G.R. No.
110053 October 16, 1995 The loan was then released to respondent spouses on a
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, CELEBRADA MANGUBAT and
ABNER MANGUBAT, respondents.
REGALADO, J.:
This appeal by certiorari sprouted from the judgment of
respondent Court of Appeals promulgated on September 9,
1992 in CA-G.R. CV No. 28311, and its resolution dated April
7, 1993 denying petitioner's motion for reconsideration.1 Said
adjudgments, in turn, were rooted in the factual groundwork of
this case which is laid out hereunder.
On July 20, 1981, herein petitioner Development Bank of the
Philippines (DBP) executed a "Deed of Absolute Sale" in favor
of respondent spouses Celebrada and Abner Mangubat over a
parcel of unregistered land identified as Lot 1, PSU-142380,
situated in the Barrio of Toytoy, Municipality of Garchitorena,
Province of Camarines Sur, containing an area of 55.5057
hectares, more or less.
The land, covered only by a tax declaration, is known to have
been originally owned by one Presentacion Cordovez, who, on
February 4, 1937, donated it to Luciano Sarmiento. On June 8,
1964, Luciano Sarmiento sold the land to Pacifico Chica.
On April 27, 1965, Pacifico Chica mortgaged the land to DBP
to secure a loan of P6,000.00. However, he defaulted in the
payment of the loan, hence DBP caused the extrajudicial
foreclosure of the mortgage. In the auction sale held on
September 9, 1970, DBP acquired the property as the highest
bidder and was issued a certificate of sale on September 17,
1970 by the sheriff. The certificate of sale was entered in the
Book of Unregistered Property on September 23, 1970.
Pacifico Chica failed to redeem the property, and DBP
consolidated its ownership over the same.
On October 14, 1980, respondent spouses offered to buy the
property for P18,599.99. DBP made a counter-offer of
P25,500.00 which was accepted by respondent spouses. The
parties further agreed that payment was to be made within six
months thereafter for it to be considered as cash payment. On
July 20, 1981, the deed of absolute sale, which is now being
assailed herein, was executed by DBP in favor of respondent
spouses. Said document contained a waiver of the seller's
warranty against eviction.2
Thereafter, respondent spouses applied for an industrial tree
planting loan with DBP. The latter required the former to submit
a certification from the Bureau of Forest Development that the
land is alienable and disposable. However, on October 29,
1981, said office issued a certificate attesting to the fact that
the said property was classified as timberland, hence not
subject to disposition.3
The loan application of respondent spouses was nevertheless
eventually approved by DBP in the sum of P140,000.00,
despite the aforesaid certification of the bureau, on the
understanding of the parties that DBP would work for the
release of the land by the former Ministry of Natural
Resources. To secure payment of the loan, respondent
spouses executed a real estate mortgage over the land on
March 17, 1982, which document was registered in the
Registry of Deeds pursuant to Act No. 3344.
staggered basis. After a substantial sum of P118,540.00 had
been received by private respondents, they asked for the
release of the remaining amount of the loan. It does not appear
that their request was acted upon by DBP, ostensibly because
the release of the land from the then Ministry of Natural
Resources had not been obtained.
On July 7, 1983, respondent spouses, as plaintiffs, filed a
complaint against DBP in the trial court4 seeking the
annulment of the subject deed of absolute sale on the ground
that the object thereof was verified to be timberland and,
therefore, is in law an inalienable part of the public domain.
They also alleged that petitioner, as defendant therein, acted
fraudulently and in bad faith by misrepresenting itself as the
absolute owner of the land and in incorporating the waiver of
warranty against eviction in the deed of sale.5
In its answer, DBP contended that it was actually the absolute
owner of the land, having purchased it for value at an auction
sale pursuant to an extrajudicial foreclosure of mortgage; that
there was neither malice nor fraud in the sale of the land under
the terms mutually agreed upon by the parties; that assuming
arguendo that there was a flaw in its title, DBP can not be held
liable for anything inasmuch as respondent spouses had full
knowledge of the extent and nature of DBP's rights, title and
interest over the land.
It further averred that the annulment of the sale and the return
of the purchase price to respondent spouses would redound to
their benefit but would result in petitioner's prejudice, since it
had already released P118,540.00 to the former while it would
be left without any security for the P140,000.00 loan; and that
in the remote possibility that the land is reverted to the public
domain, respondent spouses should be made to immediately
pay, jointly and severally, the total amount of P118,540.00 with
interest at 15% per annum, plus charges and other expenses.6
On May 25, 1990, the trial court rendered judgment annulling
the subject deed of absolute sale and ordering DBP to return
the P25,500.00 purchase price, plus interest; to reimburse to
respondent spouses the taxes paid by them, the cost of the
relocation survey, incidental expenses and other damages in
the amount of P50,000.00; and to further pay them attorney's
fees and litigation expenses in the amount of P10,000.00, and
the costs of suit.7
In its recourse to the Court of Appeals, DBP raised the
following assignment of errors:
1. The trial court erred in declaring the deed of absolute
sale executed between the parties canceled and annulled on
the ground that therein defendant-appellant had no title over
the property subject of the sale.
2. The trial court erred in finding that defendant-
appellant DBP acted fraudulently and in bad faith or that it had
misrepresented facts since it had prior knowledge that subject
property was part of the public domain at the time of sale to
therein plaintiffs-appellees.
3. The trial court erred in finding said plaintiffs-appellees'
waiver of warranty against eviction void.
4. The trial court erred awarding to therein plaintiffs-
appellees damages arising from an alleged breach of contract.
1
5. The trial court erred in not ordering said plaintiffs-
appellees to pay their loan obligation to defendant-appellant
DBP in the amount of P118,540. 8
As substantially stated at the outset, respondent Court of
Appeals rendered judgment modifying the disposition of the
court below by deleting the award for damages, attorney's
fees, litigation expenses and the costs, but affirming the same
in all its other aspects.9 On April 7, 1993, said appellate court
also denied petitioner's motion for reconsideration. 10
Not satisfied therewith, DBP interposed the instant petition for
review on certiorari, raising the following issues:
1. Whether or not private respondent spouses
Celebrada and Abner Mangubat should be ordered to pay
petitioner DBP their loan obligation due under the mortgage
contract executed between them and DBP; and
2. Whether or not petitioner should reimburse
respondent spouses the purchase price of the property and the
amount of P11,980.00 for taxes and expenses for the
relocation Survey. 11
Considering that neither party questioned the legality and
correctness of the judgment of the court a quo, as affirmed by
respondent court, ordering the annulment of the deed of
absolute sale, such decreed nullification of the document has
already achieved finality. We only need
The Court of Appeals, after an extensive discussion, found that
there had been no bad faith on the part of either party, and this
r, therefore, to dwell on the effects of that declaration of
nullity.emains uncontroverted as a fact in the case at bar.
Correspondingly, respondent court correctly applied the rule
that if both parties have no fault or are not guilty, the
restoration of what was given by each of them to the other is
consequently in order. 12 This is because the declaration of
nullity of a contract which is void ab initio operates to restore
things to the state and condition in which they were found
before the execution thereof. 13
We also find ample support for said propositions in American
jurisprudence. The effect of an application of the aforequoted
rule with respect to the right of a party to recover the amount
given as consideration has been passed upon in the case of
Leather Manufacturers National Bank vs. Merchants National
Bank 14 where it was held that: "Whenever money is paid
upon the representation of the receiver that he has either a
certain title in property transferred in consideration of the
payment or a certain authority to receive the money paid, when
in fact he has no such title or authority, then, although there be
no fraud or intentional misrepresentation on his part, yet there
is no consideration for the payment, the money remains, in
equity and good conscience, the property of the payer and may
be recovered back by him."
Therefore, the purchaser is entitled to recover the money paid
by him where the contract is set aside by reason of the mutual
material mistake of the parties as to the identity or quantity of
the land sold. 15 And where a purchaser recovers the
purchase money from a vendor who fails or refuses to deliver
the title, he is entitled as a general rule to interest on the
money paid from the time of payment. 16
A contract which the law denounces as void is necessarily no
contract whatever, and the acts of the parties in an effort to
create one can in no wise bring about a change of their legal
status. The parties and the subject matter of the contract
remain in all particulars just as they did before any act was
performed in relation thereto. 17
An action for money had and received lies to recover back
money paid on a contract, the consideration of which has
failed. 18 As a general rule, if one buys the land of another, to
which the latter is supposed to have a good title, and, in
consequence of facts unknown alike to both parties, he has no
title at all, equity will cancel the transaction and cause the
purchase money to be restored to the buyer, putting both
parties in status quo. 19
Thus, on both local and foreign legal principles, the return by
DBP to respondent spouses of the purchase price, plus
corresponding interest thereon, is ineluctably called for.
Petitioner likewise contends that the trial court and respondent
Court of Appeals erred in ordering the reimbursement of taxes
and the cost of the relocation survey, there being no factual or
legal basis therefor. It argues that private respondents merely
submitted a "list of damages" allegedly incurred by them, and
not official receipts of expenses for taxes and said survey.
Furthermore, the same list has allegedly not been identified or
even presented at any stage of the proceedings, since it was
vigorously objected to by DBP.
Contrary to the claim of petitioner, the list of damages was
presented in the trial court and was correspondingly marked as
"Exhibit P." 20 The said exhibit was, thereafter, admitted by the
trial court but only as part of the testimonial evidence for
private respondents, as stated in its Order dated August 16,
1988.21
However, despite that admission of the said list of damages as
evidence, we agree with petitioner that the same cannot
constitute sufficient legal basis for an award of P4,000.00 and
P7,980.00 as reimbursement for land taxes and expenses for
the relocation survey, respectively. The list of damages was
prepared extrajudicially by respondent spouses by themselves
without any supporting receipts as bases thereof or to
substantiate the same. That list, per se, is necessarily self-
serving and, on that account, should have been declared
inadmissible in evidence as the factum probans.
In order that damages may be recovered, the best evidence
obtainable by the injured party must be presented. Actual or
compensatory damages cannot be presumed, but must be duly
proved, and so proved with a reasonable degree of certainty. A
court cannot rely on speculation, conjecture or guesswork as to
the fact and amount of damages, but must depend upon
competent proof that they have been suffered and on evidence
of the actual amount thereof. If the proof is flimsy and
unsubstantial, no damages will be awarded. 22
Turning now to the issue of whether or not private respondents
should be made to pay petitioner their loan obligation
amounting to P118,540.00, we answer in the affirmative.
In its legal context, the contract of loan executed between the
parties is entirely different and discrete from the deed of sale
they entered into. The annulment of the sale will not have an
effect on the existence and demandability of the loan. One who
has received money as a loan is bound to pay to the creditor
an equal amount of the same kind and quality. 23
The fact that the annulment of the sale will also result in the
invalidity of the mortgage does not have an effect on the
validity and efficacy of the principal obligation, for even an
obligation that is unsupported by any security of the debtor
2
may also be enforced by means of an ordinary action. Where a survey, and ordering respondent spouses Celebrada and
mortgage is not valid, as where it is executed by one who is not Abner Mangubat to pay petitioner Development Bank of the
the owner of the Philippines the amount of P118,540.00, representing the total
property, 24 or the consideration of the contract is simulated 25 amount of the loan released to them, with interest of 15% per
or false, 26 the principal obligation which it guarantees is not annum plus charges and other expenses in accordance with
thereby rendered null and void. That obligation matures and their mortgage contract. In all other respects, the said judgment
becomes demandable in accordance with the stipulations of respondent Court of Appeals is AFFIRMED.
pertaining to it.
SO ORDERED.
Under the foregoing circumstances, what is lost is only the right
to foreclose the mortgage as a special remedy for satisfying or
settling the indebtedness which is the principal obligation. In
case of nullity, the mortgage deed remains as evidence or
proof of a personal obligation of the debtor, and the amount
due to the creditor may be enforced in an ordinary personal
action. 27

It was likewise incorrect for the Court of Appeals to deny the

claim of petitioner for payment of the loan on the ground that it
failed to present the promissory note therefor. While
respondent court also made the concession that its judgment
was accordingly without prejudice to the filing by petitioner of a
separate action for the collection of that amount, this does not
detract from the adverse effects of that erroneous ruling on the
proper course of action in this case.

The fact is that a reading of the mortgage contract 28 executed

by respondent spouses in favor of petitioner, dated March 17,
1982, will readily show that it embodies not only the mortgage
but the complete terms and conditions of the loan agreement
as well. The provisions of said contract, specifically paragraphs
16 and 28 thereof, are so precise and clear as to thereby
render unnecessary the introduction of the promissory note
which would merely serve the same purpose.

Furthermore, respondent Celebrada Mangubat expressly

acknowledged in her testimony that she and her husband are
indebted to petitioner in the amount of P118,000.00, more or
less. 29 Admissions made by the parties in the pleadings or in
the course of the trial or other proceedings do not require proof
and can not be contradicted unless previously shown to have
been made through palpable mistake. 30

Thus, the mortgage contract which embodies the terms and

conditions of the loan obligation of respondent spouses, as well
as respondent Celebrada Mangubat's admission in open court,
are more than adequate evidence to sustain petitioner's claim
for payment of private respondents' aforestated indebtedness
and for the adjudication of DBP's claim therefor in the very
same action now before us.

It is also worth noting that the adjustment and allowance of

petitioner's demand by counterclaim or set-off in the present
action, rather than by another independent action, is favored or
encouraged by law. Such a practice serves to avoid circuitry of
action, multiplicity of suits, inconvenience, expense, and
unwarranted consumption of the time of the court. The trend of
judicial decisions is toward a liberal extension of the right to
avail of counterclaims or set-offs. 31

The rules on counterclaim are designed to achieve the

disposition of a whole controversy of the conflicting claims of
interested parties at one time and in one action, provided all
parties can be brought before the court and the matter decided
without prejudicing the rights of any party. 32

WHEREFORE, the judgment appealed from is hereby

MODIFIED, by deleting the award of P11,980.00 as
reimbursement for taxes and expenses for the relocation

3
[G.R. No. 156295. September 23, 2003]
MARCELO R. SORIANO, petitioner, vs. SPOUSES RICARDO
and ROSALINA GALIT, respondents.
DECISION
YNARES-SANTIAGO, J.:
Petitioner was issued a writ of possession in Civil Case No.
6643[1] for Sum of Money by the Regional Trial Court of
Balanga, Bataan, Branch 1. The writ of possession was,
however, nullified by the Court of Appeals in CA-G.R. SP No.
65891[2] because it included a parcel of land which was not
among those explicitly enumerated in the Certificate of Sale
issued by the Deputy Sheriff, but on which stand the
immovables covered by the said Certificate. Petitioner
contends that the sale of these immovables necessarily
encompasses the land on which they stand.
Dissatisfied, petitioner filed the instant petition for review on
certiorari.
Respondent Ricardo Galit contracted a loan from petitioner
Marcelo Soriano, in the total sum of P480,000.00, evidenced
by four promissory notes in the amount of P120,000.00 each
dated August 2, 1996;[3] August 15, 1996;[4] September 4,
1996[5] and September 14, 1996.[6] This loan was secured by
a real estate mortgage over a parcel of land covered by
Original Certificate of Title No. 569.[7] After he failed to pay his
obligation, Soriano filed a complaint for sum of money against
him with the Regional Trial Court of Balanga City, Branch 1,
which was docketed as Civil Case No. 6643.[8]
Respondents, the Spouses Ricardo and Rosalina Galit, failed
to file their answer. Hence, upon motion of Marcelo Soriano,
the trial court declared the spouses in default and proceeded to
receive evidence for petitioner Soriano ex parte.
On July 7, 1997, the Regional Trial Court of Balanga City,
Branch 1 rendered judgment[9] in favor of petitioner Soriano,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant ordering the latter to pay:
1. the plaintiff the amount of P350,000.00 plus 12% interest
to be computed from the dates of maturity of the promissory
notes until the same are fully paid;
2. the plaintiff P20,000.00, as attorney’s fees; and
3. the costs of suit.
SO ORDERED.[10]
The judgment became final and executory. Accordingly, the
trial court issued a writ of execution in due course, by virtue of
which, Deputy Sheriff Renato E. Robles levied on the following
real properties of the Galit spouses:
1. A parcel of land covered by Original Certificate of Title
No. T-569 (Homestead Patent No. 14692) situated in the Bo. of
Tapulac, Orani, Bataan. Bounded on the SW, along line 1-2 by
Lot No. 3, Cad. 145; containing an area of THIRTY FIVE
THOUSAND SEVEN HUNDRED FIFTY NINE (35,759)
SQUARE METERS, more or less x x x;
2. STORE/HOUSE – CONSTRUCTED on Lot No. 1103
made of strong materials G.I. roofing situated at Centro I,
Orani, Bataan, x x x containing an area of 30 sq. meters, more
or less x x x (constructed on TCT No. T40785);
3. BODEGA – constructed on Lot 1103, made of strong
materials, G.I. roofing, situated in Centro I, Orani, Bataan, x x x
with a floor area of 42.75 sq. m. more or less x x x.[11]
At the sale of the above-enumerated properties at public
auction held on December 23, 1998, petitioner was the highest
and only bidder with a bid price of P483,000.00. Accordingly,
on February 4, 1999, Deputy Sheriff Robles issued a
Certificate of Sale of Execution of Real Property,[12] which
reads:
CERTIFICATE OF SALE ON EXECUTION OF REAL
PROPERTY
TO ALL WHO MAY SEE THESE PRESENTS:
GREETINGS:
I HEREBY that (sic) by virtue of the writ of execution dated
October 16, 1998, issued in the above-entitled case by the
HON. BENJAMIN T. VIANZON, ordering the Provincial Sheriff
of Bataan or her authorized Deputy Sheriff to cause to be
made (sic) the sum of P350,000.00 plus 12% interest to be
computed from the date of maturity of the promissory notes
until the same are fully paid; P20,000.00 as attorney’s fees
plus legal expenses in the implementation of the writ of
execution, the undersigned Deputy Sheriff sold at public
auction on December 23, 1998 the rights and interests of
defendants Sps. Ricardo and Rosalina Galit, to the plaintiff
Marcelo Soriano, the highest and only bidder for the amount of
FOUR HNDRED EIGHTY THREE THOUSAND PESOS
(P483,000.00, Philippine Currency), the following real estate
properties more particularly described as follows :
ORIGINAL CERTIFICATE OF TITLE NO. T-569
A parcel of land (Homestead Patent No. 14692) situated in the
Bo. of Tapulac, Orani, Bataan, x x x. Bounded on the SW.,
along line 1-2 by Lot No. 3, Cad. 145, containing an area of
THIRTY FIVE THOUSAND SEVEN HUNDRED FIFTY NINE
(35,759) SQUARE METERS, more or less x x x
TAX DEC. NO. – PROPERTY INDEX NO. 018-09-001-02
STOREHOUSE – constructed on Lot 1103, made of strong
materials G.I. roofing situated at Centro I, Orani, Bataan x x x
containing an area of 30 sq. meters, more or less x x
(constructed on TCT No. 40785)
TAX DEC. NO. 86 – PROPERTY INDEX No. 018-09-001-02
BODEGA – constructed on Lot 1103, made of strong materials
G.I. roofing situated in Centro I, Orani, Bataan, x x x with a
floor area of 42.75 sq. m. more or less x x x
IT IS FURTHER CERTIFIED, that the aforesaid highest and
lone bidder, Marcelo Soriano, being the plaintiff did not pay to
the Provincial Sheriff of Bataan the amount of P483,000.00, the
sale price of the above-described property which amount was
credited to partial/full satisfaction of the judgment embodied in
the writ of execution.
The period of redemption of the above described real
properties together with all the improvements thereon will
4
expire One (1) year from and after the registration of this
Certificate of Sale with the Register of Deeds.
This Certificate of Sheriff’s Sale is issued to the highest and
lone bidder, Marcelo Soriano, under guarantees prescribed by
law.
Balanga, Bataan, February 4, 1999.
On April 23, 1999, petitioner caused the registration of the
“Certificate of Sale on Execution of Real Property” with the
Registry of Deeds.
The said Certificate of Sale registered with the Register of
Deeds includes at the dorsal portion thereof the following entry,
not found in the Certificate of Sale on file with Deputy Sheriff
Renato E. Robles:[13]
ORIGINAL CERTIFICATE OF TITLE NO. T-40785
A parcel of land (Lot No. 1103 of the Cadastral Survey of
Orani) , with the improvements thereon, situated in the
Municipality of Orani, Bounded on the NE; by Calle P. Gomez;
on the E. by Lot No. 1104; on the SE by Calle Washington; and
on the W. by Lot 4102, containing an area of ONE HUNDRED
THIRTY NINE (139) SQUARE METERS, more or less. All
points referred to are indicated on the plan; bearing true;
declination 0 deg. 40’E., date of survey, February 191-March
1920.
On February 23, 2001, ten months from the time the Certificate
of Sale on Execution was registered with the Registry of
Deeds, petitioner moved[14] for the issuance of a writ of
possession. He averred that the one-year period of
redemption had elapsed without the respondents having
redeemed the properties sold at public auction; thus, the sale
of said properties had already become final. He also argued
that after the lapse of the redemption period, the titles to the
properties should be considered, for all legal intents and
purposes, in his name and favor.[15]
On June 4, 2001, the Regional Trial Court of Balanga City,
Branch 1 granted the motion for issuance of writ of
possession.[16] Subsequently, on July 18, 2001, a writ of
possession[17] was issued in petitioner’s favor which reads:
WRIT OF POSSESSION
Mr. Renato E. Robles
Deputy Sheriff
RTC, Br. 1, Balanga City
Greetings :
WHEREAS on February 3, 2001, the counsel for plaintiff filed
Motion for the Issuance of Writ of Possession;
WHEREAS on June 4, 2001, this court issued an order
granting the issuance of the Writ of Possession;
WHEREFORE, you are hereby commanded to place the herein
plaintiff Marcelo Soriano in possession of the property involved
in this case situated (sic) more particularly described as:
1. STORE HOUSE constructed on Lot No. 1103 situated at
Centro 1, Orani, Bataan covered by TCT No. 40785;
2. BODEGA constructed on Lot No. 1103 with an area of
42.75 square meters under Tax Declaration No. 86 situated at
Centro 1, Orani, Bataan;
3. Original Certificate of Title No. 40785 with an area of 134
square meters known as Lot No. 1103 of the Cadastral Survey
of Orani…
against the mortgagor/former owners Sps. Ricardo and
Rosalinda (sic) Galit, her (sic) heirs, successors, assigns and
all persons claiming rights and interests adverse to the
petitioner and make a return of this writ every thirty (30) days
from receipt hereof together with all the proceedings thereon
until the same has been fully satisfied.
WITNESS THE HONORABLE BENJAMIN T. VIANZON,
Presiding Judge, this 18th day of July 2001, at Balanga City.
(Sgd) GILBERT S. ARGONZA
OIC
Respondents filed a petition for certiorari with the Court of
Appeals, which was docketed as CA-G.R. SP No. 65891,
assailing the inclusion of the parcel of land covered by Transfer
Certificate of Title No. T-40785 among the list of real properties
in the writ of possession.[18] Respondents argued that said
property was not among those sold on execution by Deputy
Sheriff Renato E. Robles as reflected in the Certificate of Sale
on Execution of Real Property.
In opposition, petitioner prayed for the dismissal of the petition
because respondent spouses failed to move for the
reconsideration of the assailed order prior to the filing of the
petition. Moreover, the proper remedy against the assailed
order of the trial court is an appeal, or a motion to quash the
writ of possession.
On May 13, 2002, the Court of Appeals rendered judgment as
follows:
WHEREFORE, the instant petition is hereby GRANTED.
Accordingly, the writ of possession issued by the Regional Trial
Court of Balanga City, Branch 1, on 18 July 2001 is declared
NULL and VOID.
In the event that the questioned writ of possession has already
been implemented, the Deputy Sheriff of the Regional Trial
Court of Balanga City, Branch 1, and private respondent
Marcelo Soriano are hereby ordered to cause the redelivery of
Transfer Certificate of Title No. T-40785 to the petitioners.
SO ORDERED.[19]
Aggrieved, petitioner now comes to this Court maintaining
that–
1.) THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER
RULE 65 IS NOT THE PLAIN, SPEEDY AND ADEQUATE
REMEDY OF THE RESPONDENTS IN ASSAILING THE
WRIT OF POSSESSION ISSUED BY THE LOWER COURT
BUT THERE WERE STILL OTHER REMEDIES AVAILABLE
TO THEM AND WHICH WERE NOT RESORTED TO LIKE
THE FILING OF A MOTION FOR RECONSIDERATION OR
MOTION TO QUASH OR EVEN APPEAL.
2.) THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN DECLARAING THE CERTIFICATE OF SALE ON
EXECUTION OF REAL PROPERTY AS NULL AND VOID
5
AND SUBSEQUENTLY THE WRIT OF POSSESSION
BECAUSE THE SAME IS A PUBLIC DOCUMENT WHICH
ENJOYS THE PRESUMPTION OF REGULARITY AND IT
CANNOT BE OVERCOME BY A MERE STRANGE FEELING
THAT SOMETHING IS AMISS ON ITS SURFACE SIMPLY
BECAUSE THE TYPEWRITTEN WORDS ON THE FRONT
PAGE AND AT THE DORSAL PORTION THEREOF IS
DIFFERENT OR THAT IT IS UNLIKELY FOR THE SHERIFF
TO USE THE DORSAL PORTION OF THE FIRST PAGE
BECAUSE THE SECOND PAGE IS MERELY HALF FILLED
AND THE NOTATION ON THE DORSAL PORTION COULD
STILL BE MADE AT THE SECOND PAGE.
On the first ground, petitioner contends that respondents were
not without remedy before the trial court. He points out that
respondents could have filed a motion for reconsideration of
the Order dated June 4, 1999, but they did not do so.
Respondents could also have filed an appeal but they,
likewise, did not do so. When the writ of possession was
issued, respondents could have filed a motion to quash the
writ. Again they did not. Respondents cannot now avail of the
special civil action for certiorari as a substitute for these
remedies. They should suffer the consequences for sleeping
on their rights.
We disagree.
Concededly, those who seek to avail of the procedural
remedies provided by the rules must adhere to the
requirements thereof, failing which the right to do so is lost. It
is, however, equally settled that the Rules of Court seek to
eliminate undue reliance on technical rules and to make
litigation as inexpensive as practicable and as convenient as
can be done.[20] This is in accordance with the primary
purpose of the 1997 Rules of Civil Procedure as provided in
Rule 1, Section 6, which reads:
Section 6. Construction. – These rules shall be liberally
construed in order to promote their objective of securing a just,
speedy and inexpensive determination of every action and
proceeding.[21]
The rules of procedure are not to be applied in a very rigid,
technical sense and are used only to help secure substantial
justice. If a technical and rigid enforcement of the rules is
made, their aim would be defeated.[22] They should be
liberally construed so that litigants can have ample opportunity
to prove their claims and thus prevent a denial of justice due to
technicalities.[23] Thus, in China Banking Corporation v.
Members of the Board of Trustees of Home Development
Mutual Fund,[24] it was held:
…while certiorari as a remedy may not be used as a substitute
for an appeal, especially for a lost appeal, this rule should not
be strictly enforced if the petition is genuinely meritorious.[25] It
has been said that where the rigid application of the rules
would frustrate substantial justice, or bar the vindication of a
legitimate grievance, the courts are justified in exempting a
particular case from the operation of the rules.[26] (Emphasis
ours)
Indeed, well-known is the rule that departures from procedure
may be forgiven where they do not appear to have impaired
the substantial rights of the parties.[27] Apropos in this regard
is Cometa v. CA,[28] where we said that –
There is no question that petitioners were remiss in attending
with dispatch to the protection of their interests as regards the
subject lots, and for that reason the case in the lower court was
dismissed on a technicality and no definitive pronouncement
on the inadequacy of the price paid for the levied properties
was ever made. In this regard, it bears stressing that
procedural rules are not to be belittled or dismissed simply
because their non-observance may have resulted in prejudice
to a party’s substantive rights as in this case. Like all rules,
they are required to be followed except when only for the most
persuasive of reasons they may be relaxed to relieve a litigant
of an injustice not commensurate with the degree of his
thoughtlessness in not complying with the procedure
prescribed.[29] (emphasis and italics supplied.)
In short, since rules of procedure are mere tools designed to
facilitate the attainment of justice, their strict and rigid
application which would result in technicalities that tend to
frustrate rather than promote substantial justice must always
be avoided.[30] Technicality should not be allowed to stand in
the way of equitably and completely resolving the rights and
obligations of the parties.[31]
Eschewing, therefore, the procedural objections raised by
petitioner, it behooves us to address the issue of whether or
not the questioned writ of possession is in fact a nullity
considering that it includes real property not expressly
mentioned in the Certificate of Sale of Real Property.
Petitioner, in sum, dwells on the general proposition that since
the certificate of sale is a public document, it enjoys the
presumption of regularity and all entries therein are presumed
to be done in the performance of regular functions.
The argument is not persuasive.
There are actually two (2) copies of the Certificate of Sale on
Execution of Real Properties issued on February 4, 1999
involved, namely: (a) copy which is on file with the deputy
sheriff; and (b) copy registered with the Registry of Deeds. The
object of scrutiny, however, is not the copy of the Certificate of
Sale on Execution of Real Properties issued by the deputy
sheriff on February 4, 1999,[32] but the copy thereof
subsequently registered by petitioner with the Registry of
Deeds on April 23, 1999,[33] which included an entry on the
dorsal portion of the first page thereof describing a parcel of
land covered by OCT No. T-40785 not found in the Certificate
of Sale of Real Properties on file with the sheriff.
True, public documents by themselves may be adequate to
establish the presumption of their validity. However, their
probative weight must be evaluated not in isolation but in
conjunction with other evidence adduced by the parties in the
controversy, much more so in this case where the contents of a
copy thereof subsequently registered for documentation
purposes is being contested. No reason has been offered how
and why the questioned entry was subsequently intercalated in
the copy of the certificate of sale subsequently registered with
the Registry of Deeds. Absent any satisfactory explanation as
to why said entry was belatedly inserted, the surreptitiousness
of its inclusion coupled with the furtive manner of its
intercalation casts serious doubt on the authenticity of
petitioner’s copy of the Certificate of Sale. Thus, it has been
held that while a public document like a notarized deed of sale
is vested with the presumption of regularity, this is not a
guarantee of the validity of its contents.[34]
It must be pointed out in this regard that the issuance of a
Certificate of Sale is an end result of judicial foreclosure where
statutory requirements are strictly adhered to; where even the
slightest deviations therefrom will invalidate the proceeding[35]
and the sale.[36] Among these requirements is an explicit
6
enumeration and correct description of what properties are to
be sold stated in the notice. The stringence in the observance
of these requirements is such that an incorrect title number
together with a correct technical description of the property to
be sold and vice versa is deemed a substantial and fatal error
which results in the invalidation of the sale.[37]
The certificate of sale is an accurate record of what properties
were actually sold to satisfy the debt. The strictness in the
observance of accuracy and correctness in the description of
the properties renders the enumeration in the certificate
exclusive. Thus, subsequently including properties which have
not been explicitly mentioned therein for registration purposes
under suspicious circumstances smacks of fraud. The
explanation that the land on which the properties sold is
necessarily included and, hence, was belatedly typed on the
dorsal portion of the copy of the certificate subsequently
registered is at best a lame excuse unworthy of belief.
The appellate court correctly observed that there was a marked
difference in the appearance of the typewritten words
appearing on the first page of the copy of the Certificate of Sale
registered with the Registry of Deeds[38] and those appearing
at the dorsal portion thereof. Underscoring the irregularity of
the intercalation is the clearly devious attempt to let such an
insertion pass unnoticed by typing the same at the back of the
first page instead of on the second page which was merely
half-filled and could accommodate the entry with room to
spare.
The argument that the land on which the buildings levied upon
in execution is necessarily included is, likewise, tenuous.
Article 415 of the Civil Code provides:
xxx xxx
x x x.
The foregoing provision of the Civil Code enumerates land and
buildings separately. This can only mean that a building is, by
itself, considered immovable.[39] Thus, it has been held that –
. . . while it is true that a mortgage of land necessarily includes,
in the absence of stipulation of the improvements thereon,
buildings, still a building by itself may be mortgaged apart from
the land on which it has been built. Such mortgage would be
still a real estate mortgage for the building would still be
considered immovable property even if dealt with separately
and apart from the land.[40] (emphasis and italics supplied)
In this case, considering that what was sold by virtue of the writ
of execution issued by the trial court was merely the
storehouse and bodega constructed on the parcel of land
covered by Transfer Certificate of Title No. T-40785, which by
themselves are real properties of respondents spouses, the
same should be regarded as separate and distinct from the
conveyance of the lot on which they stand.
WHEREFORE, in view of all the foregoing, the petition is
hereby DENIED for lack of merit. The Decision dated May 13,
2002 of the Court of Appeals in CA-G.R. SP No. 65891, which
declared the writ of possession issued by the Regional Trial
Court of Balanga City, Branch 1, on July 18, 2001, null and
void, is AFFIRMED in toto.
SO ORDERED.

ART. 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds

adhered to the soil.

xxx xxx
xxx

(3) Everything attached to an immovable in a fixed manner,

in such a way that it cannot be separated therefrom without
breaking them material or deterioration of the object;

(4) Statues, reliefs, paintings or other objects for use or

ornamentation, placed in buildings or on lands by the owner of
the immovable in such a manner that it reveals the intention to
attach them permanently to the tenements;

(5) Machinery, receptacles, instruments or implements

intended by the owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said industry or
works;

(6) Animal houses, pigeon houses, beehives, fish ponds or

breeding places of similar nature, in case their owner has
placed them or preserves them with the intention to have them
permanently attached to the land, and forming a permanent
part of it; the animals in these places are also included;

xxx xxx
xxx

(9) Docks and structures which, though floating, are

intended by their nature and object to remain at a fixed place
on a river, lake or coast;

7
[G.R. No. 116710. June 25, 2001]
DANILO D. MENDOZA, also doing business under the name
and style of ATLANTIC EXCHANGE PHILIPPINES, petitioner,
vs. COURT OF APPEALS, PHILIPPINE NATIONAL BANK,
FERNANDO MARAMAG, JR., RICARDO G. DECEPIDA and
BAYANI A. BAUTISTA, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1]
dated August 8, 1994 of the respondent Court of Appeals
(Tenth Division) in CA-G.R. CV No. 38036 reversing the
judgment[2] of the Regional Trial Court (RTC) and dismissing
the complaint therein.
Petitioner Danilo D. Mendoza is engaged in the domestic and
international trading of raw materials and chemicals. He
operates under the business name Atlantic Exchange
Philippines (Atlantic), a single proprietorship registered with the
Department of Trade and Industry (DTI). Sometime in 1978 he
was granted by respondent Philippine National Bank (PNB) a
Five Hundred Thousand Pesos (P500,000.00) credit line and a
One Million Pesos (P1,000,000.00) Letter of Credit/Trust
Receipt (LC/TR) line.
As security for the credit accommodations and for those which
may thereinafter be granted, petitioner mortgaged to
respondent PNB the following: 1) three (3) parcels of land[3]
with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his
house and lot in Quezon City; and 3) several pieces of
machinery and equipment in his Pasig coco-chemical plant.
The real estate mortgage[4] provided the following escalation
clause:
(f) 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
paragraph (d) of the conditions herein stipulated shall be
subject during the life of this contract to such increase within
the rates allowed by law, as the Board of Directors of the
Mortgagee may prescribe for its debtors.
Petitioner executed in favor of respondent PNB three (3)
promissory notes covering the Five Hundred Thousand Pesos
(P500,000.00) credit line, one dated March 8, 1979 for Three
Hundred Ten Thousand Pesos (P310,000.00); another dated
March 30, 1979 for Forty Thousand Pesos (P40,000.00); and
the last dated September 27, 1979 for One Hundred Fifty
Thousand Pesos (P150,000.00). The said 1979 promissory
notes uniformly stipulated: "with interest thereon at the rate of
12% per annum, until paid, which interest rate the Bank may,
at any time, without notice, raise within the limits allowed by
law xxx."[5]
Petitioner made use of his LC/TR line to purchase raw
materials from foreign importers. He signed a total of eleven
(11) documents denominated as "Application and Agreement
for Commercial Letter of Credit,"[6] on various dates from
February 8 to September 11, 1979, which uniformly contained
the following clause: "Interest shall be at the rate of 9% per
annum from the date(s) of the draft(s) to the date(s) of arrival of
payment therefor in New York. The Bank, however, reserves
the right to raise the interest charges at any time depending on
whatever policy it may follow in the future."[7]
In a letter dated January 3, 1980 and signed by Branch
Manager Fil S. Carreon Jr., respondent PNB advised petitioner
Mendoza that effective December 1, 1979, the bank raised its
interest rates to 14% per annum, in line with Central Bank's
Monetary Board Resolution No. 2126 dated November 29,
1979.
On March 9, 1981, he wrote a letter to respondent PNB
requesting for the restructuring of his past due accounts into a
five-year term loan and for an additional LC/TR line of Two
Million Pesos (P2,000,000.00).[8] According to the letter,
because of the shut-down of his end-user companies and the
huge amount spent for the expansion of his business,
petitioner failed to pay to respondent bank his LC/TR accounts
as they became due and demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong
replied on behalf of the respondent bank and required
petitioner to submit the following documents before the bank
would act on his request: 1) Audited Financial Statements for
1979 and 1980; 2) Projected cash flow (cash in - cash out) for
five (5) years detailed yearly; and 3) List of additional
machinery and equipment and proof of ownership thereof.
Cura also suggested that petitioner reduce his total loan
obligations to Three Million Pesos (P3,000,000.00) "to give us
more justification in recommending a plan of payment or
restructuring of your accounts to higher authorities of the
Bank."[9]
On September 25, 1981, petitioner sent another letter
addressed to PNB Vice-President Jose Salvador, regarding his
request for restructuring of his loans. He offered respondent
PNB the following proposals: 1) the disposal of some of the
mortgaged properties, more particularly, his house and lot and
a vacant lot in order to pay the overdue trust receipts; 2)
capitalization and conversion of the balance into a 5-year term
loan payable semi-annually or on annual installments; 3) a new
Two Million Pesos (P2,000,000.00) LC/TR line in order to
enable Atlantic Exchange Philippines to operate at full
capacity; 4) assignment of all his receivables to PNB from all
domestic and export sales generated by the LC/TR line; and 5)
maintenance of the existing Five Hundred Thousand Pesos
(P500,000.00) credit line.
The petitioner testified that respondent PNB Mandaluyong
Branch found his proposal favorable and recommended the
implementation of the agreement. However, Fernando
Maramag, PNB Executive Vice-President, disapproved the
proposed release of the mortgaged properties and reduced the
proposed new LC/TR line to One Million Pesos
(P1,000,000.00).[10] Petitioner claimed he was forced to agree
to these changes and that he was required to submit a new
formal proposal and to sign two (2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the following
revised proposals to respondent bank: 1) the restructuring of
past due accounts including interests and penalties into a 5-
year term loan, payable semi-annually with one year grace
period on the principal; 2) payment of Four Hundred Thousand
Pesos (P400,000.00) upon the approval of the proposal; 3)
reduction of penalty from 3% to 1%; 4) capitalization of the
interest component with interest rate at 16% per annum; 5)
establishment of a One Million Pesos (P1,000,000.00) LC/TR
line against the mortgaged properties; 6) assignment of all his
export proceeds to respondent bank to guarantee payment of
his loans.
According to petitioner, respondent PNB approved his
proposal. He further claimed that he and his wife were asked to
8
sign two (2) blank promissory note forms. According to
petitioner, they were made to believe that the blank promissory
notes were to be filled out by respondent PNB to conform with
the 5-year restructuring plan allegedly agreed upon. The first
Promissory Note,[11] No. 127/82, covered the principal while
the second Promissory Note,[12] No. 128/82, represented the
accrued interest.
Petitioner testified that respondent PNB allegedly contravened
their verbal agreement by 1) affixing dates on the two (2)
subject promissory notes to make them mature in two (2) years
instead of five (5) years as supposedly agreed upon; 2)
inserting in the first Promissory Note No. 127/82 an interest
rate of 21% instead of 18%; 3) inserting in the second
Promissory Note No. 128/82, the amount stated therein
representing the accrued interest as One Million Five Hundred
Thirty Six Thousand Four Hundred Ninety Eight Pesos and
Seventy Three Centavos (P1,536,498.73) when it should only
be Seven Hundred Sixty Thousand Three Hundred Ninety
Eight Pesos and Twenty Three Centavos (P760,398.23) and
pegging the interest rate thereon at 18% instead of 12%.
The subject Promissory Notes Nos. 127/82 and 128/82 both
dated December 29, 1982 in the principal amounts of Two
Million Six Hundred Fifty One Thousand One Hundred
Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and
One Million Five Hundred Thirty Six Thousand Seven Hundred
Ninety Eight and Seventy Three Centavos (P1,536,798.73)
respectively and marked Exhibits BB and CC respectively,
were payable on equal semi-annual amortization and
contained the following escalation clause:
x x x which interest rate the BANK may increase 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. In either case, the adjustment in the
interest rate agreed upon shall take effect on the effectivity
date of the increase or decrease in the maximum interest rate.
xxx
It appears from the record that the subject Promissory Notes
Nos. 127/82 and 128/82 superseded and novated the three (3)
1979 promissory notes and the eleven (11) 1979 Application
and Agreement for Commercial Letter of Credit which the
petitioner executed in favor of respondent PNB.
According to the petitioner, sometime in June 1983 the new
PNB Mandaluyong Branch Manager Bayani A. Bautista
suggested that he sell the coco-chemical plant so that he could
keep up with the semi-annual amortizations. On three (3)
occasions, Bautista even showed up at the plant with some
unidentified persons who claimed that they were interested in
buying the plant.
Petitioner testified that when he confronted the PNB
management about the two (2) Promissory Notes Nos. 127/82
and 128/82 (marked Exhibits BB and CC respectively) which
he claimed were improperly filled out, Bautista and Maramag
assured him that the five-year restructuring agreement would
be implemented on the condition that he assigns 10% of his
export earnings to the Bank.[13] In a letter dated August 22,
1983, petitioner Mendoza consented to assign 10% of the net
export proceeds of a Letter of Credit covering goods amounting
to One Hundred Fourteen Thousand Dollars ($114,000.00).[14]
However, petitioner claimed that respondent PNB
subsequently debited 14% instead of 10% from his export
proceeds.[15]
Pursuant to the escalation clauses of the subject two (2)
promissory notes, the interest rate on the principal amount in
Promissory Note No. 127/82 was increased from 21% to 29%
on May 28, 1984, and to 32% on July 3, 1984 while the interest
rate on the accrued interest per Promissory Note No. 128/82
was increased from 18% to 29% on May 28, 1984, and to 32%
on July 3, 1984.
Petitioner failed to pay the subject two (2) Promissory Notes
Nos. 127/82 and 128/82 (Exhibits BB and CC) as they fell due.
Respondent PNB extra-judicially foreclosed the real and chattel
mortgages, and the mortgaged properties were sold at public
auction to respondent PNB, as highest bidder, for a total of
Three Million Seven Hundred Ninety Eight Thousand Seven
Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a complaint for
specific performance, nullification of the extra-judicial
foreclosure and damages against respondents PNB, Fernando
Maramag Jr., Ricardo C. Decepida, Vice-President for
Metropolitan Branches, and Bayani A. Bautista. He alleged that
the Extrajudicial Foreclosure Sale of the mortgaged properties
was null and void since his loans were restructured to a five-
year term loan; hence, it was not yet due and demandable; that
the escalation clauses in the subject two (2) Promissory Notes
Nos. 127/82 and 128/82 were null and void, that the total
amount presented by PNB as basis of the foreclosure sale did
not reflect the actual loan obligations of the plaintiff to PNB;
that Bautista purposely delayed payments on his exports and
caused delays in the shipment of materials; that PNB withheld
certain personal properties not covered by the chattel
mortgage; and that the foreclosure of his mortgages was
premature so that he was unable to service his foreign clients,
resulting in actual damages amounting to Two Million Four
Thousand Four Hundred Sixty One Pesos (P2,004,461.00).
On March 16, 1992, the trial court rendered judgment in favor
of the petitioner and ordered the nullification of the extrajudicial
foreclosure of the real estate mortgage, the Sheriffs sale of the
mortgaged real properties by virtue of consolidation thereof
and the cancellation of the new titles issued to PNB; that PNB
vacate the subject premises in Pasig and turn the same over to
the petitioner; and also the nullification of the extrajudicial
foreclosure and sheriff's sale of the mortgaged chattels, and
that the chattels be returned to petitioner Mendoza if they were
removed from his Pasig premises or be paid for if they were
lost or rendered unserviceable.
The trial court also ordered respondent PNB to restructure to
five-years petitioner's principal loan of Two Million Six Hundred
Fifty One Thousand One Hundred Eighteen Pesos and Eighty
Six Centavos (P2,651,118.86) and the accumulated capitalized
interest on the same in the amount of Seven Hundred Sixty
Thousand Three Hundred Eighty Nine Pesos and Twenty
Three Centavos (P760,389.23) as of December 1982, and that
respondent PNB should compute the additional interest from
January 1983 up to October 15, 1984 only when respondent
PNB took possession of the said properties, at the rate of 12%
and 9% respectively.
The trial court also ordered respondent PNB to grant petitioner
Mendoza an additional Two Million Pesos (P2,000,000.00) loan
in order for him to have the necessary capital to resume
operation. It also ordered respondents PNB, Bayani A. Bautista
and Ricardo C. Decepida to pay to petitioner actual damages
in the amount of Two Million One Hundred Thirteen Thousand
Nine Hundred Sixty One Pesos (P2,113,961.00) and the peso
equivalent of Six Thousand Two Hundred Fifteen Dollars
9
($6,215.00) at the prevailing foreign exchange rate on October
11, 1983; and exemplary damages in the amount of Two
Hundred Thousand Pesos (P200,000.00).
Respondent PNB appealed this decision of the trial court to the
Court of Appeals. And the Court of Appeals reversed the
decision of the trial court and dismissed the complaint. Hence,
this petition.
It is the petitioners contention that the PNB management
restructured his existing loan obligations to a five-year term
loan and granted him another Two Million Pesos
(P2,000,000.00) LC/TR line; that the Promissory Notes Nos.
127/82 and 128/82 evidencing a 2-year restructuring period or
with the due maturity date December 29, 1984 were filled out
fraudulently by respondent PNB, and contrary to his verbal
agreement with respondent PNB; hence, his indebtedness to
respondent PNB was not yet due and the extrajudicial
foreclosure of his real estate and chattel mortgages was
premature. On the other hand, respondent PNB denies that
petitioner's loan obligations were restructured to five (5) years
and maintains that the subject two (2) Promissory Notes Nos.
127/82 and 128/82 were filled out regularly and became due as
of December 29, 1984 as shown on the face thereof.
Respondent Court of Appeals held that there is no evidence of
a promise from respondent PNB, admittedly a banking
corporation, that it had accepted the proposals of the petitioner
to have a five-year restructuring of his overdue loan
obligations. It found and held, on the basis of the evidence
adduced, that "appellee's (Mendoza) communications were
mere proposals while the bank's responses were not
categorical that the appellee's request had been favorably
accepted by the bank."
Contending that respondent PNB had allegedly approved his
proposed five-year restructuring plan, petitioner presented
three (3) documents executed by respondent PNB officials.
The first document is a letter dated March 16, 1981 addressed
to the petitioner and signed by Ceferino D. Cura, Branch
Manager of PNB Mandaluyong, which states:
x x x In order to study intelligently the feasibility of your above
request, please submit the following documents/papers within
thirty (30) days from the date thereof, viz:
1. Audited Financial Statements for 1979 and 1980;
2. Projected cash flow (cash in - cash out) for five years
detailed yearly; and
3. List of additional machinery and equipment and proof of
ownership thereof.
We would strongly suggest, however, that you reduce your
total obligations to at least P3 million (principal and interest and
other charges) to give us more justification in recommending a
plan of payment or restructuring of your accounts to higher
authorities of this bank.
The second document is a letter dated May 11, 1981
addressed to Mr. S. Pe Benito, Jr., Managing Director of the
Technological Resources Center and signed by said PNB
Branch Manager, Ceferino D. Cura. According to petitioner,
this letter showed that respondent PNB seriously considered
the restructuring of his loan obligations to a five-year term loan,
to wit:
xxx
At the request of our client, we would like to furnish you with
the following information pertinent to his accounts with us:
xxx
We are currently evaluating the proposal of the client to re-
structure his accounts with us into a five-year plan.
We hope that the above information will guide you in evaluating
the proposals of Mr. Danilo Mendoza.
xxx
The third document is a letter dated July 8, 1981 addressed to
petitioner and signed by PNB Assistant Vice-President
Apolonio B. Francisco.
xxx
Considering that your accounts/accommodations were granted
and carried in the books of our Mandaluyong Branch, we would
suggest that your requests and proposals be directed to
Ceferino Cura, Manager of our said Branch.
We feel certain that Mr. Cura will be pleased to discuss matters
of mutual interest with you.
xxx
Petitioner also presented a letter which he addressed to Mr.
Jose Salvador, Vice-President of the Metropolitan Branches of
PNB, dated September 24, 1981, which reads:
Re: Restructuring of our Account into a 5-year Term Loan and
Request for the Establishment of a P2.0 Million LC/TR Line
Dear Sir:
In compliance with our discussion last September 17, we would
like to formalize our proposal to support our above requested
assistance from the Philippine National Bank.
xxx
Again we wish to express our sincere appreciation for your
open-minded approach towards the solution of this problem
which we know and will be beneficial and to the best interest of
the bank and mutually advantageous to your client.
xxx
Petitioner argues that he submitted the requirements according
to the instructions given to him and that upon submission
thereof, his proposed five-year restructuring plan was deemed
automatically approved by respondent PNB.
We disagree.
Nowhere in those letters is there a categorical statement that
respondent PNB had approved the petitioners proposed five-
year restructuring plan. It is stretching the imagination to
construe them as evidence that his proposed five-year
restructuring plan has been approved by the respondent PNB
which is admittedly a banking corporation. Only an absolute
and unqualified acceptance of a definite offer manifests the
consent necessary to perfect a contract.[16] If anything, those
correspondences only prove that the parties had not gone
beyond the preparation stage, which is the period from the start
10
of the negotiations until the moment just before the agreement
of the parties.[17]
There is nothing in the record that even suggests that
respondent PNB assented to the alleged five-year restructure
of petitioners overdue loan obligations to PNB. However, the
trial court ruled in favor of petitioner Mendoza, holding that
since petitioner has complied with the conditions of the alleged
oral contract, the latter may not renege on its obligation to
honor the five-year restructuring period, under the rule of
promissory estoppel. Citing Ramos v. Central Bank,[18] the
trial court said:
The broad general rule to the effect that a promise to do or not
to do something in the future does not work an estoppel must
be qualified, since there are numerous cases in which an
estoppel has been predicated on promises or assurances as to
future conduct. The doctrine of promissory estoppel is by no
means new, although the name has been adopted only in
comparatively recent years. According to that doctrine, an
estoppel may arise from the making of a promise, even though
without consideration, if it was intended that the promise
should be relied upon and in fact it was relied upon, and if a
refusal to enforce it would be virtually to sanction the
perpetration of fraud or would result in other injustice. In this
respect, the reliance by the promisee is generally evidenced by
action or forbearance on his part, and the idea has been
expressed that such action or forbearance would reasonably
have been expected by the promissor. xxx
The doctrine of promissory estoppel is an exception to the
general rule that a promise of future conduct does not
constitute an estoppel. In some jurisdictions, in order to make
out a claim of promissory estoppel, a party bears the burden of
establishing the following elements: (1) a promise reasonably
expected to induce action or forebearance; (2) such promise
did in fact induce such action or forebearance, and (3) the
party suffered detriment as a result.[19]
It is clear from the forgoing that the doctrine of promissory
estoppel presupposes the existence of a promise on the part of
one against whom estoppel is claimed. The promise must be
plain and unambiguous and sufficiently specific so that the
Judiciary can understand the obligation assumed and enforce
the promise according to its terms.[20] For petitioner to claim
that respondent PNB is estopped to deny the five-year
restructuring plan, he must first prove that respondent PNB had
promised to approve the plan in exchange for the submission
of the proposal. As discussed earlier, no such promise was
proven, therefore, the doctrine does not apply to the case at
bar. A cause of action for promissory estoppel does not lie
where an alleged oral promise was conditional, so that reliance
upon it was not reasonable.[21] It does not operate to create
liability where it does not otherwise exist.[22]
Since there is no basis to rule that petitioner's overdue loan
obligations were restructured to mature in a period of five (5)
years, we see no other option but to respect the two-year
period as contained in the two (2) subject Promissory Notes
Nos. 127/82 and 128/82, marked as Exhibits BB and CC
respectively which superseded and novated all prior loan
documents signed by petitioner in favor of respondent PNB.
Petitioner argues, in his memorandum, that "respondent Court
of Appeals had no basis in saying that the acceptance of the
five-year restructuring is totally absent from the record."[23] On
the contrary, the subject Promissory Notes Nos. 127/82 and
128/82 are clear on their face that they were due on December
29, 1984 or two (2) years from the date of the signing of the
said notes on December 29, 1982.
Petitioner claims that the two (2) subject Promissory Notes
Nos. 127/82 and 128/82 were signed by him in blank with the
understanding that they were to be subsequently filled out to
conform with his alleged oral agreements with PNB officials,
among which is that they were to become due only after five
(5) years. If petitioner were to be believed, the PNB officials
concerned committed a fraudulent act in filling out the subject
two (2) promissory notes in question. Private transactions are
presumed to be fair and regular.[24] The burden of presenting
evidence to overcome this presumption falls upon petitioner.
Considering that petitioner imputes a serious act of fraud on
respondent PNB, which is a banking corporation, this court will
not be satisfied with anything but the most convincing
evidence. However, apart from petitioner's self-serving verbal
declarations, we find no sufficient proof that the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 were completed
irregularly. Therefore, we rule that the presumption has not
been rebutted.
Besides, it could be gleaned from the record that the petitioner
is an astute businessman who took care to reduce in writing his
business proposals to the respondent bank. It is unthinkable
that the same person would commit the careless mistake of
leaving his subject two (2) promissory notes in blank in the
hands of other persons. As the respondent Court of Appeals
correctly pointed out:
Surely, plaintiff-appellee who is a C.P.A and a Tax Consultant
(p. 3 TSN, January 9, 1990) will insist that the details of the two
promissory notes he and his wife executed in 1982 should be
specific to enable them to make the precise computation in the
event of default as in the case at bench. In fact, his alleged
omission as a C.P.A. and a Tax Consultant to insist that the
two promissory notes be filled up on important details like the
rates of interest is inconsistent with the legal presumption of a
person who takes ordinary care of his concerns (Section 3 (c),
Rule 131, Revised Rules on Evidence).
As pointed out by the Court of Appeals, Orlando Montecillo,
Chief, Loans and Discounts, PNB Mandaluyong Branch,
testified that the said Promissory Notes Nos. 127/82 and
128/82 were completely filled out when Danilo Mendoza signed
them (Rollo, p. 14).
In a last-ditch effort to save his five-year loan restructuring
theory, petitioner contends that respondent PNB's action of
withholding 10% from his export proceeds is proof that his
proposal had been accepted and the contract had been
partially executed. He claims that he would not have consented
to the additional burden if there were no corresponding benefit.
This contention is not well taken. There is no credible proof that
the 10% assignment of his export proceeds was not part of the
conditions of the two-year restructuring deal. Considering that
the resulting amount obtained from this assignment of export
proceeds was not even enough to cover the interest for the
corresponding month,[25] we are hard-pressed to construe it
as the required proof that respondent PNB allegedly approved
the proposed five-year restructuring of petitioners overdue loan
obligations.
It is interesting to note that in his Complaint, petitioner made no
mention that the assignment of his export proceeds was a
condition for the alleged approval of his proposed five-year
loan restructuring plan. The Complaint merely alleged that
"plaintiff in a sincere effort to make payments on his obligations
agreed to assign 10% of his export proceeds to defendant
PNB." This curious omission leads the court to believe that the
alleged link between the petitioners assignment of export
11
proceeds and the alleged five-year restructuring of his overdue
loans was more contrived than real.
It appears that respondent bank increased the interest rates on
the two (2) subject Promissory Notes Nos. 127/82 and 128/82
without the prior consent of the petitioner. The petitioner did not
agree to the increase in the stipulated interest rate of 21% per
annum on Promissory Note No. 127/82 and 18% per annum on
Promissory Note No. 128/82. As held in several cases, the
unilateral determination and imposition of increased interest
rates by respondent bank is violative of the principle of
mutuality of contracts ordained in Article 1308 of the Civil
Code.[26] As held in one case:[27]
It is basic that there can be no contract in the true sense in the
absence of the element of agreement, or of mutual assent of
the parties. If this assent is wanting on the part of one who
contracts, his act has no more efficacy than if it had been done
under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of
the contracting parties. The minds of all the parties must meet
as to the proposed modification, especially when it affects an
important aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of interest is
always a vital component, for it can make or break a capital
venture.
It has been held that no one receiving a proposal to change a
contract to which he is a party is obliged to answer the
proposal, and his silence per se cannot be construed as an
acceptance.[28] Estoppel will not lie against the petitioner
regarding the increase in the stipulated interest on the subject
Promissory Notes Nos. 127/82 and 128/82 inasmuch as he
was not even informed beforehand by respondent bank of the
change in the stipulated interest rates. However, we also note
that the said two (2) subject Promissory Notes Nos. 127/82 and
128/82 expressly provide for a penalty charge of 3% per
annum to be imposed on any unpaid amount when due.
Petitioner prays for the release of some of his movables[29]
being withheld by respondent PNB, alleging that they were not
included among the chattels he mortgaged to respondent bank.
However, petitioner did not present any proof as to when he
acquired the subject movables and hence, we are not disposed
to believe that the same were after-acquired chattels not
covered by the chattel and real estate mortgages.
In asserting its rights over the subject movables, respondent
PNB relies on a common provision in the two (2) subject
Promissory Notes Nos. 127/82 and 128/82 which states:
In the event that this note is not paid at maturity or when the
same becomes due under any of the provisions hereof, we
hereby authorized the BANK at its option and without notice, to
apply to the payment of this note, any and all moneys,
securities and things of value which may be in its hands on
deposit or otherwise belonging to me/us and for this purpose.
We hereby, jointly and severally, irrevocably constitute and
appoint the BANK to be our true Attorney-in-Fact with full
power and authority for us in our name and behalf and without
prior notice to negotiate, sell and transfer any moneys
securities and things of value which it may hold, by public or
private sale and apply the proceeds thereof to the payment of
this note.
It is clear, however, from the above-quoted provision of the
said promissory notes that respondent bank is authorized, in
case of default, to sell things of value belonging to the
mortgagor which may be on its hands for deposit or otherwise
belonging to me/us and for this purpose. Besides the petitioner
executed not only a chattel mortgage but also a real estate
mortgage to secure his loan obligations to respondent bank.
A stipulation in the mortgage, extending its scope and effect to
after-acquired property is valid and binding where the after-
acquired property is in renewal of, or in substitution for, goods
on hand when the mortgage was executed, or is purchased
with the proceeds of the sale of such goods.[30] As earlier
pointed out, the petitioner did not present any proof as to when
the subject movables were acquired.
More importantly, respondent bank makes a valid argument for
the retention of the subject movables. Respondent PNB
asserts that those movables were in fact "immovables by
destination" under Art. 415 (5) of the Civil Code.[31] It is an
established rule that a mortgage constituted on an immovable
includes not only the land but also the buildings, machinery
and accessories installed at the time the mortgage was
constituted as well as the buildings, machinery and
accessories belonging to the mortgagor, installed after the
constitution thereof.[32]
Petitioner also contends that respondent PNBs bid prices for
this foreclosed properties in the total amount of Three Million
Seven Hundred Ninety Eight Thousand Seven Hundred
Nineteen Pesos and Fifty Centavos (P3,798,719.50), were
allegedly unconscionable and shocking to the conscience of
men. He claims that the fair market appraisal of his foreclosed
plant site together with the improvements thereon located in
Pasig, Metro Manila amounted to Five Million Four Hundred
Forty One Thousand Six Hundred Fifty Pesos (P5,441,650.00)
while that of his house and lot in Quezon City amounted to
Seven Hundred Twenty Two Thousand Pesos (P722,000.00)
per the appraisal report dated September 20, 1990 of Cuervo
Appraisers, Inc.[33] That contention is not well taken
considering that:
1. The total of the principal amounts alone of petitioners
subject Promissory Notes Nos. 127/82 and 128/82 which are
both overdue amounted to Four Million One Hundred Eighty
Seven Thousand Nine Hundred Seventeen Pesos and Fifty
Nine Centavos (P4,187,917.59).
2. While the appraisal of Cuervo Appraisers, Inc. was
undertaken in September 1990, the extrajudicial foreclosure of
petitioners real estate and chattel mortgages have been
effected way back on October 15, 1984, October 23, 1984 and
December 21, 1984.[34] Common experience shows that real
estate values especially in Metro Manila tend to go upward due
to developments in the locality.
3. In the public auction/foreclosure sales, respondent PNB, as
mortgagee, was not obliged to bid more than its claims or more
than the amount of petitioners loan obligations which are all
overdue. The foreclosed real estate and chattel mortgages
which petitioner earlier executed are accessory contracts
covering the collaterals or security of his loans with respondent
PNB. The principal contracts are the Promissory Notes Nos.
127/82 and 128/82 which superseded and novated the 1979
promissory notes and the 1979 eleven (11) Applications and
Agreements for Commercial Letter of Credit.
Finally, the record shows that petitioner did not even attempt to
tender any redemption price to respondent PNB, as highest
bidder of the said foreclosed real estate properties, during the
one-year redemption period.
12
In view of all the foregoing, it is our view and we hold that the
extrajudicial foreclosure of petitioners real estate and chattel
mortgages was not premature and that it was in fact legal and
valid.

WHEREFORE, the petition is hereby DENIED. The challenged

Decision of the Court of Appeals in CA-G.R. CV No. 38036 is
AFFIRMED with modification that the increase in the stipulated
interest rates of 21% per annum and 18% per annum
appearing on Promissory Notes Nos. 127/82 and 128/82
respectively is hereby declared null and void.

SO ORDERED.

