ROYAL SAVINGS BANK vs. FERNANDO ASIA, et al (G.R. No.

183658, April 10, 2013)

This is a Petition for Review1 filed by Royal Savings Bank (petitioner), praying for the reversal of the Orders
dated 4 October 20072 and 25 June 2008,3 which were rendered by Branch 222 of the RegionTrial Court of
Quezon City (RTC) in LRC No. Q-22780 (07). These Orders granted respondents' Urgent Motion to Quash the
Writ of Possession and Writ of Execution4 issued by the then presiding judge of the RTC in petitioner's favor.

Sometime in January 1974, Paciencia Salita (Salita) and her nephew, Franco Valenderia (Valenderia), borrowed
the amount of ₱25,000 from petitioner. The latter loaned to them an additional ₱20,000 in May 1975. To secure
the payment of the aforementioned amounts loaned, Salita executed a Real Estate Mortgage over her property,
which was covered by Transfer Certificate of Title (TCT) No. 103538. Notwithstanding demands, neither Salita
nor Valenderia were able to pay off their debts.

As a result of their failure to settle their loans, petitioner instituted an extra-judicial foreclosure proceeding
against the Real Estate Mortgage. Pursuant to Act No. 3135, the mortgaged property was sold at a public
auction held on 16 October 1979, at which petitioner was the highest bidder. On 23 April 1983, the redemption
period expired. Both Salita and Valenderia failed to redeem the foreclosed property. Thus, TCT No. 103538
was cancelled and a new title covering the same property, TCT No. 299440, was issued in petitioner’s name.

Thereafter, on 13 August 1984, Salita filed with the RTC a case for Reconveyance, Annulment of Title and
Damages against petitioner. She prayed for the nullification of foreclosure proceedings and the reconveyance of
the property now covered by TCT No. 299440. The RTC granted her prayer.

Petitioner appealed to the Court of Appeals (CA), which reversed the Decision of the RTC. Since Salita did not
appeal the CA ruling, it became final and executory. Accordingly, the Entry of Judgment was issued on 4 June
2002.

Pursuant to Section 7 of Act 3135, petitioner filed with the RTC an Ex-Parte Petition for the Issuance of a Writ
of Possession.5 The Court, through its Order dated 14 February 2007, required petitioner to present its evidence.
Petitioner then submitted a Memorandum of Jurisprudence (In Lieu of Oral Testimony).6

In a Decision dated 28 May 2007,7 the RTC ruled in favor of petitioner and ordered the issuance of the Writ of
Possession in the latter’s favor.

Respondents Fernando Asia, Mika Latag, Cornelia Maranan, Jimmy Ong, Conrado Macaralaya, Rolando Saba,
Tomas Gallega, Lilia Fedelimo, Milagros Hagutay and Norma Gabatic claimed to have been in open,
continuous, exclusive and notorious possession in the concept of owners

of the land in question for 40 years.8 Allegedly, they had no knowledge and notice of all proceedings involving
the property until they were served a Notice to Vacate9 by RTC Sheriff IV Neri Loy, on 20 July 2007.10 They
further claimed that, prior to the service of the Notice to Vacate, they had no knowledge or notice of the lower
court’s proceedings or the foreclosure suit of petitioner.11

The Notice to Vacate gave respondents three days or until 25 July 2007 to voluntarily vacate the property. In
order to prevent the execution of the notice, they filed an Urgent Motion to Quash Writ of Possession and Writ
of Execution12 on even date.

Petitioner filed their Comment13 on respondents’ Motion to Quash on 14 August 2007.

In an Order dated 4 October 2007,14 the RTC granted the Motion to Quash. Petitioner filed a Motion for
Reconsideration (MR),15 to which an Opposition was filed by respondents.16 Petitioner claimed that, six months
after the filing of the Opposition, there was still no action taken by the RTC on the MR. Thus, it filed a Motion
for Early Resolution17 on 16 June 2008. Through an Order dated 25 June 2008,18 the RTC denied petitioner’s
MR.

Claiming that it raises no factual issues, petitioner came straight to this Court through a Petition for Review
under Rule 45 of the Rules on Civil Procedure.

Petitioner insists that because it is a government-owned financial institution, the general rules on real estate
mortgage found in Act 3135 do not apply to it. It prays that this Court rule that Presidential Decree (P.D.) No.
38519—the law intended specifically to govern mortgage foreclosures initiated by government-owned financial
institutions—should be applied to this case.

According to petitioner, when the RTC quashed the Writ of Possession,20 the latter violated Section 2 of P.D.
385, which reads:

Section 2. No restraining order, temporary or permanent injunction shall be issued by the court against any
government financial institution in any action taken by such institution in compliance with the mandatory
foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is
sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the
borrower and admitted by the government financial institution concerned that twenty percent (20%) of the
outstanding arrearages has been paid after the filing of foreclosure proceedings.

Thus, petitioner is now saying that, as a government financial institution (GFI), it cannot be enjoined from
foreclosing on its delinquent accounts in observance of the mandate of P.D. 385.

We are not persuaded.

Assuming that petitioner is, as it claims, a GFI protected under P.D. 385, this Court is still of the opinion and
thus rules that the RTC committed no error in granting respondents’ Urgent Motion to Quash Writ of
Possession.

Indeed, while this Court had already declared in Philippine National Bank v. Adil21 that once the property of a
debtor is foreclosed and sold to a GFI, it would be mandatory for the court to place the GFI in the possession
and control of the property—pursuant to Section 4 of P.D. No. 385—this rule should not be construed as
absolute or without exception.

The evident purpose underlying P.D. 385 is sufficiently served by allowing foreclosure proceedings initiated by
GFIs to continue until a judgment therein becomes final and executory, without a restraining order, temporary
or permanent injunction against it being issued. But if a parcel of land is occupied by a party other than the
judgment debtor, the proper procedure is for the court to order a hearing to determine the nature of said adverse
possession before it issues a writ of possession.22

This is because a third party, who is not privy to the debtor, is protected by the law. Such third party may be
ejected from the premises only after he has been given an opportunity to be heard, to comply with the time-
honored principle of due process.23

In the same vein, under Section 33 of Rule 39 of the Rules on Civil Procedure, the possession of a mortgaged
property may be awarded to a purchaser in the extrajudicial foreclosure, unless a third party is actually holding
the property adversely vis-à-vis the judgment debtor.24

Respondents insist that they are actual possessors in the concept of owners and that they have been occupying
the land in the concept of owners for 40 years already.25 Furthermore, respondents made it clear in the Motion
to Quash that they were not "claiming rights as attorney-in-fact, nor lessee, nor anything from Mortgagor
PACENCIA SALITA."26 Thus, whatever rights Salita had over the property that were acquired by petitioner
when the latter purchased it, cannot be used against respondents, as their claim is adverse to that of Salita.

In the eyes of this Court, the RTC did not err in issuing the herein assailed Orders on the basis of its initial
finding that respondents are third parties who are actually holding the property adversely vis-à-vis the judgment
debtor. The RTC did not err in applying the doctrine laid down in Barican v. Intermediate Appellate Court,27 in
which we ruled that the obligation of a court to issue a writ of possession in favor of the purchaser in an
extrajudicial foreclosure sale ceases to be ministerial, once it appears that there is a third party who is in
possession of the property and is claiming a right adverse to that of the debtor/mortgagor.

We explained in Philippine National Bank v. Austria28 that the foregoing doctrinal pronouncements are not
without support in substantive law, to wit:

x x x. Notably, the Civil Code protects the actual possessor of a property, to wit:

Art. 433.Actual possession under claim of ownership raises a disputable presumption of ownership. The true
owner must resort to judicial process for the recovery of the property.

Under the aforequoted provision, one who claims to be the owner of a property possessed by another must bring
the appropriate judicial action for its physical recovery. The term "judicial process" could mean no less than an
ejectment suit or reivindicatory action, in which the ownership claims of the contending parties may be properly
heard and adjudicated.

