaintiff-appellant. The latter argues that such evidence is not credible,

because, if the truck was stripped of vital parts, it could not have been driven by the
defendants-appellees all the way back to Cabanatuan City. Plaintiff-appellant conveniently
overlooks the testimony of defendant-appellee Mrs. Tadiaman that they had to buy the missing
parts in order to make the truck run (t.s.n., p. 40, October 2, 1986, Exhibits "'9", "10" and
"11"). 6
Filinvest now comes to us alleging that the Court of Appeals:
(a) . . . DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW
AND THE APPLICABLE DECISIONS OF THIS HONORABLE COURT WHEN IT REVERSED
THE DECISION OF THE REGIONAL TRIAL COURT OF MANILA, BRANCH 9;
(b) . . . ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT SUSTAINED THE ERRONEOUS DECISION OF THE
HONORABLE REGIONAL TRIAL COURT BRANCH 46 OF SAN FERNANDO, PAMPANGA;
(c) . . . ACTED WITH GRAVE ABUSE OF DISCRETION AND CONTRARY TO EXISTING
LAW AND JURISPRUDENCE WHEN [IT] SUSTAINED THE SPECULATIVE FINDING OF
THE RTC THAT THE PETITIONER "CANNIBALIZED" THE MORTGAGED VEHICLE;
(d) . . . ERRED GRIEVOUSLY WHEN IT EXONERATED PRIVATE RESPONDENTS FROM
PAYING THE PETITIONER ON THE LATTER'S LEGITIMATE CLAIMS UNDER THE
COMPLAINT PARTICULARLY ON THE UNPAID PROMISSORY NOTE MADE BY THE
PRIVATE RESPONDENTS;
(e) . . . ACTED CONTRARY TO LAW WHEN IT IGNORED THE PLAIN ADMISSIONS IN THE
ANSWER (AT PARAGRAPH 2, & 3, PAGE 1) OF THE DEFENDANTS (PRIVATE
RESPONDENTS) THAT THEY HAVE DULY EXECUTED A PROMISSORY NOTE SECURED
BY A DEED OF CHATTEL MORTGAGE AND THAT THE PRIVATE RESPONDENTS
VIOLATED THE TERMS OF THE PROMISSORY NOTE IN FAILING TO PAY THE
INSTALLMENTS DUE THEREON FOR NOV. 15, 1981 AND THE SUBSEQUENT 9
INSTALLMENTS OR UP TO AUGUST 15, 1982;
(f) . . . ERRED IN REFUSING TO APPLY THE TERMS AND CONDITIONS OF THE
PROMISSORY NOTE AND THE DEED OF CHATTEL MORTGAGE SIGNED BY THE
PONCES "AS THE LAW BETWEEN THE PARTIES" TO THE CONTRACT SUBJECT OF THE
SUIT IN THE RTC. 7
Additionally, Filinvest maintains that:
(g) THERE IS NO PROOF TO SUSTAIN THE AWARD OF MORAL DAMAGES FOR
P50,000.00 ACCORDINGLY THERE IS NO BASIS FOR THE AWARD OF EXEMPLARY
DAMAGES. 8
We gave due course to the petition and required the parties to submit their respective memoranda after the
filing of the comment to the petition by the private respondents and of the reply thereto by Filinvest. The parties
subsequently filed their memoranda which merely reiterated the arguments in their respective initiatory
pleadings.

The only relevant issue in this petition is whether or not the Court of Appeals committed reversible error in
dismissing Filinvest's appeal from the decision of the trial court on the private respondents' counterclaim and in
affirming in toto the said decision. The first ground raised herein by Filinvest is baseless since the discussions
or arguments in Filinvest's petition and memorandum fail to disclose what the decision of Branch 9 of the RTC
of Manila is all about. So is the fourth ground, for, the unappealed portion of the trial court's decision did in fact
order the private respondents to pay Filinvest the unpaid balance of the promissory note, with interest and
attorney's fees. All the other grounds are deemed waived for not having been raised in the appeal to the Court
of Appeals. In any event, Filinvest's disquisitions on such irrelevant issues are confounded.
As to the sole issue defined above, the Court of Appeals correctly ruled that Filinvest is liable for damages not
because it commenced an action for replevin to recover possession of the truck prior to its foreclosure, but
because of the manner it carried out the seizure of the vehicle. Sections 3 and 4, Rule 60 of the Rules of Court
are very clear and direct as to the procedure for the seizure of property under a writ of replevin, thus:
Sec. 3. Order. Upon the filing of such affidavit and bond with the clerk or judge of the court
in which the action is pending, the judge of such court shall issue an order describing the
personal property alleged to be wrongfully detained, and requiring the sheriff or other proper
officer of the court forthwith to take such property into his custody.
Sec. 4. Duty of the officer. Upon receiving such order the officer must serve a copy thereof
on the defendant together with a copy of the application, affidavit and bond, and
must forthwith take the property, if it be in the possession of the defendant or his agent, and
retain it in his custody. . . . (emphasis supplied)
In the instant case, it was not the sheriff or any other proper officer of the trial court who implemented the writ of
replevin. Because it was aware that no other person can implement the writ, Filinvest asked the trial court to
appoint a special sheriff. Yet, it used its own employees who misrepresented themselves as deputy sheriffs to
seize the truck without having been authorized by the court to do so. Filinvest justified its seizure by citing a
statement in Bachrach Motor Co. vs. Summers, 9 to wit, "the only restriction on the mode by which the

mortgagee shall secure possession of the mortgaged property after breach of condition is that he must
act in an orderly manner and without creating a breach of the peace, subjecting himself to an action for
trespass."
This justification is misplace and misleading for Bachrach itself had ruled that if a mortgagee cannot obtain
possession of a mortgaged property for its sale on foreclosure, it must bring a civil action either to recover such
possession as a preliminary step to the sale or to obtain judicial foreclosure. Pertinent portions
of Bachrach read as follows:
Where, however, debtor refuses to yield up the property, the creditor must institute an action,
either to effect a judicial foreclosure directly, to secure possession as a preliminary to the sale
contemplated in the provision above quoted. He cannot lawfully take the property by force
against the will of the debtor. Upon this point the American authorities are even more
harmonious that they are upon the point that the creditor is entitled to possession. As was said
may years ago by the writer of this opinion in a monographic article contributed to an
encyclopedic legal treatise, "if possession cannot be peaceably obtained the mortgagee must
bring an action." (Trust Deeds and Power of Sale Mortgages, 28 Am. & Eng. Encyc. of Law,
2d ed., 783.) In the Article of Chattel Mortgages, in Corpus Juris, we find the following
statement of the law on the same point: "The only restriction on the mode by which the
mortgagee shall secure possession of the mortgaged property after breach of condition is that

he must act in an orderly manner and without creating a breach of the peace, subjecting
himself to an action to trespass. (11 C.J., 560; see also 5 R.C.L., 462.)
The reason why the law does not allow the creditor to possess himself of the mortgaged
property with violence and against the will of the debtor is to be found in the fact that the
creditor's right of possession is conditioned upon the fact of default, and the existence of this
fact may naturally be the subject of controversy. The debtor, for instance, may claim in good
faith, and rightly or wrongly, that the debt is paid, or that for some other reason the alleged
default is nonexistent. His possession in this situation is as fully entitled to protection as that of
any other person, and in the language of article 446 of the Civil Code he must be respected
therein. To allow the creditor to seize the property against the will of the debtor would make
the former to a certain extent both judge and executioner in his own cause a thing which is
inadmissible in the absence of unequivocal agreement in the contract itself or express
provision to that effect in the statute.
It will be observed that the law places the responsibility of conducting the sale upon "a public
officer;" and it might be supposed that an officer, such as the sheriff, can seize the property
where the creditor could not. This suggestion is, we think, without force, as it is manifest that
the sheriff or other officer proceeding under the authority of the language already quoted from
section 14 of the Chattel Mortgage Law, becomes pro hac vice the mere agent of the creditor.
There is nothing in this provision which creates a specific duty on the part of the officer to
seize the mortgaged property; and no intention on the part of the law-making body to impose
such a duty can be implied. The conclusion is clear that for the recovery of possession, where
the right is disputed, the creditor must proceed along the usual channels by action in court.
Whether the sheriff, upon being indemnified by the creditor, could safely proceed to take the
property from the debtor, is a point upon which we express no opinion. . . .
But whatever conclusion may be drawn in the premises with respect to the true nature of a
chattel mortgage, the result must in this case be the same; for whether the mortgagee
becomes the real owner of the mortgaged property as some suppose or acquires only
certain rights therein, it is none the less clear that he has after default the right of possession;
though it cannot be admitted that he may take the law into his own hands and wrest the
property violently from the possession of the mortgagor. Neither can he do through the
medium of a public officer that which he cannot directly do himself. The consequence is that in
such case the creditor must either resort to a civil action to recover possession as a
preliminary to a sale, or preferably he may bring an action to obtain a judicial foreclosure in
conformity, so far as with the provisions of the Chattel to Mortgage Law. 10
Replevin is, of course, the appropriate action to recover possession preliminary to the extrajudicial foreclosure
of a chattel mortgage. Filinvest did in fact institute such an action and obtained a writ of replevin. And, by filing
it, Filinvest admitted that it cannot acquire possession of the mortgaged vehicle in an orderly or peaceful
manner. Accordingly, it should have left the enforcement of the writ in accordance with Rule 60 of the Rules of
Court which it had voluntarily invoked.
Parenthetically, it must be observed that the trial court erred in holding that the action for replevin was "not in
order as [Filinvest] is not the owner of the property (Sec, 2 par. (a) Rule 60)." 11 It is not only the owner who

can institute a replevin suit. A person "entitled to the possession" of the property also can, as provided in
the same paragraph cited by the trial court, which reads:
Sec. 2. Affidavit and bond. Upon applying for such order the plaintiff must show . . .

(a) That the plaintiff is the owner of the property claimed, particularly
describing it, or is entitled to the possession thereof; . . . (emphasis supplied)
Upon the default by the mortgagor in his obligations, Filinvest, as a mortgagee, had the right to the
possession of the property mortgaged preparatory to its sale in a public auction. 12 However, for

employing subterfuge in seizing the truck by misrepresenting its employees as deputy sheriffs
and then hiding and cannibalizing it, Filinvest committed bad faith in violation of Article 19 of the
Civil Code which provides:
Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
In common usage, good faith is ordinarily used to describe that state of mind denoting honesty of purpose,
freedom from intention to defraud, and, generally speaking, means being faithful to one's duty or obligation. 13 It

consists of the honest intention to abstain from taking an unconscionable and unscrupulous advantage of
another. 14
This leaves us to the issue of damages and attorney's fees.
In their answer with counterclaim, the private respondents asked for (a) actual damages of P50,000.00 for the
spare parts found missing after their recovery of the truck and another P50,000.00 for unearned profits due to
the failure to use the truck in their ricemill business; (b) moral damages of P50,000.00 for "the mental anguish,
serious anxiety, physical suffering, wounded feelings, social humiliation, moral shock, sleepless nights and
other similar injury" which they suffered as a "proximate result of the [petitioner's illegal, wrongful and unlawful
acts"; (c) nominal damages of P30,000.00; (d) exemplary damages of P20,000.00; and (e) attorney's fees of
P20,000.00 which they incurred "as a direct result of [petitioner's] illegal and unwarranted actuations and in
connection with the defense of this action." 15
As to actual damages, the petitioner admits that per Exhibits "1," "9," and "10" of the private respondents, only
the sum of P33,222.00 and not P50,000.00 was "supposedly spent for the alleged lost spare parts." 16 The

petitioner may thus be held liable only for such amount for actual or compensatory damages.
Anent the moral damages, the trial court ruled that the acts of the petitioner were in total disregard of Articles
19, 20, and 21 of the Civil Code. 17 It added that the petitioner had not only caused actual damages in lost

earnings, but had also caused the private respondents to suffer indignities at the hands of the petitioner's
personnel in hiding the truck in question, misleading them, and making them work for the release of the
truck for about two weeks, thereby justifying the award of moral damages along with the exemplary and
other damages in favor of the private respondents. 18
We agree with this finding of the trial court. The petitioner's acts clearly fall within the contemplation of Articles
19 and 21 of the Civil Code. 19 The acts of fraudulently taking the truck, hiding it from the private

respondents, and removing its spare parts show nothing but a willful intention to cause loss to the private
respondents that is punctuated with bad faith and is obviously contrary to good customs. Thus, the private
respondents are entitled to the moral damages they prayed for, for under Article 2219 of the Civil Code,
moral damages may be recovered in cases involving acts referred to in Article 21 of the same Code.
The private respondents prayed for nominal damages of P30,000.00 which the trial court did not award them.
Having failed to appeal this omission by the trial court, we cannot make anymore such award at this point.

