G.R. No.

165142 December 10, 2007 BANK & TRUST COMPANY to be implemented by the Deputy Sheriff of
Branch 223, Regional Trial Court of Quezon City by placing the petitioner in
EDUARDO L. RAYO, Petitioner, possession over the parcels of land with all its improvements.
vs.
METROPOLITAN BANK AND TRUST COMPANY AND BRANCH 223 OF SO ORDERED.7
THE REGIONAL TRIAL COURT OF QUEZON CITY, Respondents.
On September 24, 2001, Metrobank posted the required bond.
DECISION Consequently, a writ of possession was issued on October 9, 2001. This was
partially implemented as to TCT No. N-163455, as evidenced by the Turn-
QUISUMBING, J.: Over Receipt8 dated December 13, 2002. The writ over the two remaining
properties, under TCT Nos. N-166349 and N-166350, were subsequently
implemented as evidenced by the Turn-Over Receipt9 dated December 3,
Before us is a petition for review assailing the Resolutions dated June 15,
2003.
20041 and August 23, 20042 of the Court of Appeals in CA-G.R. SP No.
83895 for annulment of judgment.
Meanwhile, on April 3, 2002, petitioner Eduardo L. Rayo filed a
complaint10 docketed as Civil Case No. Q02-46514 against Metrobank for
The pertinent facts are undisputed.
Nullification of Real Estate Mortgage Contract(s) and Extrajudicial
Foreclosure Sale, in the RTC, Branch 99, Quezon City.
Midas Diversified Export Corp. (Midas), thru its president, Mr. Samuel U. Lee,
obtained six (6) loans from private respondent Metropolitan Bank and Trust
On May 13, 2004, petitioner Rayo filed with the Court of Appeals a
Company (Metrobank), amounting to ₱588,870,000 as evidenced by
Petition11 for Annulment of Judgment on the ground of "absolute lack of due
promissory notes. To secure the payment of an ₱8,000,000 loan, Louisville
process." Petitioner alleged that his predecessor, Louisville, was not notified
Realty & Development Corporation (Louisville), thru its president, Mr. Samuel
of the proceedings and that Section 712 (ex parte motion or petition for the
U. Lee, executed in favor of Metrobank, a real estate mortgage over three
issuance of a writ of possession) of Act No. 3135 is unconstitutional.
parcels of land situated at No. 40 Timog Ave., Brgy. Laging Handa, Quezon
City, with all the buildings and improvements thereon. The properties are
covered by Transfer Certificates of Title (TCT) Nos. N-163455, N-166349 and On June 15, 2004, the Court of Appeals denied the petition for lack of merit.
N-166350 issued by the Registry of Deeds of Quezon City. The Court of Appeals ruled that petitioner is neither the registered owner nor
the successor-in-interest of the registered owner; hence, not a real party-in-
interest. It also ruled that there is no basis to challenge the constitutionality of
When the debtor-mortgagor failed to pay, Metrobank extra-judicially
Section 7 of Act No. 3135, as amended as it constitutes a collateral attack
foreclosed the real estate mortgage in accordance with Act No. 3135, 3 as
against said provision. Further, petitioner availed of the wrong remedy in
amended. Thereafter, in a public auction, Metrobank was the highest bidder.
filing Civil Case No. Q02-46514. Petitioner sought reconsideration, but was
A Certificate of Sale4 dated December 11, 2000 was duly registered with the
likewise denied.
Registry of Deeds of Quezon City on December 13, 2000. When Louisville
refused to turn over the real properties, on March 17, 2001, Metrobank filed
before the Regional Trial Court (RTC), Branch 223, Quezon City, an ex Petitioner now comes before us raising the following as primary issue:
parte petition5 for the issuance of a writ of possession docketed as LRC Case
No. Q-13915(01). After presentation of evidence ex parte, the RTC granted WHETHER OR NOT SECTION 7 OF ACT NO. 3135 IS CONTRARY TO
the petition in an Order6 dated July 5, 2001, the dispositive portion of which THE DUE PROCESS PROVISION OF THE PHILIPPINE CONSTITUTION
reads as follows: CONSIDERING THAT SUCH SECTION 7 OF THE LAW PROVIDES OR
ALLOWS, ACCORDING TO THIS HONORABLE COURT, FOR AN EX-
WHEREFORE, in consideration of the foregoing premises, the instant PARTE PROCEEDING WHICH IS A "JUDICIAL PROCEEDING BROUGHT
petition is hereby GRANTED. Upon the filing of a bond in the amount of ONE FOR THE BENEFIT OF ONE PARTY ONLY, AND WITHOUT NOTICE TO,
HUNDRED THOUSAND PESOS ([₱]100,000.00), let a Writ of Possession OR CONSENT BY ANY PERSON ADVERSELY INTERESTED" "OR A
over the properties covered by Transfer Certificates of Title Nos. N-163455, PROCEEDING WHEREIN RELIEF IS GRANTED WITHOUT AN
N-166349 & N-166350 issue in favor of the petitioner METROPOLITAN OPPORTUNITY FOR THE PERSON AGAINST WHOM THE RELIEF IS
SOUGHT TO BE HEARD," AS HELD IN THE CASE OF GOVERNMENT in-interest is one with "a present substantial interest" which means such
SERVICE INSURANCE SYSTEM VS. COURT OF APPEALS, 169 SCRA interest of a party in the subject matter of the action as will entitle him, under
244 @ 255, JANUARY 20, 1989.13 the substantive law, to recover if the evidence is sufficient, or that he has the
legal title to demand.17
He also raises the following as secondary issues:
Now, is petitioner Rayo a real party-in-interest? Initially, we recognized herein
I. petitioner as the co-assignee of the subject real properties as shown in the
March 25, 2002 deed of assignment. However, while petitioner would be
injured by the judgment in this suit, we find that petitioner has no present
WHETHER OR NOT THE PETITIONER HAS THE LEGAL
substantial interest to institute the annulment of judgment proceedings and
PERSONALITY TO SEEK THE ANNULMENT OF JUDGMENT IN
nullify the order granting the writ of possession.
[THE] SUBJECT LRC CASE NO. Q-13915(01).