We find that it was only proper for the RTC to quash the Writ of Possession until a determination is made as to
who, between petitioner and respondents, has the better right to possess the property.

Lastly, petitioner alleges that the pairing judge violated the hierarchy of courts when she quashed the writ of
possession validly issued by the then presiding Judge of the RTC Quezon City, a co-equal body.29

No court has the power to interfere by injunction in the issuance or enforcement of a writ of possession issued
by another court of concurrent jurisdiction having the power to issue that writ.30 However, as correctly pointed
out by respondents in their Comment, it was the same trial court and "not another court or co-equal court body
that quashed the subject writ of possession."31 The pairing judge, who issued the Order quashing the Writ of
Possession, issued it in her capacity as the judge of Branch 222 of Quezon City-the same branch, albeit then
under a different judge, that issued the Writ of Possession.1âwphi1

With respect to all the arguments raised by the parties to prove their supposed rightful possession or ownership
of the property, suffice it to say that these matters should be threshed out m an appropriate action filed
specifically for their resolution.

WIHEREFORE, the instant Petition is DENIED. The 4 October 2007 and 25 June 2008 Orders issued by
Branch 222 of Regional Trial Court of Quezon City in LRC No. Q-22780 (07) arc AFFIRMED.

SO ORDERED.
METROPOLITAN BANK and TRUST COMPANY v. CENTRO DEVELOPMENT CORPORATION
(G.R. No. 180974, June 13, 2012)

The present Petition for Review[1] assails the Court of Appeals (CA) Decision[2] promulgated on 30 August

2007 and Resolution[3] dated 26 November 2007 in CA-G.R. CV No. 80778. The antecedent facts follow.

On 20 March 1990, in a special meeting of the board of directors of respondent Centro Development

Corporation (Centro), its president Go Eng Uy was authorized to mortgage its properties and assets to secure the

medium-term loan of ₱84 million of Lucky Two Corporation and Lucky Two Repacking. The properties and

assets consisted of a parcel of land with a building and improvements located at Salcedo St., Legaspi Village,

Makati City, and covered by Transfer Certificate of Title (TCT) Nos. 139880 and 139881. This authorization

was subsequently approved on the same day by the stockholders.[4] Maria Jacinta V. Go, the corporate secretary,

issued a Secretarys Certificate stating:

I, MARIA JACINTA V. GO, Filipino citizen, of legal age, married and with office
address at Second Floor, CENTRO building, 180 Salcedo Street, Legaspi Village, Makati, Metro
Manila, after being first duly sworn, depose and say:
xxx xxx xxx
2) That at a special meeting of the Board of Directors of the aforesaid corporation duly
called and held on March 20, 1990 and wherein a quorum was present, the following resolution
was unanimously approved pursuant to the Minutes of the Special Meeting of the Stockholders
of Centro Development Corporation dated March 16, 1990;
RESOLUTION:
RESOLVED, as it is hereby resolved, that the President, GO ENG UY, of Centro
Development Corporation, be as he is hereby authorized to mortgage and use as collateral the
real estate property of the Corporation identified as a parcel of land with building and
improvements located at Salcedo St., Legaspi Village, Makati, Metro Manila covered by
Transfer Certificate of Title Nos. 139880 and 139881 to secure the medium-term loan of
LUCKY TWO CORPORATION, a corporation duly organized and existing under the Philippine
laws, and LUCKY TWO REPACKING, a single proprietorship with principal office at
Concepcion, Tarlac, with the Bank of the Philippine Islands for EIGHTY FOUR (84) MILLION
PESOS, Philippine Currency (₱84,000,000.00);
RESOLVED FURTHER, that said GO ENG UY, be as he is hereby authorized to sign all
papers and documents needed and necessary to carry into effect the aforesaid purpose or
undertaking for the benefit and to the credit of Lucky Two Corporation and Lucky Two
Repacking.
 Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy, executed a Mortgage Trust

Indenture (MTI) with the Bank of the Philippines Islands (BPI).[5]Under the MTI, respondent Centro, together

with its affiliates Lucky Two Corporation and Lucky Two Repacking or Go Eng Uy, expressed its desire to

obtain from time to time loans and other credit accommodations from certain creditors for corporate and other

business purposes.[6] To secure these obligations from different creditors, respondent Centro constituted a

continuing mortgage on all or substantially all of its properties and assets enumerated above unto and in favor of

BPI, the trustee. Should respondent Centro or any of its affiliates fail to pay their obligations when due, the

trustee shall cause the foreclosure of the mortgaged property.

Thereafter, the mortgage was duly recorded with the Registry of Deeds of Makati City.[7]

On 31 March 1993, Centro and BPI amended the MTI to allow an additional loan of ₱36 million and to

include San Carlos Milling Company, Inc. (San Carlos) as a borrower in addition to Centro, Lucky Two Corp.

and Lucky Two Repacking.[8] Then, on 28 July 1994, Centro and BPI again amended the MTI for another loan

of ₱24 million, bringing the total obligation to ₱144 million.[9]

Meanwhile, respondent Centro, represented by Go Eng Uy, approached petitioner Metropolitan Bank

and Trust Company (Metrobank) sometime in 1994 and proposed that the latter assume the role of successor-

trustee of the existing MTI. After petitioner Metrobank agreed to the proposal, the board of directors of

respondent Centro allegedly resolved on 12 August 1994 to constitute petitioner as successor-trustee of BPI.[10]

Thereafter, on 27 September 1994,[11] petitioner and respondent Centro executed the assailed

MTI,[12] amending the previous agreements by appointing the former as the successor-trustee of BPI. It is worth

noting that this MTI did not amend the amount of the total obligations covered by the previous MTIs.

It was only sometime in 1998 that respondents herein, Chongking Kehyeng, Manuel Co Kehyeng and

Quirino Kehyeng, allegedly discovered that the properties of respondent Centro had been mortgaged, and that
the MTI that had been executed appointing petitioner as trustee. Notably, respondent Chongking Kehyeng had

been a member of the board of directors of Centro since 1989, while the two other respondents, Manuel Co

Kehyeng and Quirino Keyheng, had been stockholders since 1987. Respondents Kehyeng were minority

stockholders who owned thirty percent (30%) of the outstanding capital stock of respondent Centro.

On different dates, 4 September 1998, 9 September 1998 and 2 October 1998, the Kehyengs allegedly

questioned the mortgage of the properties through letters addressed to Go Eng Uy and Jacinta Go. [13] They

alleged that they were not aware of any board or stockholders meeting held on 12 August 1994, when petitioner

was appointed as successor-trustee of BPI in the MTI. Respondents demanded a copy of the minutes of the

meeting held on that date, but received no response.

Thereafter, on 14 October 1998 and 19 November 1998, the Kehyengs allegedly wrote to petitioner,

informing it that they were not aware of the 12 August 1994 board of directors meeting. Petitioner did not

respond to the letters.[14]

Meanwhile, during the period April 1998 to December 1998, San Carlos obtained loans in the total

principal amount of ₱812,793,513.23 from petitioner Metrobank.[15]

San Carlos failed to pay these outstanding obligations despite demand. Thus, petitioner, as trustee of the

MTI, enforced the conditions thereof and initiated foreclosure proceedings, denominated as Foreclosure No. S-

04-11, on the mortgaged properties. On 22 June 2000, petitioner Metrobank filed a Petition for Extrajudicial

Foreclosure of Mortgage with the executive judge of the Regional Trial Court (RTC) of Makati City. Petitioner

alleged that the total amount of the Promissory Notes that San Carlos executed in favor of the former amounted

to ₱812,793,513.23. As of 30 April 2000, the total outstanding obligation, inclusive of interests and penalties,

was ₱1,178,961,181.45.[16]
 We note that there are no documents in the records evidencing the amendment of the MTI to

accommodate these additional obligations. As of 27 September 1994, the date of the last amendment as borne

out by the records, the total outstanding obligation reflected in the MTI amounted to only ₱144 million. The

latest MTI merely referred to the amendments made on 31 March 1993 and 28 July 1994.