13
SPOUSES LEOPOLDO S. VIOLA and MERCEDITA VIOLA,
Petitioners,
- versus -
EQUITABLE PCI BANK, INC.,
Respondent.
G.R. No. 177886
Present:
QUISUMBING, J., Chairperson,
CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.
Promulgated:
November 27, 2008
x---------------------------------------------
-----x
DECISION
CARPIO MORALES, J.:
Via a contract denominated as CREDIT LINE AND REAL
ESTATE MORTGAGE AGREEMENT FOR PROPERTY
LINE[1] (Credit Line Agreement) executed on March 31, 1997,
Leo-Mers Commercial, Inc., as the Client, and its officers
spouses Leopoldo and Mercedita Viola (petitioners) obtained a
loan through a credit line facility in the maximum amount of
P4,700,000.00 from the Philippine Commercial International
Bank (PCI Bank), which was later merged with Equitable Bank
and became known as Equitable PCI Bank, Inc. (respondent).
The Credit Line Agreement stipulated that the loan would bear
interest at the prevailing PCIBank lending rate per annum on
the principal obligation and a penalty fee of three percent (3%)
per month on the outstanding amount.
To secure the payment of the loan, petitioners executed also
on March 31, 1997 a Real Estate Mortgage[2] in favor of
PCIBank over their two parcels of land covered by Transfer
Certificates of Title No. N-113861 (consisting of 300 square
meters, more or less ) and N-129036 (consisting of 446 square
meters, more or less) of the Registry of Deeds of Marikina.
Petitioners availed of the full amount of the loan.
Subsequently, they made partial payments which totaled
P3,669,210.67. By respondents claim, petitioner had since
November 24, 2000 made no further payments and despite
demand, they failed to pay their outstanding obligation which,
as of September 30, 2002, totaled P14,024,623.22, broken
down as follows:
(a) Principal obligation P4,783,254.69
(b) Past due interest from
11/24/00 to 09/30/02
at 15% interest P1,345,290.38
(c) Penalty at 3% per month
from 03/31/98 to 02/23/02 P7,896,078.15
_____________________
P14,024,623.22[3] (Underscoring supplied)
Respondent thus extrajudicially foreclosed the mortgage
before the Office of the Clerk of Court & Ex-Officio Provincial
Sheriff of the Regional Trial Court (RTC) of Marikina City. The
mortgaged properties were sold on April 10, 2003 for
P4,284,000.00 at public auction to respondent, after which a
Certificate of Sale dated April 21, 2003[4] was issued.
More than five months later or on October 8, 2003, petitioners
filed a complaint[5] for annulment of foreclosure sale,
accounting and damages before the Marikina RTC, docketed
as Civil Case No. 2003-905-MK and raffled to Branch 192.
Petitioners alleged, inter alia, that they had made substantial
payments of P3,669,210.67 receipts of which were issued
without respondent specifying whether the payment was for
interest, penalty or the principal obligation; that based on
respondents statement of account, not a single centavo of their
payments was applied to the principal obligation; that every
time respondent sent them a statement of account and
demand letters, they requested for a proper accounting for the
purpose of determining their actual obligation, but all their
requests were unjustifiably ignored on account of which they
were forced to discontinue payment; that the foreclosure
proceedings and auction sale were not only irregularly and
prematurely held but were null and void because the mortgage
debt is only P2,224,073.31 on the principal obligation and
P1,455,137.36 on the interest, or a total of only P3,679,210.67
as of April 15, 2003, but the mortgaged properties were sold to
satisfy an inflated and erroneous principal obligation of
P4,783,254.69, plus 3% penalty fee per month or 33% per year
and 15% interest per year, which amounted to P14,024,623.22
as of September 30, 2002; that the parties never agreed and
stipulated in the real estate mortgage contract that the 15%
interest per annum on the principal loan and the 3% penalty
fee per month on the outstanding amount would be covered or
secured by the mortgage; that assuming respondent could
impose such interest and penalty fee, the same are exorbitant,
unreasonable, iniquitous and unconscionable, hence, must be
reduced; and that respondent is only allowed to impose the
legal rate of interest of 12% per annum on the principal loan
absent any stipulation thereon.[6]
In its Answer, respondent denied petitioners assertions,
contending, inter alia, that the absence of stipulation in the
mortgage contract securing the payment of 15% interest per
annum on the principal loan, as well as the 3% penalty fee per
month on the outstanding amount, is immaterial since the
mortgage contract is a mere accessory contract which must
take its bearings from the principal Credit Line Agreement.[7]
During the pre-trial conference, the parties defined as sole
issue in the case whether the mortgage contract also secured
the payment of 15% interest per annum on the principal loan of
P4,700,000.00 and the 3% penalty fee per month on the
outstanding amount, which interest and penalty fee are
stipulated only in the Credit Line Agreement.[8]
By Decision[9] of September 14, 2005, the trial court sustained
respondents affirmative position on the issue but found the
questioned interest and penalty fee excessive and exorbitant.
14
Thus, it equitably reduced the interest on the principal loan
from 15% to 12% per annum and the penalty fee per month on
the outstanding amount from 3% to 1.5% per month.
Accordingly, the court nullified the foreclosure proceedings
and the Certificate of Sale subsequently issued, without
prejudice to the holding anew of foreclosure proceedings
based on the re-computed amount of the indebtedness, if the
circumstances so warrant.
The dispositive portion of the trial courts Decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1) The interest on the principal loan in the amount of Four
Million Seven Hundred Thousand (P4,700,000.00) Pesos
should be recomputed at 12% per annum;
2) The 3% per month penalty on delinquent account as
stipulated by the parties in the Credit Line Contract dated
March 31, 1997 is hereby REDUCED to 1.5% per month;
3) The foreclosure sale conducted on April 10, 2003 by the
Clerk of Court and Ex-Officio Sheriff of Marikina, to satisfy the
plaintiffs mortgage indebtedness, and the Certificate of Sale
issued as a consequence of the said proceedings, are declared
NULL and VOID, without prejudice to the conduct of another
foreclosure proceedings on the basis of the re-computed
amount of the plaintiffs indebtedness, if the circumstances so
warrant.
No pronouncement as to costs.
SO ORDERED. (Underscoring supplied)
Petitioners filed a Motion for Partial Reconsideration,[10]
contending that the penalty fee per month on the outstanding
amount should have been taken out of the coverage of the
mortgage contract as it was not stipulated therein. By Order
dated December 6, 2005, the trial court denied the motion.
On appeal by petitioners, the Court of Appeals, by
Decision[11] of February 21, 2007, dismissed the same for lack
of merit, holding that the Real Estate Mortgage covers not only
the principal amount [of P4,700,000.00] but also the interest
and bank charges, which [phrase bank charges] refers to the
penalty charges stipulated in the Credit Line Agreement.[12]
Petitioners Motion for Reconsideration having been denied by
Resolution[13] of May 16, 2007, they filed the present Petition
for Review on Certiorari, alleging that
THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN DECIDING THE CASE NOT IN
ACCORD WITH LAW AND APPLICABLE DECISIONS OF
THE SUPREME COURT BY RULING THAT THERE IS NO
AMBIGUITY IN
CONSTRUING TOGETHER THE CREDIT LINE AND
MORTGAGE CONTRACTS WHICH PROVIDED
CONFLICTING PROVISIONS AS TO INTEREST AND
PENALTY.[14]
The only issue is whether the mortgage contract also secured
the penalty fee per month on the outstanding amount as
stipulated in the Credit Line Agreement.
The Court holds not.
A mortgage must sufficiently describe the debt sought to be
secured, which description must not be such as to mislead or
deceive, and an obligation is not secured by a mortgage unless
it comes fairly within the terms of the mortgage.[15]
In the case at bar, the parties executed two separate
documents on March 31, 1997 the Credit Line Agreement
granting the Client a loan through a credit facility in the
maximum amount of P4,700,000.00, and the Real Estate
Mortgage contract securing the payment thereof. Undisputedly,
both contracts were prepared by respondent and written in fine
print, single space.
The Credit Line Agreement contains the following stipulations
on interest and delinquency charges:
A. CREDIT FACILITY
9. INTEREST ON AVAILMENTS
The CLIENT shall pay the BANK interest on each availment
against the Credit Facility at the rate of:
PREVAILING PCIBANK LENDING RATE
for the first interest period as defined in A(10) hereof. x x x.
xxxx
15. DELINQUENCY
CLIENTs account shall be considered delinquent if the
availments exceed the amount of the line and/or in case the
Account is debited for unpaid interest and the Available
Balance is insufficient to cover the amount debited. In such
cases, the Available Balance shall become negative and the
CLIENT shall pay the deficiency immediately in addition to
collection expenses incurred by the BANK and a penalty fee of
three percent (3%) per month of the outstanding amount to be
computed from the day deficiency is incurred up to the date of
full payment thereon.
x x x x.[16] (Underscoring supplied)
The Real Estate Mortgage contract states its coverage, thus:
That for and in consideration of certain loans, credit and other
banking facilities obtained x x x from the Mortgagee, the
principal amount of which is PESOS FOUR MILLION SEVEN
HUNDERED THOUSAND ONLY (P4,700,000.00) Philippine
Currency, and for the purpose of securing the payment thereof,
including the interest and bank charges accruing thereon, the
costs of collecting the same and of taking possession of and
keeping the mortgaged propert[ies], and all other expenses to
which the Mortgagee may be put in connection with or as an
incident to this mortgage, as well as the faithful compliance
with the terms and conditions of this agreement and of the
separate instruments under which the credits hereby secured
were obtained, the Mortgagor does hereby constitute in favor
of the Mortgagee, its successors or assigns, a mortgage on the
real property particularly described, and the location of which is
set forth, in the list appearing at the back hereof and/or
appended hereto, of which the Mortgagor declare that he is the
absolute owner and the one in possession thereof, free and
clear of any liens, encumbrances and adverse claims.[17]
(Emphasis and underscoring supplied)
15
 The immediately-quoted provision of the mortgage contract
does not specifically mention that, aside from the principal loan
obligation, it also secures the payment of a penalty fee of three
percent (3%) per month of the outstanding amount to be
computed from the day deficiency is incurred up to the date of
full payment thereon, which penalty as the above-quoted
portion of the Credit Line Agreement expressly stipulates.
Since an action to foreclose must be limited to the amount
mentioned in the mortgage[18] and the penalty fee of 3% per
month of the outstanding obligation is not mentioned in the
mortgage, it must be excluded from the computation of the
amount secured by the mortgage.
The ruling of the Court of Appeals in its assailed Decision that
the phrase including the interest and bank charges in the
mortgage contract refers to the penalty charges stipulated in
the Credit Line Agreement is unavailing.
Penalty fee is entirely different from bank charges. The phrase
bank charges is normally understood to refer to compensation
for services. A penalty fee is likened to a compensation for
damages in case of breach of the obligation. Being penal in
nature, such fee must be specific and fixed by the contracting
parties, unlike in the present case which slaps a 3% penalty
fee per month of the outstanding amount of the obligation.
Moreover, the penalty fee does not belong to the species of
obligation enumerated in the mortgage contract, namely: loans,
credit and other banking facilities obtained x x x from the
Mortgagee, . . . including the interest and bank charges, . . . the
costs of collecting the same and of taking possession of and
keeping the mortgaged properties, and all other expenses to
which the Mortgagee may be put in connection with or as an
incident to this mortgage . . .
In Philippine Bank of Communications v. Court of Appeals[19]
which raised a similar issue, this Court held:
The sole issue in this case is whether, in the foreclosure of a
real estate mortgage, the penalties stipulated in two promissory
notes secured by the mortgage may be charged against the
mortgagors as part of the sums secured, although the
mortgage contract does not mention the said penalties.
xxxx
We immediately discern that the mortgage contract does not
at all mention the penalties stipulated in the promissory notes.
However, the petitioner insists that the penalties are covered
by the following provision of the mortgage contract:
This mortgage is given as security for the payment to the
MORTGAGEE on demand or at maturity, as the case may be,
of all promissory notes, letters of credit, trust receipts, bills of
exchange, drafts, overdrafts and all other obligations of every
kind already incurred or which hereafter may be incurred.
xxxx
The Court is unconvinced, for the cases relied upon by the
petitioner are inapplicable. x x x.
xxxx
The mortgage contract is also one of adhesion as it was
prepared solely by the petitioner and the only participation of
the other party was the affixing of his signature or adhesion
thereto. Being a contract of adhesion, the mortgage is to be
strictly construed against the petitioner, the party which
prepared the agreement.
A reading, not only of the earlier quoted provision, but of the
entire mortgage contract yields no mention of penalty charges.
Construing this silence strictly against the petitioner, it can
fairly be concluded that the petitioner did not intend to include
the penalties on the promissory notes in the secured amount.
This explains the finding by the trial court, as affirmed by the
Court of Appeals, that penalties and charges are not due for
want of stipulation in the mortgage contract.
Indeed, a mortgage must sufficiently describe the debt sought
to be secured, which description must not be such as to
mislead or deceive, and an obligation is not secured by a
mortgage unless it comes fairly within the terms of the
mortgage. In this case, the mortgage contract provides that it
secures notes and other evidences of indebtedness. Under the
rule of ejusdem generis, where a description of things of a
particular class or kind is accompanied by words of a generic
character, the generic words will usually be limited to things of
a kindred nature with those particularly enumerated . . . A
penalty charge does not belong to the species of obligations
enumerated in the mortgage, hence, the said contract cannot
be understood to secure the penalty.[20] (Emphasis and
underscoring supplied)
Respondents contention that the absence in the mortgage
contract of a stipulation securing the payment of the 3%
penalty fee per month on the outstanding amount is of no
consequence, the deed of mortgage being merely an
accessory contract that must take its bearings from the
principal Credit Line Agreement,[21] fails. Such absence is
significant as it
creates an ambiguity between the two contracts, which
ambiguity must be resolved in favor of petitioners and against
respondent who drafted the contracts. Again, as stressed by
the Court in Philippine Bank of Communications:
There is also sufficient authority to declare that any ambiguity
in a contract whose terms are susceptible of different
interpretations must be read against the party who drafted it.
A mortgage and a note secured by it are deemed parts of one
transaction and are construed together, thus, an ambiguity is
created when the notes provide for the payment of a penalty
but the mortgage contract does not. Construing the ambiguity
against the petitioner, it follows that no penalty was intended to
be covered by the mortgage. The mortgage contract consisted
of three pages with no less than seventeen conditions in fine
print; it included provisions for interest and attorneys fees
similar to those in the promissory notes; and it even provided
for the payment of taxes and insurance charges. Plainly, the
petitioner can be as specific as it wants to be, yet it simply did
not specify nor even allude to, that the penalty in the
promissory notes would be secured by the mortgage. This can
then only be interpreted to mean that the petitioner had no
design of including the penalty in the amount secured.[22]
(Emphasis and underscoring supplied)
WHEREFORE, the assailed Court of Appeals Decision of
February 21, 2007 and Resolution of May 16, 2007 in CA-G.R.
SP No. CA-G.R. CV No. 86412 affirming the trial courts
decision are, in light of the foregoing disquisition, AFFIRMED
with MODIFICATION in that the penalty fee per month of the
outstanding obligation is excluded in the computation of the
amount secured by the Real Estate Mortgage executed by
petitioners in respondents favor.
SO ORDERED.
16
G.R. No. 115548 March 5, 1996
STATE INVESTMENT HOUSE INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
FRANCISCO, J.:p
The factual background of the case, aptly summarized in the
decision of the Office of the President and cited by respondent
Court of Appeals1 in its assailed decision, and which we have
verified to be supported by the record is herein reproduced as
follows:
The uncontroverted facts of the case as recited in the decision
of the Office of the President are as follows:
Records show that, on October 15, 1969, Contract to Sell No.
36 was executed by the Spouses Canuto and Ma. Aranzazu
Oreta, and the Solid Homes, Inc. (SOLID), involving a parcel of
land identified as Block No. 8, Lot No. 1, Phase of the Capitol
Park Homes Subdivision, Quezon City, containing 511 square
meters for a consideration of P39,347.00. Upon signing of the
contract, the spouses Oreta made payment amounting to
P7,869.40, with the agreement that the balance shall be
payable in monthly installments of P451.70, at 12% interest per
annum.
On November 4, 1976, SOLID executed several real estate
mortgage contracts in favor of State Investment Homes, (sic)
Inc. (STATE) over its subdivided parcels of land, one of which
is the subject lot covered by Transfer Certificate of Title No.
209642.
For Failure of SOLID to comply with its mortgage obligations
contract, STATE extrajudicially foreclosed the mortgaged
properties including the subject lot on April 6, 1983, with the
corresponding certificate of sale issued therefor to STATE
annotated at the back of the titles covering the said properties
on October 13, 1983.
On June 23, 1984; SOLID thru a Memorandum of Agreement
negotiated for the deferment of consolidation of ownership over
the foreclosed properties by committing to redeem the
properties from STATE.
On August 15, 1988, the spouses filed a complaint before the
Housing and Land Use Regulatory Board, HLRB, against the
developer SOLID and STATE for failure on the part of SOLID
"to execute
the necessary absolute deed of sale as well as to deliver title to
said property . . . in violation of the contract to sell . . .," despite
full payment of the purchase price as of January 7, 1981. In its
Answer, SOLID, by way of alternative defense, alleged that the
obligations under the Contract to Sell has become so difficult . .
. the herein respondents be partially released from said
obligation by substituting subject lot with another suitable
residential lot from another subdivision which respondents
own/operates". Upon the other hand, STATE, to which the
subject lot was mortgaged, averred that unless SOLID pays the
redemption price of P125,1955.00, (sic) it has "a right to hold
on and not release the foreclosed properties.
On May 23, 1989, the Office of Appeals, Adjudication and
Legal Affairs (OAALA) rendered a decision the decretal portion
of which reads:
1. Ordering respondent, State Investment House, Inc. to
execute a Deed of Conveyance of Lot 1, Block 8, in Capital
Park Homes Subdivision in favor of complainants and to deliver
to the latter the corresponding certificate of title;
2. Ordering respondent, Solid Homes, Inc. to pay State
Investment House, Inc. that portion of its loan which
corresponds to the value of the lot as collateral;
3. Ordering respondent, Solid Homes, Inc. to pay to this
Board the amount of Six Thousand Pesos (P6,000.00) as
administrative fine in accordance with Section 25 in relation to
Section 38 of P.D. 957.
Both the STATE and SOLID appealed to the Board of
Commissioners, HLRB, which affirmed on June 5, 1990 the
OAALA's decision (Annex "C" of the Petition; ibid, p. 34).
Again, both STATE and SOLID appealed the decision of the
Board of Commissioners, HLRB, to the Office of the President
which dismissed the twin appeals on February 26, 1993.
Petitioner filed with the Supreme Court this petition for review
of decision of the Office of the President where it was docketed
as G.R. No. 109364. However, in a resolution dated May 13,
1993, the Supreme Court referred this case to this Court for
proper disposition. On the other hand, SOLID does not appear
to have joined herein petitioner in this petition for review.2
[Emphasis added.]
In a decision dated May 19, 1994, respondent court sustained
the judgment of the Office of the President. Hence, this petition
substantially anchored on these two alleged errors, namely: (1)
error in ruling that private respondent spouses Oreta's
unregistered rights over the subject property are superior to the
registered mortgage rights of petitioner State Investment
House, Inc. (STATE); and (2) error in not applying the settled
rule that persons dealing with property covered by torrens
certificate of title are not required to go beyond what appears
on the face of the title.
At the outset, we note that herein petitioner argues more
extensively on the second assigned issue, than on the first. In
fact, petitioner admits the superior rights of respondents-
spouses Oreta over the subject property as it did not pray for
the nullification of the contract between respondents-spouses
and SOLID, but instead asked for the payment of the release
value of the property in question, plus interest, attorney's fees
and costs of suit against SOLID or, in case of the latter's
inability to pay, against respondents-spouses before it can be
required to release the title of the subject property in favor of
the respondent spouses.3 And even if we were to pass upon
the first assigned error, we find respondent court's ruling on the
matter to be well-founded. STATE's registered mortgage right
over the property is inferior to that of respondents-spouses'
unregistered right. The unrecorded sale between respondents-
spouses and SOLID is preferred for the reason that if the
original owner (SOLID, in this case) had parted with his
ownership of the thing sold then he no longer had ownership
and free disposal of that thing so as to be able to mortgage it
again.4 Registration of the mortgage is of no moment since it is
understood to be without prejudice to the better right of third
parties.5
Anent the second issue, petitioner asserts that a purchaser or
mortgagee of land/s covered under the Torrens System "is not
required to do more than rely upon the certificate of title [for] it
is enough that the (purchaser or mortgagee] examines the
17
pertinent certificate of title [without] need [of] look[ing] beyond lack of such knowledge due to its negligence, takes the place
such title."6 of registration of the rights of respondents-spouses.
Respondent Court thus correctly ruled that petitioner was not a
As a general rule, where there is nothing in the certificate of purchaser or mortgagee in good faith; hence petitioner can not
title to indicate any cloud or vice in the ownership of the solely rely on what merely appears on the face of the Torrens
property, or any encumbrance thereon, the purchaser is not Title.
required to explore further than what the Torrens Title upon its
face indicates in quest for any hidden defect or inchoate right ACCORDINGLY, finding no reversible error in the assailed
that may subsequently defeat his right thereto. This rule, judgment, the same is hereby AFFIRMED.
however, admits of an exception as where the purchaser or
mortgagee, has knowledge of a defect or lack of title in his SO ORDERED.
vendor, or that he was aware of sufficient facts to induce a
reasonably prudent man to inquire into the status of the title of
the property in litigation.7 In this case, petitioner was well
aware that it was dealing with SOLID, a business entity
engaged in the business of selling subdivision lots. In fact, the
OAALA found that at the time the lot was mortgaged,
respondent State Investment House Inc., [now petitioner] had
been aware of the lot's location and that the said lot formed
part of Capital Park/Homes Subdivision."8 In Sunshine Finance
and Investment Corp. v. Intermediate Appellate Court,9 the
Court noting petitioner therein to be a financing corporation,
deviated from the general rule that a purchaser or mortgagee
of a land is not required to look further that what appears on
the face of the Torrens Title. Thus:

Nevertheless, we have to deviate from the general rule

because of the failure of the petitioner in this case to take the
necessary precautions to ascertain if there was any flaw in the
title of the mortgage. The petitioner is an investment and
financing corporation. We presume it is experienced in its
business. Ascertainment of the status and condition of
properties offerred to it as security for the loans it extends must
be a standard and indispensable part of its operations. Surely,
it cannot simply rely on an examination of a Torrens certificate
to determine what the subject property looks like as its
condition is not apparent in the document. The land might be in
a depressed area. There might be squatters on it. It might be
easily inundated. It might be an interior lot, without convenient
access. These and other similar factors determine the value of
the property and so should be of practical concern to the
petitioner.

xxx xxx xxx

Our conclusion might have been different if the mortgagee

were an ordinary individual or company without the expertise of
the petitioner in the mortgage and sale of registered land or if
the land mortgaged were some distance from the mortgagee
and could not be conveniently inspected. But there were no
such impediments in this case. The facilities of the petitioner
were not so limited as to prevent it from making a more careful
examination of the land to assure itself that there were no
unauthorized persons in possession.10

[Emphasis supplied.]

The above-enunciated rule should apply in this case as

petitioner admits of being a financing institution.11 We take
judicial notice of the uniform practice of financing institutions to
investigate, examine and assess the real property offered as
security for any loan application especially where, as in this
case, the subject property is a subdivision lot located at
Quezon City, M.M. It is a settled rule that a purchaser or
mortgagee cannot close its eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted
in good faith under the belief that there was no defect in the
title of the vendor or mortgagor.12 Petitioner's constructive
knowledge of the defect in the title of the subject property, or

18
[G.R. No. 146997. April 26, 2005]
SPOUSES GODOFREDO & DOMINICA FLANCIA, petitioners,
vs. COURT OF APPEALS & WILLIAM ONG GENATO,
respondents.
DECISION
CORONA, J.:
Before us is a petition for review under Rule 45 of the Rules of
Court, seeking to set aside the October 6, 2000 decision[1] of
the Court of Appeals in CA-G.R. CV No. 56035.
The facts as outlined by the trial court[2] follow.
This is an action to declare null and void the mortgage
executed by defendant Oakland Development Resources
Corp. xxx in favor of defendant William Ong Genato over the
house and lot plaintiffs spouses Godofredo and Dominica
Flancia purchased from defendant corporation.
In the complaint, plaintiffs allege that they purchased from
defendant corporation a parcel of land known as Lot 12, Blk. 3,
Phase III-A containing an area of 128.75 square meters
situated in Prater Village Subd. II located at Brgy. Old Balara,
Quezon City; that by virtue of the contract of sale, defendant
corporation authorized plaintiffs to transport all their personal
belongings to their house at the aforesaid lot; that on
December 24, 1992, plaintiffs received a copy of the execution
foreclosing [the] mortgage issued by the RTC, Branch 98
ordering defendant Sheriff Sula to sell at public auction several
lots formerly owned by defendant corporation including subject
lot of plaintiffs; that the alleged mortgage of subject lot is null
and void as it is not authorized by plaintiffs pursuant to Art.
2085 of the Civil Code which requires that the mortgagor must
be the absolute owner of the mortgaged property; that as a
consequence of the nullity of said mortgage, the execution
foreclosing [the] mortgage is likewise null and void; that
plaintiffs advised defendants to exclude subject lot from the
auction sale but the latter refused. Plaintiffs likewise prayed for
damages in the sum of P50,000.00.
Defendant William Ong Genato filed a motion to dismiss the
complaint which was opposed by the plaintiffs and denied by
the Court in its Order dated February 16, 1993.
Defendant Genato, then filed his answer averring that on May
19, 1989 co-defendant Oakland Development Resources
Corporation mortgaged to Genato two (2) parcels of land
covered by TCT Nos. 356315 and 366380 as security and
guaranty for the payment of a loan in the sum of
P2,000,000.00; that it appears in the complaint that the subject
parcel of land is an unsubdivided portion of the aforesaid TCT
No. 366380 which covers an area of 4,334 square meters more
or less; that said real estate mortgage has been duly annotated
at the back of TCT No. 366380 on May 22, 1989; that for non-
payment of the loan of P2,000,000.00 defendant Genato filed
an action for foreclosure of real estate mortgage against co-
defendant corporation; that after [trial], a decision was
rendered by the Regional Trial Court of Quezon City, Branch
98 against defendant corporation which decision was affirmed
by the Honorable Court of Appeals; that the decision of the
Court of Appeals has long become final and thus, the Regional
Trial Court, Brach 98 of Quezon City issued an Order dated
December 7, 1992 ordering defendant Sheriff Ernesto Sula to
cause the sale at public auction of the properties covered by
TCT No. 366380 for failure of defendant corporation to deposit
in Court the money judgment within ninety (90) days from
receipt of the decision of the Court of Appeals; that plaintiffs
have no cause of action against defendant Genato; that the
alleged plaintiffs Contract to Sell does not appear to have been
registered with the Register of Deeds of Quezon City to affect
defendant Genato and the latter is thus not bound by the
plaintiffs Contract to Sell; that the registered mortgage is
superior to plaintiffs alleged Contract to Sell and it is sufficient
for defendant Genato as mortgagee to know that the subject
TCT No. 366380 was clean at the time of the execution of the
mortgage contract with defendant corporation and defendant
Genato is not bound to go beyond the title to look for flaws in
the mortgagors title; that plaintiffs alleged Contract to Sell is
neither a mutual promise to buy and sell nor a Contract of Sale.
Ownership is retained by the seller, regardless of delivery and
is not to pass until full payment of the price; that defendant
Genato has not received any advice from plaintiffs to exclude
the subject lot from the auction sale, and by way of
counterclaim, defendant Genato prays for P150,000.00 moral
damages and P20,000.00 for attorneys fees.
On the other hand, defendant Oakland Development
Resources Corporation likewise filed its answer and alleged
that the complaint states no cause of action; xxx Defendant
corporation also prays for attorneys fees of P20,000.00 in its
counterclaim.[3]
After trial, the assisting judge[4] of the trial court rendered a
decision dated August 16, 1996, the decretal portion of which
provided:
Wherefore, premises considered, judgment is hereby rendered.
1) Ordering defendant Oakland Devt. Resources Corporation
to pay plaintiffs:
a) the amount of P10,000.00 representing payment for the
option to purchase lot;
b) the amount of P140,000.00 representing the first
downpayment of the contract price;
c) the amount of P20,520.80 representing five monthly
amortizations for February, March, April, May and June 1990;
d) the amount of P3,000.00 representing amortization for
November 1990; all plus legal interest from the constitution of
the mortgage up to the time the instant case was filed.
2) Ordering said defendant corporation to pay further to
plaintiffs the sum of P30,000.00 for moral damages,
P10,000.00 for exemplary damages and P20,000.00 for and as
reasonable attorneys fees plus cost;
3) Dismissing defendant corporations counterclaim;
4) Dismissing defendant Genatos counterclaim.[5]
On motion for reconsideration, the regular presiding judge set
aside the judgment of the assisting judge and rendered a new
one on November 27, 1996, the decretal portion of which read:
WHEREFORE, premises considered, the Motion for
Reconsideration is hereby GRANTED. The decision dated
August 16, 1996 is hereby set aside and a new one entered in
favor of the plaintiffs, declaring the subject mortgage and the
foreclosure proceedings held thereunder as null and void
insofar as they affect the superior right of the plaintiffs over the
subject lot, and ordering as follows:
19
1. Defendant Oakland Development Resources to pay to
plaintiffs the amount of P20,000.00 for litigation-related
expenses;
2. Ordering defendant Sheriff Ernesto L. Sula to desist from
conducting further proceedings in the extra-judicial foreclosure
insofar as they affect the plaintiffs, or, in the event that title has
been consolidated in the name of defendant William O.
Genato, ordering said defendant to reconvey to plaintiffs the
title corresponding to Lot 12, Blk. 3, Phase III-A of Prater
Village [Subd. II], located in Old Balara, Quezon City,
containing an area of 128.75 square meters; and
3. Dismissing the counterclaims of defendants Oakland and
Genato and with costs against them.[6]
On appeal, the Court of Appeals issued the assailed order:
Wherefore, foregoing premises considered, the appeal having
merit in fact and in law is hereby GRANTED and the decision
of the Trial Court dated 27 November 1996 hereby SET ASIDE
and REVERSED, and its judgment dated August 16, 1996
REINSTATED and AFFIRMED IN TOTO. No Costs.
SO ORDERED.[7]
Hence, this petition.
For resolution before us now are the following issues:
(1) whether or not the registered mortgage constituted over the
property was valid;
(2) whether or not the registered mortgage was superior to the
contract to sell; and
(3) whether or not the mortgagee was in good faith.
Under the Art. 2085 of the Civil Code, the essential requisites
of a contract of mortgage are: (a) that it be constituted to
secure the fulfillment of a principal obligation; (b) that the
mortgagor be the absolute owner of the thing mortgaged; and
(c) that the persons constituting the mortgage have the free
disposal of their property, and in the absence thereof, that they
be legally authorized for the purpose.
All these requirements are present in this case.
FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID?
As to the first essential requisite of a mortgage, it is undisputed
that the mortgage was executed on May 15, 1989 as security
for a loan obtained by Oakland from Genato.
As to the second and third requisites, we need to discuss the
difference between a contract of sale and a contract to sell.
In a contract of sale, title to the property passes to the vendee
upon the delivery of the thing sold; in a contract to sell,
ownership is, by agreement, reserved by the vendor and is not
to pass to the vendee until full payment of the purchase price.
Otherwise stated, in a contract of sale, the vendor loses
ownership over the property and cannot recover it unless and
until the contract is resolved or rescinded; in a contract to sell,
title is retained by the vendor until full payment of the price.[8]
In the contract between petitioners and Oakland, aside from
the fact that it was denominated as a contract to sell, the
intention of Oakland not to transfer ownership to petitioners
until full payment of the purchase price was very clear. Acts of
ownership over the property were expressly withheld by
Oakland from petitioner. All that was granted to them by the
occupancy permit was the right to possess it.
Specifically, the contract between Oakland and petitioners
stated:
xxx xxx xxx
7. That the BUYER/S may be allowed to enter into and take
possession of the property upon issuance of Occupancy Permit
by the OWNER/DEVELOPER exclusively, although title has
not yet passed to the BUYER/S, in which case his possession
shall be that of a possessor by mere tolerance Lessee, subject
to certain restrictions contained in this deed.
xxx xxx xxx
13. That the BUYER/S cannot sell, mortgage, cede, transfer,
assign or in any manner alienate or dispose of, in whole or in
part, the rights acquired by and the obligations imposed on the
BUYER/S by virtue of this contract, without the express written
consent of the OWNER/DEVELOPER.
xxx xxx xxx
24. That this Contract to Sell shall not in any way [authorize]
the BUYER/S to occupy the assigned house and lot to them.[9]
xxx xxx xxx
Clearly, when the property was mortgaged to Genato in May
1989, what was in effect between Oakland and petitioners was
a contract to sell, not a contract of sale. Oakland retained
absolute ownership over the property.
Ownership is the independent and general power of a person
over a thing for purposes recognized by law and within the
limits established thereby.[10] According to Art. 428 of the Civil
Code, this means that:
The owner has the right to enjoy and dispose of a thing,
without other limitations than those established by law.
xxx xxx xxx
Aside from the jus utendi and the jus abutendi [11] inherent in
the right to enjoy the thing, the right to dispose, or the jus
disponendi, is the power of the owner to alienate, encumber,
transform and even destroy the thing owned.[12]
Because Oakland retained all the foregoing rights as owner of
the property, it was entitled absolutely to mortgage it to
Genato. Hence, the mortgage was valid.
SECOND ISSUE: WAS THE REGISTERED MORTGAGE
SUPERIOR TO THE CONTRACT TO SELL?
In their memorandum, petitioners cite our ruling in State
Investment House, Inc. v. Court of Appeals [13] to the effect
that an unregistered sale is preferred over a registered
mortgage over the same property. The citation is misplaced.
This Court in that case explained the rationale behind the rule:
20
The unrecorded sale between respondents-spouses and
SOLID is preferred for the reason that if the original owner xxx
had parted with his ownership of the thing sold then he no
longer had ownership and free disposal of that thing as to be
able to mortgage it again.
WHEREFORE, the petition for review is hereby DENIED. The
decision of the Court of Appeals reinstating the August 16,
1996 decision of the trial court is hereby AFFIRMED.
SO ORDERED.

State Investment House is completely inapplicable to the case

at bar. A contract of sale and a contract to sell are worlds
apart. State Investment House clearly pertained to a contract of
sale, not to a contract to sell which was what Oakland and
petitioners had. In State Investment House, ownership had
passed completely to the buyers and therefore, the former
owner no longer had any legal right to mortgage the property,
notwithstanding the fact that the new owner-buyers had not
registered the sale. In the case before us, Oakland retained
absolute ownership over the property under the contract to sell
and therefore had every right to mortgage it.

In sum, we rule that Genatos registered mortgage was superior

to petitioners contract to sell, subject to any liabilities Oakland
may have incurred in favor of petitioners by irresponsibly
mortgaging the property to Genato despite its commitments to
petitioners under their contract to sell.

THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH?

The third issue involves a factual matter which should not be

raised in this petition. Only questions of law may be raised in a
Rule 45 petition. This Court is not a trier of facts. The resolution
of factual issues is the function of the lower courts. We
therefore adopt the factual findings of the Court of Appeals and
uphold the good faith of the mortgagee Genato.

RELIANCE ON WHAT APPEARS IN THE TITLE

Just as an innocent purchaser for value may rightfully rely on

what appears in the certificate of title, a mortgagee has the
right to rely on what appears in the title presented to him. In the
absence of anything to arouse suspicion, he is under no
obligation to look beyond the certificate and investigate the title
of the mortgagor appearing on the face of the said certificate.
[14]

We agree with the findings and conclusions of the trial court

regarding the liabilities of Oakland in its August 16, 1996
decision, as affirmed by the Court of Appeals:

Anent [plaintiffs] prayer for damages, the Court finds that

defendant corporation is liable to return to plaintiffs all the
installments/payments made by plaintiffs consisting of the
amount of P10,000.00 representing payment for the option to
purchase lot; the amount of P140,000.00 which was the first
downpayment; the sum of P20,520.80 representing five
monthly amortizations for February, March, April, May and
June 1990 and the amount of P3,000.00 representing
amortization for November 1990 plus legal interest from the
time of the mortgage up to the time this instant case was filed.
Further, considering that defendant corporation wantonly and
fraudulently mortgaged the subject property without regard to
[plaintiffs] rights over the same, said defendant should pay
plaintiffs moral damages in the reasonable amount of
P30,000.00. xxx Furthermore, since defendant [corporations]
acts have compelled the plaintiffs to litigate and incur expenses
to protect their interest, it should likewise be adjudged to pay
plaintiffs attorneys fees of P20,000.00 under Article 2208
paragraph two (2) of the Civil Code.[15]

21
PHILIPPINE NATIONAL BANK, G.R. No. 180945
AS THE ATTORNEY-IN-FACT OF
OPAL PORTFOLIO INVESTMENTS
(SPV-AMC), INC.,
Petitioner, Present:
Carpio, J., Chairperson,
- versus - Brion,
Del Castillo,
Abad, and
Perez, JJ.
MERCEDES CORPUZ, REPRESENTED
BY HER ATTORNEY-IN-FACT Promulgated:
VALENTINA CORPUZ,
Respondent. February 12, 2010
x ---------------------------------------------------------------------------------
------ x
DECISION
ABAD, J.:
This case is about the need for a mortgagee-bank, faced with
suspicious layers of transfers involving a property presented for
mortgage, to exercise proper diligence in ascertaining the bona
fide status of those transfers.
The Facts and the Case
On October 4, 1974 respondent Mercedes Corpuz delivered
her owners duplicate copy of Transfer Certificate of Title (TCT)
32815 to Dagupan City Rural Bank as security against any
liability she might incur as its cashier. She later left her job and
went to the United States.
On October 24, 1994 the rural bank where she worked
cancelled its lien on Corpuzs title, she having incurred no
liability to her employer. Without Corpuzs knowledge and
consent, however, Natividad Alano, the rural banks manager,
turned over Corpuzs title to Julita Camacho and Amparo
Callejo.
Conniving with someone from the assessors office, Alano,
Camacho, and Callejo prepared a falsified deed of sale,
making it appear that on February 23, 1995 Corpuz sold her
land to one Mary Bondoc for P50,000.00. They caused the
registration of the deed of sale, resulting in the cancellation of
TCT 32815 and the issuance of TCT 63262 in Bondocs name.
About a month later or on March 27, 1995 the trio executed
another fictitious deed of sale with Mary Bondoc selling the
property to the spouses Rufo and Teresa Palaganas for only
P15,000.00. This sale resulted in the issuance of TCT 63466 in
favor of the Palaganases.
Nine days later or on April 5, 1995 the Palaganases executed
a deed of sale in favor of spouses Virgilio and Elena Songcuan
for P50,000.00, resulting in the issuance of TCT 63528. Finally,
four months later or on August 10, 1995 the Songcuans took
out a loan of P1.1 million from petitioner Philippine National
Bank (PNB) and, to secure payment, they executed a real
estate mortgage on their title. Before granting the loan, the
PNB had the title verified and the property inspected.
On November 20, 1995 respondent Corpuz filed, through an
attorney-in-fact, a complaint before the Dagupan Regional Trial
Court (RTC) against Mary Bondoc, the Palaganases, the
Songcuans, and petitioner PNB, asking for the annulment of
the layers of deeds of sale covering the land, the cancellation
of TCTs 63262, 63466, and 63528, and the reinstatement of
TCT 32815 in her name.
On June 29, 1998 the RTC rendered a decision granting
respondent Corpuzs prayers. This prompted petitioner PNB to
appeal to the Court of Appeals (CA). On July 31, 2007 the CA
affirmed the decision of the RTC and denied the motion for its
reconsideration, prompting PNB to take recourse to this Court.
The Issue Presented
The sole issue presented in this case is whether or not
petitioner PNB is a mortgagee in good faith, entitling it to its
lien on the title to the property in dispute.
The Ruling of the Court
Petitioner PNB points out that, since it did a credit
investigation, inspected the property, and verified the clean
status of the title before giving out the loan to the Songcuans, it
should be regarded as a mortgagee in good faith. PNB claims
that the precautions it took constitute sufficient compliance with
the due diligence required of banks when dealing with
registered lands.
As a rule, the Court would not expect a mortgagee to conduct
an exhaustive investigation of the history of the mortgagors title
before he extends a loan.[1] But petitioner PNB is not an
ordinary mortgagee; it is a bank.[2] Banks are expected to be
more cautious than ordinary individuals in dealing with lands,
even registered ones, since the business of banks is imbued
with public interest.[3] It is of judicial notice that the standard
practice for banks before approving a loan is to send a staff to
the property offered as collateral and verify the genuineness of
the title to determine the real owner or owners.[4]
One of the CAs findings in this case is that in the course of its
verification, petitioner PNB was informed of the previous TCTs
covering the subject property.[5] And the PNB has not
categorically contested this finding. It is evident from the faces
of those titles that the ownership of the land changed from
Corpuz to Bondoc, from Bondoc to the Palaganases, and from
the Palaganases to the Songcuans in less than three months
and mortgaged to PNB within four months of the last transfer.
The above information in turn should have driven the PNB to
look at the deeds of sale involved. It would have then
discovered that the property was sold for ridiculously low
prices: Corpuz supposedly sold it to Bondoc for just
P50,000.00; Bondoc to the Palaganases for just P15,000.00;
and the Palaganases to the Songcuans also for just
P50,000.00. Yet the PNB gave the property an appraised value
of P781,760.00. Anyone who deliberately ignores a significant
fact that would create suspicion in an otherwise reasonable
person cannot be considered as an innocent mortgagee for
value.[6]
The Court finds no reason to reverse the CA decision.
22
WHEREFORE, the Court DENIES the petition and AFFIRMS
the decision of the Court of Appeals dated July 31, 2007 and
its resolution dated December 17, 2007 in CA-G.R. CV 60616.

SO ORDERED.

23
G.R. No. 196118 July 30, 2014
LEONARDO C. CASTILLO, represented by LENNARD V.
CASTILLO, Petitioner,
vs.
SECURITY BANK CORPORATION, JRC POULTRY FARMS
or SPOUSES LEON C. CASTILLO, JR., and TERESITA
FLORESCASTILLO, Respondents.
DECISION
PERALTA, J.:
This is a Petition for Review questioning the Decision1 of the
Court of Appeals (CA) dated November 26, 2010, as well as its
Resolution2 dated March 17, 2011 in CA-G.R. CV No. 88914.
The CA reversed and set aside the Decision3 of the Regional
Trial Court (RTC) of San Pablo City, Laguna, Branch 32, dated
October 16, 2006 in Civil Case No. SP-5882 (02), and
consequently, upheld the validity of the real estate mortgage
entered into by respondents spouses Leon C. Castillo, Jr. and
Teresita Flores-Castillo, and Security Bank Corporation (SBC).
The facts, as culled from the records, are as follows:
Petitioner Leonardo C. Castillo and respondent Leon C.
Castillo, Jr. are siblings. Leon and Teresita Flores-Castillo (the
Spouses Castillo) were doing business under the name of JRC
Poultry Farms. Sometime in 1994, the Spouses Castillo
obtained a loan from respondent SBC in the amount of
₱45,000,000.00. To secure said loan, they executed a real
estate mortgage on August 5, 1994 over eleven (11) parcels of
land belonging to different members of the Castillo family and
which are all located in San Pablo City.4 They also procured a
second loan5 amounting to ₱2,500,000.00, which was covered
by a mortgage on a land in Pasay City. Subsequently, the
Spouses Castillo failed to settle the loan, prompting SBC to
proceed with the foreclosure of the properties. SBC was then
adjudged as the winning bidder in the foreclosure sale held on
July 29, 1999. Thereafter, they were able to redeem the
foreclosed properties, withthe exception of the lots covered by
Torrens Certificate of Title(TCT) Nos. 28302 and 28297.
On January 30, 2002, Leonardo filed a complaint for the partial
annulment of the real estate mortgage. He alleged that he
owns the property covered by TCT No. 28297 and that the
Spouses Castillo used it as one of the collaterals for a loan
without his consent. He contested his supposed Special Power
of Attorney (SPA) in Leon’s favor, claiming that it is falsified.
According to him, the date of issuance of his Community Tax
Certificate (CTC) as indicated on the notarization of said SPA
is January 11, 1993, when he only secured the same on May
17, 1993. He also assailed the foreclosure of the lots under
TCT Nos.20030 and 10073 which were still registered in the
name of their deceased father. Lastly, Leonardo attacked
SBC’s imposition of penalty and interest on the loans as being
arbitrary and unconscionable.
On the other hand, the Spouses Castillo insisted on the validity
of Leonardo’s SPA. They alleged that they incurred the loan
not only for themselves, but also for the other members of the
Castillo family who needed money at that time. Upon receipt of
the proceeds of the loan, they distributed the same to their
family members, as agreed upon. However, when the loan
became due, their relatives failed to pay their respective shares
such that Leon was forced to use his own money until SBC had
to finally foreclose the mortgage over the lots.6
In a Decision dated October 16, 2006, the RTC of San Pablo
City ruled in Leonardo’s favor, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff Leonardo C. Castillo and against the defendants
SECURITY BANK CORPORATION, and JRC POULTRY
FARMS or SPS. LEON C. CASTILLO, JR. and TERESITA
FLORES-CASTILLO declaring as null and void the Real Estate
Mortgage dated August 5, 1994, the Memorandum of
Agreement dated October 28, 1997 and the Certificate of Sale
dated August 27, 1999 insofar as plaintiff’s property with
Transfer Certificate of Title No. T-28297 is concerned. The
Security Bank Corporation is likewise ordered to return the
ownership of the Transfer Certificate of Title No. T-28297 to
plaintiff Leonardo Castillo. Likewise, defendants spouses Leon
C. Castillo, Jr. and Teresita Flores-Castillo are hereby ordered
to pay plaintiff moral damages in the total amount of
₱500,000.00 and exemplary damages of ₱20,000.00. All other
claims for damages and attorney’s fees are DENIED for
insufficiency of evidence.
SO ORDERED.7
Both parties elevated the case to the CA. On November 26,
2010, the CA denied Leonardo’s appeal and granted that of the
Spouses Castillo and SBC. It reversed and set aside the RTC
Decision, essentially ruling that the August 5, 1994 real estate
mortgage isvalid. Leonardo filed a Motion for Reconsideration,
but the same was denied for lack of merit.
Hence, Leonardo brought the case to the Court and filed the
instant Petition for Review.1âwphi1 The main issue soughtto
be resolved here is whether or not the real estate mortgage
constituted over the property under TCT No. T-28297 is valid
and binding.
The Court finds the petition to be without merit.
As a rule, the jurisdiction of the Court over appealed cases
from the CA is limited to the review and revision of errors of law
it allegedly committed, as its findings of fact are deemed
conclusive. Thus, the Court is not duty-bound to evaluate and
weigh the evidence all over again which were already
considered in the proceedings below, except when, as in this
case, the findings of fact of the CAare contrary to the findings
and conclusions of the trial court.8
The following are the legal requisites for a mortgage to be
valid:
(1) It must be constituted to secure the fulfillment of a principal
obligation;
(2) The mortgagor must be the absolute owner of the thing
mortgaged;
(3) The persons constituting the mortgage must have the free
disposal of their property, and in the absence thereof, they
should be legally authorized for the purpose.9
Leonardo asserts that his signature inthe SPA authorizing his
brother, Leon, to mortgage his property covered by TCT No. T-
28297 was falsified. He claims that he was in America at the
time of its execution. As proof of the forgery, he focuses on his
alleged CTC used for the notarization10 of the SPA on May 5,
1993 and points out that it appears to have been issued on
January 11, 1993 when, in fact, he only obtained it on May 17,
1993. But it is a settled rule that allegations of forgery, like all
24
other allegations, must be proved by clear, positive, and
convincing evidence by the party alleging it. It should not be
presumed, but must beestablished by comparing the alleged
forged signature with the genuine signatures.11 Here,
Leonardo simply relied on his self-serving declarations and
refused to present further corroborative evidence, saying that
the falsified document itself is the best evidence.12 He did not
even bother comparing the alleged forged signature on the
SPA with samples of his real and actual signature. What he
consistently utilized as lone support for his allegation was the
supposed discrepancy on the date of issuance of his CTC as
reflectedon the subject SPA’s notarial acknowledgment. On the
contrary, in view of the great ease with which CTCs are
obtained these days,13 there is reasonable ground to believe
that, as the CA correctly observed, the CTC could have been
issued with the space for the date left blank and Leonardo
merelyfilled it up to accommodate his assertions. Also, upon
careful examination, the handwriting appearing on the space
for the date of issuance is different from that on the
computation of fees, which in turn was consistent with the rest
of the writings on the document.14 He did not likewise attempt
to show any evidence that would back up his claim that at the
time of the execution of the SPA on May 5, 1993, he was
actually in America and therefore could not have possibly
appeared and signed the document before the notary.
And even if the Court were to assume, simply for the sake of
argument, that Leonardo indeed secured his CTC only on May
17, 1993, this does not automatically render the SPA invalid.
The appellate court aptly held that defective notarization will
simply strip the document of its public character and reduce it
to a private instrument, but nonetheless, binding, provided its
validity is established by preponderance of evidence.15 Article
1358 of the Civil Code requires that the form of a contract that
transmits or extinguishes real rights over immovable property
should be in a public document, yet the failure to observethe
proper form does not render the transaction invalid.16 The
necessity of a public document for said contracts is only for
convenience; it is not essential for validity or enforceability.17
Even a sale of real property, though notcontained in a public
instrument or formal writing, is nevertheless valid and binding,
for even a verbal contract of sale or real estate produceslegal
effects between the parties.18 Consequently, when there is a
defect in the notarization of a document, the clear and
convincing evidentiary standard originally attached to a
dulynotarized document is dispensed with, and the measure to
test the validity of such document is preponderance of
evidence.19
Here, the preponderance ofevidence indubitably tilts in favor of
the respondents, still making the SPA binding between the
parties even with the aforementioned assumed
irregularity.1âwphi1 There are several telling circumstances
that would clearly demonstrate that Leonardo was aware of the
mortgage and he indeed executed the SPA to entrust Leon
with the mortgage of his property. Leon had inhis possession
all the titles covering the eleven (11) properties mortgaged,
including that of Leonardo.20 Leonardo and the rest of their
relatives could not have just blindly ceded their respective
TCTs to Leon.21 It is likewise ridiculous how Leonardo seemed
to have been totally oblivious to the status of his property for
eight (8) long years, and would only find outabout the mortgage
and foreclosure from a nephew who himself had consented to
the mortgage of his own lot.22 Considering the lapse of time
from the alleged forgery on May 5, 1993 and the mortgage on
August 5, 1994, to the foreclosure on July 29, 1999, and to the
supposed discovery in 2001, it appears that the suit is a mere
afterthought or a last-ditch effort on Leonardo’s part to extend
his hold over his property and to prevent SBC from
consolidating ownership over the same. More importantly,
Leonardo himself admitted on cross-examination that he
granted Leon authority to mortgage, only that, according to
him, he thought it was going to be with China Bank, and not
SBC.23 But as the CA noted, there is no mention of a
certainbank in the subject SPA with which Leon must
specifically deal. Leon, therefore, was simply acting within the
bounds of the SPA’s authority when hemortgaged the lot to
SBC.
True, banks and other financing institutions, in entering into
mortgage contracts, are expected to exercise due diligence.24
The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and
indispensable part of its operations.25 In this case, however,
no evidence was presented to show that SBC was remiss in
the exercise of the standard care and prudence required of it or
that it was negligent in accepting the mortgage.26 SBC could
not likewise befaulted for relying on the presumption of
regularity of the notarized SPA when it entered into the subject
mortgage agreement.
Finally, the Court finds that the interest and penalty charges
imposed by SBC are just, and not excessive or
unconscionable.
Section 47 of The General Banking Law of 200027 thus
provides:
Section 47. Foreclosure of Real Estate Mortgage.- In the event
of foreclosure, whether judicially or extra-judicially, of any
mortgage on real estate which is security for any loan or other
credit accommodation granted, the mortgagor or debtor whose
real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of
the real estate, to redeem the property by paying the amount
due under the mortgage deed, with interest thereon at the rate
specified in the mortgage, and all the costs and expenses
incurred by the bank or institutionfrom the sale and custody of
said property less the income derived therefrom. However,the
purchaser at the auction sale concerned whether in a judicial or
extra-judicial foreclosure shall have the right to enter upon and
take possession of such property immediately after the date of
the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain
the conduct of foreclosure proceedings instituted pursuant to
this provision shall be given due course only upon the filing by
the petitioner of a bond in an amount fixed by the court
conditioned that he will pay all the damages which the bank
may suffer by the enjoining or the restraint of the foreclosure
proceeding.
Notwithstanding Act 3135, juridical persons whose property is
being sold pursuant to an extrajudicial foreclosure, shall have
the right to redeem the property in accordance with this
provision until, but not after, the registration of the certificate of
foreclosure sale with the applicable Register of Deeds which in
no case shall be more than three (3) months after foreclosure,
whichever is earlier. Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act shall retain
their redemption rights until their expiration.28 Verily, the
redemption price comprises not only the total amount due
under the mortgage deed, but also with interest at the rate
specified in the mortgage, and all the foreclosure expenses
incurred by the mortgagee bank.
To sustain Leonardo's claim that their payment of
₱45,000,000.00 had already extinguished their entire obligation
with SBC would mean that no interest ever accrued from 1994,
25
when the loan was availed, up to the time the payment of
₱45,000,000.00 was made in 2000-2001.

SBC's 16% rate of interest is not computed per month, but

rather per annum or only 1.33% per month. In Spouses
Bacolor v. Banco Filipino Savings and Mortgage Bank,
Dagupan City Branch,29 the Court held that the interest rate of
24% per annum on a loan of ₱244,000.00 is not considered as
unconscionable and excessive. As such, the Court ruled that
the debtors cannot renege on their obligation to comply with
what is incumbent upon them under the contract of loan as
they are bound by its stipulations. Also, the 24o/o per annum
rate or 2% per month for the penalty charges imposed on
account of default, cannot be considered as skyrocketing. The
enforcement of penalty can be demanded by the creditor in
case of non-performance due to the debtor's fault or fraud. The
nonperformance gives rise to the presumption of fault and in
order to avoid the penalty, the debtor has the burden of proving
that the failure of the performance was due to either force
majeure or the creditor's own acts.30 In the instant case,
petitioner failed to discharge said burden and thus cannot
avoid the payment of the penalty charge agreed upon.

WHEREFORE, premises considered, the petition is DENIED.

The Decision of the Court of Appeals, dated November 26,
2010, as well as its Resolution dated March 17, 2011 in CA-
G.R. CV No. 88914, are hereby AFFIRMED.

SO ORDERED.

26
G.R. No. 112160 February 28, 2000
OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner,
vs.
COURT OF APPEALS, ASIAN SAVINGS BANK, MAXIMO C.
CONTRARES and VICENTE MAÑOSCA, respondents.
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court, seeking to review and set aside the
Decision1 of the Court of Appeals in CA-G.R. CV No. 25242,
which reversed the Decision2 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 Mañosca, 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.
S-78498 in the name of his wife Angelina Canlas.
Subsequently, Osmundo Canlas agreed to sell the said parcels
of land to Vicente Mañosca, 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 Mañosca the transfer certificates of title of the
parcels of land involved. Vicente Mañosca, 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
On September 3, 1982, Vicente Mañosca 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 Mañosca
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 mortgage.
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 O. 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 Sheriff's Sale.8
For failure to file his answer, despite several motions for
extension of time for the filing thereof, Vicente Mañosca 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.1âwphi1.nêt
1. Declaring the deed of real estate mortgage (Exhibit "L")
involving the properties of the plaintiffs as null and void;
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 Mañosca 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
27
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.
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.
V the Financial statement of the client, the signatures were
RESPONDENT COURT OF APPEALS ERRED IN
AWARDING RESPONDENT ASB MORAL DAMAGES.11
The Petition is impressed with merit.
Art. 1173 of the Civil Code, provides:
Art. 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 registered 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 purchasers or mortgagees for
value and in good faith.13
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:
xxx xxx xxx
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?
Q: 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 MAÑOSCA?
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
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.
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
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
28
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 supposed 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 Mañosca 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 Mañosca and therefore, estopped from
impugning the validity of subject deed of mortgage;
ratiocinating thus:
xxx xxx xxx
Thus, armed with the titles and the special power of attorney,
Mañosca went to the defendant bank and applied for a loan.
And when Mañosca 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 Mañosca right away. But he
did not. Instead, he even allowed Mañosca to avail of his
(Osmundo's) membership privileges at the Metropolitan Club
when Mañosca 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 Mañosca introduced him again as "Leonardo Rey", which all
the more indicates that he connived with Mañosca in deceiving
the defendant bank.
Finally after the loan was finally approved, Osmundo
accompanied Mañosca 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 active 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 Mañosca
on subject pieces of property of petitioners were made possible
not by the Special Power of Attorney executed by Osmundo
Canlas in favor of Mañosca 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 Mañosca to constitute the
mortgage on their parcels of land.
What is more, Osmundo Canlas was introduced as "Leonardo
Rey" by Vicente Mañosca, only on the occasion of the
luncheon meeting at the Metropolitan Club.19 Thereat, the
failure of Osmundo Canlas to rectify Mañosca's
misrepresentations could not be taken as a fraudulent act. As
well explained by the former, he just did not want to embarrass
Mañosca, so that he waited for the end of the meeting to
correct Mañosca.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 Mañosca with ASB.21 So also, Mrs.
Josefina Rojo, who was the Account Officer of Asian Savings
Bank when Mañosca applied for subject loan, corroborated the
testimony of Osmundo Canlas, she testified:
xxx xxx xxx
QUESTION: Now could you please describe out the
lunch conference at the Metro Club in Makati?
ANSWER: Mr. Mangubat, Mr. Mañosca and I did not
discuss with respect to the loan application and discuss
primarily his business.
xxx xxx xxx
QUESTION: So, what is the main topic of your
discussion during the meeting?
ANSWER: The main topic war then, about his business
although, Mr. Leonardo Rey, who actually turned out as Mr.
Canlas, supplier of Mr. Mañosca.
QUESTION: I see . . . other than the business of Mr.
Mañosca, were there any other topic discussed?
ANSWER: YES.
QUESTION: And what was the topic:
ANSWER: General Economy then.
xxx xxx x x x22
Verily, Osmundo Canlas was left unaware of the illicit plan of
Mañosca, explaining thus why he (Osmundo) did not bother to
correct what Mañosca misrepresented and to assert ownership
over the two parcels of land in question.
29
Not only that; while it is true that Osmundo Canlas was with
Vicente Mañosca when the latter submitted the documents
needed for his loan application, and when the check of
P200,000.00 was released, the former did not know that the
collateral used by Mañosca for the said loan were their (Canlas
spouses') properties. Osmundo happened to be with Mañosca
at the time because he wanted to make sure that Mañosca
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 Mañosca.24

What is decisively clear on record is that Mañosca managed to

keep Osmundo Canlas uninformed of his (Mañosca's) intention
to use the parcels of land of the Canlas spouses as security for
the loan obtained from Asian Savings Bank. Since Vicente
Mañosca showed Osmundo Canlas several certificates of title
of lots which, according to Mañosca were the collaterals,
Osmundo Canlas was confident that their (Canlases') parcels
of land were not involved in the loan transactions 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 attorney's 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.1âwphi1.nêt

30
G.R. No. L-13313 April 28, 1960
AGRICULTURAL CREDIT COOPERATIVE ASSOCIATION OF
HINIGARAN, movant-appellee,
vs.
ESTANISLAO YULO YUSAY, ET AL., oppositors-appellants.
Aritao, Garcia & Aritao for appellee.
Catalino A. Dayon and Arsenio Al. Acuna for appellant.
LABRADOR, J.:
This is an appeal from an order of the Court of First Instance of
Negros Occidental, Hon. Jose S. de la Cruz, presiding the
Register of Deeds of Negros Occidental to register a mortgage
executed by Rafael Yulo in favor of the movant covering Lot
No. 855, Pontevedra Cadastre, covered by Original Certificate
of Title No. 4979.
The records disclose that on July 20, 1952, Rafaela Yulo
executed in favor of the movant a mortgage for P33,626.29,
due from her, her mother, sisters, brothers, and others, which
amount she assumed to pay to the movant. A motion was
presented to the court by the movant demanding the surrender
of the owner's duplicate certificate of title that he may annotate
said mortgage at the back of the certificate. Estanislao Yusay,
a part owner of the lot, opposed the petition on the ground that
he is owner of a part of the property in question; that the
granting of the motion would operate to his prejudice, as he
has not participated in the mortgage cited in the motion; that
Rafaela Yulo is dead; that the motion is not verified and
movant's rights have lapsed by prescription. Finally it is argued
that his opposition raises a controversial matter which the court
has no jurisdiction to pass upon. Margarita, Maria, Elena and
Pilar, all surnamed Yulo, joined the oppositor Estanislao
Yusay, raising the same objections interposed by Yusay.
The registration of a lease or mortgage, or the entry of a
memorial of a lease or mortgage on the register, is not a
declaration by the state that such an instrument is a valid and
subsisting interest in land; it is merely a declaration that the
record of the title appears to be burdened with the lease or
mortgage described, according to the priority set forth in the
certificate.
The mere fact that a lease or mortgage was registered does
not stop any party to it from setting up that it now has no force
or effect. (Niblack, pp. 134-135, quoted in Francisco Land
Registration Act, l950 ed., p. 348.)
The court below, in ordering the registration and annotation of
the mortgage, did not pass on its invalidity or effect. As the
mortgage is admittedly an act of the registered owner, all that
the judge below did and could do, as a registration court, is to
order its registration and annotation on the certificate of title
covering the land mortgaged. By said order the court did not
pass upon the effect or validity of the mortgage — these can
only be determined in an ordinary case before the courts, not
before a court acting merely as a registration court, which did
not have the jurisdiction to pass upon the alleged effect or
validity.
Wherefore, the order appealed from is hereby affirmed, with
costs against oppositors-appellants. So ordered.

The existence of the mortgage is not disputed, and neither is

the fact that the mortgagor Rafaela Yulo is part owner of Lot
No. 855 of the Cadastral Survey of Pontevedra. The oppositors
do not dispute that she is such a part owner, and their main
objection to the petition is that as part owners of the property,
the annotation of the mortgage on the common title will affect
their rights.

The court held that even if the ownership of the deceased

Rafaela Yulo over the portion of the lot in question and the
validity of the mortgage are disputed, such invalidity of the
mortgage is no proof of the non-existence of the mortgage nor
a ground for objecting to its registration, citing the case of
Register of Deeds of Manila vs. Maxima Tinoco Vda. de Cruz,
et, al., 95 Phil., 818; 53 Off. Gaz., 2804.

In his Brief before this Court, counsel for appellants argue that
the mortgage sought to be registered was not recorded before
the closing of the intestate proceedings of the deceased
mortgagor, but was so recorded only four months after the
termination of said proceedings, so that the claim of movant
has been reduced to the character of a mere money claim, not
a mortgage, hence the mortgage may not be registered. In the
first place, as the judge below correctly ruled, the proceeding to
register the mortgage does not purport to determine the
supposed invalidity of the mortgage or its effect. Registration is
a mere ministerial act by which a deed, contract or instrument
is sought to be inscribed in the records of the Office of the
Register of Deeds and annotated at the back of the certificate
of title covering the land subject of the deed, contract or
instrument.

31
G.R. No. 212483, October 05, 2016
PHILIPPINE NATIONAL BANK, Petitioner, v. VENANCIO C.
REYES, JR., Respondent.
DECISION
LEONEN, J.:
A spouse's consent is indispensable for the disposition or
encumbrance of conjugal properties.
This resolves a dispute between petitioner Philippine National
Bank and respondent Venancio C. Reyes, Jr. (Venancio).
Philippine National Bank filed a Petition for Review on
Certiorari1 assailing the Decision2 dated August 22, 2013 and
the Resolution3 dated May 5, 2014 of the Court of Appeals.
The assailed Court of Appeals Decision affirmed the Decision
and Order of Branch 81 of the Regional Trial Court of Malolos,
Bulacan, which annulled the real estate mortgage and the
certificate of sale issued under the extrajudicial foreclosure
conducted, and ordered Lilia Reyes (Lilia) to reimburse to
Philippine National Bank the total loan amount she borrowed
from the bank.4chanrobleslaw
Venancio is married to Lilia since 1973. During their union, they
acquired three (3) parcels of land in Malolos, Bulacan. Transfer
Certificates of Title (TCT) Nos. T-52812 and T-52813 were
registered under "Felicidad Pascual and Lilia C. Reyes,
married to Venancio Reyes[,]"5 while TCT No. 53994 was
registered under "Lilia C. Reyes, married to Venancio
Reyes."6chanrobleslaw
The properties were mortgaged to Philippine National Bank on
August 25, 1994 to secure a loan worth P1,100,000.00,7 which
on October 6, 1994 was increased to P3,000,000.00.8
According to Philippine National Bank, the Reyes Spouses
contracted and duly consented to the loan.9chanrobleslaw
When the Reyes Spouses failed to pay the loan obligations,
Philippine National Bank foreclosed the mortgaged real
properties.10 The auction sale was held on September 19,
1997. Philippine National Bank emerged as the highest bidder,
and a certificate of sale was issued in its
favor.11chanrobleslaw
On September 22, 1998, Venancio filed before the Regional
Trial Court a Complaint (or Annulment of Certificate of Sale
and Real Estate Mortgage against Philippine National Bank.12
Upon order of the trial court, Venancio amended his Complaint
to include Lilia and the Provincial Sheriff ofBulacan as
defendants.13chanrobleslaw
In assailing the validity of the real estate mortgage, Venancio
claimed that his wife undertook the loan and the mortgage
without his consent and his signature was falsified on the
promissory notes and the mortgage.14chanrobleslaw
Since the three (3) lots involved were conjugal properties, he
argued that the mortgage constituted over them was
void.15chanrobleslaw
On May 27, 2009, Branch 81 of the Regional Trial Court of
Malolos, Bulacan ordered the annulment of the real estate
mortgage and directed Lilia to reimburse Philippine National
Bank the loan amount with interest.16 The dispositive portion
reads:
chanRoblesvirtualLawlibrary
WHEREFORE, judgment is hereby rendered:
chanRoblesvirtualLawlibrary1. Annulling in its entirety the Real
Estate Mortgage Contract and the Amendment thereto, the
Certificate of Sale issued pursuant to the extra- judicial
foreclosure and the foreclosure proceedings on the subject
properties covered by Transfer Certificates of Title Nos. T-
53994, T-
52812 and T-52813 of the Registry of Deeds of Bulacan for
want of consent on the part of the plaintiff;
2. Making the writ of preliminary injunction permanent and
perpetual conditioned on plaintiffs posting within an
inextendible period of five (5) days from receipt thereof of the
injunctive bond in the amount Eight Hundred Thousand
(P800,000.00) pesos as contained in the Order dated
November 3, 1998;
3. Ordering defendant Lilia C. Reyes to reimburse the
defendant Philippine National Bank the total loan account of
P3,324,771.18 with interest at 6% per annum from the date of
the foreclosure sale until finality of this decision. After this
decision has attained finality interest at the rate of 12% per
annum on the principal and interest (or any part thereof) shall
be imposed until full payment.
SO ORDERED.17
Aggrieved, Philippine National Bank appealed to the Court of
Appeals. On August 22, 2013, the Court of Appeals denied the
appeal18 and affirmed the ruling of the Regional Trial Court.
The dispositive portion of the Court of Appeals Decision reads:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the present appeal is
DENIED. The challenged Decision and Order of the Regional
Trial Court of Malolos, Bulacan, Branch 81 dated May 27, 2009
and August 4, 2009, respectively, are hereby AFFIRMED.19
(Emphasis in the original)
Philippine National Bank moved for reconsideration, but the
Motion was denied in the Resolution20 dated May 5, 2014.
Petitioner Philippine National Bank insists that the Court of
Appeals erred in affirming the ruling of the trial court. It argues
that the real estate mortgage is valid, that the conjugal
partnership should be held liable for the loan, and that
respondent Venancio C. Reyes, Jr.'s cause of action should be
deemed barred by laches.21chanrobleslaw
Petitioner claims that respondent and his wife both duly
consented to the loan and the mortgage.22 It points to
respondent's testimony during cross examination where he
admitted that he had actual knowledge of the loan as early as
1996, but only filed the Complaint in 1998.23 Petitioner further
claims that it is impossible for respondent to have no
knowledge of the transaction since the ·Reyes Spouses live
together in the same house where the notices and demand
letters were sent.24 It contends that the Court of Appeals
should not have relied heavily on the testimony of the
handwriting expert since jurisprudence show these experts are
not indispensable in determining a
forgery.25cralawredchanrobleslaw
Respondent, in his Comment,26 alleges that his wife hid the
transaction from him. Even if they lived under the same roof,
he was not aware of everything happening in their home
32
because as a practicing lawyer, he was always away at work
from 8 a.m. to 7 p.m.27 He likewise points out that since both
the Regional Trial Court and the Court of Appeals made a
factual finding of forgery, this Court should respect this
finding.28 Respondent contends that the conjugal partnership
cannot be held liable because a void contract has no legal
existence from which an obligation may stem.29chanrobleslaw
The issues for resolution are:
chanRoblesvirtualLawlibraryFirst, whether the Court of Appeals
erred in declaring the real estate mortgage void;
Second, whether the conjugal partnership can be held liable for
the loan contracted unilaterally by Lilia C. Reyes; and
cralawlawlibrary
Lastly, whether respondent is guilty of laches and whether his
claim is now barred by estoppel.
I and well-coordinated strokes.37chanrobleslaw
The real estate mortgage over a conjugal property is void if the
non-contracting spouse did not give consent.
The Court of Appeals committed no reversible error in affirming
the ruling of the Regional Trial Court. The real estate mortgage
over the conjugal properties is void for want of consent from
respondent. The Family Code is clear: the written consent of
the spouse who did not encumber the property is necessary
before any disposition or encumbrance of a conjugal property
can be valid.30chanrobleslaw
It is not disputed that the Reyes Spouses were married in
1973,31 before the Family Code took effect. Under the Family
Code, their property regime is Conjugal Partnership of Gains;
thus, Article 124 is the applicable provision regarding te
administration of their conjugal property. It states:
chanRoblesvirtualLawlibrary
Art. 124. The administration and enjoyment of the conjugal
partnership shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to
recourse to the court by the wife for proper remedy, which must
be availed of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or otherwise
unable to participate in the administration of the conjugal
properties, the other spouse may assume sole powers of
administration. These powers do not include disposition or
encumbrance without authority of the court or the written
consent of the other spouse. In the absence of such authority
or consent, the disposition or encumbrance shall be void.
However, the transaction shall be construed as a continuing
offer on the part of the consenting spouse and the third person,
and may be perfected as a binding contract upon the
acceptance by the other spouse or authorization by the court
before the offer is withdrawn by either or both offerors.
Any disposition or encumbrance of a conjugal property by one
spouse must be consented to by the other; otherwise, it is
void.32chanrobleslaw
Petitioner points to respondent's signature on the Promissory
Notes and Deed of Mortgage to prove that he consented to the
transactions.33 For his part, respondent alleges that his
signature was forged and offers testimony from a handwriting
expert to prove that his signature on the bank documents were
falsified.34 The Regional Trial Court and the Court of Appeals
both agreed that respondent presented clear and convincing
evidence that his signature, as it appeared on the mortgage
contract, was forged.
Respondent offered the expert testimony of Efren B. Flores
(Flores) of the Questioned Document Section of the National
Bureau of Investigation. Flores, a handwriting expert,
compared the signature on the loan documents with the
standard signatures of respondent.35 He concluded that they
were not written by the same person through the following
observations:
chanRoblesvirtualLawlibraryFirst, the signatures on the loan
documents were executed in a slowly drawn motion of a pen.
This can be observed in the hidden portion of the signature
because the changes in pen pressure were
abrupt.36chanrobleslaw
Second, respondent's standard signature is written with free
Lastly, there were discrepancies in the structural pattern of
letter formation of the two (2) sets of signatures. With the
signatures in the loan documents, both the upper and lower
loops were elongated. On the standard signatures, the upper
loop was shorter while the lower loop was
bigger.38chanrobleslaw
Flores was convinced that the variations he noted is "due to
the operation of a different personality and not merely an
expected and inevitable variation found in genuine handwriting
of the same writer."39chanrobleslaw
Likewise telling was petitioner's inability to prove that
respondent took part in the transactions. Efren Agustin
(Agustin), Loan and Discount Division Chief of Philippine
National Bank, admitted that he merely relied on the
documents presented to him,40 and that he never actually saw
respondent sign the documents, follow up, or inquire about the
loan's status or the mortgage. Agustin only testified to seeing
Lilia, but not respondent, within the bank's
premises.41chanrobleslaw
This Court is not a trier of facts. In Manotok Realty, Inc. v CLT
Realty Development Corp.,42 "[w]here ... the findings of fact of
the trial courts are affirmed by the Court of Appeals, the same
are accorded the highest degree of respect and, generally, will
not be disturbed on appeal. Such findings are binding and
conclusive on this Court."43chanrobleslaw
We see no compelling reason to overturn the lower couris'
factual findings that the forgery was proven with clear and
convincing evidence. Having established that his signature was
forged, respondent proved that he did not consent to the real
estate mortgage. The mortgage unilaterally made by his wife
over their conjugal property is void and legally inexistent.
II
The lower courts may have declared the mortgage void, but the
principal obligation is not affected. It remains valid.
Petitioner contends that the conjugal partnership should be
made liable to the extent that it redounded to the benefit of the
family under Article 122 of the Family Code.
Petitioner's reliance on Article 122 to support the validity of the
mortgage is misplaced.
33

Article 122 provides:
chanRoblesvirtualLawlibrary
ARTICLE 122. The payment of personal debts contracted by
the husband or the wife before or during the marriage shall not
be charged to the conjugal partnership except insofar as they
redounded to the benefit of the family.
Neither shall the fines and pecuniary indemnities imposed
upon them be charged to the partnership.
However, the payment of personal debts contracted by either
spouse before the marriage, that of fines and indemnities
imposed upon them, as well as the support of illegitimate
children of either spouse, may be enforced against the
partnership assets after the responsibilities enumerated in the
preceding Article have been covered, if the spouse who is
bound should have no exclusive property or if it should be
insufficient; but at the time of the liquidation of the partnership,
such spouse shall be charged for what has been paid for the
purposes above-mentioned.
Article 122 applies to debts that were contracted by a spouse
and redounded to the benefit of the family. It applies
specifically to the loan that respondent's wife Lilia contracted,
but not to the mortgage.
To be clear, nowhere in the Decision did the Court of Appeals
state that the principal obligation secured by the mortgage was
void. The Court of Appeals affirmed the May 27, 2009 Decision
of the Regional Trial Court ordering, respondent's wife to
reimburse the petitioner the total loan amount44 "of
P3,324,771.18 with interest at 6% per annum from the date of
the foreclosure sale until finality of this decision."45 The
Regional Trial Court further imposed interest at 12% per
annum on the principal and interest, or any part thereof, after
the decision had attained finality and until full
payment.46chanrobleslaw
Ayala Investment & Development Corp. v. Court of Appeals47
has explained how Article 121 should be applied:
chanRoblesvirtualLawlibrary
From the foregoing jurisprudential rulings of this Court, we can
derive the following conclusions:
chanRoblesvirtualLawlibrary(A) If the husband himself is the
principal obligor in the contract, i.e., he directly received the
money and services to be used in or for his own business or
his own profession, that contract falls within the term "x x x
obligations for the benefit of the conjugal partnership. " Here,
no actual benefit may be proved. It is enough that the benefit to
the family is apparent at the time of the signing of the contract.
From the very nature of the contract of loan or services, the
family stands to benefit from the loan facility or services to be
rendered to the business or profession of the husband. It is
immaterial, if in the end, his business or profession fails or
does not succeed. Simply stated, where the husband contracts
obligations on behalf of the family business, the law presumes,
and rightly so, that such obligation will redound to the benefit of
the conjugal partnership.
(B) On the other hand, if the money or services are given to
another person or entity, and the husband acted only as a
surety or guarantor, that contract cannot, by itself, alone be
categorized as falling within the context of "obligations for the
benefit of the conjugal partnership." The contract of loan or
services is clearly for the benefit of the principal debtor and not
for the surety or his family. No presumption can be inferred
that, when a husband enters into a contract of surety or
accommodation agreement, it is "for the benefit of the conjugal
partnership." Proof must be presented to establish benefit
redounding to the conjugal partnership.48 (Emphasis supplied)
There are two scenarios considered: one is when the husband,
or in this case, the wife, contracts a loan to be used for the
family business and the other is when she acts as a surety or
guarantor. If she is a mere surety or guarantor, evidence that
the family benefited from the loan need to be presented before
the conjugal partnership can be held liable. On the other hand,
if the loan was taken out to be used for the family business,
there is no need to prove actual benefit. The law presumes the
family benefited from the loan and the conjugal partnership is
held liable.
According to petitioner, the Regional Trial Court found49 that
the loan was used as additional working capital for
respondent's printing business. As held in Ayala Investment,
since the loaned money is used in the husband's business,
there is a presumption that it redounded to the benefit of the
family; hence, the conjugal partnership may be held liable for
the loan amount.50 Since there is a legal presumption to this
effect, there is no need to prove actual benefit to the family.
What the lower courts declared void was the real estate
mortgage attached to the conjugal property of the Reyes
Spouses. Since the real estate mortgage was an encumbrance
attached to a conjugal property without the consent of the other
spouse, it is void and legally inexistent. Although petitioner
cannot foreclose the mortgage over the conjugal property in
question, it can still recover the loan amount from the conjugal
partnership.
In Philippine National Bank v. Banatao,51 "a mortgage is
merely an accessory agreement and does not affect the
principal contract of loan. The mortgages, while void, can still
be considered as instruments evidencing the
indebtedness[.]"52chanrobleslaw
III
Laches does not apply where the delay is within the period
prescribed by law.
Petitioner contends that respondent's action to annul the Deed
of Real Estate Mortgage is already barred by latches.53 This is
erroneous.
As found by the trial court, records show that upon learning
about the mortgage, respondent immediately informed the
bank about his forged signature.54 He filed the Complaint for
Annulment of Certificate of Sale and Real Estate Mortgage
against petitioner on September 22, 1998, which was still
within the prescribed period to redeem a mortgaged
property.55chanrobleslaw
In Torbela v. Rosario:56chanrobleslaw
Laches means 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. As the Court
explained in the preceding paragraphs, the Torbela siblings
instituted Civil Case No. U-4359 five years after Dr. Rosario's
repudiation of the express trust, still within the 10-year
34
prescriptive period for enforcement of such trusts. This does
not constitute an unreasonable delay in asserting one's right. A
delay within the prescriptive period is sanctioned by law and is
not considered to be a delay that would bar relief Laches apply
only in the absence of a statutory prescriptive period.57
(Emphasis supplied)
Since respondent filed the Complaint for Annulment of
Certificate of Sale and Real Estate Mortgage within the period
of redemption prescribed by law, petitioner fails to convince
that respondent slept on his right.
The mortgage over the conjugal property is void and cannot be
foreclosed. However, petitioner can still hold the conjugal
partnership liable for the principal obligation since the loan is
presumed to have redounded to the benefit of the family. If the
conjugal partnership is insufficient to cover the liability, the
husband is solidarity liable with the wife for the unpaid
balance.58chanrobleslaw
the Family Code governing the Absolute Community of
Property regime, explicitly holds the spouses solidarity liable
with each other if the conjugal properties are not enough to
answer for the liabilities. In this case, if the conjugal properties
of the Reyes Spouses are not enough to answer for the loan,
petitioner can recover the remaining unpaid balance from the
separate properties of either respondent or his wife Lilia.
WHEREFORE, the Petition is DENIED for failure to show the
Court of Appeals committed a reversible error in the assailed
Decision. The Decision of the Court of Appeals dated August
22, 2013 in CA-G.R. CV No. 94018 is AFFIRMED with
MODIFICATION, in that Spouses Venancio C. Reyes, Jr. and
Lilia Reyes are declared jointly and solidarity liable with each
other with their separate properties if their conjugal partnership
is insufficient to fully pay for the loan.
SO ORDERED.chanRoblesvirtualLawlibrary

The last paragraph of Article 121 of the Family Code is

instructive:

chanRoblesvirtualLawlibrary
Art. 121. The conjugal partnership shall be liable for:

chanRoblesvirtualLawlibrary
(1)
The support of the spouse, their common children, and the
legitimate children of either spouse; however, the support of
illegitimate children shall be governed by the provisions of this
Code on Support;
(2)
All debts and obligations contracted during the marriage by the
designated administrator-spouse for the benefit of the conjugal
partnership of gains, or by both spouses or by one of them with
the consent of the other;
(3)
Debts and obligations contracted by either spouse without the
consent of the other to the extent that the family may have
benefited;
(4)
All taxes, liens, charges, and expenses, including major or
minor repairs upon the conjugal partnership property;
(5)
All taxes and expenses for mere preservation made during the
marriage upon the separate property of either spouse;
(6)
Expenses to enable either spouse to commence or complete a
professional, vocational, or other activity for self-improvement;
(7)
Ante-nuptial debts of either spouse insofar as they have
redounded to the benefit of the family;
(8)
The value of what is donated or promised by both spouses in
favor of their common legitimate children for the exclusive
purpose of commencing or completing a professional or
vocational course or other activity for self-improvement; and
(9)
Expenses of litigation between the spouses unless the suit is
found to groundless.