First, there was no violation of petitioner’s right to constitutional due process.

II.
In a long line of cases,18 we have consistently ruled that the issuance of a
writ of possession in favor of the purchaser in a foreclosure sale of a
WHETHER OR NOT PRIVATE RESPONDENT VIOLATED THE mortgaged property under Section 7 of Act No. 3135, as amended is a
RULE AGAINST FORUM-SHOPPING WHEN IT DID NOT INFORM ministerial duty of the court. The purchaser of the foreclosed property,
THE HONORABLE BRANCH 223 OF THE REGIONAL TRIAL upon ex parte application and the posting of the required bond, has the right
COURT OF QUEZON CITY REGARDING THE FILING OF CIVIL to acquire possession of the foreclosed property during the 12-month
CASE NO. Q-02-46514 FOR NULLIFICATION OF REAL ESTATE redemption period and with more reason, after the expiration of the
MORTGAGE CONTRACT AND THE EXTRA-JUDICIAL redemption period.
FORECLOSURE SALE OF THE SAME SUBJECT REAL
PROPERTIES AND THE PENDENCY OF THE SAME BEFORE THE
An ex parte petition for the issuance of a writ of possession under Section 7
HONORABLE BRANCH 99 OF THE SAME REGIONAL TRIAL
of Act No. 3135 is not, strictly speaking, a "judicial process" as contemplated
COURT.14
in Article 43319 of the Civil Code. It is a judicial proceeding for the
enforcement of one’s right of possession as purchaser in a foreclosure sale.
Stated simply, the issues raised are: (1) Does petitioner have the legal It is not an ordinary suit filed in court, by which one party "sues another for
personality in the annulment of judgment proceedings? (2) Is Section 7 of Act the enforcement of a wrong or protection of a right, or the prevention or
No. 3135, as amended, unconstitutional? (3) Is respondent guilty of forum- redress of a wrong." It is a non-litigious proceeding authorized in an
shopping? extrajudicial foreclosure of mortgage pursuant to Act No. 3135, as amended,
and is brought for the benefit of one party only, and without notice to, or
Petitioner insists that contrary to the ruling of the Court of Appeals, he has consent by any person adversely interested. It is a proceeding where the
the legal personality to institute the annulment of judgment case against relief is granted without requiring an opportunity for the person against whom
Metrobank, considering that the March 25, 2002 deed of assignment he the relief is sought to be heard. No notice is needed to be served upon
entered into with Louisville and Winston Linwy L. Chua makes him a co- persons interested in the subject property.20
assignee over the subject real properties.
Second, in the deed of assignment, petitioner also acknowledged that the
For its part, Metrobank claims that it was not a party to the deed of subject real properties were already sold at various extrajudicial foreclosure
assignment among Louisville, Chua and petitioner, hence, it has no privity of sales and bought by Metrobank. Clearly, petitioner recognized the prior
contract with petitioner Rayo. Moreover, Metrobank points out that the real existing right of Metrobank as the mortgagee-purchaser over the subject real
properties had already been extrajudicially foreclosed when petitioner and his properties.21 Actual knowledge of a prior mortgage with Metrobank is
assignors executed the deed of assignment. equivalent to notice of registration22 in accordance with Article 212523 of the
Civil Code. Conformably with Articles 131224 and 212625 of the Civil Code, a
Under Section 2,15 Rule 3 of the Rules of Court, every action must be real right or lien in favor of Metrobank had already been established,
prosecuted or defended in the name of the real party-in-interest, or one "who subsisting over the properties until the discharge of the principal obligation,
stands to be benefited or injured by the judgment in the suit." 16 A real party- whoever the possessor(s) of the land might be.26 As petitioner is not a party
whose interest is adverse to that of Louisville, there was no bar to the
issuance of a writ of possession to Metrobank. It does not matter that
petitioner was not specifically named in the writ of possession nor notified of
such proceedings.1avvphi1

Third, we also note that petitioner availed of the wrong remedy in filing Civil
Case No. Q02-46514, for nullification of real estate mortgage and
extrajudicial foreclosure sale, more than six (6) months after the issuance of
the writ of possession considering the mandate of Section 8 27 of Act No.
3135, as amended. Hence, even petitioner’s action for annulment of
judgment cannot prosper as it cannot be a substitute for a lost remedy.

Now, petitioner is challenging the constitutionality of Section 7 of Act No.

3135, as amended. He avers that Section 7 violates the due process clause
because, by the mere filing of an ex parte motion in the proper cadastral
court, the purchaser in a foreclosure sale is allowed to obtain possession of
the foreclosed property during the redemption period.

The Court of Appeals ruled that petitioner’s attempt to challenge the

constitutionality of Section 7 of Act No. 3135, as amended, constitutes a
collateral attack that is not allowed. We fully agree with the appellate court’s
ruling. For reasons of public policy, the constitutionality of a law cannot be
attacked collaterally.28

With regard to forum-shopping; forum-shopping is the filing of multiple suits

involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a favorable
judgment. It exists where the elements of litis pendentia are present or where
a final judgment in one case will amount to res judicata in another.29 The
issuance of the writ of possession being a ministerial function, and summary
in nature, it cannot be said to be a judgment on the merits. It is only an
incident in the transfer of title. Hence, a separate case for annulment of
mortgage and foreclosure sale cannot be barred by litis pendentia or res
judicata.30 Clearly, insofar as LRC Case No. Q-13915(01) and Civil Case No.
Q02-46514 are concerned, Metrobank is not guilty of forum-shopping.

WHEREFORE, the petition is DENIED for lack of merit. The assailed

Resolutions dated June 15, 2004 and August 23, 2004 of the Court of
Appeals in CA-G.R. SP No. 83895 are hereby AFFIRMED. Costs against the
petitioner.