Before the scheduled foreclosure date, on 3 August 2000, respondents herein filed a Complaint for the

annulment of the 27 September 1994 MTI with a prayer for a temporary restraining order (TRO) and

preliminary injunction at Branch 138 of the RTC of Makati City. Docketed as Civil Case No. 00-942, the

Complaint was against petitioner, Go Eng Uy, Alexander V. Go, Ramon V. Go, Maria Jacinta Go and Enriqueto

Magpantay.

The bone of contention in Civil Case No. 00-942 was that since the mortgaged properties constituted all

or substantially all of the corporate assets, the amendment of the MTI failed to meet the requirements of Section

40 of the Corporation Code on notice and voting requirements. Under this provision, in order for a corporation

to mortgage all or substantially all of its properties and assets, it should be authorized by the vote of its

stockholders representing at least 2/3 of the outstanding capital stock in a meeting held for that purpose.

Furthermore, there must be a written notice of the proposed action and of the time and place of the meeting.

Thus, respondents alleged, the representation of Go Eng Uy that he was authorized by the board of directors

and/or stockholders of Centro was false.

On 15 December 2003, after trial on the merits, the RTC dismissed the Complaint.[17] It held that the

evidence presented by respondents was insufficient to support their claim that there were no meetings held

authorizing the mortgage of Centros properties. It noted that the stocks of respondents Kehyeng constituted only

30% of the outstanding capital stock, while the Go family owned the majority 70%, which represented more

than the 2/3 vote required by Section 40 of the Corporation Code. The trial court ruled that respondents

Kehyeng, particularly Chongking Kehyeng, who sat in the board of directors, should have done periodic

inquiries and verifications of documents pertaining to corporate properties. The RTC also held that laches had
attached, considering that eight (8) years had lapsed before respondents questioned the mortgage executed in

1990.

The trial court also noted the absence of evidence showing the steps respondents had taken to seek

redress for the alleged misrepresentations of Go Eng Uy and Maria Jacinta Go. On the other hand, the court

found that no neglect could be imputed to petitioner for relying on the Secretarys Certificate, which apparently

established Go Eng Uys authority to mortgage Centros properties and assets.

Respondents subsequently filed an appeal with the CA docketed as CA-G.R. CV No. 80778. On 26

February 2004, they filed an Urgent Motion for the Issuance of a Temporary Restraining Order and Writ of

Preliminary Injunction seeking to restrain petitioner, the clerk of court, the ex-officio sheriff of the RTC, and

their agents from foreclosing and selling at public auction on 4 and 22 March 2004 the mortgaged properties

subject of Civil Case No. 00-942. On 3 March 2004, a TRO was issued by the CA effective for a period of sixty

(60) days, unless earlier set aside by a resolution.[18]

On 19 May 2004, the CA issued a Resolution[19] in CA-G.R. CV No. 80778 denying the application for

the issuance of a writ of preliminary injunction.

Not giving up, on 27 May 2004, respondents Centro and San Carlos filed a Complaint docketed as Civil

Case No. 04-612 at Branch 56 of the RTC of Makati City. They prayed for the nullification of the foreclosure

proceedings and prayed for the issuance of a TRO/injunction. Centro and San Carlos alleged that the total

obligation due was only ₱657,000,000 and not ₱812,793,513.23; that the sale of the San Carlos properties found

in Negros Occidental fully satisfied their outstanding obligations; and that the action to foreclose the Makati

properties was illegal and void.[20]

 While Civil Case No. 04-612 was pending, the clerk of court and the ex-officio sheriff of the RTC of

Makati City held an auction sale of the disputed property, during which petitioner was adjudged as the highest

bidder for ₱344,700,000. A Certificate of Sale was accordingly issued on 3 June 2004, which states:[21]
On June 2, 2004, a public auction sale was conducted and METROPOLITAN BANK &
TRUST CO. submitted a bid for the sale to him/it of the mortgaged property in the amount of
₱344,700,000 xxx, which was the highest bid hence declared as the winning bidder and being the
creditor he/it did not delivery or pay cash/monies to the Clerk of Court and Ex-Officio Sheriff
the bid price of ₱344,700,000 xxx and the selling price was credited as partial/full satisfaction of
indebtedness secured by the mortgage.
In consideration thereof, the Certificate of Sale was issued in favor of METROPOLITAN
BANK& TRUST CO. of Metrobank Plaza, Sen. Gil Puyat Ave., Makati.
This sale is subject to redemption in the manner provided by law.

Because of this development, the Complaint in Civil Case No. 04-612 was amended, and Centro and

San Carlos prayed for the issuance of a writ of injunction to prevent the registration of the Certificate of Sale

and the subsequent transfer to petitioner of the title to the properties. However, Branch 56 of the RTC of Makati

City subsequently denied the application.

Respondent Centro thereafter filed before the CA a Petition for Certiorari docketed as CA-G.R. SP No.

84447. The Petition assailed the Order of the RTC in Civil Case No. 04-612.

During this time, CA-G.R. CV No. 80778, which involved the legality of the MTI, was still pending.

On 30 August 2007, the CA promulgated the assailed Decision in CA-G.R. CV No. 80778. The

appellate court first determined whether the requirements of Section 40 of the Corporation Code on the sale of

all or substantially all of the corporations property were complied with. Based on the 18 August 1994 Secretarys

Certificate, the CA found that only a quorum was present during the stockholders meeting on 12 August 1994.

The appellate court thus held that the 2/3 vote required by Section 40 was not met. It ruled that the minority

stockholders were deprived of their right to dissent from or to approve the proposed mortgage, considering that

they had not been notified in writing of the meeting in which the corporate action was to be discussed.
 The CA also considered the testimony of Perla Saballe, an officer of petitioner Metrobank, who opined

that the term quorum meant only the majority of the stockholders.

Furthermore, the appellate court held that petitioner was duty-bound to ensure that respondent Centro

submitted proof that the proposed corporate action had been duly approved by a vote of the stockholders

representing 2/3 of the outstanding capital stock.

Regarding the issue of whether laches had already attached, the CA ruled that the MTI could not be

ratified, considering that the requirements of the Corporation Code were not complied with.

Thus, the dispositive portion of the CA Decision in CA-G.R. CV No. 80778 reads:[22]

WHEREFORE, the Appeal is PARTIALLY GRANTED. The Judgment dated 15

December 2003 of the Regional Trial Court of Makati City, Branch 138, is REVERSED and SET
ASIDE insofar as the dismissal of the Complaint for Annulment of Trust Indenture Agreement is
concerned. The Trust Indenture executed on 27 September 1994 is hereby
declared NULL andVOID. Accordingly, the foreclosure of the mortgage and the sale at public
auction involving the subject properties are declared of no force and effect. The certificates of title
issued in the name of Metropolitan Bank and Trust Company are CANCELLED.
Conformably with the foregoing discussion, the appellants prayer for damages is
hereby DENIED.
SO ORDERED.

On 14 September 2007, a different Division of the CA rendered a Decision[23] denying the Petition in

CA-G.R. SP No. 84447. That Petition had questioned the Decision of Branch 56 of the RTC of Makati City

denying a Petition to enjoin the foreclosure of the mortgaged properties on the ground that respondents Centro

and San Carlos had failed to show any clear right of the RTC to issue an injunctive writ. The CA further ruled

that the foreclosure of the property became a matter of right on the part of petitioner because of respondents

failure to pay the loans due.

 On 26 November 2007, the CA in CA-G.R. CV No. 80778 rendered the assailed Resolution denying

petitioners Motion for Reconsideration.

Hence, this Petition.

Petitioner contends that the stockholders Resolution No. 005, s. 1994 did not constitute a new mortgage

in favor of petitioner. Instead, the stockholders merely amended the existing MTI by appointing petitioner as the

new trustee for the MTI, which was already existing and held by BPI. Thus, there was no need to secure a 2/3

vote from the stockholders. Petitioner posits that the authority to mortgage the properties was granted in 1990,

upon the execution of the first MTI between respondent Centro and BPI.