The award of exemplary damages is in order in view of the wanton, fraudulent, and oppressive manner by
which the petitioner sought to enforce its right to the possession of the mortgaged vehicle. Article 2232 of the
Civil Code provides:
In contracts and quasi-contracts, the court may award exemplary damages if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Of course, a plaintiff need not prove the actual extent of exemplary damages, for its determination is
addressed to the sound discretion of the court upon proof of the plaintiff's entitlement to moral,
temperate, or actual or compensatory damages. Article 2234 of the Civil Code thus provides in part as
follows:
While the amount of the exemplary damages need not be proved, the plaintiff must show that
he is entitled to moral, temperate or compensatory damages before the court may consider
the question of whether or not exemplary damages should be awarded. . . .
The award for attorney's fees must, however, be set aside. There is no question that the petitioner filed in good
faith its complaint for replevin and damages to protect its rights under the promissory note and the chattel
mortgage. That the private respondents had defaulted in its obligation under the promissory note thereby
authorizing the petitioner to seek enforcement of its claim thereunder and proceed against the mortgage of the
vehicle was duly recognized by the trial court by its judgment against the private respondents incorporated in
the first part of the dispositive portion. The private respondents did not appeal therefrom. There would then be
no basis for awarding attorney's fees in favor of the private respondents for whatever physical suffering, mental
anguish, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, or any
other similar injury they had suffered, even if proven, were only such as are usually caused to parties haled into
court as a defendant and which are not compensable, for the law could not have meant to impose a penalty on
the right to litigate. 20
WHEREFORE, the assailed judgment of the Court of Appeals in CA-G.R. CV No. 30231 as well as that of the
Regional Trial Court of San Fernando, Pampanga, Branch 46 in Civil Case No. 6599 on the counterclaim is
AFFIRMED, subject to the modifications abovestated. As so modified, the petitioner is hereby ordered to pay
the private respondents only the following:
(a) actual damages in the reduced amount of P33,222.00;
(b) moral damages in the amount of P50,000.00; and
(c) exemplary damages in the amount of P20,000.00.
No pronouncement as to costs.
SO ORDERED.
Padilla, Bellosillo and Kapunan, JJ., concur.
Hermosisima, Jr., J., is on leave.
Footnotes

a mortgagee may take steps to recover the mortgaged property to enable it to enforce or protect its foreclosure
right thereon. There is, however, a well-defined procedure for the recovery of possession of mortgaged
property: if a mortgagee is unable to obtain possession of a mortgaged property for its sale on foreclosure, he
must bring a civil action either to recover such possession as a preliminary step to the sale, or to obtain judicial
foreclosure. (Filinvest Credit Corp. v. CA, G.R. No. 115902, September 27, 1995, 248 SCRA 549).

The Malayan Bank vs. Lagrama 357 SCRA 429 (2001)

THE MALAYAN BANK (Formerly Republic Planters Bank), petitioners,

vs. AGUSTIN LAGRAMA, EDGARDO LAGRAMA, DANILO
LAGRAMA, ARTEMIO LAGRAMA, CORAZON LAGRAMA, and
the COURT OF APPEALS, respondents.
DECISION
MENDOZA, J.:

This is a petition for review of the decision, [1] dated April 17, 2000, of the Court of
Appeals in CA-G.R. SP No. 53856, affirming an order, dated September 29, 1998, of
the Regional Trial Court, Branch 56, Lucena City, the dispositive portion of which
reads:
WHEREFORE, FROM THE FOREGOING, defendant Republic Planters Bank is
hereby ordered to execute within twenty (20) days from receipt hereof, the necessary
deed of reconveyance called for in the order of the Court dated 17 May 1993 in favor
of the plaintiffs.
SO ORDERED.[2]
The background of the case is as follows:
Demetrio Llego, one of the defendants in the original complaint filed in the
Regional Trial Court of Lucena City, inherited from his father a portion of a parcel of
land situated in Barangay Silangang Mayao, Lucena City. This portion was part of a
bigger parcel of land, the other portions of which, in turn, were inherited by Llegos

mother and siblings. The heirs undertook the apportionment of the inherited parcel of
land informally, without executing a written extrajudicial partition thereof. As a result,
title to the property remained in the name of Llegos father.[3]
On March 25, 1976, Llego sold to his uncle, herein private respondent Agustin
Lagrama, and his aunt Paz Abastillas his share in the inherited parcel of land. The lot
was to be paid in installments. Llego did not, however, execute a deed of sale of the
lot as title to the lot was still in his fathers name.Llego promised that as soon as the
title was transferred in his name, he would immediately execute a deed of absolute
sale in favor of the buyers, to which they agreed. [4]
Notwithstanding the absence of a deed of sale, on March 26, 1976, private
respondent Lagrama and Abastillas entered into and took possession of the portion of
land sold to them by Llego. On December 23, 1977, private respondent Lagrama and
Abastillas paid the balance of the purchase price of the lot sold to them. [5]
On March 6, 1979, Llego and his co-heirs extrajudicially partitioned the
property[6]left by their father. A new title was issued to Llego for his share,i.e., the
portion of the land he had previously sold to private respondent Lagrama. On
November 12, 1982, Llego, through his attorney-in-fact, Ceferino Tan, mortgaged the
land to the Republic Planters Bank for P45,000.00. As Llego failed to pay his
indebtedness to petitioner bank, the mortgage was foreclosed and the property was
sold to the bank as the highest bidder. It appears that Llego likewise failed to redeem
the property.[7]
In 1983, private respondents filed with the trial court a complaint for specific
performance to compel Llego to execute the necessary deed of absolute sale in their
favor. Impleaded as co-defendants were Ceferino Tan and petitioner bank. Llego did
not answer the complaint and was, for that reason, declared in default. Petitioner bank,
in its answer, pleaded that it was a mortgagee in good faith. On the other hand, Tan
alleged that he acted as Llegos attorney-in-fact only as an accommodation. [8]
On May 17, 1993, the lower court rendered its decision, the dispositive portion of
which stated:
WHEREFORE, by reason of the overwhelming evidence presented, the Court finds
the case of the plaintiffs and conformably declares that plaintiffs [herein private

respondents] herein are the absolute owners of the land in question and defendant
Demetrio Llego is heretofore directed to execute the necessary conveyance for him
and defendant Ceferino Tan to redeem the said property from the defendant bank.
Consequently, the Register of Deeds of Quezon is directed to cancel Transfer
Certificate of Title No. T-31753 and upon the execution and registration of the
corresponding deed of sale the title be registered in the names of plaintiffs Agustin
Lagrama, Edgardo Lagrama, Danilo Lagrama, Artemio Lagrama and Corazon
Lagrama.
Plaintiffs not being able to prove damages, the Court denies the same.
SO ORDERED.[9]
Republic Planters Bank appealed, but the appeal was dismissed for its failure to
file the brief on time. As a consequence, the decision of the lower court became final.
Thereafter, a writ of execution was issued, but it was returned unsatisfied because
it turned out that petitioner bank had consolidated its title over the land in dispute for
failure of Demetrio Llego to redeem it. [10] Private respondents then filed a motion to
require the petitioner bank to execute the necessary deed of reconveyance, which was
opposed by the latter.[11]
On September 29, 1998, the trial court granted private respondents motion and
ordered Republic Planters Bank to execute the necessary deed of reconveyance called
for in the order of the Court dated May 17, 1995 in favor of the plaintiffs. [12] Petitioner
bank moved for reconsideration, but its motion was denied.
On appeal, the Court of Appeals rendered its questioned decision affirming the
trial courts decision and dismissing the petition. The Court of Appeals held:
It is well to remember that Republic Planters Bank was impleaded in the action below
precisely because plaintiffs therein, now private respondents Agustin Lagrama, et al.,
questioned the act of Demetrio Llego in mortgaging the property to the bank despite
the fact that he had previously sold the same to Agustin Lagrama. In its decision, the
court found that, by his acts, Llego engaged in a scheme designed to defraud
plaintiffs. The court noted that Llego did not even bother to answer the complaint and
allowed himself to be declared in default. Neither did Ceferino Tan offer any evidence

to counteract the imputation of fraud against him, in conspiracy with

Llego. Significantly, during the proceedings, title to the land was still in the name of
Demetrio Llego.This therefore explains why the court in its judgment ordered Llego
himself, and not the mortgagee bank, to effect the conveyance to the plaintiffs. The
court in fact ordered the Register of Deeds to cancel the title (TCT No. T-31753) of
Llego and issue a new title to the Lagramas upon the execution and registration of the
corresponding deed of sale.
Now, when execution of the final judgment was made, the sheriff reported that
defendant (Demeterio) Llego refused to sign the document of reconveyance while
defendant Ceferino Tan cannot be located. Consequently, private respondents, as
prevailing parties, invoked the remedy provided for in section 10(a) of the 1997
Revised Rules of Civil Procedure which provides that in lieu of directing a
conveyance of the property, the court may by an order divest the title of any party and
vest it in others, which shall have the same form of a conveyance executed in due
form of law.
Republic Planters Bank cannot blunt the impact of the courts order of September 29,
1998 on the allegation that it is a mortgagee in good faith. It was, to repeat, impleaded
as a defendant in the action for specific performance. It was aware of the charge of
fraud imputed to Demeterio Llego in mortgaging the property to the bank despite the
previous sale thereof to Agustin Lagrama. The court indeed found the existence of
fraud in the transaction. The bank appealed the decision of the court but its appeal was
thrown out. Meantime, the bank consolidated its title over the property. How then can
the bank insist on its protestation that it has a good title thereto? [13]
Petitioner banks motion for reconsideration was likewise denied. Hence this petition.
The main question in this case is whether or not petitioner bank may be compelled
to execute a deed of reconveyance transferring the parcel of land mortgaged to
petitioner in favor of private respondents.
The Court of Appeals rejected the contention that petitioner cannot be compelled
to execute the deed of reconveyance since it was Demetrio Llego himself who was
ordered by the court to do so. It stressed that title to the property had been
consolidated in the name of the bank by virtue of the failure of Llego to redeem the
mortgage. Hence, it could not be insisted that Llego should effect the