SO ORDERED.
 G.R. NO. 173171 - July 11, 2012] 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.
PHILIPPINE CHARITY SWEEPSTAKES OFFICE
(PCSO), Petitioner, v. NEW DAGUPAN METRO GAS CORPORATION, x x x
PURITA E. PERALTA and PATRICIA P. GALANG, Respondents.
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED
DECISION FIFTY THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE,
provided that the said balance shall bear interest thereon at the rate of 14%
REYES, J.: per annum;

This is a Petition for Review under Rule 45 of the Rules of Court, assailing To secure the faithful compliance and as security to the obligation of the
the Decision1 dated September 29, 2005 and Resolution2 dated June 9, 2006 PRINCIPAL stated in the next preceding paragraph hereof, the
of the Court of Appeals (CA) in CA-G.R. CV No. 59590. 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
In the assailed Decision, the CA Affirmed the Decision3 dated January 28,
located at BOQUIG, DAGUPAN CITY, covered by TCT No. 52135, of the
1998 of the Regional Trial Court (RTC), Branch 42 of Dagupan City in Civil
Register of Deeds of DAGUPAN CITY, and more particularly described as
Case No. 94-00200-D, ordering petitioner Philippine Charity Sweepstakes
follows:
Office (PCSO) to surrender the owner s duplicate of Transfer

x x x
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). 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;
In its Resolution4 dated June 9, 2006, the CA denied PCSO s motion for
reconsideration.
x x x
The Factual Antecedents
15. Upon payment of the principal amount together with interest and other
expenses legally incurred by the MORTGAGEE, the above undertaking is
Respondent Purita E. Peralta (Peralta) is the registered owner of a parcel of
considered terminated.6ςrνll
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 On July 31, 1990, Peralta sold, under a conditional sale, the subject property
tickets purchased by one of its provincial distributors, Patricia P. Galang to New Dagupan, the conveyance to be absolute upon the latter s full
(Galang). The salient provisions of the Deed of Undertaking with First Real payment of the price of P800,000.00. New Dagupan obliged to pay Peralta
Estate Mortgage,5 where Galang, PCSO and Peralta were respectively P200,000.00 upon the execution of the corresponding deed and the balance
designated as "principal", "mortgagee" and "mortgagor", are as of P600,000.00 by monthly instalments of P70,000.00, the first instalment
follows:ςrαlαω 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
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding
execution of the contract.7ςrνll
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; 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 7. This compromise agreement shall be without prejudice to whatever rights
annotated on TCT No. 52135 on October 1, 1991 as Entry No. 14826. 8ςrνll and remedies, if any, that the Philippine Charity Sweepstakes Office has
against the herein defendant and Patricia P. Galang under the Deed of
In view of Peralta s continued failure to deliver a deed of absolute sale and Undertaking adverted to under par. 2(f) hereof. 12ςrνll
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 chanrobles virtual law library
s complaint was raffled to Branch 43 and docketed as Civil Case No. D-
10160. As the RTC Branch 43 Decision dated January 21, 1994 became final and
executory, New Dagupan once again demanded Peralta s delivery of the
On May 20, 1992, during the pendency of New Dagupan s complaint against owner s duplicate of TCT No. 52135. Also, in a letter dated March 29, 1994,
Peralta, PCSO caused the registration of the mortgage. 9ςrνll 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
On February 10, 1993, PCSO filed an application for the extrajudicial in its name a certificate of sale for being the highest bidder in the public
foreclosure sale of the subject property in view of Galang s failure to fully pay auction that took place on June 15, 1993.
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 Thus, on June 1, 1994, New Dagupan filed with the RTC a petition against
correspondingly issued to PCSO.11ςrνll 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
The certified true copy of TCT No. 52135 that New Dagupan obtained from and raffled to Branch 43.
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 In an Answer14 dated March 7, 1995, PCSO alleged that: (a) New Dagupan
that it was informed of the subject mortgage, sent a letter to PCSO on was a buyer in bad faith; (b) New Dagupan and Peralta colluded to deprive
October 28, 1993, notifying the latter of its complaint against Peralta and its PCSO of its rights under the subject mortgage; (c) New Dagupan is estopped
claim over the subject property and suggesting that PCSO intervene and from questioning the superior right of PCSO to the subject property when it
participate in the case. entered into the compromise agreement subject of the RTC Branch 43
Decision dated January 21, 1994; and (d) New Dagupan is bound by the
On January 21, 1994, the RTC Branch 43 rendered a Decision, approving foreclosure proceedings where PCSO obtained title to the subject property.
the compromise agreement between Peralta and New Dagupan. Some of the
stipulations made are as follows:ςηαñrοblεš νιr†υαl lαω In a Motion for Leave to File Third-Party Complaint15 dated April 17, 1995,
lιbrαrÿ PCSO sought the inclusion of Peralta and Galang who are allegedly
indispensable parties. In its Third-Party Complaint,16 PCSO reiterated its
3. For her failure to execute, sign and deliver a Deed of Absolute Sale to allegations in its Answer dated March 7, 1995 and made the further claim
plaintiff by way of transferring TCT No. 52135 in the name of the latter, that the sale of the subject property to New Dagupan is void for being
defendant hereby waives and quitclaims the remaining balance of the expressly prohibited under the Deed of Undertaking with First Real Estate
purchase price in the amount of P60,000.00 in favor of the plaintiff, it being Mortgage.
understood that the said amount shall be treated as a penalty for such
failure; 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
x x x 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
6. Upon the signing of this compromise agreement, possession and
questioning the sale of the subject property to New Dagupan and the
ownership of the above described property, together with all the
compromise agreement approved by the RTC Branch 43; (c) it was due to
improvements existing thereon, are hereby vested absolutely upon, and
PCSO s very own neglect in registering its mortgage lien that preference is
transferred to the plaintiff whom the defendant hereby declares and
accorded to New Dagupan s rights as a buyer of the subject property; and (d)
acknowledges to be the absolute owner thereof, now and hereafter;
PCSO no longer has any cause of action against them following its decision the title x x x but the encumbrance on the title was not still there at [that] time.
to foreclose the subject mortgage. 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
On March 6, 1996, Civil Case No. 94-00200-D was transferred to Branch 42, favor of the PCSO. Worst, defendant did not even introduce any oral
after the presiding judge of Branch 43 inhibited himself. evidence to show that petitioner was in bad faith except the manifestations of
counsel. Unfortunately, manifestations could not be considered evidence.
On January 28, 1998, the RTC Branch 42 rendered a Decision 18 in New
Dagupan s favor, the dispositive portion of which states:ςrαlαω x x x