Further, petitioner alleges that respondents do not deny or question the previous MTI and its subsequent

amendments. It further alleges that the constituted mortgage under the MTI was duly annotated with the

Registry of Deeds of Makati City.

Petitioner also maintains that the CA erred in interpreting the phrase at which meeting a quorum was

present contained in the Secretarys Certificate dated 18 August 1994. The bank points out that the phrase

indicates that at least a quorum was present, rather than that only a quorum was present. Thus, the Secretarys

Certificate did not in any way limit the number of those actually present.

Additionally, petitioner argues that Perla Saballe, whose testimony was considered by the CA, was not a

competent witness to interpret the directors Resolution. Allegedly, she was never present during the meetings of

Centro regarding the present issue, and she was not in a position to answer the questions propounded to her in

relation to the requirements of Section 40 of the Corporation Code.

Moreover, petitioner cites the CA Decision in CA-G.R. SP No. 84447, which upheld the validity of the

foreclosure of the mortgage. It also challenges the CA ruling that the former failed to exercise due diligence in
transacting with respondent Centro. Finally, petitioner insists that laches attached when respondents failed to

question the MTI and the stockholders Resolution at the earliest possible time.

On the other hand, respondents contend that, based on the Pre-Trial Brief and the Amended Pre-Trial

Order, petitioner admitted that the subject properties were mortgaged under the MTI of 27 September 1994, and

not under that of 21 March 1990.

Second, on the issue of whether the 2/3 voting requirement was met, respondents claim that petitioner

cannot impugn the testimony of its own officer and witness, Perla Saballe, on the interpretation of the term

quorum as referred to in the Secretarys Certificate dated 18 August 1994.

Respondents also allege that petitioner failed to controvert the testimony of Chongking Kehyeng, a

member and vice-chairperson of the board of directors, that he was unaware of any stockholders meeting ever

being held, and that he and the other Kehyengs were not informed of that meeting. Respondents further insist

that petitioner was negligent when it merely relied on the Secretarys Certificate, instead of exercising due

diligence to ensure that all legal requirements had been complied with under the MTI. On the issue of laches,

respondents contend that it was not raised before the trial court, and is thus improperly invoked in the present

Petition. Nevertheless, they allegedly undertook a number of measures to question the transactions between

petitioner and CENTRO. Moreover, they argue that the MTI, being null and void, cannot be given effect

through laches.

The Courts Ruling

In summary, this Court is tasked to resolve the following issues:

1. Whether the requirements of Section 40 of the Corporation Code was complied with in the
execution of the MTI;

2. Whether petitioner was negligent or failed to exercise due diligence;

 3. Whether laches has already attached, such that respondents can no longer question the MTI.

We shall first discuss the issue of laches.

Laches is defined as the failure or neglect for an unreasonable and unexplained length of time to do that

which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert

a right within a reasonable time, warranting a presumption that the party entitled to assert it either has

abandoned it or declined to assert it.[24]

In the case at bar, the RTC in Civil Case No. 00-942 held that laches attached when respondents allowed

eight (8) years to pass before questioning the mortgage, which was constituted in 1990. Thus, the trial court

said:

As it appears now, the mortgage on the land and building of Centro was first constituted in
1990 in favor of [the] Bank of the Philippine Islands. Individual plaintiffs stated that discovery of
the mortgage was sometime in 1998, (par. 6, Affidavit of Chongking Kehyeng). He was in the
Board of Directors of Centro and he holds office at the fourth floor of the building on the
mortgaged property. There is evidence that the holding of meetings of the Board of Directors was
irregular and purely reportorial.
Considering that as shown by planitiffs evidence, conduct of business in Centro was
informal, vigilance over its property was required from all individual plaintiffs, particularly
plaintiff Chongking Kehyeng who sits in the Board of Directors. Periodic inquiries and
verification of documents pertaining to corporate properties should have been done and the
existence of the mortgage was verifiable. A simple inquiry about the status of the title, information
on the title number and actual verification with the Register of Deeds a task which can be
accomplished in an hour or two will provide information about the existence of the mortgage.
None of the individual plaintiffs did this.
The inaction of the plaintiffs for which no explanation was submitted resulted in the
acquisition of rights by the defendant Bank adverse to them. Such neglect, taken in conjunction
with the lapse of time of about eight (8) years operates as a bar.[25]

A perusal of the TCTs[26] of the subject properties would reveal that only the values of the mortgage

securing the loans totalling ₱144 million were annotated, based on the MTIs executed on 21 March 1990, 31

March 1993 and 28 July 1994. As for the last annotation, it only stated that petitioner was the successor-trustee
to all obligations due to the creditors. Respondents, in their Complaint, did not question these mortgages

constituted by the MTIs executed on 21 March 1990, 31 March 1993 and 28 July 1994, respectively. What they

questioned was the additional loans granted to San Carlos after the execution of the 27 September 1994 MTI

and the foreclosure of the mortgage resulting from the nonpayment of San Carlos obligations. Thus, contrary to

the finding of the trial court, only four years had lapsed from the execution of the 27 September 1994 MTI

when respondents questioned the mortgage allegedly constituted to cover these loans.

Furthermore, as mentioned earlier, the TCTs were not accordingly annotated to cover these additional

loans. Also, the mortgage of the property securing all the loans were not disclosed in Centros financial

statements for the years 1991 to 1998.[27] Thus, absent any proof that the individual respondents were notified of

the stockholders meeting on 12 August 1994 or that they were present during the meeting, these respondents

could not have been informed of the alleged additional loans and the corresponding mortgage constituted over

the properties.

It cannot therefore be said that laches had attached and that respondents were already barred from

assailing the MTI in 1998. We now proceed to discuss the validity of the challenged MTI.

The 18 August 1994 Secretarys Certificate issued by Maria Jacinta V. Go reads as follows:[28]

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

corporation duly organized and existing under our laws with principal office located at the 2 ndFloor
Centro Buidling, 180 Salcedo St., Legaspi Village, Makati, Metro Manila, do hereby certify that during
a special meeting of the board of Directors of the Corporation held at its main office in Makati, Metro
Manila on August 12, 1994, at 3:00 p.m., at which meeting a quorum was present, the following
resolution was approved and adopted:
Resolution No. 005, s. 1994

APPOINTING METROBANK TRUST BANKING GROUP AS THE NEW

TRUSTEE FOR THE EXISTING MTI OF CDC REAL ESTATE PROPERTY
RESOLVED, AS IT IS HEREBY RESOLVED, that in connection with the
existing Mortgage Trust Indenture of real estate property covered by Transfer Certificate
of Title Nos. 139880 and 139881 situated at 180 Salcedo St., Legaspi Village, Makati,
Metro Manila, with an area of 1,608 square meters more or less, the Corporation be [sic],
as it is hereby authorized, to appoint Metrobank Trust Banking Group (Metrobank) as the
 new trustee for the existing mortgage trust indenture presently held by the Bank of the
Philippines Islands;
RESOLVED FURTHER, that the President, Mr. Go Eng Uy be, as he is hereby,
authorized and empowered to sign the Real Estate Mortgage and all
documents/instruments with the said bank, for and in behalf of the Company which are
necessary and pertinent thereto;
RESOLVED FINALLY, that any resolution or resolutions heretofore adopted by
this Board, inconsistent with the provisions hereof be, as they hereby are amended and/or
revoked accordingly.
That at the meeting of the Stockholders of said corporation held on August 12, 1994 at
4:00 p.m., at which meeting a quorum was present and acting throughout, the following
resolution was unanimously approved:

STOCKHOLDERS RESOLUTION
RESOLVED, that the stockholders approve, ratify and confirm, as they have
hereby approved, ratified and confirmed, the board resolution dated August 12, 1994
appointing Metrobank Trust Banking Group as the new trustee, presently held by the
Bank of the Philippine Islands, for the existing MTI of real estate property covered by
Transfer Certificate of Title Nos. 139880 and 139881 situated at 180 Salcedo St., Legaspi
Village, Makati, Metro Manila with an area of 1,608 square meters, and that the
President, Mr. Go Eng Uy[,] to sign the Real Estate Mortgage and all documents/
instruments with the said bank, for and in behalf of the Company which are necessary
and pertinent thereto; xxx.

