FIRST DIVISION

[G.R. No. 88880. April 30, 1991.]

PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. COURT OF APPEALS and
AMBROSIO PADILLA, Respondents.
The Chief Legal Counsel for Petitioner.
Ambrosio Padilla, Mempin & Reyes Law Offices for Private Respondent.
SYLLABUS
1. COMMERCIAL LAW; BANKING LAWS; RATE OF INTEREST; INCREASE OF INTEREST RATE;
NOT TO BE MADE OFTENER THAN ONCE A YEAR. PNB, over the objection of the private
respondent, and without authority from the Monetary Board, within a period of only four (4)
months, increased the 18% interest rate on the private respondents loan obligation three
(3) times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c) to 48% in November
1984. Those increases were NULL and void. Although Section 2, P.D. No. 116 of January 29,
1973, authorizes the Monetary Board to prescribe the maximum rate or rates of interest for
loans or renewal thereof and to change such rate or rates whenever warranted by prevailing
economic and social conditions, it expressly provides that "such changes shall not be made
oftener than once every twelve months. "If the Monetary Board itself was not authorized to
make such changes oftener than once a year, even less so may a bank which is subordinate
to
the
Board.
2. ID.; ID.; ID.; ID.; MAY BE INCREASED WITHIN LIMITS OF LAW; PNB CIRCULARS AND
RESOLUTION ARE NEITHER LAWS NOR RESOLUTIONS OF MONETARY BOARD. While the
private respondent-debtor did agree in the Deed of Real Estate Mortgage (Exh. 5) that the
interest rate may be increased during the life of the contract "to such increase within the
rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe" (Exh. 5-e1) or "within the limits allowed by law" (Promissory Notes, Exhs. 2, 3, and 4), no laws was
ever passed in July to November 1984 increasing the interest rates on loans or renewals
thereof to 32%, 41% and 48% (per annum), and no documents were executed and delivered
by the debtor to effectuate the increases. The PNB relied on its own Board Resolution No.
681 (Exh. 10), PNB Circular No. 40-79-84 (Exh. 13), and PNB Circular No. 40-129-84 (Exh.
15), but those resolution and circulars are neither laws nor resolutions of the Monetary
Board.
3. ID.; ID.; ID.; REMOVAL OF USURY LAW CEILING ON INTEREST RATES DOES NOT AUTHORIZE
BANKS TO UNILATERALLY AND SUCCESSIVELY INCREASE INTEREST RATES. CB Circular No.
905, Series of 1982 (Exh. 11) removed the Usury law ceiling on interest rates but it did
not authorize the PNB, or any bank for that matter, to unilaterally and successively increase
the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of
P.D. 116 which limits such changes to "once every twelve months."cralaw virtua1aw library
4. ID.; ID.; ID.; UNILATERAL ACTION TO INCREASE INTEREST RATES, A VIOLATION OF ARTICLE

1308 OF CIVIL CODE. Besides violating P.D. 116, the unilateral action of the PNB in
increasing the interest rate on the private respondents loan, violated the mutuality of
contracts ordained in Article 1308 of the civil Code: "ART. 1308. The contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of
them."cralaw
virtua1aw
library
5. ID.; ID.; ID.; SUCCESSIVE INCREASE OF INTEREST RATES, A VIOLATION OF ARTICLE 1956
OF CIVIL CODE. PNBs successive increases of the interest rate on the private
respondents loan, over the latters protest, were arbitrary as they violated an express
provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms "may be amended
only by an instrument in writing signed by the party to be bound as burdened by such
amendment." The increases imposed by PNB also contravene Art. 1956 of the Civil Code
which provides that "no interest shall be due unless it has been expressly stipulated in
writing."
DECISION
GRIO-AQUINO, J.:
The Philippine National Bank (PNB) has appealed by certiorari from the decision promulgated
on June 27, 1989 by the Court of Appeals in CA-G.R. CV No. 09791 entitled, "AMBROSIO
PADILLA, plaintiff-appellant versus PHILIPPINE NATIONAL BANK, defendant-appellee,"
reversing the decision of the trial court which had dismissed the private respondents
complaint "to annul interest increases." (p. 32, Rollo.) The Court of Appeals rendered
judgment:jgc:chanrobles.com.ph
". . . declaring the questioned increases of interest as unreasonable, excessive and arbitrary
and ordering the defendant-appellee [PNB] to refund to the plaintiff-appellant the amount of
interest collected from July, 1984 in excess of twenty-four percent (24%) per annum. Costs
against
the
defendant-appellee."
(pp
14-15,
Rollo.)
In July 1982, the private respondent applied for, and was granted by petitioner PNB, a credit
line of 321.8 million, secured by a real estate mortgage, for a term of two (2) years, with
18% interest per annum. Private respondent executed in favor of the PNB a Credit
Agreement, two (2) promissory notes in the amount of P900,000.00 each, and a Real Estate
Mortgage
Contract.
The

Credit

Agreement

provided

that

"9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and
regulations of the Central Bank and the current and general policies of the Bank and those
which the Bank may adopt in the future, which may have relation to or in any way affect the
Line, which rules, regulations and policies are incorporated herein by reference as if set forth
herein in full. Promptly upon receipt of a written request from the Bank, the Borrowers shall
execute and deliver such documents and instruments, in form and substance satisfactory to
the Bank, in order to effectuate or otherwise comply with such rules, regulations and
policies."
(p.
85,
Rollo.)
The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18%
interest per annum "within the limits allowed by law at any time depending on whatever
policy it [PNB] may adopt in the future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum interest rate is

reduced
The

by

Real

law
Estate

"(k)

or

by

the

Mortgage

Monetary
Contract

INCREASE

Board."
likewise

(pp.

85-86,

provided

OF

Rollo; Emphasis

ours.)

that:jgc:chanrobles.com.ph

INTEREST

RATE

"The rate of interest charged on the obligation secured by this mortgage as well as the
interest on the amount which may have been advanced by the MORTGAGEE, in accordance
with the provisions hereof, shall be subject during the life of this contract to such an increase
within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe
for
its
debtors."
(p.
86,
Rollo;Emphasis
supplied.)
Four (4) months advance interest and incidental expenses/charges were deducted from the
loan, the net proceeds of which were released to the private respondent by crediting or
transferring the amount to his current account with the bank.chanrobles.com : virtual law
library
On June 20, 1984, PNB informed the private respondent that (1) his credit line of P1.8 million
"will expire on July 4, 1984," (2)" [i]f renewal of the line for another year is intended, please
submit soonest possible your request," and (3) the "present policy of the Bank requires at
least 30% reduction of principal before your line can be renewed." (pp. 86-87, Rollo.)
Complying, private respondent on June 25, 1984, paid PNB P540,000 00 (30% of P1.8
million) and requested that "the balance of P1,260,000.00 be renewed for another period of
two (2) years under the same arrangement" and that "the increase of the interest rate of my
mortgage
loan
be
from
18%
to
21%"
(p.
87,
Rollo.).
On

July

4,

1984,

private

respondent

paid

PNB

P360,000.00.

On July 18, 1984, private respondent reiterated in writing his request that "the increase in
the rate of interest from 18% be fixed at 21% of 24%. (p. 87, Rollo.)
On July 26, 1984, private respondent made an additional payment of P100,000.
On August 10, 1984, PNB informed private respondent that "we can not give due course to
your request for preferential interest rate in view of the following reasons: Existing Loan
Policies of the bank requires 32% for loan of more than one year; our present cost of funds
has
substantially
increased."
(pp.
8788,
Rollo.)
On

August

17,

1984,

In a letter dated August

"continue making further
pay the said loan before
request that the increase
Rollo.)
On

September

12,

private

respondent

further

paid

PNB

P150,000.00.

24, 1984 to PNB, private respondent announced that he would

payments, and instead of a loan of more than one year, I shall
the lapse of one year or before July 4, 1985. . . . I reiterate my
of my rate of interest from 18% be fixed at 21% or 24%." (p. 88,
1984,

private

respondent

paid

PNB

P160,000.00.

In letters dated September 12, 1984 and September 13, 1984, PNB informed private
respondent that "the interest rate on your outstanding line/loan is hereby adjusted from 32%
p.a. to 41% p.a. (35% prime rate + 6%) effective September 6, 1984;" and further explained
"why we can not grant your request for a lower rate of 21% or 24%." (pp. 88-89, Rollo.)
In a letter dated September 24, 1984 to PNB, private respondent registered his protest
against the increase of interest rate from 18% to 32% on July 4, 1984 and from 32% to 41%

on

September

6,

1984.

On October 15, 1984, private respondent reiterated his request that the interest rate should
not be increased from 18% to 32% and from 32% to 41%. He also attached (as payment) a
check
for
P140,000.00.chanrobles.com.ph
:
virtual
law
library
Like rubbing salt on the private respondents wound, the petitioner informed private
respondent on October 29, 1984, that "the interest rate on your outstanding line/loan is
hereby adjusted from 41% p.a. to 48% p.a. (42% prime rate plus 6% spread) effective 25
October
1984."
(p.
89,
Rollo.)
In November 1984, private respondent paid PNB P50,000.00 thus reducing his principal loan
obligation
to
P300,000.00.
On December 18, 1984, private respondent filed in the Regional Trial Court of Manila a
complaint against PNB entitled, "AMBROSIO PADILLA v. PHILIPPINE NATIONAL BANK" (Civil
Case No. 84-28391), praying that judgment be rendered:jgc:chanrobles.com.ph
"a. Declaring that the unilateral increase of interest rates from 18% to 32%, then to 41% and
again to 48% are illegal, not valid nor binding on plaintiff, and that an adjustment of his
interest
rate
from
18%
to
24%
is
reasonable,
fair
and
just;
"b. The interest rate on the P900,000.00 released on September 27, 1982 be counted from
said
date
and
not
from
July
4,
1984;
"c. The excess of interest payment collected by defendant bank by debiting plaintiffs current
account
be
refunded
to
plaintiff
or
credited
to
his
current
account;
"d. Pending the determination of the merits of this case, a restraining order and or a writ of
preliminary injunction be issued (1) to restrain and or enjoin defendant bank for [sic]
collecting from plaintiff and/or debiting his current account with illegal and excessive
increases of interest rates; and (2) to prevent defendant bank from declaring plaintiff in
default for non-payment and from instituting any foreclosure proceeding, extrajudicial or
judicial, of the valuable commercial property of plaintiff." (pp. 89-90, Rollo.)
In its answer to the complaint, PNB denied that the increases in interest rates were illegal,
unilateral excessive and arbitrary and recited the reasons justifying said increases.
On March 31, 1985, the private respondent paid the P300,000 balance of his obligation to
PNBN
(Exh.
5).
The trial court rendered judgment on April 14, 1986, dismissing the complaint because the
increases
of
interest
were
properly
made.
The private respondent appealed to the Court of Appeals. On June 27, 1989, the Court of
Appeals reversed the trial court, hence, NBs recourse to this Court by a petition for review
under
Rule
45
of
the
Rules
of
Court.
The assignments of error raised in PNBs petition for review can be resolved into a single
legal issue of whether the bank, within the term of the loan which it granted to the private
respondent, may unilaterally change or increase the interest rate stipulated therein at will
and
as
often
as
it
pleased.
The

answer

to

that

question

is

no.