If the conjugal partnership is insufficient to cover the foregoing

liabilities, the spouses shall be solidarily liable for the unpaid
balance with their separaie properties. (Emphasis supplied)

The last paragraph points to the "subsidiary but solidary liability

of the separate properties"59 of the spouses for liabilities
enumerated in the Article. This Article, similar to Article 94 of

35
G.R. No. 171865, October 12, 2016
PHILIPPINE NATIONAL BANK, Petitioner, v. HEIRS OF
BENEDICTO AND AZUCENA ALONDAY, Respondent.
DECISION
BERSAMIN, J.:
The issue is whether the all-embracing or dragnet clause
contained in the first mortgage contract executed between the
parties for the security of the first loan could authorize the
foreclosure of the property under the mortgage to secure a
second loan despite the full payment of the second loan.
Antecedents
On September 26, 1974, the Spouses Benedicto and Azucena
Alonday (Spouses Alonday) obtained an agricultural loan of
P28,000.00 from the petitioner at its Digos, Davao del Sur
Branch, and secured the obligation by constituting a real estate
mortgage on their parcel of land situated in Sta. Cruz, Davao
del Sur registered under Original Certificate of Title (OCT) No.
P-3599 of the Registry of Deeds of Davao del
Sur.1chanrobleslaw
On June 11, 1980, the Spouses Alonday obtained a
commercial loan for P16,700.00 from the petitioner's Davao
City Branch, and constituted a real estate mortgage over their
598 square meter residential lot situated in Ulas, Davao City
registered under Transfer Certificate of Title (TCT) No. T-
66139 of the Registry of Deeds of Davao City.
It is noted that the mortgage contracts contained the following
identical provision, to wit:ChanRoblesVirtualawlibrary
That for and in consideration of certain loans, overdrafts, and
other credit accommodations, obtained from the Mortgagee,
which is hereby fixed at _________, Philippine Currency, and
to secure the payment of the same and those others that the
Mortgagee may extend to the Mortgagor, including interests
and expenses, and other obligations owing by the Mortgagor to
the Mortgagee, whether direct or indirect, principal or
secondary, as appearing in the accounts, books and records of
the Mortgagee, the Mortgagor does hereby transfer and
convey by way of mortgage unto the Mortgagee, its successors
or assigns, the parcel of land which is/are described in the list
inserted at the back of this document xxx. In case the
Mortgagor executes subsequent promissory note or notes
either as renewal of the former note, as an extension thereof,
or as a new loan, or is given any other kind of accommodation,
xxx, this mortgage shall also stand as security for the payment
of the said promissory note or notes and/or accommodations
without the necessity of executing a new contract and this
mortgage shall have the same force and effect as if the said
promissory note or notes and/or accommodations were
existing on the date thereof, notwithstanding full payments of
any or all obligations of the Mortgagors. This mortgage shall
also stand as security for said obligations and any and all other
obligations of the Mortgagor to the Mortgagee of whatever kind
and nature, whether such obligations have been contracted
before, during or after the constitution of this mortgage.
However, if the Mortgagor shall pay the Mortgagee, its
successors or assigns, the obligations secured by this
mortgage, together with interests, costs and other expenses,
on or before the date they are due, and shall keep and perform
all the covenants and agreements herein contained for the
Mortgagor to keep and perform, then this mortgage shall be
null and void, otherwise, it shall remain in full force and
effect.2chanroblesvirtuallawlibrary
The Spouses Alonday made partial payments on the
commercial loan, which they renewed on December 23, 1983
for the balance of P15,950.00. The renewed commercial loan,
although due on December 25, 1984, was fully paid on July 5,
1984.3chanrobleslaw
On August 6, 1984, respondents Mercy and Alberto Alonday,
the children of the Spouses Alonday, demanded the release of
the mortgage over the property covered by TCT No. T-66139.
The petitioner informed them, however, that the mortgage
could not be released because the agricultural loan had not yet
been fully paid, and that as the consequence of the failure to
pay, it had foreclosed the mortgage over the property covered
by OCT No. P-3599 on August 17, 1984.
It appeared that notwithstanding such foreclosure, a deficiency
balance of P91,525.22 remained.4 Hence, the petitioner
applied for the extra-judicial foreclosure of the mortgage on the
property covered by TCT No. T-66139. A notice of extra-
judicial sale was issued on August 20, 1984, and the property
covered by TCT No. T-66139 was sold on September 28, 1984
to the petitioner in the amount of P29,900.00. Since the
Alondays were unable to redeem the property, the petitioner
consolidated its ownership. Later on, the property was sold for
P48,000.00 to one Felix Malmis on November 10,
1989.5chanrobleslaw
According to the petitioner, the deed of mortgage relating to the
property covered by TCT No. T-66139 included an "all-
embracing clause" whereby the mortgage secured not only the
commercial loan contracted with its Davao City Branch but also
the earlier agricultural loan contracted with its Digos Branch.
Judgment of the RTC
On July 8, 1994, therefore, the respondents instituted a
complaint against the petitioner in the Regional Trial Court
(RTC) in Davao City to recover damages and attorney's fees
(Civil Case No. 23,021-94), averring that the foreclosure and
sale of the property covered by TCT No. T-66139 was illegal.
On November 28, 1997, the RTC rendered judgment finding in
favor of the respondents,6 and disposed as
follows:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against defendant bank, ordering said defendant
bank:ChanRoblesVirtualawlibrary
To pay plaintiffs the sum of One Million Seven Hundred
Thousand (P1,700,000.00) Pesos, representing the value of
the land covered by TCT No. T-66139;
To pay plaintiffs the sum of P20,000.00 as attorney's fees; and
cralawlawlibrary
To pay the costs of this suit.
SO ORDERED.7chanroblesvirtuallawlibrary
The RTC observed that if the petitioner had intended to have
the second mortgage secure the pre-existing agricultural loan,
it should have made an express reservation to that effect; that
based on the all-embracing clause, the mortgage was a
contract of adhesion, and the ambiguities therein should be
construed strictly against the petitioner; that the last sentence
of the all-embracing clause provided that the mortgage would
be null and void upon the payment of the obligations secured
by the mortgage; and that the petitioner was guilty of bad faith
in refusing to nullify the mortgage despite full payment of the
commercial loan prior to its maturity.
36

The RTC also ruled that because the property had already
been sold to Malmis, a third party not brought within the trial
court's jurisdiction, it could not order the return of the property;
and that it was ordering the petitioner instead to pay the
respondents the value of the property under its present market
valuation.
Decision of the CA
Dissatisfied, the petitioner appealed to the Court of Appeals
(CA). The appeal was docketed as C.A.-G.R. CV No. 60625.
On August 31, 2005, the CA affirmed the RTC,8 observing that
the mortgage, being a contract of adhesion, should be
construed strictly against the petitioner as the patty who had
drafted the same; and that although the petitioner had argued,
citing Mojica v. Court of Appeals,9 that all-embracing clauses
were valid to secure past, present and future loans, Mojica v.
Court of Appeals was not in point inasmuch as the facts therein
were different from the facts herein.
The petitioner filed a motion for reconsideration, but the CA
denied the motion on February 27, 2006.10chanrobleslaw
Hence, this appeal by petition for review on certiorari.
Issues
The petitioner assigns the following errors to the CA, to
wit:ChanRoblesVirtualawlibrary
The Court of Appeals grievously erred in restricting and
delimiting the scope and validity of the standard "all-embracing
clause" in real estate mortgage contracts solely to future
indebtedness and not to prior ones, contrary to leading
Supreme Court decisions on the matter.
Even assuming arguendo that the xxx decisions are
inapplicable to the case at bar, the Court of Appeals grievously
erred in awarding the unsubstantiated amount of P1.7 million in
damages and P20,000.00 as attorney's fees against PNB
without factual and legal basis.11
The petitioner submits that Mojica v. Court of Appeals validates
the use of an all-embracing clause in a mortgage agreement to
secure not only the amount indicated on the mortgage
instrument, but also the mortgagor's future and past
obligations; that by denying the applicability to the case of
Mojica v. Court of Appeals and other similar rulings, the CA
disregarded the principle of stare decisis; and that the CA in
effect thereby regarded all-embracing clauses invalid as to
prior obligations.
Ruling of the Court
The appeal lacks merit.
The CA opined as follows:ChanRoblesVirtualawlibrary
The real estate mortgage on the property covered by TCT No.
T-66139 was specifically constituted to secure the payment of
the commercial loan of the Spouses ALONDAY. In the same
manner, the real estate mortgage on the property covered by
OCT No. P-3599 was constituted to secure the payment of
their agricultural loan with the PNB. With the execution of
separate mortgage contracts for the two (2) loans, it is clear
that the intention of the parties was to limit the mortgage to the
loan for which it was constituted.
xxxx
The [Mojica] case is not in point since the facts therein are
different from the case at bench. In Mojica vs. Court of
Appeals, the mortgaged real estate property was made to
answer for future advancement or renewal of the loan, whereas
in the instant case, the foreclosure sale included a property
which was used as a security for a commercial loan which was
obtained after the agricultural loan.
The mortgage provision relied upon by appellant is known in
American jurisprudence as a "dragnet" clause, which is
specifically phrased to subsume all debts of past or future
origin. Such clauses pursuant to the pronouncement of the
Supreme Court in DBP vs. Mirang must be "carefully
scrutinized and strictly construed."12chanrobleslaw
The petitioner wrongly insists that the CA, thr ough the
foregoing ratiocination, held that the all-embracing or dragnet
clauses were altogether invalid as to prior obligations. What the
CA, although reiterating that the Court upheld the validity of
using real estate mortgages to secure future advancements,
only thereby pointed out that it could not find similar rulings as
to mortgages executed to secure prior loans.
There is no question, indeed, that all-embracing or dragnet
clauses have been recognized as valid means to secure debts
of both future and past origins.13 Even so, we have likewise
emphasized that such clauses were an exceptional mode of
securing obligations, and have held that obligations could only
be deemed secured by the mortgage if they came fairly within
the terms of the mortgage contract.14 For the all-embracing or
dragnet clauses to secure future loans, therefore, such loans
must be sufficiently described in the mortgage contract.15 If
the requirement could be imposed on a future loan that was
uncertain to materialize, there is a greater reason that it should
be applicable to a past loan, which is already subsisting and
known to the parties.
Nonetheless, it was undeniable that the petitioner had the
opportunity to include some form of acknowledgement of the
previously subsisting agricultural loan in the terms of the
second mortgage contract The mere fact that the mortgage
constituted on the property covered by TCT No. T-66139 made
no mention of the pre-existing loan could only strongly indicate
that each of the loans of the Spouses Alonday had been
treated separately by the parties themselves, and this
sufficiently explained why the loans had been secured by
different mortgages.
Another indication that the second mortgage did not extend to
the agricultural loan was the fact that the second mortgage was
entered into in connection only with the commercial loan. Our
ruling in Prudential Bank v. Alviar16 is then relevant, to
wit:ChanRoblesVirtualawlibrary
xxx The parties having conformed to the "blanket mortgage
clause" or "dragnet clause," it is reasonable to conclude that
they also agreed to an implied understanding that subsequent
loans need not be secured by other securities, as the
subsequent loans will be secured by the first mortgage. In
other words, the sufficiency of the first security is a corollary
component of the "dragnet clause." But of course, there is no
prohibition, as in the mortgage contract in issue, against
contractually requiring other securities for the subsequent
loans. Thus, when the mortgagor takes another loan for which
another security was given it could not be inferred that such
loan was made in reliance solely on the original security with
the "dragnet clause," but rather, on the new security given.
This is the "reliance on the security test."
xxx Accordingly, finding a different security was taken for the
second loan no intent that the parties relied on the security of
37
the first loan could be inferred, so it was held. The rationale
involved, the court said, was that the "dragnet clause" in the
first security instrument constituted a continuing offer by the
borrower to secure further loans under the security of the first
security instrument, and that when the lender accepted a
different security he did not accept the
offer.17chanroblesvirtuallawlibrary
Although the facts in Prudential Bank were not entirely on all
fours with those of this case because the prior mortgage in
Prudential Bank was sought to be enforced against a
subsequent loan already secured by other securities, the logic
in Prudential Bank is applicable here. The execution of the
subsequent mortgage by the parties herein to secure the
subsequenlloan was an indication that they had intended to
treat each loan as distinct from the other, and that they had
intended to secure each of the loans individually and
separately.
We further concur with the CA and the RTC in their holding that
the mortgage contracts executed by the Spouses Alonday
were contracts of adhesion exclusively prep red by the
petitioner. Under Article 1306 of the Civil Code, the contracting
parties "may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public
policy." This is an express recognition by the law of the right of
the people to enter into all manner of lawful conventions as
part of their safeguarded liberties. The objection against a
contract of adhesion lies most often in its negation of the
autonomy of the will of the parties in contracts. A contract of
adhesion, albeit valid, becomes objectionable only when it
takes undue advantage of one of the parties the weaker party-
by having such party just adhere to the terms of the contract. In
such situation, the courts go to the succor of the weaker party
by construing any obscurity in the contract against the party
who prepared the contract, the latter being presumed as the
stronger party to the agreement, and as the party who caused
the obscurity.18chanrobleslaw
To reiterate, in order for the all-embracing or dragnet clauses
to secure future and other loans, the loans thereby secured
must be sufficiently described in the mortgage contract.
Considering that the agricultural loan had been pre-existing
when the mortgage was constituted on the property covered by
TCT No. T-66139, it would have been easy for the petitioner to
have expressly incorporated the reference to such agricultural
loan in the mortgage contract covering the commercial loan.
But the petitioner did not. Being the party that had prepared the
contract of mortgage, its failure to do so should be construed
that it did not at all contemplate the earlier loan when it entered
into the subsequent mortgage.
Anent the value of the property covered by TCT No. T-66139,
the findings of the RTC on the valuation were as
follows:ChanRoblesVirtualawlibrary
Considering that the property is located at the junction of the
roads leading to Toril and Calinan districts with big
establishments all around, plaintiffs claim that at the time of the
filing of this case which was in 1994, the reasonable market
value of the land was P1,200.00 per square meter. To date, the
value could reasonably be P3,000.00 per square
meter.19chanroblesvirtuallawlibrary
Opining that the respondents should be indemnified the value
of the loss suffered from the illegal foreclosure of the property
covered by TCT No. T-66139, theCA adopted the valuation by
the RTC on the established fair market value of the property
being P3,000.00/square meter, for a total of P1,700,000.00 as
damages to be awarded.20chanrobleslaw
The petitioner challenges the valuation as devoid of basis. It
points out that the complaint of the Spouses Alonday had
placed the value of the property at P1,200.00/square meter;
and that respondent Alberto Alonday had testified during the
trial that the value of the property had been only
P1,200.00/square meter.
We uphold the challenge by the petitioner.
We are at a loss at how the RTC had computed and
determined the valuation at P3,000.00/square meter. Such
determination was easily the product of guesswork on the part
of the trial court, for the language employed in its judgment in
reference to such value was "could reasonably be."21 On its
part, the CA adverted to the valuation as "approximately
P3,000.00,"22 indicating that its own determination of the fair
market value was of similar tenor as that by the RTC.
Accordingly, the valuation by both lower courts cannot be
upheld, for it is basic enough that in their determination of
actual damages, the comis should eschew mere assertions,
speculations, conjectures or guesswork;23 otherwise, they
would be guilty of arbitrariness and whimsicality.
Moreover, the courts cannot grant reliefs not prayed for in the
pleadings or in excess of what is being sought by the
party.24chanrobleslaw
To accord with what is fair, based on the records, we reduce
the basis of the actual damages to P1,200.00/square meter.
Such valuation is insulated from arbitrariness because it was
made by the Spouses Alonday themselves in their complaint,
rendering a total of P717,600.00 as actual damages.
The lower courts did not impose interest on the judgment
obligation to be paid by the petitioner. Such interest is in the
nature of compensatory interest, as distinguished from
monetary interest. It is relevant to elucidate on the distinctions
between these kinds of interest. In this regard, the Court has
expounded in Siga-an v. Villanueva:25cralawredcralawred
Interest is a compensation fixed by the parties for the use or
forbearance of money. This is referred to as monetary interest.
Interest may also be imposed by law or by courts as penalty or
indemnity for damages. This is called compensatory interest.
The right to interest arises only by virtue of a contract or by
virtue of damages for delay or failure to pay the principal loan
on which interest is demanded.
Article 1956 of the Civil Code, which refers to monetary
interest, specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing. As can be
gleaned from the foregoing provision, payment of monetary
interest is allowed only if: (1) there was an express stipulation
for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of
the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without
any stipulation therefor in writing is prohibited by law.
xxxx
There are instances in which an interest may be imposed even
in the absence of express stipulation, verbal or written,
regarding payment of interest. Article 2209 of the Civil Code
states that if the obligation consists in the payment of a sum of
money, and the debtor incurs delay, a legal interest of 12% per
annum may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed upon.
Likewise, Article 2212 of the Civil Code provides that interest
38
due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.

All the same, the interest under these two instances may be
imposed only as a penalty or damages for breach of
contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. In other
words, the two instances apply only to compensatory interest
and not to monetary interest.26 xxx
The petitioner should be held liable for interest on the actual
damages of P717,600.00 representing the value of the propetiy
with an area 598 square meters that was lost to them through
the unwarranted foreclosure, the same to be reckoned from the
date of judicial demand (i.e., the filing of the action by the
Spouses Alonday). At the time thereof, the rate was 12% per
annum, and such rate shall run until June 30, 2013. Thereafter,
or starting on July 1, 2013, the rate of interest shall be 6% per
annum until full payment of the obligation, pursuant to the
ruling in Nacar v. Gallery Frames,27 which took into
consideration the lowering of interest rates by the Monetary
Board.

In addition, Article 221228 of the Civil Code requires that

interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this
point. Accordingly, the interest due shall itself earn legal
interest of 6% per annum from the date of finality of the
judgment until its full satisfaction, the interim period being
deemed to be an equivalent to a forbearance of
credit.29chanrobleslaw

WHEREFORE, the Court AFFIRMS the decision promulgated

in C.A.-G.R. CV No. 60625 on August 31, 2005 in all respects
subject to the following MODIFICATIONS, namely: (1) the
award of P1,700,000.00 representing the value of the land
covered by Transfer Certificate of Title No. T-66139 of the
Registry of Deeds of Davao City is REDUCED to P717,600.00,
the same to be paid by petitioner Philippine National Bank; (2)
the principal amount of P717,600.00 shall earn interest of 12%
per annum from the filing of the complaint until June 30, 2013,
and interest of 6% per annum from July 1, 2013 until full
payment; and (3) the interests thus earned shall also earn
interest of 6% per annum from the finality of this decision until
full payment.

SO ORDERED.chanRoblesvirtualLawlibrary

39
SECOND DIVISION
JOE A. ROS and ESTRELLA AGUETE,
G.R. No. 170166
Petitioners,
Present:
CARPIO, J., Chairperson,
- versus -
PERALTA,
ABAD,
MENDOZA, and
SERENO,* JJ.
PHILIPPINE NATIONAL BANK -
LAOAG BRANCH,
Respondent.
Promulgated:
April 6, 2011
x---------------------------------------------
-----x
DECISION
CARPIO, J.:
The Case
G.R. No. 170166 is a petition for review1 assailing the
Decision2 promulgated on 17 October 2005 by the Court of
Appeals (appellate court) in CA-G.R. CV No. 76845. The
appellate court granted the appeal filed by the Philippine
National Bank Laoag Branch (PNB). The appellate court
reversed the 29 June 2001 Decision of Branch 15 of the
Regional Trial Court of Laoag City (trial court) in Civil Case No.
7803.
The trial court declared the Deed of Real Estate Mortgage
executed by spouses Jose A. Ros3 (Ros) and Estrella Aguete
(Aguete) (collectively, petitioners), as well as the subsequent
foreclosure proceedings, void. Aside from payment of attorneys
fees, the trial court also ordered PNB to vacate the subject
property to give way to petitioners possession.
The Facts
The appellate court narrated the facts as follows:
On January 13, 1983, spouses Jose A. Ros and Estrella
Aguete filed a complaint for the annulment of the Real Estate
Mortgage and all legal proceedings taken thereunder against
PNB, Laoag Branch before the Court of First Instance, Ilocos
Norte docketed as Civil Case No. 7803.
The complaint was later amended and was raffled to the
Regional Trial Court, Branch 15, Laoag City.
The averments in the complaint disclosed that plaintiff-appellee
Joe A. Ros obtained a loan of P115,000.00 from PNB Laoag
Branch on October 14, 1974 and as security for the loan,
plaintiff-appellee Ros executed a real estate mortgage
involving a parcel of land Lot No. 9161 of the Cadastral Survey
of Laoag, with all the improvements thereon described under
Transfer Certificate of Title No. T-9646.
Upon maturity, the loan remained outstanding. As a result,
PNB instituted extrajudicial foreclosure proceedings on the
mortgaged property. After the extrajudicial sale thereof, a
Certificate of Sale was issued in favor of PNB, Laoag as the
highest bidder. After the lapse of one (1) year without the
property being redeemed, the property was consolidated and
registered in the name of PNB, Laoag Branch on August 10,
1978.
Claiming that she (plaintiff-appellee Estrella Aguete) has no
knowledge of the loan obtained by her husband nor she
consented to the mortgage instituted on the conjugal property a
complaint was filed to annul the proceedings pertaining to the
mortgage, sale and consolidation of the property interposing
the defense that her signatures affixed on the documents were
forged and that the loan did not redound to the benefit of the
family.
In its answer, PNB prays for the dismissal of the complaint for
lack of cause of action, and insists that it was plaintiffs-
appellees own acts [of]
omission/connivance that bar them from recovering the subject
property on the ground of estoppel, laches, abandonment and
prescription.4
The Trial Courts Ruling
On 29 June 2001, the trial court rendered its Decision5 in
favor of petitioners. The trial court declared that Aguete did not
sign the loan documents, did not appear before the Notary
Public to acknowledge the execution of the loan documents,
did not receive the loan proceeds from PNB, and was not
aware of the loan until PNB notified her in 14 August 1978 that
she and her family should vacate the mortgaged property
because of the expiration of the redemption period. Under the
Civil Code, the effective law at the time of the transaction, Ros
could not encumber any real property of the conjugal
partnership without Aguetes consent. Aguete may, during their
marriage and within ten years from the transaction questioned,
ask the courts for the annulment of the contract her husband
entered into without her consent, especially in the present case
where her consent is required. The trial court, however, ruled
that its decision is without prejudice to the right of action of
PNB to recover the amount of the loan and its interests from
Ros.
The dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby
rendered:
1. DECLARING the Deed of Real Estate Mortgage (Exhibit C)
and the subsequent foreclosure proceedings conducted
thereon NULL and VOID;
2. ORDERING the Register of Deeds of the City of Laoag to
cancel TCT No. T-15276 in the name of defendant PNB and
revert the same in the name of plaintiffs spouses Joe Ros and
Estrella Aguete;
40
3. ORDERING defendant to vacate and turnover the
possession of the premises of the property in suit to the
plaintiffs; and
4. ORDERING defendant to pay plaintiffs attorneys fee and
litigation expenses in the sum of TEN THOUSAND
(P10,000.00) PESOS.
No pronouncement as to costs.
SO ORDERED.6
PNB filed its Notice of Appeal7 of the trial courts decision on 13
September 2001 and paid the corresponding fees. Petitioners
filed on the same date a motion for execution pending appeal,8
which PNB opposed.9 In their comment to the opposition10
filed on 10 October 2001, petitioners stated that at the hearing
of the motion on 3 October 2001, PNBs lay representative had
no objection to the execution of judgment pending appeal.
Petitioners claimed that the house on the subject lot is
dilapidated, a danger to life and limb, and should be
demolished. Petitioners added that they obliged themselves to
make the house habitable at a cost of not less P50,000.00. The
repair cost would accrue to PNBs benefit should the appellate
court reverse the trial court. PNB continued to oppose
petitioners motion.11
In an Order12 dated 8 May 2002, the trial court found
petitioners motion for execution pending appeal improper
because petitioners have made it clear that they were willing to
wait for the appellate courts decision. However, as a court of
justice and equity, the trial court allowed petitioners to occupy
the subject property with the condition that petitioners would
voluntarily vacate the premises and waive recovery of
improvements introduced should PNB prevail on appeal.
The Appellate Courts Ruling
On 17 October 2005, the appellate court rendered its
Decision13 and granted PNBs appeal. The appellate court
reversed the trial courts decision, and dismissed petitioners
complaint.
The appellate court stated that the trial court concluded
forgery without adequate proof; thus it was improper for the
trial court to rely solely on Aguetes testimony that her
signatures on the loan documents were forged. The appellate
court declared that Aguete affixed her signatures on the
documents knowingly and with her full consent.
Assuming arguendo that Aguete did not give her consent to
Ros loan, the appellate court ruled that the conjugal
partnership is still liable because the loan proceeds redounded
to the benefit of the family. The records of the case reveal that
the loan was used for the expansion of the familys business.
Therefore, the debt obtained is chargeable against the conjugal
partnership.
Petitioners filed the present petition for review before this
Court on 9 December 2005.
The Issues
Petitioners assigned the following errors:
I. The Honorable Court of Appeals erred in not giving weight to
the findings and conclusions of the trial court, and in reversing
and setting aside such findings and conclusions without stating
specific contrary evidence;
II. The Honorable Court of Appeals erred in declaring the real
estate mortgage valid;
III. The Honorable Court of Appeals erred in declaring, without
basis, that the loan contracted by husband Joe A. Ros with
respondent Philippine National Bank Laoag redounded to the
benefit of his family, aside from the fact that such had not been
raised by respondent in its appeal.14
The Courts Ruling
The petition has no merit. We affirm the ruling of the appellate
court.
The Civil Code was the applicable law at the time of the
mortgage. The subject property is thus considered part of the
conjugal partnership of gains. The pertinent articles of the Civil
Code provide:
Art. 153. The following are conjugal partnership property:
(1) That which is acquired by onerous title during the marriage
at the expense of the common fund, whether the acquisition be
for the partnership, or for only one of the spouses;
(2) That which is obtained by the industry, or work or as salary
of the spouses, or of either of them;
(3) The fruits, rents or interest received or due during the
marriage, coming from the common property or from the
exclusive property of each spouse.
Art. 160. All property of the marriage is presumed to belong to
the conjugal partnership, unless it be proved that it pertains
exclusively to the husband or to the wife.
Art. 161. The conjugal partnership shall be liable for:
(1) All debts and obligations contracted by the husband for the
benefit of the conjugal partnership, and those contracted by the
wife, also for the same purpose, in the cases where she may
legally bind the partnership;
(2) Arrears or income due, during the marriage, from
obligations which constitute a charge upon property of either
spouse or of the partnership;
(3) Minor repairs or for mere preservation made during the
marriage upon the separate property of either the husband or
the wife; major repairs shall not be charged to the partnership;
(4) Major or minor repairs upon the conjugal partnership
property;
(5) The maintenance of the family and the education of the
children of both husband and wife, and of legitimate children of
one of the spouses;
6) Expenses to permit the spouses to complete a professional,
vocational or other course.
Art. 166. Unless the wife has been declared a non compos
mentis or a spendthrift, or is under civil interdiction or is
confined in a leprosarium, the husband cannot alienate or
41
encumber any real property of the conjugal partnership without
the wifes consent. If she refuses unreasonably to give her
consent, the court may compel her to grant the same.
Art. 173. The wife may, during the marriage, and within ten
years from the transaction questioned, ask the courts for the
annulment of any contract of the husband entered into without
her consent, when such consent is required, or any act or
contract of the husband which tends to defraud her or impair
her interest in the conjugal partnership property. Should the
wife fail to exercise this right, she or her heirs after the
dissolution of the marriage may demand the value of the
property fraudulently alienated by the husband.
There is no doubt that the subject property was acquired
during Ros and Aguetes marriage. Ros and Aguete were
married on 16 January 1954, while the subject property was
acquired in 1968.15 There is also no doubt that Ros
encumbered the subject property when he mortgaged it for
P115,000.00 on 23 October 1974.16 PNB Laoag does not
doubt that Aguete, as evidenced by her signature, consented
to Ros mortgage to PNB of the subject property. On the other
hand, Aguete denies ever having consented to the loan and
also denies affixing her signature to the mortgage and loan
documents.
The husband cannot alienate or encumber any conjugal real
property without the consent, express or implied, of the wife.
Should the husband do so, then the contract is voidable.17
Article 173 of the Civil Code allows Aguete to question Ros
encumbrance of the subject property. However, the same
article does not guarantee that the courts will declare the
annulment of the contract. Annulment will be declared only
upon a finding that the wife did not give her consent. In the
present case, we follow the conclusion of the appellate court
and rule that Aguete gave her consent to Ros encumbrance of
the subject property.
The documents disavowed by Aguete are acknowledged
before a notary public, hence they are public documents. Every
instrument duly acknowledged and certified as provided by law
may be presented in evidence without further proof, the
certificate of acknowledgment being prima facie evidence of
the execution of the instrument or document involved.18 The
execution of a document that has been ratified before a notary
public cannot be disproved by the mere denial of the alleged
signer.19 PNB was correct when it stated that petitioners
omission to present other positive evidence to substantiate
their claim of forgery was fatal to petitioners cause.20
Petitioners did not present any corroborating witness, such as
a handwriting expert, who could authoritatively declare that
Aguetes signatures were really forged.
A notarized document carries the evidentiary weight conferred
upon it with respect to its due execution, and it has in its favor
the presumption of regularity which may only be rebutted by
evidence so clear, strong and convincing as to exclude all
controversy as to the falsity of the certificate. Absent such, the
presumption must be upheld. The burden of proof to overcome
the presumption of due execution of a notarial document lies
on the one contesting the same. Furthermore, an allegation of
forgery must be proved by clear and convincing evidence, and
whoever alleges it has the burden of proving the same.21
Ros himself cannot bring action against PNB, for no one can
come before the courts with unclean hands. In their
memorandum before the trial court, petitioners themselves
admitted that Ros forged Aguetes signatures.
Joe A. Ros in legal effect admitted in the complaint that the
signatures of his wife in the questioned documents are forged,
incriminating himself to criminal prosecution. If he were alive
today, he would be prosecuted for forgery. This strengthens
the testimony of his wife that her signatures on the questioned
documents are not hers.
In filing the complaint, it must have been a remorse of
conscience for having wronged his family; in forging the
signature of his wife on the questioned documents; in
squandering the P115,000.00 loan from the bank for himself,
resulting in the foreclosure of the conjugal property; eviction of
his family therefrom; and, exposure to public contempt,
embarassment and ridicule.22
The application for loan shows that the loan would be used
exclusively for additional working [capital] of buy & sell of garlic
& virginia tobacco.23 In her testimony, Aguete confirmed that
Ros engaged in such business, but claimed to be unaware
whether it prospered. Aguete was also aware of loans
contracted by Ros, but did not know where he wasted the
money.24 Debts contracted by the husband for and in the
exercise of the industry or profession by which he contributes
to the support of the family cannot be deemed to be his
exclusive and private debts.25
If the husband himself is the principal obligor in the contract,
i.e., he directly received the money and services to be used in
or for his own business or his own profession, that contract
falls within the term x x x x obligations for the benefit of the
conjugal partnership. Here, no actual benefit may be proved. It
is enough that the benefit to the family is apparent at the
signing of the contract. From the very nature of the contract of
loan or services, the family stands to benefit from the loan
facility or services to be rendered to the business or profession
of the husband. It is immaterial, if in the end, his business or
profession fails or does not succeed. Simply stated, where the
husband contracts obligations on behalf of the family business,
the law presumes, and rightly so, that such obligation will
redound to the benefit of the conjugal partnership.26
For this reason, we rule that Ros loan from PNB redounded to
the benefit of the conjugal partnership. Hence, the debt is
chargeable to the conjugal partnership.
WHEREFORE, we DENY the petition. The Decision of the
Court of Appeals in CA-G.R. CV No. 76845 promulgated on 17
October 2005 is AFFIRMED. Costs against petitioners.
SO ORDERED.
42
PRODUCERS BANK OF THE G.R. No. 152071
PHILIPPINES,
Petitioner,
Present:
CARPIO MORALES, J.*,
- versus- Acting Chairperson,
TINGA,
VELASCO, JR.,
LEONARDO-DE CASTRO, and**
EXCELSA INDUSTRIES, INC., BRION, JJ.
Respondent.
Promulgated:
May 8, 2009
x ---------------------------------------------------------------------------------
-----x
DECISION
TINGA, J.:
This is a petition for review on certiorari[1] under Rule 43 of the
1997 Rules of Civil Procedure, assailing the decision[2] and
resolution[3] of the Court of Appeals in CA-G.R. CV No. 59931.
The Court of Appeals decision[4] reversed the decision of the
Regional Trial Court (RTC), Branch 73, Antipolo, Rizal,
upholding the extrajudicial foreclosure of the mortgage on
respondents properties, while the resolution denied petitioners
motion for reconsideration.[5]
As borne by the records of the case, the following factual
antecedents appear:
Respondent Excelsa Industries, Inc. is a manufacturer and
exporter of fuel products, particularly charcoal briquettes, as an
alternative fuel source. Sometime in January 1987, respondent
applied for a packing credit line or a credit export advance with
petitioner Producers Bank of the Philippines, a banking
institution duly organized and existing under Philippines
laws.[6]
The application was supported by Letter of Credit No.
M3411610NS2970 dated 14 October 1986. Kwang Ju Bank,
Ltd. of Seoul, Korea issued the letter of credit through its
correspondent bank, the Bank of the Philippine Islands, in the
amount of US$23,000.00 for the account of Shin Sung
Commercial Co., Ltd., also located in Seoul, Korea. T.L. World
Development Corporation was the original beneficiary of the
letter of credit. On 05 December 1986, for value received, T.L.
World transferred to respondent all its rights and obligations
under the said letter of credit. Petitioner approved respondents
application for a packing credit line in the amount of
P300,000.00, of which about P96,000.00 in principal remained
outstanding.[7] Respondent executed the corresponding
promissory notes evidencing the indebtedness.[8]
Prior to the application for the packing credit line, respondent
had obtained a loan from petitioner in the form of a bill
discounted and secured credit accommodation in the amount
of P200,000.00, of which P110,000.00 was outstanding at the
time of the approval of the packing credit line. The loan was
secured by a real estate mortgage dated 05 December 1986
over respondents properties covered by Transfer Certificates of
Titles (TCT) No. N-68661, N-68662, N-68663, N-68664, N-
68665 and N-68666, all issued by the Register of Deeds of
Marikina.[9]
Significantly, the real estate mortgage contained the following
clause:
For and in consideration of those certain loans, overdraft
and/or other credit accommodations on this date obtained from
the MORTGAGEE, and to secure the payment of the same, the
principal of all of which is hereby fixed at FIVE HUNDRED
THOUSAND PESOS ONLY (P500,000.00) Pesos, Philippine
Currency, as well as those that the MORTGAGEE may
hereafter extend to the MORTGAGOR, including interest and
expenses or any other obligation owing to the MORTGAGEE,
the MORTGAGOR does hereby transfer and convey by way of
mortgage unto the MORTGAGEE, its successors or assigns,
the parcel(s) of land which is/are described in the list inserted
on the back of this document, and/or appended hereto,
together with all the buildings and improvements now existing
or which may hereafter be erected or constructed thereon, of
which the MORTGAGOR declares that he/it is the absolute
owner, free from all liens and encumbrances.[10]
On 17 March 1987, respondent presented for negotiation to
petitioner drafts drawn under the letter of credit and the
corresponding export documents in consideration for its
drawings in the amounts of US$5,739.76 and US$4,585.79.
Petitioner purchased the drafts and export documents by
paying respondent the peso equivalent of the drawings. The
purchase was subject to the conditions laid down in two
separate undertakings by respondent dated 17 March 1987
and 10 April 1987.[11]
On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner
through cable that the Korean buyer refused to pay
respondents export documents on account of typographical
discrepancies. Kwang Ju Bank, Ltd. returned to petitioner the
export documents.[12]
Upon learning about the Korean importers non-payment,
respondent sent petitioner a letter dated 27 July 1987,
informing the latter that respondent had brought the matter
before the Korea Trade Court and that it was ready to liquidate
its past due account with petitioner. Respondent sent another
letter dated 08 September 1987, reiterating the same
assurance. In a letter 05 October 1987, Kwang Ju Bank, Ltd.
informed petitioner that it would be returning the export
documents on account of the non-acceptance by the
importer.[13]
Petitioner demanded from respondent the payment of the
peso equivalent of the export documents, plus interest and
other charges, and also of the other due and unpaid loans. Due
to respondents failure to heed the demand, petitioner moved
for the extrajudicial foreclosure on the real estate mortgage
over respondents properties.
Per petitioners computation, aside from charges for attorneys
fees and sheriffs fees, respondent had a total due and
demandable obligation of P573,225.60, including interest, in six
different accounts, namely:
1) EBP-PHO-87-1121 (US$4,585.97 x 21.212) = P119,165.06
43

2) EBP-PHO-87-1095 (US$ 5,739.76 x 21.212) = 151,580.97
3) BDS-001-87 = 61,777.78
4) BDS-030/86 A = 123,555.55
5) BDS-PC-002-/87 = 55,822.91
6) BDS-005/87 = 61,323.33
P573,225.60[14]
The total approved bid price, which included the attorneys fees
and sheriff fees, was pegged at P752,074.63. At the public
auction held on 05 January 1988, the Sheriff of Antipolo, Rizal
issued a Certificate of Sale in favor of petitioner as the highest
bidder.[15] The certificate of sale was registered on 24 March
1988.[16]
On 12 June 1989, petitioner executed an affidavit of
consolidation over the foreclosed properties after respondent
failed to redeem the same. As a result, the Register of Deeds
of Marikina issued new certificates of title in the name of
petitioner.[17]
On 17 November 1989, respondent instituted an action for the
annulment of the extrajudicial foreclosure with prayer for
preliminary injunction and damages against petitioner and the
Register of Deeds of Marikina. Docketed as Civil Case No.
1587-A, the complaint was raffled to Branch 73 of the RTC of
Antipolo, Rizal. The complaint prayed, among others, that the
defendants be enjoined from causing the transfer of ownership
over the foreclosed properties from respondent to
petitioner.[18]
On 05 April 1990, petitioner filed a petition for the issuance of
a writ of possession, docketed as LR Case No. 90-787, before
the same branch of the RTC of Antipolo, Rizal. The RTC
ordered the consolidation of Civil Case No, 1587-A and LR
Case No. 90-787.[19]
On 18 December 1997, the RTC rendered a decision
upholding the validity of the extrajudicial foreclosure and
ordering the issuance of a writ of possession in favor of
petitioner, to wit:
WHEREFORE, in Case No. 1587-A, the court hereby rules
that the foreclosure of mortgage for the old and new obligations
of the plaintiff Excelsa Industries Corp., which has remained
unpaid up to the time of foreclosure by defendant Producers
Bank of the Philippines was valid, legal and in order; In Case
No. 787-A, the court hereby orders for the issuance of a writ of
possession in favor of Producers Bank of the Philippines after
the properties of Excelsa Industries Corp., which were
foreclosed and consolidated in the name of Producers Bank of
the Philippines under TCT No. 169031, 169032, 169033,
169034 and 169035 of the Register of Deeds of Marikina.
SO ORDERED.[20]
The RTC held that petitioner, whose obligation consisted only
of receiving, and not of collecting, the export proceeds for the
purpose of converting into Philippine currency and remitting the
same to respondent, cannot be considered as respondents
agent. The RTC also held that petitioner cannot be presumed
to have received the export proceeds, considering that
respondent executed undertakings warranting that the drafts
and accompanying documents were genuine and accurately
represented the facts stated therein and would be accepted
and paid in accordance with their tenor.[21]
Furthermore, the RTC concluded that petitioner had no
obligation to return the export documents and respondent
could not expect their return prior to the payment of the export
advances because the drafts and export documents were the
evidence that respondent received export advances from
petitioner.[22]
The RTC also found that by its admission, respondent had
other loan obligations obtained from petitioner which were due
and demandable; hence, petitioner correctly exercised its right
to foreclose the real estate mortgage, which provided that the
same secured the payment of not only the loans already
obtained but also the export advances.[23]
Lastly, the RTC found respondent guilty of laches in
questioning the foreclosure sale considering that petitioner
made several demands for payment of respondents
outstanding loans as early as July 1987 and that respondent
acknowledged the failure to pay its loans and advances.[24]
The RTC denied respondents motion for reconsideration.[25]
Thus, respondent elevated the matter to the Court of Appeals,
reiterating its claim that petitioner was not only a collection
agent but was considered a purchaser of the export
On 30 May 2001, the Court of Appeals rendered the assailed
decision, reversing the RTCs decision, thus:
WHEREFORE, the appeal is hereby GRANTED. The decision
of the trial court dated December 18, 1997 is REVERSED and
SET ASIDE. Accordingly, the foreclosure of mortgage on the
properties of appellant is declared as INVALID. The issuance
of the writ of possession in favor of appellee is ANNULLED.
The following damages are hereby awarded in favor of
appellant:
(a) Moral damages in the amount of P100,000.00;
(b) Exemplary damages in the amount of P100,000.00; and
(c) Costs.
SO ORDERED.[26]
The Court of Appeals held that respondent should not be
faulted for the dishonor of the drafts and export documents
because the obligation to collect the export proceeds from
Kwang Ju Bank, Ltd. devolved upon petitioner. It cited the
testimony of petitioners manager for the foreign currency
department to the effect that petitioner was respondents agent,
being the only entity authorized under Central Bank Circular
No. 491 to collect directly from the importer the export
proceeds on respondents behalf and converting the same to
Philippine currency for remittance to respondent. The appellate
court found that respondent was not authorized and even
powerless to collect from the importer and it appeared that
respondent was left at the mercy of petitioner, which kept the
export documents during the time that respondent attempted to
collect payment from the Korean importer.
The Court of Appeals disregarded the RTCs finding that the
export documents were the only evidence of respondents
export advances and that petitioner was justified in refusing to
return them. It opined that granting petitioner had no obligation
to return the export documents, the former should have helped
44
respondent in the collection efforts instead of augmenting
respondents dilemma.
Furthermore, the Court of Appeals found petitioners
negligence as the cause of the refusal by the Korean buyer to
pay the export proceeds based on the following: first, petitioner
had a hand in preparing and scrutinizing the export documents
wherein the discrepancies were found; and, second, petitioner
failed to advise respondent about the warning from Kwang Ju
Bank, Ltd. that the export documents would be returned if no
explanation regarding the discrepancies would be made.
The Court of Appeals invalidated the extrajudicial foreclosure
of the real estate mortgage on the ground that the posting and
publication of the notice of extrajudicial foreclosure
proceedings did not comply with
the personal notice requirement under paragraph 12[27] of the
real estate mortgage executed between petitioner and
respondent. The Court of Appeals also overturned the RTCs
finding that respondent was guilty of estoppel by laches in
questioning the extrajudicial foreclosure sale.
Petitioners motion for reconsideration[28] was denied in a
Resolution dated 29 January 2002. Hence, the instant petition,
arguing that the Court of Appeals erred in finding petitioner as
respondents agent, which was liable for the discrepancies in
the export documents, in invalidating the foreclosure sale and
in declaring that respondent was not estopped from
questioning the foreclosure sale.[29]
The validity of the extrajudicial foreclosure of the mortgage is
dependent on the following issues posed by petitioner: (1) the
coverage of the blanket mortgage clause; (2) petitioners failure
to furnish personal notice of the foreclosure to respondent; and
(3) petitioners obligation as negotiating bank under the letter of
credit.
Notably, the errors cited by petitioners are factual in nature.
Although the instant case is a petition for review under Rule 45
which, as a general rule, is limited to reviewing errors of law,
findings of fact being conclusive as a matter of general
principle, however, considering the conflict between the factual
findings of the RTC and the Court of Appeals, there is a need
to review the factual issues as an exception to the general
rule.[30]
Much of the discussion has revolved around who should be
liable for the dishonor of the draft and export documents. In the
two undertakings executed by respondent as a condition for
the negotiation of the drafts, respondent held itself liable if the
drafts were not accepted. The two undertakings signed by
respondent are similarly-worded and contained respondents
express warranties, to wit:
In consideration of your negotiating the above described
draft(s), we hereby warrant that the said draft(s) and
accompanying documents thereon are valid, genuine and
accurately represent the facts stated therein, and that such
draft(s) will be accepted and paid in accordance with its/their
tenor. We further undertake and agree, jointly and severally, to
defend and hold you free and harmless from any and all
actions, claims and demands whatsoever, and to pay on
demand all damages actual or compensatory including
attorneys fees, costs and other awards or be adjudged to pay,
in case of suit, which you may suffer arising from, by reason, or
on account of your negotiating the above draft(s) because of
the following discrepancies or reasons or any other
discrepancy or reason whatever.
We hereby undertake to pay on demand the full amount of the
above draft(s) or any unpaid balance thereof, the Philippine
perso equivalent converted at the prevailing selling rate (or
selling rate prevailing at the date you negotiate our draft,
whichever is higher) allowed by the Central Bank with interest
at the rate prevailing today from the date of negotiation, plus all
charges and expenses whatsoever incurred in connection
therewith. You shall neither be obliged to contest or dispute
any refusal to accept or to pay the whole or any part of the
above draft(s), nor proceed in any way against the drawee, the
issuing bank or any endorser thereof, before making a demand
on us for the payment of the whole or any unpaid balance of
the draft(s).(Emphasis supplied)[31]
In Velasquez v. Solidbank Corporation,[32] where the drawer
therein also executed a separate letter of undertaking in
consideration for the banks negotiation of its sight drafts, the
Court held that the drawer can still be made liable under the
letter of undertaking even if he is discharged due to the banks
failure to protest the non-acceptance of the drafts. The Court
explained, thus:
Petitioner, however, can still be made liable under the letter of
undertaking. It bears stressing that it is a separate contract
from the sight draft. The liability of petitioner under the letter of
undertaking is direct and primary. It is independent from his
liability under the sight draft. Liability subsists on it even if the
sight draft was dishonored for non-acceptance or non-
payment.
Respondent agreed to purchase the draft and credit petitioner
its value upon the undertaking that he will reimburse the
amount in case the sight draft is dishonored. The bank would
certainly not have agreed to grant petitioner an advance export
payment were it not for the letter of undertaking. The
consideration for the letter of undertaking was petitioners
promise to pay respondent the value of the sight draft if it was
dishonored for any reason by the Bank of Seoul.[33]
Thus, notwithstanding petitioners alleged failure to comply with
the requirements of notice of dishonor and protest under
Sections 89[34] and 152,[35] respectively, of the Negotiable
Instruments Law, respondent may not escape its liability under
the separate undertakings, where respondent promised to pay
on demand the full amount of the drafts.
The next question, therefore, is whether the real estate
mortgage also served as security for respondents drafts that
were not accepted and paid by the Kwang Ju Bank, Ltd.
Respondent executed a real estate mortgage containing a
blanket mortgage clause, also known as a dragnet clause. It
has been settled in a long line of decisions that mortgages
given to secure future advancements are valid and legal
contracts, and the amounts named as consideration in said
contracts do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be
gathered.[36]
In Union Bank of the Philippines v. Court of Appeals,[37] the
nature of a dragnet clause was explained, thus:
Is one which is specifically phrased to subsume all debts of
past and future origins. Such clauses are carefully scrutinized
and strictly construed. Mortgages of this character enable the
parties to provide continuous dealings, the nature or extent of
which may not be known or anticipated at the time, and they
avoid the expense and inconvenience of executing a new
45
security on each new transaction. A dragnet clause operates
as a convenience and accommodation to the borrowers as it
makes available additional funds without their
having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal
services, recording fees, et cetera.[38]
WHEREFORE, the instant petition for review on certiorari is
GRANTED and the decision and resolution of the Court of
Appeals in CA-G.R. CV No. 59931 are REVERSED and SET
ASIDE. The decision of the Regional Trial Court Branch 73,
Antipolo, Rizal in Civil Case No. 1587-A and LR Case No. 90-
787 is REINSTATED.

xxx
Petitioner, therefore, was not precluded from seeking the SO ORDERED.
foreclosure of the real estate mortgage based on the unpaid
drafts drawn by respondent. In any case, respondent had
admitted that aside from the unpaid drafts, respondent also
had due and demandable loans secured from another account
as evidenced by Promissory Notes (PN Nos.) BDS-001-87,
BDS-030/86 A, BDS-PC-002-/87 and BDS-005/87.

However, the Court of Appeals invalidated the extrajudicial

foreclosure of the mortgage on the ground that petitioner had
failed to furnish respondent personal notice of the sale contrary
to the stipulation in the real estate mortgage.

Petitioner, on the other hand, claims that under paragraph

12[39] of the real estate mortgage, personal notice of the
foreclosure sale is not a requirement to the validity of the
foreclosure sale.

A perusal of the records of the case shows that a notice of

sheriffs sale[40] was sent by registered mail to respondent and
received in due course.[41] Yet, respondent claims that it did
not receive the notice but only learned about it from petitioner.
In any event, paragraph 12 of the real estate mortgage
requires petitioner merely to furnish respondent with the notice
and does not oblige petitioner to ensure that respondent
actually receives the notice. On this score, the Court holds that
petitioner has performed its obligation under paragraph 12 of
the real estate mortgage.

As regards the issue of whether respondent may still question

the foreclosure sale, the RTC held that the sale was conducted
according to the legal procedure, to wit:

Plaintiff is estopped from questioning the foreclosure. The

plaintiff is guilty of laches and cannot at this point in time
question the foreclosure of the subject properties. Defendant
bank made demands against the plaintiff for the payment of
plaintiffs outstanding loans and advances with the defendant
as early as July 1997. Plaintiff acknowledged such outstanding
loans and advances to the defendant bank and committed to
liquidate the same. For failure of the plaintiff to pay its
obligations on maturity, defendant bank foreclosed the
mortgage on subject properties on January 5, 1988 the
certificate of sale was annotated on March 24, 1988 and there
being no redemption made by the plaintiff, title to said
properties were consolidated in the name of defendant in July
1989. Undeniably, subject foreclosure was done in accordance
with the prescribed rules as may be borne out by the exhibits
submitted to this Court which are Exhibit 33, a notice of
extrajudicial sale executed by the Sheriff of Antipolo, Exhibit 34
certificate posting of extrajudicial sale, Exhibit 35 return card
evidencing receipt by plaintiff of the notice of extrajudicial sale
and Exhibit 21 affidavit of publication.

The Court adopts and approves the aforequoted findings by

the RTC, the same being fully supported by the evidence on
record.

46
G.R. No. 173171 July 11, 2012
PHILIPPINE CHARITY SWEEPSTAKES OFFICE (PCSO),
Petitioner,
vs.
NEW DAGUPAN METRO GAS CORPORATION, PURITA E.
PERALTA and PATRICIA P. GALANG, Respondents.
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of
Court, assailing the Decision1 dated September 29, 2005 and
Resolution2 dated June 9, 2006 of the Court of Appeals (CA) in
CA-G.R. CV No. 59590.
In the assailed Decision, the CA Affirmed the Decision3 dated
January 28, 1998 of the Regional Trial Court (RTC), Branch 42
of Dagupan City in Civil Case No. 94-00200-D, ordering
petitioner Philippine Charity Sweepstakes Office (PCSO) to
surrender the owner’s duplicate of Transfer
Certificate of Title (TCT) No. 52135 to the Register of Deeds of
Dagupan City for cancellation and issuance of a new certificate
of title in the name of respondent New Dagupan Metro Gas
Corporation (New Dagupan).
In its Resolution4 dated June 9, 2006, the CA denied PCSO’s
motion for reconsideration.
The Factual Antecedents
Respondent Purita E. Peralta (Peralta) is the registered owner
of a parcel of land located at Bonuan Blue Beach Subdivision,
Dagupan City under TCT No. 52135. On March 8, 1989, a real
estate mortgage was constituted over such property in favor of
PCSO to secure the payment of the sweepstakes tickets
purchased by one of its provincial distributors, Patricia P.
Galang (Galang). The salient provisions of the Deed of
Undertaking with First Real Estate Mortgage,5 where Galang,
PCSO and Peralta were respectively designated as "principal",
"mortgagee" and "mortgagor", are as follows:
WHEREAS, the PRINCIPAL acknowledges that he/she has an
outstanding and unpaid account with the MORTGAGEE in the
amount of FOUR HUNDRED FIFTY THOUSAND
(P450,000.00), representing the balance of his/her
accountabilities for all draws;
WHEREAS, the PRINCIPAL agrees to liquidate or pay said
account ten (10) days after each draw with interest at the rate
of 14% per annum.
xxxx
The PRINCIPAL shall settle or pay his/her account of FOUR
HUNDRED FIFTY THOUSAND PESOS (P450,000.00) PESOS
with the MORTGAGEE, provided that the said balance shall
bear interest thereon at the rate of 14% per annum;
To secure the faithful compliance and as security to the
obligation of the PRINCIPAL stated in the next preceding
paragraph hereof, the MORTGAGOR hereby convey unto and
in favor of the MORTGAGEE, its successor and assigns by
way of its first real estate mortgage, a parcel/s of land together
with all the improvements now or hereafter existing thereon
located at BOQUIG, DAGUPAN CITY, covered by TCT No.
52135, of the Register of Deeds of DAGUPAN CITY, and more
particularly described as follows:
xxxx
4. During the lifetime of this mortgage, the MORTGAGOR shall
not alienate, sell, or in any manner dispose of or encumber the
above-mentioned property, without the prior written consent of
the MORTGAGEE;
xxxx
15. Upon payment of the principal amount together with
interest and other expenses legally incurred by the
MORTGAGEE, the above undertaking is considered
terminated.6
On July 31, 1990, Peralta sold, under a conditional sale, the
subject property to New Dagupan, the conveyance to be
absolute upon the latter’s full payment of the price of
P800,000.00. New Dagupan obliged to pay Peralta
P200,000.00 upon the execution of the corresponding deed
and the balance of P600,000.00 by monthly instalments of
P70,000.00, the first instalment falling due on August 31, 1990.
Peralta showed to New Dagupan a photocopy of TCT No.
52135, which bore no liens and encumbrances, and undertook
to deliver the owner’s duplicate within three (3) months from
the execution of the contract.7
New Dagupan withheld payment of the last instalment, which
was intended to cover the payment of the capital gains tax, in
view of Peralta’s failure to deliver the owner’s duplicate of TCT
No. 52135 and to execute a deed of absolute sale in its favor.
Further, New Dagupan, through its President, Julian Ong Cuña
(Cuña), executed an affidavit of adverse claim, which was
annotated on TCT No. 52135 on October 1, 1991 as Entry No.
14826.8
In view of Peralta’s continued failure to deliver a deed of
absolute sale and the owner’s duplicate of the title, New
Dagupan filed a complaint for specific performance against her
with the RTC on February 28, 1992. New Dagupan’s complaint
was raffled to Branch 43 and docketed as Civil Case No. D-
10160.
On May 20, 1992, during the pendency of New Dagupan’s
complaint against Peralta, PCSO caused the registration of the
mortgage.9
On February 10, 1993, PCSO filed an application for the
extrajudicial foreclosure sale of the subject property in view of
Galang’s failure to fully pay the sweepstakes she purchased in
1992.10 A public auction took place on June 15, 1993 where
PCSO was the highest bidder. A certificate of sale was
correspondingly issued to PCSO.11
The certified true copy of TCT No. 52135 that New Dagupan
obtained from the Register of Deeds of Dagupan City for its
use in Civil Case No. D-10160 reflected PCSO’s mortgage lien.
New Dagupan, claiming that it is only then that it was informed
of the subject mortgage, sent a letter to PCSO on October 28,
1993, notifying the latter of its complaint against Peralta and its
claim over the subject property and suggesting that PCSO
intervene and participate in the case.
On January 21, 1994, the RTC Branch 43 rendered a Decision,
approving the compromise agreement between Peralta and
New Dagupan. Some of the stipulations made are as follows:
47
3. For her failure to execute, sign and deliver a Deed of
Absolute Sale to plaintiff by way of transferring TCT No. 52135
in the name of the latter, defendant hereby waives and
quitclaims the remaining balance of the purchase price in the
amount of P60,000.00 in favor of the plaintiff, it being
understood that the said amount shall be treated as a penalty
for such failure;
xxxx
6. Upon the signing of this compromise agreement, possession
and ownership of the above described property, together with
all the improvements existing thereon, are hereby vested
absolutely upon, and transferred to the plaintiff whom the
defendant hereby declares and acknowledges to be the
absolute owner thereof, now and hereafter;
7. This compromise agreement shall be without prejudice to
whatever rights and remedies, if any, that the Philippine Charity
Sweepstakes Office has against the herein defendant and
Patricia P. Galang under the Deed of Undertaking adverted to
under par. 2(f) hereof.12
As the RTC Branch 43 Decision dated January 21, 1994
became final and executory, New Dagupan once again
demanded Peralta’s delivery of the owner’s duplicate of TCT
No. 52135. Also, in a letter dated March 29, 1994, New
Dagupan made a similar demand from PCSO, who in
response, stated that it had already foreclosed the mortgage
on the subject property and it has in its name a certificate of
sale for being the highest bidder in the public auction that took
place on June 15, 1993.
Thus, on June 1, 1994, New Dagupan filed with the RTC a
petition against PCSO for the annulment of TCT No. 52135 or
surrender of the owner’s duplicate thereof.13 The petition was
docketed as Civil Case No. 94-00200-D and raffled to Branch
43.
In an Answer14 dated March 7, 1995, PCSO alleged that: (a)
New Dagupan was a buyer in bad faith; (b) New Dagupan and
Peralta colluded to deprive PCSO of its rights under the subject
mortgage; (c) New Dagupan is estopped from questioning the
superior right of PCSO to the subject property when it entered
into the compromise agreement subject of the RTC Branch 43
Decision dated January 21, 1994; and (d) New Dagupan is
bound by the foreclosure proceedings where PCSO obtained
title to the subject property.
In a Motion for Leave to File Third-Party Complaint15 dated
April 17, 1995, PCSO sought the inclusion of Peralta and
Galang who are allegedly indispensable parties. In its Third-
Party Complaint,16 PCSO reiterated its allegations in its
Answer dated March 7, 1995 and made the further claim that
the sale of the subject property to New Dagupan is void for
being expressly prohibited under the Deed of Undertaking with
First Real Estate Mortgage.
In their Answer to Third-Party Complaint with Counterclaims17
dated January 2, 1996, Peralta and Galang claimed that: (a)
the provision in the Deed of Undertaking with First Real Estate
Mortgage prohibiting the sale of the subject property is void
under Article 2130 of the Civil Code; (b) PCSO’s failure to
intervene in Civil Case No. D-10160 despite notice barred it
from questioning the sale of the subject property to New
Dagupan and the compromise agreement approved by the
RTC Branch 43; (c) it was due to PCSO’s very own neglect in
registering its mortgage lien that preference is accorded to
New Dagupan’s rights as a buyer of the subject property; and
(d) PCSO no longer has any cause of action against them
following its decision to foreclose the subject mortgage.
On March 6, 1996, Civil Case No. 94-00200-D was transferred
to Branch 42, after the presiding judge of Branch 43 inhibited
himself.
On January 28, 1998, the RTC Branch 42 rendered a
Decision18 in New Dagupan’s favor, the dispositive portion of
which states:
WHEREFORE, judgment is hereby rendered in favor of the
petitioner and against the defendant, ordering PCSO to deliver
the owner’s duplicate copy of TCT No. 52135 in its possession
to the Registry of Deeds of Dagupan City for the purpose of
having the decision in favor of the petitioner annotated at the
back thereof. Should said defendant fail to deliver the said title
within 30 days from the date this decision becomes final and
executory, the said owner’s duplicate certificate of title is
hereby cancelled and the Register of Deeds can issue a new
one carrying all the encumbrances of the original owner’s
duplicate subject of this case. Further, the defendant is ordered
to pay to petitioner the sum of Ten Thousand Pesos
(P10,000.00) as attorney’s fees. It is also ordered to pay costs.
SO ORDERED.19
The RTC Branch 42 ruled that New Dagupan is a buyer in
good faith, ratiocinating that:
In other words, the evidence of the petitioner would show that
although the Deed of Undertaking with First Real Estate
Mortgage was executed on March 8, 1989 its annotation was
made long after the conditional sale in favor of the petitioner
was executed and annotated at the back of the title in question.
Because of the said exhibits, petitioner contended that it was a
buyer in good faith and for value.
Defendant, to controvert the aforementioned evidence of the
plaintiff, alleged that Exhibits C, C-1 to C-1-C was contrary to
the testimony of Mr. Julian Ong Cuña to the effect that when
defendants sold the property to petitioner only the xerox copy
of the title was shown and petitioner should have verified the
original as it was a buyer in bad faith. Defendant also alleged
that the decision in Civil Case D-10160 dated January 21, 1994
would show that there was a collusion between the petitioner
and the third-party defendants.
The Court cannot go along with the reasoning of the defendant
because what was shown to Mr. Cuña by the third-party
defendants was Exhibit "C" which did not carry any
encumbrance at the back of the subject title and the annotation
made on May 20, 1992 in favor of the PCSO. Mr. Cuña verified
the title x x x but the encumbrance on the title was not still
there at [that] time. One thing more, there was nothing
indicated in the decision in Civil Case No. D-10160 that
petitioner already knew that there was already a mortgage in
favor of the PCSO. Worst, defendant did not even introduce
any oral evidence to show that petitioner was in bad faith
except the manifestations of counsel. Unfortunately,
manifestations could not be considered evidence.
xxxx
Defendant should not be allowed to profit from its negligence of
not registering the Deed of Undertaking with First Real Estate
Mortgage in its favor.20
48
Also, the RTC Branch 42 ruled that the prohibition on the sale
of the subject property is void. Specifically:
Suffice it to say that there is no law prohibiting a mortgagor
from encumbering or alienating the property mortgaged. On the
contrary, there is a law prohibiting an agreement forbidding the
owner from alienating a mortgaged property. We are referring
to Article 2130 of the New Civil Code which provides as
follows:
"A stipulation forbidding the owner from alienating the
immovable mortgage shall be void."21
Moreover, the RTC Branch 42 ruled that PCSO had no right to
foreclose the subject mortgage as the land in question had
already been disencumbered after Galang’s full payment of all
the sweepstakes tickets she purchased in 1989 and 1990.
It should be recalled that Amparo Abrigo, OIC Chief of the
Credit Accounts Division of the PCSO, admitted not only once
but twice that Patricia Galang has no more liability with the
PCSO for the years 1989 and 1990 x x x. Another witness,
Carlos Castillo who is the OIC of the Sales Department of the
PCSO, joined Amparo Abrigo in saying that Patricia Galang
has already paid her liability with the PCSO for the years 1989
and 1990 x x x. Thus, the undertaking was already discharged.
Both of the said witnesses of the PCSO alleged that the
undertaking has been re-used by Patricia Galang for the years
1991 to 1992 yet there is no proof whatsoever showing that
Purita Peralta consented to the use of the undertaking by
Patricia Galang for 1991 to 1992. Incidentally, it is not far-
fetched to say that Purita Peralta might have thought that the
undertaking was already discharged which was the reason she
executed the Deed of Conditional Sale x x x in favor of
petitioner in 1990. That being the case, the foreclosure sale in
favor of the PCSO has no legal leg to stand as the Deed of
Undertaking with First Real Estate Mortgage has already been
discharged before the foreclosure sale was conducted.22
According to the RTC Branch 42, the intent to use the subject
property as security for Galang’s purchases for the years after
1989, as PCSO claimed, is not clear from the Deed of
Undertaking with First Real Estate Mortgage:
Was it not provided in the deed that the undertaking would be
for "all draws". That might be true but the terms of the Contract
should be understood to mean only to cover the draws relative
to the current liabilities of Patricia Galang at the time of the
execution of the undertaking in 1989. It could have not been
agreed upon that it should also cover her liability for 1991 up to
1992 because if that was the intention of the parties, the
undertaking should have so provided expressly. The term of
the undertaking with respect to the period was ambiguous but
any ambiguity in the Contract should be resolved against
PCSO because the form used was a standard form of the
defendant and it appeared that it was its lawyers who prepared
it, therefore, it was the latter which caused the ambiguity.23
PCSO’s appeal from the foregoing adverse decision was
dismissed. By way of its assailed decision, the CA did not
agree with PCSO’s claim that the subject mortgage is in the
nature of a continuing guaranty, holding that Peralta’s
undertaking to secure Galang’s liability to PCSO is only for a
period of one year and was extinguished when Peralta
completed payment on the sweepstakes tickets she purchased
in 1989.
The instant appeal must fail. There is nothing in the Deed of
Undertaking with First Real Estate Mortgage, expressly or
impliedly, that would indicate that Peralta agreed to let her
property be burdened as long as the contract of undertaking
with real estate mortgage was not cancelled or revoked. x x x
xxxx
A perusal of the deed of undertaking between the PCSO and
Peralta would reveal nothing but the undertaking of Peralta to
guarantee the payment of the pre-existing obligation of Galang,
constituting the unpaid sweepstakes tickets issued to the latter
before the deed of undertaking was executed, with the PCSO
in the amount of P450,000.00. No words were added therein to
show the intention of the parties to regard it as a contract of
continuing guaranty. In other jurisdictions, it has been held that
the use of the particular words and expressions such as
payment of "any debt", "any indebtedness", "any deficiency", or
"any sum", or the guaranty of "any transaction" or money to be
furnished the principal debtor "at any time", or "on such time"
that the principal debtor may require, have been construed to
indicate a continuing guaranty. Similar phrases or words of the
same import or tenor are not extant in the deed of undertaking.
The deed of undertaking states:
"WHEREAS, the PRINCIPAL acknowledges that he/she has
an outstanding and unpaid account with the MORTGAGEE in
the amount of FOUR HUNDRED FIFTY THOUSAND
(P450,000.00), representing the balance of his/her ticket
accountabilities for all draws."
xxxx
Upon full payment of the principal obligation, which from the
testimonies of the officers of the PCSO had been paid as early
as 1990, the subsidiary contract of guaranty was automatically
terminated. The parties have not executed another contract of
guaranty to secure the subsequent obligations of Galang for
the tickets issued thereafter. It must be noted that a contract of
guaranty is not presumed; it must be express and cannot
extend to more than what is stipulated therein.
xxxx
The arguments of PCSO fail to persuade us. The phrase "for
all draws" is limited to the draws covered by the original
transaction. In its pleadings, the PCSO asserted that the
contract of undertaking was renewed and the collateral was re-
used by Galang to obtain again tickets from the PCSO after
she had settled her account under the original contract. From
such admission, it is thus clear that the contract is not in the
nature of a continuing guaranty. For a contract of continuing
guaranty is not renewed as it is understood to be of a
continuing nature without the necessity of renewing the same
every time a new transaction contemplated under the original
contract is entered into. x x x 24 (Citations omitted)
In this petition, PCSO claims that the CA erred in holding that
the subject mortgage had been extinguished by Galang’s
payment of P450,000.00, representing the amount of the
sweepstakes tickets she purchased in 1989. According to
PCSO, the said amount is actually the credit line granted to
Galang and the phrase "all draws" refers to her ticket
purchases for subsequent years drawn against such credit line.
Consequently, PCSO posits, the subject mortgage had not
been extinguished by Peralta’s payment of her ticket
purchases in 1989 and its coverage extends to her purchases
after 1989, which she made against the credit line that was
granted to her. That when Galang failed to pay her ticket
purchases in 1992, PCSO’s right to foreclose the subject
mortgage arose.
49
PCSO also maintains that its rights over the subject property
are superior to those of New Dagupan. Considering that the
contract between New Dagupan is a conditional sale, there
was no conveyance of ownership at the time of the execution
thereof on July 31, 1989. It was only on January 21, 1994, or
when the RTC Branch 43 approved the compromise
agreement, that a supposed transfer of title between Peralta
and New Dagupan took place. However, since PCSO had
earlier foreclosed the subject mortgage and obtained title to the
subject property as evidenced by the certificate of sale dated
June 15, 1993, Peralta had nothing to cede or assign to New
Dagupan.
PCSO likewise attributes bad faith to New Dagupan, claiming
that Peralta’s presentation of a mere photocopy of TCT No.
52135, albeit without any annotation of a lien or encumbrance,
sufficed to raise reasonable suspicions against Peralta’s claim
of a clean title and should have prompted it to conduct an
investigation that went beyond the face of TCT No. 52135.
PCSO even assails the validity of the subject sale for being
against the prohibition contained in the Deed of Undertaking
with First Real Estate Mortgage.
New Dagupan, in its Comment,25 avers that it was a purchaser
in good faith and it has a superior right to the subject property,
considering that PCSO’s mortgage lien was annotated only on
May 20, 1992 or long after the execution of the conditional sale
on July 31, 1990 and the annotation of New Dagupan’s
adverse claim on October 1, 1991. While the subject mortgage
antedated the subject sale, PCSO was already aware of the
latter at the time of its belated registration of its mortgage lien.
PCSO’s registration was therefore in bad faith, rendering its
claim over the subject property defeasible by New Dagupan’s
adverse claim.
New Dagupan also claims that the subject property had
already been discharged from the mortgage, hence, PCSO had
nothing to foreclose when it filed its application for extra-judicial
foreclosure on February 10, 1993. The subject mortgage was
intended to secure Galang’s ticket purchases that were
outstanding at the time of the execution of the same, the
amount of which has been specified to be P450,000.00 and
does not extend to Galang’s future purchases. Thus, upon
Galang’s full payment of P450,000.00, which PCSO admits,
the subject mortgage had been automatically terminated as
expressly provided under Section 15 of the Deed of
Undertaking with First Real Estate Mortgage quoted above.
Issue
The rise and fall of this recourse is dependent on the resolution
of the issue who between New Dagupan and PCSO has a
better right to the property in question.
Our Ruling
PCSO is undeterred by the denial of its appeal to the CA and
now seeks to convince this Court that it has a superior right
over the subject property. However, PCSO’s resolve fails to
move this Court and the ineluctability of the denial of this
petition is owing to the following:
a. At the time of PCSO’s registration of its mortgage lien on
May 20, 1992, the subject mortgage had already been
discharged by Galang’s full payment of P450,000.00, the
amount specified in the Deed of Undertaking with First Real
Estate Mortgage;
b. There is nothing in the Deed of Undertaking with First Real
Estate Mortgage that would indicate that it is a continuing
security or that there is an intent to secure Galang’s future
debts;
c. Assuming the contrary, New Dagupan is not bound by
PCSO’s mortgage lien and was a purchaser in good faith and
for value; and
d. While the subject mortgage predated the sale of the subject
property to New Dagupan, the absence of any evidence that
the latter had knowledge of PCSO’s mortgage lien at the time
of the sale and its prior registration of an adverse claim created
a preference in its favor.
I
As a general rule, a mortgage liability is usually limited to the
amount mentioned in the contract. However, the amounts
named as consideration in a contract of mortgage do not limit
the amount for which the mortgage may stand as security if
from the four corners of the instrument the intent to secure
future and other indebtedness can be gathered.26
Alternatively, while a real estate mortgage may exceptionally
secure future loans or advancements, these future debts must
be specifically described in the mortgage contract. An
obligation is not secured by a mortgage unless it comes fairly
within the terms of the mortgage contract.27
The stipulation extending the coverage of a mortgage to
advances or loans other than those already obtained or
specified in the contract is valid and has been commonly
referred to as a "blanket mortgage" or "dragnet" clause. In
Prudential Bank v. Alviar,28 this Court elucidated on the nature
and purpose of such a clause as follows:
A "blanket mortgage clause," also known as a "dragnet clause"
in American jurisprudence, is one which is specifically phrased
to subsume all debts of past or future origins. Such clauses are
"carefully scrutinized and strictly construed." Mortgages of this
character enable the parties to provide continuous dealings,
the nature or extent of which may not be known or anticipated
at the time, and they avoid the expense and inconvenience of
executing a new security on each new transaction. A "dragnet
clause" operates as a convenience and accommodation to the
borrowers as it makes available additional funds without their
having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal
services, recording fees, et cetera. x x x.29 (Citations omitted)
A mortgage that provides for a dragnet clause is in the nature
of a continuing guaranty and constitutes an exception to the
rule than an action to foreclose a mortgage must be limited to
the amount mentioned in the mortgage contract. Its validity is
anchored on Article 2053 of the Civil Code and is not limited to
a single transaction, but contemplates a future course of
dealing, covering a series of transactions, generally for an
indefinite time or until revoked. It is prospective in its operation
and is generally intended to provide security with respect to
future transactions within certain limits, and contemplates a
succession of liabilities, for which, as they accrue, the
guarantor becomes liable. In other words, a continuing
guaranty is one that covers all transactions, including those
arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or
termination thereof.30
50
In this case, PCSO claims the subject mortgage is a continuing
guaranty. According to PCSO, the intent was to secure
Galang’s ticket purchases other than those outstanding at the
time of the execution of the Deed of Undertaking with First
Real Estate Mortgage on March 8, 1989 such that it can
foreclose the subject mortgage for Galang’s non-payment of
her ticket purchases in 1992. PCSO does not deny and even
admits that Galang had already settled the amount of
P450,000.00. However, PCSO refuses to concede that the
subject mortgage had already been discharged, claiming that
Galang had unpaid ticket purchases in 1992 and these are
likewise secured as evidenced by the following clause in the
Deed of Undertaking with First Real Estate Mortgage:
WHEREAS, the PRINCIPAL agrees to liquidate or pay said
account ten (10) days after each draw with interest at the rate
of 14% per annum;31
This Court has to disagree with PCSO in view of the principles
quoted above. A reading of the other pertinent clauses of the
subject mortgage, not only of the provision invoked by PCSO,
does not show that the security provided in the subject
mortgage is continuing in nature. That the subject mortgage
shall only secure Galang’s liability in the amount of
P450,000.00 is evident from the following:
WHEREAS, the PRINCIPAL acknowledges that he/she has an
outstanding and unpaid account with the MORTGAGEE in the
amount of FOUR HUNDRED FIFTY THOUSAND
(P450,000.00), representing the balance of his/her ticket
accountabilities for all draws;
xxxx
The PRINCIPAL shall settle or pay his/her account of FOUR
HUNDRED FIFTY THOUSAND PESOS (P450,000.00) PESOS
with the MORTGAGEE, provided that the said balance shall
bear interest thereon at the rate of 14% per annum;
To secure the faithful compliance and as security to the
obligation of the PRINCIPAL stated in the next preceding
paragraph hereof, the MORTGAGOR hereby convey unto and
in favor of the MORTGAGEE, its successor and assigns by
way of its first real estate mortgage, a parcel/s of land together
with all the improvements now or hereafter existing thereon,
located at BOQUIG, DAGUPAN CITY, covered by TCT No.
52135, of the Register of Deeds of DAGUPAN CITY, and more
particularly described as follows:32
As the CA correctly observed, the use of the terms
"outstanding" and "unpaid" militates against PCSO’s claim that
future ticket purchases are likewise secured. That there is a
seeming ambiguity between the provision relied upon by PCSO
containing the phrase "after each draw" and the other
provisions, which mention with particularity the amount of
P450,000.00 as Galang’s unpaid and outstanding account and
secured by the subject mortgage, should be construed against
PCSO. The subject mortgage is a contract of adhesion as it
was prepared solely by PCSO and the only participation of
Galang and Peralta was the act of affixing their signatures
thereto.
Considering that the debt secured had already been fully paid,
the subject mortgage had already been discharged and there is
no necessity for any act or document to be executed for the
purpose. As provided in the Deed of Undertaking with First
Real Estate Mortgage:
15. Upon payment of the principal amount together with
interest and other expenses legally incurred by the
MORTGAGEE, the above-undertaking is considered
terminated.33
Section 6234 of Presidential Decree (P.D.) No. 1529 appears
to require the execution of an instrument in order for a
mortgage to be cancelled or discharged. However, this rule
presupposes that there has been a prior registration of the
mortgage lien prior to its discharge. In this case, the subject
mortgage had already been cancelled or terminated upon
Galang’s full payment before PCSO availed of registration in
1992. As the subject mortgage was not annotated on TCT No.
52135 at the time it was terminated, there was no need for
Peralta to secure a deed of cancellation in order for such
discharge to be fully effective and duly reflected on the face of
her title.
Therefore, since the subject mortgage is not in the nature of a
continuing guaranty and given the automatic termination
thereof, PCSO cannot claim that Galang’s ticket purchases in
1992 are also secured. From the time the amount of
P450,000.00 was fully settled, the subject mortgage had
already been cancelled such that Galang’s subsequent ticket
purchases are unsecured. Simply put, PCSO had nothing to
register, much less, foreclose.
Consequently, PCSO’s registration of its non-existent
mortgage lien and subsequent foreclosure of a mortgage that
was no longer extant cannot defeat New Dagupan’s title over
the subject property.
II
Sections 51 and 53 of P.D. No. 1529 provide:
Section 51. Conveyance and other dealings by registered
owner. An owner of registered land may convey, mortgage,
lease, charge or otherwise deal with the same in accordance
with existing laws. He may use such forms of deeds,
mortgages, leases or other voluntary instrument, except a will
purporting to convey or affect registered land, but shall operate
only as a contract between the parties and as evidence of
authority to the Register of Deeds to make registration.
The act of registration shall be the operative act to convey or
affect the land insofar as third persons are concerned, and in
all cases under this Decree, the registration shall be made in
the office of the Register of Deeds for the province or city
where the land lies.
Section 52. Constructive notice upon registration. Every
conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land shall, if
registered, filed or entered in the office of the Register of
Deeds for the province or city where the land to which it relates
lies, be constructive notice to all persons from the time of such
registering, filing or entering.
On the other hand, Article 2125 of the Civil Code states:
Article 2125. In addition to the requisites stated in Article 2085,
it is indispensable, in order that a mortgage may be validly
constituted, that the document in which it appears be recorded
in the Registry of Property. If the instrument is not recorded,
the mortgage is nevertheless binding between the parties.
51
The persons in whose favor the law establishes a mortgage
have no other right than to demand the execution and the
recording of the document in which the mortgage is formalized.
Construing the foregoing conjunctively, as to third persons, a
property registered under the Torrens system is, for all legal
purposes, unencumbered or remains to be the property of the
person in whose name it is registered, notwithstanding the
execution of any conveyance, mortgage, lease, lien, order or
judgment unless the corresponding deed is registered.
The law does not require a person dealing with the owner of
registered land to go beyond the certificate of title as he may
rely on the notices of the encumbrances on the property
annotated on the certificate of title or absence of any
annotation.35 Registration affords legal protection such that
the claim of an innocent purchaser for value is recognized as
valid despite a defect in the title of the vendor.36
In Cruz v. Bancom Finance Corporation,37 the foregoing
principle was applied as follows:
Second, respondent was already aware that there was an
adverse claim and notice of lis pendens annotated on the
Certificate of Title when it registered the mortgage on March
14, 1980. Unless duly registered, a mortgage does not affect
third parties like herein petitioners, as provided under Section
51 of PD NO. 1529, which we reproduce hereunder:
xxxx
True, registration is not the operative act for a mortgage to be
binding between the parties. But to third persons, it is
indispensible. In the present case, the adverse claim and the
notice of lis pendens were annotated on the title on October
30, 1979 and December 10, 1979, respectively; the real estate
mortgage over the subject property was registered by
respondent only on March 14, 1980. Settled in this jurisdiction
is the doctrine that a prior registration of a lien creates a
preference. Even a subsequent registration of the prior
mortgage will not diminish this preference, which retroacts to
the date of the annotation of the notice of lis pendens and the
adverse claim. Thus, respondent’s failure to register the real
estate mortgage prior to these annotations, resulted in the
mortgage being binding only between it and the mortgagor,
Sulit. Petitioners, being third parties to the mortgage, were not
bound by it. Contrary to respondent’s claim that petitioners
were in bad faith because they already had knowledge of the
existence of the mortgage in favor of respondent when they
caused the aforesaid annotations, petitioner Edilberto Cruz
said that they only knew of this mortgage when respondent
intervened in the RTC proceedings.38 (Citations omitted)
It is undisputed that it was only on May 20, 1992 that PCSO
registered its mortgage lien. By that time, New Dagupan had
already purchased the subject property, albeit under a
conditional sale. In fact, PCSO’s mortgage lien was yet to be
registered at the time New Dagupan filed its adverse claim on
October 1, 1991 and its complaint against Peralta for the
surrender of the owner’s duplicate of TCT No. 52135 on
February 28, 1992. It was only during the pendency of Civil
Case No. D-10160, or sometime in 1993, that New Dagupan
was informed of PCSO’s mortgage lien. On the other hand,
PCSO was already charged with knowledge of New Dagupan’s
adverse claim at the time of the annotation of the subject
mortgage. PCSO’s attempt to conceal these damning facts is
palpable. However, they are patent from the records such that
there is no gainsaying that New Dagupan is a purchaser in
good faith and for value and is not bound by PCSO’s mortgage
lien.
A purchaser in good faith and for value is one who buys
property of another, without notice that some other person has
a right to, or interest in, such property, and pays a full and fair
price for the same, at the time of such purchase, or before he
has notice of the claim or interest of some other person in the
property.39 Good faith is the opposite of fraud and of bad faith,
and its non-existence must be established by competent
proof.40 Sans such proof, a buyer is deemed to be in good
faith and his interest in the subject property will not be
disturbed. A purchaser of a registered property can rely on the
guarantee afforded by pertinent laws on registration that he
can take and hold it free from any and all prior liens and claims
except those set forth in or preserved against the certificate of
title.41
This Court cannot give credence to PCSO’s claim to the
contrary. PCSO did not present evidence, showing that New
Dagupan had knowledge of the mortgage despite its being
unregistered at the time the subject sale was entered into.
Peralta, in the compromise agreement, even admitted that she
did not inform New Dagupan of the subject mortgage.42
PCSO’s only basis for claiming that New Dagupan was a buyer
in bad faith was the latter’s reliance on a mere photocopy of
TCT No. 52135. However, apart from the fact that the facsimile
bore no annotation of a lien or encumbrance, PCSO failed to
refute the testimony of Cuña that his verification of TCT No.
52135 with the Register of Deeds of Dagupan City confirmed
Peralta’s claim of a clean title.
Since PCSO had notice of New Dagupan’s adverse claim prior
to the registration of its mortgage lien, it is bound thereby and
thus legally compelled to respect the proceedings on the
validity of such adverse claim. It is therefore of no moment if
PCSO’s foreclosure of the subject mortgage and purchase of
the subject property at the auction sale took place prior to New
Dagupan’s acquisition of title as decreed in the Decision dated
January 21, 1994 of RTC Branch 43. The effects of a
foreclosure sale retroact to the date the mortgage was
registered.43 Hence, while PCSO may be deemed to have
acquired title over the subject property on May 20, 1992, such
title is rendered inferior by New Dagupan’s adverse claim, the
validity of which was confirmed per the Decision dated January
21, 1994 of RTC Branch 43.
Otherwise, if PCSO’s mortgage lien is allowed to prevail by the
mere expediency of registration over an adverse claim that was
registered ahead of time, the object of an adverse claim – to
apprise third persons that any transaction regarding the
disputed property is subject to the outcome of the dispute –
would be rendered naught. A different conclusion would
remove the primary motivation for the public to rely on and
respect the Torrens system of registration. Such would be
inconsistent with the well-settled, even axiomatic, rule that a
person dealing with registered property need not go beyond
the title and is not required to explore outside the four (4)
corners thereof in search for any hidden defect or inchoate
right that may turn out to be superior.
Worthy of extrapolation is the fact that there is no conflict
between the disposition of this case and Garbin v. CA44 where
this Court decided the controversy between a buyer with an
earlier registered adverse claim and a subsequent buyer, who
is charged with notice of such adverse claim at the time of the
registration of her title, in favor of the latter. As to why the
adverse claim cannot prevail against the rights of the later
52
buyer notwithstanding its prior registration was discussed by
this Court in this wise:
It is undisputed that the adverse claim of private respondents
was registered pursuant to Sec. 110 of Act No. 496, the same
having been accomplished by the filing of a sworn statement
with the Register of Deeds of the province where the property
was located. However, what was registered was merely the
adverse claim and not the Deed of Sale, which supposedly
conveyed the northern half portion of the subject property.
Therefore, there is still need to resolve the validity of the
adverse claim in separate proceedings, as there is an absence
of registration of the actual conveyance of the portion of land
herein claimed by private respondents.
At any rate, in Sajonas v.CA,47 this Court clarified that there is
no necessity for a prior judicial determination of the validity of
an adverse claim for it to be considered a flaw in the vendor’s
title as that would be repugnant to the very purpose thereof.48
WHEREFORE, premises considered, the petition is
DISMISSED and the Decision dated September 29, 2005 and
Resolution dated June9, 2006 of the Court of Appeals in CA-
G.R. CV No. 59590 are hereby AFFIRMED.
SO ORDERED.