reconveyance. The Court of Appeals agreed with the trial court that the bank took title
to the property pendente lite and, therefore, it was bound by the courts decision. [14]
On the other hand, petitioner contends that it is a mortgagee in good faith and for
value of the property as of March 12, 1982 when the same was mortgaged to it by
Demetrio Llego. It points out that the complaint for specific performance was filed by
private respondents only on May 3, 1984, more than one year after the mortgage was
validly constituted on November 12, 1982. As it was an innocent purchaser for value
long before the case against it was filed, it could not be considered a
transferee pendente lite.
Petitioner likewise cites St. Dominic Corp. v. Intermediate Appellate Court,[15] in
which it was held that the foreclosure sale retroacts to the date of the registration of
the mortgage and that a person who takes a mortgage in good faith and for valuable
consideration, the record showing clear title to the mortgagor, will be protected
against equitable claims on the title in favor of third persons of which he had no actual
or constructive notice. Prescinding from this, petitioner contends that the foreclosure
sale in the case at bar must be treated to have taken place not on the actual date of the
sale or during the pendency of the case but on the date the mortgage was executed and
registered, or on November 12, 1982, more than one year before the case in the lower
court was filed. Consequently, petitioner cannot be considered a transferee pendente
lite and it could not be accused of being aware of the flaw on said title when it
transferred the property.[16]
Petitioners contentions are without merit.
Several circumstances militate against petitioners argument that the mortgage in
its favor and the subsequent foreclosure and consolidation of title of the property
under its name must be protected and respected.
First. In the complaint for specific performance filed by private respondents,
petitioner bank was impleaded as co-defendant along with Demetrio Llego and
Ceferino Tan. The trial courts decision, dated May 17, 1993, has already
attained finality as petitioners appeal to the Court of Appeals was dismissed for being
filed out of time. As correctly pointed out by private respondents in their comment,
the instant petition is improper considering that it attempts to reverse the trial courts
decision which is already final and executory.[17] This being the case, whatever

judgment was rendered by the court in that case is necessarily binding on all
defendants therein, i.e., Llego, Tan and petitioner bank. As to which defendant would
actually execute the reconveyance is not important, for this merely involves the
implementation of the courts order.
The trial court ordered Llego to execute the necessary deed of reconveyance and,
together with Ceferino Tan, to redeem the property from petitioner bank believing that
title to the land was still in the name of Llego. As the writ of execution directed at
Llego could not be carried out, because in the meantime petitioner bank had obtained
title to the land, the trial court directed its order to petitioner bank. It cannot be argued
that, in so doing, the court modified its earlier judgment. It is noteworthy that
petitioner bank tried to appeal from the decision of the trial court which ordered the
Register of Deeds of Quezon to cancel TCT No. T-31753 and issue a new title to
private respondents, but the banks appeal was dismissed for its failure to file its
brief. As a result, the trial courts decision became final, and petitioner bank cannot
now claim that it is not bound by the trial courts order to reconvey the land to private
respondents.
Second. Both the trial court and the Court of Appeals correctly held that petitioner
bank was a transferee pendente lite whose title was subject to the incidents and results
of the pending litigation. Petitioner bank contends that it constituted the mortgage
more than a year before the private respondents action for specific performance was
filed and the fact that the foreclosure and public auction sale took place after the
institution of the case is immaterial since the foreclosure sale retroacts to the date of
the constitution of the mortgage. Petitioner bank argues that it was a purchaser for
value long before the filing of the case and, therefore, it cannot be considered a
transferee pendente lite.
This argument is specious. Petitioner acquired the property only after the filing of
private respondents case for specific performance. When the mortgage was
constituted, petitioner was not yet, properly speaking, a transferee, being a mere
mortgagee of the property. Only when petitioner acquired the property in the
foreclosure sale and subsequently consolidated its title did it become the transferee of
the property.

Thus, petitioner bank is a transferee pendente lite of the property in litigation

within the contemplation of Rule 39, 47(b). As such, it is bound by the decision
against Demetrio Llego. As this Court held in one case:[18]
. . . A transferee pendente lite stands exactly in the shoes of the transferor and is
bound by any judgment or decree which may be rendered for or against the
transferor; his title is subject to the incidents and results of the pending litigation,
and his transfer certificate of title will, in that respect, afford him no special
protection.[19]
Petitioner bank may thus be properly ordered to execute the necessary deed of
reconveyance in favor of private respondents. The remedy left to petitioner is to
pursue its claim against Llego and his attorney-in-fact Ceferino Tan by filing the
appropriate action to recover the unpaid indebtedness.
Third. Petitioner insists that it is not a transferee pendente lite because it was a
purchaser for value long before the case for specific performance was filed. The
contention is without merit. Even if it is not a transferee pendente lite, petitioner
nevertheless cannot claim a right superior to that of private respondents because
petitioner acted in bad faith when it foreclosed and acquired the property. As the Court
of Appeals pointed out, petitioner was aware of the charge of fraud against Demetrio
Llego in mortgaging the property to it despite the previous sale thereof to private
respondent Agustin Lagrama.The trial court found the existence of fraud in the
transaction and declared private respondents to be the absolute owners of the
property. As already stated, this decision of the trial court is now final and is binding
on petitioner bank. In the meantime, the bank consolidated its title over the
property.Since the bank acquired the land in question with knowledge of the fraud
committed by Llego, it cannot claim to be a purchaser in good faith and, therefore, to
have a better right than its predecessor-in-interest. [20]
Petitioners reliance on the case of St. Dominic Corp. v. Intermediate Appellate
Court[21] is misplaced. The facts of that case are different from those of the case at
bar. In the Dominic case, the facts were as follows: In 1961, the Peoples Homesite and
Housing Corporation (PHHC) awarded a parcel of land covered by TCT No. 83783 to
Cristobal Santiago, who sold the same to the spouses Carlos Robes and Adelia
Francisco. The spouses Robes mortgaged the lot to Manufacturers Bank and Trust
Company, and this fact was duly annotated on the back of TCT 84387. Thereafter,

Civil Case No. Q-11895, entitled Ricardo Castulo and Juan V. Ebreo v. Carlos Robes,
Adelia Francisco, and Peoples Homesite and Housing Corporation, was filed seeking
the cancellation of TCT No. 83783. Claiming legal interest in the property, the
Bustamante spouses were allowed to intervene in the case. A notice of lis pendens was
annotated on the title at the instance of the Bustamante spouses. For failure of the
Robes spouses to pay the mortgage obligation, Manufacturers Bank foreclosed the lot
which was then bought at public auction by Aurora Francisco, who was subsequently
issued a certificate of sale.As no redemption of the property was effected, TCT No.
84387 issued in the name of the Robes spouses was cancelled and TCT No. 217192
was issued to the buyer Aurora Francisco. The notice of lis pendens was not carried over
to TCT No. 217192.
Aurora Francisco applied for, and was issued, a writ of possession for the
property. The Bustamante spouses filed a motion to quash the writ, which motion was
denied by the lower court. The spouses then filed a petition for certiorari with the
Supreme Court. Thereafter, Aurora Francisco sold the property to petitioner St.
Dominic Corp, which was issued TCT No. 22337. Again, no notice of any lien or
encumbrance appeared on the title.
Meanwhile, Civil Case No. Q-11895 was decided. The trial court ruled that the
sale by PHHC to Cristobal Santiago was void and cancelled TCT No. 83783. The sale
of the same lot to the spouses Robes was likewise declared void and TCT No. 84387
was cancelled. PHHC was ordered to process Bustamantes application to purchase the
lot and execute documents awarding the lot to her. A writ of execution was issued to
the Bustamante spouses, with the qualification, however, that the writ could not be
enforced against St. Dominic Corp. The spouses questioned the order via
certiorari with the Intermediate Appellate Court, which granted the writ
of certiorari and ordered the trial court to issue the writ of execution against St.
Dominic Corp.
On appeal, this Court reversed the ruling of the Intermediate Appellate Court and
held that St. Dominic Corp. was not bound by the decision in that case because it was
never impleaded in Civil Case No. Q-11895. Anent the effect of the trial courts
judgment on Manufacturers Banks (mortgagee bank) rights and on the foreclosure of
the property in question, it was held that the invalidation of the title issued as a result
of regular land registration proceedings in the name of the mortgagor when given as a
security for a loan would not nullify the rights of a mortgagee who acted in good

faith. The mortgagee is under no obligation to look beyond the certificate of title and
has the right to rely on what appears on its face. The title to the property given as
security to Manufacturers Bank by the spouses was valid, regular, and free from any
lien or encumbrance. The title of Aurora Francisco, as a purchaser at the public
auction sale of the property in question, could not be affected by any adverse claim as
the plaintiffs in the civil case. This is even more true with petitioner St. Dominic
Corp. which had acquired title from Francisco without any notice or flaw.
In the case of St. Dominic, when the property in question was mortgaged to
Manufacturers Bank, the title showed that it was valid, regular, and free from any lien
or encumbrance. When it was later foreclosed and sold at public auction and a new
transfer certificate of title was issued to the buyer, the notice of lis pendens was not
carried over to the new title. And, when the property was sold to petitioner St.
Dominic Corp., which was again issued TCT No. 22337, no notice of any lien or
encumbrance appeared on the title. These factual circumstances led the Court to
conclude that the mortgagee bank and its subsequent transferrees had acted in good
faith. It is obvious that the case of St. Dominic Corp. v. Intermediate Appellate
Court cannot be invoked in this case where both the trial court [22] and the Court of
Appeals[23] found that petitioner bank did not act in good faith in acquiring title to the
property.
WHEREFORE, the decision of the Court of Appeals appealed from is
AFFIRMED.
SO ORDERED.
Acion vs. CA 387 SCRA 415 (2002)
Manila
FIRST DIVISION
G.R. No. 106880

August 20, 2002

PEDRO ACLON, petitioner,

vs.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK and SPS. ZOSIMO and NATALIA
OPIMO, respondents.
x-----------------------x

G.R. No. 120190

PEDRO ACLON, petitioner,
vs.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK and SPS. ZOSIMO and NATALIA
OPIMO, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us are two petitions for review on certiorari under Rule 45 of the Rules of Court, both filed by petitioner
Pedro Aclon (Aclon for brevity). The first seeks to reverse and set aside the Decision of the Court of Appeals
dated April 30, 1992 in C.A. G.R. CV No. 24106.1 The second assails the Decision dated August 31, 1994 in
C.A. G.R. CV No. 24133.2
The facts of the case are as follows:
On December 15, 1964, Aclon secured a loan from the Philippine National Bank (PNB for brevity)) at
Catbalogan, Samar, in the amount of Five Thousand Pesos (P5,000.00), payable within one (1) year.3
As security for the loan, Aclon mortgaged to PNB two parcels of land, to wit: a 234 square-meter residential lot,
with all the improvements existing thereon, covered by Tax Declaration No. 24321, situated at the poblacion of
Sulat, Eastern Samar; and, a 165,735 square-meter agricultural land with all the improvements existing
thereon, covered by Original Certificate of Title (OCT) No. 860, located at Sitio Balagon, Barrio Can-ilay, Canavid, Eastern Samar.4
The loan became due and payable on December 15, 1965. However, the same was extended after Aclon made
a partial payment. Despite the extension and repeated demands from PNB, Aclon failed to pay the loan in full at
the time of its maturity. Consequently, on May 31, 1973, PNB instituted extra-judicial foreclosure proceedings in
accordance with the provisions of Act 3135, as amended. 5
After notice6 and publication7, the Deputy Provincial Sheriff of Oras, Eastern Samar conducted a sale at public
auction of the mortgaged properties on July 17, 1973 at the municipal building of Oras. The subject properties
were awarded to PNB, being the sole and highest bidder. Subsequently, on August 28, 1973, a Sheriffs
Certificate of Sale8 was issued in PNBs favor and the same was registered with the Register of Deeds of
Samar on October 4, 1973.
The period of redemption lapsed on October 4, 1974 without Aclon redeeming the foreclosed properties. PNB
then consolidated its ownership over the said parcels of land on October 16, 1974. 9
On June 25, 1975, PNB sold to spouses Zosimo and Natalia Opimo the subject residential land located at
Sulat, Eastern Samar.10 However, Aclon remained in possession of the property. When the Opimo spouses
attempted to take possession of the subject lot, Aclon refused to vacate the same and instead filed a complaint
against PNB and the Opimo spouses for Annulment of Two Contracts of Sale with Damages and Consignation
docketed as Civil Case No. 1907 in the Regional Trial Court (Branch I) of Borongan, Eastern Samar.
The Opimo spouses, on the other hand, filed a complaint for Recovery of Real Property with Preliminary
Mandatory Injunction and Damages docketed as Civil Case No. 1859 in the same trial court.