In the first place, although Section 2, PD. No. 116 of January 29, 1973, authorizes the
Monetary Board to prescribe the maximum rate or rates of interest for loans or renewal
thereof and to change such rate or rates whenever warranted by prevailing economic and
social conditions, it expressly provides that "such changes shall not be made oftener than
once
every
twelve
months."cralaw
virtua1aw
library
In this case, PNB, over the objection of the private respondent, and without authority from
the Monetary Board, within a period of only four (4) months, increased the 18% interest rate
on the private respondents loan obligation three (3) times: (a) to 32% in July 1984; (b) to
41% in October 1984; and (c) to 48% in November 1984. Those increases were null and
void, for if the Monetary Board itself was not authorized to make such changes oftener than
once a year, even less so may a bank which is subordinate to the Board.chanrobles law
library
:
red
Secondly, as pointed out by the Court of Appeals, while the private respondent-debtor did
agree in the Deed of Real Estate Mortgage (Exh. 5) that the interest rate may be increased
during the life of the contract "to such increase within the rate allowed by law, as the Board
of Directors of the MORTGAGEE may prescribe" (Exh. 5-e-1) or "within the limits allowed by
law" (Promissory Notes, Exs. 2, 3, and 4), no law was ever passed in July to November 1984
increasing the interest rates on loans or renewals thereof to 32%, 41% and 48% (per
annum), and no documents were executed and delivered by the debtor to effectuate the
increases.
The
Court
of
Appeals
observed.
". . . We focus Our attention first of all on the agreement between the parties as embodied in
the following instruments, to wit: (1) Exhibit 1 Credit Agreement dated July 1, 1982; (2)
Exhibit 2 Promissory Note dated July 5, 1982; (3) Exhibit (3) Promissory Note dated
January 3, 1983; (4) Exhibit 4 Promissory Note, dated December 13, 1983; and (5)
Exhibit
5

Real
Estate
Mortgage
contract
dated
July
1,
1982.
"Exhibit 1 states in its portion marked Exhibit 1-g-1:chanrob1es virtual 1aw library
9 .06 Other Conditions. The Borrowers hereby agree to be bound by the rules and
regulations of the Central Bank and the current and general policies of the Bank and those
which the Bank may adopt in the future, which may have relation to or in any way affect the
Line, which rules, regulations and policies are incorporated herein by reference as if set forth
herein in full. Promptly upon receipt of a written request from the Bank, the Borrowers shall
execute and deliver such documents and instruments, in form and substance satisfactory to
the Bank, in order to effectuate or otherwise comply with such rules, regulations and
policies.
"Exhibits 2, 3, and 4 in their portions respectively marked Exhibits 2-B, 3-B, and 4-B
uniformly authorize the defendant bank to increase the stipulated interest rate of 18% per
annum within the limits allowed by law at any time depending on whatever policy it may
adopt in the future: Provided, that, the interest rate on this note shall be correspondingly
decreased in the event that the applicable maximum interest rate is reduced by law or by
the
Monetary
Board.
"Exhibit 5 in its portion marked Exhibit 5-e-1 stipulates:chanrob1es virtual 1aw library
(k)

INCREASE

OF

INTEREST

RATE

The rate of interest charged on the obligation secured by this mortgage as well as the
interest on the amount which may have been advanced by the MORTGAGEE, in accordance
with the provisions hereof, shall be subject during the life of this contract to such an increase
within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe

for

its

debtors.

"Clearly, then, the agreement between the parties authorized the defendant bank to
increase the interest rate beyond the original rate of 18% per annum but within the limits
allowed by law or within the rate allowed by law, it being declared the obligation of the
plaintiff as borrower to execute and deliver the corresponding documents and instruments to
effectuate
the
increase."
(pp.
11-12,
Rollo.)
In Banco Filipino Savings and Mortgage Bank v. Navarro, 15 SCRA 346 (1987), this Court
disauthorized the bank from raising the interest rate on the borrowers loan from 12% to
17% despite an escalation clause in the loan agreement signed by the debtors authorizing
Banco Filipino "to correspondingly increase the interest rate stipulated in this contract
without advance notice to me/us in the event a law should be enacted increasing the lawful
rates of interest that may be charged on this particular kind of loan." (Emphasis
supplied.)chanrobles
virtual
lawlibrary
In the Banco Filipino case, the bank relied on Section 3 of CB Circular No. 494 dated July 1,
1976 (72 O.G. No. 3, p. 676-J) which provided that "the maximum rate of interest, including
commissions premiums, fees and other charges on loans with a maturity of more than 730
days by banking institution . . . shall be 19%."cralaw virtua1aw library
This Court disallowed the increase for the simple reason that said "Circular No. 494, although
it has the effect of law is not a law." Speaking through Mme. Justice Ameurfina M. Herrera,
this
Court
held:jgc:chanrobles.com.ph
"It is now clear that from March 17, 1980, escalation clauses to be valid should specifically
provide: (1) that there can be an increase in interest if increased by law or by the Monetary
Board; and (2) in order for such stipulation to be valid, it must include a provision for
reduction of the stipulated interest in the event that the applicable maximum rate of
interest is reduced by law or by the Monetary Board." p. 111, Rollo.).
In the present case, the PNB relied on its own Board Resolution No. 681 (Exh. 10), PNB
Circular No. 40-79-84 (Exh. 13), and PNB Circular No. 40-129-84 (Exh. 15), but those
resolution and circulars are neither laws nor resolutions of the Monetary Board.
CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest
rates

". . . increases in interest rates are not subject to any ceiling prescribed by the Usury
Law."cralaw
virtua1aw
library
but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively
increase the agreed interest rates from 18% to 48% within a span of four (4) months, in
violation of PD. 116 which limits such changes to "once every twelve months."cralaw
virtua1aw
library
Besides violating PD. 116, the unilateral action of the PNB in increasing the interest rate on
the private respondents loan, violated the mutuality of contracts ordained in Article 1308 of
the
Civil
Code:jgc:chanrobles.com.ph
"ART. 1308. The contract must bind both contracting parties; its validity or compliance
cannot
be
left
to
the
will
of
one
of
them."cralaw
virtua1aw
library
In order that obligations arising from contracts may have the force of law between the
parties, there must be mutuality between the parties based on their essential equality. A

contract containing a condition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void (Garcia v. Rita Legarda, Inc., 21
SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB
and the private respondent gave the PNB a license (although in fact there was none) to
increase the interest rate at will during the term of the loan, that license would have been
null and void for being violative of the principle of mutuality essential in contracts. It would
have invested the loan agreement with the character of a contract of adhesion, where the
parties do not bargain on equal footing, the weaker partys (the debtor) participation being
reduced to the alternative "to take it or leave it" (Qua v. Law Union & Rock Insurance Co., 95
Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice
must
protect
against
abuse
and
imposition.
PNBS successive increases of the interest rate on the private respondents loan, over the
latters protest, were arbitrary as they violated an express provision of the Credit Agreement
(Exh. 1) Section 9.01 that its terms "may be amended only by an instrument in writing
signed by the party to be bound as burdened by such amendment." The increases imposed
by PNB also contravene Art. 1956 of the Civil Code which provides that "no interest shall be
due unless it has been expressly stipulated in writing."cralaw virtua1aw library
The debtor herein never agreed in writing to pay the interest increases fixed by the PNB
beyond 24% per annum, hence, he is not bound to pay a higher rate than that.
That an increase in the interest rate from 18% to 48% within a period of four (4) months is
excessive,
as
found
by
the
Court
of
Appeals,
is
indisputable.
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. CV
No. 09791, the Court resolved to deny the petition for review for lack of merit, with costs
against
the
petitioner.
SO ORDERED.

FIRST DIVISION
[G.R. No. 114286. April 19, 2001]
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner,
vs. THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION,
GREGORY T. LIM and SPOUSE, respondents.
DECISION
YNARES-SANTIAGO, J.:
The instant petition for review seeks to partially set aside the July 26, 1993 Decision [1] of
respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as it orders petitioner to
reimburse respondent Continental Cement Corporation the amount of P490,228.90 with
interest thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks
to set aside the March 8, 1994 Resolution [2] of respondent Court of Appeals denying its
Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent
Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner
Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of
P1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of
P320,445.00 to petitioner. The letter of credit was used to purchase around five hundred
thousand liters of bunker fuel oil from Petrophil Corporation, which the latter delivered
directly to respondent Corporation in its Bulacan plant. In relation to the same transaction, a
trust receipt for the amount of P1,001,520.93 was executed by respondent Corporation, with
respondent Lim as signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or
the proceeds thereof, petitioner filed a complaint for sum of money with application for
preliminary attachment[3] before the Regional Trial Court of Manila. In answer to the
complaint, respondents averred that the transaction between them was a simple loan and

not a trust receipt transaction, and that the amount claimed by petitioner did not take into
account payments already made by them. Respondent Lim also denied any personal liability
in the subject transactions. In a Supplemental Answer, respondents prayed for
reimbursement of alleged overpayment to petitioner of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:
1) Whether or not the transaction involved is a loan transaction or a trust receipt
transaction;
2) Whether or not the interest rates charged against the defendants by the plaintiff are
proper under the letter of credit, trust receipt and under existing rules or regulations of the
Central Bank;
3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the
defendant corporation on July 13, 1982 as payment for the latters account; and
4) Whether or not the defendants are personally liable under the transaction sued for in this
case.[4]
On September 17, 1990, the trial court rendered its Decision, [5] dismissing the Complaint
and ordering petitioner to pay respondents the following amounts under their
counterclaim:P490,228.90 representing overpayment of respondent Corporation, with
interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as attorneys
fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by
deleting the award of attorneys fees in favor of respondents and, instead, ordering
respondent Corporation to pay petitioner P37,469.22 as and for attorneys fees and litigation
expenses.
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY OR
COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS OVERPAYMENT BY PRIVATE
RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE
OF ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS APPLICATION OF
PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL CODE.
2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT BY THE
RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING PRACTICE.
3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING OF
INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES AND
REGULATIONS OF THE CENTRAL BANK.
4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT
CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION ON THE BASIS

OF THE JUDICIAL ADMISSIONS OF THE

RESPONDENTS ARE LIABLE THEREFOR.