Reading carefully the Secretarys Certificate, it is clear that the main purpose of the directors Resolution

was to appoint petitioner as the new trustee of the previously executed and amended MTI. Going through the

original and the revised MTI, we find no substantial amendments to the provisions of the contract. We agree

with petitioner that the act of appointing a new trustee of the MTI was a regular business transaction. The

appointment necessitated only a decision of at least a majority of the directors present at the meeting in which

there was a quorum, pursuant to Section 25 of the Corporation Code.

The second paragraph of the directors Resolution No. 005, s. 1994, which empowered Go Eng Uy to

sign the Real Estate Mortgage and all documents/instruments with the said bank, for and in behalf of the

Company which are necessary and pertinent thereto, must be construed to mean that such power was limited by

the conditions of the existing mortgage, and not that a new mortgage was thereby constituted.
 Moreover, it is worthy to note that respondents do not assail the previous MTI executed with BPI. They

do not question the validity of the mortgage constituted over all or substantially all of respondent Centros assets

pursuant to the 21 March 1994 MTI in the amount of ₱84 million. Nor do they question the additional loans

increasing the value of the mortgage to ₱144 million; or the use of Centros properties as collateral for the loans

of San Carlos, Lucky Two Corporation, and Lucky Two Repacking.

Thus, Section 40[29] of the Corporation Code finds no application in the present case, as there was no

new mortgage to speak of under the assailed directors Resolution.

Nevertheless, while we uphold the validity of the stockholders Resolution appointing Metrobank as

successor-trustee, this is not to say that we uphold the validity of the extrajudicial foreclosure of the mortgage.

After a careful review of the records of this case, we find that petitioner failed to establish its right to be

entitled to the proceeds of the MTI.

There is no evidence that petitioner, as creditor or as trustee, had a cause of action to move for the

extrajudicial foreclosure of the subject properties mortgaged under the MTI.

The conditions of the MTI are very clear. Section 3.3 of the MTI provides: [30]

It is the intent of the COMPANY that the BORROWERS will obtain additional loans or credit
accommodations from certain other banking or financial institutions in accordance with
arrangements made by the BORROWERS with the CREDITORS.
ALL OBLIGATIONS covered by this INDENTURE shall be evidenced by a Mortgage
Participation Certificate in the form of Schedule II hereof, the issuance of which by the
TRUSTEE to the participating CREDITOR/S shall be in accordance with Section 7 of this
INDENTURE, provided the aggregate LOAN VALUES of the COLLATERAL, based on the latest
appraisal thereof, are not exceeded. (Emphasis supplied.)

Section 1.11 of the MTI defines a Mortgage Participation Certificate (MPC) as a certificate issued by the

trustee to a creditor pursuant to the MTI, representing an aliquot interest in the mortgage created by the MTI.
The face amount of the MPC is the value in money of its holders participation or interest in the mortgaged

property.

To address the gaps in the facts as presented by the parties and by the lower courts, we issued a

Resolution[31] on 5 September 2011. We required petitioner to submit, among others, all amendments to the

MTI and all the MPCs issued. Petitioner failed to comply with this directive. For one reason or another, instead

of submitting MPCs evidencing its interest in the MTI, it submitted to this Court documents referring to

different instruments altogether.[32] Petitioner should have been more careful in complying with this Courts

Orders.

More glaring is the fact that the assailed MTI is not even referred to in the Promissory Notes executed by

petitioner in favor of San Carlos, evidencing the loans extended by the latter to the former. This omission

violated Section 1.13 of the MTI, which requires that a promissory note must be covered by an outstanding

MPC and secured by the lien of the MTI. The Promissory Notes reveal the following:[33]

Promissory Note No. Date Amount Collateral

111333.69288.00.999 20 April 1998 ₱328,000,000 Others Not
specified
111333.70316.00.999 19 October 1998 ₱97,859,472.03 Unsecured
111333.70359.00.999 30 October 1998 ₱82,849,981.44 Others Not
specified
111333.70464.000.99 17 November 1998 ₱98,114,959.13 Others Not
specified
111333.70502.000.99 25 November 1998 ₱40,150,059.85 Others Not
specified
111333.70618.000.99 9 December 1998 ₱39,673,569.58 Others Not
specified
111333.70642.000.99 17 December 1998 ₱126,145,471.20 Others Not
specified

Petitioner thus miserably failed to prove that it was entitled to the benefits of the MTI.
 Even if we assume that petitioner was indeed a creditor protected by the MTI, we find that, as trustee

and as creditor, it failed to comply with the MTIs conditions for granting additional loans to San Carlos

additions that brought the total loan amount to ₱1,178,961,181.45 when it did not amend the MTI to

accommodate the additional loans in excess of ₱144 million.

In its application for an extrajudicial foreclosure of Centros properties, petitioner states:[34]

We have the honor to request your good Office to conduct/undertake extrajudicial foreclosure
sale proceedings under Act No. 3135, as amended, and other applicable laws, on the properties
covered by the Mortgage Trust Indenture, dated March 21, 1990, as amended on March 31, 1993
and further amended on July 28, 1994 executed by the Mortgagor, CENTRO DEVELOPMENT
CORPORATION, in favor of the Former Trustee, BANK OF THE PHILIPPINE ISLANDS and
Trust Indenture, dated September 27, 1994, also executed by the Mortgagor, CENTRO
DEVELOPMENT CORPORATION, in favor of the Mortgagee/Trustee, METROPOLITAN BANK
AND TRUST COMPANY-TRUST BANKING GROUP, to secure among others, several obligations
of SAN CARLOS MILLING CO., INC. under various Promissory Notes, with a total principal
amount of EIGHT HUNDRED TWELVE MILLION SEVEN HUNDRED NINETY-THREE
THOUSAND FIVE HUNDRED THIRTEEN PESOS AND TWENTY-THREE CENTAVOS
(₱812,793,513.23), for breach of the terms and conditions of the said Trust Indenture. (Emphasis in
the original.)

However, Section 9.4 of the 27 September 1994 MTI clearly states:[35]

The written consent of the COMPANY, the TRUSTEE and all the CREDITORS shall be
required for any amendment of the terms and conditions of this INDENTURE. Additional
loans which will be covered by the INDENTURE shall require the written consent of the
MAJORITY CREDITORS and shall be within the loan value stipulated in Section 1.8 [36] of
this INDENTURE. (Emphasis supplied.)

The fact that the foreclosure of the mortgaged property was undertaken pursuant to the 27 September

1994 MTI is an indication that the parties had failed to amend it accordingly.

Because the 27 September 1994 MTI was not amended to secure the loan granted to the debtors,

petitioner could not have applied for an extrajudicial foreclosure on the basis of all the Promissory Notes

granted to San Carlos. Instead, petitioner could have only applied for the foreclosure of the property

corresponding to ₱144 million, which was the maximum amount embodied in the 27 September 1994 MTI. In
other words, as an accommodation debtor, Centros properties may not be liable for San Carlos debts beyond

this maximum amount, pursuant to the MTI executed with petitioner. In Caltex Philippines v. Intermediate

Appellate Court,[37] we likewise held that the value of the mortgage should be limited only to the amount

provided by the contract between the parties.

Section 4 of Rule 68 of the Rules of Court provides:

Disposition of proceeds of sale - The amount realized from the foreclosure sale of the
mortgaged property shall, after deducting the costs of the sale, be paid to the person foreclosing the
mortgage, and when there shall be any balance or residue, after paying off the mortgage debt due,
the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the
court, or if there be no such encumbrancers or there be a balance or residue after payment to them,
then to the mortgagor or his duly authorized agent, or to the person entitled to it.