Both cases were heard jointly. However, despite consolidation of the two cases, the trial court rendered
separate decisions for each case, as follows:
The dispositive portion of the RTC decision in Civil Case No. 1859 reads "WHEREFORE, judgment is hereby rendered declaring the foreclosure proceedings of defendants properties
by the Philippine National Bank and the subsequent contracts of sale involving said mortgaged properties valid
and declaring plaintiff Zosimo Opimo and his wife the lawful owners of the properties in question and entitled to
the possession thereof with costs against the defendant Pedro Aclon. The Philippine National Bank is absolved
from the complaints."11
The dispositive portion of the RTC decision in Civil Case No. 1907 reads "WHEREFORE, judgment is hereby rendered dismissing this action for annulment of sale and it ordered(sic)
that the plaintiff Pedro Aclon and all persons acting under his command vacate the house and lot in Sulat in
question now covered by Tax Declaration No. 31144 of Zosimo A. Opimo and give possession to defendant
Zosimo A. Opimo and his wife, to pay to the Opimos the amount of Thirteen Thousand Pesos (P13,00)
representing the reasonable compensation for use of said house and lot form June 25, 1975 to December 21,
1988, plus One Hundred Pesos (P100) a month thereafter until possession is completely delivered to the
Opimos, to pay attorneys fees in the amount of One Thousand Five Hundred Pesos (P1,500), and to pay the
costs of the suit. The Philippine National Bank is absolved from the complaint." 12
Aclon brought two separate appeals with the Court of Appeals. The appeal in Civil Case No. 1907 is docketed
as CA-G.R. CV No. 24106 while the appeal in Civil Case No. 1859 is docketed as CA-G.R. CV No. 24133.
On April 30, 1992, the Court of Appeals promulgated its Decision in CA-G.R. CV No. 24106 (Civil Case No.
1907), affirming with modification the trial courts decision by deleting the award of attorneys fees, to wit:
"No reason having been stated in the body of the decision for the award of attorneys fees, such award is
hereby disallowed in this appeal (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57).
"WHEREFORE, with the foregoing modification, the Decision appealed from is hereby AFFIRMED with costs
against appellant.
"SO ORDERED."13
On August 31, 1994, the Court of Appeals promulgated its Decision in CA-G.R. CV No. 24133 (Civil Case No.
1859), the dispositive portion of which reads:
"WHEREFORE, the decision appealed from is modified as follows:
"(1) the extrajudicial foreclosure proceedings in question, as well as the sale at public auction to
defendant PNB are declared null and void for not having complied with the mandatory provisions of Act
3135 as well as the stipulation between the parties;
"(2) the subsequent sale of the property by defendant PNB to appellees is however declared valid;
"(3) defendant-appellant and all persons claiming rights under him are ordered to vacate the property
in question and to surrender possession thereof to plaintiffs-appellees."

"SO ORDERED."14
Petitioner Aclon seasonably appealed each case to this Court. Inasmuch as the factual antecedents, parties
involved and issues raised in these cases are substantially the same, we consolidated the two petitions. 15
In G.R. No. 106880 (CA-G.R. CV No. 24106), petitioner raises the following Assignment of Errors:
"1. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE
EXTRAJUDICIAL FORECLOSURE OF THE MORTGAGE AS WELL AS THE FORECLOSURE SALE
ARE NULL AND VOID AND OF NO FORCE AND EFFECT FOR LACK OF COMPLIANCE WITH THE
MANDATORY REQUIREMENTS OF THE LAW, ACT 3135, ON POSTING, PUBLICATION OF THE
NOTICE OF SALE AND THE PLACE OF AUCTION SALE.
"2. THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE
FORECLOSURE SALE BEING A NULLITY, THE SALES BY THE RESPONDENT PNB OF THE
PROPERTY IN QUESTION TO ITSELF AND TO THE RESPONDENT OPIMO SPOUSES ARE
LIKEWISE A NULLITY AND OF NO FORCE AND EFFECT.
"3. THE RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE
ACCEPTANCE BY RESPONDENT PNB OF PAYMENTS WAS REALLY INTENDED FOR
PETITIONERS OBLIGATIONS AND NOT TO OTHER EXPENSES INCURRED IN THE
FORECLOSURE PROCEEDINGS BECAUSE OF THE NULLITY OF THE SAID FORECLOSURE.
"4. THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THE PRIVATE
RESPONDENT OPIMO SPOUSES AS PURCHASERS IN BAD FAITH OF THE PROPERTY IN
QUESTION.
"5. THE RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT
THERE WAS NO FACTUAL OR LEGAL BASIS FOR THE RULING OF THE TRIAL COURT
ORDERING PETITIONERS TO PAY RESPONDENTS THE AMOUNT OF P13,000.00
REPRESENTING REASONABLE VALUE FOR THE USE AND OCCUPATION OF THE PROPERTY
AS WELL AS THE AMOUNT OF P100.00 A MONTH UNTIL POSSESSION IS DELIVERED TO THE
OPIMO SPOUSES."16
In G.R. No. 120190 (CA-G.R. CV No. 24133), petitioner raises the following:
"ASSIGNMENT OF ERRORS
"1. The respondent Court of Appeals gravely erred in not holding the subsequent sale of the property by
defendant PNB to respondent-appellees as null and void despite the fact that the extra-judicial foreclosure
proceedings in question, as well as the sale at public auction to defendant PNB are declared null and void for
not having complied with the mandatory provisions of Act 3135 as well as the stipulation between the parties;
"2. The respondent Court of Appeals gravely erred in ordering petitioner-appellant and all persons claiming
rights under him to vacate the property in question and to surrender possession thereof to respondentappellees."17
We find both appeals devoid of merit.

Petitioners assigned errors essentially involve questions of fact. His main contention is anchored on the
premise that the sale at public auction of the subject properties to PNB is null and void because the
extrajudicial foreclosure proceedings were conducted in violation of the provisions of Act 3135 and of the
contractual agreement between the parties. Petitioner concludes that since the auction sale is null and void,
PNB did not acquire ownership of the said properties and as a result, its subsequent sale of the subject
residential lot to the Opimo spouses is, likewise, null and void.
A determination of the validity of petitioners claim and the issues arising therefrom necessitates a review of the
factual findings of the trial court and the respondent appellate court. We have held in a long line of cases that in
a petition for review on certiorari under Rule 45 of the Rules of Court, only questions of law may be raised as
the Supreme Court is not a trier of facts.18 It is settled that as a rule, the findings of fact of the Court of Appeals
especially those affirming the trial court are final and conclusive and cannot be reviewed on appeal to the
Supreme Court.19 The exceptions to this rule are: (a) when the conclusion is a finding grounded entirely on
speculations, surmises or conjectures; (b) when the inference made is manifestly mistaken, absurd or
impossible; (c) when there is grave abuse of discretion; (d) when the judgment is based on a misapprehension
of facts; (e) when the findings of fact are conflicting (f) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (g)
where the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which,
if properly considered, would justify a different conclusion; (h) where the findings of fact of the Court of Appeals
are contrary to those of the trial court, or are mere conclusions without citation of specific evidence, or where
the facts set forth by the petitioner are not disputed by the respondent, or where the findings of fact of the Court
of Appeals are premised on absence of evidence but are contradicted by the evidence on record. 20
We find no compelling reason to depart from the factual findings of the Court of Appeals that there was
compliance by PNB with the provisions of Act 3135 with respect to the posting and publication of the notice of
sale at public auction; that the Opimo spouses are buyers in good faith; that the payment made by Aclon to
PNB on September 28, 1973 was intended for the expenses in the foreclosure of the subject properties; and,
that the payment on January 21, 1975, was a deposit for the purpose of enabling Aclon to repurchase the
foreclosed property.
In both appealed cases, the appellate court affirmed the finding of the trial court that the payment made by
Aclon on January 21, 1975 was given as a deposit for the purpose of enabling him to redeem his foreclosed
properties despite the lapse of the redemption period on October 4, 1974. 21
In the absence of evidence proving that a judgment debtor was merely trying to protect himself or save his
property, and that no reliance could or should have been placed upon his action in so doing, an attempt to
redeem from an execution sale has been construed as a waiver of defects or irregularities therein, precluding
him from relying upon them for the purpose of challenging its validity.22 When Aclon sought to redeem his
property from PNB he never made any reservation with respect to his right to question the validity of the
auction sale and to seek alternative relief before the courts. In other words, there was no indication whatsoever
that he does not recognize the validity of the sale. If petitioner indeed felt that the assailed foreclosure
proceedings were attended with any irregularity he should have filed the appropriate action with the court.
Instead, he offered to repurchase the subject properties without any condition or reservation. Nevertheless,
Aclon failed to comply with his undertaking and instead defaulted in his subsequent payments. 23
1wphi1

It is true that Aclon denies that the P1,300.00 he paid was a deposit for the repurchase of his foreclosed
properties. However, Angel Carpeso, the clerk who was then in-charge of PNBs records of loan accounts at
the time Aclon secured his loan with PNB, testified to the contrary.24 The trial court gave credence to Carpesos
testimony. We find no cogent reason to disturb the findings of the trial court in light of the settled rule that the
evaluation of the testimonies of witnesses by the trial court is entitled to the highest respect because such court

has the direct opportunity to observe the witnesses demeanor and manner of testifying and thus, is in a better
position to assess their credibility.25
It was only on February 2, 1979, or more than five (5) years after the said properties were foreclosed and
almost four (4) years after the same were sold to the Opimo spouses that petitioner Aclon filed Civil Case No.
1907 when his efforts in redeeming the subject properties proved unavailing through his own fault and
negligence. Indeed, any party otherwise in a position to object to a mortgage-foreclosure sale is precluded from
doing so by conduct sufficient to bring into operation the doctrines of waiver and estoppel. 26
Thus, we find no error in the appellate courts ruling that redemption is an implied admission of the regularity of
the sale and estops the petitioner from later impugning its validity on that ground. 27 Redemption is inconsistent
with the claim of invalidity of the sale.28 With petitioners implied admission of the validity of the extrajudicial
foreclosure proceedings, he is likewise estopped from questioning the venue of the public auction.
Consequently, the sale by PNB to Opimo spouses is valid.
WHEREFORE, the petitions are DENIED. The decision of the Court of Appeals in C.A. G.R. CV No. 24106 is
AFFIRMED in toto. The decision of the Court of Appeals in C.A. G.R. CV No. 24133 is AFFIRMED with
MODIFICATION to the effect that the extrajudicial foreclosure proceedings in question and the sale at public
auction to PNB are declared valid.
SO ORDERED.
Vitug, and Ynares-Santiago, JJ., concur.
Davide, Jr., C.J., (Chairman), on official leave.

Sulit vs. CA 268 SCRA 441 (1997)

CESAR SULIT, petitioner,
vs.
COURT OF APPEALS and ILUMINADA CAYCO, respondents.