From the provisions of the law, it is clear that mere registration

of an adverse claim does not make such claim valid, nor is it
permanent in character. More importantly, such registration
does not confer instant title of ownership since judicial
determination on the issue of the ownership is still
necessary.45 (Citation omitted)

Apart from the foregoing, the more important consideration was

the improper resort to an adverse claim.1âwphi1 In L.P. Leviste
& Co. v. Noblejas,46 this Court emphasized that the availability
of the special remedy of an adverse claim is subject to the
absence of any other statutory provision for the registration of
the claimant’s alleged right or interest in the property. That if
the claimant’s interest is based on a perfected contract of sale
or any voluntary instrument executed by the registered owner
of the land, the procedure that should be followed is that
prescribed under Section 51 in relation to Section 52 of P.D.
No. 1529. Specifically, the owner’s duplicate certificate must be
presented to the Register of Deeds for the inscription of the
corresponding memorandum thereon and in the entry day
book. It is only when the owner refuses or fails to surrender the
duplicate certificate for annotation that a statement setting forth
an adverse claim may be filed with the Register of Deeds.
Otherwise, the adverse claim filed will not have the effect of a
conveyance of any right or interest on the disputed property
that could prejudice the rights that have been subsequently
acquired by third persons.

What transpired in Gabin is similar to that in Leviste. In Gabin,

the basis of the claim on the property is a deed of absolute
sale. In Leviste, what is involved is a contract to sell. Both are
voluntary instruments that should have been registered in
accordance with Sections 51 and 52 of P.D. No. 1529 as there
was no showing of an inability to present the owner’s duplicate
of title.

It is patent that the contrary appears in this case. Indeed, New

Dagupan’s claim over the subject property is based on a
conditional sale, which is likewise a voluntary instrument.
However, New Dagupan’s use of the adverse claim to protect
its rights is far from being incongruent in view of the undisputed
fact that Peralta failed to surrender the owner’s duplicate of
TCT No. 52135 despite demands.

Moreover, while the validity of the adverse claim in Gabin is not

established as there was no separate proceeding instituted that
would determine the existence and due execution of the deed
of sale upon which it is founded, the same does not obtain in
this case. The existence and due execution of the conditional
sale and Peralta’s absolute and complete cession of her title
over the subject property to New Dagupan are undisputed.
These are matters covered by the Decision dated January 21,
1994 of RTC Branch 43, which had long become final and
executory.

53
PRUDENTIAL BANK, G.R. No. 150197
Petitioner,
Present:
PUNO, J.,
Chairman,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
DON A. ALVIAR and GEORGIA
B. ALVIAR,
Respondents. Promulgated:
July 28, 2005
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before us is a petition for review on certiorari under Rule 45 of
the Rules of Court. Petitioner Prudential Bank seeks the
reversal of the Decision[1] of the Court of Appeals dated 27
September 2001 in CA-G.R. CV No. 59543 affirming the
Decision of the Regional Trial Court (RTC) of Pasig City,
Branch 160, in favor of respondents.
Respondents, spouses Don A. Alviar and Georgia B. Alviar,
are the registered owners of a parcel of land in San Juan,
Metro Manila, covered by Transfer Certificate of Title (TCT) No.
438157 of the Register of Deeds of Rizal. On 10 July 1975,
they executed a deed of real estate mortgage in favor of
petitioner Prudential Bank to secure the payment of a loan
worth P250,000.00.[2] This mortgage was annotated at the
back of TCT No. 438157. On 4 August 1975, respondents
executed the corresponding promissory note, PN BD#75/C-
252, covering the said loan, which provides that the loan
matured on 4 August 1976 at an interest rate of 12% per
annum with a 2% service charge, and that the note is secured
by a real estate mortgage as aforementioned.[3] Significantly,
the real estate mortgage contained the following clause:
That for and in consideration of certain loans, overdraft and
other credit accommodations obtained from the Mortgagee by
the Mortgagor and/or ________________ hereinafter referred
to, irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be
obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine
Currency, as well as those that the Mortgagee may extend to
the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee,
whether direct or indirect, principal or secondary as appears in
the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of
mortgage unto the Mortgagee, its successors or assigns, the
parcels of land which are described in the list inserted on the
back of this document, and/or appended hereto, together with
all the buildings and improvements now existing or which may
hereafter be erected or constructed thereon, of which the
Mortgagor declares that he/it is the absolute owner free from all
liens and incumbrances. . . .[4]
On 22 October 1976, Don Alviar executed another promissory
note, PN BD#76/C-345 for P2,640,000.00, secured by D/A
SFDX #129, signifying that the loan was secured by a hold-out
on the mortgagors foreign currency savings account with the
bank under Account No. 129, and that the mortgagors
passbook is to be surrendered to the bank until the amount
secured by the hold-out is settled.[5]
On 27 December 1976, respondent spouses executed for
Donalco Trading, Inc., of which the husband and wife were
President and Chairman of the Board and Vice President,[6]
respectively, PN BD#76/C-430 covering P545,000.000. As
provided in the note, the loan is secured by Clean-Phase out
TOD CA 3923, which means that the temporary overdraft
incurred by Donalco Trading, Inc. with petitioner is to be
converted into an ordinary loan in compliance with a Central
Bank circular directing the discontinuance of overdrafts.[7]
On 16 March 1977, petitioner wrote Donalco Trading, Inc.,
informing the latter of its approval of a straight loan of
P545,000.00, the proceeds of which shall be used to liquidate
the outstanding loan of P545,000.00 TOD. The letter likewise
mentioned that the securities for the loan were the deed of
assignment on two promissory notes executed by Bancom
Realty Corporation with Deed of Guarantee in favor of A.U.
Valencia and Co. and the chattel mortgage on various heavy
and transportation equipment.[8]
On 06 March 1979, respondents paid petitioner
P2,000,000.00, to be applied to the obligations of G.B. Alviar
Realty and Development, Inc. and for the release of the real
estate mortgage for the P450,000.00 loan covering the two (2)
lots located at Vam Buren and Madison Streets, North
Greenhills, San Juan, Metro Manila. The payment was
acknowledged by petitioner who accordingly released the
mortgage over the two properties.[9]
On 15 January 1980, petitioner moved for the extrajudicial
foreclosure of the mortgage on the property covered by TCT
No. 438157. Per petitioners computation, respondents had the
total obligation of P1,608,256.68, covering the three (3)
promissory notes, to wit: PN BD#75/C-252 for P250,000.00,
PN BD#76/C-345 for P382,680.83, and PN BD#76/C-340 for
P545,000.00, plus assessed past due interests and penalty
charges. The public auction sale of the mortgaged property
was set on 15 January 1980.[10]
Respondents filed a complaint for damages with a prayer for
the issuance of a writ of preliminary injunction with the RTC of
Pasig,[11] claiming that they have paid their principal loan
secured by the mortgaged property, and thus the mortgage
should not be foreclosed. For its part, petitioner averred that
the payment of P2,000,000.00 made on 6 March 1979 was not
a payment made by respondents, but by G.B. Alviar Realty and
Development Inc., which has a separate loan with the bank
secured by a separate mortgage.[12]
On 15 March 1994, the trial court dismissed the complaint and
ordered the Sheriff to proceed with the extra-judicial
foreclosure.[13] Respondents sought reconsideration of the
decision.[14] On 24 August 1994, the trial court issued an
Order setting aside its earlier decision and awarded attorneys
54
fees to respondents.[15] It found that only the P250,000.00
loan is secured by the mortgage on the land covered by TCT
No. 438157. On the other hand, the P382,680.83 loan is
secured by the foreign currency deposit account of Don A.
Alviar, while the P545,000.00 obligation was an unsecured
loan, being a mere conversion of the temporary overdraft of
Donalco Trading, Inc. in compliance with a Central Bank
circular. According to the trial court, the blanket mortgage
clause relied upon by petitioner applies only to future loans
obtained by the mortgagors, and not by parties other than the
said mortgagors, such as Donalco Trading, Inc., for which
respondents merely signed as officers thereof.
On appeal to the Court of Appeals, petitioner made the
following assignment of errors:
I. The trial court erred in holding that the real estate
mortgage covers only the promissory note BD#75/C-252 for
the sum of P250,000.00.
II. The trial court erred in holding that the promissory
note BD#76/C-345 for P2,640,000.00 (P382,680.83
outstanding principal balance) is not covered by the real estate
mortgage by expressed agreement.
III. The trial court erred in holding that Promissory Note
BD#76/C-430 for P545,000.00 is not covered by the real estate
mortgage.
IV. The trial court erred in holding that the real estate
mortgage is a contract of adhesion.
V. The trial court erred in holding defendant-appellant
liable to pay plaintiffs-appellees attorneys fees for
P20,000.00.[16]
The Court of Appeals affirmed the Order of the trial court but
deleted the award of attorneys fees.[17] It ruled that while a
continuing loan or credit accommodation based on only one
security or mortgage is a common practice in financial and
commercial institutions, such agreement must be clear and
unequivocal. In the instant case, the parties executed different
promissory notes agreeing to a particular security for each
loan. Thus, the appellate court ruled that the extrajudicial
foreclosure sale of the property for the three loans is
improper.[18]
The Court of Appeals, however, found that respondents have
not yet paid the P250,000.00 covered by PN BD#75/C-252
since the payment of P2,000,000.00 adverted to by
respondents was issued for the obligations of G.B. Alviar
Realty and Development, Inc.[19]
Aggrieved, petitioner filed the instant petition, reiterating the
assignment of errors raised in the Court of Appeals as grounds
herein.
Petitioner maintains that the blanket mortgage clause or the
dragnet clause in the real estate mortgage expressly covers
not only the P250,000.00 under PN BD#75/C-252, but also the
two other promissory notes included in the application for
extrajudicial foreclosure of real estate mortgage.[20] Thus, it
claims that it acted within the terms of the mortgage contract
when it filed its petition for extrajudicial foreclosure of real
estate mortgage. Petitioner relies on the cases of Lim Julian v.
Lutero,[21] Tad-Y v. Philippine National Bank,[22] Quimson v.
Philippine National Bank,[23] C & C Commercial v. Philippine
National Bank,[24] Mojica v. Court of Appeals,[25] and China
Banking Corporation v. Court of Appeals,[26] all of which
upheld the validity of mortgage contracts securing future
advancements.
Anent the Court of Appeals conclusion that the parties did not
intend to include PN BD#76/C-345 in the real estate mortgage
because the same was specifically secured by a foreign
currency deposit account, petitioner states that there is no law
or rule which prohibits an obligation from being covered by
more than one security.[27] Besides, respondents even
continued to withdraw from the same foreign currency account
even while the promissory note was still outstanding,
strengthening the belief that it was the real estate mortgage
that principally secured all of respondents promissory
notes.[28] As for PN BD#76/C-345, which the Court of Appeals
found to be exclusively secured by the Clean-Phase out TOD
3923, petitioner posits that such security is not exclusive, as
the dragnet clause of the real estate mortgage covers all the
obligations of the respondents.[29]
Moreover, petitioner insists that respondents attempt to evade
foreclosure by the expediency of stating that the promissory
notes were executed by them not in their personal capacity but
as corporate officers. It claims that PN BD#76/C-430 was in
fact for home construction and personal consumption of
respondents. Thus, it states that there is a need to pierce the
veil of corporate fiction.[30]
Finally, petitioner alleges that the mortgage contract was
executed by respondents with knowledge and understanding of
the dragnet clause, being highly educated individuals,
seasoned businesspersons, and political personalities.[31]
There was no oppressive use of superior bargaining power in
the execution of the promissory notes and the real estate
mortgage.[32]
For their part, respondents claim that the dragnet clause
cannot be applied to the subsequent loans extended to Don
Alviar and Donalco Trading, Inc. since these loans are covered
by separate promissory notes that expressly provide for a
different form of security.[33] They reiterate the holding of the
trial court that the blanket mortgage clause would apply only to
loans obtained jointly by respondents, and not to loans
obtained by other parties.[34] Respondents also place a
premium on the finding of the lower courts that the real estate
mortgage clause is a contract of adhesion and must be strictly
construed against petitioner bank.[35]
The instant case thus poses the following issues pertaining to:
(i) the validity of the blanket mortgage clause or the dragnet
clause; (ii) the coverage of the blanket mortgage clause; and
consequently, (iii) the propriety of seeking foreclosure of the
mortgaged property for the non-payment of the three loans.
At this point, it is important to note that one of the loans sought
to be included in the blanket mortgage clause was obtained by
respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-
430 was executed by respondents on behalf of Donalco
Trading, Inc. and not in their personal capacity. Petitioner asks
the Court to pierce the veil of corporate fiction and hold
respondents liable even for obligations they incurred for the
corporation. The mortgage contract states that the mortgage
covers as well as those that the Mortgagee may extend to the
Mortgagor and/or DEBTOR, including interest and expenses or
any other obligation owing to the Mortgagee, whether direct or
indirect, principal or secondary. Well-settled is the rule that a
corporation has a personality separate and distinct from that of
its officers and stockholders. Officers of a corporation are not
personally liable for their acts as such officers unless it is
55
shown that they have exceeded their authority.[36] However,
the legal fiction that a corporation has a personality separate
and distinct from stockholders and members may be
disregarded if it is used as a means to perpetuate fraud or an
illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse
legitimate issues.[37] PN BD#76/C-430, being an obligation of
Donalco Trading, Inc., and not of the respondents, is not within
the contemplation of the blanket mortgage clause. Moreover,
petitioner is unable to show that respondents are hiding behind
the corporate structure to evade payment of their obligations.
Save for the notation in the promissory note that the loan was
for house construction and personal consumption, there is no
proof showing that the loan was indeed for respondents
personal consumption. Besides, petitioner agreed to the terms
of the promissory note. If respondents were indeed the real
parties to the loan, petitioner, a big, well-established institution
of long standing that it is, should have insisted that the note be
made in the name of respondents themselves, and not to
Donalco Trading Inc., and that they sign the note in their
personal capacity and not as officers of the corporation.
Now on the main issues.
A blanket mortgage clause, also known as a dragnet clause in
American jurisprudence, is one which is specifically phrased to
subsume all debts of past or future origins. Such clauses are
carefully scrutinized and strictly construed.[38] Mortgages of
this character enable the parties to provide continuous
dealings, the nature or extent of which may not be known or
anticipated at the time, and they avoid the expense and
inconvenience of executing a new security on each new
transaction.[39] A dragnet clause operates as a convenience
and accommodation to the borrowers as it makes available
additional funds without their having to execute additional
security documents, thereby saving time, travel, loan closing
costs, costs of extra legal services, recording fees, et
cetera.[40] Indeed, it has been settled in a long line of
decisions that mortgages given to secure future advancements
are valid and legal contracts,[41] and the amounts named as
consideration in said contracts do not limit the amount for
which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and other
indebtedness can be gathered.[42]
The blanket mortgage clause in the instant case states:
That for and in consideration of certain loans, overdraft and
other credit accommodations obtained from the Mortgagee by
the Mortgagor and/or ________________ hereinafter referred
to, irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be
obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine
Currency, as well as those that the Mortgagee may extend to
the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee,
whether direct or indirect, principal or secondary as appears in
the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of
mortgage unto the Mortgagee, its successors or assigns, the
parcels of land which are described in the list inserted on the
back of this document, and/or appended hereto, together with
all the buildings and improvements now existing or which may
hereafter be erected or constructed thereon, of which the
Mortgagor declares that he/it is the absolute owner free from all
liens and incumbrances. . . .[43] (Emphasis supplied.)
Thus, contrary to the finding of the Court of Appeals, petitioner
and respondents intended the real estate mortgage to secure
not only the P250,000.00 loan from the petitioner, but also
future credit facilities and advancements that may be obtained
by the respondents. The terms of the above provision being
clear and unambiguous, there is neither need nor excuse to
construe it otherwise.
The cases cited by petitioner, while affirming the validity of
dragnet clauses or blanket mortgage clauses, are of a different
factual milieu from the instant case. There, the subsequent
loans were not covered by any security other than that for the
mortgage deeds which uniformly contained the dragnet clause.
In the case at bar, the subsequent loans obtained by
respondents were secured by other securities, thus: PN
BD#76/C-345, executed by Don Alviar was secured by a hold-
out on his foreign currency savings account, while PN
BD#76/C-430, executed by respondents for Donalco Trading,
Inc., was secured by Clean-Phase out TOD CA 3923 and
eventually by a deed of assignment on two promissory notes
executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co., and by a chattel
mortgage on various heavy and transportation equipment. The
matter of PN BD#76/C-430 has already been discussed. Thus,
the critical issue is whether the blanket mortgage clause
applies even to subsequent advancements for which other
securities were intended, or particularly, to PN BD#76/C-345.
Under American jurisprudence, two schools of thought have
emerged on this question. One school advocates that a
dragnet clause so worded as to be broad enough to cover all
other debts in addition to the one specifically secured will be
construed to cover a different debt, although such other debt is
secured by another mortgage.[44] The contrary thinking
maintains that a mortgage with such a clause will not secure a
note that expresses on its face that it is otherwise secured as
to its entirety, at least to anything other than a deficiency after
exhausting the security specified therein,[45] such deficiency
being an indebtedness within the meaning of the mortgage, in
the absence of a special contract excluding it from the
arrangement.[46]
The latter school represents the better position. The parties
having conformed to the blanket mortgage clause or dragnet
clause, it is reasonable to conclude that they also agreed to an
implied understanding that subsequent loans need not be
secured by other securities, as the subsequent loans will be
secured by the first mortgage. In other words, the sufficiency of
the first security is a corollary component of the dragnet clause.
But of course, there is no prohibition, as in the mortgage
contract in issue, against contractually requiring other
securities for the subsequent loans. Thus, when the mortgagor
takes another loan for which another security was given it
could not be inferred that such loan was made in reliance
solely on the original security with the dragnet clause, but
rather, on the new security given. This is the reliance on the
security test.
Hence, based on the reliance on the security test, the
California court in the cited case made an inquiry whether the
second loan was made in reliance on the original security
containing a dragnet clause. Accordingly, finding a different
security was taken for the second loan no intent that the parties
relied on the security of the first loan could be inferred, so it
was held. The rationale involved, the court said, was that the
dragnet clause in the first security instrument constituted a
continuing offer by the borrower to secure further loans under
the security of the first security instrument, and that when the
56
lender accepted a different security he did not accept the
offer.[47]
In another case, it was held that a mortgage with a dragnet
clause is an offer by the mortgagor to the bank to provide the
security of the mortgage for advances of and when they were
made. Thus, it was concluded that the offer was not accepted
by the bank when a subsequent advance was made because
(1) the second note was secured by a chattel mortgage on
certain vehicles, and the clause therein stated that the note
was secured by such chattel mortgage; (2) there was no
reference in the second note or chattel mortgage indicating a
connection between the real estate mortgage and the advance;
(3) the mortgagor signed the real estate mortgage by her name
alone, whereas the second note and chattel mortgage were
signed by the mortgagor doing business under an assumed
name; and (4) there was no allegation by the bank, and
apparently no proof, that it relied on the security of the real
estate mortgage in making the advance.[48]
Indeed, in some instances, it has been held that in the
absence of clear, supportive evidence of a contrary intention, a
mortgage containing a dragnet clause will not be extended to
cover future advances unless the document evidencing the
subsequent advance refers to the mortgage as providing
security therefor.[49]
Even the promissory notes in issue were made on standard
forms prepared by petitioner, and as such are likewise
contracts of adhesion. Being of such nature, the same should
be interpreted strictly against petitioner and with even more
reason since having been accomplished by respondents in the
presence of petitioners personnel and approved by its
manager, they could not have been unaware of the import and
extent of such contracts.
Petitioner, however, is not without recourse. Both the Court of
Appeals and the trial court found that respondents have not yet
paid the P250,000.00, and gave no credence to their claim that
they paid the said amount when they paid petitioner
P2,000,000.00. Thus, the mortgaged property could still be
properly subjected to foreclosure proceedings for the unpaid
P250,000.00 loan, and as mentioned earlier, for any deficiency
after D/A SFDX#129, security for PN BD#76/C-345, has been
exhausted, subject of course to defenses which are available
to respondents.
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 59543 is AFFIRMED.

It was therefore improper for petitioner in this case to seek

foreclosure of the mortgaged property because of non-payment Costs against petitioner.
of all the three promissory notes. While the existence and
validity of the dragnet clause cannot be denied, there is a need
to respect the existence of the other security given for PN SO ORDERED.
BD#76/C-345. The foreclosure of the mortgaged property
should only be for the P250,000.00 loan covered by PN
BD#75/C-252, and for any amount not covered by the security
for the second promissory note. As held in one case, where
deeds absolute in form were executed to secure any and all
kinds of indebtedness that might subsequently become due, a
balance due on a note, after exhausting the special security
given for the payment of such note, was in the absence of a
special agreement to the contrary, within the protection of the
mortgage, notwithstanding the giving of the special
security.[50] This is recognition that while the dragnet clause
subsists, the security specifically executed for subsequent
loans must first be exhausted before the mortgaged property
can be resorted to.

One other crucial point. The mortgage contract, as well as the

promissory notes subject of this case, is a contract of
adhesion, to which respondents only participation was the
affixing of their signatures or adhesion thereto.[51] A contract
of adhesion is one in which a party imposes a ready-made
form of contract which the other party may accept or reject, but
which the latter cannot modify.[52]

The real estate mortgage in issue appears in a standard form,

drafted and prepared solely by petitioner, and which, according
to jurisprudence must be strictly construed against the party
responsible for its preparation.[53] If the parties intended that
the blanket mortgage clause shall cover subsequent
advancement secured by separate securities, then the same
should have been indicated in the mortgage contract.
Consequently, any ambiguity is to be taken contra
proferentum, that is, construed against the party who caused
the ambiguity which could have avoided it by the exercise of a
little more care.[54] To be more emphatic, any ambiguity in a
contract whose terms are susceptible of different
interpretations must be read against the party who drafted
it,[55] which is the petitioner in this case.

57
G.R. No. 183987 July 25, 2012
ASIA TRUST DEVELOPMENT BANK, Petitioner,
vs.
CARMELO H. TUBLE, Respondent.
DECISION
SERENO, J.:
Before this Court is a Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, seeking to review the
Court of Appeals (CA) 28 March 2008 Decision and 30 July
2008 Resolution in CA-G.R. CV No. 87410. The CA affirmed
the Regional Trial Court (RTC) Decision of 15 May 2006 in
Civil Case No. 67973, which granted to respondent the refund
of ₱845,805.491 representing the amount he had paid in
excess of the redemption price.
The antecedent facts are as follows: 2
Respondent Carmelo H. Tuble, who served as the vice-
president of petitioner Asiatrust Development Bank, availed
himself of the car incentive plan and loan privileges offered by
the bank. He was also entitled to the bank’s Senior Managers
Deferred Incentive Plan (DIP).
Respondent acquired a Nissan Vanette through the company’s
car incentive plan. The arrangement was made to appear as a
lease agreement requiring only the payment of monthly rentals.
Accordingly, the lease would be terminated in case of the
employee’s resignation or retirement prior to full payment of the
price.
As regards the loan privileges, Tuble obtained three separate
loans. The first, a real estate loan evidenced by the 18 January
1993 Promissory Note No. 01423 with maturity date of 1
January 1999, was secured by a mortgage over his property
covered by Transfer Certificate of Title No. T 145794. No
interest on this loan was indicated.
The second was a consumption loan, evidenced by the 10
January 1994 Promissory Note No. 01434 with the maturity
date of 31 January 1995 and interest at 18% per annum. Aside
from the said indebtedness, Tuble allegedly obtained a salary
loan, his third loan.
On 30 March 1995, he resigned. Subsequently, he was given
the option to either return the vehicle without any further
obligation or retain the unit and pay its remaining book value.
Respondent had the following obligations to the bank after his
retirement: (1) the purchase or return of the Nissan Vanette; (2)
₱100,000 as consumption loan; (3) ₱421,800 as real estate
loan; and (4) ₱16,250 as salary loan.5
In turn, petitioner owed Tuble (1) his pro-rata share in the DIP,
which was to be issued after the bank had given the resigned
employee’s clearance; and (2) ₱25,797.35 representing his
final salary and corresponding 13th month pay.
Respondent claimed that since he and the bank were debtors
and creditors of each other, the offsetting of loans could legally
take place. He then asked the bank to simply compute his DIP
and apply his receivables to his outstanding loans.6 However,
instead of heeding his request, the bank sent him a 1 June
1995 demand letter7 obliging him to pay his debts. The bank
also required him to return the Nissan Vanette. Despite this
demand, the vehicle was not surrendered.
On 14 August 1995, Tuble wrote the bank again to follow up
his request to offset the loans. This letter was not immediately
acted upon. It was only on 13 October 1995 that the bank
finally allowed the offsetting of his various claims and liabilities.
As a result, his liabilities were reduced to ₱970,691.46 plus the
unreturned value of the vehicle.
In order to recover the Nissan Vanette, the bank filed a
Complaint for replevin against Tuble. Petitioner obtained a
favorable judgment. Then, to collect the liabilities of
respondent, it also filed a Petition for Extra-judicial Foreclosure
of real estate mortgage over his property. The Petition was
based only on his real estate loan, which at that time amounted
to ₱421,800. His other liabilities to the bank were excluded.
The foreclosure proceedings terminated, with the bank
emerging as the purchaser of the secured property.
Thereafter, Tuble timely redeemed the property on 17 March
1997 for ₱1,318,401.91.8 Notably, the redemption price
increased to this figure, because the bank had unilaterally
imposed additional interest and other charges.
With the payment of ₱1,318,401.91, Tuble was deemed to
have fully paid his accountabilities. Thus, three years after his
payment, the bank issued him a Clearance necessary for the
release of his DIP share. Subsequently, he received a
Manager’s Check in the amount of ₱166,049.73 representing
his share in the DIP funds.
Despite his payment of the redemption price, Tuble questioned
how the foreclosure basis of ₱421,800 ballooned to
₱1,318,401.91 in a matter of one year. Belatedly, the bank
explained that this redemption price included the Nissan
Vanette’s book value, the salary loan, car insurance, 18%
annual interest on the bank’s redemption price of ₱421,800,
penalty and interest charges on Promissory Note No. 0142,
and litigation expenses.9 By way of note, from these items, the
amounts that remained to be collected as stated in the Petition
before us, are (1) the 18% annual interest on the redemption
price and (2) the interest charge on Promissory Note No. 0142.
Because Tuble disputed the redemption price, he filed a
Complaint for recovery of a sum of money and damages before
the RTC. He specifically sought to collect ₱896,602.0210
representing the excess charges on the redemption price.
Additionally, he prayed for moral and exemplary damages.
The RTC ruled in favor of Tuble. The trial court characterized
the redemption price as excessive and arbitrary, because the
correct redemption price should not have included the above-
mentioned charges. Moral and exemplary damages were also
awarded to him.
According to the trial court,11 the value of the car should not
have been included, considering that the bank had already
recovered the Nissan Vanette. The obligations arising from the
salary loan and car insurance should have also been excluded,
for there was no proof that these debts existed. The interest
and penalty charges should have been deleted, too, because
Promissory Note No. 0142 did not indicate any interest or
penalty charges. Neither should litigation expenses have been
added, since there was no proof that the bank incurred those
expenses.
As for the 18% annual interest on the bid price of ₱421,800,
the RTC agreed with Tuble that this charge was unlawful. Act
313512 as amended, in relation to Section 28 of Rule 39 of the
Rules of Court,13 only allows the mortgagee to charge an
58
interest of 1% per month if the foreclosed property is
redeemed. Ultimately, under the principle of solutio indebiti, the
trial court required the refund of these amounts charged in
excess of the correct redemption price.
On appeal, the CA affirmed the findings of the RTC.14 The
appellate court only expounded the rule that, at the time of
redemption, the one who redeemed is liable to pay only 1%
monthly interest plus taxes. Thus, the CA also concluded that
there was practically no basis to impose the additional charges.
Before this Court, petitioner reiterates its claims regarding the
inclusion in the redemption price of the 18% annual interest on
the bid price of ₱421,800 and the interest charges on
Promissory Note No. 0142. Petitioner emphasizes that an 18%
interest rate allegedly referred to in the mortgage deed is the
proper basis of the interest. Pointing to the Real Estate
Mortgage Contract, the bank highlights the blanket security
clause or "dragnet clause" that purports to cover all obligations
owed by Tuble:15
All obligations of the Borrower and/or Mortgagor, its renewal,
extension, amendment or novation irrespective of whether
such obligations as renewed, extended, amended or novated
are in the nature of new, separate or additional obligations;
All other obligations of the Borrower and/or Mortgagor in favor
of the Mortgagee, executed before or after the execution of this
document whether presently owing or hereinafter incurred and
whether or not arising from or connection with the aforesaid
loan/Credit accommodation; x x x.
Tuble’s obligations are defined in Promissory Note Nos. 0142
and 0143. By way of recap, Promissory Note No. 0142 refers
to the real estate loan; it does not contain any stipulation on
interest. On the other hand, Promissory Note No. 0143 refers
to the consumption loan; it charges an 18% annual interest
rate. Petitioner uses this latter rate to impose an interest over
the bid price of ₱421,800.
Further, the bank sees the inclusion in the redemption price of
an addition 12% annual interest on Tuble’s real estate loan.
On top of these claims, the bank raises a new item – the car’s
rental fee – to be included in the redemption price. In dealing
with this argument raised for the first time on certiorari, this
Court dismisses the contention based on the well-entrenched
prohibition on raising new issues, especially factual ones, on
appeal.16
Thus, the pertinent issue in the instant appeal is whether or not
the bank is entitled to include these items in the redemption
price: (1) the interest charges on Promissory Note No. 0142;
and (2) the 18% annual interest on the bid price of P421,800.
RULING OF THE COURT
The 18% Annual Interest on the Bid
Price of ₱421,800
The Applicable Law
The bank argues that instead of referring to the Rules of Court
to compute the redemption price, the courts a quo should have
applied the General Banking Law,17 considering that petitioner
is a banking institution.
The statute referred to requires that in the event of judicial or
extrajudicial foreclosure of any mortgage on real estate that is
used as security for an obligation to any bank, banking
institution, or credit institution, the mortgagor can redeem the
property by paying the amount fixed by the court in the order of
execution, with interest thereon at the rate specified in the
mortgage.18
Petitioner is correct. We have already established in Union
Bank of the Philippines v. Court of Appeals,19 citing Ponce de
Leon v. Rehabilitation Finance Corporation20 and Sy v. Court
of Appeals,21 that the General Banking Act – being a special
and subsequent legislation – has the effect of amending
Section 6 of Act No. 3135, insofar as the redemption price is
concerned, when the mortgagee is a bank. Thus, the amount
to be paid in redeeming the property is determined by the
General Banking Act, and not by the Rules of Court in Relation
to Act 3135.
The Remedy of Foreclosure
In reviewing the bank’s additional charges on the redemption
price as a result of the foreclosure, this Court will first clarify
certain vital points of fact and law that both parties and the
courts a quo seem to have missed.
Firstly, at the time respondent resigned, which was
chronologically before the foreclosure proceedings, he had
several liabilities to the bank. Secondly, when the bank later on
instituted the foreclosure proceedings, it foreclosed only the
mortgage secured by the real estate loan of ₱421,800.22 It did
not seek to include, in the foreclosure, the consumption loan
under Promissory Note No. 0143 or the other alleged
obligations of respondent. Thirdly, on 28 February 1996, the
bank availed itself of the remedy of foreclosure and, in doing
so, effectively gained the property.
As a result of these established facts, one evident conclusion
surfaces: the Real Estate Mortgage Contract on the secured
property is already extinguished.
In foreclosures, the mortgaged property is subjected to the
proceedings for the satisfaction of the obligation.23 As a result,
payment is effected by abnormal means whereby the debtor is
forced by a judicial proceeding to comply with the presentation
or to pay indemnity.24
Once the proceeds from the sale of the property are applied to
the payment of the obligation, the obligation is already
extinguished.25 Thus, in Spouses Romero v. Court of
Appeals,26 we held that the mortgage indebtedness was
extinguished with the foreclosure and sale of the mortgaged
property, and that what remained was the right of redemption
granted by law.
Consequently, since the Real Estate Mortgage Contract is
already extinguished, petitioner can no longer rely on it or
invoke its provisions, including the dragnet clause stipulated
therein. It follows that the bank cannot refer to the 18% annual
interest charged in Promissory Note No. 0143, an obligation
allegedly covered by the terms of the Contract.
Neither can the bank use the consummated contract to collect
on the rest of the obligations, which were not included when it
earlier instituted the foreclosure proceedings. It cannot be
allowed to use the same security to collect on the other loans.
To do so would be akin to foreclosing an already foreclosed
property.
Rather than relying on an expired contract, the bank should
have collected on the excluded loans by instituting the proper
59
actions for recovery of sums of money. Simply put, petitioner
should have run after Tuble separately, instead of hostaging
the same property to cover all of his liabilities.
The Right of Redemption
Despite the extinguishment of the Real Estate Mortgage
Contract, Tuble had the right to redeem the security by paying
the redemption price.
The right of redemption of foreclosed properties was a
statutory privilege27 he enjoyed. Redemption is by force of
law, and the purchaser at public auction is bound to accept
it.28 Thus, it is the law that provides the terms of the right; the
mortgagee cannot dictate them. The terms of this right, based
on Section 47 of the General Banking Law, are as follows:
1. The redemptioner shall have the right within one year after
the sale of the real estate, to redeem the property.
2. The redemptioner shall pay the amount due under the
mortgage deed, with interest thereon at rate specified in the
mortgage, and all the costs and expenses incurred by the bank
or institution from the sale and custody of said property less the
income derived therefrom.
3. In case of redemptioners who are considered by law as
juridical persons, they shall have the right to redeem not after
the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more
than three (3) months after foreclosure, whichever is earlier.
Consequently, the bank cannot alter that right by imposing
additional charges and including other loans. Verily, the
freedom to stipulate the terms and conditions of an agreement
is limited by law.29
Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate
Appellate Court30 that the power to decide whether or not to
foreclose is the prerogative of the mortgagee; however, once it
has made the decision by filing a petition with the sheriff, the
acts of the latter shall thereafter be governed by the provisions
of the mortgage laws, and not by the instructions of the
mortgagee. In direct contravention of this ruling, though, the
bank included numerous charges and loans in the redemption
price, which inexplicably ballooned to ₱1,318,401.91. On this
error alone, the claims of petitioner covering all the additional
charges should be denied. Thus, considering the undue
inclusions of the additional charges, the bank cannot impose
the 18% annual interest on the redemption price.
The Dragnet Clause
In any event, assuming that the Real Estate Mortgage Contract
subsists, we rule that the dragnet clause therein does not
justify the imposition of an 18% annual interest on the
redemption price.
This Court has recognized that, through a dragnet clause, a
real estate mortgage contract may exceptionally secure future
loans or advancements.31 But an obligation is not secured by
a mortgage, unless, that mortgage comes fairly within the
terms of the mortgage contract.32
We have also emphasized that the mortgage agreement, being
a contract of adhesion, is to be carefully scrutinized and strictly
construed against the bank, the party that prepared the
agreement.33
Here, after reviewing the entire deed, this Court finds that there
is no specific mention of interest to be added in case of either
default or redemption. The Real Estate Mortgage Contract
itself is silent on the computation of the redemption price.
Although it refers to the Promissory Notes as constitutive of
Tuble’s secured obligations, the said contract does not state
that the interest to be charged in case of redemption should be
what is specified in the Promissory Notes.
In Philippine Banking Communications v. Court of Appeals,34
we have construed such silence or omission of additional
charges strictly against the bank. In that case, we affirmed the
findings of the courts a quo that penalties and charges are not
due for want of stipulation in the mortgage contract.
Worse, when petitioner invites us to look at the Promissory
Notes in determining the interest, these loan agreements offer
different interest charges: Promissory Note No. 0142, which
corresponds exactly to the real estate loan, contains no
stipulation on interest; while Promissory Note No. 0143, which
in turn corresponds to the consumption loan, provides a charge
of 18% interest per annum.
Thus, an ambiguity results as to which interest shall be applied,
for to apply an 18% interest per annum based on Promissory
Note No. 0143 will negate the existence of the 0% interest
charged by Promissory Note No. 0142. Notably, it is this latter
Promissory Note that refers to the principal agreement to which
the security attaches.
In resolving this ambiguity, we refer to a basic principle in the
law of contracts: "Any ambiguity is to be taken contra
proferentem, that is, construed against the party who caused
the ambiguity which could have avoided it by the exercise of a
little more care."35 Therefore, the ambiguity in the mortgage
deed whose terms are susceptible of different interpretations
must be read against the bank that drafted it. Consequently,
we cannot impute grave error on the part of the courts a quo
for not appreciating a charge of 18% interest per annum.
Furthermore, this Court refuses to be blindsided by the dragnet
clause in the Real Estate Mortgage Contract to automatically
include the consumption loan, and its corresponding interest, in
computing the redemption price.
As we have held in Prudential Bank v. Alviar,36 in the absence
of clear and supportive evidence of a contrary intention, a
mortgage containing a dragnet clause will not be extended to
cover future advances, unless the document evidencing the
subsequent advance refers to the mortgage as providing
security therefor.
In this regard, this Court adopted the "reliance on the security
test" used in the above-mentioned cases, Prudential Bank37
and Philippine Bank of Communications.38 In these Decisions,
we elucidated the test as follows:
x x x A mortgage with a "dragnet clause" is an "offer" by the
mortgagor to the bank to provide the security of the mortgage
for advances of and when they were made. Thus, it was
concluded that the "offer" was not accepted by the bank when
a subsequent advance was made because (1) the second note
was secured by a chattel mortgage on certain vehicles, and the
clause therein stated that the note was secured by such chattel
mortgage; (2) there was no reference in the second note or
chattel mortgage indicating a connection between the real
estate mortgage and the advance; (3) the mortgagor signed
the real estate mortgage by her name alone, whereas the
second note and chattel mortgage were signed by the
60
mortgagor doing business under an assumed name; and (4)
there was no allegation by the bank, and apparently no proof,
that it relied on the security of the real estate mortgage in
making the advance.39 (Emphasis supplied)
Here, the second loan agreement, or Promissory Note No.
0143, referring to the consumption loan makes no reference to
the earlier loan with a real estate mortgage. Neither does the
bank make any allegation that it relied on the security of the
real estate mortgage in issuing the consumption loan to Tuble.
It must be remembered that Tuble was petitioner’s previous
vice-president. Hence, as one of the senior officers, the
consumption loan was given to him not as an ordinary loan, but
as a form of accommodation or privilege.40 The bank’s grant of
the salary loan to Tuble was apparently not motivated by the
creation of a security in favor of the bank, but by the fact the he
was a top executive of petitioner.
Thus, the bank cannot claim that it relied on the previous
security in granting the consumption loan to Tuble. For this
reason, the dragnet clause will not be extended to cover the
consumption loan. It follows, therefore, that its corresponding
interest – 18% per annum – is inapplicable. Consequently, the
courts a quo did not gravely abuse their discretion in refusing
to apply an annual interest of 18% in computing the redemption
price. A finding of grave abuse of discretion necessitates that
the judgment must have been exercised arbitrarily and without
basis in fact and in law.41
The Interest Charges on Promissory
Note No. 0142
In addition to the 18% annual interest, the bank also claims a
12% interest per annum on the consumption loan.
Notwithstanding that Promissory Note No. 0142 contains no
stipulation on interest payments, the bank still claims that Tuble
is liable to pay the legal interest. This interest is currently at
12% per annum, pursuant to Central Bank Circular No. 416
and Article 2209 of the Civil Code, which provides:
If the obligation consists in the payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment
of the interest agreed upon, and in the absence of stipulation,
the legal interest, which is six per cent per annum. (Emphasis
supplied)
While Article 2209 allows the recovery of interest sans
stipulation, this charge is provided not as a form of monetary
interest, but as one of compensatory interest.42
Monetary interest refers to the compensation set by the parties
for the use or forbearance of money.43 On the other hand,
compensatory interest refers to the penalty or indemnity for
damages imposed by law or by the courts.44 Compensatory
interest, as a form of damages, is due only if the obligor is
proven to have defaulted in paying the loan.45
Thus, a default must exist before the bank can collect the
compensatory legal interest of 12% per annum. In this regard,
Tuble denies being in default since, by way of legal
compensation, he effectively paid his liabilities on time.
This argument is flawed. The bank correctly explains in its
Petition that in order for legal compensation to take effect,
Article 1279 of the Civil Code requires that the debts be
liquidated and demandable. This provision reads:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor. (Emphasis supplied)
Liquidated debts are those whose exact amount has already
been determined.46 In this case, the receivable of Tuble,
including his DIP share, was not yet determined; it was the
petitioner’s policy to compute and issue the computation only
after the retired employee had been cleared by the bank. Thus,
Tuble incorrectly invoked legal compensation in addressing this
issue of default.
Nevertheless, based on the findings of the RTC and the CA,
the obligation of Tuble as evidenced by Promissory Note No.
0142, was set to mature on 1 January 1999. But then, he had
already settled his liabilities on 17 March 1997 by paying
₱1,318,401.91 as redemption price. Then, in 1999, the bank
issued his Clearance and share in the DIP in view of the full
settlement of his obligations. Thus, there being no substantial
delay on his part, the CA did not grievously err in not declaring
him to be in default.
The Award of Moral and Exemplary
Damages
The courts a quo awarded Tuble ₱200,000 as moral damages
and ₱50,000 as exemplary damages.1âwphi1 As appreciated
by the RTC, which had the opportunity to examine the
parties,47 the bank treated Tuble unfairly and unreasonably by
refusing to lend even a little charity and human consideration
when it immediately foreclosed the loans of its previous vice-
president instead of heeding his request to make a
straightforward calculation of his receivables and offset them
against his liabilities.48
To the mind of the trial court, this was such a simple request
within the control of the bank to grant; and if petitioner had only
acceded, the troubles of the lawsuit would have been
avoided.1âwphi1
Moreover, the RTC found that the bank caused Tuble severe
humiliation when the Nissan Vannette was seized from his new
office at Kuok Properties Philippines. The trial court also
highlighted the fact that respondent as the previous vice-
president of petitioner was no ordinary employee – he was a
man of good professional standing, and one who actively
participated in civic organizations. The RTC then concluded
that a man of his standing deserved fair treatment from his
employer, especially since they served common goals.
This Court affirms the dispositions of the RTC and the CA.
They correctly ruled that the award of moral damages also
includes cases of besmirched reputation, moral shock, social
humiliation and similar injury. In this regard, the social and
financial standings of the parties are additional elements that
should be taken into account in the determination of the
amount of moral damages.49 Based on their findings that
Tuble suffered undue embarrassment, given his social
61
standing, the courts a quo had factual Basis50 to justify the
award of moral damages and, consequently, exemplary
damages51 in his favor.

From all the foregoing, we rule that the appellate court correctly
deleted the 18% annual interest charges, albeit for different
reasons. First, the interest cannot be imposed, because any
reference to it under the Real Estate Mortgage Contract is
misplaced, as the contract is already extinguished. Second, the
said interest cannot be collected without any basis in terms of
Tuble's redemption rights. Third, assuming that the Real Estate
Mortgage Contract subsists, the bank cannot collect the
interest because of the contract's ambiguity. Fourth, the
dragnet clause referred to in the contract cannot be presumed
to include the 18% annual interest specified in the consumption
loan. Fifth, with respect to the compensatory interest claimed
by the bank, we hold that neither is the interest due, because
Tuble cannot be deemed to be in default of his obligations.

IN VIEW THEREOF, the assailed 28 March 2008 Decision and

30 July 2008 Resolution of the Court of Appeals in CA-G.R. CV
No. 87410 are hereby AFFIRMED.

SO ORDERED.

62
SPS. ANTONIO & LETICIA VEGA, G.R. No. 181672
Petitioner,
Present:
CARPIO, J., Chairperson,
- versus - PERALTA,
BERSAMIN,*
ABAD, and
PEREZ,** JJ.
SOCIAL SECURITY SYSTEM (SSS)
& PILAR DEVELOPMENT Promulgated:
CORPORATION,
Respondents. September 20, 2010
x ---------------------------------------------------------------------------------
------ x
DECISION
ABAD, J.:
This case is about the lack of authority of a sheriff to execute
upon a property that the judgment obligor had long sold to
another although the registered title to the property remained in
the name of the former.
The Facts and the Case
Magdalena V. Reyes (Reyes) owned a piece of titled land[1] in
Pilar Village, Las Pias City. On August 17, 1979 she got a
housing loan from respondent Social Security System (SSS)
for which she mortgaged her land.[2] In late 1979, however,
she asked the petitioner spouses Antonio and Leticia Vega (the
Vegas) to assume the loan and buy her house and lot since
she wanted to emigrate.[3]
Upon inquiry with the SSS, an employee there told the Vegas
that the SSS did not approve of members transferring their
mortgaged homes. The Vegas could, however, simply make a
private arrangement with Reyes provided they paid the monthly
amortizations on time. This practice, said the SSS employee,
was commonplace.[4] Armed with this information, the Vegas
agreed for Reyes to execute in their favor a deed of
assignment of real property with assumption of mortgage and
paid Reyes P20,000.00 after she undertook to update the
amortizations before leaving the country. The Vegas then took
possession of the house in January 1981.[5]
But Reyes did not readily execute the deed of assignment.
She left the country and gave her sister, Julieta Reyes Ofilada
(Ofilada), a special power of attorney to convey ownership of
the property. Sometime between 1983 and 1984, Ofilada finally
executed the deed promised by her sister to the Vegas. Ofilada
kept the original and gave the Vegas two copies. The latter
gave one copy to the Home Development Mortgage Fund and
kept the other.[6] Unfortunately, a storm in 1984 resulted in a
flood that destroyed the copy left with them.[7]
In 1992, the Vegas learned that Reyes did not update the
amortizations for they received a notice to Reyes from the SSS
concerning it.[8] They told the SSS that they already gave the
payment to Reyes but, since it appeared indifferent, on
January 6, 1992 the Vegas updated the amortization
themselves and paid P115,738.48 to the SSS, through Antonio
Vegas personal check.[9] They negotiated seven additional
remittances and the SSS accepted P8,681.00 more from the
Vegas.[10]
Meanwhile, on April 16, 1993 respondent Pilar Development
Corporation (PDC) filed an action for sum of money against
Reyes before the Regional Trial Court (RTC) of Manila in Civil
Case 93-6551. PDC claimed that Reyes borrowed from Apex
Mortgage and Loans Corporation (Apex) P46,500.00 to buy the
lot and construct a house on it.[11] Apex then assigned Reyes
credit to the PDC on December 29, 1992,[12] hence, the suit
by PDC for the recovery of the unpaid debt. On August 26,
1993 the RTC rendered judgment, ordering Reyes to pay the
PDC the loan of P46,398.00 plus interest and penalties
beginning April 11, 1979 as well as attorneys fees and the
costs.[13] Unable to do so, on January 5, 1994 the RTC issued
a writ of execution against Reyes and its Sheriff levied on the
property in Pilar Village.[14]
On February 16, 1994 the Vegas requested the SSS to
acknowledge their status as subrogees and to give them an
update of the account so they could settle it in full. The SSS did
not reply. Meantime, the RTC sheriff published a notice for the
auction sale of the property on February 24, March 3 and 10,
1994.[15] He also served on the Vegas notice of that sale on or
about March 20, 1994.[16] On April 5, 1994, the Vegas filed an
affidavit of third party claimant and a motion for leave to admit
a motion in intervention to quash the levy on the property.[17]
Still, stating that Vegas remedy lay elsewhere, the RTC
directed the sheriff to proceed with the execution.[18]
Meantime, the Vegas got a telegram dated August 29, 1994,
informing them that the SSS intended to foreclose on the
property to satisfy the unpaid housing debt of P38,789.58.[19]
On October 19, 1994 the Vegas requested the SSS in writing
for the exact computation of the indebtedness and for
assurance that they would be entitled to the discharge of the
mortgage and delivery of the proper subrogation documents
upon payment. They also sent a P37,521.95 managers check
that the SSS refused to accept.[20]
On November 8, 1994 the Vegas filed an action for
consignation, damages, and injunction with application for
preliminary injunction and temporary restraining order against
the SSS, the PDC, the sheriff of RTC Branch 19, and the
Register of Deeds before the RTC of Las Pias in Civil Case 94-
2943. Still, while the case was pending, on December 27, 1994
the SSS released the mortgage to the PDC.[21] And on August
22, 1996 the Register of Deeds issued TCT T-56657 to the
PDC.[22] A writ of possession subsequently evicted the Vegas
from the property.
On May 8, 2002 the RTC decided Civil Case 94-2943 in favor
of the Vegas. It ruled that the SSS was barred from rejecting
the Vegas final payment of P37,521.95 and denying their
assumption of Reyes debt, given the SSS previous acceptance
of payments directly from them. The Vegas were subrogated to
the rights of Reyes and substituted her in the SSS housing
loan and mortgage contract. That the Vegas had the receipts
show that they were the ones who made those payments. The
RTC ordered the PDC to deliver to the Vegas the certificate of
title covering the property. It also held the SSS and PDC
solidarily liable to the Vegas for P300,000.00 in moral
63
damages, P30,000.00 in exemplary damages, and P50,000.00
in attorneys fees and for costs of the suit.[23]
The SSS appealed to the Court of Appeals (CA) in CA G.R.
CV 77582. On August 30, 2007 the latter court reversed the
RTC decision[24] for the reasons that the Vegas were unable
to produce the deed of assignment of the property in their favor
and that such assignment was not valid as to PDC. Their
motion for reconsideration having been denied, the Vegas filed
this petition for review on certiorari under Rule 45.[25]
The Issues Presented
The issues in this case are:
1. Whether or not the Vegas presented adequate proof of
Reyes sale of the subject property to them;
2. In the affirmative, whether or not Reyes validly sold her
SSS-mortgaged property to the Vegas; and
3. In the affirmative, whether or not the sheriff validly sold the
same at public auction to satisfy Reyes debt to PDC.
The Rulings of the Court
One. The CA ruled that the Vegas were unable to prove that
Reyes assigned the subject property to them, given that they
failed to present the deed of assignment in their favor upon a
claim that they lost it.[26] But the rule requiring the presentation
of the original of that deed of assignment is not absolute.
Secondary evidence of the contents of the original can be
adduced, as in this case, when the original has been lost
without bad faith on the part of the party offering it.[27]
Here, not only did the Vegas prove the loss of the deed of
assignment in their favor and what the same contained, they
offered strong corroboration of the fact of Reyes sale of the
property to them. They took possession of the house and lot
after they bought it. Indeed, they lived on it and held it in the
concept of an owner for 13 years before PDC came into the
picture. They also paid all the amortizations to the SSS with
Antonio Vegas personal check, even those that Reyes
promised to settle but did not. And when the SSS wanted to
foreclose the property, the Vegas sent a managers check to it
for the balance of the loan. Neither Reyes nor any of her
relatives came forward to claim the property. The Vegas amply
proved the sale to them.
Two. Reyes acquired the property in this case through a loan
from the SSS in whose favor she executed a mortgage as
collateral for the loan. Although the loan was still unpaid, she
assigned the property to the Vegas without notice to or the
consent of the SSS. The Vegas continued to pay the
amortizations apparently in Reyes name. Meantime, Reyes
apparently got a cash loan from Apex, which assigned the
credit to PDC. This loan was not secured by a mortgage on the
property but PDC succeeded in getting a money judgment
against Reyes and had it executed on the property. Such
property was still in Reyes name but, as pointed out above, the
latter had disposed of it in favor of the Vegas more than 10
years before PDC executed on it.
The question is: was Reyes disposal of the property in favor of
the Vegas valid given a provision in the mortgage agreement
that she could not do so without the written consent of the
SSS?
The CA ruled that, under Article 1237[28] of the Civil Code, the
Vegas who paid the SSS amortizations except the last on
behalf of Reyes, without the latters knowledge or against her
consent, cannot compel the SSS to subrogate them in her
rights arising from the mortgage. Further, said the CA, the
Vegas claim of subrogation was invalid because it was done
without the knowledge and consent of the SSS as required
under the mortgage agreement.[29]
But Article 1237 cannot apply in this case since Reyes
consented to the transfer of ownership of the mortgaged
property to the Vegas. Reyes also agreed for the Vegas to
assume the mortgage and pay the balance of her obligation to
SSS. Of course, paragraph 4 of the mortgage contract covering
the property required Reyes to secure SSS consent before
selling the property. But, although such a stipulation is valid
and binding, in the sense that the SSS cannot be compelled
while the loan was unpaid to recognize the sale, it cannot be
interpreted as absolutely forbidding her, as owner of the
mortgaged property, from selling the same while her loan
remained unpaid. Such stipulation contravenes public policy,
being an undue impediment or interference on the transmission
of property.[30]
Besides, when a mortgagor sells the mortgaged property to a
third person, the creditor may demand from such third person
the payment of the principal obligation. The reason for this is
that the mortgage credit is a real right, which follows the
property wherever it goes, even if its ownership changes.
Article 2129[31] of the Civil Code gives the mortgagee, here
the SSS, the option of collecting from the third person in
possession of the mortgaged property in the concept of
owner.[32] More, the mortgagor-owners sale of the property
does not affect the right of the registered mortgagee to
foreclose on the same even if its ownership had been
transferred to another person. The latter is bound by the
registered mortgage on the title he acquired.
After the mortgage debt to SSS had been paid, however, the
latter had no further justification for withholding the release of
the collateral and the registered title to the party to whom
Reyes had transferred her right as owner. Under the
circumstance, the Vegas had the right to sue for the
conveyance to them of that title, having been validly
subrogated to Reyes rights.
Three. The next question is: was Reyes sale of the property to
the Vegas binding on PDC which tried to enforce the judgment
credit in its favor on the property that was then still mortgaged
to the SSS?
The CA ruled that Reyes assignment of the property to the
Vegas did not bind PDC, which had a judgment credit against
Reyes, since such assignment neither appeared in a public
document nor was registered with the register of deeds as
Article 1625 of the Civil Code required. Article 1625 reads:
Art. 1625. An assignment of a credit, right or action shall
produce no effect as against third persons, unless it appears in
a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real
property. (1526)
But Article 1625 referred to assignment of credits and other
incorporeal rights. Reyes did not assign any credit or
incorporeal right to the Vegas. She sold the Vegas her house
and lot. They became owner of the property from the time she
executed the deed of assignment covering the same in their
favor. PDC had a judgment for money against Reyes only. A
64
courts power to enforce its judgment applies only to the
properties that are indisputably owned by the judgment
obligor.[33] Here, the property had long ceased to belong to
Reyes when she sold it to the Vegas in 1981.

The PDC cannot take comfort in the fact that the property
remained in Reyes name when it bought the same at the
sheriff sale. The PDC cannot assert that it was a buyer in good
faith since it had notice of the Vegas claim on the property prior
to such sale.

Under the circumstances, the PDC must reconvey the subject

property to the Vegas or, if this is no longer possible, pay them
its current market value as the trial court may determine with
interest of 12 percent per annum from the date of the
determination of such value until it is fully paid. Further,
considering the distress to which the Vegas were subjected
after the unlawful levy on their property, aggravated by their
subsequent ouster from it through a writ of possession secured
by PDC, the RTC was correct in awarding the Vegas moral
damages of P300,000.00, exemplary damages of P30,000.00
and attorneys fees of P50,000.00 plus costs of the suit. But
these are to be borne solely by PDC considering that the SSS
had nothing to do with the sheriffs levy on the property. It
released the title to the PDC simply because it had a sheriffs
sale in its favor.

The PDC is, however, entitled to reimbursement from the

Vegas of the sum of P37,820.15 that it paid to the SSS for the
release of the mortgaged title.

WHEREFORE, the Court GRANTS the petition, REVERSES

the assailed decision of the Court of Appeals in CA-G.R. CV
77582 dated August 30, 2007, and in its place DIRECTS
respondent Pilar Development Corporation:

1. To convey to petitioner spouses Antonio and Leticia Vega

the title to and possession of the property subject of this case,
covered by Transfer Certificate of Title 56657 of the Register of
Deeds of Las Pias City, for the issuance of a new title in their
names; and

2. To pay the same petitioner spouses moral damages of

P300,000.00, exemplary damages of P30,000.00, and
attorneys fees of P50,000.00.

On the other hand, the Court DIRECTS petitioner spouses to

reimburse respondent Pilar Development Corp. the sum of
P37,820.15, representing what it paid the respondent SSS for
the release of the mortgaged certificate of title.

SO ORDERED.