WHEREFORE, judgment is hereby rendered in favor of the petitioner and Defendant should not be allowed to profit from its negligence of not
against the defendant, ordering PCSO to deliver the owner s duplicate copy registering the Deed of Undertaking with First Real Estate Mortgage in its
of TCT No. 52135 in its possession to the Registry of Deeds of Dagupan City favor.20ςrνll
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 Also, the RTC Branch 42 ruled that the prohibition on the sale of the subject
days from the date this decision becomes final and executory, the said owner property is void. Specifically:ςrαlαω
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 Suffice it to say that there is no law prohibiting a mortgagor from
duplicate subject of this case. Further, the defendant is ordered to pay to encumbering or alienating the property mortgaged. On the contrary, there is
petitioner the sum of Ten Thousand Pesos (P10,000.00) as attorney s fees. It a law prohibiting an agreement forbidding the owner from alienating a
is also ordered to pay costs. mortgaged property. We are referring to Article 2130 of the New Civil Code
which provides as follows:ςrαlαω
SO ORDERED.19ςrνll
"A stipulation forbidding the owner from alienating the immovable mortgage
The RTC Branch 42 ruled that New Dagupan is a buyer in good faith, shall be void."21ςrνll
ratiocinating that:ςrαlαω
Moreover, the RTC Branch 42 ruled that PCSO had no right to foreclose the
In other words, the evidence of the petitioner would show that although the subject mortgage as the land in question had already been disencumbered
Deed of Undertaking with First Real Estate Mortgage was executed on after Galang s full payment of all the sweepstakes tickets she purchased in
March 8, 1989 its annotation was made long after the conditional sale in 1989 and 1990.
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 It should be recalled that Amparo Abrigo, OIC Chief of the Credit Accounts
buyer in good faith and for value. 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.
Defendant, to controvert the aforementioned evidence of the plaintiff, alleged Another witness, Carlos Castillo who is the OIC of the Sales Department of
that Exhibits C, C-1 to C-1-C was contrary to the testimony of Mr. Julian Ong the PCSO, joined Amparo Abrigo in saying that Patricia Galang has already
Cuña to the effect that when defendants sold the property to petitioner only paid her liability with the PCSO for the years 1989 and 1990 x x x. Thus, the
the xerox copy of the title was shown and petitioner should have verified the undertaking was already discharged. Both of the said witnesses of the PCSO
original as it was a buyer in bad faith. Defendant also alleged that the alleged that the undertaking has been re-used by Patricia Galang for the
decision in Civil Case D-10160 dated January 21, 1994 would show that years 1991 to 1992 yet there is no proof whatsoever showing that Purita
there was a collusion between the petitioner and the third-party defendants. 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
The Court cannot go along with the reasoning of the defendant because what thought that the undertaking was already discharged which was the reason
was shown to Mr. Cuña by the third-party defendants was Exhibit "C" which she executed the Deed of Conditional Sale x x x in favor of petitioner in 1990.
did not carry any encumbrance at the back of the subject title and the That being the case, the foreclosure sale in favor of the PCSO has no legal
annotation made on May 20, 1992 in favor of the PCSO. Mr. Cuña verified
leg to stand as the Deed of Undertaking with First Real Estate Mortgage has guaranty. Similar phrases or words of the same import or tenor are not extant
already been discharged before the foreclosure sale was conducted. 22ςrνll in the deed of undertaking. The deed of undertaking states:ςrαlαω

According to the RTC Branch 42, the intent to use the subject property as "WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding
security for Galang s purchases for the years after 1989, as PCSO claimed, and unpaid account with the MORTGAGEE in the amount of FOUR
is not clear from the Deed of Undertaking with First Real Estate HUNDRED FIFTY THOUSAND (P450,000.00), representing the balance of
Mortgage:ςrαlαω his/her ticket accountabilities for all draws."

Was it not provided in the deed that the undertaking would be for "all draws". x x x
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 Upon full payment of the principal obligation, which from the testimonies of
Galang at the time of the execution of the undertaking in 1989. It could have the officers of the PCSO had been paid as early as 1990, the subsidiary
not been agreed upon that it should also cover her liability for 1991 up to contract of guaranty was automatically terminated. The parties have not
1992 because if that was the intention of the parties, the undertaking should executed another contract of guaranty to secure the subsequent obligations
have so provided expressly. The term of the undertaking with respect to the of Galang for the tickets issued thereafter. It must be noted that a contract of
period was ambiguous but any ambiguity in the Contract should be resolved guaranty is not presumed; it must be express and cannot extend to more
against PCSO because the form used was a standard form of the defendant than what is stipulated therein.
and it appeared that it was its lawyers who prepared it, therefore, it was the
latter which caused the ambiguity. 23ςrνll x x x