While it is true that some of the documents required by this Court to be submitted by the parties were

not presented at the trial stage, when the legal issues raised begs the reception of that evidence especially

considering that a case, like the present one has been pending for more than a decade then the Court may

require the parties to submit such evidence in the interest of justice. This is clearly provided under Rule 45,

Section 7 of the Rules of Court.[38]

On a final note, Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital role

of banks in providing an environment conducive to the sustained development of the national economy and the

fiduciary nature of banking; thus, the law requires banks to have high standards of integrity and performance.

The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father

of a family.[39] In the case at bar, petitioner itself was negligent in the conduct of its business when it extended

unsecured loans to the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It was not

able to protect the interests of the parties and was even instrumental in violating the terms of the MTI, to the

detriment of the parties thereto. Thus, petitioner has only itself to blame for being left with insufficient recourse

against petitioner under the assailed MTI.

 WHEREFORE, in view of the foregoing, the Petition is hereby PARTLY GRANTED. The Mortgage

Trust Indenture is declared VALID. Nonetheless, for reasons stated herein, the Decision of the Court of

Appeals in CA-G.R. CV No. 80778, declaring the foreclosure proceedings in Foreclosure No. S-04-011 over

TCT Nos. 139880 and 139881 of no force and effect, is AFFIRMED. Likewise, the cancellation of the

Certificates of Title in the name of petitioner Metropolitan Bank and Trust Company and the denial of the

payment of damages are also AFFIRMED.

SO ORDERED.
BANK OF THE PHILIPPINE ISLANDS, AS SUCCESSOR-IN-INTEREST OF FAR EAST BANK &
TRUST COMPANY v. CYNTHIA L. REYES (G.R. No. 182769, February 1, 2012)

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the
Decision[1] dated April 30, 2008 of the Court of Appeals in CA-G.R. CV No. 88004, entitled Bank of the
Philippine Islands, as successor-in-interest of Far East Bank & Trust Company vs. Cynthia L. Reyes which
reversed the Decision[2] dated November 3, 2005 of the Regional Trial Court (RTC) of Makati City, Branch 148
in Civil Case No. 03-180.
The background facts of this case, as summed by the trial court, follow:

This is an action for sum of money filed [b]y [p]laintiff Bank of the Philippine Islands,
hereinafter referred to as BPI, as successor-in-interest of Far East Bank & Trust Company,
referred hereto as Far East Bank, against defendant Cynthia L. Reyes, hereinafter referred to as
defendant Reyes.

As alleged in the Complaint, defendant Reyes borrowed, renewed and received from Far East
Bank the principal of Twenty Million Nine Hundred Thousand Pesos [sic] (P20,950,000.00). In
support of such allegation, four promissory notes were presented during the course of the trial of
the case. As security for the obligation, defendant Reyes executed Real Estate Mortgage
Agreements involving twenty[-]two (22) parcels of land. When the debt became due and
demandable, the defendant failed to settle her obligation and the plaintiff was constrained to
foreclose the properties. As alleged, after due publication, the mortgaged properties were sold at
public auction on December 20, 2001 by the Office of the Clerk of Court & Ex-Officio Sheriff of
the Regional Trial Court of Malolos, Bulacan.

At the public auction, the mortgaged properties were awarded to BPI in consideration of its
highest bid price amounting to Nine Million Thirty[-]Two Thousand Nine Hundred Sixty Pesos
(P9,032,960.00). On said date, the obligation already reached Thirty Million Forty (sic) Hundred
Twenty Thousand Forty[-]One & 67/100 Pesos (P30,420,041.67), inclusive of interest but
excluding attorneys fees, publication and other charges. After applying the proceeds of the public
auction to the outstanding obligation, there remains to be a deficiency and defendant Reyes is
still indebted, as of January 20, 2003, to the plaintiff in the amount of P24,545,094.67, broken
down as follows:

Principal P19,700,000.00
Unsatisfied Interest 2,244,694.67
Interest 2,383,700.00
Penalty 216,700.00
TOTAL P24,545,094.67

Also included in the prayer of the plaintiff is the payment of attorneys fees of at least
Five Hundred Thousand Pesos and the cost of suit.

In the Answer, the defendant claims that based on the plaintiffs appraisal of the properties
mortgaged to Far East Bank, the twenty[-]two properties fetched a total appraisal value
ofP47,436,000.00 as of January 6, 1998. This appraisal value is evidenced by the Appraisal,
which is attached as Annex 1 of the Answer. Considering the appraisal value and the outstanding
obligation of the defendant, it appears that the mortgaged properties sold during the public
auction are more than enough as payment to the outstanding obligation of the defendant.[3]
 Subsequently, upon petitioners motion, the trial court issued an Order[4] dated October 6, 2005
recognizing Asset Pool A (SPV-AMC), Inc. as substitute plaintiff in lieu of petitioner.

After due trial, the trial court rendered its Decision dated November 3, 2005, the dispositive portion of
which states:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff

BANK OF THE PHILIPPINE ISLANDS, as successor-in-interest of Far East Bank & Trust
Company, and against defendant CYNTHIA L. REYES. Accordingly, the defendant is ordered:

1. To pay the plaintiff the amount of Php22,083,700.00, representing said

defendants outstanding obligation, plus interest at the rate of twelve percent (12%) per annum,
computed from January 20, 2003 until the whole amount is fully paid;

2. To pay plaintiff the amount of Php200,000.00 as attorneys fees;

3. Costs of suit against the defendant.[5]

Respondent filed a motion for reconsideration but the same was denied by the trial court through an
[6]
Order dated January 9, 2006.

An appeal with the Court of Appeals was filed by respondent. This resulted in a reversal of the trial
courts judgment via an April 30, 2008 Decision by the Court of Appeals, the dispositive portion of which states:

WHEREFORE, the instant appeal is GRANTED. The assailed Decision dated November
3, 2005 is hereby REVERSED AND SET ASIDE.[7]

Aggrieved, petitioner filed the instant petition in which the following issues were put into consideration:

A. WHETHER OR NOT THERE WAS DEFICIENCY WHEN RESPONDENTS PROPERTY

WHICH SHE SUPPOSEDLY VALUED AT P47,536,000.00 WAS SOLD AT THE
EXTRA-JUDICIAL FORECLOSURE SALE AT ONLY [P9,032,960.00] BY
PETITIONER;

B. WHETHER OR NOT RESPONDENTS PROPERTY WAS OVERVALUED WHEN IT

WAS MORTGAGED TO FEBTC/BPI;

C. WHETHER OR NOT RESPONDENT CAN RAISE THE ISSUE ON THE NULLITY OF

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

D. WHETHER OR NOT THE PRICE OF P9,032,960.00 FOR RESPONDENTS PROPERTY

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

E. WHETHER OR NOT THE PETITION RAISES QUESTIONS OF LAW AND THE

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

On the other hand, respondent submits the following issues:

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

Whether or not the Court of Appeals erred in ruling that the properties of the respondent
were not overvalued at P47,536,000;

Whether or not the Court of Appeals erred in entertaining the issue that the foreclosure
sale was null and void;

Whether or not the Court of Appeals erred in ruling that the purchase price of P9,032,000
at the foreclosure sale of respondents mortgaged properties was unconscionable or grossly
inadequate.[9]

After consideration of the issues and arguments raised by the opposing sides, the Court finds the petition
meritorious.

Stripped of surplusage, the singular issue in this case is whether or not petitioner is entitled to recover
the unpaid balance or deficiency from respondent despite the fact that respondents property, which were
appraised by petitioners predecessor-in-interest at P47,536,000.00, was sold and later bought by petitioner in an
extrajudicial foreclosure sale for only P9,032,960.00 in order to satisfy respondents outstanding obligation to
petitioner which, at the time of the sale, amounted to P30,420,041.67 inclusive of interest but excluding
attorneys fees, publication and other charges.