65
[G.R. No. 114172. August 25, 2003]
JUANITA P. PINEDA, assisted by her husband, CRISPIN
PINEDA, and LILIA SAYOC, petitioners, vs. COURT OF
APPEALS and TERESITA A. GONZALES, assisted by her
husband, FRANCISCO G. GONZALES, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review on certiorari[1] seeks to reverse the
Decision[2] of the Court of Appeals dated 26 August 1993 in
CA-G.R. SP No. 28651 as well as the Resolution dated 4
March 1994 denying the motion for reconsideration. In its
assailed decision, the Court of Appeals declared void the
orders[3] of the Regional Trial Court[4] of Cavite City dated 10
January 1992, 5 February 1992 and 30 April 1992, and made
the preliminary injunction permanent. In the first order, the trial
court declared that Teresita A. Gonzales, despite notice, failed
to appear at the hearing of the motion to surrender Transfer
Certificate of Title No. T-16084 and to file opposition to the
motion. In the second order, the trial court declared void the
original and owners duplicate of Transfer Certificate of Title No.
T-16084 and ordered the reinstatement of Transfer Certificate
of Title No. T-8361. In the third order, the trial court denied the
motions to lift the first order and to reconsider the second
order.
The Facts
On 4 January 1982, the Spouses Virgilio and Adorita Benitez
(Spouses Benitez) mortgaged a house and lot (Property)
covered by Transfer Certificate of Title No. T-8361 (TCT 8361)
in favor of Juanita P. Pineda (Pineda) and Leila P. Sayoc
(Sayoc). The real estate mortgage secured the Spouses
Benitezs loan of P243,000 with a one-year maturity period.[5]
Pineda and Sayoc did not register the mortgage with the
Register of Deeds. The Spouses Benitez delivered the owners
duplicate of TCT 8361 to Pineda.
On 9 November 1983, with the consent of Pineda, the Spouses
Benitez sold the house,[6] which was part of the Property, to
Olivia G. Mojica (Mojica). On the same date, Mojica filed a
petition for the issuance of a second owners duplicate of TCT
8361 alleging that she purchased a parcel of land[7] and the
owners duplicate copy of TCT No. T-8361 was lost.[8]
On 7 December 1983, the trial court granted the petition. The
Register of Deeds of Cavite City issued the second owners
duplicate of TCT 8361 in the name of the Spouses Benitez.
On 12 December 1983, the Spouses Benitez sold the lot[9]
covered by TCT 8361 to Mojica. With the registration of the
deed of sale and presentation of the second owners duplicate
of TCT 8361, the Register of Deeds cancelled TCT 8361 and
issued Transfer Certificate of Title No. T-13138 (TCT 13138) in
the name of Mojica.
On 22 February 1985, Mojica obtained a loan of P290,000 from
Teresita A. Gonzales (Gonzales). Mojica executed a
promissory note and a deed of mortgage over the Property in
favor of Gonzales. Gonzales registered this deed of mortgage
with the Register of Deeds of Cavite City who annotated the
mortgage on TCT 13138 as Entry No. 33209.
Meanwhile, on 8 May 1985, Pineda and Sayoc filed a
complaint before the Regional Trial Court[10] of Cavite City,
docketed as Civil Case No. 4654, against the Spouses Benitez
and Mojica. The complaint prayed for the cancellation of the
second owners duplicate of TCT 8361 and the award of moral
damages and attorneys fees.
In their answer, the Spouses Benitez admitted selling to Mojica
the Property which was already subject to a previous mortgage
in favor of Pineda and Sayoc. The Spouses Benitez claimed
that under the Acknowledgment of Indebtedness,[11] Mojica,
with the conformity of Pineda and Sayoc, agreed to assume
the balance of the mortgage debt of the Spouses Benitez to
Pineda and Sayoc.
The Spouses Benitez denied any knowledge of Mojicas petition
for the issuance of a second owners duplicate of TCT 8361.
The Spouses Benitez prayed for the dismissal of the complaint
and the award of moral damages and attorneys fees. The
Spouses Benitez also prayed that in case the court would
render judgment in favor of Pineda and Sayoc, only Mojica
should be held liable.
On the other hand, Mojica denied conspiring with the Spouses
Benitez and committing fraud in filing the petition for the
issuance of a second owners duplicate of TCT 8361. Mojica
stated that the Spouses Benitez sold to her the Property.
Mojica claimed that upon the execution of the deed of sale, the
Spouses Benitez delivered to her the owners duplicate of TCT
8361. However, Mojica alleged that the owners duplicate of
TCT 8361 was lost.
Mojica also asserted that she verified with the Register of
Deeds of Cavite City the provision in the deed of sale that the
Property was free from all liens and encumbrances and found
the same to be true. Mojica added that on learning of the
Spouses Benitezs mortgage with Pineda and Sayoc, she
signed the Acknowledgment of Indebtedness. Mojica
contended that since Pineda, for herself and Sayoc, conformed
to this agreement, Pineda and Sayoc had no personality to file
the complaint. Mojica further alleged that Pineda and Sayoc
were in estoppel from challenging the validity of the second
owners duplicate of TCT 8361 because Pineda and Sayoc,
despite notice, failed to oppose the reconstitution of the title.
Mojica maintained that the Spouses Benitez are indispensable
parties because TCT 8361 was in their name. Mojica also
asserted that she did not breach the Acknowledgment of
Indebtedness since she had paid the Spouses Benitez an
amount more than their debt to Pineda and Sayoc. Mojica
contended that had the Spouses Benitez paid the amount to
Pineda and Sayoc, there would have been no obligation to
assume. Mojica prayed for the dismissal of the complaint and
the award of moral and exemplary damages and attorneys
fees.
During the pendency of the case, Pineda caused the
annotation on 18 August 1986 of a notice of lis pendens on the
original of TCT 8361 with the Register of Deeds.
After trial, the trial court rendered a Decision dated 15 June
1987, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court hereby
renders judgment declaring the second owners duplicate of
TCT No. T-8361 of the land records of Cavite as null and void
and the Register of Deeds of Cavite City is hereby ordered
upon payment of the corresponding legal fees the annotation of
this pronouncement in its record and the revival of the first
66
owners duplicate with the same faith and credit before its
alleged loss. The counterclaim of defendants Benitezes is
hereby dismissed. No pronouncement as to costs.
SO ORDERED.[12]
On 7 December 1987, Mojica defaulted in paying her obligation
to Gonzales. Hence, Gonzales extrajudicially foreclosed the
mortgage. On 27 January 1988, Gonzales purchased at public
auction the Property for P423,244.88.
For failure of Mojica to redeem the Property, Gonzales
consolidated the title to the Property. On 29 March 1989,
Gonzales executed the corresponding Affidavit of
Consolidation.
On 30 March 1989, the Register of Deeds of Cavite City
cancelled TCT 13138, which was in Mojicas name, and issued
Transfer Certificate of Title No. T-16084 (TCT 16084) in the
name of Gonzales. TCT 16084 contained Entry No. 35520, the
notice of lis pendens dated 18 August 1986 in relation to Civil
Case No. 4654.[13] The Register of Deeds annotated on TCT
16084 the notice of lis pendens, even though TCT 13138 did
not contain such annotation.
Meanwhile, dissatisfied with the trial courts decision, the
Spouses Benitez and Mojica appealed to the Court of Appeals,
docketed as CA-G.R. CV No. 15417. On 29 January 1991, the
Court of Appeals rendered a Decision[14] affirming the trial
courts decision declaring void the second owners duplicate of
TCT 8361. The decision of the Court of Appeals became final
and was entered in the Book of Entries of Judgments on 17
June 1991.
The Court of Appeals returned the records of the case to the
trial court on 10 July 1991. On motion of Pineda and Sayoc,
the trial court issued a writ of execution to enforce the
judgment.
However, the writ of execution was returned unsatisfied. The
Sheriffs Return of 12 September 1991 stated that the Register
of Deeds could not implement the writ of execution. The
Sheriffs Return showed that the Register of Deeds had already
cancelled TCT 8361 and issued TCT 16084 in the name of
Gonzales by virtue of the consolidation of title dated 29 March
1989.
Consequently, on 6 December 1991, Pineda and Sayoc filed a
motion with the trial court for the issuance of an order requiring
Gonzales to surrender the owners duplicate of TCT 16084 to
the Register of Deeds of Cavite City.
In its Order dated 10 January 1992 (first order), the trial court
declared that Gonzales, despite notice, failed to appear at the
hearing and to oppose the motion to surrender TCT 16084. In
the same order, the trial court directed Gonzales to file a
memorandum. Gonzales received this order on 20 January
1992.
Subsequently, Gonzales filed a motion to lift the first order
alleging that since she was not a party in Civil Case No. 4654,
the decision did not bind her. Gonzales also claimed that she
did not receive notice of the hearing, copy of the motion to
surrender TCT 16084 and the order resetting the hearing
because she was in the United States of America. Gonzales
finally alleged that she was an innocent purchaser for value.
In an Order dated 5 February 1992 (second order), the trial
court declared void the original and the owners duplicate of
TCT 16084 in the name of Gonzales. The trial court ordered
the reinstatement of TCT 8361 in the name of the Spouses
Benitez.
Gonzales filed a motion for reconsideration of the second
order. On 30 April 1992, the trial court issued an Order (third
order) denying Gonzales motions to lift the first order and to
reconsider the second order.
Aggrieved by the trial courts orders, Gonzales filed with the
Court of Appeals a petition for the issuance of a writ of
prohibitory injunction.
On 26 August 1993, the Court of Appeals rendered a decision
disposing as follows:
WHEREFORE, the petition is granted. The assailed orders
dated 10 January 1992, 5 February 1992, and 30 April 1992
are hereby declared NULL and VOID, and the preliminary
prohibitory injunction is made permanent.
SO ORDERED.[15]
Hence, the instant petition.
The Ruling of the Court of Appeals
In the Court of Appeals, Gonzales maintained that the trial
court had no jurisdiction over her person and property because
Pineda and Sayoc did not implead her as a party in Civil Case
No. 4654. Insisting that the questioned orders were procured
through extrinsic or collateral fraud, Gonzales claimed that the
orders of the trial court were void. Gonzales further alleged that
she was an innocent purchaser for value making her title to the
Property indefeasible and imprescriptible.
Pineda and Sayoc, on the other hand, argued that the notice of
lis pendens annotated on the title of the Property bound
Gonzales, as subsequent purchaser of the Property, to the
outcome of the case. Pineda and Sayoc contended that
Gonzales was not a purchaser in good faith because Gonzales
had constructive notice of the pending litigation when she
purchased the Property.
Moreover, Pineda and Sayoc argued that no separate action is
necessary to cancel the title because Gonzales is bound by the
outcome of the litigation. They contended that there was no
extrinsic fraud because the notice of lis pendens warned
Gonzales of the pendency of Civil Case No. 4654 where she
could have intervened. Pineda and Sayoc further alleged that
foreclosure and sale, not a mortgage, vest title on a
mortgagee. Foreclosure and sale, however, are always subject
to a notice of lis pendens.
In granting the petition, the Court of Appeals ruled that the trial
court erred when it voided TCT 16084 upon a mere motion for
the surrender of the owners duplicate of TCT 16084. The Court
of Appeals further held that the trial court erred in ordering the
reinstatement of TCT 8361 in the name of the Spouses
Benitez.
The Court of Appeals held that Pineda and Sayoc should have
filed the petition to surrender TCT 16084 in the original case
where the decree of registration of TCT 16084 was entered
and not in Civil Case No. 4654. The second paragraph of
Section 108 of Presidential Decree No. 1529[16] (PD 1529)
requires the filing of such separate petition. The appellate court
stated that it was beyond the trial courts authority to act on the
matter on a mere motion to surrender TCT 16084.
67
The Court of Appeals likewise ruled that the trial court did not
acquire jurisdiction over the person of Gonzales because she
was not a party in Civil Case No. 4654. The appellate court
found that Gonzales could not have known of, and appeared
at, the hearing of the motion to surrender TCT 16084 because
Gonzales was then out of the country.
Assuming that the trial court could validly act on the motion of
Pineda and Sayoc, the Court of Appeals declared that the
orders nevertheless contravened Section 107 of PD 1529. This
provision of law requires a hearing before the court can act on
a petition to surrender a duplicate certificate of title.
The Issues
Petitioners raise the following issues for resolution:
1. Whether a notice of lis pendens binds a subsequent
purchaser of the property to the outcome of the pending case.
2. Whether TCT 13138 and TCT 16084, being derived from the
void second owners duplicate of TCT 8361, are also void.
3. Whether a separate action should be filed to cancel TCT
16084.
4. Whether Gonzales was an innocent purchaser for value.
5. Whether Gonzales was denied due process of law.
The Ruling of the Court
We deny the petition.
Validity of TCT 13138 and TCT 16084
Mojica filed a petition for reconstitution[17] of the owners
duplicate of TCT 8361 claiming that this owners duplicate was
lost. However, contrary to Mojicas claims, the owners duplicate
of TCT 8361 was not lost but in Pinedas possession. Since the
owners duplicate of TCT 8361 was in fact not lost or destroyed,
there was obviously nothing to reconstitute or replace.
Therefore, the trial court correctly ruled that the reconstitution
proceedings and the second owners duplicate of TCT 8361 are
void.[18] As the Court held in New Durawood Co., Inc. v. Court
of Appeals:[19]
In the instant case, the owners duplicate certificates of title
were in the possession of Dy Quim Pong, the petitioners
chairman of the board and whose family controls the petitioner-
corporation. Since said certificates were not in fact lost or
destroyed, there was no necessity for the petition filed in the
trial court for the Issuance of New Owners Duplicate
Certificates of Title . . . In fact, the said court never acquired
jurisdiction to order the issuance of new certificates. Hence, the
newly issued duplicates are themselves null and void.
(Emphasis supplied)
Mojica registered with the Register of Deeds the deed of sale
executed by the Spouses Benitez conveying the Property to
her. Mojica also presented to the Register of Deeds the second
owners duplicate of TCT 8361. The Register of Deeds
cancelled TCT 8361 and issued on 14 December 1983 TCT
13138 in the name of Mojica. However, since TCT 13138 is
derived from the void second owners duplicate of TCT 8361,
TCT 13138 is also void. No valid transfer certificate of title can
issue from a void transfer certificate of title, unless an innocent
purchaser for value has intervened.[20]
Mojica was not a purchaser in good faith. Mojica alleged that
the Spouses Benitez gave her the owners duplicate of TCT
8361 on 9 November 1983, the day the Spouses Benitez sold
to her the house. However, in her petition for reconstitution,
which she also filed on the same day, 9 November 1983,
Mojica claimed that the owners duplicate of TCT 8361 was lost.
In effect, Mojica claimed that she received the owners
duplicate of TCT 8361 from the Spouses Benitez, lost the
same, and filed the petition for reconstitution, all on the same
day, 9 November 1983.
In her petition for reconstitution, Mojica also claimed that she
purchased a parcel of land when in fact she only purchased on
9 November 1983 the house, and not the lot covered by TCT
8361. Obviously, Mojica procured the reconstitution of the
second owners duplicate of TCT 8361 through
misrepresentation. Hence, Mojica was not a purchaser in good
faith when she later purchased on 12 December 1983 the lot
since she knew of the irregularity in the reconstitution of the
second owners duplicate of TCT 8361.
Therefore, TCT 13138 issued in the name of Mojica is void.
However, what is void is the transfer certificate of title and not
the title over the Property. The title refers to the ownership of
the Property covered by the transfer certificate of title while the
transfer certificate of title merely evidences that ownership. A
certificate of title is not equivalent to title as the Court explained
in Lee Tek Sheng v. Court of Appeals:[21]
xxx The certificate referred to is that document issued by the
Register of Deeds known as the Transfer Certificate of Title
(TCT). By title, the law refers to ownership which is
represented by that document. Petitioner apparently confuses
certificate with title. Placing a parcel of land under the mantle of
the Torrens system does not mean that ownership thereof can
no longer be disputed. Ownership is different from a certificate
of title. The TCT is only the best proof of ownership of a piece
of land. Besides, the certificate cannot always be considered
as conclusive evidence of ownership. Mere issuance of the
certificate of title in the name of any person does not foreclose
the possibility that the real property may be under co-
ownership with persons not named in the certificate or that the
registrant may only be a trustee or that other parties may have
acquired interest subsequent to the issuance of the certificate
of title. To repeat, registration is not the equivalent of title, but
is only the best evidence thereof. Title as a concept of
ownership should not be confused with the certificate of title as
evidence of such ownership although both are
interchangeable. xxx (Emphasis supplied)
Mojicas Title
The prior mortgage of the Property by the Spouses Benitez to
Pineda and Sayoc did not prevent the Spouses Benitez, as
owners of the Property, from selling the Property to Mojica. A
mortgage is merely an encumbrance on the property and does
not extinguish the title of the debtor who does not lose his
principal attribute as owner to dispose of the property.[22] The
law even considers void a stipulation forbidding the owner of
the property from alienating the mortgaged immovable.[23]
Since the Spouses Benitez were the undisputed owners of the
Property, they could validly sell and deliver the Property to
Mojica. The execution of the notarized deed of sale between
the Spouses Benitez and Mojica had the legal effect of actual
or physical delivery. Ownership of the Property passed from
the Spouses Benitez to Mojica.[24] The nullity of the second
68
owners duplicate of TCT 8361 did not affect the validity of the
sale as between the Spouses Benitez and Mojica.
Gonzales Title
After the sale of the Property to her, Mojica obtained a loan
from Gonzales secured by a real estate mortgage over the
Property. Gonzales registered this mortgage on 22 February
1985 with the Register of Deeds who annotated the mortgage
on the void TCT 13138 in Mojicas name. The nullity of TCT
13138 did not automatically carry with it the nullity of the
annotation of Gonzales mortgage. The rule is that a mortgage
annotated on a void title is valid if the mortgagee registered the
mortgage in good faith.[25] In Blanco v. Esquierdo,[26] the
Court held:
That the certificate of title issued in the name of Fructuosa
Esquierdo is a nullity, the same having been secured thru
fraud, is not here in question. The only question for
determination is whether the defendant bank is entitled to the
protection accorded to innocent purchasers for value, which
phrase, according to sec. 38 of the Land Registration Law,
includes an innocent mortgagee for value. The question, in our
opinion, must be answered in the affirmative.
The trial court, in the decision complained of, made no finding
that the defendant mortgagee bank was a party to the
fraudulent transfer of the land to Fructuosa Esquierdo. Indeed,
there is nothing alleged in the complaint which may implicate
said defendant mortgagee in the fraud, or justify a finding that it
acted in bad faith. On the other hand, the certificate of title was
in the name of the mortgagor Fructuosa Esquierdo when the
land was mortgaged by her to the defendant bank. Such being
the case, the said defendant bank, as mortgagee, had the right
to rely on what appeared in the certificate and, in the absence
of anything to excite suspicion, was under no obligation to look
beyond the certificate and investigate the title of the mortgagor
appearing on the face of said certificate. (De Lara, et al. vs.
Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838, Joaquin vs.
Madrid, et al., 106 Phil., 1060). Being thus an innocent
mortgagee for value, its right or lien upon the land mortgaged
must be respected and protected, even if the mortgagor
obtained her title thereto thru fraud. The remedy of the persons
prejudiced is to bring an action for damages against those
causing the fraud, xxx. (Emphasis supplied)
Thus, the annotation of Gonzales mortgage on TCT 13138 was
valid and operated to bind the Property and the world, despite
the invalidity of TCT 13138.
Gonzales registered her mortgage in good faith. Gonzales had
no actual notice of the prior unregistered mortgage in favor of
Pineda and Sayoc. To bind third parties to an unregistered
encumbrance, the law requires actual notice.[27] The fact that
Mojica, who sold the Property to Gonzales, had actual notice of
the unregistered mortgage did not constitute actual notice to
Gonzales, absent proof that Gonzales herself had actual notice
of the prior mortgage. Thus, Gonzales acquired her rights as a
mortgagee in good faith.
When Mojica defaulted in paying her debt, Gonzales caused
the extrajudicial foreclosure of the mortgaged Property.
Gonzales purchased the mortgaged Property as the sole
bidder at the public auction sale. For Mojicas failure to redeem
the foreclosed Property within the prescribed period, Gonzales
consolidated her title to the Property. Absent any evidence to
the contrary, the sale at public auction of the Property to
Gonzales was valid. Thus, the title or ownership of the Property
passed from Mojica to Gonzales. At this point, therefore,
Gonzales became the owner of the Property.
When Gonzales purchased the Property at the auction sale,
Pineda and Sayoc had already annotated the lis pendens on
the original of TCT 8361, which remained valid. However, the
mortgage of Gonzales was validly registered prior to the
notation of the lis pendens. The subsequent annotation of the
lis pendens could not defeat the rights of the mortgagee or the
purchaser at the auction sale who derived their rights under a
prior mortgage validly registered. The settled rule is that the
auction sale retroacts to the date of the registration of the
mortgage,[28] putting the auction sale beyond the reach of any
intervening lis pendens, sale or attachment. As the Court
explained in Caviles, Jr. v. Bautista:[29]
We have also consistently ruled that an auction or execution
sale retroacts to the date of levy of the lien of attachment.
When the subject property was sold on execution to the
petitioners, this sale retroacted to the date of inscription of
petitioners notice of attachment on October 6, 1982. The
earlier registration of the petitioners levy on preliminary
attachment gave them superiority and preference in rights over
the attached property as against respondents.
Accordingly, we rule that the execution sale in favor of the
petitioner Caviles spouses was anterior and superior to the
sale of the same property to the respondent Bautista spouses
on October 18, 1982. The right of petitioners to the surrender
of the owners duplicate copy of TCT No. 57006 covering the
subject property for inscription of the certificate of sale, and for
the cancellation of said certificate of title and the issuance of a
new title in favor of petitioners cannot be gainsaid.
A contrary rule would make a prior registration of a mortgage
or any lien meaningless.[30] The prior registered mortgage of
Gonzales prevails over the subsequent notice of lis pendens,
even if the auction sale took place after the notation of the lis
pendens. Consequently, TCT 16084, issued to Gonzales after
she presented the sheriffs certificate of sale and her affidavit of
consolidation, is valid.
What remained with Pineda and Sayoc after the foreclosure
was the mortgagors residual rights over the foreclosed
Property, which rights are the equity of redemption[31] and a
share in the surplus fund, if any.[32] Since Mojica was not a
purchaser in good faith, the residual rights of Mojica were
subject to the claim of Pineda and Sayoc. Of course, Pineda
and Sayoc may still file an action to recover the outstanding
debt of the Spouses Benitez, and even go after Mojica for her
assumption of obligation under the Acknowledgment of
Indebtedness.
The Equities Favor Gonzales over Pineda and Sayoc
Pineda and Sayoc were negligent in not registering their
mortgage, which ultimately led to this controversy. Had Pineda
and Sayoc registered their mortgage, their rights as prior
mortgagees would have prevailed over that of Gonzales.
Pineda and Sayoc were also negligent in not foreclosing their
mortgage ahead of Gonzales, when they could have done so
as early as 4 January 1983 after the Spouses Benitez
defaulted on their loan.[33] In contrast, the loan of Mojica fell
due only on 7 December 1987.
Since Gonzales vigilantly exercised her right to foreclose the
mortgaged Property ahead of Pineda and Sayoc, Gonzales
mortgage would still prevail over the mortgage of Pineda and
Sayoc even if Gonzales mortgage was not validly registered.
69
The unregistered mortgage of Pineda and Sayoc was
extinguished upon foreclosure of Gonzales mortgage even
assuming for the sake of argument that the latter mortgage
was unregistered. Between two unregistered mortgagees, both
being in good faith, the first to foreclose his mortgage prevails
over the other.

Even assuming that Gonzales mortgage was not validly

registered, the notice of lis pendens could still not defeat
Gonzales right under the foreclosure sale. The effect of the
notice of lis pendens was to subject Gonzales, as the
subsequent purchaser of the Property, to the outcome of the
case. The outcome of the case is the cancellation of the
second owners duplicate of TCT 8361. The complaint of
Pineda and Sayoc simply prayed for the cancellation of the
second owners duplicate of TCT 8361 and the award of
damages.[34]

The notice of lis pendens would only bind Gonzales to the

declaration of nullity of the second owners duplicate of TCT
8361. Gonzales could not use TCT 13138, as a void issue of
the void second owners duplicate of TCT 8361, to secure a
new TCT in her name. This is the legal consequence of the
notice of lis pendens, which would have bound Gonzales had
the registration of her mortgage been void. However, the
declaration of nullity of TCT 13138 would still not make the
mortgage of Pineda and Sayoc preferred over that of
Gonzales. Since Gonzales foreclosed her mortgage ahead of
Pineda and Sayoc, she would still have a better right than
Pineda and Sayoc who slept on their rights as mortgagees.

Conclusion

The nullity of TCT 13138 did not affect the validity of the title or
ownership of Mojica or Gonzales as subsequent transferees of
the Property. What is void is the transfer certificate of title, not
the title or ownership itself of Mojica or Gonzales. The notice of
lis pendens could not defeat Gonzales rights over the Property
for two reasons. First, Gonzales registered in good faith her
mortgage before the notation of the lis pendens, making the
registration of her mortgage valid despite the invalidity of TCT
13138. Second, since Gonzales mortgage was valid, the
auction sale retroacted to the date of registration of her
mortgage, making the auction sale prior in time to the notice of
lis pendens. Thus, TCT 16084, issued to Gonzales as a result
of the foreclosure sale, is valid.

WHEREFORE, the petition is DENIED. The Decision dated 26

August 1993 and the Resolution dated 4 March 1994 of the
Court of Appeals in CAG.R. SP No. 28651 are AFFIRMED.
Petitioners Juanita P. Pineda and Lilia Sayoc are directed to
surrender the owners duplicate of Transfer Certificate of Title
No. 8361 to the Register of Deeds of Cavite City for
cancellation. Transfer Certificate of Title No. 16084 in the name
of Teresita A. Gonzales is declared valid. This is without
prejudice to any action petitioners Juanita P. Pineda and Lilia
Sayoc may file against the Spouses Virgilio and Adorita
Benitez as well as Olivia G. Mojica. No pronouncement as to
costs.

SO ORDERED.

70
[G.R. No. 137792. August 12, 2003]
SPOUSES RICARDO ROSALES and ERLINDA SIBUG,
petitioners, vs. SPOUSES ALFONSO and LOURDES SUBA,
THE CITY SHERIFF OF MANILA, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Challenged in the instant petition for review on certiorari are
the Resolutions[1] dated November 25, 1998 and February 26,
1999 of the Court of Appeals dismissing the petition for
certiorari in CA G.R. SP No. 49634, Spouses Ricardo Rosales
and Erlinda Sibug vs. Alfonso and Lourdes Suba.
On June 13, 1997, the Regional Trial Court, Branch 13, Manila
rendered a Decision[2] in Civil Cases Nos. 94-72303 and 94-
72379, the dispositive portion of which reads:
WHEREFORE, judgment is rendered:
(1) Declaring the Deed of Sale of Exhibit D, G and I, affecting
the property in question, as an equitable mortgage;
(2) Declaring the parties Erlinda Sibug and Ricardo Rosales,
within 90 days from finality of this Decision, to deposit with the
Clerk of Court, for payment to the parties Felicisimo Macaspac
and Elena Jiao, the sum of P65,000.00, with interest at nine (9)
percent per annum from September 30, 1982 until payment is
made, plus the sum of P219.76 as reimbursement for real
estate taxes;
(3) Directing the parties Felicisimo Macaspac and Elena Jiao,
upon the deposit on their behalf of the amounts specified in the
foregoing paragraph, to execute a deed of reconveyance of the
property in question to Erlinda Sibug, married to Ricardo
Rosales, and the Register of Deeds of Manila shall cancel
Transfer Certificate of Title No. 150540 in the name of the
Macaspacs (Exh. E) and issue new title in the name of Sibug;
(4) For non-compliance by Sibug and Rosales of the directive
in paragraph (2) of this dispositive portion, let the property be
sold in accordance with the Rules of Court for the release of
the mortgage debt and the issuance of title to the purchaser.
SO ORDERED.[3]
The decision became final and executory. Spouses Ricardo
and Erlinda Rosales, judgment debtors and herein petitioners,
failed to comply with paragraph 2 quoted above, i.e., to deposit
with the Clerk of Court, within 90 days from finality of the
Decision, P65,000.00, etc., to be paid to Felicisimo Macaspac
and Elena Jiao. This prompted Macaspac, as judgment
creditor, to file with the trial court a motion for execution.
Petitioners opposed the motion for being premature, asserting
that the decision has not yet attained finality. On March 5,
1998, they filed a manifestation and motion informing the court
of their difficulty in paying Macaspac as there is no correct
computation of the judgment debt.
On February 23, 1998, Macaspac filed a supplemental motion
for execution stating that the amount due him is P243,864.08.
Petitioners failed to pay the amount. On March 25, 1998, the
trial court issued a writ of execution ordering the sale of the
property subject of litigation for the satisfaction of the judgment.
On May 15, 1998, an auction sale of the property was held
wherein petitioners participated. However, the property was
sold for P285,000.00 to spouses Alfonso and Lourdes Suba,
herein respondents, being the highest bidders. On July 15,
1998, the trial court issued an order confirming the sale of the
property and directing the sheriff to issue a final deed of sale in
their favor.
On July 28, 1998, Macaspac filed a motion praying for the
release to him of the amount of P176,176.06 from the
proceeds of the auction sale, prompting petitioners to file a
motion praying that an independent certified public accountant
be appointed to settle the exact amount due to movant
Macaspac.
Meanwhile, on August 3, 1998, the Register of Deeds of Manila
issued a new Transfer Certificate of Title over the subject
property in the names of respondents.
On August 18, 1998, respondents filed with the trial court a
motion for a writ of possession, contending that the
confirmation of the sale effectively cut off petitioners equity of
redemption. Petitioners on the other hand, filed a motion for
reconsideration of the order dated July 15, 1998 confirming the
sale of the property to respondents.
On October 19, 1998, the trial court, acting upon both motions,
issued an order (1) granting respondents prayer for a writ of
possession and (2) denying petitioners motion for
reconsideration. The trial court ruled that petitioners have no
right to redeem the property since the case is for judicial
foreclosure of mortgage under Rule 68 of the 1997 Rules of
Civil Procedure, as amended. Hence, respondents, as
purchasers of the property, are entitled to its possession as a
matter of right.
Forthwith, petitioners filed with the Court of Appeals a petition
for certiorari, docketed as CA-G.R. SP No. 49634, alleging that
the trial court committed grave abuse of discretion amounting
to lack or excess of jurisdiction in issuing a writ of possession
to respondents and in denying their motion for reconsideration
of the order dated July 15, 1998 confirming the sale of the
property to said respondents.
On November 25, 1998, the CA dismissed outright the petition
for lack of merit, holding that there is no right of redemption in
case of judicial foreclosure of mortgage. Petitioners motion for
reconsideration was also denied.
Hence this petition.
In the main, petitioners fault the Appellate Court in applying the
rules on judicial foreclosure of mortgage. They contend that
their loan with Macaspac is unsecured, hence, its payment
entails an execution of judgment for money under Section 9 in
relation to Section 25, Rule 39 of the 1997 Rules of Civil
Procedure, as amended,[4] allowing the judgment debtor one
(1) year from the date of registration of the certificate of sale
within which to redeem the foreclosed property.
Respondents, upon the other hand, insist that petitioners are
actually questioning the decision of the trial court dated June
13, 1997 which has long become final and executory; and that
the latter have no right to redeem a mortgaged property which
has been judicially foreclosed.
Petitioners contention lacks merit. The decision of the trial
court, which is final and executory, declared the transaction
between petitioners and Macaspac an equitable mortgage. In
71
Matanguihan vs. Court of Appeals,[5] this Court defined an
equitable mortgage as one which although lacking in some
formality, or form or words, or other requisites demanded by a
statute, nevertheless reveals the intention of the parties to
charge real property as security for a debt, and contains
nothing impossible or contrary to law. An equitable mortgage is
not different from a real estate mortgage, and the lien created
thereby ought not to be defeated by requiring compliance with
the formalities necessary to the validity of a voluntary real
estate mortgage.[6] Since the parties transaction is an
equitable mortgage and that the trial court ordered its
foreclosure, execution of judgment is governed by Sections 2
and 3, Rule 68 of the 1997 Rules of Civil Procedure, as
amended, quoted as follows:
SEC. 2. Judgment on foreclosure for payment or sale. If upon
the trial in such action the court shall find the facts set forth in
the complaint to be true, it shall ascertain the amount due to
the plaintiff upon the mortgage debt or obligation, including
interest and other charges as approved by the court, and costs,
and shall render judgment for the sum so found due and order
that the same be paid to the court or to the judgment obligee
within a period of not less that ninety (90) days nor more than
one hundred twenty (120) days from the entry of judgment, and
that in default of such payment the property shall be sold at
public auction to satisfy the judgment.
SEC. 3. Sale of mortgaged property, effect. When the
defendant, after being directed to do so as provided in the next
preceding section, fails to pay the amount of the judgment
within the period specified therein, the court, upon motion, shall
order the property to be sold in the manner and under the
provisions of Rule 39 and other regulations governing sales of
real estate under execution. Such sale shall not effect the
rights of persons holding prior encumbrances upon the
property or a part thereof, and when confirmed by an order of
the court, also upon motion, it shall operate to divest the rights
in the property of all the parties to the action and to vest their
rights in the purchaser, subject to such rights of redemption as
may be allowed by law.
x x x.
In Huerta Alba Resort, Inc. vs. Court of Appeals,[7] we held
that the right of redemption is not recognized in a judicial
foreclosure, thus:
The right of redemption in relation to a mortgageunderstood in
the sense of a prerogative to re-acquire mortgaged property
after registration of the foreclosure saleexists only in the case
of the extrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosure except only where the
mortgagee is the Philippine National bank or a bank or a
banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants
to the mortgagor the right of redemption within one (1) year
from the registration of the sheriffs certificate of foreclosure
sale.
Where the foreclosure is judicially effected, however, no
equivalent right of redemption exists. The law declares that a
judicial foreclosure sale, when confirmed by an order of the
court, x x x shall operate to divest the rights of all the parties to
the action and to vest their rights in the purchaser, subject to
such rights of redemption as may be allowed by law. Such
rights exceptionally allowed by law (i.e., even after the
confirmation by an order of the court) are those granted by the
charter of the Philippine National Bank (Act Nos. 2747 and
2938), and the General Banking Act (R.A.337). These laws
confer on the mortgagor, his successors in interest or any
judgment creditor of the mortgagor, the right to redeem the
property sold on foreclosureafter confirmation by the court of
the foreclosure salewhich right may be exercised within a
period of one (1) year, counted from the date of registration of
the certificate of sale in the Registry of Property.
But, to repeat, no such right of redemption exists in case of
judicial foreclosure of a mortgage if the mortgagee is not the
PNB or a bank or banking institution. In such a case, the
foreclosure sale, when confirmed by an order of the court, x x x
shall operate to divest the rights of all the parties to the action
and to vest their rights in the purchaser. There then exists only
what is known as the equity of redemption. This is simply the
right of the defendant mortgagor to extinguish the mortgage
and retain ownership of the property by paying the secured
debt within the 90-day period after the judgment becomes final,
in accordance with Rule 68, or even after the foreclosure sale
but prior to its confirmation.
xxx
This is the mortgagors equity (not right) of redemption which,
as above stated, may be exercised by him even beyond the
90-day period from the date of service of the order, and even
after the foreclosure sale itself, provided it be before the order
of confirmation of the sale. After such order of confirmation, no
redemption can be effected any longer. (Italics supplied)
Clearly, as a general rule, there is no right of redemption in a
judicial foreclosure of mortgage. The only exemption is when
the mortgagee is the Philippine National Bank or a bank or a
banking institution. Since the mortgagee in this case is not one
of those mentioned, no right of redemption exists in favor of
petitioners. They merely have an equity of redemption, which,
to reiterate, is simply their right, as mortgagor, to extinguish the
mortgage and retain ownership of the property by paying the
secured debt prior to the confirmation of the foreclosure sale.
However, instead of exercising this equity of redemption,
petitioners chose to delay the proceedings by filing several
manifestations with the trial court. Thus, they only have
themselves to blame for the consequent loss of their property.
WHEREFORE, the petition is DENIED. The Resolutions of the
Court of Appeals dated November 25, 1998 and February 26,
1999 in CA G.R. SP No. 49634 are AFFIRMED.
SO ORDERED.
72
[G.R. No. 125838. June 10, 2003]
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.
COURT OF APPEALS and EMERALD RESORT HOTEL
CORPORATION, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review on certiorari[1] seeks to reverse the
Joint Decision[2] of the Court of Appeals in CA-G.R. CV Nos.
38569 and 38604 dated 31 January 1996 and the Resolution
dated 30 July 1996 denying the motion for reconsideration. The
Court of Appeals affirmed the Decision[3] of the Regional Trial
Court of Iriga City, Branch 36, declaring the foreclosure of the
mortgaged properties void for failure to comply with the
statutory requisites.
The Facts
Private respondent Emerald Resort Hotel Corporation (ERHC)
obtained a loan from petitioner Development Bank of the
Philippines (DBP). DBP released the loan of P3,500,000.00 in
three installments: P2,000,000.00 on 27 September 1975,
P1,000,000.00 on 14 June 1976 and P500,000.00 on 14
September 1976. To secure the loan, ERHC mortgaged its
personal and real properties to DBP.
On 18 March 1981, DBP approved a restructuring of ERHCs
loan subject to certain conditions.[4] On 25 August 1981, DBP
allegedly cancelled the restructuring agreement for ERHCs
failure to comply with some of the material conditions[5] of the
agreement.
Subsequently, ERHC delivered to DBP three stock certificates
of ERHC aggregating 3,477,052 shares with a par value of
P1.00 per share. ERHC first delivered to DBP on 20 October
1981 Stock Certificate No. 30 covering 1,862,148 shares. Then
ERHC delivered on 3 November 1981 Stock Certificate No. 31
covering 691,052 shares, and on 27 November 1981 Stock
Certificate No. 32 covering 923,852 shares.
On 5 June 1986, alleging that ERHC failed to pay its loan, DBP
filed with the Office of the Sheriff, Regional Trial Court of Iriga
City, an Application for Extra-judicial Foreclosure of Real
Estate and Chattel Mortgages.
Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon
issued the required notices of public auction sale of the
personal and real properties. However, Sheriffs Ramos and
Galeon failed to execute the corresponding certificates of
posting of the notices. On 10 July 1986, the auction sale of the
personal properties proceeded.
The Office of the Sheriff scheduled on 12 August 1986 the
public auction sale of the real properties. The Bicol Tribune
published on 18 July 1986, 25 July 1986 and 1 August 1986
the notice of auction sale of the real properties. However, the
Office of the Sheriff postponed the auction sale on 12 August
1986 to 11 September 1986 at the request of ERHC. DBP did
not republish the notice of the rescheduled auction sale
because DBP and ERHC signed an agreement to postpone the
12 August 1986 auction sale.[6] ERHC, however, disputes the
authority of Jaime Nuevas who signed the agreement for
ERHC.
In a letter dated 24 November 1986, ERHC informed DBP of its
intention to lease the foreclosed properties.[7]
On 22 December 1986, ERHC filed with the Regional Trial
Court of Iriga City a complaint for annulment of the foreclosure
sale of the personal and real properties. Subsequently, ERHC
filed a Supplemental Complaint. ERHC alleged that the
foreclosure was void mainly because (1) DBP failed to comply
with the procedural requirements prescribed by law; and (2) the
foreclosure was premature. ERHC maintained that the loan
was not yet due and demandable because the DBP had
restructured the loan.
DBP moved to dismiss the complaint because it stated no
cause of action and ERHC had waived the alleged procedural
defenses. The trial court denied the motion to dismiss.
Consequently, DBP filed its answer, claiming that it complied
with the legal requirements for a valid foreclosure. DBP further
claimed that it cancelled the conditional restructuring of ERHCs
loan because ERHC failed to comply with some material
conditions of the restructuring agreement.
Meanwhile, acting on ERHCs application for the issuance of a
writ of preliminary injunction, the trial court granted the writ on
20 August 1990. Accordingly, the trial court enjoined DBP from
enforcing the legal effects of the foreclosure of both the chattel
and real estate mortgages.
Thereafter, trial on the merits ensued. After the parties
presented their evidence, the trial court rendered a Decision[8]
dated 28 January 1992, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff corporation and against the
defendants:
1. Declaring as null and void the foreclosure and auction sale
of the personal properties of plaintiff corporation held on July
10, 1986;
2. Declaring as null and void the foreclosure and auction sale
of the real properties of plaintiff corporation covered by TCT
No. RT-1075 (19980); TCT No. RT-1076 (19981); TCT No. RT-
1077 (22367) and TCT No. 10244 of the Register of Deeds of
Camarines Sur (now Iriga City) in the auction sale thereof held
on September 11, 1986, and all the improvements therein;
3. Ordering the Register of Deeds of Camarines Sur (now Iriga
City) to cancel the annotations of the Sheriffs Certificate of
Sale on the aforestated titles as null and void and without any
legal effect;
4. Ordering the defendant Development Bank of the Philippines
to comply with the restructuring of plaintiff corporations loans
retroactively as though the foreclosure had not taken place in
the interest of justice and equity; and
5. Ordering the defendant DBP to pay plaintiff corporation
moral damages in the amount of P500,000.00 for initiating
what was a clearly illegal foreclosure and causing the said
plaintiff corporation to suffer needlessly anguish, opprobrium
and disrepute as a consequence thereto.
SO ORDERED.
Both ERHC and DBP appealed the trial courts decision to the
Court of Appeals. ERHC anchored its appeal on the
insufficiency of the moral damages awarded by the trial court
and the absence of any award of temperate, nominal or
73
exemplary damages. DBPs appeal, on the other hand, assailed
the decision as well as the order dismissing its petition for a
writ of possession.
The Court of Appeals, which consolidated the appeals,
affirmed the decision of the trial court.[9] DBP filed a Motion for
Reconsideration which the Court of Appeals denied.[10]
Hence, this petition.
The Ruling of the Court of Appeals
The Court of Appeals sustained the trial courts ruling that the
foreclosure was void. The Court of Appeals affirmed the trial
courts finding that DBP failed to comply with the posting and
publication requirements under the applicable laws. The Court
of Appeals held that the non-execution of the certificate of
posting of the notices of auction sale and the non-republication
of the notice of the rescheduled 11 September 1986 auction
sale invalidated the foreclosure.
The Court of Appeals also found that the parties perfected the
restructuring agreement and that ERHC substantially complied
with its conditions based on the following circumstances:
(a) The transmittal letter dated October 20, 1981 which relates
to the progress of the restructuring of the mortgage account of
Emerald Resort Hotel Corporation and that the same has been
approved by the SEC (Exh. D)
(b) The transfer of shares of stocks to appellant DBP, the value
of which are broken as follows:
1. Stock certificate No. 30 for 1,862,148 shares worth
P1,862,148.00 (Exhs. D and D-1);
2. Stock certificate No. 32 for 932,852 shares worth
P953,852.00 (Exhs. F and F-1);
3. Stock certificate No. 031, for 691,052 shares worth
P691,052.00 (Exhs. M and M-5).
(c) The acceptance of the foregoing by the DBP without raising
the fact of delay as embodied in condition no. 7 of Exh. B.
(d) No rejection was made by the defendant-appellant DBP at
the time the shares of stocks were being held by the latter.
(e) The belated rejection of the shares of stocks was
interposed only at the time the instant suit was filed which was
long after the expiration of the 90-day period extended by DBP
to Emerald.
(f) No rejection was also made when plaintiff corporation did
not avail of the additional loan which was allegedly part of the
package accommodation.[11]
The Court of Appeals also affirmed the trial courts award of
moral damages but denied ERHCs claim for temperate and
exemplary damages. The Court of Appeals found that DBPs
intrusion, assisted by sheriffs and several armed men, into
Hotel Ibalon and the sheriffs inventory of the hotels furniture
and fixtures caused fear and anxiety to the hotel owner, staff
and guests. These acts, according to the Court of Appeals,
debased the hotels goodwill and undermined its viability
warranting the award of moral damages.
Finding the foreclosure void, the Court of Appeals also denied
DBPs petition for a deficiency claim and a writ of possession.
The Issues
DBP presents the following issues for resolution:
1. Whether DBP complied with the posting and publication
requirements under applicable laws for a valid foreclosure.
2. Whether the restructuring agreement between DBP and
ERHC was perfected and implemented by the parties before
the foreclosure.
3. Whether ERHCs offer to lease the foreclosed properties
constitutes a waiver of its right to question the validity of the
foreclosure.
4. Whether the award of moral damages to ERHC, a juridical
person, is proper.
The Courts Ruling
The petition is partly meritorious.
First Issue: Compliance with the posting and publication
requirements under applicable laws
Posting requirement under Acts Nos. 3135 and 1508
In alleging that the foreclosure was valid, DBP maintains that it
complied with the mandatory posting requirement under
applicable laws.[12] DBP insists that the non-execution of the
certificate of posting of the auction sale notices did not
invalidate the foreclosure.
We agree.
This Court ruled in Cristobal v. Court of Appeals[13] that a
certificate of posting is not required, much less considered
indispensable for the validity of an extrajudicial foreclosure sale
of real property under Act No. 3135. Cristobal merely reiterated
the doctrine laid down in Bohanan v. Court of Appeals.[14] In
the present case, the foreclosing sheriffs failed to execute the
certificate of posting of the auction sale notices. However, this
fact alone does not prove that the sheriffs failed to post the
required notices. As held in Bohanan, the fact alone that there
is no certificate of posting attached to the sheriff's records is
not sufficient to prove the lack of posting.[15]
Based on the records, DBP presented sufficient evidence to
prove that the sheriffs posted the notices of the extrajudicial
sale. The trial and appellate courts glaringly erred and gravely
abused its discretion in disregarding the sheriffs partial report
and the sheriffs certificate of sale executed after the auction
sale. A careful examination of these two documents clearly
shows that the foreclosing sheriffs posted the required notices
of sale.
The partial report dated 10 July 1986 signed by both Sheriff
Abel Ramos and Deputy Sheriff Ruperto Galeon states in part:
That on July 1, 1986, the undersigned sheriffs posted the
notice of public auction sale of chattel mortgage in the
conspicuous places, and at the Iriga City Hall Bulletin Board,
including Ibalon Hotel, Iriga City xxx.[16] (Emphasis supplied)
Similarly, the certificate of sale of the real properties signed by
both Sheriff Ramos and Deputy Sheriff Galeon on 11
September 1986 states in part:
74

I, FURTHERMORE CERTIFY that the Notice of Sale was
published in BICOL TRIBUNE, a newspaper of general
circulation in the province of Camarines Sur, for three (3)
consecutive weeks and three (3) copies of the notices of sale
were posted in three (3) public places of the City where the
properties are located for no less than twenty (20) days before
the sale. [17] (Emphasis supplied)
Deputy Sheriff Galeon also testified that he, together with
Sheriff Ramos,[18] actually posted the notices of sale.[19]
Indisputably, there is clear and convincing evidence of the
posting of the notices of sale. What the law requires is the
posting of the notice of sale, which is present in this case, and
not the execution of the certificate of posting.
Moreover, ERHC bore the burden of presenting evidence that
the sheriffs failed to post the notices of sale.[20] In the absence
of contrary evidence, as in this case, the presumption prevails
that the sheriffs performed their official duty of posting the
notices of sale. Consequently, we hold that the non-execution
of the certificate of posting cannot nullify the foreclosure of the
chattel and real estate mortgages in the instant case.
Publication requirement under Act No. 3135
Having shown that there was posting of the notices of auction
sale, we shall now resolve whether there was publication of the
notice of sale of the real properties in compliance with Act No.
3135.[21]
There is no question that DBP published the notice of auction
sale scheduled on 12 August 1986. However, no auction sale
took place on 12 August 1986 because DBP, at the instance of
ERHC, agreed to postpone the same to 11 September 1986.
DBP contends that the agreement to postpone dispensed with
the need to publish again the notice of auction sale. Thus, DBP
did not anymore publish the notice of the 11 September 1986
auction sale. DBP insists that the law does not require
republication of the notice of a rescheduled auction sale.
Consequently, DBP argues vigorously that the extrajudicial
foreclosure of the real estate mortgage is valid.
We do not agree.
The Court held recently in Ouano v. Court of Appeals[22] that
republication in the manner prescribed by Act No. 3135 is
necessary for the validity of a postponed extrajudicial
foreclosure sale. Another publication is required in case the
auction sale is rescheduled, and the absence of such
republication invalidates the foreclosure sale.
The Court also ruled in Ouano that the parties have no right to
waive the publication requirement in Act No. 3135. The Court
declared thus:
Petitioner further contends that republication may be waived
voluntarily by the parties.
This argument has no basis in law. The issue of whether
republication may be waived is not novel, as we have passed
upon the same query in Philippine National Bank v.
Nepomuceno Productions Inc. Petitioner therein sought
extrajudicial foreclosure of respondents mortgaged properties
with the Sheriffs Office of Pasig, Rizal. Initially scheduled on
August 12, 1976, the auction sale was rescheduled several
times without republication of the notice of sale, as stipulated in
their Agreements to Postpone Sale. Finally, the auction sale
proceeded on December 20, 1976, with petitioner as the
highest bidder. Aggrieved, respondents sued to nullify the
foreclosure sale. The trial court declared the sale void for non-
compliance with Act No. 3135. This decision was affirmed in
toto by the Court of Appeals. Upholding the conclusions of the
trial and appellate courts, we held:
Petitioner and respondents have absolutely no right to waive
the posting and publication requirements of Act No. 3135.
xxx
Publication, therefore, is required to give the foreclosure sale a
reasonably wide publicity such that those interested might
attend the public sale. To allow the parties to waive this
jurisdictional requirement would result in converting into a
private sale what ought to be a public auction.
DBP further asserts that Section 24, Rule 39 of the Rules of
Court, which allows adjournment of execution sales by
agreement of the parties, applies to the present case. Section
24 of Rule 39 provides:
Sec. 24. Adjournment of Sale By written consent of debtor and
creditor, the officer may adjourn any sale upon execution to
any date agreed upon in writing by the parties. Without such
agreement, he may adjourn the sale from day to day, if it
becomes necessary to do so for lack of time to complete the
sale on the day fixed in the notice.
The Court ruled in Ouano that Section 24 of Rule 39 does not
apply to extrajudicial foreclosure sales, thus:
Petitioner submits that the language of the abovecited
provision[23] implies that the written request of the parties
suffices to authorize the sheriff to reset the sale without
republication or reposting.
At the outset, distinction should be made of the three different
kinds of sales under the law, namely: an ordinary execution
sale, a judicial foreclosure sale, and an extrajudicial foreclosure
sale. An ordinary execution sale is governed by the pertinent
provisions of Rule 39 of the Rules of Court. Rule 68 of the
Rules of Court applies in cases of judicial foreclosure sale. On
the other hand, Act No. 3135, as amended by Act No. 4118
otherwise known as An Act to Regulate the Sale of Property
under Special Powers Inserted in or Annexed to Real Estate
Mortgages applies in cases of extrajudicial foreclosure sale. A
different set of law applies to each class of sale mentioned.
The cited provision in the Rules of Court hence does not apply
to an extrajudicial foreclosure sale. (Emphasis supplied)
DBP also maintains that ERHCs act of requesting
postponement of the 12 August 1986 auction sale estops
ERHC from challenging the absence of publication of the
notice of the rescheduled auction sale.
We do not agree.
ERHC indeed requested postponement of the auction sale
scheduled on 12 August 1986.[24] However, the records are
bereft of any evidence that ERHC requested the postponement
without need of republication of the notice of sale. In Philippine
National Bank v. Nepomuceno Productions Inc.,[25] the Court
held that:
x x x To request postponement of the sale is one thing; to
request it without need of compliance with the statutory
requirements is another. Respondents, therefore, did not
commit any act that would have estopped them from
75
questioning the validity of the foreclosure sale for non-
compliance with Act No. 3135. x x x
The form of the notice of extrajudicial sale is now prescribed in
Circular No. 7-2002[26] issued by the Office of the Court
Administrator on 22 January 2002. Section 4(a) of Circular No.
7-2002 provides that:
Sec. 4. The Sheriff to whom the application for extra-judicial
foreclosure of mortgage was raffled shall do the following:
a. Prepare a Notice of Extra-judicial Sale using the following
form:
NOTICE OF EXTRA-JUDICIAL SALE
Upon extra-judicial petition for sale under Act 3135/1508 filed
_________ against (name and address of Mortgagor/s) to
satisfy the mortgage indebtedness which as of ___________
amounts to P __________ excluding penalties, charges,
attorneys fees and expenses of foreclosure, the undersigned or
his duly authorized deputy will sell at public auction on (date of
sale) ________ at 10:00 A.M. or soon thereafter at the main
entrance of the ________ (place of sale) to the highest bidder,
for cash or managers check and in Philippine Currency, the
following property with all its improvements, to wit:
(Description of Property)
All sealed bids must be submitted to the undersigned on the
above stated time and date.
In the event the public auction should not take place on the
said date, it shall be held on ___________,______ without
further notice.
__________ (date)
SHERIFF (Emphasis supplied)
The last paragraph of the prescribed notice of sale allows the
holding of a rescheduled auction sale without reposting or
republication of the notice. However, the rescheduled auction
sale will only be valid if the rescheduled date of auction is
clearly specified in the prior notice of sale. The absence of this
information in the prior notice of sale will render the
rescheduled auction sale void for lack of reposting or
republication. If the notice of auction sale contains this
particular information, whether or not the parties agreed to
such rescheduled date, there is no more need for the reposting
or republication of the notice of the rescheduled auction sale.
The Office of the Court Administrator issued Circular No. 7-
2002 pursuant to the 14 December 1999 Resolution of this
Court in A.M. No. 99-10-05-0, as amended by the Resolutions
of 30 January 2001 and 7 August 2001. The Court issued
these Resolutions for two reasons.
First, the Court seeks to minimize the expenses which the
mortgagee incurs in publishing the notice of extrajudicial sale.
With the added information in the notice of sale, the mortgagee
need not cause the reposting and republication of the notice of
the rescheduled auction sale. There is no violation of the notice
requirements under Acts Nos. 3135 and 1508 precisely
because the interested parties as well as the public are
informed of the schedule of the next auction sale, if the first
auction sale does not proceed. Therefore, the purpose of a
notice of sale, which is to notify the mortgagor and the public of
the foreclosure sale, is satisfied.
Second, the Court hopes to deter the practice of some
mortgagors in requesting postponement of the auction sale of
real properties, then later attacking the validity of the
foreclosure for lack of republication. This practice will only force
mortgagees to deny outright requests for postponement by
mortgagors since it will only mean added publication expense
on the part of mortgagees. Such development will eventually
work against mortgagors because mortgagees will hesitate to
grant postponements to mortgagors.
In the instant case, there is no information in the notice of
auction sale of any date of a rescheduled auction sale. Even if
such information were stated in the notice of sale, the reposting
and republication of the notice of sale would still be necessary
because Circular No. 7-2002 took effect only on 22 April 2002.
There were no such guidelines in effect during the questioned
foreclosure.
Clearly, DBP failed to comply with the publication requirement
under Act No. 3135. There was no publication of the notice of
the rescheduled auction sale of the real properties. Therefore,
the extrajudicial foreclosure of the real estate mortgage is void.
DBP, however, complied with the mandatory posting of the
notices of the auction sale of the personal properties. Under
the Chattel Mortgage Law,[27] the only requirement is posting
of the notice of auction sale. There was no postponement of
the auction sale of the personal properties and the foreclosure
took place as scheduled. Thus, the extrajudicial foreclosure of
the chattel mortgage in the instant case suffers from no
procedural infirmity.
Second Issue: Perfection and implementation of the
restructuring agreement between DBP and ERHC
ERHC consistently argues that its restructuring agreement with
DBP was perfected and even implemented by the parties.
ERHC maintains that the delivery of its certificates of stocks to
DBP was part of its compliance with the conditions of the
restructuring agreement.
We do not agree.
Contrary to ERHCs allegations and the Court of Appeals
findings, the restructuring agreement was never perfected.
ERHC failed to comply with the material conditions for the
perfection of the restructuring agreement. As specified in DBP
Resolution No. 956 dated 19 March 1981[28] approving the
restructuring agreement, the following are the conditions for the
restructuring agreement:
RESOLUTION NO. 956. Emerald Resort Hotel Corporation
(Hotel Ibalon) Conversion Into Common and/or Preferred
Shares of P2,786,000.00 Representing 40% of the Total
Outstanding Obligations; a Third Additional Loan of
P679,000.00 and Restructuring of the Account.
xxx
In view thereof and as favorably recommended by the Manager
of the Industrial Projects Department III in her memorandum
dated February 24, 1981, the Board, upon motion made and
duly seconded, APPROVED in favor of Emerald Resort Hotel
Corporation (Hotel Ibalon) the following:
76
1. Immediate conversion into common and/or preferred shares
at borrowers option, of P2,786,000.00 representing 40% of the
total outstanding obligation as of May 15, 1980, in the reduced
amount of P6,965,000.00 composed of outstanding principal
balance of P3,500,000.00 and total arrearages on interest and
other charges of P3,465,000.00, the conversion price to be
equal to the par value of the shares;
2. A third additional loan of Six Hundred Seventy-Nine
Thousand Pesos (P679,000.00), payable quarterly under the
same restructured terms of the original and two (2) additional
loans, at 18% interest per annum; and
3. Restructuring of the firms total outstanding principal
obligation of P3,500,000.00 in the form of extension of grace
period on principal repayment from two (2) years to nine (9)
years to make a maximum loan term of nineteen (19) years,
regular amortizations to commence three (3) months after the
end of the extended grace period on October 31, 1985 and
payable quarterly at the following interest rates:
Original Loan - P1,425,800 at 16% interest per annum
- 574,200 at 18% interest per annum
1st Additional Loan - 1,000,000 at 18% interest per annum
- __ 500,000 at 18% interest per annum
Total - P3,500,000
subject to the following terms and conditions:
A. For the P679,000.00 Additional Loan
a. That subject-firm shall first pay the amount of P473.00 to
reduce its total arrearages on interest and other charges of
P3,465,473.00 as of May 15, 1980 to P3,465,000.00; and
b. That the proceeds of this additional loan shall be applied to
subject-firms accrued interest and other charges due DBP as
of May 15, 1980 not otherwise covered by the proposed equity
conversion of P2,786,000.00.
B. For Both Additional Loan and Restructuring
a. That a quasi-reorganization shall first be undertaken for the
purpose of eliminating existing deficits, which should be
formally authorized by the stockholders of the corporation,
should comply with legal requirements, and should be
approved by the Securities and Exchange Commission which
sees to it that the rights of creditors are not prejudiced.
xxx
e. That subject-firm shall apply with SEC for an amendment of
its authorized capitalization to include preferred shares in case
immediate conversion into equity of 40% of the total
outstanding obligation as of May 15, 1980 will include preferred
shares.
xxx (Emphasis supplied)
A careful review of the facts and the evidence presented by the
parties discloses that ERHC failed to comply with the terms
and conditions set forth in DBP Resolution No. 956.
First, ERHC failed to comply with the important condition of
converting into equity 40 percent of its outstanding debt to
DBP. ERHC did not present any evidence to show that it
complied with this particular requirement. While it is true that
ERHC delivered to DBP certificates of stocks, it was to comply
with ERHCs commitment under the original mortgage
contracts.[29] ERHC committed to pledge or assign to DBP at
least 67 percent of its outstanding shares to secure the original
loan accommodation. The original mortgage contracts contain
the following condition:
xxx
c. By an assignment to the Mortgagee of not less than 67% of
the total subscribed and outstanding voting shares of the
company. The said percentages of shares assigned shall be
maintained at all times and the said assignment to subsist for
as long as the Assignee may deem necessary during the
existence of the Mortgagees approved accommodation.
xxx[30]
On 17 April 1985, DBP informed ERHC that it had not complied
with the condition in the original mortgage contract on the
assignment of 67 percent of its outstanding shares to DBP.
The letter of DBP states in part:
2. The condition requiring ERHC to assign in favor of DBP at
least 67% of the subscribed and outstanding voting shares of
company has not been met.
Of the 4,917,500 outstanding voting shares as of December
31, 1982, only 911,800 shares have been assigned instead of
3,294,725 (67% of 4,917,000), more of the outstanding voting
shares have increased. [31]
The deficiency of 2,382,925 shares (3,294,725 - 911,800) may
however be covered by the 2,786,000 shares you transferred
in the name of DBP as an alternative compliance with 65%
requirement. (Emphasis supplied)
In its reply letter dated 11 June 1985 to DBP, ERHC signified
its readiness to assign 67 percent of its outstanding shares to
DBP. Thus, ERHCs reply letter, signed by its President Atty.
Jose C. Reyes, states in part:
With reference to your letter dated 17 April 1985 which could
not be seasonably acted upon on account of my absence from
the country for medical reasons, I am pleased to inform your
goodself of the action taken on the various items thereon
enumerated, to wit:
1. x x x
2. Assignment of 67% of outstanding voting shares.
We are ready to bring up the assigned shares in favor of DBP
to 67% of the corporations outstanding voting shares of
4,917,500 as of December 31, 1982 or total of 3,294,725
shares.
The corporation will maintain its previous assignment of
911,800 shares.
Moreover, the corporation is agreeable that Stock Certificate
No. 030 for 1,862,148 shares which had been transferred to
DBP be considered as an alternative compliance to the raising
of DBPs assigned shares to the full 67% or 3,294,725 shares.
Your formal conformity to this arrangement is likewise
requested.
77
Finally, the corporation will further assign to DBP another
520,777 shares in exchange of Stock Certificate No. 032 for
923,852 shares which was transferred to DBP conditionally.
This Stock Certificate has to be surrendered to the corporation
for cancellation before we can issue by way of further
assignment the 520,777 shares. In short, the 3 blocks of
shares mentioned above would result as follows:
1. 911,800 shares
2. 1,862,148 shares
3. 520,777 shares
________
Total 3,294,725 shares of 67% outstanding
voting shares
x x x. [32]
Clearly, when ERHC delivered the certificates of stocks, it was
to comply with ERHCs commitment under the original
mortgage contracts, not the restructuring agreement.
Besides, there is a vast difference between an assignment of
shares to DBP by existing stockholders and conversion of
DBPs loan into equity of ERHC. In the first, the paid-up capital
of ERHC remains the same. In the latter, the paid-up capital of
ERHC, as well as its liabilities, changes in that the liabilities are
transferred to the capital account to the extent of the
conversion. The latter case, which is the conversion of debt
into equity required under the restructuring agreement, never
happened. The delivery to DBP of stock certificates
representing 3,294,725 ERHC shares did not reduce the
liabilities of ERHC. The reason for the requirement to convert
P2,786,000.00 in liabilities of ERHC into equity was to reduce
ERHCs debt to equity ratio, which the assignment and delivery
of the stock certificates did not and could not have achieved.
Second, ERHC did not avail of the P679,000.00 additional
loan, despite this being a material condition of the restructuring
agreement. ERHC could not simply refuse to avail of the
additional loan because the proceeds of this loan were to pay
the balance of ERHCs accrued interest and other charges due
DBP as of 15 May 1980. Clearly, ERHCs refusal to avail of the
additional loan, intended to up-date ERHCs loan account,
prevented the perfection of the restructuring agreement.
Lastly, ERHC failed to comply with the quasi-reorganization
requirement, as clearly admitted in ERHCs letter dated 3
November 1982 to DBP, thus:
3. On July 31, 1981, we once more communicated with your
Naga Branch advising of the Emerald Resort Hotel
Corporations Stockholders Resolution approving the quasi-
reorganization and the Petition filed with the Securities and
Exchange Commission requesting approval of the corporations
resolution on quasi-reorganization and the transfer of
1,862,148 shares in favor of the DBP, copy whereof is attached
as Annex C;
4. On September 7, 1981, we received by personal delivery a
letter from Manager Mario C. Leao, copy whereof is attached
as Annex D. In our conversation had on this occasion, I
reiterated our request in our letter dated 19 June 1981 that in
view of the circumstances affecting our papers in the Securities
and Exchange Commission there was need to extend our
period of compliance.
xxx
It will thus be noted from the foregoing communications that we
have exerted our utmost best to comply with the conditions for
the re-structuring of our loan accounts and all have been
complied, with the exception of the quasi-reorganization, for
reasons beyond our legal control since it is the SEC that
passes upon the question as to whether or not we meet the
SEC guidelines for a quasi-reorganization. Unfortunately, for
the reasons stated in Annex H and the enclosures thereto, the
SEC felt that ERHC was not within their guidelines for a quasi-
reorganization.[33] (Emphasis supplied)
The quasi-reorganization is required specifically to eliminate
ERHCs existing deficits. However, the SEC must first approve
the quasi-reorganization which approval ERHC admittedly
failed to secure. Through no fault of DBP, SEC disapproved
ERHCs application for quasi-reorganization.
Considering that ERHC failed to comply with the material
conditions of the restructuring agreement, the agreement was
never implemented or even perfected. The perfection and
implementation of the restructuring agreement were expressly
subject to the following conditions embodied in DBP Resolution
No. 956 and in DBPs notice of approval to ERHC, respectively:
t. x x x Implementation of the restructuring scheme as
approved shall take effect upon compliance with the terms and
conditions and with all the legal and documentation
requirements;[34]
xxxxxxxxx
7. All documents for this loan approval shall be executed and
perfected within 90 days from the date of this notice; otherwise,
this accommodation shall be automatically cancelled.[35]
The trial and appellate courts gravely misapprehended the
facts and made manifestly mistaken inferences in finding that
the parties had perfected the restructuring agreement.
Consequently, when DBP filed the application for extrajudicial
foreclosure of the chattel and real estate mortgages, ERHC
was already in default in paying its debt to DBP.
Third Issue: ERHCs offer to lease the foreclosed properties
ERHC offered to lease from DBP the foreclosed properties
after the auction sale. DBP argues that when ERHC offered to
lease from DBP the foreclosed properties, ERHC waived its
right to question the validity of the foreclosure.
We do not agree.
To constitute a waiver, the intent to waive must be shown
clearly and convincingly.[36] A mere offer to lease the
foreclosed properties cannot constitute a waiver of ERHCs
right to contest the validity of the foreclosure on the ground of
non-compliance with the statutory requisites. ERHCs offer to
lease does not relinquish ERHCs right to challenge the validity
of the foreclosure. The offer to lease the foreclosed properties
cannot validate or ratify a void foreclosure. ERHCs intention to
lease the foreclosed properties cannot simply outweigh DBPs
failure to comply with the statutory requisite for a valid
extrajudicial foreclosure. As the Court of Appeals correctly
ruled, there can be no waiver of the posting and publication
78
requirements in foreclosure proceedings because the same is
contrary to law and public order.

Fourth Issue: Award of moral damages

DBP maintains that ERHC, a juridical person, is not entitled to

moral damages. ERHC counters that its reputation was
debased when the sheriffs and several armed men intruded
into Hotel Ibalons premises and inventoried the furniture and
fixtures in the hotel.

The Court of Appeals erred in awarding moral damages to

ERHC. The Court of Appeals sole basis for its ruling is a
quoted portion of the testimony of ERHCs President, Atty. Jose
Reyes. The testimony was not even offered to prove the
justification and amount of damages which ERHC claims
against DBP. In other words, ERHC failed to present evidence
to warrant the award of moral damages. In a long line of
decisions, this Court has held that the claimant for moral
damages must present concrete proof to justify its award, thus:

xxx while no proof of pecuniary loss is necessary in order that

moral damages may be awarded, the amount of indemnity
being left to the discretion of the court (Art. 2216), it is,
nevertheless, essential that the claimant satisfactorily prove the
existence of the factual basis of the damage (Art. 2217) and its
causal relation to defendants acts. This is so because moral
damages, though incapable of pecuniary estimation, are in the
category of an award designed to compensate the claimant for
actual injury suffered and not to impose a penalty on the
wrongdoer.[37] (Emphasis supplied)

In the body of its decision, the trial court gave no basis to justify
the award of moral damages. The trial court simply awarded
moral damages in the dispositive portion of its decision.[38]

Moreover, as a general rule, moral damages are not awarded

to a corporation, thus:

The award of moral damages cannot be granted in favor of a

corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only
be one having a nervous system. The statement in People v.
Manero and Mambulao Lumber Co. v. PNB that a corporation
may recover moral damages if it has a good reputation that is
debased, resulting in social humiliation is an obiter dictum. On
this score alone the award for damages must be set aside,
since RBS is a corporation.[39]

WHEREFORE, the Joint Decision of the Court of Appeals in

CA-G.R. CV Nos. 38569 and 38604 is AFFIRMED with
MODIFICATION. The extrajudicial foreclosure of the chattel
mortgage is valid whereas the extrajudicial foreclosure of the
real estate mortgage is void. The award of moral damages is
deleted for lack of basis. No costs.

SO ORDERED.