PCSO s appeal from the foregoing adverse decision was dismissed. By way The arguments of PCSO fail to persuade us. The phrase "for all draws" is
of its assailed decision, the CA did not agree with PCSO s claim that the limited to the draws covered by the original transaction. In its pleadings, the
subject mortgage is in the nature of a continuing guaranty, holding that PCSO asserted that the contract of undertaking was renewed and the
Peralta s undertaking to secure Galang s liability to PCSO is only for a period collateral was re-used by Galang to obtain again tickets from the PCSO after
of one year and was extinguished when Peralta completed payment on the she had settled her account under the original contract. From such
sweepstakes tickets she purchased in 1989. 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
The instant appeal must fail. There is nothing in the Deed of Undertaking with understood to be of a continuing nature without the necessity of renewing the
First Real Estate Mortgage, expressly or impliedly, that would indicate that same every time a new transaction contemplated under the original contract
Peralta agreed to let her property be burdened as long as the contract of is entered into. x x x 24 (Citations omitted) chanroblesvirtuallawlibrary
undertaking with real estate mortgage was not cancelled or revoked. x x x
In this petition, PCSO claims that the CA erred in holding that the subject
x x x mortgage had been extinguished by Galang s payment of P450,000.00,
representing the amount of the sweepstakes tickets she purchased in 1989.
A perusal of the deed of undertaking between the PCSO and Peralta would According to PCSO, the said amount is actually the credit line granted to
reveal nothing but the undertaking of Peralta to guarantee the payment of the Galang and the phrase "all draws" refers to her ticket purchases for
pre-existing obligation of Galang, constituting the unpaid sweepstakes tickets subsequent years drawn against such credit line. Consequently, PCSO
issued to the latter before the deed of undertaking was executed, with the posits, the subject mortgage had not been extinguished by Peralta s payment
PCSO in the amount of P450,000.00. No words were added therein to show of her ticket purchases in 1989 and its coverage extends to her purchases
the intention of the parties to regard it as a contract of continuing guaranty. In after 1989, which she made against the credit line that was granted to her.
other jurisdictions, it has been held that the use of the particular words and That when Galang failed to pay her ticket purchases in 1992, PCSO s right to
expressions such as payment of "any debt", "any indebtedness", "any foreclose the subject mortgage arose.
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 PCSO also maintains that its rights over the subject property are superior to
principal debtor may require, have been construed to indicate a continuing 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 Our Ruling
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 PCSO is undeterred by the denial of its appeal to the CA and now seeks to
supposed transfer of title between Peralta and New Dagupan took place. convince this Court that it has a superior right over the subject property.
However, since PCSO had earlier foreclosed the subject mortgage and However, PCSO s resolve fails to move this Court and the ineluctability of the
obtained title to the subject property as evidenced by the certificate of sale denial of this petition is owing to the following:ςηαñrοblεš νιr†υαl
dated June 15, 1993, Peralta had nothing to cede or assign to New lαω lιbrαrÿ
Dagupan.
A. At the time of PCSO s registration of its mortgage lien on May 20, 1992,
PCSO likewise attributes bad faith to New Dagupan, claiming that Peralta s the subject mortgage had already been discharged by Galang s full payment
presentation of a mere photocopy of TCT No. 52135, albeit without any of P450,000.00, the amount specified in the Deed of Undertaking with First
annotation of a lien or encumbrance, sufficed to raise reasonable suspicions Real Estate Mortgage;
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. 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
PCSO even assails the validity of the subject sale for being against the intent to secure Galang s future debts;
prohibition contained in the Deed of Undertaking with First Real Estate
Mortgage. c. Assuming the contrary, New Dagupan is not bound by PCSO s mortgage
lien and was a purchaser in good faith and for value; andcralawlibrary
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 d. While the subject mortgage predated the sale of the subject property to
mortgage lien was annotated only on May 20, 1992 or long after the New Dagupan, the absence of any evidence that the latter had knowledge of
execution of the conditional sale on July 31, 1990 and the annotation of New PCSO s mortgage lien at the time of the sale and its prior registration of an
Dagupan s adverse claim on October 1, 1991. While the subject mortgage adverse claim created a preference in its favor.
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 chanrobles virtual law library
by New Dagupan s adverse claim.
I
New Dagupan also claims that the subject property had already been
discharged from the mortgage, hence, PCSO had nothing to foreclose when As a general rule, a mortgage liability is usually limited to the amount
it filed its application for extra-judicial foreclosure on February 10, 1993. The mentioned in the contract. However, the amounts named as consideration in
subject mortgage was intended to secure Galang s ticket purchases that a contract of mortgage do not limit the amount for which the mortgage may
were outstanding at the time of the execution of the same, the amount of stand as security if from the four corners of the instrument the intent to
which has been specified to be P450,000.00 and does not extend to Galang secure future and other indebtedness can be gathered. 26ςrνll
s future purchases. Thus, upon Galang s full payment of P450,000.00, which
PCSO admits, the subject mortgage had been automatically terminated as Alternatively, while a real estate mortgage may exceptionally secure future
expressly provided under Section 15 of the Deed of Undertaking with First loans or advancements, these future debts must be specifically described in
Real Estate Mortgage quoted above. the mortgage contract. An obligation is not secured by a mortgage unless it
comes fairly within the terms of the mortgage contract. 27ςrνll
Issue
The stipulation extending the coverage of a mortgage to advances or loans
The rise and fall of this recourse is dependent on the resolution of the issue other than those already obtained or specified in the contract is valid and has
who between New Dagupan and PCSO has a better right to the property in been commonly referred to as a "blanket mortgage" or "dragnet" clause. In
question.
Prudential Bank v. Alviar,28 this Court elucidated on the nature and purpose of This Court has to disagree with PCSO in view of the principles quoted above.
such a clause as follows:ςrαlαω 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
A "blanket mortgage clause," also known as a "dragnet clause" in American the subject mortgage is continuing in nature. That the subject mortgage shall
jurisprudence, is one which is specifically phrased to subsume all debts of only secure Galang s liability in the amount of P450,000.00 is evident from
past or future origins. Such clauses are "carefully scrutinized and strictly the following:ςrαlαω
construed." Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not be known or WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding
anticipated at the time, and they avoid the expense and inconvenience of and unpaid account with the MORTGAGEE in the amount of FOUR
executing a new security on each new transaction. A "dragnet clause" HUNDRED FIFTY THOUSAND (P450,000.00), representing the balance of
operates as a convenience and accommodation to the borrowers as it makes his/her ticket accountabilities for all draws;
available additional funds without their having to execute additional security
documents, thereby saving time, travel, loan closing costs, costs of extra x x x
legal services, recording fees, et cetera. x x x.29 (Citations
omitted) chanroblesvirtuallawlibrary The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED
FIFTY THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE,
A mortgage that provides for a dragnet clause is in the nature of a continuing provided that the said balance shall bear interest thereon at the rate of 14%
guaranty and constitutes an exception to the rule than an action to foreclose per annum;
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 To secure the faithful compliance and as security to the obligation of the
limited to a single transaction, but contemplates a future course of dealing, PRINCIPAL stated in the next preceding paragraph hereof, the
covering a series of transactions, generally for an indefinite time or until MORTGAGOR hereby convey unto and in favor of the MORTGAGEE, its
revoked. It is prospective in its operation and is generally intended to provide successor and assigns by way of its first real estate mortgage, a parcel/s of
security with respect to future transactions within certain limits, and land together with all the improvements now or hereafter existing thereon,
contemplates a succession of liabilities, for which, as they accrue, the located at BOQUIG, DAGUPAN CITY, covered by TCT No. 52135, of the
guarantor becomes liable. In other words, a continuing guaranty is one that Register of Deeds of DAGUPAN CITY, and more particularly described as
covers all transactions, including those arising in the future, which are within follows:32ςrνll
the description or contemplation of the contract of guaranty, until the
expiration or termination thereof.30ςrνll
As the CA correctly observed, the use of the terms "outstanding" and
"unpaid" militates against PCSO s claim that future ticket purchases are
In this case, PCSO claims the subject mortgage is a continuing guaranty. likewise secured. That there is a seeming ambiguity between the provision
According to PCSO, the intent was to secure Galang s ticket purchases other relied upon by PCSO containing the phrase "after each draw" and the other
than those outstanding at the time of the execution of the Deed of provisions, which mention with particularity the amount of P450,000.00 as
Undertaking with First Real Estate Mortgage on March 8, 1989 such that it Galang s unpaid and outstanding account and secured by the subject
can foreclose the subject mortgage for Galang s non-payment of her ticket mortgage, should be construed against PCSO. The subject mortgage is a
purchases in 1992. PCSO does not deny and even admits that Galang had contract of adhesion as it was prepared solely by PCSO and the only
already settled the amount of P450,000.00. However, PCSO refuses to participation of Galang and Peralta was the act of affixing their signatures
concede that the subject mortgage had already been discharged, claiming thereto.
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:ςrαlαω 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
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) Undertaking with First Real Estate Mortgage:ςrαlαω
days after each draw with interest at the rate of 14% per annum; 31ςrνll
15. Upon payment of the principal amount together with interest and other Register of Deeds for the province or city where the land to which it relates
expenses legally incurred by the MORTGAGEE, the above-undertaking is lies, be constructive notice to all persons from the time of such registering,
considered terminated.33ςrνll filing or entering.