There is no dispute with regard to the total amount of the outstanding loan obligation that respondent
owed to petitioner at the time of the extrajudicial foreclosure sale of the property subject of the real estate
mortgage. Likewise, it is uncontested that by subtracting the amount obtained at the sale of the property, a loan
balance still remains.Petitioner merely contends that, contrary to the ruling of the Court of Appeals, it has the
right to collect from the respondent the remainder of her obligation after deducting the amount obtained from
the extrajudicial foreclosure sale. On the other hand, respondent avers that since petitioners predecessors own
valuation of the subject property shows that its value is more than the amount of respondents outstanding
obligation, then respondent cannot be held liable for the balance especially because it was petitioner who
bought the property at the foreclosure sale.
In the recent case of BPI Family Savings Bank, Inc. v. Avenido,[10] we reiterated the well-entrenched rule
that a creditor is not precluded from recovering any unpaid balance on the principal obligation if the
extrajudicial foreclosure sale of the property subject of the real estate mortgage results in a deficiency, to wit:

It is settled that if the proceeds of the sale are insufficient to cover the debt in an
extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the
debtor. While Act No. 3135, as amended, does not discuss the mortgagees right to recover the
deficiency, neither does it contain any provision expressly or impliedly prohibiting recovery. If
the legislature had intended to deny the creditor the right to sue for any deficiency resulting from
the foreclosure of a security given to guarantee an obligation, the law would expressly so
 provide. Absent such a provision in Act No. 3135, as amended, the creditor is not precluded from
taking action to recover any unpaid balance on the principal obligation simply because he chose
to extrajudicially foreclose the real estate mortgage.[11]

Furthermore, we have also ruled in Suico Rattan & Buri Interiors, Inc. v. Court of Appeals[12] that, in
deference to the rule that a mortgage is simply a security and cannot be considered payment of an outstanding
obligation, the creditor is not barred from recovering the deficiency even if it bought the mortgaged property at
the extrajudicial foreclosure sale at a lower price than its market value notwithstanding the fact that said value is
more than or equal to the total amount of the debtors obligation. We quote from the relevant portion of said
decision:

Hence, it is wrong for petitioners to conclude that when respondent bank

supposedly bought the foreclosed properties at a very low price, the latter effectively
prevented the former from satisfying their whole obligation. Petitioners still had the option of
either redeeming the properties and, thereafter, selling the same for a price which corresponds to
what they claim as the properties actual market value or by simply selling their right to redeem
for a price which is equivalent to the difference between the supposed market value of the said
properties and the price obtained during the foreclosure sale. In either case, petitioners will be
able to recoup the loss they claim to have suffered by reason of the inadequate price obtained at
the auction sale and, thus, enable them to settle their obligation with respondent bank. Moreover,
petitioners are not justified in concluding that they should be considered as having paid their
obligations in full since respondent bank was the one who acquired the mortgaged properties and
that the price it paid was very inadequate. The fact that it is respondent bank, as the mortgagee,
which eventually acquired the mortgaged properties and that the bid price was low is not a valid
reason for petitioners to refuse to pay the remaining balance of their obligation. Settled is the
rule that a mortgage is simply a security and not a satisfaction of
indebtedness.[13] (Emphases supplied.)

We are aware of our earlier pronouncements in Cometa v. Court of Appeals[14] and in Rosales v. Court of
Appeals[15] which were cited by the Court of Appeals in its assailed April 30, 2008 Decision, wherein we
declared that a sale price which is equivalent to more or less twelve percent (12%) of the value of the property
is shockingly low, unconscionable and grossly inadequate, thus, warranting a nullification of the foreclosure
sale. In both cases, we declared that where the inadequacy of the price is purely shocking to the conscience,
such that the mind revolts at it and such that a reasonable man would neither directly nor indirectly be likely to
consent to it, the sale shall be declared null and void. On the other hand, we are likewise reminded of our ruling
in Cortes v. Intermediate Appellate Court[16] and in Ponce De Leon v. Rehabilitation Finance
Corporation[17] wherein we upheld the validity of foreclosure sales in which the property subject thereof were
sold at 11% and 17%, respectively, of their value.

In the case at bar, the winning bid price of P9,032,960.00 is nineteen percent (19%) of the appraised
value of the property subject of the extrajudicial foreclosure sale that is pegged at P47,536,000.00 which
amount, notably, is only an arbitrary valuation made by the appraising officers of petitioners predecessor-in-
interest ostensibly for loan purposes only. Unsettled questions arise over the correctness of this valuation in
light of conflicting evidence on record.

Notwithstanding the doubtful validity of the valuation of the property at issue, the resolution of which is
a question of fact that we are precluded from addressing at this juncture of the litigation, and confronted by the
divergent jurisprudential benchmarks which define what can be considered as shockingly or unconscionably
low price in a sale of property, we, nevertheless, proceed to adjudicate this case on an aspect in which it is most
plain and unambiguous that it involves a forced sale with a right of redemption.

Throughout a long line of jurisprudence, we have declared that unlike in an ordinary sale, inadequacy of
the price at a forced sale is immaterial and does not nullify a sale since, in a forced sale, a low price is more
beneficial to the mortgage debtor for it makes redemption of the property easier.[18]

In the early case of The National Loan and Investment Board v. Meneses,[19] we also had the occasion to
state that:

As to the inadequacy of the price of the sale, this court has repeatedly held that the fact
that a property is sold at public auction for a price lower than its alleged value, is not of itself
sufficient to annul said sale, where there has been strict compliance with all the requisites
marked out by law to obtain the highest possible price, and where there is no showing that
a better price is obtainable. (Government of the Philippines vs. De Asis, G. R. No. 45483, April
12, 1939; Guerrero vs. Guerrero, 57 Phil., 442; La Urbana vs. Belando, 54 Phil., 930; Bank of
the Philippine Islands v . Green, 52 Phil., 491.)[20] (Emphases supplied.)

In Hulst v. PR Builders, Inc.,[21] we further elaborated on this principle:

[G]ross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of
equity, a transaction may be invalidated on the ground of inadequacy of price, or when such
inadequacy shocks ones conscience as to justify the courts to interfere; such does not follow
when the law gives the owner the right to redeem as when a sale is made at public auction, upon
the theory that the lesser the price, the easier it is for the owner to effect redemption. When
there is a right to redeem, inadequacy of price should not be material because the judgment
debtor may re-acquire the property or else sell his right to redeem and thus recover any
loss he claims to have suffered by reason of the price obtained at the execution sale. Thus,
respondent stood to gain rather than be harmed by the low sale value of the auctioned
properties because it possesses the right of redemption. x x x[22] (Emphasis supplied.)

It bears also to stress that the mode of forced sale utilized by petitioner was an extrajudicial foreclosure
of real estate mortgage which is governed by Act No. 3135, as amended. An examination of the said law reveals
nothing to the effect that there should be a minimum bid price or that the winning bid should be equal to the
appraised value of the foreclosed property or to the amount owed by the mortgage debtor. What is clearly
provided, however, is that a mortgage debtor is given the opportunity to redeem the foreclosed property within
the term of one year from and after the date of sale.[23] In the case at bar, other than the mere inadequacy of the
bid price at the foreclosure sale, respondent did not allege any irregularity in the foreclosure proceedings nor did
she prove that a better price could be had for her property under the circumstances.

Thus, even if we assume that the valuation of the property at issue is correct, we still hold that the
inadequacy of the price at which it was sold at public auction does not invalidate the foreclosure sale.

Even if we are so inclined out of sympathy for respondents plight, neither could we temper respondents
liability to the petitioner on the ground of equity. We are barred by our own often repeated admonition that
equity, which has been aptly described as justice outside legality, is applied only in the absence of, and never
against, statutory law or judicial rules of procedure.[24] The law and jurisprudence on the matter is clear enough
to close the door on a recourse to equity.

Moreover, we fail to see any unjust enrichment resulting from upholding the validity of the foreclosure
sale and of the right of the petitioner to collect any deficiency from respondent. Unjust enrichment exists when
a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good governance.[25] As discussed above, there is a
strong legal basis for petitioners claim against respondent for the balance of her loan obligation.