PRIVATE

RESPONDENTS

AND

FOR

WHICH

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT

HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST RECEIPT
TRANSACTION.[6]
The petition must be denied.
On the first issue respecting the fact of overpayment found by both the lower court and
respondent Court of Appeals, we stress the time-honored rule that findings of fact by the
Court of Appeals especially if they affirm factual findings of the trial court will not be
disturbed by this Court, unless these findings are not supported by evidence. [7]
Petitioner decries the lack of computation by the lower court as basis for its ruling that
there was an overpayment made. While such a computation may not have appeared in the
Decision itself, we note that the trial courts finding of overpayment is supported by evidence
presented before it. At any rate, we painstakingly reviewed and computed the payments
together with the interest and penalty charges due thereon and found that the amount of
overpayment made by respondent Bank to petitioner, i.e., P563,070.13, was more than what
was ordered reimbursed by the lower court.However, since respondents did not file an
appeal in this case, the amount ordered reimbursed by the lower court should stand.
Moreover, petitioners contention that the marginal deposit made by respondent
Corporation should not be deducted outright from the amount of the letter of credit is
untenable. Petitioner argues that the marginal deposit should be considered only after
computing the principal plus accrued interests and other charges. However, to sustain
petitioner on this score would be to countenance a clear case of unjust enrichment, for while
a marginal deposit earns no interest in favor of the debtor-depositor, the bank is not only
able to use the same for its own purposes, interest-free, but is also able to earn interest on
the money loaned to respondent Corporation. Indeed, it would be onerous to compute
interest and other charges on the face value of the letter of credit which the petitioner
issued, without first crediting or setting off the marginal deposit which the respondent
Corporation paid to it. Compensation is proper and should take effect by operation of law
because the requisites in Article 1279 of the Civil Code are present and should extinguish
both debts to the concurrent amount.[8]
Hence, the interests and other charges on the subject letter of credit should be
computed only on the balance of P681,075.93, which was the portion actually loaned by the
bank to respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside as
invalid the floating rate of interest exhorted by petitioner to be applicable. The pertinent
provision in the trust receipt agreement of the parties fixing the interest rate states:
I, WE jointly and severally agree to any increase or decrease in the interest rate which may
occur after July 1, 1981, when the Central Bank floated the interest rate, and to pay

additionally the penalty of 1% per month until the amount/s or installment/s due and unpaid
under the trust receipt on the reverse side hereof is/are fully paid. [9]
We agree with respondent Court of Appeals that the foregoing stipulation is invalid,
there being no reference rate set either by it or by the Central Bank, leaving the
determination thereof at the sole will and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic
conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be
made dependent upon prevailing market conditions, there should always be a reference rate
upon which to peg such variable interest rates. An example of such a valid variable interest
rate was found in Polotan, Sr. v. Court of Appeals. [10] In that case, the contractual provision
stating that if there occurs any change in the prevailing market rates, the new interest
rate shall be the guiding rate in computing the interest due on the outstanding
obligation without need of serving notice to the Cardholder other than the required posting
on the monthly statement served to the Cardholder [11] was considered valid. The
aforequoted provision was upheld notwithstanding that it may partake of the nature of an
escalation clause, because at the same time it provides for the decrease in the interest rate
in case the prevailing market rates dictate its reduction. In other words, unlike the
stipulation subject of the instant case, the interest rate involved in the Polotan case is
designed to be based on the prevailing market rate. On the other hand, a stipulation
ostensibly signifying an agreement to any increase or decrease in the interest rate, without
more, cannot be accepted by this Court as valid for it leaves solely to the creditor the
determination of what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent Corporation
is really a trust receipt transaction instead of merely a simple loan, as found by the lower
court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals[12] appears to be foursquare with the
facts obtaining in the case at bar. There, we found that inasmuch as the debtor received the
goods subject of the trust receipt before the trust receipt itself was entered into, the
transaction in question was a simple loan and not a trust receipt agreement. Prior to the
date of execution of the trust receipt, ownership over the goods was already transferred to
the debtor. This situation is inconsistent with what normally obtains in a pure trust receipt
transaction, wherein the goods belong in ownership to the bank and are only released to the
importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods
subject of the trust receipt occurred long before the trust receipt itself was executed. More
specifically, delivery of the bunker fuel oil to respondent Corporations Bulacan plant
commenced on July 7, 1982 and was completed by July 19, 1982. [13] Further, the oil was used
up by respondent Corporation in its normal operations by August, 1982. [14] On the other
hand, the subject trust receipt was only executed nearly two months after full delivery of the
oil was made to respondent Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was explained
in Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner. Here, it is crystal clear that on the part
of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money
to the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as
shown by several receipts issued by PBC acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the money
for their personal use. The mala prohibita nature of the alleged offense notwithstanding,
intent as a state of mind was not proved to be present in Petitioners situation. Petitioners
employed no artifice in dealing with PBC and never did they evade payment of their
obligation nor attempt to abscond.Instead, Petitioners sought favorable terms precisely to
meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who
obtained the fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Petitioners from CM Builders
Centre. This impresses upon the trust receipt in question vagueness and ambiguity, which
should not be the basis for criminal prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans
and place them under the threats of criminal prosecution should they be unable to pay it
may be unjust and inequitable, if not reprehensible. Such agreements are contracts of
adhesion which borrowers have no option but to sign lest their loan be disapproved. The
resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone
to misinterpretation, as had happened in this case. Eventually, PBC showed its true colors
and admitted that it was only after collection of the money, as manifested by its Affidavit of
Desistance.
Similarly, respondent Corporation cannot be said to have been dishonest in its dealings
with petitioner. Neither has it been shown that it has evaded payment of its
obligations. Indeed, it continually endeavored to meet the same, as shown by the various
receipts issued by petitioner acknowledging payment on the loan. Certainly, the payment of
the sum of P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates
any badge of dishonesty, abuse of confidence or mishandling of funds on the part of
respondent Corporation, which are the gravamen of a trust receipt violation. Furthermore,
respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale; it
needed the oil for its own operations. More importantly, at no time did title over the oil pass
to petitioner, but directly to respondent Corporation to which the oil was directly delivered
long before the trust receipt was executed. The fact that ownership of the oil belonged to
respondent Corporation, through its President, Gregory Lim, was acknowledged by
petitioners own account officer on the witness stand, to wit:
Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account of
the defendants thereby paying the value of the bunker fuel oil what transpired next
after that?

A - Upon purchase of the bunker fuel oil and upon the requests of the defendant
possession of the bunker fuel oil were transferred to them.
Q - You mentioned them to whom are you referring to?
A - To the Continental Cement Corp. upon the execution of the trust receipt
acknowledging the ownership of the bunker fuel oil this should be acceptable for
whatever disposition he may make.
Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by
whom?
A - By the Continental Cement Corp.
Q - So by your statement who really owns the bunker fuel oil?
ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of Continental Cement Corp.
so that question has already been answered.
ATTY. BAAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAAGA:
Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?
A - Gregory Lim.[15]
By all indications, then, it is apparent that there was really no trust receipt transaction
that took place. Evidently, respondent Corporation was required to sign the trust receipt
simply to facilitate collection by petitioner of the loan it had extended to the former.

Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be
personally liable under the subject trust receipt. Petitioners argument that respondent
Corporation and respondent Lim and his spouse are one and the same cannot be
sustained. The transactions sued upon were clearly entered into by respondent Lim in his
capacity as Executive Vice President of respondent Corporation. We stress the hornbook law
that corporate personality is a shield against personal liability of its officers. Thus, we agree
that respondents Gregory T. Lim and his spouse cannot be made personally liable since
respondent Lim entered into and signed the contract clearly in his official capacity as
Executive Vice President. The personality of the corporation is separate and distinct from the
persons composing it.[16]
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The
Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.
SO ORDERED.

THIRD DIVISION

[G.R. No. 112160. February 28, 2000]

OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner, vs. COURT OF APPEALS, ASIAN
SAVINGS BANK, MAXIMO C. CONTRERAS and VICENTE MAOSCA, respondents.

DECISION

PURISIMA, J.: Mi-so

At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to
review and set aside the Decision[1] of the Court of Appeals in CA-G.R. CV No. 25242, which
reversed the Decision[2] of Branch 59 of the Regional Trial Court of Makati City in Civil Case
No. M-028; the dispositive portion of which reads:

"WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and a new
one is hereby entered DISMISSING the complaint of the spouses Osmundo and Angelina
Canlas. On the counterclaim of defendant Asian Savings Bank, the plaintiffs Canlas spouses
are hereby ordered to pay the defendant Asian Savings Bank the amount of P50,000.00 as
moral and exemplary damages plus P15,000.00 as and for attorney's fees.

With costs against appellees.