Section 6234 of Presidential Decree (P.D.) No. 1529 appears to require the On the other hand, Article 2125 of the Civil Code states:ςrαlαω
execution of an instrument in order for a mortgage to be cancelled or
discharged. However, this rule presupposes that there has been a prior Article 2125. In addition to the requisites stated in Article 2085, it is
registration of the mortgage lien prior to its discharge. In this case, the indispensable, in order that a mortgage may be validly constituted, that the
subject mortgage had already been cancelled or terminated upon Galang s document in which it appears be recorded in the Registry of Property. If the
full payment before PCSO availed of registration in 1992. As the subject instrument is not recorded, the mortgage is nevertheless binding between the
mortgage was not annotated on TCT No. 52135 at the time it was terminated, parties.
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. 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
Therefore, since the subject mortgage is not in the nature of a continuing which the mortgage is formalized.
guaranty and given the automatic termination thereof, PCSO cannot claim
that Galang s ticket purchases in 1992 are also secured. From the time the Construing the foregoing conjunctively, as to third persons, a property
amount of P450,000.00 was fully settled, the subject mortgage had already registered under the Torrens system is, for all legal purposes, unencumbered
been cancelled such that Galang s subsequent ticket purchases are or remains to be the property of the person in whose name it is registered,
unsecured. Simply put, PCSO had nothing to register, much less, foreclose. notwithstanding the execution of any conveyance, mortgage, lease, lien,
order or judgment unless the corresponding deed is registered.
Consequently, PCSO s registration of its non-existent mortgage lien and
subsequent foreclosure of a mortgage that was no longer extant cannot The law does not require a person dealing with the owner of registered land
defeat New Dagupan s title over the subject property. 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
II 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
Sections 51 and 53 of P.D. No. 1529 provide:ςrαlαω the title of the vendor.36ςrνll