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Decision dated
April 30, 2008 of the Court of Appeals in CA-G.R. CV No. 88004 isREVERSED and SET ASIDE. The RTCs
November 3, 2005 Decision in Civil Case No. 03-180 is hereby REINSTATED.

SO ORDERED.
GC DALTON INDUSTRIES, INC. v. EQUITABLE PCI BANK (G.R. No. 171169, August 24, 2009)

In 1999, respondent Equitable PCI Bank extended a P30-million credit line to Camden Industries, Inc. (CII)

allowing the latter to avail of several loans (covered by promissory notes) and to purchase trust receipts. To

facilitate collection, CII executed a hold-out agreement in favor of respondent authorizing it to deduct from its

savings account any amounts due. To guarantee payment, petitioner GC Dalton Industries, Inc. executed a third-

party mortgage of its real properties in Quezon City[1] and Malolos, Bulacan[2] as security for CIIs loans.[3]

CII did not pay its obligations despite respondents demands. By 2003, its outstanding consolidated promissory

notes and unpaid trust receipts had reached a staggeringP68,149,132.40.[4]

Consequently, respondent filed a petition for extrajudicial foreclosure of petitioners Bulacan properties

in the Regional Trial Court (RTC) of Bulacan on May 7, 2004.[5]On August 3, 2004, the mortgaged properties

were sold at a public auction where respondent was declared the highest bidder. Consequently, a certificate of

sale[6] was issued in respondents favor on August 3, 2004.

On September 13, 2004, respondent filed the certificate of sale and an affidavit of consolidation of

ownership[7] in the Register of Deeds of Bulacan pursuant to Section 47 of the General Banking Law.[8] Hence,

petitioners TCTs covering the Bulacan properties were cancelled and new ones were issued in the name of

respondent.[9]

In view of the foregoing, respondent filed an ex parte motion for the issuance of a writ of

possession[10] in the RTC Bulacan, Branch 10 on January 10, 2005.[11]

Previously, however, on August 4, 2004, CII had filed an action for specific performance and

damages[12] in the RTC of Pasig, Branch 71 (Pasig RTC), asserting that it had allegedly paid its obligation in

full to respondent.[13] CII sought to compel respondent to render an accounting in order to prove that the bank

fraudulently foreclosed on petitioners mortgaged properties.

Because respondent allegedly failed to appear during the trial, the Pasig RTC rendered a decision on

March 30, 2005[14] based on the evidence presented by CII. It found that, while CIIs past due obligation
amounted only to P14,426,485.66 as of November 30, 2002, respondent had deducted a total

of P108,563,388.06 from CIIs savings account. Thus, the Pasig RTC ordered respondent: (1) to return to CII the
overpayment with legal interest of 12% per annum amounting to P94,136,902.40; (2) to compensate it for lost

profits amounting to P2,000,000 per month starting August 2004 with legal interest of 12% per annum until full

payment and (3) to return the TCTs covering the mortgaged properties to petitioner. It likewise awarded

CII P2,000,000 and P300,000, respectively, as moral and exemplary damages and P500,000 as attorneys fees.

Respondent filed a notice of appeal. CII, on the other hand, moved for the immediate entry and

execution of the abovementioned decision.

In an order dated December 7, 2005,[15] the Pasig RTC dismissed respondents notice of appeal due to its

failure to pay the appellate docket fees. It likewise found respondent guilty of forum-shopping for filing the

petition for the issuance of a writ of possession in the Bulacan RTC. Thus, the Pasig RTC ordered the

immediate entry of its March 30, 2005 decision.[16]

Meanwhile, in view of the pending case in the Pasig RTC, petitioner opposed respondents ex

parte motion for the issuance of a writ of possession in the Bulacan RTC. It claimed that respondent was guilty

of fraud and forum-shopping, and that it was not informed of the foreclosure. Furthermore, respondent

fraudulently foreclosed on the properties since the Pasig RTC had not yet determined whether CII indeed failed

to pay its obligations.

In an order dated December 10, 2005, the Bulacan RTC granted the motion and a writ of possession was

issued in respondents favor on December 19, 2005.

Petitioner immediately assailed the December 10, 2005 order of the Bulacan RTC via a petition for

certiorari in the Court of Appeals (CA). It claimed that the order violated Section 14, Article VIII of the

Constitution[17] which requires that every decision must clearly and distinctly state its factual and legal bases. In

a resolution dated January 13, 2006,[18] the CA dismissed the petition for lack of merit on the ground that an

order involving the issuance of a writ of possession is not a judgment on the merits, hence, not covered by the

requirement of Section 14, Article VIII of the Constitution.

Petitioner elevated the matter to this Court, assailing the January 13, 2006 resolution of the CA. It insists

that the December 10, 2005 order of the Bulacan RTC was void as it was bereft of factual and legal bases.
 Petitioner likewise cites the conflict between the December 10, 2005 order of the Bulacan RTC and the

December 7, 2005 order of the Pasig RTC. Petitioner claims that, since the Pasig RTC already ordered the entry

of its March 30, 2005 decision (in turn ordering respondent to return TCT No. 351231 and all such other owners

documents of title as may have been placed in its possession by virtue of the subject trust receipt and loan

transactions), the same was already final and executory. Thus, inasmuch as CII had supposedly paid respondent

in full, it was erroneous for the Bulacan RTC to order the issuance of a writ of possession to respondent.

Respondent, on the other hand, asserts that petitioner is raising a question of fact as it essentially assails

the propriety of the issuance of the writ of possession. It likewise points out that petitioner did not truthfully

disclose the status of the March 30, 2005 decision of the Pasig RTC because, in an order dated April 4, 2006,

the Pasig RTC partially reconsidered its December 7, 2005 order and gave due course to respondents notice of

appeal. (The propriety of the said April 4, 2006 order is still pending review in the CA.)

We deny the petition.

The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is summary and

ministerial in nature as such proceeding is merely an incident in the transfer of title.[19] The trial court does not

exercise discretion in the issuance thereof.[20] For this reason, an order for the issuance of a writ of possession is

not the judgment on the merits contemplated by Section 14, Article VIII of the Constitution. Hence, the CA

correctly upheld the December 10, 2005 order of the Bulacan RTC.

Furthermore, the mortgagor loses all legal interest over the foreclosed property after the expiration of the

redemption period.[21] Under Section 47 of the General Banking Law,[22] if the mortgagor is a juridical person, it

can exercise the right to redeem the foreclosed property until, but not after, the registration of the certificate of

foreclosure sale within three months after foreclosure, whichever is earlier. Thereafter, such mortgagor loses its

right of redemption.

Respondent filed the certificate of sale and affidavit of consolidation with the Register of Deeds of Bulacan on

September 13, 2004. This terminated the redemption period granted by Section 47 of the General Banking Law.
Because consolidation of title becomes a right upon the expiration of the redemption period, [23] respondent

became the owner of the foreclosed properties.[24] Therefore, when petitioner opposed the ex parte motion for
the issuance of the writ of possession on January 10, 2005 in the Bulacan RTC, it no longer had any legal

interest in the Bulacan properties.

Nevertheless, even if the ownership of the Bulacan properties had already been consolidated in the name of

respondent, petitioner still had, and could have availed of, the remedy provided in Section 8 of Act 3135.[25] It

could have filed a petition to annul the August 3, 2004 auction sale and to cancel the December 19, 2005 writ

of possession,[26] within 30 days after respondent was given possession.[27] But it did not. Thus, inasmuch as the

30-day period to avail of the said remedy had already lapsed, petitioner could no longer assail the validity of the

August 3, 2004 sale.

Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for the
refusal to issue a writ of possession. Regardless of whether or not there is a pending suit for the
annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of
possession, without prejudice, of course, to the eventual outcome of the pending annulment
case.[28]

Needless to say, petitioner committed a misstep by completely relying and pinning all its hopes for relief

on its complaint for specific performance and damages in the Pasig RTC, [29] instead of resorting to the remedy

of annulment (of the auction sale and writ of possession) under Section 8 of Act 3135 in the Bulacan RTC.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.