SO ORDERED."[3]

The facts that matter:

Sometime in August, 1982, the petitioner, Osmundo S. Canlas, and private respondent,
Vicente Maosca, decided to venture in business and to raise the capital needed therefor. The
former then executed a Special Power of Attorney authorizing the latter to mortgage two
parcels of land situated in San Dionisio, (BF Homes) Paranaque, Metro Manila, each lot with
semi-concrete residential house existing thereon, and respectively covered by Transfer
Certificate of Title No. 54366 in his (Osmundo's) name and Transfer Certificate of Title No. S78498 in the name of his wife Angelina Canlas.

Subsequently, Osmundo Canlas agreed to sell the said parcels of land to Vicente Manosca,
for and in consideration of P850,000.00, P500,000.00 of which payable within one week, and
the balance of P350,000.00 to serve as his (Osmundo's) investment in the business. Thus,
Osmundo Canlas delivered to Vicente Maosca the transfer certificates of title of the parcels
of land involved. Vicente Maosca, as his part of the transaction, issued two postdated checks
in favor of Osmundo Canlas in the amounts of P40,000.00 and P460,000.00, respectively,
but it turned out that the check covering the bigger amount was not sufficiently funded.
[4]Ne-xold

On September 3, 1982, Vicente Maosca was able to mortgage the same parcels of land for
P100,000.00 to a certain Attorney Manuel Magno, with the help of impostors who
misrepresented themselves as the spouses, Osmundo Canlas and Angelina Canlas.[5]

On September 29, 1982, private respondent Vicente Maosca was granted a loan by the
respondent Asian Savings Bank (ASB) in the amount of P500,000.00, with the use of subject
parcels of land as security, and with the involvement of the same impostors who again
introduced themselves as the Canlas spouses.[6] When the loan it extended was not paid,
respondent bank extrajudicially foreclosed the mortgaged.

On January 15, 1983, Osmundo Canlas wrote a letter informing the respondent bank that the
execution of subject mortgage over the two parcels of land in question was without their
(Canlas spouses) authority, and request that steps be taken to annul and/or revoke the
questioned mortgage. On January 18, 1983, petitioner Osmundo Canlas also wrote the office
of Sheriff Maximo C. Contreras, asking that the auction sale scheduled on February 3, 1983
be cancelled or held in abeyance. But respondents Maximo C. Contreras and Asian Savings
Bank refused to heed petitioner Canlas' stance and proceeded with the scheduled auction
sale.[7]

Consequently, on February 3, 1983 the herein petitioners instituted the present case for
annulment of deed of real estate mortgage with prayer for the issuance of a writ of
preliminary injunction; and on May 23, 1983, the trial court issued an Order restraining the
respondent sheriff from issuing the corresponding Certificate of Sheriffs Sale.[8]

For failure to file his answer, despite several motions for extension of time for the filing
thereof, Vicente Maosca was declared in default.[9]

On June 1, 1989, the lower court a quo came out with a decision annulling subject deed of
mortgage and disposing, thus:

"Premises considered, judgment is hereby rendered as follows:

1. Declaring the deed of real estate mortgage (Exhibit 'L) involving the properties of the
plaintiffs as null and void; Man-ikx

2. Declaring the public auction sale conducted by the defendant Sheriff, involving the same
properties as illegal and without binding effect;

3. Ordering the defendants, jointly and severally, to pay the plaintiffs the sum of P20,000.00
representing attorney's fees;

4. On defendant ASB's crossclaim: ordering the cross-defendant Vicente Maosca to pay the
defendant ASB the sum of P350,000.00, representing the amount which he received as
proceeds of the loan secured by the void mortgage, plus interest at the legal rate, starting
February 3, 1983, the date when the original complaint was filed, until the amount is fully
paid;

5. With costs against the defendants.

SO ORDERED."[10]

From such Decision below, Asian Savings Bank appealed to the Court of Appeals, which
handed down the assailed judgment of reversal, dated September 30, 1983, in CA-G.R. CV
No. 25242. Dissatisfied therewith, the petitioners found their way to this Court via the
present Petition; theorizing that:

"I

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE MORTGAGE OF THE

PROPERTIES SUBJECT OF THIS CASE WAS VALID.

II

RESPONDENT COURT OF APPEALS ERRED IN HIOLDING THAT PETITIONERS ARE NOT

ENTITLED TO RELIEF BECAUSE THEY WERE NEGLIGENT AND THEREFORE MUST BEAR THE
LOSS.

III

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB EXERCISED

DUE DILIGENCE IN GRANTING THE LOAN APPLICATION OF RESPONDENT. Manik-s

IV

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB DID NOT ACT
WITH BAD FAITH IN PROCEEDING WITH THE FORECLOSURE SALE OF THE PROPERTIES.

RESPONDENT COURT OF APPEALS ERRED IN AWARDING RESPONDENT ASB MORAL

DAMAGES."[11]

The Petition is impressed with merit.

Article 1173 of the Civil Code, provides:

"Article 1173. The fault or negligence of the obligor consist in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. When negligence shows bad faith, the provisions
of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required. (1104)"

The degree of diligence required of banks is more than that of a good father of a family;[12]
in keeping with their responsibility to exercise the necessary care and prudence in dealing
even on a register or titled property. The business of a bank is affected with public interest,
holding in trust the money of the depositors, which bank deposits the bank should guard
against loss due to negligence or bad faith, by reason of which the bank would be denied the
protective mantle of the land registration law, accorded only to purchases or mortgagees for
value and in good faith.[13]Man-ikan

In the case under consideration, from the evidence on hand it can be gleaned unerringly that
respondent bank did not observe the requisite diligence in ascertaining or verifying the real
identity of the couple who introduced themselves as the spouses Osmundo Canlas and

Angelina Canlas. It is worthy to note that not even a single identification card was exhibited
by the said impostors to show their true identity; and yet, the bank acted on their
representations simply on the basis of the residence certificates bearing signatures which
tended to match the signatures affixed on a previous deed of mortgage to a certain Atty.
Magno, covering the same parcels of land in question. Felizado Mangubat, Assistant Vice
President of Asian Savings Bank, thus testified inter alia:

"x x x

Q:.....According to you, the basis for your having recommended for the approval of
MANASCO's (sic) loan particularly that one involving the property of plaintiff in this case, the
spouses OSMUNDO CANLAS and ANGELINA CANLAS, the basis for such approval was that
according to you all the signatures and other things taken into account matches with that of
the document previously executed by the spouses CANLAS?

A:.....That is the only basis for accepting the signature on the mortgage, the basis for the
recommendation of the approval of the loan are the financial statement of MAOSCA?

A:.....Yes, among others the signature and TAX Account Number, Residence Certificate
appearing on the previous loan executed by the spouses CANLAS, I am referring to EXHIBIT
5, mortgage to ATTY. MAGNO, those were made the basis.

A:.....That is just the basis of accepting the signature, because at that time the loan have
been approved already on the basis of the financial statement of the client the Bank
Statement. Wneh (sic) it was approved we have to base it on the Financial statement of the
client, the signatures were accepted only for the purpose of signing the mortgage not for the
approval, we don't (sic) approve loans on the signature.

ATTY. CLAROS:

.....Would you agree that as part of ascertaining the identify of the parties particularly the
mortgage, you don't consider also the signature, the Residence Certificate, the particular
address of the parties involved.

A:.....I think the question defers (sic) from what you asked a while ago.

Q:.....Among others?

A:.....We have to accept the signature on the basis of the other signatures given to us it
being a public instrument. Ol-dmiso

ATTY. CARLOS:

.....You mean to say the criteria of ascertaining the identity of the mortgagor does not
depend so much on the signature on the residence certificate they have presented.

A:.....We have to accept that

xxx.....xxx.....xxx

A:.....We accepted the signature on the basis of the mortgage in favor of ATTY. MAGNO duly
notarized which I have been reiterrting (sic) entitled to full faith considering that it is a public
instrument.

ATTY. CARLOS:

.....What other requirement did you take into account in ascertaining the identification of the
parties particularly the mortgagor in this case.

A:.....Residence Certificate.

Q:.....Is that all, is that the only requirement?

A:.....We requested for others but they could not produce, and because they presented to us
the Residence Certificate which matches on the signature on the Residence Certificate in
favor of Atty. Magno."[14]M-isjuris

Evidently, the efforts exerted by the bank to verify the identity of the couple posing as
Osmundo Canlas and Angelina Canlas fell short of the responsibility of the bank to observe
more than the diligence of a good father of a family. The negligence of respondent bank was
magnified by the fact that the previous deed of mortgage (which was used as the basis for
checking the genuineness of the signatures of the suppose Canlas spouses) did not bear the
tax account number of the spouses,[15] as well as the Community Tax Certificate of
Angelina Canlas.[16] But such fact notwithstanding, the bank did not require the impostors
to submit additional proof of their true identity.

Under the doctrine of last clear chance, which is applicable here, the respondent bank must
suffer the resulting loss. In essence, the doctrine of last clear chance is to the effect that
where both parties are negligent but the negligent act of one is appreciably later in point of
time than that of the other, or where it is impossible to determine whose fault or negligence
brought about the occurrence of the incident, the one who had the last clear opportunity to
avoid the impending harm but failed to do so, is chargeable with the consequences arising
therefrom. Stated differently, the rule is that the antecedent negligence of a person does not
preclude recovery of damages caused by the supervening negligence of the latter, who had
the last fair chance to prevent the impending harm by the exercise of due diligence.[17]

Assuming that Osmundo Canlas was negligent in giving Vicente Maosca the opportunity to
perpetrate the fraud, by entrusting to latter the owner's copy of the transfer certificates of
title of subject parcels of land, it cannot be denied that the bank had the last clear chance to
prevent the fraud, by the simple expedient of faithfully complying with the requirements for
banks to ascertain the identity of the persons transacting with them.

For not observing the degree of diligence required of banking institutions, whose business is
impressed with public interest, respondent Asian Savings Bank has to bear the loss sued
upon.

In ruling for respondent bank, the Court of Appeals concluded that the petitioner Osmundo
Canlas was a party to the fraudulent scheme of Maosca and therefore, estopped from
impugning the validity of subject deed of mortgage; ratiocinating thus: Sd-aamiso

"x x x

Thus, armed with the titles and the special power of attorney, Manosca went to the
defendant bank and applied for a loan. And when Maosca came over to the bank to submit

additional documents pertinent to his loan application, Osmundo Canlas was with him,
together with a certain Rogelio Viray. At that time, Osmundo Canlas was introduced to the
bank personnel as 'Leonardo Rey.