Section 51. Conveyance and other dealings by registered owner. An owner of In Cruz v. Bancom Finance Corporation,37 the foregoing principle was applied
registered land may convey, mortgage, lease, charge or otherwise deal with as follows:ςrαlαω
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 Second, respondent was already aware that there was an adverse claim and
convey or affect registered land, but shall operate only as a contract between notice of lis pendens annotated on the Certificate of Title when it registered
the parties and as evidence of authority to the Register of Deeds to make the mortgage on March 14, 1980. Unless duly registered, a mortgage does
registration. not affect third parties like herein petitioners, as provided under Section 51 of
PD NO. 1529, which we reproduce hereunder:
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, x x x
the registration shall be made in the office of the Register of Deeds for the
province or city where the land lies. 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
Section 52. Constructive notice upon registration. Every conveyance, case, the adverse claim and the notice of lis pendens were annotated on the
mortgage, lease, lien, attachment, order, judgment, instrument or entry title on October 30, 1979 and December 10, 1979, respectively; the real
affecting registered land shall, if registered, filed or entered in the office of the 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 reliance on a mere photocopy of TCT No. 52135. However, apart from the
registration of a lien creates a preference. Even a subsequent registration of fact that the facsimile bore no annotation of a lien or encumbrance, PCSO
the prior mortgage will not diminish this preference, which retroacts to the failed to refute the testimony of Cuña that his verification of TCT No. 52135
date of the annotation of the notice of lis pendens and the adverse claim. with the Register of Deeds of Dagupan City confirmed Peralta s claim of a
Thus, respondent s failure to register the real estate mortgage prior to these clean title.
annotations, resulted in the mortgage being binding only between it and the
mortgagor, Sulit. Petitioners, being third parties to the mortgage, were not Since PCSO had notice of New Dagupan s adverse claim prior to the
bound by it. Contrary to respondent s claim that petitioners were in bad faith registration of its mortgage lien, it is bound thereby and thus legally
because they already had knowledge of the existence of the mortgage in compelled to respect the proceedings on the validity of such adverse claim. It
favor of respondent when they caused the aforesaid annotations, petitioner is therefore of no moment if PCSO s foreclosure of the subject mortgage and
Edilberto Cruz said that they only knew of this mortgage when respondent purchase of the subject property at the auction sale took place prior to New
intervened in the RTC proceedings.38 (Citations Dagupan s acquisition of title as decreed in the Decision dated January 21,
omitted) chanroblesvirtuallawlibrary 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
It is undisputed that it was only on May 20, 1992 that PCSO registered its acquired title over the subject property on May 20, 1992, such title is
mortgage lien. By that time, New Dagupan had already purchased the rendered inferior by New Dagupan s adverse claim, the validity of which was
subject property, albeit under a conditional sale. In fact, PCSO s mortgage confirmed per the Decision dated January 21, 1994 of RTC Branch 43.
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 Otherwise, if PCSO s mortgage lien is allowed to prevail by the mere
owner s duplicate of TCT No. 52135 on February 28, 1992. It was only during expediency of registration over an adverse claim that was registered ahead
the pendency of Civil Case No. D-10160, or sometime in 1993, that New of time, the object of an adverse claim to apprise third persons that any
Dagupan was informed of PCSO s mortgage lien. On the other hand, PCSO transaction regarding the disputed property is subject to the outcome of the
was already charged with knowledge of New Dagupan s adverse claim at the dispute would be rendered naught. A different conclusion would remove the
time of the annotation of the subject mortgage. PCSO s attempt to conceal primary motivation for the public to rely on and respect the Torrens system of
these damning facts is palpable. However, they are patent from the records registration. Such would be inconsistent with the well-settled, even axiomatic,
such that there is no gainsaying that New Dagupan is a purchaser in good rule that a person dealing with registered property need not go beyond the
faith and for value and is not bound by PCSO s mortgage lien. 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
A purchaser in good faith and for value is one who buys property of another, superior.
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 Worthy of extrapolation is the fact that there is no conflict between the
purchase, or before he has notice of the claim or interest of some other disposition of this case and Garbin v. CA44 where this Court decided the
person in the property.39 Good faith is the opposite of fraud and of bad faith, controversy between a buyer with an earlier registered adverse claim and a
and its non-existence must be established by competent proof. 40 Sans such subsequent buyer, who is charged with notice of such adverse claim at the
proof, a buyer is deemed to be in good faith and his interest in the subject time of the registration of her title, in favor of the latter. As to why the adverse
property will not be disturbed. A purchaser of a registered property can rely claim cannot prevail against the rights of the later buyer notwithstanding its
on the guarantee afforded by pertinent laws on registration that he can take prior registration was discussed by this Court in this wise:ςrαlαω
and hold it free from any and all prior liens and claims except those set forth
in or preserved against the certificate of title.41ςrνll 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
This Court cannot give credence to PCSO s claim to the contrary. PCSO did the filing of a sworn statement with the Register of Deeds of the province
not present evidence, showing that New Dagupan had knowledge of the where the property was located. However, what was registered was merely
mortgage despite its being unregistered at the time the subject sale was the adverse claim and not the Deed of Sale, which supposedly conveyed the
entered into. Peralta, in the compromise agreement, even admitted that she northern half portion of the subject property. Therefore, there is still need to
did not inform New Dagupan of the subject mortgage. 42 PCSO s only basis resolve the validity of the adverse claim in separate proceedings, as there is
for claiming that New Dagupan was a buyer in bad faith was the latter s
an absence of registration of the actual conveyance of the portion of land covered by the Decision dated January 21, 1994 of RTC Branch 43, which
herein claimed by private respondents. had long become final and executory.