79
[G.R. No. 133079. August 9, 2005]
SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI,
petitioners, vs. THE HONORABLE COURT OF APPEALS;
SPS. BENJAMIN SAN DIEGO and CARMENCITA SAN
DIEGO; The EX-OFFICIO SHERIFF and CLERK OF COURT
of the Regional Trial Court, Makati City; and the REGISTER
OF DEEDS, Makati City, respondents.
DECISION
GARCIA, J.:
Herein petitioners, the spouses Maximo Landrito, Jr. and
Pacita Landrito, have come to this Court via this petition for
review on certiorari under Rule 45 of the Rules of Court to seek
the reversal and setting aside of the decision dated 12
December 1997[1] and resolution dated 10 March 1998[2] of
the Court of Appeals in CA-G.R. CV No. 48896, affirming an
earlier order of the Regional Trial Court at Makati City which
granted the motion to dismiss filed by the herein private
respondents, the spouses Benjamin San Diego and
Carmencita San Diego, in its Civil Case No. 94-2950, a
complaint for annulment of extrajudicial foreclosure and auction
sale, thereat commenced by them against the San Diegos, the
ex-officio sheriff and the Register of Deeds of Makati City.
The facts:
In July 1990, petitioners obtained a loan of P350,000.00 from
respondent Carmencita San Diego. To secure payment
thereof, petitioners executed on 02 August 1990 in favor of the
same respondent a deed of real estate mortgage over their
parcel of land located at Bayanan, Muntinlupa, Rizal and
registered in their names under Transfer Certificate of Title No.
(432281) S-21000.
After making substantial payments, petitioners again obtained
and were granted by Carmencita San Diego an additional loan
of One Million Pesos (P1,000,000.00). To secure this additional
loan, the parties executed on 13 September 1991 an
Amendment of Real Estate Mortgage, whereunder they
stipulated that the loan shall be paid within six (6) months from
16 September 1991, and if not paid within said period, the
mortgagee shall have the right to declare the mortgage due
and may immediately foreclose the same judicially or
extrajudicially, in accordance with law.
It appears that petitioners defaulted in paying their loan and
continuously refused to comply with their obligation despite
repeated demands therefor, prompting respondent Carmencita
San Diego to send them on 27 April 1993, a final notice of
demand requiring them to settle their financial obligation which,
by then, already amounted to P1,950,000.00.
On 30 June 1993, after her efforts to collect proved futile,
respondent Carmencita San Diego filed with the Office of the
Clerk of Court and Ex-Officio Sheriff of RTC-Makati, a petition
for the extrajudicial foreclosure of the mortgage.
On 06 July 1993, said office sent to the parties a Notice of
Sheriffs Sale, therein announcing that petitioners mortgaged
property will be sold in a public auction to be conducted on 11
August 1993 at 10:00 oclock in the morning, copies of which
notice were posted in several conspicuous places within the
sheriffs territorial jurisdiction.
As announced, on 11 August 1993, at 10:00 oclock in the
morning, the public auction sale was held and the mortgaged
property sold to respondent Carmencita San Diego as the
highest bidder for P2,000,000.00, as evidenced by the Sheriffs
Certificate of Sale issued in her favor on 07 October 1993.
On 29 October 1993, respondent San Diego caused the
registration of the same sheriffs certificate of sale with the
Office of the Register of Deeds, Makati City, and duly inscribed
on the same date at the dorsal side of the petitioners TCT No.
(432281) S-21000.
With the petitioners having failed to redeem their property
within the 1-year redemption period from the date of inscription
of the sheriffs certificate of sale, as provided for in Act No.
3135, as amended, the San Diegos caused the consolidation
of title over the foreclosed property in their names.
Then, on 09 November 1994, before the Regional Trial Court
at Makati City, petitioners filed their complaint for annulment of
the extrajudicial foreclosure and auction sale, with damages. In
their complaint, thereat docketed as Civil Case No. 94-2950,
petitioners alleged that (1) said foreclosure and auction sale
were null and void for failure to comply with the requirements of
notice and publication, as mandated by Act 3135, as amended;
(2) the mortgaged property was illegally foreclosed in the light
of the settled rule that an action to foreclose a mortgage must
be limited to the amount mentioned in the mortgage document,
in this case, P1,000,000.00, which amount was allegedly
bloated by respondent Carmencita San Diego to
P1,950,000.00; and (3) the San Diegos application for
consolidation of title was premature because the husband,
Benjamin San Diego, allegedly granted them an extension of
the period of redemption up to 11 November 1994.
To the complaint, respondents interposed a Motion to Dismiss,
therein alleging that said complaint failed to state a cause of
action as no primary right of the petitioners had been violated
since they actually failed to exercise their right of redemption
within the one-year redemption period, adding that petitioners
never took any action which may stall the running of the same
period, thereby leaving them no further right or interest in the
property in question.
In an order dated 13 January 1995, the trial court granted
respondents motion to dismiss and accordingly dismissed
petitioners complaint, saying that the latters cause of action, if
any, is already barred by laches on account of their failure or
neglect for an unreasonable length of time to do that which, by
exercising due diligence, could or should have been done
earlier. Further, the trial court ruled that petitioners inaction
constituted a waiver on their part.
Therefrom, petitioners went on appeal to the Court of Appeals
in CA-G.R. CV No. 48896.
As stated at the outset hereof, the appellate court, in its
decision of 12 December 1997, dismissed petitioners appeal
and affirmed in toto the trial courts order of dismissal. With their
motion for reconsideration having been denied by the same
court in its resolution of 10 March 1998,[3] petitioners are now
with us via the present recourse, faulting the Court of Appeals,
as follows:
1. The Court of Appeals gravely erred in avoiding to resolve in
the assailed Decision and in the questioned Resolution the
basic issue as to whether or not the extra-judicial foreclosure
and public auction sale of the subject parcel of land are valid
and lawful when the amount stated in letter-request or the
80
petition for extra-judicial foreclosure and in the notice of sheriff
sale doubled the amount stipulated in the Amendment of Real
Estate Mortgage;
2. The Court of Appeals has similarly committed serious error
in considering that the complaint of the petitioner is a complaint
for redemption when in the caption; in the body; and in the
prayer of the complaint, petitioner spouses have sought the
nullity as void ab initio the extra-judicial foreclosure and auction
sale of the subject property;
3. The respondent Appellate Court likewise incredulously erred
to have resolved the admissibility and probative value of the
statement of account attached as Annex E of the complaint
when it was not yet presented in evidence; because the stage
of the case at the time the assailed dismissal order was issued,
was yet in the period of pleadings;
4. The Court of Appeals has grievously erred in affirming the
assailed dismissal order by declaring petitioner spouses to
have been guilty of laches in failing to redeem during the legal
period of redemption the foreclosed parcel of land; when the
cause of the failure to redeem was the illegal increase by 100%
of the original obligation, stated in the Amendment of Real
Estate Mortgage and bloating of the redemption price from Two
Million Pesos (P2,000,000.00) to Three Million Four Hundred
Ninety One Thousand Two Hundred Twenty Five & 98/100
Pesos (P3,491,225.98).
We DENY.
The records indubitably show that at the time of the foreclosure
sale on 11 August 1993, petitioners were already in default in
their loan obligation to respondent Carmencita San Diego.
Much earlier, or on 27 April 1993, a final notice of demand for
payment had been sent to them, despite which they still failed
to pay. Hence, respondent Carmencita San Diegos resort to
extrajudicial foreclosure, provided no less in the parties
Amendment of Real Estate Mortgage.
The rule has been, and still is, that in real estate mortgage,
when the principal obligation is not paid when due, the
mortgagee has the right to foreclose on the mortgage and to
have the mortgaged property seized and sold with the view of
applying the proceeds thereof to the payment of the
obligation.[4]
Here, the validity of the extrajudicial foreclosure on 11 August
1993 was virtually confirmed by the trial court when it
dismissed petitioners complaint, and rightly so, what with the
fact that petitioners failed to exercise their right of redemption
within the 1-year period therefor counted from the registration
of the sheriffs certificate of sale.
It is petitioners main submission, however, that the very reason
why they did not avail of their redemption right is because Mrs.
San Diego bloated their original loan of P1,000,000.00 to
P1,950,000.00, an issue supposedly not considered and/or
addressed by the appellate court in the decision under review.
In this regard, petitioners argue that the Court of Appeals, in
sustaining the extrajudicial foreclosure proceedings, thereby go
against the established jurisprudence that an action for
foreclosure must be limited to the amount mentioned in the
mortgage document, P1,000,000.00 in this case.
We do not take issue with petitioners submission that a
mortgage may be foreclosed only for the amount appearing in
the mortgage document, more so where, as here, the
mortgage contract entered into by the parties is evidently silent
on the payment of interest.
However, contrary to petitioners claim, the appellate court did
pass upon the legal issue raised by them, albeit ruling that
petitioners had been barred by laches from raising the same.
We quote from the challenged decision:
[Petitioners] next argued that the mortgaged property was
illegally foreclosed since it is a well settled rule that an action to
foreclose a mortgage must be limited to the amount mentioned
in the mortgage.
The argument is without merit.
It appears from the evidence on record that despite due notice
and publication of the same in a newspaper of general
circulation (Exhs. 5, 5-A and 5-B, pp. 53-55, Record),
[petitioners] did not bother to attend the foreclosure sale nor
raise any question regarding the propriety of the sale. It was
only on November 9, 1994, or more than one year from the
registration of the Sheriffs Certificate of Sale, that [petitioners]
filed the instant complaint. Clearly, [petitioners] had slept on
their rights and are therefore guilty of laches, which is defined
as the failure or neglect for an unreasonable or explained
length of time to do that which, by exercising due diligence,
could or should have been done earlier, failure of which gives
rise to the presumption that the person possessed of the right
or privilege has abandoned or has declined to assert the same.
(Words in bracket added.)
For sure, in the very petition they filed in this case, petitioners
have not offered any valid excuse why, despite notice to them
of the petition for extrajudicial foreclosure filed by the
respondents, they failed to attend the proceedings and there
voiced out what they are now claiming. Truly, laches has
worked against them.
The law on redemption of mortgaged property is clear.
Republic Act No. 3135 (An Act to Regulate the Sale of Property
Under Special Powers Inserted In Or Annexed to Real Estate
Mortgages), as amended by Republic Act No. 4118, provides
in Section 6 thereof, thus:
Sec. 6. In all cases in which an extrajudicial sale is made under
the special power hereinbefore referred to, the debtor, his
successors in interest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under
which the property is sold, may redeem the same at any time
within the term of one year from and after the date of the sale;
xxx (Emphasis supplied)
In a long line of cases[5], this Court has consistently ruled that
the one-year redemption period should be counted not from the
date of foreclosure sale, but from the time the certificate of sale
is registered with the Register of Deeds. Here, it is not disputed
that the sheriffs certificate of sale was registered on 29 October
1993.
And under Article 13 of the New Civil Code[6], a year is
understood to have three hundred sixty-five (365) days each.
Thus, excluding the first day and counting from 30 October
1993 (under paragraph 3 of Article 13 of the New Civil Code),
and bearing in mind that 1994 was a leap year, petitioners had
only until 29 October 1994, the 365th day after registration of
the sheriffs certificate of sale on 29 October 1993, within which
to redeem the foreclosed property in accordance with law. And
since 29 October 1994 fell on a Saturday, petitioners had until
81
the following working day, 31 October 1994, within which to WHEREFORE, the instant petition is DENIED and the
exercise their right of redemption. challenged decision and resolution of the Court of Appeals
AFFIRMED.
From the foregoing, it is clear as day that even the complaint
filed by the petitioners with the trial court on 09 November 1994 No pronouncement as to costs.
was instituted beyond the 1-year redemption period. In fact,
petitioners no less acknowledged that their complaint for SO ORDERED.
annulment of extrajudicial foreclosure and auction sale was
filed about eleven (11) days after the redemption period had
already expired on 29 October 1994[7]. They merely harp on
the alleged increase in the redemption price of the mortgaged
property as the reason for their failure to redeem the same.
However, and as already pointed out herein, they chose not,
despite notice, to appear during the foreclosure proceedings.

Of course, petitioners presently insist that they requested for

and were granted an extension of time within which to redeem
their property, relying on a handwritten note allegedly written
by Mrs. San Diegos husband on petitioners statement of
account, indicating therein the date 11 November 1994 as the
last day to pay their outstanding account in full. Even
assuming, in gratia argumenti, that they were indeed granted
such an extension, the hard reality, however, is that at no time
at all did petitioners make a valid offer to redeem coupled with
a tender of the redemption price.

Even on this score, petitioners case must fall.

For, in Lazo v. Republic Surety & Insurance Co., Inc.[8], this

Court has made it clear that it is only where, by voluntary
agreement of the parties, consisting of extensions of the
redemption period, followed by commitment by the debtor to
pay the redemption price at a fixed date, will the concept of
legal redemption be converted into one of conventional
redemption.

Here, there is no showing whatsoever that petitioners agreed

to pay the redemption price on or before 11 November 1994,
as allegedly set by Mrs. San Diegos husband. On the contrary,
their act of filing their complaint on 09 November 1994 to
declare the nullity of the foreclosure sale is indicative of their
refusal to pay the redemption price on the alleged deadline set
by the husband. At the very least, if they so believed that their
loan obligation was only for P1,000,000.00, petitioners should
have made an offer to redeem within one (1) year from the
registration of the sheriffs certificate of sale, together with a
tender of the same amount. This, they never did.

It must be remembered that the period of redemption is not a

prescriptive period but a condition precedent provided by law to
restrict the right of the person exercising redemption.
Correspondingly, if a person exercising the right of redemption
has offered to redeem the property within the period fixed, he is
considered to have complied with the condition precedent
prescribed by law and may thereafter bring an action to enforce
redemption. If, on the other hand, the period is allowed to lapse
before the right of redemption is exercised, then the action to
enforce redemption will not prosper, even if the action is
brought within the ordinary prescriptive period. Moreover, the
period within which to redeem the property sold at a sheriffs
sale is not suspended by the institution of an action to annul
the foreclosure sale.[9] It is clear, then, that petitioners have
lost any right or interest over the subject property primarily
because of their failure to redeem the same in the manner and
within the period prescribed by law. Their belated attempts to
question the legality and validity of the foreclosure proceedings
and public auction must accordingly fail.

82
G.R. No. 195540 March 13, 2013
GOLDENWAY MERCHANDISING CORPORATION,
Petitioner,
vs.
EQUITABLE PCI BANK, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on certiorari which
seeks to reverse and set aside the Decision1 dated November
19, 2010 and Resolution2 dated January 31, 2011 of the Court
of Appeals (CA) in CA-G.R. CV No. 91120. The CA affirmed
the Decision3 dated January 8, 2007 of the Regional Trial
Court (RTC) of- Valenzuela City, Branch 171 dismissing the
complaint in Civil Case No. 295-V -01.
The facts are undisputed.
On November 29, 1985, Goldenway Merchandising
Corporation (petitioner) executed a Real Estate Mortgage in
favor of Equitable PCI Bank (respondent) over its real
properties situated in Valenzuela, Bulacan (now Valenzuela
City) and covered by Transfer Certificate of Title (TCT) Nos. T-
152630, T-151655 and T-214528 of the Registry of Deeds for
the Province of Bulacan. The mortgage secured the Two
Million Pesos (₱2,000,000.00) loan granted by respondent to
petitioner and was duly registered.4
As petitioner failed to settle its loan obligation, respondent
extrajudicially foreclosed the mortgage on December 13, 2000.
During the public auction, the mortgaged properties were sold
for ₱3,500,000.00 to respondent. Accordingly, a Certificate of
Sale was issued to respondent on January 26, 2001. On
February 16, 2001, the Certificate of Sale was registered and
inscribed on TCT Nos. T-152630, T-151655 and T-214528.5
In a letter dated March 8, 2001, petitioner’s counsel offered to
redeem the foreclosed properties by tendering a check in the
amount of ₱3,500,000.00. On March 12, 2001, petitioner’s
counsel met with respondent’s counsel reiterating petitioner’s
intention to exercise the right of redemption.6 However,
petitioner was told that such redemption is no longer possible
because the certificate of sale had already been registered.
Petitioner also verified with the Registry of Deeds that title to
the foreclosed properties had already been consolidated in
favor of respondent and that new certificates of title were
issued in the name of respondent on March 9, 2001.
On December 7, 2001, petitioner filed a complaint7 for specific
performance and damages against the respondent, asserting
that it is the one-year period of redemption under Act No. 3135
which should apply and not the shorter redemption period
provided in Republic Act (R.A.) No. 8791. Petitioner argued
that applying Section 47 of R.A. 8791 to the real estate
mortgage executed in 1985 would result in the impairment of
obligation of contracts and violation of the equal protection
clause under the Constitution. Additionally, petitioner faulted
the respondent for allegedly failing to furnish it and the Office of
the Clerk of Court, RTC of Valenzuela City with a Statement of
Account as directed in the Certificate of Sale, due to which
petitioner was not apprised of the assessment and fees
incurred by respondent, thus depriving petitioner of the
opportunity to exercise its right of redemption prior to the
registration of the certificate of sale.
In its Answer with Counterclaim,8 respondent pointed out that
petitioner cannot claim that it was unaware of the redemption
price which is clearly provided in Section 47 of R.A. No. 8791,
and that petitioner had all the opportune time to redeem the
foreclosed properties from the time it received the letter of
demand and the notice of sale before the registration of the
certificate of sale. As to the check payment tendered by
petitioner, respondent said that even assuming arguendo such
redemption was timely made, it was not for the amount as
required by law.
On January 8, 2007, the trial court rendered its decision
dismissing the complaint as well as the counterclaim. It noted
that the issue of constitutionality of Sec. 47 of R.A. No. 8791
was never raised by the petitioner during the pre-trial and the
trial. Aside from the fact that petitioner’s attempt to redeem was
already late, there was no valid redemption made because
Atty. Judy Ann Abat-Vera who talked to Atty. Joseph E.
Mabilog of the Legal Division of respondent bank, was not
properly authorized by petitioner’s Board of Directors to
transact for and in its behalf; it was only a certain Chan Guan
Pue, the alleged President of petitioner corporation, who gave
instruction to Atty. Abat-Vera to redeem the foreclosed
properties.9
Aggrieved, petitioner appealed to the CA which affirmed the
trial court’s decision. According to the CA, petitioner failed to
justify why Section 47 of R.A. No. 8791 should be declared
unconstitutional. Furthermore, the appellate court concluded
that a reading of Section 47 plainly reveals the intention to
shorten the period of redemption for juridical persons and that
the foreclosure of the mortgaged properties in this case when
R.A. No. 8791 was already in effect clearly falls within the
purview of the said provision.10
Petitioner’s motion for reconsideration was likewise denied by
the CA.
In the present petition, it is contended that Section 47 of R.A.
No. 8791 is inapplicable considering that the contracting
parties expressly and categorically agreed that the foreclosure
of the real estate mortgage shall be in accordance with Act No.
3135. Citing Co v. Philippine National Bank11 petitioner
contended that the right of redemption is part and parcel of the
Deed of Real Estate Mortgage itself and attaches thereto upon
its execution, a vested right flowing out of and made dependent
upon the law governing the contract of mortgage and not on
the mortgagee’s act of extrajudicially foreclosing the mortgaged
properties. This Court thus held in said case that "Under the
terms of the mortgage contract, the terms and conditions under
which redemption may be exercised are deemed part and
parcel thereof whether the same be merely conventional or
imposed by law."
Petitioner then argues that applying Section 47 of R.A. No.
8791 to the present case would be a substantial impairment of
its vested right of redemption under the real estate mortgage
contract. Such impairment would be violative of the
constitutional proscription against impairment of obligations of
contract, a patent derogation of petitioner’s vested right and
clearly changes the intention of the contracting parties.
Moreover, citing this Court’s ruling in Rural Bank of Davao City,
Inc. v. Court of Appeals12 where it was held that "Section 119
prevails over statutes which provide for a shorter period of
redemption in extrajudicial foreclosure sales", and in Sulit
v. Court of Appeals,13 petitioner stresses that it has always
been the policy of this Court to aid rather than defeat the
mortgagor’s right to redeem his property.
83

Petitioner further argues that since R.A. No. 8791 does not
provide for its retroactive application, courts therefore cannot
retroactively apply its provisions to contracts executed and
consummated before its effectivity. Also, since R.A. 8791 is a
general law pertaining to the banking industry while Act No.
3135 is a special law specifically governing real estate
mortgage and foreclosure, under the rules of statutory
construction that in case of conflict a special law prevails over
a general law regardless of the dates of enactment of both
laws, Act No. 3135 clearly should prevail on the redemption
period to be applied in this case.
The constitutional issue having been squarely raised in the
pleadings filed in the trial and appellate courts, we shall
proceed to resolve the same.
The law governing cases of extrajudicial foreclosure of
mortgage is Act No. 3135,14 as amended by Act No. 4118.
Section 6 thereof provides:
SEC. 6. In all cases in which an extrajudicial sale is made
under the special power hereinbefore referred to, the debtor,
his successors-in-interest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of
trust under which the property is sold, may redeem the same at
any time within the term of one year from and after the date of
the sale; and such redemption shall be governed by the
provisions of sections four hundred and sixty-four to four
hundred and sixty-six, inclusive, of the Code of
Civil Procedure,15 in so far as these are not inconsistent with
the provisions of this Act.
The one-year period of redemption is counted from the date of
the registration of the certificate of sale. In this case, the parties
provided in their real estate mortgage contract that upon
petitioner’s default and the latter’s entire loan obligation
becoming due, respondent may immediately foreclose the
mortgage judicially in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended.
However, Section 47 of R.A. No. 8791 otherwise known as
"The General Banking Law of 2000" which took effect on June
13, 2000, amended Act No. 3135. Said provision reads:
SECTION 47. Foreclosure of Real Estate Mortgage. — In the
event of foreclosure, whether judicially or extrajudicially, of any
mortgage on real estate which is security for any loan or other
credit accommodation granted, the mortgagor or debtor whose
real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of
the real estate, to redeem the property by paying the amount
due under the mortgage deed, with interest thereon at the rate
specified in the mortgage, and all the costs and expenses
incurred by the bank or institution from the sale and custody of
said property less the income derived therefrom. However, the
purchaser at the auction sale concerned whether in a judicial or
extrajudicial foreclosure shall have the right to enter upon and
take possession of such property immediately after the date of
the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain
the conduct of foreclosure proceedings instituted pursuant to
this provision shall be given due course only upon the filing by
the petitioner of a bond in an amount fixed by the court
conditioned that he will pay all the damages which the bank
may suffer by the enjoining or the restraint of the foreclosure
proceeding.
Notwithstanding Act 3135, juridical persons whose property is
being sold pursuant to an extrajudicial foreclosure, shall have
the right to redeem the property in accordance with this
provision until, but not after, the registration of the certificate of
foreclosure sale with the applicable Register of Deeds which in
no case shall be more than three (3) months after foreclosure,
whichever is earlier. Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act shall retain
their redemption rights until their expiration. (Emphasis
supplied.)
Under the new law, an exception is thus made in the case of
juridical persons which are allowed to exercise the right of
redemption only "until, but not after, the registration of the
certificate of foreclosure sale" and in no case more than three
(3) months after foreclosure, whichever comes first.16
May the foregoing amendment be validly applied in this case
when the real estate mortgage contract was executed in 1985
and the mortgage foreclosed when R.A. No. 8791 was already
in effect?
We answer in the affirmative.
When confronted with a constitutional question, it is elementary
that every court must approach it with grave care and
considerable caution bearing in mind that every statute is
presumed valid and every reasonable doubt should be
resolved in favor of its constitutionality.17 For a law to be
nullified, it must be shown that there is a clear and unequivocal
breach of the Constitution. The ground for nullity must be clear
and beyond reasonable doubt.18 Indeed, those who petition
this Court to declare a law, or parts thereof, unconstitutional
must clearly establish the basis therefor. Otherwise, the
petition must fail.19
Petitioner’s contention that Section 47 of R.A. 8791 violates the
constitutional proscription against impairment of the obligation
of contract has no basis.
The purpose of the non-impairment clause of the
Constitution20 is to safeguard the integrity of contracts against
unwarranted interference by the State. As a rule, contracts
should not be tampered with by subsequent laws that would
change or modify the rights and obligations of the parties.21
Impairment is anything that diminishes the efficacy of the
contract. There is an impairment if a subsequent law changes
the terms of a contract between the parties, imposes new
conditions, dispenses with those agreed upon or withdraws
remedies for the enforcement of the rights of the parties.22
Section 47 did not divest juridical persons of the right to
redeem their foreclosed properties but only modified the time
for the exercise of such right by reducing the one-year period
originally provided in Act No. 3135. The new redemption period
commences from the date of foreclosure sale, and expires
upon registration of the certificate of sale or three months after
foreclosure, whichever is earlier. There is likewise no
retroactive application of the new redemption period because
Section 47 exempts from its operation those properties
foreclosed prior to its effectivity and whose owners shall retain
their redemption rights under Act No. 3135.
Petitioner’s claim that Section 47 infringes the equal protection
clause as it discriminates mortgagors/property owners who are
juridical persons is equally bereft of merit.
84

The equal protection clause is directed principally against
undue favor and individual or class privilege.1âwphi1 It is not
intended to prohibit legislation which is limited to the object to
which it is directed or by the territory in which it is to operate. It
does not require absolute equality, but merely that all persons
be treated alike under like conditions both as to privileges
conferred and liabilities imposed.23 Equal protection permits of
reasonable classification.24 We have ruled that one class may
be treated differently from another where the groupings are
based on reasonable and real distinctions.25 If classification is
germane to the purpose of the law, concerns all members of
the class, and applies equally to present and future conditions,
the classification does not violate the equal protection
guarantee.26
Court has time and again emphasized, is undeniably imbued
with public interest.34
Having ruled that the assailed Section 47 of R.A. No. 8791 is
constitutional, we find no reversible error committed by the CA
in holding that petitioner can no longer exercise the right of
redemption over its foreclosed properties after the certificate of
sale in favor of respondent had been registered.
WHEREFORE, the petition for review on certiorari is DENIED
for lack of merit. The Decision dated November 19, 2010 and
Resolution dated January 31, 2011 of the Court of Appeals in
CA-G.R. CV No. 91120 are hereby AFFIRMED.
With costs against the petitioner.

We agree with the CA that the legislature clearly intended to SO ORDERED.

shorten the period of redemption for juridical persons whose
properties were foreclosed and sold in accordance with the
provisions of Act No. 3135.27

The difference in the treatment of juridical persons and natural

persons was based on the nature of the properties foreclosed –
whether these are used as residence, for which the more
liberal one-year redemption period is retained, or used for
industrial or commercial purposes, in which case a shorter term
is deemed necessary to reduce the period of uncertainty in the
ownership of property and enable mortgagee-banks to dispose
sooner of these acquired assets. It must be underscored that
the General Banking Law of 2000, crafted in the aftermath of
the 1997 Southeast Asian financial crisis, sought to reform the
General Banking Act of 1949 by fashioning a legal framework
for maintaining a safe and sound banking system.28 In this
context, the amendment introduced by Section 47 embodied
one of such safe and sound practices aimed at ensuring the
solvency and liquidity of our banks.1âwphi1 It cannot therefore
be disputed that the said provision amending the redemption
period in Act 3135 was based on a reasonable classification
and germane to the purpose of the law.

This legitimate public interest pursued by the legislature further

enfeebles petitioner’s impairment of contract theory.

The right of redemption being statutory, it must be exercised in

the manner prescribed by the statute,29 and within the
prescribed time limit, to make it effective. Furthermore, as with
other individual rights to contract and to property, it has to give
way to police power exercised for public welfare.30 The
concept of police power is well-established in this jurisdiction. It
has been defined as the "state authority to enact legislation
that may interfere with personal liberty or property in order to
promote the general welfare." Its scope, ever-expanding to
meet the exigencies of the times, even to anticipate the future
where it could be done, provides enough room for an efficient
and flexible response to conditions and circumstances thus
assuming the greatest benefits.31

The freedom to contract is not absolute; all contracts and all

rights are subject to the police power of the State and not only
may regulations which affect them be established by the State,
but all such regulations must be subject to change from time to
time, as the general well-being of the community may require,
or as the circumstances may change, or as experience may
demonstrate the necessity.32 Settled is the rule that the non-
impairment clause of the Constitution must yield to the loftier
purposes targeted by the Government. The right granted by
this provision must submit to the demands and necessities of
the State’s power of regulation.33 Such authority to regulate
businesses extends to the banking industry which, as this

85
CITY MAYOR, CITY TREASURER, CITY ASSESSOR, ALL
OF QUEZON CITY, and ALVIN EMERSON S. YU,
Petitioners,
-versus-
RIZAL COMMERCIAL BANKING CORPORATION,
Respondent.
G.R. No. 171033
Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
Promulgated:
August 3, 2010
x----------------------------------------------------------------------------------
-------x
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the
Decision[1] dated December 6, 2005, of the Regional Trial
Court (RTC), National Capital Judicial Region, Branch 101,
Quezon City, in SP. Civil Action Q-04-53522 for Mandamus
with Prayer for Issuance of a Temporary Restraining Order and
a Writ of Preliminary Injunction.
The procedural and factual antecedents are as follows:
The facts are undisputed. The spouses Roberto and Monette
Naval obtained a loan from respondent Rizal Commercial
Banking Corporation, secured by a real estate mortgage of
properties covered by Transfer Certificate of Title (TCT) Nos.
N-167986, N-167987, and N-167988. In 1998, the real estate
mortgage was later foreclosed and the properties were sold at
public auction with respondent as the highest bidder. The
corresponding Certificates of Sale were issued in favor of
respondent on August 4, 1998. However, the certificates of
sale were allegedly registered only on February 10, 2004.
Meanwhile, on May 30, 2003, an auction sale of tax delinquent
properties was conducted by the City Treasurer of Quezon
City. Included in the properties that were auctioned were two
(2) townhouse units covered by TCT Nos. N-167986 and N-
167987 and the parcel of land covered by TCT No. N-167988.
For these delinquent properties, Alvin Emerson S. Yu was
adjudged as the highest bidder. Upon payment of the tax
delinquencies, he was issued the corresponding Certificate of
Sale of Delinquent Property.
On February 10, 2004, the Certificate of Sale of Delinquent
Property was registered with the Office of the Register of
Deeds of Quezon City.
On June 10, 2004, respondent tendered payment for all of the
assessed tax delinquencies, interest, and other costs of the
subject properties with the Office of the City Treasurer, Quezon
City. However, the Office of the City Treasurer refused to
accept said tender of payment.
Undeterred, on June 15, 2004, respondent filed before the
Office of the City Treasurer a Petition[2] for the acceptance of
its tender of payment and for the subsequent issuance of the
certificate of redemption in its favor. Nevertheless, respondents
subsequent tender of payment was also denied.
Consequently, respondent filed a Petition for Mandamus with
Prayer for Issuance of a Temporary Restraining Order and a
Writ of Preliminary Injunction[3] before the RTC. Petitioners
contended, among other things, that it had until February 10,
2005, or one (1) year from the date of registration of the
certificate of sale on February 10, 2004, within which to
redeem the subject properties, pursuant to Section 78 of
Presidential Decree (P.D.) No. 464 or the Real Property Tax
Code.
After the parties filed their respective pleadings, the RTC
initially denied the petition in the Order[4] dated December 6,
2004. In denying the petition, the RTC opined that respondents
reliance on Section 78 of P.D. No. 464 as basis of the
reckoning period in counting the one (1) year period within
which to redeem the subject properties was misplaced, since
P.D. No. 464 has been expressly repealed by Republic Act
(R.A.) No. 7160, or the Local Government Code.
Aggrieved, respondent filed a Motion for Reconsideration[5]
questioning the Order, arguing that:
A.
The Honorable Court committed grave error when it summarily
denied the petition for Mandamus filed by herein petitioner
during the hearing on the Motion for Issuance of Temporary
Restraining Order and/or Issuance of a Writ of Preliminary
Injunction without conducting a hearing or trial on petition for
mandamus. The order of the court effectively denied petitioner
its right to due process.
B.
The principal action subject of the petition for mandamus is the
annulment of the auction sale. Alternatively, petitioner sought
the right to consign the redemption price, inclusive of interests
on the basis that it was exercising the right of redemption
within the period provided by law. The Honorable Court ruled
86
only on the repeal of Presidential Decree No. 464 and not the
issues/grounds raised in the temporary restraining order/writ of
preliminary injunction nor on the issues raised in the petition for
mandamus, contrary to law.
C.
The Honorable Court committed grave error when it sustained
the validity of the actions of the City Treasurer with respect to
the auction sale of the properties subject of the petition and its
unlawful refusal to accept the redemption price of the
properties subject of the auction sale contrary to the provisions
of Quezon City Ordinance No. 91-93, in relation to Presidential
Decree No. 464 and the Local Government Code and DOF
Assessment Regulations No. 7-85.
D.
The Honorable Court committed grave error when it denied
petitioner its right to consign the payment of the redemption
price of the properties sold in auction sale without a
determination of the factual issues of the case, contrary to due
process.
E.
The legal and factual question of the validity of the notice of the
auction sale cannot be summarily dismissed without hearing
and ruling on the allegation of lack of notice and fraud raised
by petitioner in its petition for mandamus.[6]
On December 6, 2005, the RTC rendered a Decision[7]
granting the petition, the decretal portion of which reads:
WHEREFORE, premises considered, the above-captioned
petition for mandamus is hereby granted.
Accordingly, the public respondents are ordered to accept the
petitioners tender of redemption payment, to issue the
corresponding certificate of redemption in the name of the
petitioner and to cancel the certificate of tax sale issued to the
private respondent.
SO ORDERED.[8]
In granting the petition, the RTC ratiocinated that the counting
of the one (1) year redemption period of tax delinquent
properties sold at public auction should start from the date of
registration of the certificate of sale or the final deed of sale in
favor of the purchaser, so that the delinquent registered owner
or third parties interested in the redemption may be notified
that the delinquent property had been sold, and that they have
one (1) year from said constructive notice of the sale within
which to redeem the property. The RTC was also of the opinion
that Section 261, R.A. No. 7160 did not amend Section 78 of
P.D. No. 464.
Hence, the petition raising the following arguments:
I purchase price, and such payment shall invalidate the sale
THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON
CITY, DECIDED A QUESTION [OF] LAW CONTRARY TO
LAW AND JURISPRUDENCE WHEN IT DECIDED THAT
SECTION 78 OF P.D. 464 WAS NOT REPEALED BY
REPUBLIC ACT NO. 7160 KNOWN AS THE LOCAL
GOVERNMENT CODE OF 1991.
II
THE REGIONAL TRIAL COURT, BRANCH 101, QUEZON
CITY, DECIDED A QUESTION [OF] LAW CONTRARY TO
LAW AND JURISPRUDENCE WHEN IT RAISED THE
FOLLOWING ISSUES WHICH DO NOT CONFORM TO THE
PETITION AND ANSWER FILED BY THE PARTIES:
A. WHETHER OR NOT THE RESPONDENT IS ENTITLED
TO THE PROTECTION OF ALL THE PROVISIONS OF
QUEZON CITY TAX ORDINANCE NUMBER SP-91-93,
OTHERWISE KNOWN AS QUEZON CITY REVENUE CODE
OF 1993, INCLUDING SECTION 14 THEREOF,
PROMULGATED PURSUANT TO R.A. 7160;
B. WHETHER THE PERIOD OF REDEMPTION IN A REALTY
TAX SALE IN QUEZON CITY [H]AS TO BE RECKONED
FROM THE DATE OF ANNOTATION OF THE CERTIFICATE
OF SALE PURSUANT TO PARAGRAPH 7, SECTION 14 OF
QUEZON CITY TAX ORDINANCE NO. SP-91-93 OR FROM
THE DATE OF SALE PURSUANT TO SECTION 261 OF R.A.
7160.[9]
Petitioners argue that the RTC erred when it ruled that P.D.
No. 464 was not repealed by R.A. No. 7160 and when it
concluded that the phrase from the date of sale as appearing in
Section 261 of R.A. No. 7160 means that the counting of the
one (1) year redemption period of tax delinquent properties
sold at public action shall commence from the date of
registration of the certificate of sale.
Petitioners insist that, since Section 14 (a), Paragraph 7 of the
Quezon City Revenue Code of 1993 was not initially alleged in
respondents petition and was not used as basis for its filing,
the RTC erred when it took cognizance of it when it rendered
the assailed decision.
Conversely, respondent argues, among other things, that the
RTC did not rule that P.D. No. 464 was not repealed by R.A.
No. 7160, it merely made reference to Section 78 of P.D. No.
464. Respondent maintains that it has not altered its cause of
action when it cited Section 14 (a), paragraph 7 of the Quezon
City Revenue Code of 1993 for the first time in its
memorandum and that its failure to invoke the said provision in
the petition for mandamus does not preclude respondent from
invoking it in the later part of the proceedings. Ultimately,
respondent contends that the RTC correctly ruled that it had
timely exercised its right to redeem the subject properties.
Section 78 of P.D. No. 464 provides for a one-year redemption
period for properties foreclosed due to tax delinquency, thus:
Sec. 78. Redemption of real property after sale. Within the
term of one year from the date of the registration of the sale of
the property, the delinquent taxpayer or his representative, or
in his absence, any person holding a lien or claim over the
property, shall have the right to redeem the same by paying the
provincial or city treasurer or his deputy the total amount of
taxes and penalties due up to the date of redemption, the costs
of sale and the interest at the rate of twenty per centum on the
certificate issued to the purchaser and shall entitle the person
making the same to a certificate from the provincial or city
treasurer or his deputy, stating that he had redeemed the
property.[10]
From the foregoing, the owner or any person holding a lien or
claim over a tax delinquent property sold at public auction has
one (1) year from the date of registration of sale to redeem the
property. However, since the passing of R.A. No. 7160, such is
87
no longer controlling. The issue of whether or not R.A No. 7160
or the Local Government Code, repealed P.D. No. 464 or the
Real Property Tax Code has long been laid to rest by this
Court. Jurisdiction thrives to the effect that R.A. No. 7160
repealed P.D. No. 464.[11] From January 1, 1992 onwards, the
proper basis for the computation of the real property tax
payable, including penalties or interests, if applicable, must be
R. A. No. 7160. Its repealing clause, Section 534, reads:
SECTION 534. Repealing Clause.
xxxx
(c) The provisions of Sections 2, 3, and 4 of Republic Act No.
1939 regarding hospital fund; Section 3, a (3) and b (2) of
Republic Act No. 5447 regarding the Special Education Fund;
Presidential Decree No. 144 as amended by Presidential
Decree Nos. 559 and 1741; Presidential Decree No. 231 as
amended; Presidential Decree No. 436 as amended by
Presidential Decree No. 558; and Presidential Decrees Nos.
381, 436, 464, 477, 526, 632, 752, and 1136 are hereby
repealed and rendered of no force and effect.
Inasmuch as the crafter of the Local Government Code clearly
worded the above-cited Section to repeal P.D. No. 464, it is a
clear showing of their legislative intent that R.A. No. 7160 was
to supersede P.D. No. 464. As such, it is apparent that in case
of sale of tax delinquent properties, R.A. No. 7160 is the
general law applicable. Consequently, as regards redemption
of tax delinquent properties sold at public auction, the pertinent
provision is Section 261 of R.A. No. 7160, which provides:
Section 261. Redemption of Property Sold. Within one (1) year
from the date of sale, the owner of the delinquent real property
or person having legal interest therein, or his representative,
shall have the right to redeem the property upon payment to
the local treasurer of the amount of delinquent tax, including
the interest due thereon, and the expenses of sale from the
date of delinquency to the date of sale, plus interest of not
more than two percent (2%) per month on the purchase price
from the date of sale to the date of redemption. Such payment
shall invalidate the certificate of sale issued to the purchaser
and the owner of the delinquent real property or person having
legal interest therein shall be entitled to a certificate of
redemption which shall be issued by the local treasurer or his
deputy.
From the date of sale until the expiration of the period of
redemption, the delinquent real property shall remain in the
possession of the owner or person having legal interest therein
who shall remain in the possession of the owner or person
having legal interest therein who shall be entitled to the income
and other fruits thereof.
The local treasurer or his deputy, upon receipt from the
purchaser of the certificate of sale, shall forthwith return to the
latter the entire amount paid by him plus interest of not more
than two percent (2%) per month. Thereafter, the property shall
be free from all lien of such delinquent tax, interest due thereon
and expenses of sale.[12]
From the foregoing, the owner of the delinquent real property
or person having legal interest therein, or his representative,
has the right to redeem the property within one (1) year from
the date of sale upon payment of the delinquent tax and other
fees. Verily, the period of redemption of tax delinquent
properties should be counted not from the date of registration
of the certificate of sale, as previously provided by Section 78
of P.D. No. 464, but rather on the date of sale of the tax
delinquent property, as explicitly provided by Section 261 of
R.A. No. 7160.
Nonetheless, the government of Quezon City, pursuant to
the taxing power vested on local government units by
Section 5, Article X of the 1987 Constitution[13] and R.A. No.
7160, enacted City Ordinance No. SP-91, S-93, otherwise
known as the Quezon City Revenue Code of 1993, providing,
among other things, the procedure in the collection of
delinquent taxes on real properties within the territorial
jurisdiction of Quezon City. Section 14 (a), Paragraph 7, the
Code provides:
7) Within one (1) year from the date of the annotation of the
sale of the property at the proper registry, the owner of the
delinquent real property or person having legal interest therein,
or his representative, shall have the right to redeem the
property by paying to the City Treasurer the amount of the
delinquent tax, including interest due thereon, and the
expenses of sale plus interest of two percent (2) per month on
the purchase price from the date of sale to the date of
redemption. Such payment shall invalidate the certificate of
sale issued to the purchaser and the owner of the delinquent
real property or person having legal interest therein shall be
entitled to a certificate of redemption which shall be issued by
the City Treasurer.
xxxx
Verily, the ordinance is explicit that the one-year redemption
period should be counted from the date of the annotation of the
sale of the property at the proper registry. At first glance, this
provision runs counter to that of Section 261 of R.A. No. 7160
which provides that the one year redemption period shall be
counted from the date of sale of the tax delinquent property.
There is, therefore, a need to reconcile these seemingly
conflicting provisions of a general law and a special law.
A general statute is one which embraces a class of subjects or
places and does not omit any subject or place naturally
belonging to such class. A special statute, as the term is
generally understood, is one which relates to particular persons
or things of a class or to a particular portion or section of the
state only.[14] In the present case, R.A. No. 7160 is to be
construed as a general law, while City Ordinance No. SP-91,
S-93 is a special law, having emanated only from R.A. No.
7160 and with limited territorial application in Quezon City only.
A general law and a special law on the same subject should
be accordingly read together and harmonized, if possible, with
a view to giving effect to both. Where there are two acts, one of
which is special and particular and the other general which, if
standing alone, would include the same matter and thus
conflict with the special act, the special must prevail, since it
evinces the legislative intent more clearly than that of the
general statute and must be taken as intended to constitute an
exception to the rule.[15] More so, when the validity of the law
is not in question.
In giving effect to these laws, it is also worthy to note that in
cases involving redemption, the law protects the original
owner. It is the policy of the law to aid rather than to defeat the
owners right. Therefore, redemption should be looked upon
with favor and where no injury will follow, a liberal construction
will be given to our redemption laws, specifically on the
exercise of the right to redeem.[16]
To harmonize the provisions of the two laws and to maintain
the policy of the law to aid rather than to defeat the owners
88
right to redeem his property, Section 14 (a), Paragraph 7 of SP. Civil Action Q-04-53522, dated December 6, 2005, is
City Ordinance No. SP-91, S-93 should be construed as to AFFIRMED.
define the phrase one (1) year from the date of sale as
appearing in Section 261 of R.A. No. 7160, to mean one (1) SO ORDERED.
year from the date of the annotation of the sale of the property
at the proper registry.

Consequently, the counting of the one (1) year redemption

period of property sold at public auction for its tax delinquency
should be counted from the date of annotation of the certificate
of sale in the proper Register of Deeds. Applying the foregoing
to the case at bar, from the date of registration of the
Certificate of Sale of Delinquent Property on February 10,
2004, respondent had until February 10, 2005 to redeem the
subject properties. Hence, its tender of payment of the subject
properties tax delinquencies and other fees on June 10, 2004,
was well within the redemption period, and it was manifest
error on the part of petitioners to have refused such tender of
payment.

Finally, respondents failure to cite Section 14 (a), Paragraph 7,

City Ordinance No. SP-91, S-93 in its petition for mandamus
does not preclude it from invoking the said provision in the later
part of the judicial proceeding.

The issues in every case are limited to those presented in the

pleadings. The object of the pleadings is to draw the lines of
battle between the litigants and to indicate fairly the nature of
the claims or defenses of both parties.[17] Points of law,
theories, issues and arguments should be brought to the
attention of the trial court to give the opposing party an
opportunity to present further evidence material to these
matters during judicial proceedings before the lower court.
Otherwise, it would be too late to raise these issues during
appeal. A party cannot, on appeal, change fundamentally the
nature of the issue in the case. When a party deliberately
adopts a certain theory and the case is decided upon that
theory in the court below, he will not be permitted to change
the same on appeal, because to permit him to do so would be
unfair to the adverse party.[18]

As early as in its Memorandum to Serve as Draft

Resolution,[19] respondent had brought Section 14 (a),
Paragraph 7 of City Ordinance No. SP-91, S-93, or the Quezon
City Revenue Code of 1993, to the attention of petitioners.
Respondent also reiterated the applicability of the provision to
his claim of redemption in its motion for reconsideration of the
Order initially denying the petition for mandamus. Petitioners
were given every opportunity to counter respondents
allegations, which it in fact did by filing an Opposition[20] to the
motion for reconsideration. Since the inception of the petition in
the lower court, respondent has not changed its preposition
that the one (1) year redemption period shall be counted from
the date of registration of the certificate of sale and not from
the date of sale of the subject properties. Citing the appropriate
provision of the Quezon City Revenue Code of 1993 did not
alter this, but on the contrary, even buttressed its claim.

Furthermore, petitioners cannot feign ignorance of a law that it

has promulgated in the exercise of its local autonomy. Nor can
it be allowed to deny the applicability of Section 14 (a),
Paragraph 7 of the Quezon City Revenue Code of 1993, while
at the same time invoking that it has strictly adhered to the
Quezon City Revenue Code when it conducted the public
auction of the tax delinquent properties.

WHEREFORE, premises considered, the petition is DENIED.

Subject to the above disquisitions, the Decision of the RTC in

89
G.R. No. 129572 June 26, 2000
PHILBANCOR FINANCE, INC. AND VICENTE HIZON, JR.,
petitioners,
vs.
COURT OF APPEALS, THE HONORABLE DEPARTMENT OF
AGRARIAN REFORM ADJUDICATION BOARD (DARAB),
ALFREDO PARE, PABLO GALANG and AMADO VIE,
respondents,
PARDO, J.:
The case before the Court is an appeal via certiorari from the
decision1 of the Court of Appeals dismissing the petition for
review of the decision of the Department of Agrarian Reform
Adjudication Board sustaining the ruling of the Provincial
Agrarian Reform Adjudication Board of San Fernando,
Pampanga allowing the legal redemption by private
respondents of two parcels of land mortgaged to and acquired
by petitioner Philbancor at public auction.1âwphi1.nêt
The facts, as found by the Court of Appeals, are as follows:
Private respondents Alfredo Pare, Pablo Galang and Amado
Vie, as plaintiffs, filed with the Provincial Agrarian Reform
Adjudication Board (PARAB) a complaint for maintenance of
possession with redemption and tenancy right of pre-emption
against petitioners Philbancor Finance, Inc. and Vicente Hizon,
Jr. Private respondents alleged, inter alia, that petitioner
Vicente Hizon, Jr. is the owner of the disputed agricultural
lands covered by TCT Nos. 48320 and 48323 located in Balite,
San Fernando, Pampanga and that they (private respondents)
are the legitimate and bonfide tenants thereof; that on October
13, 1983, petitioner Hizon, without their knowledge, mortgaged
the disputed lots to petitioner Philbancor Finance, Inc.; that
petitioner Hizon failed to pay his obligations to petitioner
Philbancor, which eventually led to the sale of the mortgaged
lots to the latter; that they came to know of the transaction only
when they were notified by petitioner Philbancor to vacate the
lots; that they have been tenants on the lots for more than fifty
(50) years; that petitioner Philbancor threatened to take from
them the actual or physical possession of the agricultural lots;
that unless the threatened acts of petitioner are restrained,
they will suffer substantial and irreparable injury (Complaint,
Rollo, pp. 51-55).
In his answer, petitioner Hizon admitted that private
respondents are his bonafide and legitimate tenants but he
averred, by way of affirmative defenses, that he is not
threatening to take possession of the disputed lots as he is no
longer the owner thereof after said lots were foreclosed by
petitioner Philbancor; that private respondents were aware
when he mortgaged the lots as they were with him when he
tried to negotiate for payment of his loan to petitioner
Philbancor (CA Rollo, p. 29).
In its answer, petitioner Philbancor alleged, among others, that
it has no tenancy or agricultural relationship with private
respondents considering that it acquired ownership over the
disputed lots by virtue of an extra-judicial foreclosure sale
pursuant to Act 3135, as amended; that it is not an agricultural
lessor as contemplated in Section 10 of Republic Act (RA) No.
3844, as amended; that assuming private respondents have
the right to redeem the lots in question, such right has already
expired in accordance with Section 12 of R.A. 3844, which
states that the right of redemption may be exercised within two
(2) years from the registration of the sale (CA Rollo, pp. 30-31).
In a Decision dated September 17, 1993, Provincial
Adjudicator Toribio E. Ilao, Jr. rendered a decision in favor of
private respondents, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering the redemption by the plaintiffs of the land in
question at the price of P201,182.92;
2. Ordering the defendant, Philbamcor Finance, Inc., to
execute the necessary Deed of Redemption in favor of the
plaintiffs; and
3. Ordering the Register of Deeds of the Province of
Pampanga to cause the registration of the land in question to
be conveyed to and redeemed by the plaintiffs;
The counterclaim of the defendant Philbancor Finance, Inc. is
hereby dismissed. (Ibid., pp. 81-90)
Petitioners filed a motion for reconsideration but the same was
denied by the Provincial Adjudicator (CA Rollo, pp. 108-109).
On appeal, public respondent Department of Agrarian Reform
Adjudication Board (DARAB) affirmed in toto the findings of the
Provincial Adjudicator in a Decision dated March 8, 1996 (Ibid.,
pp. 26-35).
Petitioners' motion for reconsideration was denied by
respondent DARAB in a Resolution (Ibid., pp. 36-38) dated
July 22, 1996, . . . . 2
On August 14, 1996, petitioners filed with the Court of Appeals
a petition for review of the decision of the DARAB.3
After due proceedings, on March 17, 1997, the Court of
Appeals rendered a decision dismissing the petition.4
On April 18, 1997, petitioners filed with the Court of Appeals a
motion for reconsideration of the decision; however, on May
19, 1997, the Court of Appeals denied the motion.5
Hence, this appeal.6
The petition raises three issues; however, the last issue raised
is decisive, hence, only this issue is herein resolved, that is,
whether or not the private respondents could still exercise their
right of redemption of the parcels of land sold at public auction
due to foreclosure of the mortgages thereon considering that
they invoked their right to redeem only on July 14, 1992, seven
years after the date of registration of the certificate of sale with
the Register of Deeds.
We grant the petition.
Republic Act No. 3844, Section 12, provides as follows:
In case the landholding is sold to a third person without the
knowledge of the agricultural lessee, the latter shall have the
right to redeem the same at a reasonable price and
consideration. Provided, that the entire landholding sold must
be redeemed. Provided further, that where there are two or
more agricultural lessees, each shall be entitled to said right of
redemption only to the extent of the area actually cultivated by
him. The right of redemption under this section may be
exercised within two (2) years from the registration of the sale
and shall have priority over any other right of legal
redemption.7
90
In this case, the certificate of sale of the subject property,
which was sold at public auction, was registered with the
Register of Deeds of Pampanga on July 31, 1985.8 The two-
year redemption period thus expired on July 31, 1987. The
complaint for redemption was filed by respondents only on July
14, 1992,9 five (5) years after expiration of the redemption
period prescribed by law.

Nonetheless, private respondents may continue in possession

and enjoyment of the land in question as legitimate tenants 10
because the right of tenancy attaches to the landholding by
operation of law. 11 The leasehold relation is not extinguished
by the alienation or transfer of the legal possession of the
landholding. 12

WHEREFORE, the Court hereby GRANTS the petition for

review on certiorari and REVERSES the decision of the Court
of Appeals. The Court orders the dismissal of the complaint for
redemption filed with the Department of Agrarian Reform
Adjudication Board, Region III, San Fernando, Pampanga. This
is without prejudice to the right of the private respondents to
continue as agricultural tenants in peaceful possession and
enjoyment of the land tenanted by them. No costs.1âwphi1.nêt

SO ORDERED.

91
G.R. No. 129279 March 4, 2003
ALFREDO M. OUANO, petitioner,
vs.
COURT OF APPEALS, and HEIRS OF JULIETA M. OUANO,
respondents.
AZCUNA, J.:
Before us is a petition for review on certiorari against the
decision and resolution of the Court of Appeals on CA-GR CV
No. 334991 affirming the decision of the Regional Trial Court of
Cebu, Branch 19, in Civil Case No. CEB-596, which set aside
the extrajudicial foreclosure proceedings involving
respondents' properties.
From the documentary evidence and the Stipulation of Facts2
filed by the parties before the Regional Trial Court of Cebu, the
facts of the case are, as follows:
On June 8, 1977, respondent Julieta M. Ouano (Julieta), now
deceased, obtained a loan from the Philippine National Bank
(PNB) in the amount of P104,280.00. As security for said loan,
she executed a real estate mortgage over two parcels of land
located at Opao, Mandaue City.3 She defaulted on her
obligation. On September 29, 1980, PNB filed a petition for
extrajudicial foreclosure with the City Sheriff of Mandaue City.
On November 4, 1980, the sheriff prepared a notice of sale
setting the date of public auction of the two parcels of land on
December 5, 1980 at 9:00 a.m. to 4:00 p.m.4 He caused the
notice to be published in the Cebu Daily Times, a newspaper of
general circulation in Mandaue City, in its issues of November
13, 20 and 27, 1980.5 He likewise posted copies thereof in
public places in Mandaue City and in the place where the
properties are located.6
However, the sale as scheduled and published did not take
place as the parties, on four separate dates, executed
Agreements to Postpone Sale (Agreements).7 These
Agreements were addressed to the sheriff, requesting the latter
to defer the auction sale to another date at the same time and
place, "without any further republication of the Notice." The first
of the four pro-forma Agreements reads, as follows:
AGREEMENT TO POSTPONE SALE
Provincial Sheriff
Mandaue City
Sir:
In accordance with this agreement of the parties in the above
named case, it is respectfully requested that the auction sale of
the properties of the mortgagor, scheduled to take place on
December 5 1980 at 9:00 o'clock in the morning at Office of the
City Sheriff of Mandaue City be postponed to February 5,
1981, at the same time and place, without any further
republication of the notice of sale as required by law. [italics
supplied]
Cebu City, December 11, 1980.
PHILIPPINE NATIONAL BANK
(Mortgagee)
By:
——————————
(SGD.) F.B. Briones
Cebu Branch
Branch Attorney
——————————
(SGD.) JULIETA M. OUANO
(Mortgagor)
Address: Opao, Mandaue City
On December 3, 1980, two days prior to the date of the sale as
published, the parties executed and filed with the sheriff the
Agreement to Postpone Sale moving the date of sale from
December 5, 1980 to February 5, 1981.8 On February 5, 1981,
however, no sale occurred.
Eight days later, on February 13, 1981, the parties executed
and filed for the second time a similar agreement moving the
date of sale to February 28, 1981.9 Again, on February 28,
1981, no sale occurred.
Ten days later, on March 10, 1981, the parties executed and
filed for the third time a similar agreement moving the date of
sale to March 30, 1981.10 No sale occurred on this date.
On March 30, 1981, the parties executed for the fourth time a
similar agreement moving the date of sale to May 29, 1981.11
This agreement was filed with the sheriff on April 30, 1981.
In all these postponements, no new notice of sale was issued,
nor was there any republication or reposting of notice for the
rescheduled dates.
Finally, on May 29, 1981, the sheriff conducted the auction
sale, awarding the two parcels of land to PNB, the only bidder.
He executed a Certificate of Sale certifying the sale for and in
consideration of P195, 510.50.12
As Julieta failed to redeem the properties within the one year
period from registration of sale, PNB consolidated its title on
February 12, 1983.13 On February 23 of the same year, it
conveyed the properties to herein petitioner Alfredo Ouano, the
brother of Julieta, under a Deed of Promise to Sell payable in
five years.14
On March 28, 1983, Julieta sent demand letters to PNB and
petitioner, pointing out irregularities in the foreclosure sale.15
On April 18, 1983, Julieta filed a complaint with the Regional
Trial Court (RTC) of Cebu for the nullification of the May 29,
1981 foreclosure sale.16 Petitioner filed a motion for leave to
intervene in said case, and filed his Answer in Intervention to
protect his rights over the properties.17
While the case was pending, on February 25, 1986, PNB
executed a Deed of Sale in favor of petitioner.18 The Register
of Deeds of Mandaue City accordingly cancelled the TCTs in
PNB's name and issued in lieu thereof TCTs in the name of
petitioner over the two parcels of land.19
On January 29, 1990, the Regional Trial Court of Cebu
rendered a decision in favor of Julieta, holding that the lack of
republication rendered the foreclosure sale void. The
dispositive portion of said decision state:
WHEREFORE, judgment is hereby rendered,
1. declaring as null and void:
92
a) the auction sale by the City Sheriff of Mandaue City
on May 29, 1981 over the aforesaid properties of plaintiff
Julieta Ouano;
b) the Certificate of Sale (Exhibit K) issued by the City
Sheriff of Mandaue City on May 29, 1981, in favor of the
Philippine National Bank;
c) the Deed of Sale (Exhibit L) executed by PNB to itself;
d) the Deed of Promise to Sell (Exhibit O) executed by
PNB on February 23, 1983 in favor of Alfredo Ouano
e) the Deed of Sale (Exhibit 24) executed by PNB on
February 5, 1986 in favor of Alfredo Ouano;
f) TCT No. 17929 (Exhibit M) and TCT No. 17930
(Exhibit N) in the name of PNB;
g) TCT No. 21982 (Exhibit 21) and TCT No. 21987
(Exhibit 22) in the name of Alfredo Ouano;
2. ordering the Register of Deeds of Mandaue City to
cancel the aforementioned titles (TCT Nos. 17929 and 17930,
as well as TCT Nos. 21982 and 21987), and to reinstate TCT
Nos. 15724 (5033) and 24377 (6876) in the name of Julieta
Ouano;
3. ordering the City Sheriff of Mandaue City to conduct a
new auction sale strictly complying with the requirements for
publication and posting as required by Act 3135, as amended
by Act 4118;
4. ordering PNB to return to Alfredo Ouano all amounts
the latter has paid to the said bank;
5. ordering Alfredo Ouano to vacate the premises in
question and turn them over to Julieta Ouano;
6. ordering PNB to pay the plaintiff the sum equivalent to
10% of the market value of the properties in question as
indicated in Tax Declaration Nos. 01134 and 00510, as
attorney's fees, and to pay the costs.
SO ORDERED.20
Not satisfied, PNB and petitioner brought the case to the Court
of Appeals.21 In its decision dated February 17, 1997, said
court affirmed the trial court's ruling on the same ground that
there was no compliance with the mandatory requirements of
posting and publication of notice of sale.22 Petitioner filed a
motion for reconsideration, which was denied for lack of merit
by the same court on April 15, 1997.23
PNB and petitioner filed their own petitions for review on
certiorari before us. PNB's petition however was dismissed on
July 21, 1997 for being filed out of time and for lack of
certification of non-forum-shopping.24 The petition herein
remaining is the one filed by petitioner.
Petitioner assigns the following errors:
I. RESPONDENT COURT OF APPEALS ERRED IN
SUSTAINING THE FINDING OF THE LOWER COURT THAT
THE POSTPONED AUCTION SALE OF SUBJECT
PROPERTIES HELD ON MAY 29, 1981 UPON WRITTEN
AGREEMENT OF THE PARTIES WAS NULL AND VOID FOR
LACK OF PUBLICATION OF NOTICE OF SALE ON THE
SAID DATE ALTHOUGH THE REQUIREMENTS OF
PUBLICATION OF NOTICE OF SALE ON THE ORIGINALLY
INTENDED DATE [WERE] FULLY COMPLIED WITH.
II. RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT THE PROVISION OF SEC. 24, RULE 39 OF
THE RULES OF COURT WHICH ALLOWS THE SHERIFF TO
ADJOURN ANY SALE UPON EXECUTION TO ANY DATE
AGREED UPON BY THE PARTIES IS NOT APPLICABLE TO
THIS CASE.
III. RESPONDENT COURT OF APPEALS ERRED IN
HOLDING THAT JULIETA M. OUANO IS NOT ESTOPPED
FROM CHALLENGING THE VALIDITY OF THE AUCTION
SALE SINCE THE SALE WAS REPEATEDLY POSTPONED
UPON HER REQUEST AND WRITTEN AGREEMENT[S]
THAT THERE WOULD BE NO REPUBLICATION OF THE
NOTICE OF SALE.
IV. RESPONDENT COURT OF APPEALS ERRED IN
AFFIRMING THE DECISION OF THE LOWER COURT
ALTHOUGH JULIETA M. OUANO FILED HER COMPLAINT
AFTER ALMOST TWO YEARS FROM THE DATE OF THE
AUCTION SALE.25
The main issue before us is whether or not the requirements of
Act No. 3135 were complied with in the May 29, 1981
foreclosure sale.
The governing law for extrajudicial foreclosures is Act No. 3135
as amended by Act No. 4118. The provision relevant to this
case is Section 3, which provides:
SEC. 3. Notice shall be given by posting notices of the sale for
not less than twenty (20) days in at least three public places of
the municipality or city where the property is situated, and if
such property is worth more than four hundred pesos, such
notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the
municipality of city.
It is a well-settled rule that statutory provisions governing
publication of notice of mortgage foreclosure sales must be
strictly complied with, and that even slight deviations therefrom
will invalidate the notice and render the sale at least
voidable.26 In a number of cases, we have consistently held
that failure to advertise a mortgage foreclosure sale in
compliance with statutory requirements constitutes a
jurisdictional defect invalidating the sale.27 Consequently, such
defect renders the sale absolutely void and no title passes.28
Petitioner, however, insists that there was substantial
compliance with the publication requirement, considering that
prior publication and posting of the notice of the first date were
made.
In Tambunting v. Court of Appeals,29 we held that
republication in the manner prescribed by Act No. 3135 is
necessary for the validity of a postponed extrajudicial
foreclosure sale. Thus we stated:
Where required by the statute or by the terms of the
foreclosure decree, public notice of the place and time of the
mortgage foreclosure sale must be given, a statute requiring it
being held applicable to subsequent sales as well as to the first
advertised sale of the property. [emphasis supplied].
Petitioner further contends that republication may be waived
voluntarily by the parties.30
93
This argument has no basis in law. The issue of whether
republication may be waived is not novel, as we have passed
upon the same query in Philippine National Bank v.
Nepomuceno Productions Inc,.31 Petitioner therein sought
extrajudicial foreclosure of respondent's mortgaged properties
with the Sheriff's Office of Pasig, Rizal. Initially scheduled on
August 12, 1976, the auction sale was rescheduled several
times without republication of the notice of sale, as stipulated in
their Agreements to Postpone Sale. Finally, the auction sale
proceeded on December 20, 1976, with petitioner as the
highest bidder. Aggrieved, respondents sued to nullify the
foreclosure sale. The trial court declared the sale void for non-
compliance with Act No. 3135. This decision was affirmed in
toto by the Court of Appeals. Upholding the conclusions of the
trial and appellate court, we categorically held:
Petitioner and respondents have absolutely no right to waive
the posting and publication requirements of Act No. 3135.
In People v. Donato, the Court expounded on what rights and
privileges may be waived, viz.:
xxx xxx xxx
[T]he principle is recognized that everyone has a right to waive,
and agree to waive, the advantage of a law or rule made solely
for the benefit and protection of the individual in his private
capacity, if it can be dispensed with and relinquished without
infringing on any public right, and without detriment to the
community at large.
xxx xxx xxx
Although the general rule is that any right or privilege conferred
by statute or guaranteed by constitution may be waived, a
waiver in derogation of a statutory right is not favored, and a
waiver will be inoperative and void if it infringes on the rights of
others, or would be against public policy or morals and the
public interest may be waived.
xxx xxx xxx
The principal object of a notice of sale in a foreclosure of
mortgage is not so much to notify the mortgagor as to inform
the public generally of the nature and condition of the property
to be sold, and of the time, place, and terms of the sale.
Notices are given to secure bidders and prevent a sacrifice of
the property. Clearly, the statutory requirements of posting and
publication are mandated, not for the mortgagor's benefit, but
for the public or third persons. In fact, personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not even
necessary, unless stipulated. As such, it is imbued with public
policy considerations and any waiver thereon would be
inconsistent with the intent and letter of Act No. 3135.
Publication, therefore, is required to give the foreclosure sale a
reasonably wide publicity such that those interested might
attend the public sale.32 To allow the parties to waive this
jurisdictional requirement would result in converting into a
private sale what ought to be a public auction.
Moreover, assuming arguendo that the written waivers are
valid, we find noticeable flaws that would nevertheless
invalidate the foreclosure proceedings. First, the Agreements,
as worded, only waived "further republication of the notice of
sale." Nothing in the Agreements indicates that the parties
likewise dispensed with the reposting of the notices of sale. As
there was no reposting of notice of the May 29, 1981 sale, the
foreclosure fell short of the requirements of Act No. 3135.
Second, we observe that the Agreements were executed and
filed with the sheriff several days after each rescheduled date.
As stated in the facts, the first agreement was timely filed, two
days prior to the originally scheduled sale on December 5,
1980. The second agreement, however, was executed and
filed eight days after the rescheduled sale on February 5, 1981.
The third agreement was executed and filed ten days after the
rescheduled sale on February 28, 1981. The fourth agreement
was timely executed, but was filed with the sheriff one month
after the rescheduled sale on March 30, 1981. On the
rescheduled dates, therefore, no public sale occurred, nor was
there any request to postpone filed with the sheriff, except for
the first one. In short, the Agreements are clearly defective for
having been belatedly executed and filed with the sheriff. The
party who may be said to be at fault for this failure, and who
should bear the consequences, is no other than PNB, the
mortgagee in the case at bar. It is the mortgagee who causes
the mortgaged property to be sold, and the date of sale is fixed
upon his instruction.33 We have held that the mortgagee's right
to foreclose a mortgage must be exercised according to the
clear mandate of the law. Every requirement of the law must be
complied with, lest the valid exercise of the right would end.34
PNB's inaction on the scheduled date of sale and belated filing
of requests to postpone may be deemed as an abandonment
of the petition to foreclose it filed with the sheriff. Consequently,
its right to foreclose the mortgage based on said petition
lapsed.
In a vain attempt to uphold the validity of the aforesaid waiver,
petitioner asserts that the Court of Appeals should have
applied Rule 39, Section 24 of the Rules of Court, which allows
adjournment of execution sales by agreement of the parties.
The said provision provides:
Sec. 24. Adjournment of Sale — By written consent of debtor
and creditor, the officer may adjourn any sale upon execution
to any date agreed upon in writing by the parties. Without such
agreement, he may adjourn the sale from day to day, if it
becomes necessary to do so for lack of time to complete the
sale on the day fixed in the notice.35
Petitioner submits that the language of the abovecited
provision implies that the written request of the parties suffices
to authorize the sheriff to reset the sale without republication or
reposting.36
At the outset, distinction should be made of the three different
kinds of sales under the law, namely: an ordinary execution
sale, a judicial foreclosure sale, and an extrajudicial foreclosure
sale. An ordinary execution sale is governed by the pertinent
provisions of Rule 39 of the Rules of Court. Rule 68 of the
Rules of Court applies in cases of judicial foreclosure sale. On
the other hand, Act No. 3135, as amended by Act No. 4118
otherwise known as "An Act to Regulate the Sale of Property
under Special Powers Inserted in or Annexed to Real Estate
Mortgages" applies in cases of extrajudicial foreclosure sale. A
different set of law applies to each class of sale mentioned.37
The cited provision in the Rules of Court hence does not apply
to an extrajudicial foreclosure sale.
Moreover, even assuming that the aforecited provision applies,
all it authorizes is the adjournment of the execution sale by
agreement of the parties. Nowhere does it state that
republication and reposting of notice for the postponed sale
may be waived. Thus, it cannot, by any means, sanction the
waiver in the case at bar.
Next, petitioner maintains that Julieta's act of requesting the
postponement and repeatedly signing the Agreements had
94
placed her under estoppel, barring her from challenging the SO ORDERED.
lack of publication of the auction sale.38

We rule otherwise. Julieta did request for the postponement of

the foreclosure sale to extend the period to settle her
obligation.39 However, the records do not show that she
requested the postponement without need of republication and
reporting of notice of sale. In Nepomuceno,40 we held:

. . . To request postponement of the sale is one thing; to

request it without need of compliance with the statutory
requirements is another. Respondents, therefore, did not
commit any act that would have estopped them from
questioning the validity of the foreclosure sale for non-
compliance with Act No. 3135. . . .

In addition, we observe herein that the Agreements prepared

by the counsel of PNB were in standard forms of the bank,
labeled as "Legal Form No.41." The Nepomuceno41 case
likewise involved an "Agreement to Postpone Sale" that was in
a ready-made form, and the only participation of respondents
therein was to affix or "adhere" their signatures thereto. We
therefore held that said agreement partakes of the nature of a
contract of adhesion, i.e., one in which one of the contracting
parties imposes a ready-made form of contract which the other
party may accept or reject, but cannot modify. One party
prepares the stipulation in the contract, while the other party
merely affixes his signature or his "adhesion" thereto, giving no
room for negotiation, and depriving the latter of the opportunity
to bargain on equal footing.42 As such, their terms are
construed strictly against the party who drafted it.43

More importantly, the waiver being void for being contrary to

the express mandate of Act No. 3135, such cannot be ratified
by estoppel.44 Estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy.45 Neither
can the defense of illegality be waived.46

Petitioner, moreover, makes much of the fact that Julieta filed

her complaint with the trial court after almost two years from
the May 29, 1981 auction sale, thus arguing that the delayed
filing was a clear case of laches.47

Laches is 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.48 In the
case at bar, Julieta only realized the defect in the foreclosure
sale upon conferring with her counsel who discovered the
irregularity.49 Thus, on March 25, 1983, Julieta filed her
adverse claim with the Registrar of Deeds.50 Three days after,
she sent demand letters to PNB and petitioner.51 Soon after
they replied on April 6 and 7, 1983,52 she promptly sued to
nullify the foreclosure sale in the Regional Trial Court of
Mandaue City on April 20, 1983.53 She likewise filed a suit for
forcible entry against petitioner in the Municipal Trial Court of
Mandaue City.54 Considering all these, we find the delay of
almost two years not unreasonable. Julieta cannot be guilty of
laches. Her prompt actions upon discovering her cause of
action negate the claim that she has abandoned her right to
claim the properties. Besides, this defense lacks merit in light
of the Civil Code stating that an action or defense for the
declaration of the inexistence of a contract does not
prescribe.55

WHEREFORE, premises considered, the Decision dated

February 17, 1997 in CA-G.R. CV No. 33499 and the
Resolution therein dated April 15, 1997 are AFFIRMED. No
costs.