When he was introduced as 'Leonardo Rey for the first time Osmundo should have corrected
Maosca right away. But he did not. Instead, he even allowed Maosca to avail of his
(Osmundo's) membership privileges at the Metropolitan Club when Maosca invited two
officers of the defendant bank to a luncheon meeting which Osmundo also attended. And
during that meeting, Osmundo did not say who he really is, but even let Maosca introduced
him again as 'Leonardo Rey, which all the more indicates that he connived with Maosca in
deceiving the defendant bank.

Finally after the loan was finally approved, Osmundo accompanied Maosca to the bank when
the loan was released. At that time a manger's check for P200,000.00 was issued in the
name of Oscar Motorworks, which Osmundo admits he owns and operates.

Collectively, the foregoing circumstances cannot but conjure to a single conclusion that
Osmundo actively participated in the loan application of defendant Asian Savings Bank,
which culminated in his receiving a portion of the process thereof."[18]

A meticulous and painstaking scrutiny of the Records on hand, reveals, however, that the
findings arrived at by the Court of Appeals are barren of any sustainable basis. For instance,
the execution of the deeds of mortgages constituted by Maosca on subject pieces of
property of petitioners were made possible not by the Special Power of Attorney executed by
Osmundo Canlas in favor of Maosca but through the use of impostors who misrepresented
themselves as the spouses Angelina Canlas and Osmundo Canlas. It cannot be said
therefore, that the petitioners authorized Vicente Maosca to constitute the mortgage on their
parcels of land.

What is more, Osmundo Canlas was introduced as "Leonardo Rey" by Vicente Maosca, only
on the occasion of the luncheon meeting at the Metropolitan Club.[19] Thereat, the failure of
Osmundo Canlas to rectify Maosca's misrepresentations could not be taken as a fraudulent
act. As well explained by the former, he just did not want to embarrass Maosca, so that he
waited for the end of the meeting to correct Maosca.[20]

Then, too, Osmundo Canlas recounted that during the said luncheon meeting, they did not
talk about the security or collateral for the loan of Maosca with ASB.[21] So also, Mrs.
Josefina Rojo, who was the Account Officer of Asian Savings Bank when Maosca applied for
subject loan, corroborated the testimony of Osmundo Canlas, she testified: S-daad

"xxx.....xxx.....xxx

QUESTION:.....Now could you please describe out the lunch conference at the Metro Club in
Makati?

ANSWER:.....Mr. Mangubat, Mr. Maosca and I did not discuss with respect to the loan
application and discuss primarily his business.

xxx.....xxx.....xxx

xxx.....xxx.....xxx

QUESTION:..... So, what is the main topic of your discussion during the meeting?

ANSWER:..... The main topic was then, about his business although, Mr, Leonardo Rey, who
actually turned out as Mr. Canlas, supplier of Mr. Maosca.

QUESTION:..... I see ... other than the business of Mr. Maosca, were there any other topic
discussed?

ANSWER:..... YES.

QUESTION:..... And what was the topic?

ANSWER:..... General Economy then.

x x x"[22]

Verily, Osmundo Canlas was left unaware of the illicit plan of Maosca, explaining thus why he
(Osmundo) did not bother to correct what Maosca misrepresented and to assert ownership
over the two parcels of land in question. Scs-daad

Not only that; while it is true that Osmundo Canlas was with Vicente Maosca when the latter
submitted the documents needed for his loan application, and when the check of
P200,000.000 was released, the former did not know that the collateral used by Maosca for
the said loan were their (Canlas spouses) properties. Osmundo happened to be with Maosca
at the time because he wanted to make sure that Maosca would make good his promise to
pay the balance of the purchase price of the said lots out of the proceeds of the loan.[23]

The receipt by Osmundo Canlas of the P200,000.00 check from ASB could not estop him
from assailing the validity of the mortgage because the said amount was in payment of the
parcels of land he sold to Maosca.[24]

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

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

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

SO ORDERED.

Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. 73976 May 29, 1987
THE CONSOLIDATED BANK and TRUST CORPORATION (SOLIDBANK), petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, GOLDEN STAR INDUSTRIAL CORPORATION,
NICOS
INDUSTRIAL
CORPORATION
and
THE
PROVINCIAL
SHERIFF
OF
BULACAN, respondents.
C.M. Delos Reyes and Associates for petitioner.
Magtanggol C. Gunigundo and Fajardo Law office for respondents.

GUTIERREZ, JR., J.:

The basic issue for resolution in this petition for review of the December 13, 1985 decision of
the Intermediate Appellate Court, now the Court of Appeals, as well as the resolution of
March 13, 1986 denying the motion for reconsideration, is whether or not an attaching
creditor acquires the right of redemption of a debtor over the attached properties of the
latter which are subsequently extrajudicially foreclosed by third parties.
Briefly, the facts are as follows: Originally, petitioner Consolidated Bank and Trust
Corporation (SOLIDBANK) loaned private respondent NICOS Industrial Corporation (NICOS)
sums of money in the total amount of FOUR MILLION SEVENTY SIX THOUSAND FIVE
HUNDRED EIGHTEEN AND 64/100 PESOS (P4,076,518.64).
Subsequently, NICOS failed to pay back the loan prompting SOLIDBANK to file a collection
case before the Court of First Instance of Manila, Branch XXIX. The case was docketed as
Civil Case No. 82-11611.
On August 30, 1982, the court in the aforecited case issued an order of attachment " ... upon
the rights, interests and participation of which defendants NICOS Industrial Corporation ...
may have in Transfer Certificate of Title No. T-210581 (T-32.505 M) and Transfer Certificate of
Title No. T-10580 (T-32.504 M) (Annexes "B", "B-1", "B-2" and "B-3" of petition).
On September 1, 1982, pursuant to the writ of attachment issued by the Court and upon
petitioner's posting of sufficient bond, the Sheriff of Manila levied and attached the two real
properties described by the foregoing order of attachment, including the buildings and other
improvements thereon. Afterwards, the Sheriff sent separate Notices of Levy Upon Realty to
the Registrar of Deeds of Malolos, Bulacan, dated September 1, 1982 requesting him "to

make the proper annotation in the books of your office" by virtue of the order of attachment
dated August 30,1982 issued by the Manila Court in Civil Case No. 82-11611.
Accordingly, on September 7, 1982, the Registrar of Deeds of Malolos, Bulacan, pursuant to
the request of the Manila Sheriff, inscribed and annotated the Notices of Levy Upon Real
Property at the back of Transfer Certificates of Title Nos. T-210581 (T-32.505 M) and T210580 (T-32.504 M).
Pursuant to the foregoing ng inscription and annotations, guards were deputized by the
Manila Sheriff to secure the premises of the two attached realties.
A year later, however, on July 11, 1983, the attached properties which had been mortgaged
by NICOS to the United Coconut Planters Bank (UCPB) on March 11, 1982, were
extrajudicially foreclosed by the latter. As the highest bidder therein, a certificate of sale was
issued to it by the Sheriff of Bulacan over the subject realties including the buildings and
improvements thereon.
Surprisingly, two transactions occurred soon thereafter, both on August 29, 1983. First, UCPB
sold all of its rights, interests, and participation over the properties in question to a certain
Manuel Go; Second, Manuel Go sold all the rights he acquired from UCPB over the same lots
on that very same day to private respondent Golden Star Industrial Corporation (GOLDEN
STAR).
Barely a month later, on October 5, 1983, respondent NICOS, though fully aware that it still
had the right to redeem the auctioned properties within the one year period of redemption
from July 11, 1983, suddenly executed a document entitled "Waiver of Right of Redemption"
in favor of respondent GOLDEN STAR.
On September 15, 1983, GOLDEN STAR filed a petition for the issuance of a writ of
possession over the subject realties before the Regional Trial Court, Branch VI of Malolos,
Bulacan.
On November 4, 1983, the Malolos Court granted GOLDEN STAR's petition for a writ of
possession and issued the writ. In accordance with these orders, armed men of GOLDEN
STAR forcibly took over the possession of the properties in dispute from the guards
deputized by the Sheriff of Manila to secure the premises.
Thus on November 21, 1983, petitioner SOLIDBANK, on the strength of its prior attachment
over the lands in question filed with the Malolos court an omnibus motion to annul the writ
of possession issued to GOLDEN STAR and to punish for contempt of court the persons who
implemented the writ of possession with the use of force and intimidation.
The respondents NICOS and GOLDEN STAR, filed oppositions to the foregoing omnibus
motion, the former on the basis of the waiver of its right of redemption to GOLDEN STAR,
and the latter on its alleged ignorance that the lands in question were under custodia legis,
having been attached by the Sheriff of Manila.

On June 9, 1984, the Malolos Court issued an order denying the omnibus motion, the
decretal portion of which is as follows:
WHEREFORE, the Omnibus Motion of movant Consolidated Bank and Trust
Corporation to annul the writ of possession issued by this Court in favor of
Golden Star Industrial Corporation and to cite for contempt those who
fraudulently secured and unlawfully implemented the writ of possession is
hereby DENIED for lack of merit. (p. 8 of the Brief for the ComplainantOppositor-Appellant in AC-G.R. CV No. 04398 [p.118, Rollo])
The petitioner SOLIDBANK forthwith interposed an appeal before the Intermediate Appellate
Court arguing inter alia that the properties were under custodia legis, hence the extrajudicial
foreclosure and the writ of possession were null and void, and that the right of NICOS to
redeem the auctioned properties had been acquired by SOLIDBANK.
On December 13, 1985, the Intermediate Appellate Court rendered its assailed decision
"finding no merit in this appeal and affirming in toto the appealed order of June 9, 1984,
ruling that "the properties in issue ... were not incustodia legis at the time of the
extrajudicial foreclosure."
The petitioner moved for reconsideration, arguing that its writ of attachment over the
properties in question was duly registered in the Register of Deeds of Malolos, Bulacan, and
that the right to redeem said properties should be retained or given back to SOLIDBANK as
attaching creditor.
On March 13, 1986, the Intermediate Appellate Court promulgated its resolution denying the
motion for reconsideration for lack of merit.
Hence this petition for review, on the grounds that respondent appellate court decided the
case contrary to law and applicable decisions of the Supreme Court, and has departed from
the accepted and usual course of judicial proceedings as to call for an exercise of the power
of supervision of this Court.
The fundamental question herein, which is determinative of the other issues, is whether or
not the subject properties were under custodia legis by virtue of the prior annotation of a
writ of attachment in petitioner's favor at the time the properties were extrajudicially
foreclosed.
We rule in the affirmative on the following grounds:
First of all, the records show (specifically Annexes "B," "B-1" to "B-3" of the petition) that on
September 1, 1982, the Sheriff of Branch XXIX of the Court of First Instance of Manila, sent
separate Notices of Levy Upon Realty to the Registrar of Deeds of Malolos Bulacan,
requesting him "to make the proper annotation in the books of your office," "by virtue of an
order of attachment issued in Civil Case No. 82-11611 dated August 30, 1982, ... upon the
rights, interests, and participation of which defendant NICOS Industrial Corporation in this
case may have in ... ."Transfer Certificate of Title No. T-210581 (T-32.505 M) and Transfer
Certificate of Title No. T-210580 (T-32,505 M).