REGALADO, J.:
The primary issue posed before the Court, in this appeal by certiorari from a decision 1 of the Court of Appeals,

is whether or not the mortgagee or purchaser in an extrajudicial foreclosure sale is entitled to the
issuance of a writ of possession over the mortgaged property despite his failure to pay the surplus
proceeds of the sale to the mortgagor or the person entitled thereto. Secondarily, it calls for a resolution of
the further consequences of such non-payment of the full amount for which the property was sold to him
pursuant to his bid.
The material facts, as found by respondent court, are not disputed:

It appears from the record that on 9 June 1992 petitioner (herein private respondent)
Iluminada Cayco executed a Real Estate Mortgage (REM) over Lot 2630 which is located in
Caloocan City and covered by TCT No. (23211) 11591 in favor of private respondent (herein
petitioner) Cesar Sulit, to secure a loan of P4 Million. Upon petitioner's failure to pay said loan
within the stipulated period, private respondent resorted to extrajudicial foreclosure of the
mortgage as authorized in the contract. Hence, in a public auction conducted by Notary Public
Felizardo M. Mercado on 28 September 1993 the lot was sold to the mortgagee, herein
private respondent, who submitted a winning bid of P7 Million. As stated in the Certificate of
Sale executed by the notary public (Annex B, petition), the mortgaged property was sold at
public auction to satisfy the mortgage indebtedness of P4 Million. The Certificate further states
as follows:
IT IS FURTHER CERTIFIED, that the aforementioned highest bidder/buyer,
CESAR SULIT, being the petitioner/mortgagee thereupon did not pay to the
undersigned Notary Public of Kalookan City the said sum of SEVEN
MILLION PESOS (P7,000,000.00), Philippine Currency, the sale price of the
above-described real estate property together with all improvements existing
thereon, which amount was properly credited to the PARTIAL satisfaction of
the mortgage debt mentioned in the said real estate mortgage, plus interests,
attorney's fees and all other incidental expenses of foreclosure and sale (par.
2, Annex B, petition).
On 13 December 1993 private respondent petitioned the Regional Trial Court of Kalookan City
for the issuance of a writ of possession in his favor. The petition was docketed as LRC Case
No. C-3462 and assigned to Branch 131, presided over by public respondent.
On 17 January 1994 respondent Judge issued a decision (should have been denominated as
order), the dispositive part of which reads:
WHEREFORE, finding the subject petition to be meritorious, the same is
hereby GRANTED. As prayed for, let a Writ of Possession be issued in favor
of herein petitioner, Cesar Sulit, upon his posting of an indemnity bond in the
amount of One Hundred Twenty Thousand (P120,000.00) Pesos (Annex C,
petition).
On 28 March 1994 petitioner filed a Motion to have the auction sale of the mortgaged property
set aside and to defer the issuance of the writ of possession. She invited the attention of the
court a quoto some procedural infirmities in the said proceeding and further questioned the
sufficiency of the amount of bond. In the same Motion petitioner prayed as an alternative relief
that private respondent be directed to pay the sum of P3 Million which represents the balance
of his winning bid of P7 Million less the mortgage indebtedness of P4 Million (Annex D,
petition). This Motion was opposed by private respondent who contended that the issuance of
a writ of possession upon his filing of a bond was a ministerial duty on the part of respondent
Judge (Annex E), to which Opposition petitioner submitted a Reply (Annex F, petition).
On 11 May 1994 respondent Judge denied petitioner's Motion and directed the issuance of a
writ of possession and its immediate enforcement by deputy sheriff Danilo Norberte (Annex G,
petition)." 2(Emphasis words supplied for clarity).

From the aforesaid orders of the court a quo, herein private respondent Iluminada Cayco filed on May 26, 1994
a petition for certiorari with preliminary injunction and/or temporary restraining order before respondent Court of
Appeals, which immediately issued a status quo order restraining the respondent judge therein from
implementing his order of January 17, 1994 and the writ of possession issued pursuant thereto. Subsequently,
respondent court rendered judgment on November 11, 1994, as follows:
IN JUDGMENT, We grant the writ of certiorari and the disputed order of 17 January 1994
which precipitately directed the issuance of a writ of possession in favor of private respondent
and the subsequent order of 11 May 1994 which denied petitioner's Motion for
Reconsideration are hereby SET ASIDE.
Accordingly, private respondent is ordered to pay unto petitioner, through the notary public,
the balance or excess of his bid of P7 Million after deducting therefrom the sum of P4,365,280
which represents the mortgage debt and interest up to the date of the auction sale
(September 23, 1993), as well as expenses of foreclosure based on receipts which must be
presented to the notary public.
In the event that private respondent fails or refuses to pay such excess or balance, then the
auction sale of 28 September 1993 is deemed CANCELLED and private respondent may
foreclose the mortgage anew either in a judicial or extrajudicial proceeding as stipulated in the
mortgage contract.
Corollary to the principal issue earlier stated, petitioner asserts that respondent Court of Appeals gravely erred
when it failed to appreciate and consider the supposed legal significance of the bouncing checks which private
respondent issued and delivered to petitioner as payment for the agreed or stipulated interest on the mortgage
obligation. He likewise avers that a motion for reconsideration or an appeal, and not certiorari, is the proper
remedy available to herein private respondent from an order denying her motion to defer issuance of the writ of
possession. Moreover, it is claimed that any question regarding the propriety of the sale and the issuance of the
writ of possession must be threshed out in a summary proceeding provided for in Section 8 of Act 3135.
There is no merit in petitioner's contention that the dishonored checks amounting to a total of P1,250,000.00,
allegedly representing interest of 5% per month from June 9, 1992 to December 9, 1992, were correctly
considered by the trial court as the written agreement between the parties. Instead, we find the explanation of
respondent court in rejecting such postulate, on the basis of Article 1956 of the Civil Code, 3 to be more logical

and plausible, to wit:

It is noteworthy that the Deed of Real Estate Mortgage executed by the parties on 9 June
1992 (Annex A, Petition) does not contain any stipulation for payment of interest. Private
respondent who maintains that he had an agreement with petitioner for the payment of 5%
monthly interest did not produce any other writing or instrument embodying such a stipulation
on interest. It appears then that if any such agreement was reached by the parties, it was
merely a verbal one which does not conform to the aforequoted statutory provision. Certainly,
the dishonored checks claimed to have been issued by petitioner in payment of interest could
not have been the written stipulation contemplated in Article 1956 of the Code. Consequently,
in the absence of a written stipulation for the imposition of interest on the loan obtained by
petitioner, private respondent's assessment thereof has no legal basis. 4
It is elementary that in the absence of a stipulation as to interest, the loan due will now earn interest at the legal
rate of 12% per annum 5 which, according to respondent court, is equivalent to P365,280.000.00 computed

from December 10, 1992, after private respondent's obligation became due, until September 23, 1993,

the date of the auction sale. It is this amount which should further be deducted from the purchase price of
P7,000,000.00, together with any other expenses incurred in connection with the sale, such as the
posting and publication of notices, notarial and documentary fees, and assessments or taxes due on the
disputed property.
It baffles this Court, therefore, why petitioner has continually failed up to the present to submit documentary
evidence of the alleged expenses of the foreclosure sale, and this in spite of the express requirement therefor
in the certificate of sale 6 issued by the notary public for the purpose of computing the actual amount

payable by the mortgagor or redemptioner in the event of redemption. It may thus be safely presumed
that such evidence having been willfully suppressed, it would be adverse if produced. 7
Coming now to the main issue in this case, petitioner argues that it is ministerial upon the court to issue a writ
of possession after the foreclosure sale and during the period of redemption, invoking in support thereof
Sections 7 and 8 of Act 3135 which conjointly provide:
Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court
of First Instance of the province or place where the property or any part thereof is situated, to
give him possession thereof during the redemption period, furnishing bond in an amount
equivalent to the use of the property for a period of twelve months, to indemnify the debtor in
case it be shown that the sale was made without violating the mortgage or without complying
with the requirements of this Act. Such petition shall be made under oath and filed in form of
an ex parte motion in the registration or cadastral proceedings if the property is registered, or
in special proceedings in the case of property registered under the Mortgage Law or under
section one hundred and ninety-four of the Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of any register of deeds in
accordance with any existing law, and in each case the clerk of the court shall, upon the filing
of such petition, collect the fees specified in paragraph eleven of section one hundred and
fourteen of Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon
approval of the bond, order that a writ of possession issue, addressed to the sheriff of the
province in which the property is situated, who shall execute said order immediately.
Sec. 8. The debtor may, in the proceedings in which possession was requested, but not later
than thirty days after the purchaser was given possession, petition that the sale be set aside
and the writ of possession cancelled, specifying the damages suffered by him, because the
mortgage was not violated or the sale was not made in accordance with the provisions hereof,
and the Court shall take cognizance of this petition in accordance with the summary
procedure provided for in section one hundred and twelve of Act Number Four hundred and
ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all
or part of the bond furnished by the person who obtained possession. Either of the parties
may appeal from the order of the judge in accordance with section fourteen of Act Numbered
Four hundred and ninety-six; but the order of possession shall continue in effect during the
pendency of the appeal.
The governing law thus explicitly authorizes the purchaser in a foreclosure sale to apply for a writ of possession
during the redemption period by filing an ex parte motion under oath for that purpose in the corresponding
registration or cadastral proceeding in the case of property with Torrens title. Upon the filing of such motion and
the approval of the corresponding bond, the law also in express terms directs the court to issue the order for a
writ of possession.

No discretion appears to be left to the court. Any question regarding the regularity and validity of the sale, as
well as the consequent cancellation of the writ, is to be determined in a subsequent proceeding as outlined in
Section 8, and it cannot be raised as a justification for opposing the issuance of the writ of possession since,
under the Act, the proceeding for this is ex parte. 8 Such recourse is available to a mortgagee, who effects

the extrajudicial foreclosure of the mortgage, even before the expiration of the period of redemption
provided by law and the Rules of Court. 9
The rule is, however, not without exception. Under Section 35, Rule 39 of the Rules of Court, which is made
applicable to the extrajudicial foreclosure of real estate mortgages by Section 6 of Act 3135, the possession of
the mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure "unless a third party is
actually holding the property adversely to the judgment debtor." 10
Thus, in the case of Barican, et al. vs. Intermediate Appellate Court,
et al., 11 this Court took into account the circumstances that long before the mortgagee bank had sold the

disputed property to the respondent therein, it was no longer the judgment debtor who was in possession
but the petitioner spouses who had assumed the mortgage, and that there was a pending civil case
involving the rights of third parties. Hence, it was ruled therein that under the circumstances, the
obligation of a court to issue a writ of possession in favor of the purchaser in a foreclosure of mortgage
case ceases to be ministerial.
Now, in forced sales low prices are generally offered and the mere inadequacy of the price obtained at the
sheriff's sale, unless shocking to the conscience, has been held insufficient to set aside a sale. This is because
no disadvantage is caused to the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price
because he possesses the right of redemption. When there is the right to redeem, inadequacy of price
becomes immaterial since the judgment debtor may reacquire the property or sell his right to redeem, and thus
recover the loss he claims to have suffered by reason of the price obtained at the auction sale. 12
However, also by way of an exception, in Cometa, et al. vs. Intermediate Appellate Court, et al. 13 where the

properties in question were found to have been sold at an unusually lower price than their true value, that
is, properties worth at least P500,000.00 were sold for only P57,396.85, this Court, taking into
consideration the factual milieu obtaining therein as well as the peculiar circumstances attendant thereto,
decided to withhold the issuance of the writ of possession on the ground that it could work injustice
because the petitioner might not be entitled to the same.
The case at bar is quite the reverse, in the sense that instead of an inadequacy in price, there is due in favor of
private respondent, as mortgagor, a surplus from the proceeds of the sale equivalent to approximately 40% of
the total mortgage debt, which excess is indisputably a substantial amount. Nevertheless, it is our considered
opinion, and we so hold, that equitable considerations demand that a writ of possession should also not issue
in this case.
Rule 68 of the Rules of Court provides:
Sec. 4. Disposition of proceeds of sale. The money realized from the sale of mortgaged
property under the regulations hereinbefore prescribed 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 such mortgage or other incumbrances, the same shall be paid to the
junior incumbrancers in the order of their priority, to be ascertained by the court, or if there be
no such incumbrancers or there be a balance or residue after payment of such
incumbrancers, then to the mortgagor or his agent, or to the person entitled to it.