95
G.R. No. 133366 August 5, 1999
UNIONBANK OF THE PHILIPPINES, petitioner,
vs.
THE COURT OF APPEALS and FERMINA S. DARIO and
REYNALDO S. DARIO, respondents.
DAVIDE, JR., CJ.:
Unionbank of the Philippines (hereafter UNIONBANK) appeals,
by way of certiorari, the Decision1 of the Court of Appeals (CA)
of 26 June 1997 and its Resolution of 7 April 19982. The CA
nullified the Regional Trial Court's (RTC) Order3 of 7 August
1995 denying private respondents' application for preliminary
injunction as UNIONBANK's consolidation of ownership
divested private respondents of their property without due
process of law. It also ordered the register of deeds to cancel
UNIONBANK's title and the trial court to hear private
respondents prayer for injunctive relief.1âwphi1.nêt
This case stemmed from a real estate mortgage executed on
17 December 1991 by spouses Leopoldo and Jessica Dario
(hereafter mortgagors) in favor of UNIONBANK to secure a P3
million loan, including interest and other charges. The
mortgage covered a Quezon City property with Transfer
Certificate of Title (TCT) No. 41828 in Leopoldo Dario's name
and was annotated on the title on 18 December 1991. For non-
payment of the principal obligation, UNIONBANK extrajudicially
foreclosed the property mortgaged on 12 August 1993 and sold
the same at public auction, with itself posting the highest bid.
On 4 October 1994, one week before the one-year redemption
period expired, private respondents filed a complaint with the
RTC of Quezon City against the mortgagors, UNIONBANK, the
Register of Deeds and the City Sheriff of Quezon City.
Docketed as Civil Case No. Q-94-21830, the complaint was for
annulment of sale and real estate mortgage reconveyance and
prayer for restraining notice of lis pendens was annotated on
the title.
On 10 October 1994, RTC, Branch 81, through Presiding
Judge (later CA Justice) Celia Lipana-Reyes, issued a
temporary restraining order (TRO) enjoining the redemption of
property within the statutory period and its consolidation under
UNIONBANK's name. At a hearing four days later,
UNIONBANK's counsel orally moved for dismissal of the
complaint alleging that a certification of non-forum shopping-is
prescribed by SC-Circular 4-944 was not attached thereto.
Judge Lipana-Reyes settled the motion in favor of
UNIONBANK and dismissed5 the complaint on 17 October
1994.
Aggrieved, private respondents filed a motion for
reconsideration6 of the dismissal on 20 October 1994 and
prayed that they be permitted to amend their verified complaint
to comply with the requisites of Circular 4-94. Upon the
appointment of Judge Lipana-Reyes to the CA, pairing Judge
Agustin S. Dizon took over the case and on 15 November 1994
allowed private respondents to incorporate the mandatory
formal requirements of SC Administrative Circular 4-94 to their
complaint.
In the meantime, without notifying private respondents,
UNIONBANK consolidated its title over the foreclosed property
on 24 October 1994, TCT No. 41828 was cancelled and TCT
No. 120929 in UNIONBANK's name was issued in its stead.
Private respondents filed an amended complaint7 on 9
December 1994, alleging that they, not the mortgagors, are the
true owners of the property mortgaged and insisting on the
invalidity of both the mortgage and its subsequent extrajudicial
foreclosure. They claimed that the original title, TCT No.
61571, was entrusted to a certain Atty. Reynaldo Singson
preparatory to its administrative reconstitution after a fire gutted
the Quezon City Hall building. Mortgagor Leopoldo, private
respondent Fermina's son, obtained the property from Atty.
Singson, had the title reconstituted under his name without
private respondents' knowledge, executed an ante-dated deed
of sale in his favor and mortgaged the property to
UNIONBANK.
On 19 December 1994, Judge Ignacio M. Capulong to whom
this case was assigned admitted the aforementioned amended
complaint and set the application for writ of preliminary
injunction for hearing. After UNIONBANK's motion for
reconsideration of said Order was denied on 17 January 1995,
it filed a petition for certiorari with the CA questioning the
admission of the amended complaint. The CA upheld Judge
Capulong's order admitting the amended complaint on 24 April
1995, UNIONBANK thereafter elevated its cause to this Court.
Meanwhile, on 9 February 1995 UNIONBANK filed its answer
ad cautelam asserting its status as an innocent mortgagee for
value whose right or lien upon the property mortgaged must be
respected even if, the mortgagor obtained his title through
fraud. It also averred that the action had become "moot and
academic by the consolidation of the foreclosed property on 24
October 1994" in its name, resulting to the issuance of TCT
No. 120929 by the Register of Deeds of Quezon City. In
reaction to UNIONBANK's revelation, private respondents
moved to declare UNIONBANK's counsel in indirect contempt
attacking his disobedience to the TRO.
On 19 May 1995, private respondents moved to declare the
other defendants in default for their non-filing of responsive
pleadings within the mandatory period and to set the
application for preliminary injunction and indirect contempt for
pre-trial and trial.
On 14 June 1995 the second division of this Court denied the
petition for certiorari, which it considered as a petition for
review under Rule 45, "for failure to show that the CA had
committed any reversible error" in judgment.
In its 19 August 1995 Order, the RTC held the mortgagors and
the City Sheriff of Quezon City in default and sustained
UNIONBANK's contention that the act sought to be enjoined
had been enforced, negating the need of hearing the
application for preliminary injunction. Private respondents filed
a lengthy motion for reconsideration to this Order.
The annulment case was re-raffled to Branch 227 under
Presiding Judge Vicente Q. Roxas upon the creation of new
salas. Judge Roxas, on 25 March 1996, denied the motion to
reconsider the 19 August 1995 Order but suggested that
private respondents amend their application from prohibitory to
mandatory injunction.
As private respondents were unable to amend their application,
the RTC denied the motion for reconsideration and their motion
for indirect contempt, "in the interest of free speech and
tolerance" on 9 July 1996. Asserting grave abuse of discretion,
private respondents brought the denial of their motion for
reconsideration with the Court of Appeals on 6 September
1996.
After considering the arguments presented by the parties, the
CA ruled that despite its knowledge that the ownership of the
96
property was being questioned, UNIONBANK took advantage
of private respondents' procedural error by consolidating title to
the property, which "smack[ed] of bad faith" and "evince[d] a
reprobate disposition of the part of its counsel to advance his
client's cause by fair means or foul." As a result thereof the
transfer of title was vitiated by non-adherence to procedural
due process.8
On 26 June 1997, CA nullified the consolidation of ownership,
ordered the Register of Deeds to cancel the certificate of title in
UNIONBANK's name and to reinstate TCT No. 41828 with the
notice of lis pendens annotated at the back. The CA also set
aside the portion of the assailed RTC Orders that declared
private respondents' prayer for writ of preliminary injunction as
moot and academic. UNIONBANK's motion for reconsideration
of the above-mentioned decision was likewise rejected for lack
of merit on 7 April 1998.
Hence, UNIONBANK came to this Court claiming to be a
mortgagee in good faith and for value with a right to
consolidate ownership over the foreclosed property with the
redemption period having expired and there having been no
redemptioners. UNIONBANK contends that the TRO which
provisionally enjoined the tolling of the redemption period was
automatically dissolved upon dismissal of the complaint on 17
October 1994. Conformably, consolidation of title in its name
and the issuance of TCT No. 120929 rendered further
proceedings on the application for injunction academic.
Moreover, the alleged fraudulent mortgage was facilitated
through private respondents' negligence so they must bear the
loss. It also contends that since private respondents had filed
several pleadings, due process, being an opportunity to be
heard either through pleadings or oral arguments, was
observed.
Private respondents maintain that UNIONBANK's consolidation
of the title in its name was in bad faith, vitiated a standing court
order, is against the law, thus void ab initio. The application for
preliminary injunction was not rendered moot and academic by
consolidation, which took place during the lifetime of the TRO,
and did not follow the proper legal procedure due to the
surreptitious manner it was accomplished. By treating the
application for preliminary injunction as moot and academic
and denying the motion for indirect contempt without hearing,
the RTC order ran afoul with the requirements of due process.
Two main issues can be gleaned from the posturing and claims
of the parties, to wit, was the consolidation of title in
UNIONBANK's name proper, and was the dismissal of the
application for preliminary prohibitory injunction valid.
The issues must be answered in the affirmative.
UNIONBANK's consolidation of title over the property on 24
October 1994 was proper, though precipitate. Contrary to
private respondents' allegation UNIONBANK violated no
standing court order. The only bar to consolidation was the
temporary restraining order issued by Justice Lipana-Reyes on
10 October 1994 which effectively halted the tolling of the
redemption period 7 days short of its expiration. When private
respondents' original complaint was dismissed on 17 October
1994 for failure to append a certification of non-forum
shopping, the TRO, as an ancillary order that cannot stand
independent of the main proceeding, became functus officio.
Thus the tolling of the 12-month redemption period, interrupted
by the filing of the complaint and the TRO, recommenced and
eventually expired 7 days thereafter or on 24 October 1994,
the date of the disputed consolidation.
The motion for reconsideration and to amend complaint filed by
private respondent on 20 October 1994 was of no moment, this
Court recognizing that "a dismissal, discontinuance or non-suit
of an action in which a restraining order or temporary injunction
has been granted operates as a dissolution of the restraining
order or temporary injunction,"9 regardless of whether the
period for filing a motion for reconsideration of the order
dismissing the case or appeal therefrom has expired.10 The
rationale therefor is that even in cases where an appeal is
taken from a judgment dismissing an action on the merits, the
appeal does not suspend the judgment, hence the general rule
applies that a temporary injunction terminates automatically on
the dismissal of the action.11
We disagree with the appellate court's observation that
consolidation deprived private respondents of their property
without due process. It is settled that the buyer in a foreclosure
sale becomes the absolute owner of the property purchased if
it is not redeemed during the period of one year after the
registration of the sale.12 Consolidation took place as a matter
of right since there was no redemption of the foreclosed
property and the TRO expired upon dismissal of the complaint.
UNIONBANK need not have informed private respondent that it
was consolidaint its title over the property, upon the expiration
of the redemption period, without the judgment debtor having
made use of his right of redemption, the ownership of the
property sold becomes consolidated in the purchaser.13 Notice
to the mortgagors and with more reason, to private
respondents who are not even parties to the mortgage contract
nor to the extra judicial sale is not necessary.
In real estate mortgage, when the principal obligation is not
paid when due, the mortgage has the right to foreclose the
mortgage and to have the property seized and sold with a view
to applying the proceeds to the payment of the principal
obligation.14 Foreclosure may be effected either judicially or
extrajudicially.
In a public bidding during extra-judicial foreclosure, the creditor
—mortgagee, trustee, or other person authorized to act for the
creditor may participate and purchase the mortgaged property
as any other bidder. Thereafter the mortgagor has one year
within which to redeem the property from and after registration
of sale with the Register of Deeds.15 In case of non-
redemption, the purchaser at foreclosure sale shall file with the
Register of Deeds, either a final deed of sale executed by the
person authorized by virtue of the power of attorney embodied
in the deed or mortgage, or his sworn statement attesting to
the fact of non-redemption; whereupon, the Register of Deeds
Shall issue a new certificate of title in favor of the purchaser
after the owner's duplicate of the certificate has been
previously delivered and canceled.16 Thus, upon failure to
redeem foreclosed realty, consolidation of title becomes a
matter of right on the part of the auction buyer,17 and the
issuance of a certificate of title in favor of the purchaser
becomes ministerial upon the Register of Deeds.
There is, moreover, nothing erroneous with the denial of
private respondents' application for preliminary prohibitory
injunction. The acts complained of have already been
consummated. It is impossible to restrain the performance of
consummated acts through the issuance of prohibitory
injunction. When the act sought to be prevented had long been
consummated, the remedy of injunction could no longer be
entertained,18 hearing the application for preliminary injunction
would just be an exercise in futility.
97
In addition, to be entitled to the injunctive writ, movant must
show that there exists a right to be protected which is directly
threatened by an act sought to be enjoined. Furthermore, there
must be a showing that the invasion of the right is material and
substantial and that there is an urgent and paramount
necessity for the writ to prevent a serious damage.19 The
injunctive remedy prevents a threatened or continuous
irremediable injury to some of the parties before their claim can
be thoroughly investigated and advisedly adjudicated; it is
resorted to only when there is a pressing necessity to avoid
injurious consequences which cannot be remedied under any
standard compensation.20

In the case at bar, the consolidation of ownership over the

mortgaged property in favor of UNIONBANK and the issuance
of a new title in its name during the pendency of an action for
annulment and reconveyance will not cause irreparable injury
to private respondents who are plaintiffs in the said preliminary
injunction. This is because .as purchaser at a public auction,
UNIONBANK is only substituted to and acquires the right, title,
interest and claim of the judgment debtors or mortgagors to the
property at the time of levy.21 Perforce, the judgment in the
main action for reconveyance will not be rendered ineffectual
by the consolidation of ownership and the issuance of title in
the name of UNIONBANK.

More importantly, with the main action for reconveyance

pending before the RTC, the notice of lis pendens, which
despite consolidation remains annotated on UNIONBANK's
transfer certificate of title subject to the outcome of the
litigation, sufficiently protects private respondents interest over
the property. A transferee pendente lite stands exactly in the
shoes of the transferor and is bound by any judgment or
decree which may be rendered for or against the transferor.
Once a notice of lis pendens has been duly registered, any
cancellation or issuance of the title of the land involved as well
as any subsequent transaction affecting the same, would have
to be subject to the outcome of the litigation. In other words,
upon the termination of the litigation there can be no risk of
losing the property or any part thereof as a result of any
conveyance of the land or any encumbrance that may be made
thereon posterior to the filing of the notice of lis pendens.22

Finally, as to the issue of who between private respondents

and UNIONBANK is negligent and hence must bear the loss,
the same is not the proper subject of the present petition and
can only be resolved by the trial court after the trial on the merit
of the main case.

WHEREFORE, the assailed Decision of the Court of Appeals

of 26 June 1997 nullifying the consolidation of ownership and
ordering the Register of Deeds of Quezon City to cancel TCT
No. 120929 and reinstate TCT No. 41828 is hereby
REVERSED and SET ASIDE. The order of the trial court dated
7 August 1999, declaring UNIONBANK's prayer for writ of
preliminary injunction moot and academic, is hereby
REINSTATED. Let this case be remanded to the Regional Trial
Court for trial on the merits.

No pronouncement as to costs.1âwphi1.nêt

SO ORDERED.

98
CUA LAI CHU, CLARO G. CASTRO, G.R. No. 169190
and JUANITA CASTRO,
Petitioners, Present:
CARPIO, J., Chairperson,
- versus - BRION,
DEL CASTILLO,
ABAD, and
HON. HILARIO L. LAQUI, Presiding PEREZ, JJ.
Judge, Regional Trial Court, Branch 218,
Quezon City and PHILIPPINE BANK Promulgated:
OF COMMUNICATION,
Respondents. February 11, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
------x
DECISION
CARPIO, J.:
The Case
This is a petition for review[1] of the 29 April 2005 and 4
August 2005 Resolutions[2] of the Court of Appeals in CA-G.R.
SP No. 88963. In its 29 April 2005 Resolution, the Court of
Appeals dismissed the petition for certiorari[3] of petitioner
spouses Claro G. Castro and Juanita Castro and petitioner
Cua Lai Chu (petitioners). In its 4 August 2005 Resolution, the
Court of Appeals denied petitioners motion for reconsideration.
The Facts
In November 1994, petitioners obtained a loan in the amount of
P3,200,000 from private respondent Philippine Bank of
Communication. To secure the loan, petitioners executed in
favor of private respondent a Deed of Real Estate Mortgage[4]
over the property of petitioner spouses covered by Transfer
Certificate of Title No. 22990. In August 1997, petitioners
executed an Amendment to the Deed of Real Estate
Mortgage[5] increasing the amount of the loan by P1,800,000,
bringing the total loan amount to P5,000,000.
For failure of petitioners to pay the full amount of the
outstanding loan upon demand,[6] private respondent applied
for the extrajudicial foreclosure of the real estate mortgage.[7]
Upon receipt of a notice[8] of the extrajudicial foreclosure sale,
petitioners filed a petition to annul the extrajudicial foreclosure
sale with a prayer for temporary restraining order (TRO). The
petition for annulment was filed in the Regional Trial Court of
Quezon City and docketed as Q-02-46184.[9]
The extrajudicial foreclosure sale did not push through as
originally scheduled because the trial court granted petitioners
prayer for TRO. The trial court subsequently lifted the TRO and
reset the extrajudicial foreclosure sale on 29 May 2002. At the
foreclosure sale, private respondent emerged as the highest
bidder. A certificate of sale[10] was executed on 4 June 2002
in favor of private respondent. On 7 June 2002, the certificate
of sale was annotated as Entry No. 1855[11] on TCT No.
22990 covering the foreclosed property.
After the lapse of the one-year redemption period, private
respondent filed in the Registry of Deeds of Quezon City an
affidavit of consolidation to consolidate its ownership and title
to the foreclosed property. Forthwith, on 8 July 2003, the
Register of Deeds cancelled TCT No. 22990 and issued in its
stead TCT No. 251835[12] in the name of private respondent.
On 18 August 2004, private respondent applied for the
issuance of a writ of possession of the foreclosed property.[13]
Petitioners filed an opposition.[14] The trial court granted
private respondents motion for a declaration of general default
and allowed private respondent to present evidence ex parte.
The trial court denied petitioners notice of appeal.
Undeterred, petitioners filed in the Court of Appeals a petition
for certiorari. The appellate court dismissed the petition. It also
denied petitioners motion for reconsideration.
The Orders of the Trial Court
The 8 October 2004 Order[15] granted private respondents
motion for a declaration of general default and allowed private
respondent to present evidence ex parte. The 6 January 2005
Order[16] denied petitioners motion for reconsideration of the
prior order. The 24 February 2005 Order[17] denied petitioners
notice of appeal.
The Ruling of the Court of Appeals
The Court of Appeals dismissed on both procedural and
substantive grounds the petition for certiorari filed by
petitioners. The appellate court noted that the counsel for
petitioners failed to indicate in the petition the updated PTR
Number, a ground for outright dismissal of the petition under
Bar Matter No. 1132. Ruling on the merits, the appellate court
held that a proceeding for the issuance of a writ of possession
is ex parte in nature. As such, petitioners right to due process
was not violated even if they were not given a chance to file
their opposition. The appellate court also ruled that there was
no violation of the rule against forum shopping since the
application for the issuance of a writ of possession is not
affected by a pending case questioning the validity of the
extrajudicial foreclosure sale.
The Issue
Petitioners raise the question of whether the writ of possession
was properly issued despite the pendency of a case
questioning the validity of the extrajudicial foreclosure sale and
despite the fact that petitioners were declared in default in the
proceeding for the issuance of a writ of possession.
The Courts Ruling
The petition has no merit.
Petitioners contend they were denied due process of law when
they were declared in default despite the fact that they had filed
99
their opposition to private respondents application for the
issuance of a writ of possession. Further, petitioners point out
that the issuance of a writ of possession will deprive them not
only of the use and possession of their property, but also of its
ownership. Petitioners cite Bustos v. Court of Appeals[18] and
Vda. De Legaspi v. Avendao[19] in asserting that physical
possession of the property should not be disturbed pending the
final determination of the more substantial issue of ownership.
Petitioners also allege forum shopping on the ground that the
application for the issuance of a writ of possession was filed
during the pendency of a case questioning the validity of the
extrajudicial foreclosure sale.
Private respondent, on the other hand, maintains that the
application for the issuance of a writ of possession in a
foreclosure proceeding is ex parte in nature. Hence, petitioners
right to due process was not violated even if they were not
given a chance to file their opposition. Private respondent
argues that the issuance of a writ of possession may not be
stayed by a pending case questioning the validity of the
extrajudicial foreclosure sale. It contends that the former has
no bearing on the latter; hence, there is no violation of the rule
against forum shopping. Private respondent asserts that there
is no judicial determination involved in the issuance of a writ of
possession; thus, the same cannot be the subject of an appeal.
At the outset, we must point out that the authorities relied upon
by petitioners are not in point and have no application here. In
Bustos v. Court of Appeals,[20] the Court simply ruled that the
issue of possession was intertwined with the issue of
ownership in the consolidated cases of unlawful detainer and
accion reinvindicatoria. In Vda. De Legaspi v. Avendao,[21] the
Court merely stated that in a case of unlawful detainer,
physical possession should not be disturbed pending the
resolution of the issue of ownership. Neither case involved the
right to possession of a purchaser at an extrajudicial
foreclosure of a mortgage.
Banco Filipino Savings and Mortgage Bank v. Pardo[22]
squarely ruled on the right to possession of a purchaser at an
extrajudicial foreclosure of a mortgage. This case involved a
real estate mortgage as security for a loan obtained from a
bank. Upon the mortgagors default, the bank extrajudicially
foreclosed the mortgage. At the auction sale, the bank was the
highest bidder. A certificate of sale was duly issued and
registered. The bank then applied for the issuance of a writ of
possession, which the lower court dismissed. The Court
reversed the lower court and held that the purchaser at the
auction sale was entitled to a writ of possession pending the
lapse of the redemption period upon a simple motion and upon
the posting of a bond.
In Navarra v. Court of Appeals,[23] the purchaser at an
extrajudicial foreclosure sale applied for a writ of possession
after the lapse of the one-year redemption period. The Court
ruled that the purchaser at an extrajudicial foreclosure sale has
a right to the possession of the property even during the one-
year redemption period provided the purchaser files an
indemnity bond. After the lapse of the said period with no
redemption having been made, that right becomes absolute
and may be demanded by the purchaser even without the
posting of a bond. Possession may then be obtained under a
writ which may be applied for ex parte pursuant to Section 7 of
Act No. 3135,[24] as amended by Act No. 4118,[25] thus:
SEC. 7. In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance of the
province or place where the property or any part thereof is
situated, to give him possession thereof during the redemption
period, furnishing bond in an amount equivalent to the use of
the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without
violating the mortgage or without complying with the
requirements of this Act. Such petition shall be made under
oath and filed in form of an ex parte motion x x x and the court
shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order
immediately. (Emphasis supplied)
In the present case, the certificate of sale of the foreclosed
property was annotated on TCT No. 22990 on 7 June 2002.
The redemption period thus lapsed on 7 June 2003, one year
from the registration of the sale.[26] When private respondent
applied for the issuance of a writ of possession on 18 August
2004, the redemption period had long lapsed. Since the
foreclosed property was not redeemed within one year from the
registration of the extrajudicial foreclosure sale, private
respondent had acquired an absolute right, as purchaser, to
the writ of possession. It had become the ministerial duty of the
lower court to issue the writ of possession upon mere motion
pursuant to Section 7 of Act No. 3135, as amended.
Moreover, once ownership has been consolidated, the
issuance of the writ of possession becomes a ministerial duty
of the court, upon proper application and proof of title.[27] In
the present case, when private respondent applied for the
issuance of a writ of possession, it presented a new transfer
certificate of title issued in its name dated 8 July 2003. The
right of private respondent to the possession of the property
was thus founded on its right of ownership. As the purchaser of
the property at the foreclosure sale, in whose name title over
the property was already issued, the right of private respondent
over the property had become absolute, vesting in it the
corollary right of possession.
Petitioners are wrong in insisting that they were denied due
process of law when they were declared in default despite the
fact that they had filed their opposition to the issuance of a writ
of possession. The application for the issuance of a writ of
possession is in the form of an ex parte motion. It issues as a
matter of course once the requirements are fulfilled. No
discretion is left to the court.[28]
Petitioners cannot oppose or appeal the courts order granting
the writ of possession in an ex parte proceeding. The remedy
of petitioners is to have the sale set aside and the writ of
possession cancelled in accordance with Section 8 of Act No.
3135, as amended, to wit:
SEC. 8. The debtor may, in the proceedings in which
possession was requested, but not later than thirty days after
the purchaser was given possession, petition that the sale be
set aside and the writ of possession cancelled, specifying the
damages suffered by him, because the mortgage was not
violated or the sale was not made in accordance with the
provisions hereof. x x x
Any question regarding the validity of the extrajudicial
foreclosure sale and the resulting cancellation of the writ may
be determined in a subsequent proceeding as outlined in
Section 8 of Act No. 3135, as amended. Such question should
not be raised as a justification for opposing the issuance of a
writ of possession since under Act No. 3135, as amended, the
proceeding for this is ex parte.
100
Further, the right to possession of a purchaser at an
extrajudicial foreclosure sale is not affected by a pending case
questioning the validity of the foreclosure proceeding. The
latter is not a bar to the former. Even pending such latter
proceeding, the purchaser at a foreclosure sale is entitled to
the possession of the foreclosed property.[29]

Lastly, we rule that petitioners claim of forum shopping has no

basis. Under Act No. 3135, as amended, a writ of possession
is issued ex parte as a matter of course upon compliance with
the requirements. It is not a judgment on the merits that can
amount to res judicata, one of the essential elements in forum
shopping.[30]

The Court of Appeals correctly dismissed the petition for

certiorari filed by petitioners for lack of merit.

WHEREFORE, we DENY the petition for review. We AFFIRM

the 29 April 2005 and 4 August 2005 Resolutions of the Court
of Appeals in CA-G.R. SP No. 88963.

SO ORDERED.

101
ELIGIO P. MALLARI, G.R. No. 157659
Petitioner,
Present:
PUNO,
Chairperson,
-versus-
MORALES,
LEONARDO-DE
CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.
GOVERNMENT SERVICE
INSURANCE SYSTEM and
THE PROVINCIAL SHERIFF Promulgated:
OF PAMPANGA,
Respondents. January 25, 2010
x----------------------------------------------------------------------------------
-------x
DECISION
BERSAMIN, J.:
By petition for review on certiorari, the petitioner appeals the
decision promulgated on March 17, 2003, whereby the Court of
Appeals (CA) dismissed his petition for certiorari.
Antecedents
In 1968, the petitioner obtained two loans totaling P34,000.00
from respondent Government Service Insurance System
(GSIS). To secure the performance of his obligations, he
mortgaged two parcels of land registered under his and his
wife Marcelina Mallari’s names. However, he paid GSIS about
ten years after contracting the obligations only P10,000.00 on
May 22, 1978 and P20,000.00 on August 11, 1978.[1]
What followed thereafter was the series of inordinate moves of
the petitioner to delay the efforts of GSIS to recover on the
debt, and to have the unhampered possession of the
foreclosed property.
After reminding the petitioner of his unpaid obligation on May 2,
1979, GSIS sent on November 2, 1981 a telegraphic demand
to him to update his account. On November 10, 1981, he
requested a final accounting, but did not do anything more.
Nearly three years later, on March 21, 1984, GSIS applied for
the extrajudicial foreclosure of the mortgage by reason of his
failure to settle his account. On November 22, 1984, he
requested an updated computation of his outstanding account.
On November 29, 1984, he persuaded the sheriff to hold the
publication of the foreclosure notice in abeyance, to await
action on his pending request for final accounting (that is,
taking his payments of P30,000.00 made in 1978 into account).
On December 13, 1984, GSIS responded to his request and
rendered a detailed explanation of the account. On May 30,
1985, it sent another updated statement of account. On July
21, 1986, it finally commenced extrajudicial foreclosure
proceedings against him because he had meanwhile made no
further payments.
C.J., On August 22, 1986, the petitioner sued GSIS and the
Provincial Sheriff of Pampanga in the Regional Trial Court
(RTC), Branch 44, in San Fernando, Pampanga, docketed as
CARPIO- Civil Case No. 7802,[2] ostensibly to enjoin them from
proceeding against him for injunction (with an application for
preliminary injunction). The RTC ultimately decided Civil Case
No. 7802 in his favor, nullifying the extrajudicial foreclosure and
auction sale; cancelling Transfer Certificate of Title (TCT) No.
284272-R and TCT No. 284273-R already issued in the name
of GSIS; and reinstating TCT No. 61171-R and TCT No.
54835-R in his and his wife’s names.[3]
GSIS appealed the adverse decision to the CA, which reversed
the RTC on March 27, 1996.[4]
The petitioner elevated the CA decision to this Court via
petition for review on certiorari (G.R. No. 124468).[5]
On September 16, 1996, this Court denied his petition for
review.[6] On January 15, 1997, this Court turned down his
motion for reconsideration.[7]
As a result, the CA decision dated March 27, 1996 became
final and executory, rendering unassailable both the
extrajudicial foreclosure and auction sale held on September
22, 1986, and the issuance of TCT No. 284272-R and TCT No.
284273-R in the name of GSIS.
GSIS thus filed an ex parte motion for execution and for a writ
of possession on September 2, 1999.[8] Granting the ex parte
motion on October 8, 1999,[9] the RTC issued a writ of
execution cum writ of possession on October 21, 1999,[10]
ordering the sheriff to place GSIS in possession of the
properties.
The sheriff failed to serve the writ, however, partly because of
the petitioner’s request for an extension of time within which to
vacate the properties. It is noted that GSIS acceded to the
request.[11]
Yet, the petitioner did not voluntarily vacate the properties, but
instead filed a motion for reconsideration and/or to quash the
writ of execution on March 27, 2000.[12] Also, the petitioner
commenced a second case against GSIS and the provincial
sheriff in the RTC in San Fernando, Pampanga (Civil Case No.
12053), ostensibly for consignation (coupled with a prayer for a
writ of preliminary injunction or temporary restraining order).
However, the RTC dismissed Civil Case No. 12053 on
November 10, 2000 on the ground of res judicata, impelling
him to appeal the dismissal to the CA (C.A.-G.R. CV No.
70300).[13]
In the meanwhile, the petitioner filed a motion dated April 5,
2000 in Civil Case No. 7802 to hold GSIS, et al.[14] in
contempt of court for painting the fence of the properties during
the pendency of his motion for reconsideration and/or to quash
the writ of execution.[15] He filed another motion in the same
case, dated April 17, 2000, to hold GSIS and its local manager
Arnulfo B. Cardenas in contempt of court for ordering the
electric company to cut off the electric services to the
102
properties during the pendency of his motion for
reconsideration and/or to quash the writ of execution.[16]
To prevent the Presiding Judge of Branch 44 of the RTC from
resolving the pending incidents in Civil Case No. 7802, GSIS
moved to inhibit him for alleged partiality towards the petitioner
as borne out by his failure to act on the motion for
reconsideration and/or to quash writ of execution, motions for
contempt of court, and motion for issuance of break open order
for more than a year from their filing, praying that the case be
re-raffled to another branch of the RTC.[17] Consequently,
Civil Case No. 7802 was re-assigned to Branch 48, whose
Presiding Judge then denied the motions for contempt of court
on July 30, 2001, and directed the Branch Clerk of Court to
cause the re-implementation of the writ of execution cum writ of
possession dated October 21, 1999.[18]
The petitioner sought reconsideration,[19] but the Presiding
Judge of Branch 48 denied his motion for reconsideration on
February 11, 2002.[20]
Ruling of the CA
By petition for certiorari dated March 15, 2002 filed in the CA,
the petitioner assailed the orders of February 11, 2002, July
30, 2001, October 21, 1999, and October 8, 1999.[21]
On March 17, 2003, however, the CA dismissed the petition
for certiorari for lack of merit,[22] stating:
We find the instant petition patently devoid of merit. This
Court is not unaware of the legal tactics and maneuvers
employed by the petitioner in delaying the disposition of the
subject case (Civil Case No. 7802) which has already become
final and executory upon the final resolution by the Supreme
Court affirming the judgment rendered by the Court of Appeals.
We construe the actuation of the petitioner in resorting to all
kinds of avenues accorded by the Rules of Court, through the
filing of several pleadings and/or motions in litigating this case,
as running counter to the intendment of the Rules to be utilized
in promoting the objective of securing a just, speedy and
inexpensive disposition of every action and proceeding.
The issues raised in the present controversy have already
been settled in our existing jurisprudence on the subject. In the
case of De Jesus vs. Obnamia, Jr., the Supreme Court ruled
that “generally, no notice or even prior hearing of a motion for
execution is required before a writ of execution is issued when
a decision has already become final.”
The recent accretion to the corpus of our jurisprudence has
established the principle of law, as enunciated in Buaya vs.
Stronghold Insurance Co., Inc. that “once a judgment becomes
final and executory, the prevailing party can have it executed
as a matter of right, and the issuance of a Writ of Execution
becomes a ministerial duty of the court.”
The rule is also firmly entrenched in the aforecited Buaya case
that “the effective and efficient administration of justice requires
that once a judgment has become final, the prevailing party
should not be deprived of the fruits of the verdict by
subsequent suits on the same issues filed by the same parties.
Courts are duty-bound to put an end to controversies. Any
attempt to prolong, resurrect or juggle them should be firmly
struck down. The system of judicial review should not be
misused and abused to evade the operation of final and
executory judgments.”
As succinctly put in Tag Fibers, Inc. vs. National Labor
Relations Commission, the Supreme Court is emphatic in
saying that “the finality of a decision is a jurisdictional event
that cannot be made to depend on the convenience of a party.”
We find no cogent reason to discompose the findings of the
court below. Thus, we sustain the assailed Orders of the court
a quo since no abuse of discretion has been found to have
been committed by the latter in their issuance. Moreover, this
Court finds this petition to be part of the dilatory tactics of the
petitioner to stall the execution of a final and executory
decision in Civil Case No. 7802 which has already been
resolved with finality by no less than the highest tribunal of the
land.
WHEREFORE, premises considered, the instant petition is
hereby DISMISSED for lack of merit. Costs against the
petitioner.
SO ORDERED.[23]
Issues
Hence, this appeal.
The petitioner insists herein that the CA gravely erred in
refusing “to accept the nullity of the following orders” of the
RTC, to wit:
1. THE ORDER OF THE TRIAL COURT DATED
OCTOBER 8, 1999, GRANTING THE EX-PARTE MOTION
FOR EXECUTION AND/OR ISSUANCE OF THE WRIT OF
EXECUTION OF POSSESSION IN FAVOR OF THE
RESPONDENT GSIS;
2. THE ORDER OF THE TRIAL COURT DATED
OCTOBER 21, 1999 GRANTING THE ISSUANCE AND
IMPLEMENTATION OF THE WRIT OF EXECUTION CUM
WRIT OF POSSESSION IN FAVOR OF RESPONDENT GSIS;
3. THE ORDER OF THE TRIAL COURT DATED JULY 30,
2001 DIRECTING TO CAUSE THE RE-IMPLEMENTATION
OF THE WRIT OF EXECUTION CUM WRIT OF
POSSESSION IN FAVOR OF THE RESPONDENT GSIS; and
4. THE ORDER OF THE TRIAL COURT DATED
FEBRUARY 11, 2002, DENYING THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED SEPTEMBER
14, 2001, IN RELATION TO THE COURT ORDER DATED
JULY 30, 2001.[24]
Ruling of the Court
The petition for review on certiorari absolutely lacks merit.
I
Petition for Certiorari in CA
Was Filed Beyond Reglementary Period
The petition assailed before the CA on certiorari the following
orders of the RTC, to wit:
103
1. The order dated October 8, 1999 (granting the ex parte
motion for execution and/or issuance of the writ of execution
cum writ of possession of GSIS);[25]
2. The order dated October 21, 1999 (directing the issuance
of the writ of execution cum writ of possession in favor of
GSIS);[26]
3. The order dated July 30, 2001 (requiring the Branch Clerk
of Court to cause the re-implementation of the writ of execution
cum writ of possession, and dismissing the motions to hold
GSIS, et al. in contempt);[27] and
4. The order dated February 11, 2002 (denying the motion
for reconsideration dated August 17, 2001 seeking the
reconsideration of the order dated July 30, 2001).[28]
The July 30, 2001 order denied the petitioner’s motion for
reconsideration and/or to quash writ of execution, and motion
to hold GSIS, Tony Dimatulac, et al. and Arnulfo Cardenas in
contempt; and declared GSIS’s motion for issuance of break
open order and for designation of special sheriff from GSIS
Legal Services Group as premature. In turn, the motion for
reconsideration and/or to quash writ of execution denied by the
order of July 30, 2001 had merely challenged the orders of
October 8, 1999 and October 21, 1999 (granting the writ of
execution cum writ of possession as a matter of course).
Considering that the motion for reconsideration dated August
17, 2001 denied by the order dated February 11, 2002 was in
reality and effect a prohibited second motion for
reconsideration vis-à-vis the orders dated October 21, 1999
and October 8, 1999, the assailed orders dated July 30, 2001,
October 21, 1999, and October 8, 1999 could no longer be
subject to attack by certiorari. Thus, the petition for certiorari
filed only in March 2002 was already improper and tardy for
being made beyond the 60-day limitation defined in Section 4,
Rule 65, 1997 Rules of Civil Procedure, as amended,[29]
which requires a petition for certiorari to be filed “not later than
sixty (60) days from notice of the judgment, order or
resolution,” or, in case a motion for reconsideration or new trial
is timely filed, whether such motion is required or not, “the sixty
(60) day period shall be counted from notice of the denial of
the said motion.”
It is worth emphasizing that the 60-day limitation is considered
inextendible, because the limitation has been prescribed to
avoid any unreasonable delay that violates the constitutional
rights of parties to a speedy disposition of their cases.[30]
II
Nature of the Writ of Possession
and its Ministerial Issuance
The petitioner claims that he had not been notified of the
motion seeking the issuance of the writ of execution cum writ of
possession; hence, the writ was invalid.
As earlier shown, the CA disagreed with him.
We sustain the CA, and confirm that the petitioner, as
defaulting mortgagor, was not entitled under Act 3135, as
amended, and its pertinent jurisprudence to any prior notice of
the application for the issuance of the writ of possession.
A writ of possession, which commands the sheriff to place a
person in possession of real property, may be issued in: (1)
land registration proceedings under Section 17 of Act No. 496;
(2) judicial foreclosure, provided the debtor is in possession of
the mortgaged property, and no third person, not a party to the
foreclosure suit, had intervened; (3) extrajudicial foreclosure of
a real estate mortgage, pending redemption under Section 7 of
Act No. 3135, as amended by Act No. 4118; and (4) execution
sales, pursuant to the last paragraph of Section 33, Rule 39 of
the Rules of Court.[31]
Anent the redemption of property sold in an extrajudicial
foreclosure sale made pursuant to the special power referred
to in Section 1[32] of Act No. 3135,[33] as amended, the
debtor, his successor-in-interest, or any judicial creditor or
judgment creditor of said debtor, or any person having a lien on
the property subsequent to the mortgage or deed of trust under
which the property is sold has the right to redeem the property
at anytime within the term of one year from and after the date
of the sale, such redemption to be governed by the
provisions of Section 464 to Section 466 of the Code of Civil
Procedure, to the extent that said provisions were not
inconsistent with the provisions of Act 3135.[34]
In this regard, we clarify that the redemption period envisioned
under Act 3135 is reckoned from the date of the registration of
the sale, not from and after the date of the sale, as the text of
Act 3135 shows. Although the original Rules of Court (effective
on July 1, 1940) incorporated Section 464 to Section 466 of the
Code of Civil Procedure as its Section 25 (Section 464);
Section 26 (Section 465); and Section 27 (Section 466) of
Rule 39, with Section 27 still expressly reckoning the
redemption period to be “at any time within twelve months after
the sale;” and although the Revised Rules of Court (effective
on January 1, 1964) continued to provide in Section 30 of Rule
39 that the redemption be made from the purchaser “at any
time within
twelve (12) months after the sale,”[35] the 12-month period of
redemption came to be held as beginning “to run not from the
date of the sale but from the time of registration of the sale in
the Office of the Register of Deeds.”[36] This construction was
due to the fact that the sheriff’s sale of registered (and
unregistered) lands did not take effect as a conveyance, or did
not bind the land, until the sale was registered in the Register
of Deeds.[37]
Desiring to avoid any confusion arising from the conflict
between the texts of the Rules of Court (1940 and 1964) and
Act No. 3135, on one hand, and the jurisprudence clarifying the
reckoning of the redemption period in judicial sales of real
property, on the other hand, the Court has incorporated in
Section 28 of Rule 39 of the current Rules of Court (effective
on July 1, 1997) the foregoing judicial construction of reckoning
the redemption period from the date of the registration of the
certificate of sale, to wit:
Sec. 28. Time and manner of, and amounts payable on,
successive redemptions; notice to be given and filed. — The
judgment obligor, or redemptioner, may redeem the property
from the purchaser, at any time within one (1) year from the
date of the registration of the certificate of sale, by paying the
purchaser the amount of his purchase, with one per centum
per month interest thereon in addition, up to the time of
redemption, together with the amount of any assessments or
taxes which the purchaser may have paid thereon after
purchase, and interest on such last named amount at the same
rate; and if the purchaser be also a creditor having a prior lien
104
to that of the redemptioner, other than the judgment under
which such purchase was made, the amount of such other lien,
with interest.
Property so redeemed may again be redeemed within sixty
(60) days after the last redemption upon payment of the sum
paid on the last redemption, with two per centum thereon in
addition, and the amount of any assessments or taxes which
the last redemptioner may have paid thereon after redemption
by him, with interest on such last-named amount, and in
addition, the amount of any liens held by said last redemptioner
prior to his own, with interest. The property may be again, and
as often as a redemptioner is so disposed, redeemed from any
previous redemptioner within sixty (60) days after the last
redemption, on paying the sum paid on the last previous
redemption, with two per centum thereon in addition, and the
amounts of any assessments or taxes which the last previous
redemptioner paid after the redemption thereon, with interest
thereon, and the amount of any liens held by the last
redemptioner prior to his own, with interest.
Written notice of any redemption must be given to the officer
who made the sale and a duplicate filed with the registry of
deeds of the place, and if any assessments or taxes are paid
by the redemptioner or if he has or acquires any lien other than
that upon which the redemption was made, notice thereof must
in like manner be given to the officer and filed with the registry
of deeds; if such notice be not filed, the property may be
redeemed without paying such assessments, taxes, or liens.
(30a) (Emphasis supplied).
Accordingly, the mortgagor or his successor-in-interest must
redeem the foreclosed property within one year from the
registration of the sale with the Register of Deeds in order to
avoid the title from consolidating in the purchaser. By failing to
redeem thuswise, the mortgagor loses all interest over the
foreclosed property.[38] The purchaser, who has a right to
possession that extends beyond the expiration of the
redemption period, becomes the absolute owner of the
property when no redemption is made,[39] that it is no longer
necessary for the purchaser to file the bond required under
Section 7 of Act No. 3135, as amended, considering that the
possession of the land becomes his absolute right as the land’s
confirmed owner.[40] The consolidation of ownership in the
purchaser’s name and the issuance to him of a new TCT then
entitles him to demand possession of the property at any time,
and the issuance of a writ of possession to him becomes a
matter of right upon the consolidation of title in his name.
The court can neither halt nor hesitate to issue the writ of
possession. It cannot exercise any discretion to determine
whether or not to issue the writ, for the issuance of the writ to
the purchaser in an extrajudicial foreclosure sale becomes a
ministerial function.[41] Verily, a marked distinction exists
between a discretionary act and a ministerial one. A purely
ministerial act or duty is one that an officer or tribunal performs
in a given state of facts, in a prescribed manner, in obedience
to the mandate of a legal authority, without regard to or the
exercise of his own judgment upon the propriety or impropriety
of the act done. If the law imposes a duty upon a public officer
and gives him the right to decide how or when the duty shall be
performed, such duty is discretionary, not ministerial. The duty
is ministerial only when its discharge requires neither the
exercise of official discretion nor the exercise of judgment.[42]
The proceeding upon an application for a writ of
possession is ex parte and summary in nature, brought for the
benefit of one party only and without notice being sent by the
court to any person adverse in interest. The relief is granted
even without giving an opportunity to be heard to the person
against whom the relief is sought.[43] Its nature as an ex parte
petition under Act No. 3135, as amended, renders the
application for the issuance of a writ of possession a non-
litigious proceeding.[44]
It is clear from the foregoing that a non-redeeming mortgagor
like the petitioner had no more right to challenge the issuance
of the writ of execution cum writ of possession upon the ex
parte application of GSIS. He could not also impugn anymore
the extrajudicial foreclosure, and could not undo the
consolidation in GSIS of the ownership of the properties
covered by TCT No. 284272-R and TCT No. 284273-R, which
consolidation was already irreversible. Hence, his moves
against the writ of execution cum writ of possession were
tainted by bad faith, for he was only too aware, being his own
lawyer, of the dire consequences of his non-redemption within
the period provided by law for that purpose.
III
Dismissal of Petitioner’s Motion for Indirect Contempt
Was Proper and In Accord with the Rules of Court
The petitioner insists that the RTC gravely erred in
dismissing his charges for indirect contempt against GSIS, et
al.; and that the CA should have consequently granted his
petition for certiorari.
The petitioner’s insistence is plainly unwarranted.
First of all, Section 4, Rule 71, 1997 Rules of Civil Procedure,
provides as follows:
Section 4. How proceedings commenced. — Proceedings for
indirect contempt may be initiated motu proprio by the court
against which the contempt was committed by an order or any
other formal charge requiring the respondent to show cause
why he should not be punished for contempt.
In all other cases, charges for indirect contempt shall be
commenced by a verified petition with supporting particulars
and certified true copies of documents or papers involved
therein, and upon full compliance with the requirements for
filing initiatory pleadings for civil actions in the court concerned.
If the contempt charges arose out of or are related to a
principal action pending in the court, the petition for contempt
shall allege that fact but said petition shall be docketed, heard
and decided separately, unless the court in its discretion orders
the consolidation of the contempt charge and the principal
action for joint hearing and decision. (n) (Emphasis supplied).
Indeed, a person may be charged with indirect contempt only
by either of two alternative ways, namely: (1) by a verified
petition, if initiated by a party; or (2) by an order or any other
formal charge requiring the respondent to show cause why he
should not be punished for contempt, if made by a court
against which the contempt is committed. In short, a charge of
indirect contempt must be initiated through a verified petition,
unless the charge is directly made by the court against which
the contemptuous act is committed.
Justice Regalado has explained why the requirement of the
filing of a verified petition for contempt is mandatory:[45]
1. This new provision clarifies with a regulatory norm the
proper procedure for commencing contempt proceedings.
105
While such proceeding has been classified as a special civil
action under the former Rules, the heterogeneous practice,
tolerated by the courts, has been for any party to file a mere
motion without paying any docket or lawful fees therefor and
without complying with the requirements for initiatory
pleadings, which is now required in the second paragraph of
this amended section. Worse, and as a consequence of
unregulated motions for contempt, said incidents sometimes
remain pending for resolution although the main case has
already been decided. There are other undesirable aspects
but, at any rate, the same may now be eliminated by this
amendatory procedure.
Henceforth, except for indirect contempt proceedings initiated
motu proprio by order of or a formal charge by the offended
court, all charges shall be commenced by a verified petition
with full compliance with the requirements therefor and shall be
disposed of in accordance with the second paragraph of this
section. (Emphasis supplied).
Clearly, the petitioner’s charging GSIS, et al. with indirect
contempt by mere motions was not permitted by the Rules of
Court.
And, secondly, even assuming that charges for contempt could
be initiated by motion, the petitioner should have tendered filing
fees. The need to tender filing fees derived from the fact that
the procedure for indirect contempt under Rule 71, Rules of
Court was an independent special civil action. Yet, the
petitioner did not tender and pay filing fees, resulting in the trial
court not acquiring jurisdiction over the action. Truly, the
omission to tender filing fees would have also warranted the
dismissal of the charges.
It seems to be indubitable from the foregoing that the petitioner
initiated the charges for indirect contempt without regard to the
requisites of the Rules of Court simply to vex the adverse
party. He thereby disrespected the orderly administration of
justice and committed, yet again, an abuse of procedures.
IV
Petitioner Was Guilty of
Misconduct As A Lawyer
The CA deemed it unavoidable to observe that the petition for
certiorari brought by the petitioner to the CA was “part of the
dilatory tactics of the petitioner to stall the execution of a final
and executory decision in Civil Case No. 7802 which has
already been resolved with finality by no less than the highest
tribunal of the land.”[46]
The observation of the CA deserves our concurrence.
Verily, the petitioner wittingly adopted his aforedescribed
worthless and vexatious legal maneuvers for no other purpose
except to delay the full enforcement of the writ of possession,
despite knowing, being himself a lawyer, that as a non-
redeeming mortgagor he could no longer impugn both the
extrajudicial foreclosure and the ex parte issuance of the writ of
execution cum writ of possession; and that the enforcement of
the duly-issued writ of possession could not be delayed. He
thus deliberately abused court procedures and processes, in
order to enable himself to obstruct and stifle the fair and quick
administration of justice in favor of mortgagee and purchaser
GSIS.
His conduct contravened Rule 10.03, Canon 10 of the Code of
Professional Responsibility, by which he was enjoined as a
lawyer to “observe the rules of procedure and xxx not [to]
misuse them to defeat the ends of justice.” By his dilatory
moves, he further breached and dishonored his Lawyer’s Oath,
particularly:[47]
xxx I will not wittingly or willingly promote or sue any
groundless, false or unlawful suit, nor give aid nor consent to
the same; I will delay no man for money or malice, and will
conduct myself as a lawyer according to the best of my
knowledge and discretion with all good fidelity as well to the
courts as to my clients xxx
We stress that the petitioner’s being the party litigant himself
did not give him the license to resort to dilatory moves. His zeal
to defend whatever rights he then believed he had and to
promote his perceived remaining interests in the property
already lawfully transferred to GSIS should not exceed the
bounds of the law, for he remained at all times an officer of the
Court burdened to conduct himself “with all good fidelity as well
to the courts as to [his] clients.”[48] His true obligation as a
lawyer should not be warped by any misplaced sense of his
rights and interests as a litigant, because he was, above all,
bound not to unduly delay a case, not to impede the execution
of a judgment, and not to misuse Court processes.[49]
Consequently, he must be made to account for his misconduct
as a lawyer.
WHEREFORE, we deny the petition for review on certiorari for
lack of merit, and affirm the decision of the Court of Appeals
promulgated on March 17, 2003, with the costs of suit to be
paid by the petitioner.
The Committee on Bar Discipline of the Integrated Bar of the
Philippines is directed to investigate the petitioner for what
appear to be (a) his deliberate disregard of the Rules of Court
and jurisprudence pertinent to the issuance and
implementation of the writ of possession under Act No. 3135,
as amended; and (b) his witting violations of the Lawyer’s Oath
and the Code of Professional Responsibility.
SO ORDERED.
106
G.R. No. 198800 December 11, 2013
JOSE T. RAMIREZ, Petitioner,
vs.
THE MANILA BANKING CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
We have consistently held that unless the parties stipulate,
personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary because Section 31 of Act No.
31352 only requires the posting of the notice of sale in three
public places and the publication of that notice in a newspaper
of general circulation.3
Before us is a petition for review on certiorari under Rule 45 of
the Decision4 dated November 26, 2010 and Resolution5
dated September 28, 2011 of the Court of Appeals (CA) in CA-
G.R. CV No. 80616.
The facts of the case are as follows:
Petitioner Jose T. Ramirez mortgaged two parcels of land
located at Bayanbayanan, Marikina City and covered by
Transfer Certificate of Title (TCT) Nos. N-107226 and N-
230337 in favor of respondent The Manila Banking Corporation
to secure his ₱265,000 loan. The real estate mortgage
provides that all correspondence relative to the mortgage
including notifications of extrajudicial actions shall be sent to
petitioner Ramirez at his given address, to wit:
N) All correspondence relative to this MORTGAGE, including
demand letters, summons, subpoenas or notifications of any
judicial or extrajudicial actions shall be sent to the
MORTGAGOR at the address given above or at the address
that may hereafter be given in writing by the MORTGAGOR to
the MORTGAGEE, and the mere act of sending any
correspondence by mail or by personal delivery to the said
address shall be valid and effective notice to the
MORTGAGOR for all legal purposes and the fact that any
communication is not actually received by the MORTGAGOR,
or that it has been returned unclaimed to the MORTGAGEE, or
that no person was found at the address given, or that the
address is fictitious or cannot be located, shall not excuse or
relieve the MORTGAGOR from the effects of such notice.8
Respondent filed a request for extrajudicial foreclosure of real
estate mortgage9 before Atty. Hipolito Sañez on the ground
that Ramirez failed to pay his loan despite demands. During
the auction sale on September 8, 1994, respondent was the
only bidder for the mortgaged properties.10 Thereafter, a
certificate of sale11 was issued in its favor as the highest
bidder.
In 2000, respondent demanded that Ramirez vacate the
properties.12
Ramirez sued respondent for annulment of sale and prayed
that the certificate of sale be annulled on the ground, among
others, that paragraph N of the real estate mortgage was
violated for he was not notified of the foreclosure and auction
sale.13
In its answer, respondent claimed that the foreclosure
proceedings were valid.
The trial court ruled that the extrajudicial foreclosure
proceedings were null and void and the certificate of sale is
invalid. The fallo of the Decision14 dated June 30, 2003 of the
Regional Trial Court, Branch 193, Marikina City, in Civil Case
No. 2001-701-MK reads:
Premises considered, judgment is hereby rendered in favor of
the plaintiff [Ramirez] and against the defendant [bank], whose
counterclaim is hereby dismissed, declaring the Certificate of
Sale of the properties covered by TCT Nos. N-10722 and N-
23033, as null and void and ordering the defendant [bank] to
pay the following:
1) One Hundred Thousand (₱100,000.00) Pesos as moral
damages;
2) Fifty Thousand (₱50,000.00) Pesos as exemplary damages;
3) Fifty Thousand (₱50,000.00) Pesos as Attorney’s fees; and
4) Costs of suit.
SO ORDERED.15
The CA reversed the trial court’s decision and ruled that
absence of personal notice of foreclosure to Ramirez as
required by paragraph N of the real estate mortgage is not a
ground to set aside the foreclosure sale.16 The fallo of the
assailed CA Decision reads:
WHEREFORE, the appealed decision dated June 30, 2003 of
the Regional Trial Court of Marikina, Branch 193 is hereby
REVERSED and SET ASIDE, and a new one is entered
AFFIRMING the validity of the Certificate of Sale of the
properties covering TCT Nos. N-10722 and N-23033.
SO ORDERED.17
Ramirez’s motion for reconsideration was denied in the
assailed CA Resolution.
Hence, this petition raising a lone issue:
What is the legal effect of violating paragraph N of the deed of
mortgage which requires personal notice to the petitioner-
mortgagor by the respondent-mortgagee bank?18
Ramirez insists that the auction sale as well as the certificate of
sale issued to respondent are null and void since no notice of
the foreclosure and sale by public auction was personally given
to him in violation of paragraph N of the real estate mortgage
which requires personal notice to him of said extrajudicial
foreclosure.19
In its comment, respondent counters that under Section 3 of
Act No. 3135, no personal notice to the mortgagor is required
in case of a foreclosure sale. The bank claims that paragraph
N of the real estate mortgage does not impose an additional
obligation to it to provide personal notice to the mortgagor
Ramirez.20
We agree with Ramirez and grant his petition.
The CA erred in ruling that absence of notice of extrajudicial
foreclosure sale to Ramirez as required by paragraph N of the
real estate mortgage will not invalidate the extrajudicial
foreclosure sale. We rule that when respondent failed to send
the notice of extrajudicial foreclosure sale to Ramirez, it
committed a contractual breach of said paragraph N sufficient
107
to render the extrajudicial foreclosure sale on September 8,
1994 null and void. Thus, we reverse the assailed CA Decision
and Resolution.
In Carlos Lim, et al. v. Development Bank of the Philippines,21
we held that unless the parties stipulate, personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not
necessary because Section 3 of Act No. 3135 only requires the
posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation.
In this case, the parties stipulated in paragraph N of the real
estate mortgage that all correspondence relative to the
mortgage including notifications of extrajudicial actions shall be
sent to mortgagor Ramirez at his given address. Respondent
had no choice but to comply with this contractual provision it
has entered into with Ramirez. The contract is the law between
them. Hence, we cannot agree with the bank that paragraph N
of the real estate mortgage does not impose an additional
obligation upon it to provide personal notice of the extrajudicial
foreclosure sale to the mortgagor Ramirez.
As we explained in Metropolitan Bank v. Wong,22 the bank’s
violation of paragraph N of the real estate mortgage is
sufficient to invalidate the extrajudicial foreclosure sale:
[A] contract is the law between the parties and … absent any
showing that its provisions are wholly or in part contrary to law,
morals, good customs, public order, or public policy, it shall be
enforced to the letter by the courts. Section 3, Act No. 3135
reads:
"Sec. 3. Notice shall be given by posting notices of the sale for
not less than twenty days in at least three public places of the
municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the
municipality and city."
The Act only requires (1) the posting of notices of sale in three
public places, and (2) the publication of the same in a
newspaper of general circulation. Personal notice to the
mortgagor is not necessary. Nevertheless, the parties to the
mortgage contract are not precluded from exacting additional
requirements. In this case, petitioner and respondent in
entering into a contract of real estate mortgage, agreed inter
alia:
"all correspondence relative to this mortgage, including
demand letters, summonses, subpoenas, or notifications of any
judicial or extra-judicial action shall be sent to the
MORTGAGOR…."
Precisely, the purpose of the foregoing stipulation is to apprise
respondent of any action which petitioner might take on the
subject property, thus according him the opportunity to
safeguard his rights. When petitioner failed to send the notice
of foreclosure sale to respondent, he committed a contractual
breach sufficient to render the foreclosure sale on November
23, 1981 null and void.1âwphi1
We reiterated the Wong ruling in Global Holiday Ownership
Corporation v. Metropolitan Bank and Trust Company23 and
recently, in Carlos Lim, et al. v. Development Bank of the
Philippines.24 Notably, all these cases involved provisions
similar to paragraph N of the real estate mortgage in this case.
On another matter, we note that the trial court awarded moral
and exemplary damages, attorney’s fees and costs of suit to
Ramirez. In granting said monetary awards, the trial court
noted that if the bank followed strictly the procedure in the
extrajudicial foreclosure of the real estate mortgage and had
not filed prematurely an unlawful detainer case against
Ramirez, he would not have been forced to litigate and incur
expenses.25
We delete aforesaid monetary awards, except the award of
costs of suit. Nothing supports the trial court’s award of moral
damages. There was no testimony of any physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar
injury26 suffered by Ramirez. The award of moral damages
must be anchored on a clear showing that Ramirez actually
experienced mental anguish, besmirched reputation, sleepless
nights, wounded feelings or similar injury.27 Ramirez’s
testimony28 is also wanting as to the moral damages he
suffered.
Similarly, no exemplary damages can be awarded since there
is no basis for the award of moral damages and there is no
award of temperate, liquidated or compensatory damages.29
Exemplary damages are imposed by way of example for the
public good, in addition to moral, temperate, liquidated or
compensatory damages.30
We likewise delete the trial court’s award of attorney’s fees
since the trial court failed to state in the body of its decision the
factual or legal reasons for said award.31
Indeed, even the instant petition32 does not offer any
supporting fact or argument for us to affirm the award of moral
and exemplary damages and attorney’s fees.
However, we agree, with the trial court’s award of costs of suit
to Ramirez. Costs shall be allowed to the prevailing party as a
matter of course unless otherwise provided in the Rules of
Court.33 These costs Ramirez may recover are those stated in
Section 10, Rule 142 of the Rules of Court.34 For instance,
Ramirez may recover the lawful fees he paid in docketing his
action for annulment of sale before the trial court. We add
thereto the amount of ₱3,530 or the amount of docket and
lawful fees paid by Ramirez for filing this petition before this
Court.35 We deleted the award of moral and exemplary
damages; hence, the restriction under Section 7, Rule 142 of
the Rules of Court36 would have prevented Ramirez to recover
any cost of suit. But we certify, in accordance with said Section
7, that Ramirez’s action for annulment of sale involved a
substantial and important right such that he is entitled to an
award of costs of suit. Needless to stress, the purpose of
paragraph N of the real estate mortgage is to apprise the
mortgagor, Ramirez, of any action that the mortgagee-bank
might take on the subject properties, thus according him the
opportunity to safeguard his rights. 37
WHEREFORE, we GRANT the petition, REVERSE and SET
ASIDE the Decision dated November 26, 2010 and Resolution
dated September 28, 2011 of the Court of Appeals in CA-G.R.
CV No. 80616. The extrajudicial foreclosure proceedings and
auction sale conducted by Atty. Hipolito Safiez on September
8, 1994 and the Certificate of Sale over the mortgaged
properties covered by TCT Nos. N-10722 and N-23033, issued
in favor of respondent The Manila Banking Corporation, are
hereby DECLARED NULL and VOID.
Costs against respondent The Manila Banking Corporation.
SO ORDERED.
108
G.R. No. 196864 July 8, 2015
SPOUSES VICTOR P. DULNUAN and JACQUELINE P.
DULNUAN, Petitioners,
vs.
METROPOLITAN BANK & TRUST COMPANY, Respondent.
DECISION
PEREZ, J.:
This is a Petition for Review on Certiorari1 filed by petitioners
Spouses Victor Dulnuan and Jacqueline Dulnuan (Spouses
Dulnuan) seeking to reverse and set aside the 14 January
2011 Decision2 of the Court of Appeals. and its 29 April 2011
Resolution3 in CA-G.R. SP No. 108628. The assailed decision
and resolution reversed the 3 December 2008 Order of the
Regional Trial Court (RTC) of La Trinidad, Benguet, which, in
turn, enjoined the extrajudicial foreclosure sale or' a parcel of
land covered by Transfer Certificate of Title (TCT) No. T-46390
registered under the name of the Spouses Dulnuan. The
dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, the petition is GRANTED. The Order dated
December 3, 2008 of the Regional Trial Court, Branch 63 of La
Trinidad, Benguet in Civil Case No. 08-CV-2470 which granted
[the Spouses Dulnuan’s] application for writ of preliminary
injunction and the RTC’s Order dated March 24, 2009, which
denied [Metropolitan Bank and Trust Company’s] motion for
reconsideration, are hereby REVERSED and SET ASIDE.4
The Facts
On several occasions, the Spouses Dulnuan obtained loans
from Metropolitan Bank and Trust Company (Metrobank), the
total of which reached the sum ₱3,200,000.00, as evidenced
by promissory notes executed by them.5
As a security for the loan obligations, the Spouses Dulnuan
executed a Real Estate Mortgage (REM) over a parcel of land
covered by TCT No. 46390 registered under their names and
located at La Trinidad, Benguet with an area of 392 square
meters (subject property).6 Subsequently, however, the
Spouses Dulnuan incurred default and therefore the loan
obligations became due and demandable.
On 22 April 2008, Metrobank filed an application for extra-
judicial foreclosure proceedings over the subject property
before the RTC of La Trinidad, Benguet. After due notice and
publication, the mortgaged property was sold at a public
auction where Metrobank was declared as the highest bidder
after tendering the bid of ₱6,189,000.00, as shown in the
Certificate of Sale.7 In order to validly effect the foreclosure, a
copy of the said Notice of Public Auction Sale was posted on
the bulletin boards of Barangay Betag, Municipal Hall of La
Trinidad, Benguet, Provincial Capitol Benguet.8 Before the
expiration of the one-year redemption period allowed by law,
Metrobank filed a Petition for the Issuance of Writ of
Possession docketed as LRC Case No. 08-60 which was
raffled before Branch 63 of the RTC.9
On 30 September 2008, the Spouses Dulnuan instituted a
Complaint seeking the issuance of a temporary restraining
order and preliminary and final injunction and, for the
annulment of extra-judicial foreclosure and real estate
mortgage before the RTC of LaTrinidad, Benguet, Branch 10,
which case was docketed as Civil Case No. 08-CV-2470. The
complaint alleged that the mortgage constituted over the
property is null and void because at the time the agreement
was entered on 18October 2000, no contract of loan was yet
executed by the parties. It was only on 19 December 2003 that
they received the proceeds of the loan, as evidenced by the
Promissory Note. In other words, there is no principal
obligation upon which the ancillary contract of mortgage was
attached to.
Upon motion of the Spouses Dulnuan, Civil Case No. 08-CV-
2470 was consolidated before Branch 63 of the RTC wherein
the LRC Case No. 08-60 was pending. After summary hearing,
the court a quoin an Order dated 5 November 2008, issued a
Temporary Restraining Order and set the hearing for the
issuance of Writ of Preliminary Injunction. Both parties
proceeded to adduce evidence for and against the issuance of
the writ of preliminary injunction.
Finding an imperative need to protect and preserve the rights
of the Spouses Dulnuan during the pendency of the principal
action, the RTC issued an Order dated 3 December 2008,
enjoining Metrobank from taking possession of the subject
property until the final disposition of the annulment of mortgage
case. The decretal portion of the Order reads:
WHEREFORE, premises considered, and finding compelling
reason at this point in time to grant for the application for
preliminary injunction, the same is hereby granted upon
posting of preliminary injunction bond in the amount of
₱200,000.00 duly approved by the court, let the writ of
preliminary injunction be issued to take effect pendente lite,
commanding the [Metrobank] including its agents and
representatives, as well as persons acting under its control,
supervision, instruction, order or authorization, to desist from
entering, occupying, possessing, using, or from performing any
act of possession and occupation of the aforedescribed
property, as well as from causing the cancellation of the
existing transfer certificate of title of the [Spouses Dulnuan] and
from securing in lieu thereof a transfer certificate of title over
the aforedescribed property in its favor.10
In an Order dated 24 March 2009, the RTC refused to
reconsider its earlier Order.
Arguing that the RTC gravely abused its discretion in enjoining
its taking of possession over the subject realties, Metrobank
filed a Petition for Certiorari before the Court of Appeals.
On 14 January 2011, the Court of Appeals rendered a Decision
reversing the questioned Orders and declared that the
issuance of the writ of preliminary injunction is unjustified under
the circumstances. The appellate court made a pronouncement
that as the highest bidder at the auction sale, Metrobank is
entitled to occupy the subject property, and, any question
regarding the validity of the mortgage or the foreclosure thereof
shall not preclude the purchaser from taking possession. The
disquisition the Court of Appeals reads:
WHEREFORE, the petition is GRANTED. The Order dated
December 3, 2008 of the Regional Trial Court, Branch 63 of La
Trininidad, Benguet in Civil Case 08-CV-2470 which granted
respondents’ application for writ of preliminary injunction and
the RTC’s Order dated March 24, 2009 which denied
[Metrobank’s] motion for reconsideration are hereby
RESERVED and SET ASIDE.11
For lack of merit, the Spouses Dulnuan’s Motion for
Reconsideration was denied by the Court of Appeals in a
Resolution dated 29 April 2011.
109
The Spouses Dulnuan is now before this Court via this instant
Petition for Review on Certiorari seeking the reversal of the
Court of Appeals Decision and Resolution on the following
grounds:
I.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE AND SERIOUS ERROR IN OVERLOOKING THE
UNDISPUTED FACT THAT THE PETITION FOR WRIT OF
POSSESSION WAS FILED DURING THE REDEMPTION
PERIOD AND NO BOND HAD BEEN POSTED BY
RESPONDENT TO WARRANT ITS ISSUANCE; AND
II.
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE AND SERIOUS ERROR IN OVERLOOKING THE
FACT THAT CIVIL CASE NO. 08-CV-2470 AND LRC CASE
NO. 08-60 WERE CONSOLIDATED.12
The Court's Ruling
The Court is urged to resolve the issue of whether or not the
Court of Appeals erred in dissolving the writ of preliminary
injunction issued against Metrobank. The writ of preliminary
injunction enjoined Metrobank from entering, occupying,
possessing, using, or performing any act of possession and
occupation over the subject property. Without going into the
merits of this case, the Court will confine itself in the
determination of the propriety of the preliminary injunction,
such being a preservative remedy for the protection of
substantive rights or interests, is not a cause of action in itself
but merely a provisional remedy, an adjunct to a main suit.13
A writ of preliminary injunction and a TRO are injunctive reliefs
and preservative remedies for the protection of substantive
rights and interests.1âwphi1 An application for the issuance of
a writ of preliminary injunction and/or TRO may be granted
upon the filing of a verified application showing facts entitling
the applicant to the relief demanded.14 The purpose of
injunction is to prevent threatened or continuous irremediable
injury to some of the parties before their claims can be
thoroughly studied and educated. Its sole aim is to preserve
the status quo until the merits of the case is heard fully.15
The status quo is the last actual, peaceable and uncontested
situation which precedes a controversy.16 The status quo
should be that existing at the time of the filing of the case. A
preliminary injunction should not establish new relations
between the parties, but merely maintain or re-establish the
pre-existing relationship between them.
Pertinent are the provisions of Section 3, Rule 58 of the Rules
of Court, enumerates the grounds for the issuance of a writ of
preliminary injunction, to wit:
SEC. 3. Grounds for issuance of preliminary injunction.— A
preliminary injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and
the whole or part of such relief consists in restraining the
commission or continuance of the act or acts complained of, or
in requiring the performance of an act or acts, either for a
limited period or perpetually;
(b) That the commission, continuance or non-performance of
the act or acts complained of during the litigation would
probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or suffering
to be done, some act or acts probably in violation of the rights
of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
Thus, to be entitled to the injunctive writ, petitioners must show
that (1) there exists a clear and unmistakable right to be
protected; (2) this right is directly threatened by an act sought
to be enjoined; (3) the invasion of the right is material and
substantial; and (4) there is an urgent and paramount necessity
for the writ to prevent serious and irreparable damage.17
As such, a writ of preliminary injunction may be issued only
upon clear showing of an actual existing right to be protected
during the pendency of the principal action. The requisites of a
valid injunction are the existence of the right and its actual or
threatened violations. Thus, to be entitled to an injunctive writ,
the right to be protected and the violation against the right must
be shown.18
Extant from the pleadings of the parties is the failure of the
Spouses Dulnuan to establish the essential requisites for the
issuance of the writ of preliminary injunction.
First. The court a quo cannot enjoin Metrobank, at the instance
of the Spouses Dulnuan, from taking possession of the subject
property simply because the period of redemption has not yet
expired. As the highest bidder in the foreclosure sale upon
whom a certificate sale was issued by the sheriff, Metrobank
has the right to be placed in possession of the subject property
even during the redemption period provided that the necessary
amount of bond is posted. As elucidated by the Court in
Spouses Tolosa v. United Coconut Planters Bank:19
A writ of possession is simply an order by which the sheriff is
commanded by the court to place a person in possession of a
real or personal property. Under Section 7 of Act No. 3135, as
amended, a writ of possession may be issued in favor of a
purchaser in a foreclosure sale either (1) within the one-year
redemption period, upon the filing of a bond; or (2) after the
lapse of the redemption period, without need of a bond. Within
the one-year redemption period, the purchaser may apply for a
writ of possession by filing a petition in the form of an ex parte
motion under oath, in the registration or cadastral proceedings
of the registered property. The law requires only that the proper
motion be filed, the bond approved and no third person is
involved. After the consolidation of title in the buyer’s name for
failure of the mortgagor to redeem the property, entitlement to
the writ of possession becomes a matter of right. In the latter
case, the right of possession becomes absolute because the
basis thereof is the purchaser’s ownership of the property.
It is an established rule that the purchaser in an extra-judicial
foreclosure sale is entitled to the possession of the property
and can demand that he be placed in possession of the same
either during (with bond) or after the expiration (without bond)
of the redemption period therefor.20 The non-expiration of the
period of redemption shall not preclude the purchaser from
taking possession of the property provided that the necessary
is posted. The buyer can in fact demand possession of the land
even during the redemption period except that he has to post a
bond in accordance with Section 721 of Act No. 3135, as
amended. In the case at bar, Metrobank manifested its
willingness to post a bond but its application for the issuance of
the writ of possession was unjustly denied by the RTC.
110
Second. The pendency of the action assailing the validity of the
mortgage should not bar the issuance of the writ of
possession.1âwphi1 A pending action for annulment of
mortgage or foreclosure does not stay the issuance of a writ of
possession.22 Regardless of the pendency of such suit, the
purchaser remains entitled to a writ of possession, without
prejudice, of course, to the eventual outcome of the pending
annulment case. Emphatic to the point is the ruling of the Court
in Spouses Fortaleza v. Spouses Lapitan:23

Lastly, we agree with the CA that any question regarding the

regularity and validity of the mortgage or its foreclosure cannot
be raised as a justification for opposing the petition for the
issuance of the writ of possession. The said issues may be
raised and determined only after the issuance of the writ of
possession. Indeed, "[t]he judge with whom an application for
writ of possession is filed need not look into the validity of the
mortgage or the manner of its foreclosure." The writ issues as
a matter of course. "The rationale for the rule is to allow the
purchaser to have possession of the foreclosed property
without delay, such possession being founded on the right of
ownership."

Without prejudice to the final disposition of the annulment case,

Metrobank is entitled to the writ of possession and cannot be
barred from enjoying the property, possession being one of the
essential attributes of ownership.

Third. While the grant or denial of the preliminary injunction

rests on the sound discretion of the court taking cognizance of
the case, and judicial discretion of the court in injunctive
matters should not be interfered with,24 in the absence of clear
and legal right, however, the issuance of a writ of injunction
constitutes a grave abuse of discretion.25

Grave abuse of discretion in the issuance of writs of

preliminary injunction implies a capricious and whimsical
exercise of judgment equivalent to lack of jurisdiction; or the
exercise of power in an arbitrary despotic manner by reason of
passion, prejudice or personal aversion amounting to an
evasion of a positive duty or to a virtual refusal to perform a
duty enjoined or to act at all in contemplation of law.26 The
burden is thus on petitioner to show in his application that there
is meritorious ground for the issuance of TRO in his favor.27
When the complainant’s right is doubtful or disputed, he does
not have a clear legal right and, therefore, the issuance of
injunctive writ is improper.28 Herein, the Spouses Dulnuan
failed to show that they have clear and unmistakable right to
the issuance of writ in question.

In fine, we find that the Court of Appeals committed no

reversible error in reversing the injunction issued by the RTC.
The record shows that Metrobank caused the extrajudicial
foreclosure of the mortgage on the subject realties as a
consequence of the Spouses Dulnuan's default on their
mortgage obligation. As the highest bidder at the foreclosure
sale, Metrobank can exercise its right of possession over the
subject realty, and the issuance of writ of preliminary injunction,
enjoining the bank from occupying the property in question, is
erroneous. WHEREFORE, premises considered, the instant
petition is hereby . DENIED. The assailed Decision dated 14
January 2011 and Resolution dated 29 April 2011 of the Court
of Appeals in CA-G.R. SP No. 108628 are hereby AFFIRMED.

SO ORDERED.