Secondly, and more significant, the records clearly show (page 4, Annex "D" of petition) that
the Registrar of Deeds of Malolos, Bulacan, on September 7, 1982, inscribed and annotated
the foregoing Notices of Levy at the back of Transfer Certificate of Title Nos. 210580 and
210581, to wit:
TRANSFER CERTIFICATE OF TITLE
No. T-210580 (T-32.504 M)
Entry No. 79524 (M): Kind; NOTICE OF LEVY UPON REALTY, Executed in favor
of the CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK);Plaintiff; Conditions: Notice is hereby given that by virtue of an Order of
Attachment issued by the C.F.I. of Manila, Branch XXIX, in Civil Case No. 8211611, all the rights, interest and participation of NICOS INDUSTRIAL
CORPORATION-Defendant over the herein described lot is hereby levied upon
attached.; Date of Instrument: September 1, 1982; Date of Inscription:
September 7, 1982 at 2:35.
Meycauayan, Bulacan.
(SGD.)
GARCIA

VIOLETA

R.

Branch
Deeds

LINCALLO

Register

of

TRANSFER CERTIFICATE OF TITLE

No. T-210581 (T-32.505 M)
Entry No. 79524 (M); Kind: NOTICE OF LEVY UPON REALTY, Executed in favor
of THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK)
Plaintiff; Conditions: Notice is hereby given that by virtue of an Order of
Attachment issued by the C.F.I. of Manila, Branch XXIX, in Civil Case No. 8211611, all the rights, interest and participation of NICOS INDUSTRIAL
CORPORATION Defendants over the herein described lot is hereby levied
upon attached.; Date of Instrument; September 1, 1982; Date of Inscription:
September 7, 1982 at 2:35.
Meycauayan, Bulacan.
(SGD.) VIOLETA R.
LINCALLO GARCIA
Branch
Regist
er
of
Deeds

(pp.
91-92,
Rollo)
Based on the foregoing evidence on record, the conclusion is clear that the disputed real
properties were undercustodia legis by virtue of a valid attachment at the time the same
were extrajudicially foreclosed by a third party mortgagee.
The rule is well settled that when a writ of attachment has been levied on real property or
any interest therein belonging to the judgment debtor, the levy thus effected creates a lien
which nothing can destroy but its dissolution (Chua Pua Hermanos v. Register of Deeds of
Batangas, 50 Phil. 670; Government, et. al. v. Mercado, 67 Phil. 409).
The foregoing conclusion has two necessary consequences.
Firstly, it follows that the writ of possession issued by the Malolos court in favor of
respondent GOLDEN STAR is nun and void ab initio because it interfered with the jurisdiction
of a co-ordinate and co-equal court (See De Leon v. Salvador, 36 SCRA 567):
While property or money is in custodia legis, the officer holding it is the mere
hand of the court, his possession is the possession of the court, and to
interfere with it is to invade the jurisdiction of the court itself (Gende v.
Fleming, 371 N.E. 2d. 191; Bishop v. Atlantic Smokeless Coal Co., 88F. Supp.
27, 7 CJS 320).
Of equal importance is the fact that the transactions on which respondent GOLDEN STAR's
right to a writ of possession are based are highly irregular and questionable, to say the least,
considering the following circumstances:
On July 11, 1983, the Sheriff of Bulacan executed a certificate of sale over the two lots in
question in favor of UCPB.
On August 29, 1983, or about a month and a half later, UCPB sold its rights, interests and
participation over the lands to Manuel Go.
On that very same day, August 29, 1983, Manuel Go sold the same properties to respondent
GOLDEN STAR.
On October 5, 1983, respondent NICOS which had a one year right of redemption over the
lands in question executed a "Waiver of Right of Redemption in favor of respondent GOLDEN
STAR." The attempts to bring the disputed properties out of the petitioner's reach, inspite of
the attachment, are plain and apparent.
Based on the foregoing facts, we find that respondents NICOS and GOLDEN STAR conspired
to defeat petitioner's lien on the attached properties and to deny the latter its right of
redemption.

It appears that in issuing the writ of possession, the Malolos court relied on copies of
documents (which did not show the memorandum of encumbrance) submitted to it by
GOLDEN STAR. It was thus led into the error of ruling that the petitioner's attachment was
not properly annotated.
Secondly, it likewise follows that the petitioner has acquired by operation of law the right of
redemption over the foreclosed properties pursuant to Sec. 6 of Act No. 3135, to wit:
In all such cases in which an extrajudicial sale is made ... any person having a
lien on the property subsequent to the mortgage ... may redeem the same at
any time within the term of one year from and after the date of sale.
It has been held that "an attaching creditor may succeed to the incidental rights to which
the debtor was entitled by reason of his ownership of the property, as for example, a right to
redeem from a prior mortgage" (Lyon v. Stanford, 5 Conn. 541, 7 SJS 505).
The fact that respondent NICOS executed a waiver of right of redemption in favor of
respondent GOLDEN STAR on October 5, 1983 is of no moment as by that time it had no
more right which it may waive in favor of another,
Finally, GOLDEN STAR argues that even if the attachment in issue was duly registered and
the petitioner has a right of redemption, the certificate of sale of the lands in question was
registered on September 6, 1983. It claims that the period to redeem therefore lapsed on
September 6, 1984 without the petitioner bank ever exercising any right of redemption.
This argument is untenable. Well settled is the rule that the pendency of an action tolls the
term of the right of redemption. Specifically, tills Court in Ong Chua v. Carr, (53 Phil. 975,
983) categorically ruled that:
xxx xxx xxx
... Neither was it error on the part of the court to hold that the pendency of the
action tolled the term for the right of redemption; that is an old and well
established rule.
This was reiterated in Fernandez v. Suplido (96 Phil. 541, 543), as follows:
xxx xxx xxx
... As pointed out in Ong Chua v. Carr, 53 Phil. 975, the pendency of an action
brought in good faith and relating to the validity of a sale with pacto de
retro tolls the term for the right of redemption. ...
Not only that. It has been held that "under a statute limiting the time for redemption ... the
right of redemption continues after perfection of an appeal ... until the decision of the appeal
(Philadelphia Mortgage Co. v. Gustus, 75 N.W. 1107).

In the case at bar, the petitioner commenced the instant action by way of an omnibus
motion before the Bulacan Court on November 21, 1983 or barely two months after the
certificate of sale was registered on September 6, 1983, well within the one year period of
redemption.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is granted and judgment is hereby
rendered:
1) declaring as valid and binding the levy and attachment by the Manila Sheriff on the two
realties in question including the buildings and improvements thereon;
2) declaring that petitioner has acquired the right of redemption over the aforesaid
properties which it may exercise within one year from notice of entry of judgment in this
case; and
3) declaring as null and void (a) the order of the Bulacan Court dated November 4, 1983
granting the writ of possession to respondent GOLDEN STAR, (b) its order of June 9, 1984
denying the petitioner's omnibus motion, and (c) the Waiver of Right of Redemption
executed by respondent NICOS in favor of respondent GOLDEN STAR.
SO ORDERED.

THIRD DIVISION
[G.R. No. 124347. July 21, 1997]
CMS STOCK BROKERAGE, INC., petitioner-appellant, vs. COURT OF APPEALS,
HONORABLE RAMON R. BUENAVENTURA in his capacity as residing Judge of
RTC, National Capital Judicial Region, Branch 154, Pasig City, ATTY. GRACE
BELVIS and ALBERTO VALINO, Ex-Officio Sheriff and Deputy Sheriff
respectively of the RTC, Pasig City, and CAROLINA INDUSTRIES,
INC., respondents-appellees.
DECISION