The application of the proceeds from the sale of the mortgaged property to the mortgagor's obligation is an act
of payment, not payment by dation; hence, it is the mortgagee's duty to return any surplus in the selling price to
the
mortgagor. 14 Perforce, a mortgagee who exercises the power of sale contained in a mortgage is

considered a custodian of the fund, and, being bound to apply it properly, is liable to the persons entitled
thereto if he fails to do so. And even though the mortgagee is not strictly considered a trustee in a purely
equitable sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for
the mortgagor or owner of the equity of redemption. 15
Commenting on the theory that a mortgagee, when he sells under a power, cannot be considered otherwise
than as a trustee, the vice-chancellor in Robertson vs. Norris (1 Giff . 421) observed: "That expression is to be
understood in this sense: that with the power being given to enable him to recover the mortgage money, the
court requires that he shall exercise the power of sale in a provident way, with a due regard to the rights and
interests of the mortgagor in the surplus money to be produced by the sale." 16
The general rule that mere inadequacy of price is not sufficient to set aside a foreclosure sale is based on the
theory that the lesser the price the easier it will be for the owner to effect the redemption. 17 The same thing

cannot be said where the amount of the bid is in excess of the total mortgage debt. The reason is that in
case the mortgagor decides to exercise his right of redemption, Section 30 of Rule 39 provides that the
redemption price should be equivalent to the amount of the purchase price, plus one per cent monthly
interest up to the time of the redemption, 18 together with the amount of any assessments or taxes which
the purchaser may have paid thereon after purchase, and interest on such last-named amount at the
same rate. 19
Applying this provision to the present case would be highly iniquitous if the amount required for redemption is
based on P7,000.000.00, because that would mean exacting payment at a price unjustifiably higher than the
real amount of the mortgage obligation. We need not elucidate on the obvious. Simply put, such a construction
will undeniably be prejudicial to the substantive rights of private respondent and it could even effectively
prevent her from exercising the right of redemption.
Where the redemptioner chooses to exercise his right of redemption, it is the policy of the law to aid rather than
to defeat his right. It stands to reason, therefore, that redemption should be looked upon with favor and where
no injury will follow, a liberal construction will be given to our redemption laws, specifically on the exercise of
the right to redeem. Conformably hereto, and taking into consideration the facts obtaining in this case, it is
more in keeping with the spirit of the rules, particularly Section 30 of Rule 39, that we adopt such interpretation
as may be favorable to the private respondent.
Admittedly, no payment was made by herein petitioner, as the highest bidder, to the notary public who
conducted the extrajudicial foreclosure sale. We are not unmindful of the rule that it is not necessary for the
mortgagee to pay cash to the sheriff or, in this case, the notary public who conducted the sale. It would
obviously serve no purpose for the sheriff or the notary public to go through the idle ceremony of receiving the
money and paying it back to the creditor, under the truism that the lawmaking body did not contemplate such a
pointless application of the law in requiring that the creditor must bid under the same conditions as any other
bidder. 20 It bears stressing that the rule holds true only where the amount of the bid represents the total

amount of the mortgage debt.

In case of a surplus in the purchase price, however, there is jurisprudence to the effect that while the
mortgagee ordinarily is liable only for such surplus as actually comes into his hands, but he sells on credit
instead of for cash, he must still account for the proceeds as if the price were paid in cash, and in an action

against the mortgagee to recover the surplus, the latter cannot raise the defense that no actual cash was
received. 21
We cannot simply ignore the importance of surplus proceeds because by their very nature, surplus money
arising from a sale of land under a decree of foreclosure stands in the place of the land itself with respect to
liens thereon or vested rights therein. They are constructively, at least, real property and belong to the
mortgagor or his assigns. 22 Inevitably, the right of a mortgagor to the surplus proceeds is a substantial right

which must prevail over rules of technicality.

Surplus money, in case of a foreclosure sale, gains much significance where there are junior encumbrancers
on the mortgaged property. Jurisprudence has it that when there are several liens upon the premises, the
surplus money must be applied to their discharge in the order of their priority. 23 A junior mortgagee may have

his rights protected by an appropriate decree as to the application of the surplus, if there be any, after
satisfying the prior mortgage. His lien on the land is transferred to the surplus fund. 24 And a senior
mortgagee, realizing more than the amount of his debt on a foreclosure sale, is regarded as a trustee for
the benefit of junior encumbrancers. 25
Upon the strength of the foregoing considerations, we cannot countenance the apparent paltriness that
petitioner persistently accords the right of private respondent over the surplus proceeds. It must be emphasized
that petitioner failed to present the receipts or any other proof of the alleged costs or expenses incurred by him
in the foreclosure sale. Even the trial court failed or refused to resolve this issue, notwithstanding the fact that
this was one of the grounds raised in the motion filed by private respondent before it to set aside the sale.
Since it has never been denied that the bid price greatly exceeded the mortgage debt, petitioner cannot be
allowed to unjustly enrich himself at the expense of private respondent.
As regards the issue concerning the alleged defect in the publication of the notice of the sale, suffice it to state
for purposes of this discussion that a question of non-compliance with the notice and publication requirements
of an extrajudicial foreclosure sale is a factual issue and the resolution thereof by the lower courts is binding
and conclusive upon this Court, 26 absent any showing of grave abuse of discretion. In the case at bar, both

the trial court and respondent Court of Appeals have found that the sale was conducted in accordance
with law. No compelling reason exists in this case to justify a rejection of their findings or a reversal of
their conclusions.
There is likewise no merit in the argument that if private respondent had wanted to question the validity of the
sale, she should have filed a petition to set the same aside and to cancel the writ of possession. These, it is
argued, should have been disposed of in accordance with the summary procedure laid down in Section 112 of
the Land Registration Act, provided the petition is filed not later than thirty days after the purchaser was given
possession of the land. Considering, however, that private respondent has filed a motion to set aside the sale
and to defer the issuance of a writ of possession before the court where the ex parte petition for issuance of
such writ was then pending, we deem the same to be substantial compliance with the statutory prescription.
We, however, take exception to and reject the last paragraph in the dispositive portion of the questioned
decision of respondent court, which we repeat:
In the event that private respondent fails or refuses to pay such excess or balance, then the
auction sale of 28 September 1993 is deemed CANCELLED and private respondent
(petitioner herein) may foreclose the mortgage anew either in a judicial or extrajudicial
proceeding as stipulated in the mortgage contract.

for lack of statutory and jurisprudential bases. The quoted phrase "as stipulated in the mortgage
contract" does not, of course, envision such contingency or warrant the suggested alternative
procedure.
Section 4 of Rule 64, hereinbefore quoted, merely provides that where there is a balance or residue after
payment of the mortgage, the same shall be paid to the mortgagor. While the expedient course desired by
respondent court is commendable, there is nothing in the cited provision from which it can be inferred that a
violation thereof will have the effect of nullifying the sale. The better rule is that if the mortgagee is retaining
more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but
simply gives the mortgagor a cause of action to recover such surplus. 27 This is likewise in harmony with the

decisional rule that in suing for the return of the surplus proceeds, the mortgagor is deemed to have
affirmed the validity of the sale since nothing is due if no valid sale has been made. 28
In the early case of Caparas vs. Yatco, etc., et al., 29 it was also held that where the mortgagee has been

ordered by the court to return the surplus to the mortgagor or the person entitled thereto, and the former
fails to do so and flagrantly disobeys the order, the court can cite the mortgagee for contempt and mete
out the corresponding penalty under Section 3(b) of the former Rule 64 (now Rule 71) of the Rules of
Court.
WHEREFORE, the questioned decision of the Court of Appeals is MODIFIED by deleting the last paragraph of
itsfallo, but its disposition of this case in all other respects is hereby AFFIRMED.
SO ORDERED.

Ley vs Union Bank

This petition for review on certiorari assails the Decision1 of the Court of Appeals dated 18 January 2005,
finding petitioners complaint before the trial court for recovery of title barred by res judicata.
The basis for the appellate courts finding of appositeness of res judicata is a case that originated at the
Regional Trial Court (RTC) in Makati City (Makati case).
The Makati case
A brief review of the antecedents of the Makati case will facilitate a better appreciation of the case at bar.
On 28 May 1990, a Credit Line Agreement2 was executed between Ley Construction and Development
Corporation (LCDC) and private respondent Union Bank of the Philippines (UBP). 3 The credit line given to
LCDC was for P20 million, effective for a period of up to 31 May 1991.4 Among the securities for the Credit Line
Agreement is a Continuing Surety Agreement5 executed on 23 May 1990 by petitioners, spouses Manuel and
Janet Ley (spouses Ley), in favor of UBP.6
LCDC availed of the credit line granted to it and executed the promissory notes in favor of UBP in the total
amount of P18,757,152.78.7 However, LCDC failed, despite demands, to pay its loan obligation as of 31 May
1991.8 Consequently, on 7 October 1991, UBP filed against the spouses Ley and LCDC the collection suit
docketed as Civil Case No. 92-2737 before the RTC, Branch 139, Makati City.9

On 14 March 1996, the RTC, Makati City issued a Resolution 10 granting UBPs Motion for Summary Judgment
and ordering LCDC and the spouses Ley to pay the amount of P18,833,674.86 plus the agreed interest and
penalty charges.11 When UBP moved for the execution of the Resolution, the new presiding judge denied the
motion for execution. On appeal,12 the Court of Appeals set aside and annulled the trial courts denial of the
motion for execution.13 On petition for review, this Court likewise affirmed the invalidity of the order denying the
motion for execution per its Decision dated 27 June 2000.14
The money judgment in its favor having become final and executory, UBP levied on the spouses Leys property
covered by Transfer Certificate of Title No. T-21273 of the Register of Deeds of Tagaytay City (Tagaytay
property). This levy was annotated on the certificate of title. 15 On 18 September 2002, the Tagaytay property
was sold on execution with UBP as the highest bidder. A certificate of sale 16 was then issued in favor of UBP.
This certificate of sale was registered with the Registry of Deeds of Tagaytay City and annotated on the original
of the title on file with the Register of Deeds on the following day, 19 September 2002. 17
The Tagaytay case
Prior to the expiration of the redemption period for the Tagaytay property on 18 September 2003, the spouses
Ley filed against UBP a complaint18 for recovery of title before the RTC of Tagaytay City.19
In said complaint, filed on 23 June 2003, the spouses Ley alleged that they are the registered owners of the
Tagaytay property and that on 23 December 1993, they entered into a Third Party Real Estate Mortgage over
the same property in favor of the International Corporate Bank, Inc. to secure the loan/credit line
accommodation in the amount of P9,702,000.00 granted to Azkon Refrigeration Industries, Inc. 20
It is further alleged in the complaint that the International Corporate Bank, Inc. had later on merged with UBP;
that as a consequence, the formers assets and liabilities were absorbed by the latter as the surviving
corporation; that Azkon Refrigeration Industries, Inc. had already fully paid its obligation with International
Corporate Bank, Inc. and/or UBP; that despite demands, however, UBP refused to release the title to the
Tagaytay property to the spouses Ley; that, in view of UBPs refusal, the spouses Ley were unable to effect the
sale of the Tagaytay property to a willing buyer for an acceptable price; and, that all the foregoing had prompted
the spouses Ley to file the Tagaytay case for recovery of title as well as damages. 21
On 8 August 2003, UBP filed a motion to dismiss the Tagaytay case on the grounds of bar by prior judgment,
failure of the complaint to state a cause of action, and failure of the Ley spouses as plaintiffs to attach a copy of
the title as well as other pertinent documents to their complaint. 22 The ground of bar by prior judgment is
anchored on the finality of the judgment in the Makati case.
The RTC of Tagaytay City denied UBPs motion to dismiss in an Order dated 17 February 2004, 23 which reads
in part, thus:
As gleaned from the foregoing, the two causes of action relied by both parties are based on different claims or
cause [sic] of actions [sic] (Rizal Surety and Insurance Co. vs. CA, 336 SCRA 12) which are brought on
different statutes and rules (Vda. De Salonga vs. Alagar, 335 SCRA 728).
WHEREFORE, premises considered, the motion to dismiss is hereby DENIED.
SO ORDERED.
Aggrieved, UBP filed before the Court of Appeals a special civil action for certiorari to annul and set aside the
17 February 2004 Order of the RTC. In its petition, UBP imputed grave abuse of discretion to the trial court in