111
[G.R. No. 199747, April 03, 2013]
TEODORO DARCEN, MAMERTO DARCEN, JR., NESTOR
DARCEN, BENILDA DARCEN-SANTOS, AND ELENITA
DARCEN-VERGEL, Petitioners, v. V. R. GONZALES CREDIT
ENTERPRISES, INC., REPRESENTED BY ITS PRESIDENT,
VERONICA L. GONZALES, Respondent.
DECISION
REYES, J.:
Before this Court is a Petition for Review on Certiorari1 under
Rule 45 of the 1997 Rules of Civil Procedure of the Decision2
of the Court of Appeals (CA) in CA-G.R. SP No. 114265 dated
July 20, 2011, denying herein petitioners’ petition for certiorari
and prohibition which sought to annul and set aside the Orders
dated March 16, 20103 and May 4, 20104 of the Regional Trial
Court (RTC) of the City of Malolos, Bulacan, Branch 81, in P-
826-2009, entitled, “In Re: Ex-Parte Petition for Issuance of a
Writ of Possession, V.R. Gonzalez Credit Enterprises, Inc., as
represented by its President Veronica Gonzalez, Petitioner,
Teodoro Darcen, et al., Oppositors.”
Antecedent Facts
The spouses Mamerto Darcen (Mamerto) and Flora De
Guzman (Flora) were married on February 2, 1947, and they
begot seven (7) children, namely: Teodoro, Mamerto, Jr.,
Nestor, Benilda, and Elenita (the petitioners), and their brothers
Arturo and Manuel. Mamerto died on September 18, 1986,
leaving behind an estate consisting of three titled parcels of
land located in Baliuag, Bulacan and covered by Transfer
Certificate of Title (TCT) No. RT-19565 (T-41394), TCT No.
RT-19566 (T-11678), and TCT No. RT-19564 (T-193099), all
under the name “Mamerto Darcen married to Flora de
Guzman.”
According to the petitioners, sometime in 1990 their late
brother Manuel borrowed money from Veronica Gonzales
(Gonzales), president of V.R. Gonzales Credit Enterprises, Inc.
(respondent company). Manuel sought their consent in
constituting a mortgage over the above properties of their
father, but the petitioners refused. Manuel then caused the
execution of an Extra-Judicial Settlement of Estate with Waiver
by forging the signatures of the petitioners and their mother
Flora. In the said instrument, the petitioners and their siblings
were said to have waived their shares in their father’s estate in
favor of their mother, thus making Flora the sole owner of the
three lots.5 Meanwhile, fire had razed part of the Office of the
Register of Deeds of Bulacan and destroyed the titles to the
said parcels. After the reconstitution of the titles on April 7,
1992,6 new titles were issued in the name of “Flora de
Guzman, Filipino, of legal age, widow,” to
wit:chanroblesvirtuallawlibrary
(1) TCT No. T-19267, which is a transfer from TCT No. RT-
19565 (T-41394), containing an area of 512 square meters,
located in Barangay Sabang, Baliuag, Bulacan;cralawlibrary
(2) TCT No. T-19268, which is a transfer from TCT No. RT-
19566 (T-116789), covering an area of 478.4 sq m, located at
P. Angeles St., Baliuag, Bulacan; and
(3) TCT No. T-19269, which is a transfer from TCT No. RT-
19564 (T-193099), covering an area of 580 sq m, located in
Baliuag, Bulacan.7
Petitioners further claim that on the day that the above new
titles were issued, they caused the annotation thereon of their
hereditary claim in their father’s estate.8 On December 4,
2000, Flora died.
Sometime in January 2007, Gonzales appeared and, claiming
that the petitioners’ late mother Flora had mortgaged the above
properties to respondent company in 1995, demanded
payment from the petitioners of several loans allegedly taken
out by Flora, as follows:9cralawvllred
(i)
P3,000,000.00, borrowed by Flora on January 30, 1995
secured by a mortgage contract over TCT No. T-19269;
(ii)
P3,500,000.00, taken out on July 12, 1995 by Flora upon a
mortgage over TCT No. T-19267;
(iii)
P500,000.00, also borrowed on July 12, 1995 by Flora secured
by a mortgage over TCT No. T-19268;
On Februry 16, 2007, the petitioners were able to verify from
the Register of Deeds of Bulacan that the above properties had
indeed been mortgaged to respondent company in 1995, but
they now say that they “immediately noted that the purported
signatures of their mother on the three (3) mortgage contracts
were actually forgeries, and that the mortgage contracts did not
state when the supposed loan obligations would become due
and demandable.”10 They maintain that their mother did not
contract the loans, and they point to their brothers Manuel and
Arturo, whose signatures appear as witnesses on the mortgage
documents, as guilty of forging her signatures and of receiving
the proceeds of the loans. The petitioners also disclaim any
knowledge of the loans, or of their consent thereto, either
before or after.
The respondent company extrajudicially foreclosed on the
mortgage over the aforesaid lots sometime in 2007, but
meanwhile, on June 8, 2007, the petitioners filed Civil Case
No. 333-M-200711 with the RTC-Branch 78, for “Annulment of
Mortgage, Extra-Judicial Foreclosure, Auction Sale, Certificate
of Sale, and Damages,” seeking to void the real estate
mortgages, the extrajudicial foreclosure and the auction sale of
the lots. Named defendants were respondent company and
their brothers Manuel and Arturo.
After posting and publication of the notice of sheriff’s sale
dated October 20, 2008, the three properties were sold at
auction held on November 18, 2008 for a total price of
P8,000,000, with the respondent company as the highest
bidder. A certificate of sale was issued by Ex-Officio Sheriff
Emmanuel Ortega on November 20, 2008, duly annotated on
the titles on November 28, 2008.12cralawvllred
The one-year period to redeem lapsed. Respondent company
executed an affidavit of consolidation of ownership. On
December 8, 2009, it filed an ex parte petition for issuance of a
writ of possession in the RTC-Branch 81 docketed as P-826-
2009.13 In its Order14 dated December 17, 2009, the court set
the petition for hearing on February 26, 2010. Meanwhile, on
February 25, 2010, the petitioners were able to file an
Opposition15 to the petition, praying for the outright denial
thereof on the ground of forum shopping because the
respondent company did not disclose the pendency of Civil
Case No. 333-M-2007 in its certification against forum-
shopping. On March 10, 2010, V.R. Gonzales filed a Comment
to the Opposition,16 to which the petitioners filed a Reply17 on
March 23, 2010.
112
In its Order18 dated March 16, 2010, the RTC-Branch 81
denied the petitioners’ opposition and ruled that the respondent
company was not guilty of forum shopping. Citing Sps. Ong v.
CA,19 it held that the issuance of the writ of possession was a
mere ministerial function of the court, and was summary in
nature.20 Not being a judgment on the merits, litis pendentia or
res judicata would not set in to bar the filing of Civil Case No.
333-M-2007.
Petitioners’ motion for reconsideration was denied in the
court’s Order21 dated May 4, 2010.
On June 2, 2010, the petitioners filed a petition for certiorari22
in the CA docketed as CA-G.R. SP No. 114265, whose
decision therein, dated July 20, 2011, is now the subject of this
Petition.
Meanwhile, on February 28, 2011, the RTC-Branch 81 granted
the writ of possession sought by the respondent company in P-
826-2009. The notice to vacate was issued on April 26, 2011
against the petitioners.
In a related development, on August 10, 2010, the RTC-Branch
78 dismissed the complaint in Civil Case No. 333-M-2007,
holding that the mortgage contracts executed by Flora in favor
of the respondent company over TCT Nos. T-19267, T-19268,
and T-19269 are valid, and declaring valid the extrajudicial
foreclosure and auction sale of the said properties. The
decision is now pending appeal in the CA, docketed as CA-
G.R. CV No. 96251.
Petition for Certiorari in the CA
In CA-G.R. SP No. 114265,23 the petitioners reiterated their
arguments: (1) that due to identity of parties and cause of
action, the respondent company committed forum shopping for
failing to disclose the pendency of Civil Case No. 333-M-2007;
(2) that due to the pendency of Civil Case No. 333-M-2007, the
RTC-Branch 81 has no jurisdiction over the ex parte petition for
writ of possession, since the question of possession was
already laid before the RTC-Branch 78; and (3) that the issue
of validity of the mortgage contracts executed by Flora and the
foreclosure of the mortgages are material to the issue of
possession.
On April 25, 2011, the CA denied petitioners’ urgent motion for
writ of preliminary injunction and/or Temporary Restraining
Order.
On July 20, 2011, the CA rendered its now assailed decision
denying the petition in CA-G.R. SP No. 114265, ruling that
respondent company was not guilty of forum shopping since
the ex parte petition for writ of possession it filed in P-826-2009
is not an initiatory pleading as to require that a certification of
non-forum shopping be attached thereto; that the issuance of
the writ of possession is merely a ministerial function of the
court a quo, the possession being incidental to the transfer of
title to the new owner; that the issuance of the writ is summary
in nature and is not a judgment on the merits.
The CA further explained that the ex parte writ of possession is
for the sole benefit of the new owner, without need of notice to
or consent by any party who might be adversely affected.
Thus, notwithstanding the pendency of a suit to annul the real
estate mortgage and the extrajudicial foreclosure and auction
sale, the purchaser is entitled to a writ of possession, without
prejudice to the outcome in the annulment case, which can
proceed without encroaching on the jurisdiction of the court
resolving the ex parte petition for writ of possession.
Petition for Review in the Supreme Court
On December 12, 2011, the CA denied the petitioners’ Motion
for Reconsideration from its above decision.24 Hence, this
petition for review.
The petitioners now contend that the CA erred in failing to take
into account the fact that they, against whom the writ of
possession issued by the RTC in P-826-2009 was directed, are
adverse claimants who are third parties and strangers to the
real estate mortgages executed by their mother. They cite
Villanueva v. Cherdan Lending Investors Corporation,25 where
it was reiterated that the issuance of a writ of possession in
favor of the purchaser in an extrajudicial foreclosure sale
ceases to be ministerial where the property is in the
possession of a third party who holds the property under a
claim adverse to that of the debtor/mortgagor.26cralawvllred
The petitioners maintain that they knew nothing about the
mortgage contracts, whose validity is now the subject of their
appeal in CA-G.R. CV No. 96251. They further claim that their
signatures in the Extrajudicial Settlement of Estate with Waiver,
which they supposedly executed in favor of their mother Flora,
were forged. As co-heirs and co-owners with their mother of
the subject lots, they have a claim directly adverse to hers, and
therefore, also directly adverse to her successor-in-interest, the
respondent company. Consequently, the duty of the RTC to
issue the writ of possession to respondent company ceases to
be ministerial.
Our Ruling
We dismiss the petition.
The long-settled rule in extrajudicial foreclosure of real estate
mortgage is that after consolidation of ownership of the
foreclosed property, it is the ministerial duty of the court to
issue, as a matter of right, an ex parte writ of possession to the
buyer.
The established rule is that the purchaser in an extrajudicial
foreclosure sale becomes the absolute owner of the property if
no redemption is made within one (1) year from the registration
of the certificate of sale by those who are entitled to redeem.27
Possession being a recognized essential attribute of
ownership,28 after consolidation of title the purchaser may
demand possession as a matter of right.29 Under Section 7 of
Act No. 3135, as amended by Act No. 4118, the issuance of
the writ is merely a ministerial function of the RTC, which the
new owner may obtain through an ex parte motion.30 Section
7 of Act No. 3135 provides:chanroblesvirtuallawlibrary
Sec. 7. In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance of the
province or place where the property or any part thereof is
situated, to give him possession thereof during the redemption
period, furnishing bond in an amount equivalent to the use of
the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without
violating the mortgage or without complying with the
requirements of this Act. Such petition shall be made under
oath and filed in form of an ex parte motion in the registration
or cadastral proceedings if the property is registered, or in
special proceedings in the case of property registered under
the Mortgage Law or under section one hundred and ninety-
four of the Administrative Code, or of any other real property
113
encumbered with a mortgage duly registered in the office of
any register of deeds in accordance with any existing law, and
in each case the clerk of the court shall, upon the filing of such
petition, collect the fees specified in paragraph eleven of
section one hundred and fourteen of Act numbered Four
hundred and ninety-six, as amended by Act numbered Twenty-
eight hundred and sixty-six, and the court shall, upon approval
of the bond, order that a writ of possession issue, addressed to
the sheriff of the province in which the property is situated, who
shall execute said order immediately.
The possession may be granted to the buyer either (a) within
the one-year redemption period, upon the filing by the
purchaser of a bond, or (b) after the lapse of the redemption
period, without need of a bond.31 As explained in Spouses
Arquiza v. CA:32cralawvllred
Indeed, it is well-settled that an ordinary action to acquire
possession in favor of the purchaser at an extrajudicial
foreclosure of real property is not necessary. There is no law in
this jurisdiction whereby the purchaser at a sheriff’s sale of real
property is obliged to bring a separate and independent suit for
possession after the one-year period for redemption has
expired and after he has obtained the sheriff’s final certificate
of sale. The basis of this right to possession is the purchaser’s
ownership of the property. The mere filing of an ex parte
motion for the issuance of the writ of possession would suffice,
and no bond is required.33 (Citations omitted and underscoring
ours)
We repeated the above rule in Asia United Bank v. Goodland
Company, Inc.,34 in this wise:chanroblesvirtuallawlibrary
It is a time-honored legal precept that after the consolidation of
titles in the buyer’s name, for failure of the mortgagor to
redeem, entitlement to a writ of possession becomes a matter
of right. As the confirmed owner, the purchaser’s right to
possession becomes absolute. There is even no need for him
to post a bond, and it is the ministerial duty of the courts to
issue the same upon proper application and proof of title. To
accentuate the writ’s ministerial character, the Court has
consistently disallowed injunction to prohibit its issuance
despite a pending action for annulment of mortgage or the
foreclosure itself.
The nature of an ex parte petition for issuance of the
possessory writ under Act No. 3135 has been described as a
non-litigious proceeding and summary in nature. As an ex
parte proceeding, it is brought for the benefit of one party only,
and without notice to or consent by any person adversely
interested.35 (Citations omitted)
Moreover, we made it clear in the recent case of BPI Family
Savings Bank, Inc. v. Golden Power Diesel Sales Center,
Inc.,36 that not even a pending action for annulment of
mortgage or foreclosure sale will stay the issuance of the writ
of possession:chanroblesvirtuallawlibrary
Furthermore, it is settled that a pending action for annulment of
mortgage or foreclosure sale does not stay the issuance of the
writ of possession. The trial court, where the application for a
writ of possession is filed, does not need to look into the
validity of the mortgage or the manner of its foreclosure. The
purchaser is entitled to a writ of possession without prejudice to
the outcome of the pending annulment case.37 (Citations
omitted)
Nonetheless, the ministerial duty of the court to issue an ex
parte writ of possession ceases once it appears that there is a
third party in possession of the property, who is a stranger to
the mortgage and who claims a right adverse to that of the
debtor/ mortgagor.
Section 33, Rule 39 of the Rules of Court provides that in an
execution sale, the possession of the property shall be given to
the purchaser or last redemptioner, unless a third party is
actually holding the property adversely to the judgment
obligor:chanroblesvirtuallawlibrary
Sec. 33. Deed and possession to be given at expiration of
redemption period; by whom executed or given.—If no
redemption be made within one (1) year from the date of the
registration of the certificate of sale, the purchaser is entitled to
a conveyance and possession of the property; or, if so
redeemed whenever sixty (60) days have elapsed and no other
redemption has been made, and notice thereof given, and the
time for redemption has expired, the last redemptioner is
entitled to the conveyance and possession; but in all cases the
judgment obligor shall have the entire period of one (1) year
from the date of the registration of the sale to redeem the
property. The deed shall be executed by the officer making the
sale or by his successor in office, and in the latter case shall
have the same validity as though the officer making the sale
had continued in office and executed it.
Upon the expiration of the right of redemption, the purchaser or
redemptioner shall be substituted to and acquire all the rights,
title, interest and claim of the judgment obligor to the property
as of the time of the levy. The possession of the property shall
be given to the purchaser or last redemptioner by the same
officer unless a third party is actually holding the property
adversely to the judgment obligor.
The application of the above Section has been extended to
extrajudicial foreclosure sales pursuant to Section 6 of Act No.
3135, to wit:chanroblesvirtuallawlibrary
Sec. 6. In all cases in which an extrajudicial sale is made under
the special power hereinbefore referred to, the debtor, his
successors in interest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under
which the property is sold, may redeem the same at any time
within the term of one year from and after the date of sale; and
such redemption shall be governed by the provisions of section
four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of Civil Procedure, in so far as these are
not inconsistent with the provisions of this Act.
Thus emboldened by Section 33 of Rule 39, the petitioners
have persisted in making the point that they are strangers to
the mortgage contracts executed by their mother over their
father’s lots, which they claim to co-own with her, an interest
adverse to that of the respondent company. In Villanueva,38
they found support for their
contention:chanroblesvirtuallawlibrary
It is settled that the buyer in a foreclosure sale becomes the
absolute owner of the property purchased if it is not redeemed
within one year after the registration of the sale. As such, he is
entitled to the possession of the property and can demand that
he be placed in possession at any time following the
consolidation of ownership in his name and the issuance to him
of a new TCT. Time and again, we have held that it is
ministerial upon the court to issue a writ of possession after the
foreclosure sale and during the period of redemption. Upon the
114
filing of an ex parte motion and the approval of the
corresponding bond, the court issues the order for a writ of
possession. The writ of possession issues as a matter of
course even without the filing and approval of a bond after
consolidation of ownership and the issuance of a new TCT in
the name of the purchaser.
This rule, however, is not without exception. Under Section 33,
Rule 39 of the Rules of Court, which is made to apply
suppletorily to the extrajudicial foreclosure of real estate
mortgages by Section 6, Act 3135, as amended, the
possession of the mortgaged property may be awarded to a
purchaser in the extrajudicial foreclosure unless a third party is
actually holding the property adversely to the judgment debtor.
Section 33 provides:cralaw
xxxx
The same issue had been raised in Bank of the Philippine
Islands v. Icot, Development Bank of the Philippines v. Prime
Neighborhood Association, Dayot v. Shell Chemical Company
(Phils.), Inc., and Philippine National Bank v. Court of Appeals,
and we uniformly held that the obligation of the court to issue
an ex parte 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 in possession of the property
who is claiming a right adverse to that of the debtor/mortgagor.
The purchaser’s right of possession is recognized only as
against the judgment debtor and his successor-in-interest but
not against persons whose right of possession is adverse to
the latter. In this case, petitioner opposed the issuance of the
writ of possession on the ground that he is in actual possession
of the mortgaged property under a claim of ownership. He
explained that his title to the property was cancelled by virtue
of a falsified deed of donation executed in favor of spouses
Peñaredondo. Because of this falsification, he filed civil and
criminal cases against spouses Peñaredondo to nullify the
deed of donation and to punish the party responsible for the
falsified document. Petitioner’s claim that he is in actual
possession of the property is not challenged, and he has come
to court asserting an ownership right adverse to that of the
mortgagors, the spouses Peñaredondo.39 (Citations omitted)
But in China Banking Corporation v. Lozada,40 the Supreme
Court clarified that it is not enough that the property be
possessed by a third party, but the same must also held by the
third party adversely to the
debtor/mortgagor:chanroblesvirtuallawlibrary
Where a parcel levied upon on execution is occupied by a
party other than a judgment debtor, the procedure is for the
court to order a hearing to determine the nature of said
adverse possession. Similarly, in an extrajudicial foreclosure of
real property, when the foreclosed property is in the
possession of a third party holding the same adversely to the
defaulting debtor/mortgagor, the issuance by the RTC of a writ
of possession in favor of the purchaser of the said real property
ceases to be ministerial and may no longer be done ex parte.
For the exception to apply, however, the property need not only
be possessed by a third party, but also held by the third party
adversely to the debtor/mortgagor.41 (Citation omitted and
emphasis ours)
The Court then discussed the meaning of “third party who is
actually holding the property adversely to the judgment
obligor,”42 thus:chanroblesvirtuallawlibrary
The exception provided under Section 33 of Rule 39 of the
Revised Rules of Court contemplates a situation in which a
third party holds the property by adverse title or right, such as
that of a co-owner, tenant or usufructuary. The co-owner,
agricultural tenant, and usufructuary possess the property in
their own right, and they are not merely the successor or
transferee of the right of possession of another co-owner or the
owner of the property. x x x.43 (Citations omitted)
Thus, it was held in BPI Family Savings Bank, Inc. that to be
error for the court to issue an ex parte writ of possession to the
purchaser in an extrajudicial foreclosure, or to refuse to abate
one already granted, where a third party claimant in actual
possession has raised, in an opposition to the writ or in a
motion to quash the same, the matter of his actual possession
upon a claim of ownership or a right adverse to that of the
debtor or mortgagor. The procedure, accordingly to Unchuan v.
CA,44 is for the trial court to order a hearing to determine the
nature of the adverse possession:45cralawvllred
Note, however, that a third party not privy to the debtor is
protected by the law. He may be ejected from the premises
only after he has been given an opportunity to be heard,
conformably with the time-honored principle of due process.
“Where a parcel of land levied on execution 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.”46 (Citations omitted)
We find no proof that the petitioners are adverse third-party
claimants entitled to be retained in possession.
The RTC’s chief consideration for granting to the respondent
company a writ of possession was that the assailed mortgages
purportedly executed by Flora in 1995 were constituted on
properties covered by certificates of title issued solely in her
name.
It will be noted that it was only in June 2007, after respondent
company had threatened them with extrajudicial foreclosure
and eviction, or after 12 years had passed, that the petitioners
brought an action to annul the real estate mortgages, and
meanwhile, Flora had obtained several loans totaling P7.5
million from the respondent company in 1995. It took
petitioners even longer, 15 years, to assail the validity of the
alleged Extrajudicial Settlement of Estate with Waiver, which
gave Flora sole title to the subject lots under the new titles
issued to her in April 1992.
Realizing that their claim of forgery of their mother’s signature
in the mortgage contracts was tenuous after the RTC-Branch
78 dismissed Civil Case No. 333-M-2007, the petitioners now
claim that an earlier instrument, an Extrajudicial Settlement of
Estate with Waiver, was falsified by their brothers Manuel and
Arturo who forged their signatures. Yet, why the said
instrument named neither Manuel nor Arturo but their mother
Flora as the sole beneficiary of the heirs’ waiver, the petitioners
did not explain. Thus, through the said instrument, on April 7,
1992, TCT No. RT-19565 (T-41394), TCT No. RT-19566 (T-
11678), and TCT No. RT-19564 (T-193099), all under the
name of “Mamerto Darcen married to Flora de Guzman,” were
cancelled and replaced with TCT Nos. T-19267, T-19268, and
T-19269, respectively, now in the name solely of “Flora de
Guzman, Filipino, of legal age, widow.”
Considering that the petitioners are now stridently asserting
that their signatures in the aforesaid Extrajudicial Settlement of
Estate with Waiver had been forged, it is inexplicable why they
115
failed to attach a copy thereof either to their Opposition to the
ex parte petition for writ of possession, or to this petition. All
that they could say about this “oversight” is that they “were
never able to insist on the presentation of the said document
because they were never parties in the case for writ of
possession. Besides, the case for writ of possession is
summary and non-adversarial.”47cralawvllred
But this is a lie and an obvious subterfuge, for the fact is that
the RTC set a hearing on February 26, 2010 to hear out the
petitioners on the nature of their claimed adverse possession.
They appeared with their lawyer, and had an opportunity to lay
out the complete facts and present whatever pertinent
documents were in their possession. They did no such thing,
and only affirmed the contents of their Opposition, wherein they
chiefly asserted their defense of lack of jurisdiction of the RTC-
Branch 81 and forum shopping.
Not only did petitioners not sue to annul the extrajudicial
settlement, but on the very day, April 7, 1992, that the new
titles were issued to Flora, an inscription appears in the said
titles announcing that one-half (½) of the lots would be bound
for the next two years to possible claims by other heirs or
unknown creditors against the estate of Mamerto, pursuant to
Section 4 of Rule 74 of the Rules of Court. All three titles bear
this same inscription,48 which the petitioners admit that they
themselves had caused to be annotated on their mother’s
titles,49 in the following words:chanroblesvirtuallawlibrary
Entry No. 7550 – The ½ portion of the land described herein is
subject to the provision of Sec. 4, Rule 74 of the Rules with
respect to the inheritance left by the deceased Mamerto
Darcen.
Date of instrument – March 7, 1992
Date of inscription – April 7, 1992 at 9:35 a.m.50
All the above leave little doubt that the petitioners had always
known about, and had consented to, the extrajudicial
settlement of the estate of their father Mamerto, as well as
waiver by them of their shares therein in favor of their mother
Flora. For this very reason, they cannot now be permitted to
interpose an adverse claim in the subject mortgaged lots and
defeat the writ of possession issued to the respondent
company.
The petitioners were accorded an opportunity to be heard on
the nature of their claimed adverse possession, conformably
with the time-honored principle of due process.
On December 17, 2009, the RTC-Branch 81 set for hearing on
February 26, 2010 the petition for writ of possession in P-826-
2009.51 On February 25, 2010, the petitioners were able to file
their Opposition52 to the said petition, wherein they asserted
that they are co-owners of the properties, being heirs of the
deceased Mamerto; that they filed a case, Civil Case No. 333-
M-2007, to annul the mortgages over the three lots on account
of forgery; and that the extrajudicial foreclosure sale of the lots
was invalid. They, thus, prayed for outright denial of the writ on
the ground of forum shopping, because respondent company
did not disclose the pendency of Civil Case No. 333-M-2007 in
its certification against forum shopping.
At the hearing on February 26, 2010, the petitioners appeared
with their counsel, Atty. Enrique dela Cruz, Jr. They did not
however present any documents, and only affirmed their
Opposition already in the records.53 On March 11, 2010,
respondent company filed its comment to petitioners’
Opposition.54 On March 23, 2010, the petitioners filed their
reply.55cralawvllred
In its Order dated March 16, 2010, the RTC-Branch 81 held
that respondent company was not guilty of forum shopping,
citing Sagarbarria v. Philippine Business Bank,56 as
follows:chanroblesvirtuallawlibrary
[A]ct No. 3135, as amended by Act No. 4118, is categorical in
stating that the purchaser must first be placed in possession of
the mortgaged property pending proceedings assailing the
issuance of the writ of possession.
Consequently, the RTC under which the application for the
issuance of a writ of possession over the subject property is
pending cannot defer the issuance of the said writ in view of
the pendency of an action for annulment of mortgage and
foreclosure sale. The judge with whom an application for a writ
of possession is filed need not look into the validity of the
mortgage or the manner of its foreclosure.
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.57 (Underscoring
ours)
On April 8, 2010, petitioners filed their Motion for
Reconsideration58 from the denial of their opposition, but it
was denied on May 4, 2010.
Even granting that the petitioners should be allowed to retain
possession, the petition has been rendered moot and
academic by the issuance and satisfaction of the writ of
possession issued in P-826-2009.
As the petitioners have themselves admitted in their Petition,59
the RTC-Branch 81, issued a Writ of Possession60 dated April
18, 2011, and on October 4, 2011 they were physically evicted
from the disputed lots by the Sheriff, and the respondent
company was placed in possession thereof, per the Sheriff’s
report dated October 4, 2011.61 With the writ of possession
having been served and fully satisfied, the instant petition has
ceased to present a justiciable controversy for this Court to
resolve, and a declaration thereon would be of no practical use
or value,62 in view of the pendency in the CA of the petitioners’
appeal from the decision in Civil Case No. 333-M-2007 on the
question of the ownership of the subject mortgaged lots, and
thus of the rightful possession thereover. As we have reiterated
in Madriaga, Jr. v. China Banking Corporation:63cralawvllred
Judicial power presupposes actual controversies, the very
antithesis of mootness. Where there is no more live subject of
controversy, the Court ceases to have a reason to render any
ruling or make any pronouncement. Courts generally decline
jurisdiction on the ground of mootness – save when, among
others, a compelling constitutional issue raised requires the
formulation of controlling principles to guide the bench, the bar
and the public; or when the case is capable of repetition yet
evading judicial review, which are not extant in this case.64
(Citations omitted)
116
What is now left for the petitioners to do is to await the
resolution of their appeal in Civil Case No. 333-M-2007. Their
restoration to possession may then be sought therein as an
incident or relief, if justified.

WHEREFORE, premises considered, the Petition for Review

on Certiorari is DENIED.???ñr?bl?š ??r†??l l?? l?br?rÿ

SO ORDERED.

117
G.R. No. 191540, January 21, 2015
SPOUSES JOSE O. GATUSLAO AND ERMILA LEONILA
LIMSIACO-GATUSLAO, Petitioners, v. LEO RAY V. YANSON,
Respondent.
DECISION
DEL CASTILLO, J.:
Petitioners spouses Jose O. Gatuslao and Ermila Leonila
Limsiaco-Gatuslao (petitioners) are assailing the December 8,
20091 Order of the Regional Trial Court (RTC) of Bacolod City,
Branch 49 in Cad. Case No. 09-2802 which granted
respondent Leo Ray2 Yanson’s (respondent) Ex Parte Motion
for the Issuance of Writ of Possession over the properties
being occupied by petitioners, as well as the February 26, 2010
RTC Order3 denying petitioners’ motion for reconsideration
thereto.
Factual Antecedents
Petitioner Ermila Leonila Limsiaco-Gatuslao is the daughter of
the late Felicisimo Limsiaco (Limsiaco) who died intestate on
February 7, 1989. Limsiaco was the registered owner of two
parcels of land with improvements in the City of Bacolod
described as Lots 10 and 11, Block 8 of the subdivision plan
Psd-38577 and covered by Transfer Certificates of Title (TCT)
Nos. T-334294 and T-24331.5chanRoblesvirtualLawlibrary
Limsiaco mortgaged the said lots along with the house
standing thereon to Philippine National Bank (PNB). Upon
Limsiaco’s failure to pay, PNB extrajudicially foreclosed on the
mortgage and caused the properties’ sale at a public auction
on June 24, 1991 where it emerged as the highest bidder.
When the one-year redemption period expired without
Limsiaco’s estate redeeming the properties, PNB caused the
consolidation of titles in its name. Ultimately, the Registry of
Deeds of Bacolod City cancelled TCT Nos. T-33429 and T-
24331 and in lieu thereof issued TCT Nos. T-3088186 and T-
3088197 in PNB’s name on October 25, 2006.
On November 10, 2006, a Deed of Absolute Sale8 was
executed by PNB conveying the subject properties in favor of
respondent. As a consequence thereof, the Registry of Deeds
of Bacolod City issued TCT Nos. T-3111259 and T-31112610
in respondent’s name in lieu of PNB’s titles.
Then, as a registered owner in fee simple of the contested
properties, respondent filed with the RTC an Ex-Parte Motion
for Writ of Possession11 pursuant to Section 7 of Act No.
3135,12 as amended by Act No. 4118 (Act No. 3135, as
amended),13 docketed as Cad. Case No. 09-2802.
In their Opposition,14 petitioners argued that the respondent is
not entitled to the issuance of an ex-parte writ of possession
under Section 7 of Act No. 3135 since he was not the buyer of
the subject properties at the public auction sale and only
purchased the same through a subsequent sale made by PNB.
Not being the purchaser at the public auction sale, respondent
cannot file and be granted an ex parte motion for a writ of
possession. Petitioners also asserted that the intestate estate
of Limsiaco has already instituted an action for annulment of
foreclosure of mortgage and auction sale affecting the
contested properties.15 They argued that the existence of the
said civil suit bars the issuance of the writ of possession and
that whatever rights and interests respondent may have
acquired from PNB by virtue of the sale are still subject to the
outcome of the said case.
Ruling of the Regional Trial Court
The RTC granted the issuance of the writ of possession in an
Order16 dated December 8, 2009. It cited the Court’s
pronouncement in China Banking Corporation v.
Lozada,17viz:chanroblesvirtuallawlibrary
The Court recognizes the rights acquired by the purchaser of
the foreclosed property at the public auction sale upon the
consolidation of his title when no timely redemption of the
property was made, x x x.
It is thus settled that the buyer in a foreclosure sale becomes
the absolute owner of the property purchased if it is not
redeemed during the period of one year after the registration of
the sale. As such, he is entitled to the possession of the said
property and can demand it at any time following the
consolidation of ownership in his name and the issuance to him
of a new transfer certificate of title. x x x Possession of the land
then becomes an absolute right of the purchaser as confirmed
owner. Upon proper application and proof of title, the issuance
of the writ of possession becomes a ministerial duty of the
court.
The purchaser, therefore, in the public auction sale of a
foreclosed property is entitled to a writ of possession x x x.18
PNB, therefore, as the absolute owner of the properties is
entitled to a writ of possession. And since respondent
purchased the properties from PNB, the former has necessarily
stepped into the shoes of the latter. Otherwise stated,
respondent, by subrogation, has the right to pursue PNB’s
claims against petitioners as though they were his own.
The dispositive portion of the above Order
reads:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the Court hereby issues
a writ of possession in favor of movant Leo Ray V. Yanson
ordering Spouses Jose and Mila Gatuslao, their heirs, assigns,
successors-in-interest, agents, representatives and/or any and
all other occupants or persons claiming any interest or title of
the subject property to deliver the possession of said property
to the herein movant/ petitioner.
SO ORDERED.19
Petitioners moved for reconsideration20 which was denied in
an Order21 dated February 26, 2010,
thus:chanroblesvirtuallawlibrary
WHEREFORE, the Motion for Reconsideration filed by
Oppositors is hereby DENIED. Thus, the Order dated
December 8, 2009 stands.
SO ORDERED.22
Respondent on March 19, 2010 moved to execute the
possessory writ23 while petitioners on April 15, 2010 filed with
this Court the present Petition for Review on Certiorari.
On September 30, 2010, the RTC issued an Order24 directing
the implementation of the writ. And per Sheriff’s Return of
Service,25 the same was fully implemented on March 14,
2011.cralawred
Issues
118
According to petitioners, the pending action for annulment of
foreclosure of mortgage and the corresponding sale at public
auction of the subject properties operates as a bar to the
issuance of a writ of possession;
Claiming violation of their right to due process, petitioners
likewise assert that as they were not parties to the foreclosure
and are, thus, strangers or third parties thereto, they may not
be evicted by a mere ex parte writ of possession; and
Lastly, petitioners argue that respondent, a mere purchaser of
the contested properties by way of a negotiated sale between
him and PNB, may not avail of a writ of possession pursuant to
Section 7 of Act No. 3135, as amended, as he is not the
purchaser at the public auction sale. Petitioners further contend
that respondent has no right to avail of the writ even by way of
subrogation.
Our Ruling
Preliminarily, we note that petitioners’ direct resort to this Court
from the assailed Orders of the RTC violates the rule on
hierarchy of courts. Their remedy lies with the Court of
Appeals. Considering however the length of time this case has
been pending and in view of our January 26, 2011
Resolution26 giving due course to the Petition, we deem it
proper to adjudicate the case on its merits.
The Petition is denied.
It is settled that the issuance of a Writ of
Possession may not be stayed by a pending
action for annulment of mortgage or the
foreclosure itself.
It is petitioners’ stand that the pending action for annulment of
foreclosure of mortgage and of the corresponding sale at public
auction of the subject properties operates as a bar to the
issuance of a writ of possession.
The Court rules in the negative. BPI Family Savings Bank, Inc.
v. Golden Power Diesel Sales Center, Inc.27 reiterates the
long-standing rule that:chanroblesvirtuallawlibrary
[I]t is settled that a pending action for annulment of mortgage
or foreclosure sale does not stay the issuance of the writ of
possession. The trial court, where the application for a writ of
possession is filed, does not need to look into the validity of the
mortgage or the manner of its foreclosure. The purchaser is
entitled to a writ of possession without prejudice to the
outcome of the pending annulment case.
This is in line with the ministerial character of the possessory
writ. Thus, in Bank of the Philippine Islands v. Tarampi,28 it
was held:chanroblesvirtuallawlibrary
To stress the ministerial character of the writ of possession, the
Court has disallowed injunction to prohibit its issuance, just as
it has held that its issuance may not be stayed by a pending
action for annulment of mortgage or the foreclosure itself.
Clearly then, until the foreclosure sale of the property in
question is annulled by a court of competent jurisdiction, the
issuance of a writ of possession remains the ministerial duty of
the trial court. The same is true with its implementation;
otherwise, the writ will be a useless paper judgment – a result
inimical to the mandate of Act No. 3135 to vest possession in
the purchaser immediately.29 (Emphases supplied)
Clearly, petitioners’ argument is devoid of merit.
Petitioners are not strangers or third
parties to the foreclosure sale; they
were not deprived of due process.
Section 7 of Act No. 3135, as amended, sets forth the following
procedure in the availment of and issuance of a writ of
possession in cases of extrajudicial foreclosures,
viz:chanroblesvirtuallawlibrary
SECTION 7. In any sale made under the provisions of this Act,
the purchaser may petition the Court of First Instance
(Regional Trial Court) of the province or place where the
property or any part thereof is situated, to give him possession
thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that
the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall
be made under oath and filed in form of an ex parte motion in
the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property
registered under the Mortgage Law or under section one
hundred and ninety-four of the Administrative Code, or of any
other real property encumbered with a mortgage duly
registered in the office of any register of deeds in accordance
with any existing law, and in each case the clerk of the court
shall, upon the filing of such petition, collect the fees specified
in paragraph eleven of section one hundred and fourteen of Act
Numbered Four hundred and ninety-six, as amended by Act
Numbered Twenty-eight hundred and sixty-six, and the court
shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order
immediately.
Although the above provision clearly pertains to a writ of
possession availed of and issued within the redemption period
of the foreclosure sale, the same procedure also applies to a
situation where a purchaser is seeking possession of the
foreclosed property bought at the public auction sale after the
redemption period has expired without redemption having been
made.30 The only difference is that in the latter case, no bond
is required therefor, as held in China Banking Corporation v.
Lozada,31 thus:chanroblesvirtuallawlibrary
It is thus settled that the buyer in a foreclosure sale becomes
the absolute owner of the property purchased if it is not
redeemed during the period of one year after the registration of
the sale. As such, he is entitled to the possession of the said
property and can demand it at any time following the
consolidation of ownership in his name and the issuance to him
of a new transfer certificate of title. The buyer can in fact
demand possession of the land even during the redemption
period except that he has to post a bond in accordance with
Section 7 of Act No. 3135, as amended. No such bond is
required after the redemption period if the property is not
redeemed. x x x32 (Emphasis supplied)
Upon the expiration of the period to redeem and no redemption
was made, the purchaser, as confirmed owner, has the
absolute right to possess the land and the issuance of the writ
of possession becomes a ministerial duty of the court upon
proper application and proof of
title.33chanRoblesvirtualLawlibrary
Nevertheless, where the extrajudicially foreclosed real property
is in the possession of a third party who is holding the same
119
adversely to the judgment debtor or mortgagor, the RTC’s duty
to issue a writ of possession in favor of the purchaser of said
real property ceases to be ministerial and, as such, may no
longer proceed ex parte.34 In such a case, the trial court must
order a hearing to determine the nature of the adverse
possession.35 For this exception to apply, however, it is not
enough that the property is in the possession of a third party,
the property must also be held by the third party adversely to
the judgment debtor or mortgagor,36 such as a co-owner,
agricultural tenant or
usufructuary.37chanRoblesvirtualLawlibrary
In this case, petitioners do not fall under any of the above
examples of such a third party holding the subject properties
adversely to the mortgagor; nor is their claim to their right of
possession analogous to the foregoing situations. Admittedly,
they are the mortgagor Limsiaco’s heirs. It was precisely
because of Limsiaco’s death that petitioners obtained the right
to possess the subject properties and, as such, are considered
transferees or successors-in-interest of the right of possession
of the latter. As Limsiaco’s successors-in-interest, petitioners
merely stepped into his shoes and are, thus, compelled not
only to acknowledge but, more importantly, to respect the
mortgage he had earlier executed in favor of respondent.38
They cannot effectively assert that their right of possession is
adverse to that of Limsiaco as they do not have an
independent right of possession other than what they acquired
from him.39 Not being third parties who have a right contrary
to that of the mortgagor, the trial court was thus justified in
issuing the writ and in ordering its implementation.
Petitioners’ claim that their right to due process was violated by
the mere issuance of the writ of possession must likewise fail.
As explained, petitioners were not occupying the properties
adversely to the mortgagor, hence, a writ of possession may
be issued ex parte. And precisely because of this ex parte
nature of the proceedings no notice is needed to be served40
upon them. It has been stressed time and again that “the ex
parte nature of the proceeding does not deny due process to
the petitioners because the issuance of the writ of possession
does not prevent a separate case for annulment of mortgage
and foreclosure sale.”41 Consequently, the RTC may grant
the petition even without petitioners’ participation.
Nevertheless, even if the proceedings in this case was
supposed to be ex parte, the records of the case would show
that petitioners’ side on this controversy was actually heard as
evidenced by the numerous pleadings42 filed by them in the
lower court. In fact, in its July 27, 2009 Order,43 the RTC
expressly directed respondent, “in observance of equity and
fair play x x x to furnish [petitioners] with a copy of his
motion/petition and to show x x x proof of compliance thereof x
x x.”44 Then and now, the Court holds that a party cannot
invoke denial of due process when he was given an
opportunity to present his side.45chanRoblesvirtualLawlibrary
Respondent is entitled to the
issuance of writ of possession.
Petitioners insist that respondent is not entitled to the issuance
of the writ of possession under Section 7 of Act No. 3135 as he
is only a buyer of the subject properties in a contract of sale
subsequently executed in his favor by the actual purchaser,
PNB. To them, it is only the actual purchaser of a property at
the public auction sale who can ask the court and be granted a
writ of possession.
This argument is not tenable. Respondent, as a transferee or
successor-in-interest of PNB by virtue of the contract of sale
between them, is considered to have stepped into the shoes of
PNB. As such, he is necessarily entitled to avail of the
provisions of Section 7 of Act No. 3135, as amended, as if he
is PNB. This is apparent in the Deed of Absolute Sale46
between the two, viz:chanroblesvirtuallawlibrary
The Vendor hereby sells, transfer[s] and convey[s] unto[, and]
in favor of the Vendee, and the latter’s assigns and
successors-in-interest, all of the former’s rights and title to,
interests and participation in the Property on an “AS IS,
WHERE IS” basis. It is thus understood that the Vendee has
inspected the Property and has ascertained its condition.
xxxx
The Vendor is selling only whatever rights and title to, interests
and participation it has acquired over the Property, and the
Vendee hereby acknowledges full knowledge of the nature and
extent of the Vendor’s rights and title to, [and] interests and
participation in the Property.
x x x The Vendee further agrees to undertake, at its/his/her
expense, the ejectment of any occupant of the Property.47
(Emphases in the original)
Verily, one of the rights that PNB acquired as purchaser of the
subject properties at the public auction sale, which it could
validly convey by way of its subsequent sale of the same to
respondent, is the availment of a writ of possession. This can
be deduced from the above-quoted stipulation that “[t]he
[v]endee further agrees to undertake, at xxx his expense, the
ejectment of any occupant of the [p]roperty.” Accordingly,
respondent filed the contentious ex parte motion for a writ of
possession to eject petitioners therefrom and take possession
of the subject properties.
Further, respondent may rightfully take possession of the
subject properties through a writ of possession, even if he was
not the actual buyer thereof at the public auction sale, in
consonance with our ruling in Ermitaño v. Paglas.48 In the
said case, therein respondent was petitioner’s lessee in a
residential property owned by the latter. During the lifetime of
the lease, respondent learned that petitioner mortgaged the
subject property in favor of Charlie Yap (Yap) who eventually
foreclosed the same. Yap was the purchaser thereof in an
extrajudicial foreclosure sale. Respondent ultimately bought
the property from Yap. However, it was stipulated in the deed
of sale that the property was still subject to petitioner’s right of
redemption. Subsequently and despite written demands to pay
the amounts corresponding to her monthly rental of the subject
property, respondent did not anymore pay rents. Meanwhile,
petitioner’s period to redeem the foreclosed property expired
on February 23, 2001. Several months after, petitioner filed a
case for unlawful detainer against respondent. When the case
reached this Court, it ruled that therein respondent’s basis for
denying petitioner’s claim for rent was insufficient as the latter,
during the period for which payment of rent was being
demanded, was still the owner of the foreclosed property. This
is because at that time, the period of redemption has not yet
expired. Thus, petitioner was still entitled to the physical
possession thereof subject, however, to the purchaser’s right to
petition the court to give him possession and to file a bond
pursuant to the provisions of Section 7 of Act No. 3135, as
amended. However, after the expiration of the redemption
period without redemption having been made by petitioner,
respondent became the owner thereof and consolidation of title
becomes a right. Being already then the owner, respondent
became entitled to possession. Consequently, petitioner’s
ejectment suit was held to have been rendered moot by the
expiration of the period of redemption without petitioner
redeeming the properties. This is considering that petitioner
120
already lost his possessory right over the property after the
expiration of the said period.

Although the main issue in Ermitaño was whether respondent

was correct in refusing to pay rent to petitioner on the basis of
her having bought the latter’s foreclosed property from whom it
was mortgaged, the case is enlightening as it acknowledged
respondent’s right, as a subsequent buyer of the properties
from the actual purchaser of the same in the public auction
sale, to possess the property after the expiration of the period
to redeem sans any redemption. Verily, Ermitaño
demonstrates the applicability of the provisions of Section 7 of
Act No. 3135 to such a subsequent purchaser like respondent
in the present case.

All told, the Court affirms the RTC’s issuance of the Writ of
Possession in favor of respondent.chanrobleslaw

WHEREFORE, the Petition is hereby DENIED. The December

8, 2009 and February 26, 2010 Orders of the Regional Trial
Court of Bacolod City, Branch 49 in Cad. Case No. 09-2802
are AFFIRMED.

SO ORDERED.cralawlawlibrary

121
G.R. No. 196040 August 26, 2014
FE H. OKABE, Petitioner,
vs.
ERNESTO A. SATURNINO, Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45
of the Rules of Court seeking the reversal of the Decision1
dated September 24, 2010 and Resolution2 dated March 9,
2011 of the Court of Appeals (CA) in CA-G.R. SP No. 110029.
The facts, as culled from the records, are as follows:
The subject of the controversy is an eighty-one (81)square
meter property located in Barangay San Antonio, Makati City,
which was initially covered by Transfer Certificate of Title (TCT)
No. 175741under the name of the wife of respondent Ernesto
A. Saturnino. Sometime in 1994, the couple obtained a loan
with the Philippine National Bank (PNB), which was secured by
the subject property. Because of the couple’s failure to settle
their loan obligation with the bank, PNB extrajudicially
foreclosed the mortgage.
On August 24, 1999, the Certificate ofSale was inscribed on
TCT No. 175741. Considering that the property was not
redeemedby respondent during the redemption period,
consolidation of ownership was inscribed on October 13, 2006
and a new TCT was issued in favor of PNB. Without taking
possession of the subject property, PNB sold the land to
petitioner Fe H. Okabe on June 17, 2008. TCT No. 225265
was later issued in petitioner’s name on August 13, 2008.
On November 27, 2008, petitioner filed with the Regional Trial
Court (RTC) of Makati City an Ex-Parte Petition for Issuance of
Writ of Possession3 over the subject property, to which
respondent submitted an Opposition with Motion to Dismiss.4
Petitioner filed her Reply to/ Comment on the Opposition with
Motion to Dismiss,5 while respondent submitted his Oppositor-
Movant’sRejoinder with Motion for Postponement.6
On April 30 2009, the RTC issued an Order7 denying
respondent’s Opposition with Motion to Dismiss for lack of
merit. The RTC, citing the case of Ramos v. Mañalac and
Lopez8 opined that the issuance of a writ of possession in
favor of the petitioner was merely a ministerial and
complementary duty of the court.
Respondent then filed an Urgent Motion for Clarification (of the
Order dated 30 April 2009),9 then a Motion for
Reconsideration,10 which was followed by a Supplement to the
Motion for Reconsideration11 which petitioner likewise
opposed.12
On July 29, 2009, the RTC issued an Order13 denying
respondent’s Motion for Reconsideration and the Supplement
to the Motion for Reconsideration. The RTC ruled, among other
things, that the right of the petitioner to be placed in absolute
possession of the subject property was a consequence of her
right of ownership and that petitioner cannot be deprived of
said possession being now the registered owner of the
property.
Dismayed, respondent filed on August 17, 2009 a Petition for
Certiorari14 with the CA questioning the Orders of the RTC
based on the following grounds:
I
HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER
THE FACT THAT PRIVATE RESPONDENT WAS ALREADY
ESTOPPED FROM ASKING FOR THE ISSUANCE OF A
WRIT OF POSSESSION CONSIDERING THAT THE VERY
DEED OF ABSOLUTE SALE FROM WHICH HER ALLEGED
RIGHT EMANATES EXPLCITLY (sic) GAVE HER THE ONLY
OPTION OF FILING AN EJECTMENT SUIT.
II
HON. JUDGE BENJAMIN T. POZON FAILED TO CONSIDER
THAT SECTION 7 OF ACT NO. 3135, AS AMENDED BY ACT
4118 SHOULD BE CONSTRUED STRICTLY.15
Respondent prayed, among other things, that the CA reverse
and set aside the assailed Orders and thata Temporary
Restraining Order (TRO) be issued enjoining the RTC from
hearing the petition for the issuance of a writ of possession.
Meanwhile, on November 23, 2009, the RTC rendered a
Decision16 in favor of petitioner, which granted her ex-parte
petition and ordered that the corresponding writ of possession
over the subject property be issued in her favor. The decretal
portion of which reads:
WHEREFORE, premises considered, and in accordance with
Section 7 of Act No. 3135, as amended, the instant petition [is]
hereby GRANTED.
Let the corresponding Writ be issued in favor of the herein
petitioner Fe H. Okabe to place her inpossession of the subject
property. No bond is required to be posted by petitioner Fe H.
Okabe, she, being the successor-in-interest of Philippine
National Bank, the purchaser in the foreclosure sale, which had
consolidated that title on the subject property in its name prior
to the herein petitioner.
Furnish copies of this Decision to the parties and their
respective counsels.
SO ORDERED.17
Respondent filed a motion to set aside the said Decision, but
the same was denied by the RTC in its Order18 dated April 27,
2010.
On May 13, 2010, petitioner filed a Motion for Execution of
Judgment.
On July 8, 2010, the RTC issued an Order19 granting the
motion. On even date, the branch clerk of court issued a Writ of
Possession20 addressed to the Sheriff ordering the latter
toplace petitioner in possession of the subject property.
On July 14, 2010, the Sheriff, together with petitioner, tried to
cause the service of the notice to vacate upon the respondent,
but the property was already abandoned by its occupants. The
Sheriff, with the assistance of barangay officials, thus, posted
the notice to vacate together with the writ of possession in front
of the gate of the subject property.21
On July 20, 2010, the Sheriff,the petitioner, and the barangay
officials returned to the property to cause the implementation of
the writ of possession. After finding that no onewas occupying
the property, the Sheriff turned over possession of the subject
122
property to the petitioner free and clear of occupants and
personal property.22
In the proceedings before the CA, respondent filed a Motion to
Admit Herein Memorandum of Authorities in
Amplification/Support of the Position of Petitioner in this Case
and Reiterating Prayer for Issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injuction.23 In the
said motion, respondent alleged that the RTC was about to
issue the writ of possession prayed for by the petitioner and
that a TRO was necessary to prevent great and irreparable
injury which respondent may suffer if removed from possession
of the property in question.
On July 19, 2010, the CA issued a Resolution24 granting the
issuance of a TRO in favor of the respondentand commanding
petitioner and the RTC to refrain from committing any acts
relative to the proceedings before it upon the posting of a bond.
In a Manifestation25 dated July 21, 2010 the RTC Presiding
Judge informed the CA that as much as the court would like to
comply with its directive, it can no longer do so because the
writ of possession had already been implemented by the
Branch Sheriff on July 20, 2010.
On September 24, 2010, the CA rendered the assailed
Decision which granted respondent’s petition and vacatedthe
challenged orders of the RTC. The falloreads:
WHEREFORE,we resolve to GRANTthe instant petition. The
challenged orders below are consequently vacated. The
respondents are permanently enjoined from proceeding
against the petitioner via an expartemotion for a writ of
possession.
IT IS SO ORDERED.26
The CA opined, among other things, that although it may be
true that by virtue of the contract of sale, petitioner obtained the
same rights of a purchaser-owner and which rights she derived
from erstwhile mortgagee turned owner PNB, this does not
mean that the right to file an ex-parte motion for a writ of
possession under Act 3135 had also been transferred to the
petitioner. Such a special right isgranted only to purchasers in
a sale made under the provisions of Act 3135. The CA ruled
that to allow a second, third, or even tenth subsequent buyer of
the foreclosed property to evict the mortgagor-debtor or his
successor-in-interest from the said property or wrench away
possession from them via a mere ex-partemotion is to trample
upon due process because whatever defenses that the owner
mortgagor/actual possessor may have would have been
drowned and muted by the ex-partewrit of possession.
Considering that the transaction between PNB and the
petitioner was by an ordinary contract of sale, an ex-partewrit
of possession may not therefore be issued in favor of the latter.
Unfazed, petitioner filed a Motion for Reconsideration on the
ground that respondent’s possession of the property had
become illegal and that the procedure affecting his possession
was moot and academic for he was no longer in possession of
the subject property.
In a Resolution dated March 9, 2011, the CA denied
petitioner’s
Motion for Reconsideration.
Hence, the present petition wherein petitioner raises the
following arguments to support its petition:
I
RESPONDENT IS WELL AWARE OF THE FACT THAT
OWNERSHIP HAD TRANSFERRED TO PETITIONER AND
THAT HIS POSSESSION OF THE PROPERTY HAD
BECOME ILLEGAL.
II
PETITIONER, AS THE REGISTERED OWNER OF THE
PROPERTY, IS ENJOYING POSSESSION OF THE
PROPERTY IN THE CONCEPT OF AN OWNER AND A
RULING OFTHIS HONORABLE COURT REGARDING THE
PROCEDURE PERTAINING TO PETITIONER’S
POSSESSION OF THE PROPERTY IS MOOT AND
ACADEMIC.27
Petitioner argues that her possession of the subject property as
its registered owner should not be disturbed. Petitioner posits
that considering that respondent failed to redeem the subject
property within the redemption period, respondent should not
be granted a favor nor rewarded for his failure to redeem and
for his illegal occupation of the property. Petitioner contends
that the issue regarding possession ofthe property has become
moot and academic since she, being the registered owner of
the property, has been in possession thereof since July 20,
2010. Petitioner stresses that the ruling of the CA, that she is
"permanently enjoined from proceeding against the
[respondent] via an ex-partemotion for a writ of possession,"
would result in an absurdity since she is already in possession
of the land.
Petitioner now prays that the Court rectify the situation and for
it to reverse the ruling of the CA based on the fact that the
proceedings for the expartemotion for a writ of possession has
already been terminated and possession of the subject
property was awarded by the lower court in her favor, thus
rendering the arguments raised by respondent in his petition
for certiorari before the CA moot and academic.
In essence, the issue is whether or not, in the case at bar, an
ex-parte petition for the issuance of a writ of possession was
the proper remedy of the petitioner in obtaining possession of
the subject property.
Section 7 of Act No. 3135,28 as amended by Act No. 4118,29
states:
Section 7. In any sale made under the provisions of this Act,
the purchaser may petition the Court of First Instance of the
province or place where the property or any part thereof is
situated, to give him possession thereof during the redemption
period, furnishing bond in an amount equivalent to the use of
the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without
violating the mortgage or without complying with the
requirements of this Act. Such petition shall be made under
oath and filed in the form of an ex partemotion x x x and the
court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order
immediately.
Under the provision cited above, the purchaser or the
mortgagee who is also the purchaser in the foreclosure sale
may apply for a writ of possession during the redemption
period,30 upon an ex-partemotion and after furnishing a bond.
123
In GC Dalton Industries, Inc. v. Equitable PCI Bank,31 the
Court held that the issuance of a writ of possession to a
purchaser in an extrajudicial foreclosureis summary and
ministerial in nature as such proceeding is merely an incident
in the transfer of title. Also, in China Banking Corporation v.
Ordinario,32 we held that under Section 7 of Act No. 3135, the
purchaser in a foreclosure saleis entitled to possession of the
property.
In the recent case of Spouses Nicasio Marquez and Anita
Marquez v. Spouses Carlito Alindog and Carmen Alindog,33
although the Court allowed the purchaser in a foreclosure sale
to demand possession of the land during the redemption
period, it still required the posting ofa bond under Section 7 of
Act No. 3135. Thus:
It is thus settled that the buyer in a foreclosure sale becomes
the absolute owner of the property purchased if it is not
redeemed during the period of one year after the registration of
the sale. As such, he is entitled to the possession of the said
property and can demand it at any time following the
consolidation of ownership in his name and the issuance to him
of a new transfer certificate oftitle. The buyer can in fact
demand possession of the land even during the redemption
period except that he has to post a bond in accordance with
Section 7 of Act No. 3135, as amended. No such bond is
required after the redemption period if the property is not
redeemed. Possession of the land then becomes an absolute
right of the purchaser as confirmed owner. Upon proper
application and proof of title, the issuance of the writ of
possession becomes a ministerial duty of the court.34
Here, petitioner does not fall under the circumstances of the
aforequoted case and the provisions of Section 7 of Act No.
3135, as amended, since she bought the property long after
the expiration of the redemption period. Thus, it is PNB, if it
was the purchaser in the foreclosure sale, or the purchaser
during the foreclosure sale, who can file the ex-parte petition
for the issuance of writ of possession during the redemption
period, but it will only issue upon compliance with the
provisions of Section 7 of Act No. 3135.
In fact, the Real Estate Mortgage35 contains a waiver
executed by the mortgagor in favor of the mortgagee, wherein
the mortgagor even waives the issuance of the writ of
possession in favor of the mortgagee. The contract provides
that "effective upon the breach of any condition ofthe mortgage
and in addition to the remedies hereinstipulated, the mortgagee
is hereby likewise appointed Attorney-in-Fact of the
Mortgagor/s with full power and authority with the use of force,
if necessary, to take actual possession of the mortgaged
property/ies without the necessity of any judicial order or
permission, or power, to collect rents, to eject tenants, to lease
or sell the mortgaged property/ies or any part thereof at a
private sale without previous notice or advertisement of any
kind and execute the corresponding bills of sale, lease or other
agreement that may be deemed convenient to make repairs or
improvements on the mortgaged property/ies and pay for the
same and perform any other act which the Mortgagee may
deem convenient for the proper administration of the
mortgaged property/ies."36
Moreover, even without the waiver, the issuance of the writ of
possession is ministerial and non-adversarial for the only issue
involved is the purchaser’s right to possession; thus, an ex-
parteproceeding is allowed.1âwphi1
Nevertheless, the purchaser is not left without any remedy.
Section 6 of Act No. 3135, as amended by Act No. 4118,
provides:
SEC. 6. In all cases in which anextrajudicial sale is made under
the special power hereinbefore referred to, the debtor, his
successor-ininterest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under
which the property is sold, may redeem the same at any time
within the term of one year from and after the date of the sale;
and such redemption shall be governed by the provisions of
sections four hundred and sixty-six, inclusive, of the Code
ofCivil Procedure, in so far as these are not inconsistent with
the provisions of this Act.
Consequently, the provision of Section 33, Rule 39 of the
Rules of Court relative to an execution sale ismade applicable
to extrajudicial foreclosure of real estate mortgages by virtue of
Section 6 of Act No. 3135, as amended.37
Section 33, Rule 39 of the Rules of Court provides: SEC. 33.
Deed and possession to be given at expiration of redemption
period; by whom executed or given. – If no redemption be
made within one (1) year from the dateof registration of the
certificate of sale, the purchaser is entitled toa conveyance and
possession of the property; or, if so redeemed whenever sixty
(60) days have elapsed and no other redemption has been
made, and notice thereof given, and the time for redemption
has expired, the lastredemptioner is entitled to the conveyance
and possession; but in all cases the judgment obligor shall
have the entire period of one (1) year from the date of
registration of the sale to redeem the property. The deed shall
be executed by the officer making the sale or his successor in
office,and in the latter case shall have the same validity as
though the officermaking the sale had continued in office and
executed it.
Upon the expiration of the right of redemption, the purchaser or
redemptioner shall be substituted to and acquire all the rights,
title, interest and claim of the judgment obligor to the property
as of the time of the levy. The possession of the property shall
be given to the purchaser or last redemptioner by the same
officer unless a third party is actually holding the property
adversely to the judgment obligor.38
From the foregoing, upon the expiration of the right of
redemption, the purchaser or redemptioner shall besubstituted
to and acquire all the rights, title, interest and claim of the
judgment debtor to the property, and its possession shall be
given to the purchaser or last redemptioner unless a third party
is actually holding the property adversely to the judgment
debtor. In which case, the issuance of the writ of possession
ceases to be ex-parte and non-adversarial. Thus, where the
property levied upon on execution is occupied by a party other
than a judgment debtor, the procedure is for the court to
conduct a hearing to determine the nature of said possession,
i.e., whether or not he is in possession of the subject property
under a claim adverse to that of the judgment debtor.
It is but logical that Section 33, Rule 39 of the Rules of Court
be applied to cases involving extrajudicially foreclosed
properties that were bought by a purchaser and later sold to
third-party-purchasers after the lapse of the redemption period.
The remedy of a writ of possession, a remedy that is available
to the mortgagee-purchaser to acquire possession of the
foreclosed property from the mortgagor, is made available to a
subsequent purchaser, butonly after hearing and after
determining that the subject property is still in the possession
124
of the mortgagor. Unlike if the purchaser is the mortgagee or a
third party during the redemption period, a writ of possession
may issue ex-parte or without hearing. In other words, if the
purchaser is a third party who acquired the property after the
redemption period, a hearing must be conducted to determine
whether possession over the subject property is still with the
mortgagor or is already in the possession of a third party
holding the same adversely to the defaulting debtor or
mortgagor. If the property is in the possession of the
mortgagor, a writ of possession could thus be issued.
Otherwise, the remedy of a writ of possession is no longer
available to such purchaser, but he can wrest possession over
the property through an ordinary action of ejectment.

To be sure, immediately requiring the subsequent purchaser to

file a separate case of ejectment instead of a petition for the
issuance of a writ of possession, albeit not ex-parte, will only
prolong the proceedings and unduly deny the subsequent
purchaser of possession of the property which he already
bought.

WHEREFORE, premises considered, the instant petition is

GRANTED. The Decision dated September 24, 2010 and
Resolution dated March 9, 2011 of the Court of Appeals in CA-
G.R. SP No. 110029 are hereby REVERSED AND SET
ASIDE.

SO ORDERED.

125
G.R. No. 204672, February 18, 2015
SPOUSES RODOLFO AND MARCELINA GUEVARRA,
Petitioners, v. THE COMMONER LENDING CORPORATION,
INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1are the
Decision2 dated October 3, 2011 and the Resolution3 dated
October 17, 2012 of the Court of Appeals (CA) in CA-G.R. CV
No. 02895,which affirmed with modification the Order4 dated
October 20, 2008 of the Regional Trial Court of Guimbal, Iloilo,
Branch 67 (RTC) in Cadastral Case Nos. 118 and 122,
allowing petitioners-spouses Rodolfo and Marcelina Guevarra
(Sps. Guevarra) to exercise their right to repurchase the
mortgaged property subject of this case, conditioned upon the
payment of the purchase price fixed by respondent The
Commoner Lending Corporation, Inc.
(TCLC).chanroblesvirtuallawlibrary
The Facts
On December 16, 1996,5Sps. Guevarra obtained a
P320,000.00 loan from TCLC, which was secured by a real
estate mortgage6 over a 5,532- square meter parcel of land
situated in Guimbal, Iloilo, covered by Original Certificate of
Title (OCT) No. F-319007 (subject property), emanating from a
free patent granted to Sps. Guevarraon February 25,
1986.8cralawred
Sps. Guevarra, however, defaulted in the payment of their
loan, promptingTCLC to extra-judicially foreclose the mortgage
on the subject property9 in accordance with Act No. 3135,10
as amended.In the process, TCLCemerged as the highest
bidder at the public auction sale held on June 15, 2000 for the
bid amount of P150,000.00,11and on August 25, 2000, the
certificate of sale was registered with the Registry of Deeds of
Iloilo.12cralawred
Eventually, Sps. Guevarrafailed to redeem the subject property
within the one-year reglementary period, which led to the
cancellation of OCT No. F-31900 and the issuance of Transfer
Certificate of Title No.T-1618713 in the name of TCLC.
Thereafter, TCLCdemanded that Sps. Guevarra vacate the
property, but to no avail.14cralawred
The RTC Proceedings
On June 10, 2005, TCLC applied for a writ of possession15
before the RTC, docketed as Cadastral Case No. 118.Sps.
Guevarraopposed16 the samebychallenging the validity of the
foreclosure proceedingsdue tothe purported failure of TCLC to
comply with the notice, posting and publication requirements,
and lack of authority, as a corporation,to acquire the subject
property. Sps. Guevarra also assailed the issuance by the
Sheriff of Iloilo of a Final Deed of Sale17 to be premature, as
they were still entitled to redeem the subject property within
five (5) yearsfrom the expiration of the one-year period to
repurchase.18cralawred
Subsequently, or on September 8, 2005, Sps. Guevarra filed
before the RTC a petition for redemption,19 docketed as
Cadastral Case No. 122, maintaining that the redemption
period did not expire on August 25, 2001, or one (1) year from
the registration of the certificate of sale, but will still expire five
(5) years therefrom, or on August 25, 2006.20 They further
averred that they pleaded to be allowed to redeem the subject
property but TCLC unjustifiably refused the same, constraining
them to file said petition, offering to redeem the subject
property at P150,000.00, plus one percent (1%) interest per
month for five (5) years from August 25, 2000, or in the amount
of P240,000.00,21 which they consigned22 to the RTC.
Cadastral Case Nos. 118 and 122 werelater
consolidated.23cralawred
Inan Order24 dated July 12, 2006, the RTC granted TCLC’s
petition in Cadastral Case No. 118, resulting in the issuance of
the corresponding Writ of Possession25 andNotice to
Vacate26which were duly served uponSps.
Guevarra.27Accordingly, the latterfiled a motion for
reconsideration28 andMotion to Hold in Abeyance the
Implementation of the Writ of Possession.29cralawred
In an Order30 dated October 20, 2008, the RTC denied the
motion for reconsideration in Cadastral Case No. 118, but
granted Sps. Guevarra’spetition in Cadastral Case No. 122. In
so doing, the RTC recognizedSps. Guevarra’s right to
repurchase the subject property, pointing out that they were
able to file their petition within the five-yearperiod provided
under Section 119 of Commonwealth Act No. 141,31 otherwise
known as the Public Land Act (Public Land Act).32As a
consequence, the RTC directed TCLC to reconvey the subject
propertyto Sps. Guevarraand execute the corresponding deed
of reconveyance upon payment of the purchase price of
?150,000.00, plus one percent(1%) interest per month from the
date of the auction sale on June 15, 2000upto August 8,
2006,as well as the corresponding tax assessments and
foreclosure expenses.33cralawred
Dissatisfied, TCLC filed a motion for reconsideration34 which
was, however, denied in an Order35 dated January 6, 2009;
thus, itfiled an appeal36 before the
CA.chanroblesvirtuallawlibrary
The CA Proceedings
In a Decision37 dated October 3, 2011, the CA affirmed the
RTC’s October 20, 2008 Order, upholding Sps. Guevarra’s
right to repurchase the subject property pursuant to Section
119 of the Public Land Act, with modification that the same be
conditioned upon the payment of the purchase price fixed by
TCLC. It ruled that after the expiration of the redemption
period, the present owner, i.e., TCLC,has the discretion to set
a higher price.38cralawred
Aggrieved, Sps. Guevarra filed a motion for reconsideration39
which was, however, denied in a Resolution40 dated October
17, 2012, hence, this petition.
The Issue Before the Court
The essential issue in this case is whether or not the CA
committed a reversible error in ruling that the repurchase price
for the subject property should be fixed by TCLC.
The Court’s Ruling
In an extra-judicial foreclosure of registered land acquired
under a free patent, the mortgagor may redeem the property
126
within two (2) years from the date of foreclosure if the land is
mortgaged to a rural bank under Republic Act No. (RA) 720,41
as amended, otherwise known as the Rural Banks Act, or
within one (1) year from the registration of the certificate of sale
if the land is mortgaged to parties other than rural banks
pursuant to Act No. 3135.42 If the mortgagor fails to exercise
such right, he or his heirs may still repurchase the property
within five (5) years from the expiration of the aforementioned
redemption period43 pursuant to Section 119 of the Public
Land Act, which states:chanRoblesvirtualLawlibrary
SEC. 119. Every conveyance of land acquired under the free
patent or homestead provisions, when proper, shall be subject
to repurchase by the applicant, his widow, or legal heirs, within
a period of five years from the date of the
conveyance.cralawlawlibrary
In this case, the subject property was mortgaged to and
foreclosed by TCLC, which is a lending or credit institution, and
not a rural bank; hence, the redemption period is one (1) year
from the registration of the certificate of sale on August 25,
2000, or until August 25, 2001. Given that Sps. Guevarra failed
to redeem the subject property within the aforestated
redemption period, TCLC was entitled, as a matter of right, to
consolidate its ownership and to possess the same.44
Nonetheless, such right should not negate Sps. Guevarra’s
right to repurchase said property within five (5) years from the
expiration of the redemption period on August 25, 2001, or until
August 25, 2006, in view of Section 119 of the Public Land Act
as above-cited.
In this relation, it is apt to clarify that contrary to TCLC’s
claim,45the tender of the repurchase price is not necessary for
the preservation of the right of repurchase, because the filing of
a judicial action for such purpose within the five-year period
under Section 119 of the Public Land Actis already equivalent
to a formal offer to redeem. On this premise, consignation of
the redemption price is equally unnecessary.46cralawred
Thus, the RTC and CAboth correctly ruled that Sps. Guevarra’s
right to repurchase the subject property had not yet
expiredwhen Cadastral Case No. 122 was filed on September
8, 2005. That being said, the Court now proceeds to determine
the proper amount of the repurchase price.
Sps. Guevarrainsist that the repurchase price should be the
purchase price at the auction sale plus interest of one percent
(1%) per month and other assessment fees,47citing the rulings
in the cases of Belisario v. Intermediate Appellate Court48
(Belisario) and Salenillas v. CA49 (Salenillas). On the other
hand, TCLC maintains that it is entitled to its total claims under
the promissory note and the mortgage contract50in
accordance with Section 4751 of the General Banking Law of
2000.52cralawred
TCLC’s argument is partly correct.
To resolve the matter, it must first be pointed out that case law
has equated a right of repurchase of foreclosed properties
under Section 119 of the Public Land Act as a “right of
redemption”53 and the repurchase price as a “redemption
price.”54 Thus, in Salenillas, the Court applied then Section 30,
now Section 28, Rule 39 of the Rules of Court (Rules) in the
redemption of the foreclosed property covered by a free
patent:chanRoblesvirtualLawlibrary
Now, as regards the redemption price, applying Sec. 30 of
Rule 39 of the [Rules], the petitioners should reimburse the
private respondent the amount of the purchase price at the
public auction plus interest at the rate of one per centum per
month up to November 17, 1983, together with the amounts of
assessments and taxes on the property that the private
respondent might have paid after purchase and interest on the
last named amount at the same rate as that on the purchase
price. (Emphases supplied)55cralawlawlibrary
The Court has,however, ruled56 that redemptions from lending
or credit institutions, like TCLC, are governed by Section 7857
of the General Banking Act (now Section 47 of the General
Banking Law of 2000), which amended Section 6 of Act No.
3135 in relation to the proper redemption price when the
mortgagee is a bank, or a banking or credit
institution.58cralawred
Nonetheless, the Court cannot subscribe to TCLC’s contention
that it is entitled to its total claims under the promissory note
and the mortgage contract59in view of the settled rule that an
action to foreclose must be limited to the amount mentioned in
the mortgage.60Hence, amounts not stated therein must be
excluded, like the penalty charges of three percent (3%) per
month included in TCLC’s claim.61A penalty charge is likened
to a compensation for damages in case of breach of the
obligation. Being penal in nature,it must be specific and fixed
by the contracting parties.62cralawred
Moreover, the Court notes that the stipulated three percent
(3%) monthly interest is excessive and unconscionable.In a
plethora of cases, the Court has affirmed that stipulated
interest rates of three percent (3%) per month and higher are
excessive, iniquitous, unconscionable, and exorbitant,63hence,
illegal64and void for being contrary to morals.65 In Agner v.
BPI Family Savings Bank, Inc.,66 the Court had the occasion
to rule:chanRoblesvirtualLawlibrary
Settled is the principle which this Court has affirmed in a
number of cases that stipulated interest rates of three percent
(3%) per month and higher are excessive, iniquitous,
unconscionable, and exorbitant. While Central Bank Circular
No. 905-82, which took effect on January 1, 1983, effectively
removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity, nothing in the said
circular could possibly be read as granting carte blanche
authority to lenders to raise interest rates to levels which would
either enslave their borrowers or lead to a hemorrhaging of
their assets. Since the stipulation on the interest rate is void for
being contrary to morals, if not against the law, it is as if there
was no express contract on said interest rate; thus, the interest
rate may be reduced as reason and equity demand.
(Emphases supplied)67cralawlawlibrary
As such, the stipulated three percent (3%) monthly interest
should be equitably reduced to one percent (1%) per month or
twelve percent (12%) per annum reckoned from the execution
of the real estate mortgage on December 12, 1996,68 until the
filing of the petition in Cadastral Case No. 122 on September 8,
2005.
In addition to the principal and interest, the repurchase price
should also include all the expenses of foreclosure, i.e.,
Judicial Commission, Publication Fee, and Sheriff’s Fee, in
accordance with Section 4769 of the General Banking Law of
2000. Considering further that Sps. Guevarra failed to redeem
the subject property within the one-year reglementary period,
they are liable to reimburse TCLC for the corresponding
Documentary Stamp Tax (DST) and Capital Gains Tax (CGT) it
127
paid pursuant to Bureau of Internal Revenue (BIR) Revenue
Regulations No. 4-99,70which requires the payment of DST on
extra-judicial foreclosure sales of capital assets initiated by
banks, finance and insurance companies, as well as CGT in
cases of non-redemption. CGT and DST are expenses incident
to TCLC’s custody of the subject property, hence, likewise due,
under the above provision of law.

Accordingly, the repurchase price is hereby computed as

follows:

Principal
P320,000.00
Add: Interest from 12/12/1996 to 09/05/2005
from 12/12/1996 to 12/12/2004: (P320,000.00 x 12% x 8 years)
P307,200.00
from 12/13/2004 to 09/08/2005: (P320,000.00 x 12% x
270/365)
28,405.48
335,605.48
Total Amount due under the mortgage
P655,605.48
Add:
Capital Gains Tax
18,203.17
Documentary Stamp Tax
4,501.46
Judicial Commission
4,150.00
Publication Fee
4,000.00
Sheriff’s Fee
3,000.00
Repurchase Price
P689,460.11
==============

From this repurchase priceshall be deducted the amount

consigned to the RTC, or P240,000.00. Sps. Guevarramay
repurchase the subject property within thirty (30) days from
finality of this Decision upon payment of the net amount of
P449,460.11.

WHEREFORE, the petition is DENIED. The Decision dated

October 3, 2011 and the Resolution dated October 17, 2012 of
the Court of Appeals in CA-G.R. CV No. 02895 are hereby
AFFIRMED with MODIFICATION allowing petitioners-spouses
Rodolfo and MarcelinaGuevarra to repurchase the subject
property from respondent The Commoner Lending
Corporation, Inc. (TCLC) within thirty (30) days from the finality
of this Decision for the price of P689,460.11, less the amount
of P240,000.00 previously consigned to the court a quo, or the
net amount of P449,460.11, for which the corresponding deed
of absolute conveyance shall be executed by TCLC.

SO ORDERED.cralawlawlibrary

128