MELO, J.:
Petitioner, as judgment debtor, seeks to redeem two parcels of land sold on execution
nine years earlier upon the contention that the pendency of an action involving ownership
thereof suspended the 12-month period of redemption[1] provided by the Rules.
On December 7, 1992, petitioner tendered the amount of P2,341,166.48 to Deputy
Sheriff Alberto Valino. When the deputy sheriff refused to execute a deed of redemption,
petitioner went to the Regional Trial Court of the National Capital Judicial Region at Pasig City
and the case was raffled to Branch 154 thereof presided over by herein respondent Judge
Ramon P. Buenaventura who thereafter ruled against petitioner on the ground that the right
of redemption had long expired.
Dissatisfied with this ruling which sustained the deputy sheriffs action, petitioner filed a
petition for certiorari and mandamus, with a prayer for a writ of preliminary injunction with
respondent Court of Appeals. On May 29, 1995, the appellate court dismissed the
petition (Martinez, Yanares-Santiago (P), and Reyes, R., JJ.).
Hence, the instant petition for review on certiorari.
The facts of the case were summarized by respondent Court of Appeals, adopting
pertinent facts as found and summarized by the same court in A.C. G.R. No. CV-03269
entitled Rosario Sandejas vs. Carolina Industries, Inc., et al. (April 3, 1986), involving the
very same parcels of land, as follows:
The facts of this case are stated in the order of the lower court dated March 21, 1984, which
we quote with approval, as follows:
As may be gleaned from the documents submitted by the herein parties in support of their
respective postures, the following facts appear incontrovertible, viz.:
01. Plaintiff (Rosario Sandejas) is the registered owner of two (2) parcels of land, which are
covered by and more particularly described in TCT Nos. 117995 and 189984 of the Registry
of Deeds of Rizal.
02. A FIRST mortgage was constituted on the subject properties on 28 April 1969 in favor of
the BANK OF THE PHILIPPINE ISLANDS for the sum of P150,000.00 and annotated on the
corresponding Transfer Certificate of Title as Entry No. 65222/T-117995 on 2 May 1969.
03. A SECOND mortgage was constituted on the subject properties on 09 July 1969 in favor
of SISON, LUZ & JALBUENA (now CMS STOCK BROKERAGE, INC.), the sum of P200,000.00,
and annotated on the corresponding Transfer Certificate of Title as Entry No. 75685/T117995 on 30 July 1969.
04. By virtue of the extra-judicial foreclosure of the SECOND mortgage, the subject
properties were sold at public auction on 10 May 1971 to SISON, LUZ & JALBUENA, INC. (now
CMS STOCK BROKERAGE, INC.) for the sum of P255,948.49, and the Certificate of Sale Issued

by the Provincial Sheriff of Rizal was duly annotated on the corresponding Transfer
Certificate of Title on 19 May 1971. (Vide Exhs. 1-B and 2-B, pp. 31 and 35 id., respectively).
05. On 15 November 1972, plaintiff addressed a letter to her brother `Carling (Atty. Carlos
Moran Sison) requesting for a period of three (3) years within which to redeem the subject
properties.(Vide Annex A of Plaintiffs Third-Party Claim, p. 39, id.).
06. On 24 November 1972, Atty. Carlos Moran Sison informed the plaintiff that she has five
(5) years to redeem the subject properties. (Vide Annex B of Plaintiffs Third-Party Claim, p.
40, id.).
07. In the meantime, the FIRST mortgage in favor of the Bank of the Philippine Islands was
extra-judicially foreclosed and the subject properties were sold at public auction on 02
February 1973 to CMS STOCK BROKERAGE, INC. for the sum of P71,995.00. (Vide Annex G of
Motion to Dismiss, p. 45 id., and Annexes A and 2 of Defendants Manifestation and Motion
dated 09 January 1984, pp. 219 and 200, id., respectively).
08. On 22 June 1974, Atty. Carlos Moran Sison issued a receipt which reads: `Received from
Rosario S. Sandejas a diamond ring and a pair of earrings in redemption of her land located
at Muntinlupa, s/t CARLOS MORAN SISON.
09. In the audited Statement of Financial Conditions as of 31 December 1978, 31 December
1979, 31 December 1980 and 30 June 1981 of CMS STOCK BROKERAGE, INC., the subject
properties were listed as one of the `ASSETS of said corporation, with an equity valuation of
P327,943.49 and P71,995.00 paid by CMS STOCK BROKERAGE, INC. in the foreclosure sales
of the SECOND and FIRST mortgages, respectively.
10. The subject properties were levied on execution by the defendant sheriff on 01 March
1982.
11. On 02 June 1982, plaintiff filed a Third-Party Claim with the defendant sheriff wherein it is
alleged, among others:
`5. That on June 22, 1974 I redeemed above-mentioned properties from CMS STOCK
BROKERAGE by paying said Brokerage a diamond ring and a pair of earrings in redemption
for above properties, xxx;
`6. That since then, I have neglected to request for the cancellation of the annotation in my
title of the Certificate of Sale issued in favor of SISON, LUZ & JALBUENA by reason of the fact
that I was very busy attending to other more pressing obligations after which I suffered a
stroke as a consequence of which I no longer was able to attend to the cancellation of said
annotation.
12. Plaintiff instituted this action for `quieting ownership of real property injunction and
damages on 22 April 1983.
13. On 1 December 1983, the defendant Sheriff proceeded with the scheduled public auction
sale of the subject properties after the Supreme Court, by its Resolution adopted on 26

November 1983 in G.R. No. 64510, entitled `Dr. Romeo Gustilo, et al., versus The
Intermediate Appellate Court, et al. LIFTED the temporary restraining order issued on 21
November 1983 enjoining the Sheriff of Rizal from proceeding with the public auction sale of
the garnished and levied properties of the petitioners therein, particularly the two parcels of
land, as scheduled on 01 December 1983 at 10:00 A.M.
As culled from the records, at the public auction held on December 1, 1983, respondent
Deputy Sheriff sold the parcels of land in question to herein private respondent (now, also
private respondent in the instant petition) as the highest bidder and issued the
corresponding certificate of sale to the latter.
Several days later on December 12, 1983, respondent Deputy Sheriff issued an Amended
Certificate of Sale containing the following notations:
xxx subject to the result and effect of Civil Case No. 1508, entitled `Rosario S. Sandejas vs.
Carolina Industries, Inc., et al., Regional Trial Court of Makati, Metro Manila, Branch 137 it
being a third-party complaint.
The period of redemption of the real property/properties described above will expire one (1)
year from and after the date of registration of this Certificate of Sale.
and this was registered on December 16, 1983 in the Office of the Register of Deeds.
On December 18, 1984, the Sheriffs Final Deed of Sale was issued.
On April 16, 1986, title to the property was consolidated in the private respondents name
and a writ of possession was issued in its favor.
On April 16, 1986, title to the parcels of land was registered in private respondents name.
In a decision dated October 16, 1991 in G.R. No. 101351, the Supreme Court declared
petitioner as the real owner of the subject parcel of land and not Rosario S. Sandejas who
initiated the proceedings for quieting of ownership of real property, injunction and damages
which was docketed as Civil Case No. 1508.
On December 18, 1991, a final entry of the decision in G.R. No. 101351 was entered in the
Supreme Courts Book of Judgments.
On December 7, 1992, petitioner made an offer to redeem the parcels of land in question.
Subsequently, on December 15, 1992, it filed a notice to redeem and tendered the
redemption money amounting to P2,341,166.48 with the Office of the Clerk of
Court. Petitioner also paid an additional sum of P11,905.83 as Sheriffs Commission or
deposit fee.
In a letter dated December 16, 1992 respondents Sheriffs informed petitioner that they can
not execute and issue the certificate of redemption as requested in the absence of a court

order directing them to do so. Respondents Sheriffs further informed the latter that they
accepted the tendered amounts for safekeeping.
On January 13, 1993, petitioner filed a Motion to require Sheriff to Execute Certificate of
Redemption.
On January 20, 1994, respondent Judge issued the challenged order denying petitioners
motion requiring the Sheriff to execute a certificate of redemption.
A motion for reconsideration dated February 16, 1994 was denied by respondent Judge in an
order dated July 12, 1994.
(pp. 48-52, Rollo.)
The petition is anchored on the following assignment of errors :
(1) RESPONDENT COURT OF APPEALS IS GUILTY OF GRAVE ABUSE OF DISCRETION
AND COMMITTED SERIOUS AND REVERSIBLE ERRORS IN NOT UPHOLDING THE
UNQUESTIONABLE RIGHT OF PETITIONER TO REDEEM THE SUBJECT PROPERTY
CONSIDERING THAT THE PENDENCY OF THE ACTION INVOLVING THE QUESTION OF
OWNERSHIP NECESSARILY INTERRUPTS OR SUSPENDS THE PERIOD OF REDEMPTION.
(2) RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
BASING ITS FINDING THAT PETITIONER IS ALREADY THE OWNER OF THE SUBJECT
PROPERTIES AT THE TIME THEY WERE LEVIED UPON ON ITS OWN PREVIOUS
DECISION IN ANOTHER CASE INVOLVING THE SAME PARTIES (C.A. G.R. CV NO.
03209) DATED APRIL 3, 1986, WHICH DECISION WAS SUBSEQUENTLY
RECONSIDERED AND THEREFORE NO LONGER EXIST IN LEGAL CONTEMPLATION.
(3) RESPONDENT COURT OF APPEALS GRAVELY AND SERIOUSLY ERRED IN RULING
THAT THE PENDENCY OF CIVIL CASE NO. 1508 FILED BY ROSARIO SANDEJAS DID
NOT INTERRUPT OR TOLL THE REDEMPTION PERIOD OF PETITIONER ON THE
GRAVELY ERRONEOUS ASSUMPTION THAT THERE IS NEITHER A STATUTE OR
DECISION WHICH SUPPORTS THE PREPOSITION THAT THE PERIOD OF ONE (1) YEAR
TO REDEEM THE PROPERTY IS SUSPENDED BY INSTITUTION OF ACTION TO ANNUL
FORECLOSURE SALE (CITING THE CASE OF PEOPLES FINANCING CORPORATION VS.
COURT OF APPEALS, 192 SCRA 34, CITING SUMERARIZ VS. DBP, 21 SCRA 1374).
(4) THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION AND SERIOUSLY ERRED IN UPHOLDING THE POSITION OF THE TRIAL
COURT THAT THE RESERVATION IN THE AMENDED CERTIFICATE OF SALE TO THE
EFFECT THAT IT IS SUBJECT TO THE OUTCOME OF THE CASE FILED BY ROSARIO
SANDEJAS AND ITS CORRESPONDING ANNOTATION ON THE CERTIFICATE OF TITLES
OF DISPUTED PROPERTIES WERE SOLELY FOR THE BENEFIT OF ROSARIO SANDEJAS
AND NOT PETITIONER CMS STOCK BROKERAGE, INC. (CITING SECTIONS 28 & 36 OF
RULE 39 OF THE RULES OF COURT).