denying the motion to dismiss on the following grounds: that the Tagaytay property sought to be recovered had
already been levied and sold on execution to satisfy the final and executory judgment in the Makati case; that
UBP was justified in refusing to release the title over the Tagaytay property to the spouses Ley because it had
already become the owner of the property; and that the failure to attach a copy of the title to the Tagaytay
property as well as other pertinent documents alleged in the complaint violated the rule on actionable
documents as provided in Sec. 7, Rule 8 of the Rules of Court. 24
On the premise that the property sought to be recovered had already been levied upon on execution and a
certificate of sale covering it issued in the name of UBP, the Court of Appeals held in its Decision that res
judicatahad already set in to bar the cause of action for recovery or release of title. 25 The appellate court also
considered the doctrine of judicial stability or non-interference in the regular orders or judgments of a co-equal
court as a barrier to the competence of the trial court to sustain the spouses Leys action for recovery of title. 26
Nevertheless, the appellate court ruled that the allegations in the complaint concerning UBPs refusal to release
the title over the Tagaytay property to the spouses Ley despite full payment of the loan suffice to state a cause
of action for recovery of damages. The Court of Appeals also found the failure of the spouses Ley to attach a
copy of the title over the Tagaytay property excusable since the owners copy of the title had been with UBP all
along.27
Accordingly, the Court of Appeals partly granted the petition for certiorari, the dispositive portion of its Decision
decreeing, thus:
WHEREFORE, premises considered, the instant PETITION FOR CERTIORARI is PARTLY GRANTED.
Accordingly, the assailed Order dated February 17, 2004 issued by the Regional Trial Court of Tagaytay City,
Branch 18 is hereby AFFIRMED in so far as in [sic] its declaration that res judicata had already set in the case
for recovery or release of title; however, res judicata does not apply in private respondents Spouses Leys
prayer for recovery of damages.
The spouses Ley filed a motion for reconsideration28 on 9 February 2005 but this was denied by the appellate
court in a Resolution29 dated 26 April 2005 on the ground that the motion was filed out of time.
The spouses Ley then elevated the appellate courts Decision to this Court through a Petition for Review on
Certiorari,30 claiming that the appellate court erred (i) in finding that the trial court did declare that res
judicatahad already set in to bar the action for recovery of or release of title, (ii) in entertaining the petition for
certiorari despite the absence of a motion for reconsideration from UBP that would have
given the trial court the opportunity to correct itself, (iii) in disregarding the principle that a denial of a motion to
dismiss is not appealable, and (iv) in denying the motion for reconsideration of the Ley spouses on the ground
that the motion was filed one day late.
We dispose of a few peripheral issues before proceeding to the heart of this case.

1awphi1.nt

First, there is a glaring inconsistency in the dispositive portion of the Court of Appeals Decision. The
dispositive portion decreed that the decision of the RTC of Tagaytay was thereby "affirmed in so far
as . . . its declaration that res judicata had already set in the case for recovery or release of title." Yet,
in truth, the appellate court evidently misread the true import of the trial courts adjudication which
actually was a rejection of the bid to dismiss the complaint on the ground of res judicata. This
inattention could have caused some confusion had the appellate courts order become final and
executory, as the erroneous premise set forth in the dispositive portion could have led to a variety of
interpretations tending to frustrate a hassle-free execution of the decision.

Second, the spouses Ley are correct in their position that a motion for reconsideration should have
first been filed by UBP before filing the petition for certiorari. 31 However, the courts are given leeway in
deciding whether to strictly follow this rule or to tolerate any deficiency. What is of primary importance
is that technical procedures are used to aid the courts in achieving their mandate to resolve cases in a
manner that best serves the interest of substantial justice.
Third, the records show that the counsel for the spouses Ley received the 18 January 2005 Decision
of the Court of Appeals on 24 January 2005. 32 Their motion for reconsideration submitted on 9
February 2005 was, therefore, filed out of time. While it is true that the belated filing of a motion for
reconsideration necessarily suggests that the decision sought to be reconsidered has become final
and executory,33 the spouses Ley should have been accorded the same spirit of liberality which the
appellate court extended to UBP by giving due course to UBPs petition for certiorari despite its failure
to file the requisite motion for reconsideration with the lower court. Rules are designed to aid the courts
in the dispensation of justice. When there is a strong showing that grave miscarriage of justice would
result from the strict application of the Rules, this Court will not hesitate to relax the same in the
interest of substantial justice.34 In this case, the rigid observance of the rules would mean that the legal
mess spawned by the imprecise fallo of the appellate courts decision would not be untangled and
miscarriage of justice would ensue.
Finally, the contention of the spouses Ley that a denial of a motion to dismiss is not appealable is offtangent. UBC properly elevated the case to the Court of Appeals through a petition for certiorari under
Rule 65 on the ground that the trial court had acted without or in excess of its jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction. It did not resort to ordinary appeal in
assailing the denial of the motion to dismiss.
We now tackle the merits of the petition.
To recall, UBP raised before the trial court several grounds to secure the dismissal of the complaint, to wit: that
the action is barred by prior judgment; that the complaint states no cause of action; and that the spouses Ley
failed to attach a copy of the title as well as other documents in their complaint. 35 Yet it appears that the trial
court considered only the ground of res judicata despite the interposition of other grounds by UBP. Even so, we
agree that it is res judicata that is determinative of question whether the petition should be dismissed or not.
In its Decision, the Court of Appeals categorized the causes of action in the complaint and ruled that while the
action for recovery of title is barred by res judicata, the other causes of action are not so barred. We disagree
and hold that res judicata does not bar any of the causes of action in the complaint.
The doctrine of res judicata provides that a final judgment on the merits rendered by a court of competent
jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an
absolute bar to subsequent actions involving the same claim, demand, or cause of action. 36
For res judicata to serve as an absolute bar to a subsequent action, the following requisites must concur: (1)
the former judgment or order must be final; (2) the judgment or order must be on the merits; (3) it must have
been rendered by a court having jurisdiction over the subject matter and parties; and (4) there must be between
the first and second actions, identity of parties, of subject matter, and of causes of action. 37
The present action of the spouses Ley is not barred by res judicata since the previous and the present cases
involve different subject matters and causes of action. A cause of action is the act or omission by which a party
violates a right of another.38 The subject matter, on the other hand, is the item with respect to which the

controversy has arisen, or concerning which the wrong has been done, and it is ordinarily the right, the thing, or
the contract under dispute.39
The subject matter in the Makati case is the collection of a sum of money which had already become due and
demandable under the loan transaction between UBP and LCDC whereas the subject matter of the present
case, which originated from the Tagaytay case, is the recovery of title to the Tagaytay property owned by the
spouses Ley which had been allegedly withheld without justification by UBP. The Makati case arose from a
credit line agreement between LCDC and UBPs predecessor-in-interest, to which the spouses Ley were
sureties, while the Tagaytay case had its roots in the real estate mortgage constituted by the spouses Ley on
their Tagaytay property as security for a loan secured by Azkon Refrigeration Industries, Inc. from International
Corporate Bank.
There is no similarity of causes of action between the two cases either. While in the Makati case, the cause of
action lies in the failure of the borrower to pay the loan on due date, the cause of action in the Tagaytay case
stemmed from the alleged refusal of UBP as the surviving corporation in a merger with the original mortgagee
bank to release the title to the mortgaged property to the spouses Ley despite payment of the mortgage debt.
What might have spawned the confusion is the fact that the Tagaytay property, the title to which was sought to
be recovered by the spouses Ley in the Tagaytay case, is the same Tagaytay property which was levied and
sold on execution in the Makati case. True, but the property is not the subject of the Makati case; it is the loan
transaction between the spouses Ley and LCDC, on one hand, and UBP, on the other. The property was the
subject of the proceedings on execution to satisfy the judgment in the Makati case. Being the subject of
execution is not the same as being the subject of the main case itself.
While it is true that a certificate of sale on the Tagaytay property was already issued in favor of UBP, the one
year period of redemption had not yet expired when the complaint for recovery of title was filed by the spouses
Ley. It is only upon the expiration of the redemption period, without the judgment debtor having made use of his
right of redemption, does ownership of the land sold become consolidated in the purchaser.40
Finally, the Court cannot support the appellate courts contention that the action for recovery of title is barred by
the doctrine of judicial stability or non-interference in the regular orders of judgments of a co-equal court on the
premise that the levy on the Tagaytay property in the Makati case was a mere consequence of the judgment for
recovery for a sum of money. The judgment did not order the sale of the Tagaytay property in particular as it
was not the subject of the litigation therein. It should be made clear, however, that
the central issue in the Tagaytay case is whether the spouses Ley are entitled to the physical title, i.e., the
Owners Copy of the TCT covering the Tagaytay property, and that the pendency of the Tagaytay case does not
affect the running of the redemption period for the Tagaytay property.
WHEREFORE, the Decision of the Court of Appeals dated 18 January 2005 is REVERSED insofar as it held
that the action of petitioner spouses Manuel Ley and Janet Ley to recover the Owners Copy of Transfer
Certificate of Title No. T-21273 covering their property in Tagaytay City is barred by res judicata. The other
pronouncements in said Decision are AFFIRMED. The case is remanded to the Regional Trial Court of
Tagaytay City for further proceedings. Said court is ordered to conduct the appropriate proceedings and decide
the case with deliberate dispatch in accordance with this Decision.
No pronouncement as to costs.
SO ORDERED.