(5) THE RESPONDENT COURT OF APPEALS GRAVELY ABUSE (sic) ITS DISCRETION IN
MAKING SWEEPING STATEMENTS AND MISQUOTING OR CHANGING THE CONTEXT OF
THIS HONORABLE COURTS PRONOUNCEMENTS IN QUIMSON VS. PNB, 36 SCRA 26
AND PIANO VS. CAYANONG, 7 SCRA 397, TO JUSTIFY ITS RULING THAT PETITIONERS
RIGHT OF REDEMPTION HAS LONG EXPIRED.
(6) THE RESPONDENT COURT OF APPEALS HAS GRAVELY ERRED IN RULING THAT
PETITIONER IS ESTOPPED BY LACHES FROM EXERCISING ITS RIGHT OF REDEMPTION.
(pp. 22-24, Rollo.)
Upon deliberate consideration of the arguments in support of petitioners assigned
errors, the relevant issues may be synthesized thusly:
(1) Whether or not petitioner could have effected the redemption of the subject property
within the 12-month period provided under the Rules; and
(2) Whether or not the 12-month period of redemption was interrupted by Civil Case No.
1508 entitled, Rosario Sandejas vs. Carolina Industries, Inc., et al.
We resolve the first issue in the affirmative.
It is petitioners contention that it could not have exercised the right of redemption
before the lapse of the 12-month redemption period on or before December 17, 1984
because its title at the time was clouded by the claim of a third party, Rosario
Sandejas. Petitioner contends that it was only on December 18, 1991 when the Supreme
Court sustained the position of Carolina Industries, Inc. as against the claim of Rosario
Sandejas that petitioners period of redemption commenced.
It may be recalled that the action filed by Rosario Sandejas is based on the claim that
her brother, Carlos Moran Sison, had given her in 1972 a period of five years within which to
redeem the foreclosed parcels of land. On June 22, 1974, well within the five-year period,
she allegedly redeemed the properties by giving her brother a diamond ring and a pair of
earrings as payment for the redemption price. Therefore, when the parcels were levied upon
by Carolina Industries, Sandejas filed a third-party claim with the Sheriff, stating that she
had already redeemed the property from CMS Stock Brokerage, Inc. When the sheriff
rejected her third-party claim, she went to court on an action for quieting of title. She
eventually lost the case before this Court.
Petitioner now submits that on December 1, 1983 when the two parcels of land were
sold at public auction to Carolina Industries and on December 18, 1984 when the final deed
of sale was issued in the latter s name, CMS Stock Brokerage, Inc. had no clear title because
ownership and title to the subject parcels of land were being claimed and asserted by
Rosario Sandejas. Petitioner, it is contended, was then, not yet the true, absolute, declared,
and registered owner of the disputed properties. According to petitioner, the undisputed true
and registered owner was then Rosario Sandejas. Petitioner complains that it would be
damned if it then redeemed the property because of the ensuing manifest falsehood about
the ownership of the property, and equally damned if it did not because of the expiration of

12-month redemption period should the same be counted from December 17,
1984. Necessarily, so petitioner contends, its 12-month period started only on December 18,
1991, after this Court ruled that petitioner is the owner, dismissing the case for quieting of
title filed by Rosario Sandejas.
The Court of Appeals rejected this contention principally because under the established
factual circumstances, petitioner considered itself to be the owner of the subject property
despite the alleged pending case for quieting of title.
Although the legal basis relied upon by respondent Court of Appeals is not entirely
precise because it premised the right of redemption of petitioner upon ownership, this Court
finds the result arrived at by respondent court to be correct. For the guidance of bench and
of the bar, we deem it necessary to point out that petitioners reliance on the supposed cloud
or uncertainty in its ownership or title for not effecting redemption within the 12-month
redemption period is misplaced.
The right of redemption upon an execution sale, such as the one involving the subject
parcels of land held on December 1, 1983, is provided for under Section 29, Rule 39 of the
Rules of Court, which reads :
Sec. 29. Who may redeem real property sold. Real property sold as provided in the
last preceding section, or any part thereof sold separately, may be redeemed in the
manner hereinafter provided, by the following persons:
(a) The judgment debtor, or his successor in interest in the whole or any part of the
property;
(b) A creditor having a lien by attachment, judgment or mortgage on the property sold, or on
some part thereof, subsequent to the judgment under which the property was sold. Such
redeeming creditor is termed a redemptioner.
(Emphasis supplied.)
It must be noted that the subject pieces of property were sold on execution
and pursuant to a writ of execution issued against petitioner and in favor of
respondent in Civil Case No. 12850 entitled, Carolina Industries, Inc. vs.
Brokerage, Inc., et al., where this Court, upon review, in G.R. No. 46908, had
rule:

by virtue of
the private
CMS Stock
occasion to

WHEREFORE, the decision appealed from is REVERSED, and private respondent CMS
Stock Brokerage, Inc. is ordered to pay Carolina Industries, Inc. in the amount of
P634,796.00, representing its liquidated margin deposit, with interest at 12% per
annum, from the time of the filing of the complaint until fully paid, and P20,000.00
as attorneys fees. Private respondents are directed to secure the release from the
Bank of the Philippine Islands the amount of P500,000.00, together with all its
earnings, in favor of the petitioner. Costs against private respondents.

The judgment debtor, therefore, is none other than CMS Stock Brokerage, Inc. itself, and
such, is the party entitled to redeem.
Plainly, under the aforequoted Paragraph (a) of Section 29, Rule 39, the real property
sold on execution may be redeemed by the judgment debtor or his successors in interest, in
the whole or any part of the property. The exercise of this right of redemption by the
judgment debtor is not conditioned upon ownership of the property sold on execution but by
virtue of a writ of execution directed against such judgment debtor. In instances when a
piece of property is claimed by a third person, as in the case at hand, Section 17 of the same
Rule 39 provides what is to be done. When, however, property is levied upon and sold,
despite a claim by a third person who must vindicate then his claim in a proper action,
Section 29 determines who shall have a right of redemption. Clearly, the right of redemption
is given to the judgment debtor and not to any third-party claimant.
Petitioner CMS Stock Brokerage, Inc. as the judgment debtor had the right to redeem to
property under Section 29, Rule 39 of the Rules of Court, and not Rosario Sandejas, who was
only a third-party claimant. If at all, Rosario Sandejas, as a third-party claimant may only
recover the property, if wrongfully sold on execution, by a proper action annulling the
execution sale and reconveying the property to her. In no instance would she, as third-party
claimant, be allowed to exercise any right of redemption unless she is likewise a successor in
interest of the judgment debtor or a redemptioner under Section 29 of Rule 39 of the Rules
of Court. Indeed, why should the third-party claimant and owner, if he truly is such, be
required to pay the redemption price (which in almost all instances, is in the amount of the
judgment debt) to the judgment creditor when the obligation principally pertains to the
judgment debtor? Why should the law prejudice the third-party claimant? This only shows
that the judgment debt or obligation and not ownership is the main consideration in granting
the judgment debtor the right to redeem.
From the foregoing, it is clear that petitioners supposition that unquestioned ownership
of the subject property is a requisite for its exercise of the right of redemption in this case
has no legal basis. Petitioner could have effected its right of redemption had it wanted to
within the 12-month redemption period provided under the Rules. This is the law and
ignorance thereof is no excuse for petitioners failure to exercise such right.
The second issue is whether or not petitioners period to redeem is tolled by an action to
quiet title filed by a third-party claimant questioning the ownership of the property sold on
execution.
We rule in the negative.
As already pointed out, the issue of ownership insofar as petitioners right of redemption
as judgment debtor is concerned, has no bearing whatsoever, so as have the effect of tolling
or interrupting the running of the 12-month redemption period. If at all, as pointed out by
respondent Court of Appeals, the condition imposed after the execution sale relating to the
pending action for quieting of title, may only benefit the third-party claimant, Rosario
Sandejas, that is, should her claim prosper, only then may the execution sale be declared
null and void. But with respect to petitioners right of redemption as judgment debtor this
condition is of no moment.

The case of Consolidated Bank and Trust Corporation vs. Intermediate Appellate Court
(150 SCRA 591 [1987]) finds no application to the case at bench. First of all, in said case, the
party in whose favor the period of redemption was deemed tolled is the same party who
initiated the action in court. In the present case, a third-party claimant, and not herein
petitioner, was involved in the action for quieting of title. Secondly, the property involved in
the Consolidated Bank case had been put in custodia legis by virtue of a writ of attachment
duly annotated on the transfer certificate of title. Clearly, there is no such writ herein. Most
importantly, in the Consolidated Bank case, the Court found therein petitioner as the victim
of fraud, justifying the Courts ruling in its favor. In the case at bar, no such fraud was even
alleged to have been committed against petitioner.
Petitioner also relies upon the amendatory condition made in the certificate of sale by
the deputy sheriff which respondent Court of Appeals ruled to be for the benefit of Sandejas
alone and not for petitioner. Petitioner invokes Section 28, Rule 39 of the Rules of Court
which provides:
Sec. 28. Certificate of Sale where property claimed by third person. When a property
sold by virtue of a writ of execution has been claimed by a third person, the
certificate of sale to be issued by the sheriff pursuant to sections 25, 26 and 27 of
this rule, shall make express mention of the existence of such third-party claim.
Although it may be true that the Certificate of Sale expressly mentioned the existence of
the claim of Rosario Sandejas, the third-party claimant, such annotation would only have
legal effect upon the execution sale if and only if such third-party claim prospered. To all
intents and purposes this third-party claim was a resolutory condition, upon the happening
of which, the judgment creditors right over the property subject of execution may be voided.
It may be significant to note that this resolutory condition imposed upon the sale was in
fact never fulfilled. This Court in G.R. No. 101351 ruled in favor of private respondent and
against third-party claimant Rosario Sandejas insofar as said third-party claim is
concerned. The legal effect contemplated by the condition imposed upon the execution sale
never materialized because the condition was never fulfilled. In legal contemplation, an
unfulfilled condition becomes functus oficio. The more it cannot possibly extend the
redemption period of herein petitioner, a party not privy to such condition, whose rights and
interests are totally separate and distinct from that of the third-party claimant.
Upon the foregoing considerations, the Court finds it irrelevant to discuss the other
assigned errors. Moreover, the Court finds petitioners invocation of our liberal rulings on the
exercise of the right of redemption to have neither factual nor legal basis. The Court has no
alternative but to apply Sections 29 and 30, of Rule 39 of the Rules of Court to the letter.
WHEREFORE, the petition is hereby DISMISSED, without special pronouncement as to
costs.
SO ORDERED.