Adrid vs Morga

Adrid vs Morga
Facts:
Sps Adrid executed a sale with a right to repurchase in favor of Morga over their lot. Sps Adrid never repurchased
the same. Later on they brought an action to recover the lot contending that such agreement had been converted into
one of antichresis considering that Morga took possession of the same and benefited himself of the yearly harvest of
palay.
Issue:
WON the agreement had been converted into an antichresis.
Held:
No.
There is nothing in the document nor in the acts of the parties subsequent to its execution to show that the parties
had entered into a contract of antichresis. In the case of Alojado vs. Lim Siongco, 51 Phil., 339 this Court said:
What characterizes a contract of antichresis is that the creditor acquires the right to receive the fruits of the property
of his debtor with the obligation to apply them to the payment of interest, if any is due, and then to the principal of
his credit, and when such a covenant is not made in the contract which speaks unequivocally of a sale with right of
repurchase, the contract is a sale with the right to repurchase and not an antichresis.
*******************
The agreement was in fact an equitable mortgage. The lot was given as security for Sps. Adrids loan. Adrid also
paid for the real estate tax

PERFECTO ADRID, ET AL., Plaintiff-Appellant, vs. ROSARIO

MORGA, ETC., defendant-appellee,
and MAMERTO MORGA, ET AL., intervenors-appellees.
Fortunato Jose for appellants.
Apolinar S. Fojas for appellee.
MONTEMAYOR, J.:

chanrobles virtual law library

On August 8, 1938, Perfecto Adrid and his wife Carmen Silangcruz,

then owners of No. 550 of the San Francisco Malabon Estate

Subdivision, situated in General Trias, Cavite, execution a document

entitled "Sale with Right to Repurchase", Exhibit A, purporting to
sell the lot to Eugenio Morga for the sum of P2,000 with the right to
repurchase the same within two yeas for the same sum of P2,000,
plus 12% interest per annum. The vendors never repurchased said
Lot No. 550. But in 1956, Perfecto Adrid and his son, (Carmen
Silangcruz then being already dead) brought the present action
against the administratrix of the deceased Eugenio Morga to recover
the same Lot No. 550, offering to pay the sum of P2,000, and
asking for accounting of all the produce of the lot since 1938, this
on the theory that the original contract of sale with pacto de
retro (Exhibit A) was by acts of the parties to the said contract,
converted into one of antichresis. The parties plaintiff and defendant
instead of presenting evidence, submitted a stipulation of facts with
the prayer that decision be rendered on the basis of such facts. For
purposes of reference, we reproduce the pertinent portions of said
stipulation of facts:
1. That on August 8, 1938, the spouses Perfecto Adrid and Carmen
Silangcruz executed a deed of sale for P2,000.00 with 12% interest
per annum with right to repurchase Lot No. 550 of the Malabon
Estate within the period of two (2) years from date and covered by
Trans. Cert. of Title No. 10028, Exh. "A";
chanrobles virtual law library

3. That said deed of sale was registered in the office of the Register
of Deed of Cavite and inscribed at the back of Trans. Cert. of Title
No. 10028, covering lot 550, on August 11, 1939, a copy of which is
hereto attached as Exh. "B";
chanrobles virtual law library

4. That on August 8, 1938, the date of the execution of said deed of

sale with the right to repurchase, the vendee Eugenio Morga took
possession of the land and benefited himself of the yearly produce
of palay, and upon his death on August 25, 1952, said possession
and yearly harvest of palay were transferred to his heirs, the herein
defendant and intervenors;
chanroble s virtual law library

5. That in par. 5 of the national document Exh. "A" there is

stipulation which reads: "Should we Perfecto Adrid and Carmen
Silangcruz, fail to repurchase the abovementioned parcel of land
under the stipulations above mentioned, then Eugenio Morga shall
be the complete and absolute owner of the same without the
necessity of further executing a deed of conveyance or any other
document";
chanroble s virtual law library

6. That this lot 550 appears assessed in the names of the spouses
Perfecto Adrid and Carmen Silangcruz under Tax Declaration No. 47,
Exh. "C', and its yearly taxes amounting to P17.00 were being paid
by Eugenio Morga;
chanrobles virtual law library

11. That the yearly harvest of palay of this lot No. 550 (is) 30
cavanes net since its area is 35,844 square meter, as stated in
Trans. Cert. of Title No. 10028, and that the price cavan is P10.00.
The Court of First Instance of Cavite on July 15, 1957, rendered a
decision, the disposition part of which reads as follows:
In view of the foregoing considerations, this Court is of the opinion
and so holds that the contract entered into between the spouses
Perfecto Adrid and Carmen Silangcruz on one hand, and the spouses
Eugenio Morga and Genoveva Vasquez on the other, is a contract of
sale with the right to repurchase. The plaintiffs having failed to
repurchase the land within the stipulated period of two years from
the date of the execution of the contract, the title of the deceased
vendee a retro, Eugenio Morga and Genoveva Vasquez, became
consolidated by operation of law. . . .
chanroble svirtualawlibrary

chanroble s virtual law library

Wherefore judgment is hereby rendered against the plaintiffs, with

costs. They are likewise ordered to pay the amount of P1,350.00 as
attorney's fees.
We have carefully studied this case, examined the document
entitled "Sale with Right to Repurchase" (Exhibit A) and the acts of

the parties thereto subsequent to its execution and we have come

to the conclusion that the intention of the parties was merely for
Perfecto and his wife Carmen to borrow the sum of P2,000 from
Eugenio Morga, Lot No. 550 being given as security. In other words,
we have here a clear case of equitable mortgage. Otherwise, there
would be no reason for the agreement made for the payment of
12% interest per annum. This interest must refer to the use of
P2,000 by the alleged vendors until the same shall have been paid
to Eugenio. The parties to the contract must have contemplated the
lot remaining in the possession of the vendors inasmuch as it was
considered a mere security. However, after the execution of the
contract, the creditor, Morga according to the contention of the
plaintiff, decision to take possession of the land, pending payment
of the loan , finding it financially advantageous to receive the
products thereof, valued at P300.00 a year, in lieu of the payment of
interest at 12% a year, which would only be P240.00. But this did
not convert, as contended by plaintiffs, the contract from a sale
with pacto de retro to that of antichresis.
chanroblesvirtualawlibrary

chanrobles virtual law library

Some of the the reasons behind our conclusion that the present
case is one of equitable mortgage, are the following. Despite the
expiration of the two year period for the alleged repurchase, which
should have been done in 1940, neither Morga nor his heir have
consolidated their title to the land. The certificate of title remained
in the name of the alleged vendors. Not only this, but the tax
declaration for the lot also remained in the name of said vendors,
and all these years, Eugenio during his lifetime, and his heirs after
his death, continued to pay the real estate tax in the name of the
vendors. 1 It is also a fact that the price of P2,000 would be rather
inadequate for the supposed sale of Lot No. 550 which has an area
of about 3 1\2 hectares and has a yearly production of thirty cavans
of palay valued P10.00 a cavan, that is top say, P300.00 a year. A
parcel of land with an annual production of P300.00 would or should
command more than P2,000.00 for its sale. Besides, the contract

provided for the payment of interest which is characteristic of a loan

or equitable mortgage. 2
chanroble s virtual law library

The contention of plaintiffs that although the original contract was

one of sale with right to repurchase, it was converted into one of
antichresis just because the vendee took possession of the land, is
clearly untenable. There is nothing in the document, Exhibit A, nor
in the acts of the parties subsequent to its execution to show that
the parties had entered into a contract of antichresis. In the case
of Alojado vs. Lim Siongco, 51 Phil., 339 this Court said:
What characterizes a contract of antichresis is that the creditor
acquires the right to receive the fruits of the property of his debtor
with the obligation to apply them to the payment of interest, if any
is due, and then to the principal of his credit, and when such a
covenant is not made in the contract which speaks unequivocally of
a sale with right of repurchase, the contract is a sale with the right
to repurchase and not an antichresis.
In view of the foregoing, the appealed decision is hereby reversed.
The defendants are hereby ordered to give up the possession of the
lot in question to the appellants upon the payment of P2,000. No
interest will be paid inasmuch as Eugenio and his heir have received
the products of the land in lieu of the payment of interest. No
costs.
chanroblesvirtualawlibrary

chanrobles virtual law library

Paras, C.J., Padilla, Bautista Angelo, Labrador, Concepcion,

Endencia, Barrera and Gutierrez David, JJ., concur.

TRILLANA VS. MANANSALA

NAZARIO TRILLANA, petitioner,
vs.
FAUSTINO MANANSALA, MARIA LOPEZ, MAXIMA MANANSALA and THE COURT OF
APPEALS,respondents.

Delgado Flores and Macapagal for petitioner.

M.G. Bustos and Remedios D. Garcia for respondents.
BENGZON, J.:
To a revindicatory complaint filed in 1950 in the Court of First Instance by Nazario Trillana over a parcel of land
in Hagonoy, Bulacan, the defendants Faustino Manansala et al., set up title through sale and prescription.
Both parties allegedly deriving ownership from the registered owner Marcos Bernardo, presented at the
hearing:
(a) Plaintiff the contract of absolute sale (exhibit A) executed in his favor in June 1948 by Vicenta Bernardo,
daughter and the only surviving heirs of Marcos Bernardo;
(b) Defendants the document Exhibit 1, in tagalog, which is translated as follows:

Julio 20, 1934-1944

I Marcos Bernardo married of legal age and residing at barrio S. Sebastian, Hagonoy, Bulacan, P. I. now I own
a land (latian) ... now my above mentioned property I mortgage to Mr. Faustino Manansala and Maria Lopez
husband and wife in the amount of P1,070 beginning today July 20, 1934 until April 1944 and if I cannot pay
said amount come April 1944 the property I mortgaged is hereby paid to Mr. Faustino Manansala and Maria
Lopez husband and wife . . . .
The judge found Exhibit 1 to be a forgery, and rendered judgment for plaintiff, saying as to prescription, that
even if defendants had possessed the land since 1934, they could not acquire by prescription because they
had no just title, inasmuch as they knew Exhibit 1 was false.
On appeal, the Court of Appeals saw differently. It was not convinced of the document's (Exhibit 1) falsity, and
held that since defendants admittedly took possession of the realty in July 1934 pursuant to such document
and retained it thereafter, the action filed in 1950 was late, inasmuch as more than 15 years of adverse
possession forfeited the plaintiff's right to recover, if any.
Doubting the legal feasibility of acquiring, the thru prescription, land obtained under Exhibit 1, we gave due
course to the petition review on certiorari, being impressed with counsel's contention that said written document
represented a contract of antichresis, which may not give rise to acquisitive prescription.
Upon a fuller examination of the matter, we are now persuaded that our preliminary impression were justified.
The document Exhibit 1, having used the words "Isinangla", "sinangla" and "matubos" obviously indicated a
mortgage, which, coupled with delivery of possession of the land to the creditor, amounted to antichresis.
And several decisions of this court consistently hold that the antichretic creditor cannot ordinarily acquire by
prescription the land surrendered to him by the debtor.1
The most that defendants could contend under Exhibit 1 is that it was a sale with pacto de retro. Yet no
argument is needed to show that, even under such contract, prescription does not run during the period of
redemption (1934-1944).
In this connection we notice the Court of Appeals did not regard the contract as a pacto de retro sale. The
Court of Appeals declared the agreement was a "kaliwaan" or exchange, which according to defendants meant,
"after the execution of the document we delivered the money, and plaintiff delivers possession of the land". The

arrangement however contemplated a subsequent "re-exchange" when the owner redeems (matubos) on or
before April 1944. Such exchange and re-exchange agreed in exhibit 1, dovetail with an antichretic relationship,
which we think was the true agreement of the parties.
It has not escaped our notice that the document says "if I cannot redeem come April 1944, the property I
mortgage is hereby paid to Mr. Faustino Manansala". But that in our opinion merely authorized Manansala to
get the property for payment, thru the proceedings prescribed for mortgages. Otherwise the stipulation would
be open to attack, either as pactum commissorium or as against the law. (Arts. 1859 and 1884 Civil Code.)
Now as the contract Exhibit 1 did not divest Marcos Bernardo of ownership of the property, his heir Vicenta
Bernardo could, and she did, validly convey such ownership to Nazario Trillana in 1948, by Exhibit A. Subject of
course to the rights of the antichretic creditors, the defendants Manansala et al.
Wherefore, the judgment of the Court of Appeals is reversed, and one will be promulgated requiring defendants
to deliver the lot to the plaintiff (substituted by Candida Cruz, Juana Trillana and Francisco Trillana) upon
payment by the latter of the amount of P1,070. 2 No interest is to be satisfied, because the fruits gathered by the
Manansalas are considered as interest; no especial damages too. Costs against defendants. So ordered.
Pablo, Acting C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L.,
JJ., concur.

Footnotes