From the provisions of the law, it is clear that mere registration of an adverse At any rate, in Sajonas v. .CA,47 this Court clarified that there is no necessity
claim does not make such claim valid, nor is it permanent in character. More for a prior judicial determination of the validity of an adverse claim for it to be
importantly, such registration does not confer instant title of ownership since considered a flaw in the vendor s title as that would be repugnant to the very
judicial determination on the issue of the ownership is still purpose thereof.48ςrνll
necessary.45 (Citation omitted)
WHEREFORE, premises considered, the petition is DISMISSED and the
Apart from the foregoing, the more important consideration was the improper Decision dated September 29, 2005 and Resolution dated June9, 2006 of
resort to an adverse claim. In L.P. Leviste & Co. v. Noblejas, 46 this Court the Court of Appeals in CA-G.R. CV No. 59590 are hereby AFFIRMED.
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 SO ORDERED.
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 G. R. No. 124874 - March 17, 2000
ALBERT R. PADILLA, petitioner, v. SPOUSES FLORESCO PAREDES and 1990,4 private respondents, through counsel, demanded payment of the
ADELINA PAREDES, and THE HONORABLE COURT OF APPEALS, remaining balance, with interest and attorney's fees, within five days
respondents. from receipt of the letter. Otherwise, private respondents stated they
would consider the contract rescinded.
DECISION
On February 28, 1990, petitioner made a payment of P100,000.00 to
QUISUMBING, J.: private respondents,5 still insufficient to cover the full purchase price.
Shortly thereafter, in a letter dated April 17, 1990, 6 private respondents
offered to sell to petitioner one-half of the property for all the payments
For resolution is a petition for review on certiorari, seeking reversal of
the latter had made, instead of rescinding the contract. If petitioner did
the decision of the Court of Appeals in CA G.R. CV No. 33089, which set
not agree with the proposal, private respondents said they would take
aside the decision of the Regional Trial Court in Civil Case No. 4357 and
steps to enforce the automatic rescission of the contract.
confirmed the rescission of the contract between petitioner and private
respondents.
Petitioner did not accept private respondents' proposal. Instead, in a
letter dated May 2, 1990,7 he offered to pay the balance in full for the
From the records, we glean the following antecedent facts:
entire property, plus interest and attorney's fees. Private respondents
refused the offer.
On October 20, 1988, petitioner Albert R. Padilla and private
respondents Floresco and Adelina Paredes entered into a contract to
On May 14, 1990, petitioner instituted an action for specific
sell1 involving a parcel of land in San Juan, La Union. At that time, the
performance against private respondents, alleging that he had already
land was untitled although private respondents were paying taxes
substantially complied with his obligation under the contract to sell. He
thereon. Under the contract, petitioner undertook to secure title to the
claimed that the several partial payments he had earlier made, upon
property in private respondents' names. Of the P312,840.00 purchase
private respondents' request, had impliedly modified the contract. He
price, petitioner was to pay a downpayment of P50,000.00 upon signing
also averred that he had already spent P190,000.00 in obtaining title to
of the contract, and the balance was to be paid within ten days from the
the property, subdividing it, and improving its right-of-
issuance of a court order directing issuance of a decree of registration
way.8cräläwvirtualibräry
for the property.

For their part, private respondents claimed before the lower court that
On December 27, 1989, the court ordered the issuance of a decree of
petitioner maliciously delayed payment of the balance of the purchase
land registration for the subject property. The property was titled in the
price, despite repeated demand and despite his knowledge of private
name of private respondent Adelina Paredes. Private respondents then
respondents' need therefor.9 According to private respondents, their
demanded payment of the balance of the purchase price, per the
acceptance of partial payments did not at all modify the terms of their
second paragraph of the contract to sell,2 which reads as follows:
agreement, such that the failure of petitioner to fully pay at the time
stipulated was a violation of the contract. 10 Private respondents
VENDEE agrees to pay the balance of the purchase price of subject claimed that this violation led to the rescission of the contract, of which
property in the amount of TWO HUNDRED SIXTY TWO THOUSAND petitioner was formally informed. 11cräläwvirtualibräry
EIGHT HUNDRED FORTY (P262,840.00) PESOS, within ten (10) days
counted from issuance of the Order of the Court for the issuance of a
After trial, the lower court ruled in favor of petitioner, saying that even if
decree pursuant to an application for registration and confirmation of
petitioner indeed breached the contract to sell, it was only a casual and
title of said subject property, of which the VENDEE is under obligation
slight breach that did not warrant rescission of the contract. The trial
to secure the title of subject property at his own expense.
court pointed out that private respondents themselves breached the
contract when they requested and accepted installment payments from
Petitioner made several payments to private respondents, some even petitioner, even before the land registration court ordered issuance of a
before the court issued an order for the issuance of a decree of decree of registration for the property. 12 According to the trial court,
registration.3 Still, petitioner failed to pay the full purchase price even this constituted modification of the contract, though not reduced into
after the expiration of the period set. In a letter dated February 14,
writing as required by the contract itself. The payments, however, were Petitioner contends that private respondents are not entitled to
evidenced by receipts duly signed by private respondents. Acceptance rescission, because rescission cannot be availed of when the breach of
of delayed payments estopped private respondents from exercising contract is only slight or casual, and not so substantial and
their right of rescission, if any existed. 13cräläwvirtualibräry fundamental as to defeat the object of the parties in making the
contract. Petitioner points out that he made partial payments even
The Court of Appeals, however, reversed the ruling of the trial court and before they were due in fact, even before the land registration court
confirmed private respondents' rescission of the contract to sell. issued an order for the issuance of a decree of registration for the
According to the Court of Appeals, the issue of whether or not the property since private respondents requested it. Private respondents'
breach of contract committed is slight or casual is irrelevant in the case acceptance of the payments amounted to a modification of the
of a contract to sell, where title remains in the vendor if the vendee fails contract, though unwritten. Petitioner believed in good faith that private
to "comply with the condition precedent of making payment at the time respondents would honor an alleged verbal agreement that the latter
specified in the contract." 14cräläwvirtualibräry would not strictly enforce the period for the payment of the remaining
balance.
The Court of Appeals rejected petitioner's claim that there had been a
novation of the contract when he tendered partial payments for the Petitioner additionally argues that private respondents were also guilty
property even before payment was due. The Court of Appeals noted of breach of contract since they failed to deliver the three-meter wide
that the contract itself provides that no terms and conditions therein additional lot for a right-of-way, as agreed upon in their contract.
shall be modified unless such modification is in writing and duly signed
by the parties. The modification alleged by petitioner is not in writing, For their part, private respondents reiterate that, as ruled by the Court
much less signed by the parties. 15 Moreover, the Court of Appeals ruled of Appeals, the issue of whether or not the breach is slight or casual is
that private respondents made a timely objection to petitioner's partial irrelevant in a contract to sell. They contend that in such a contract, the
payments when they offered to sell to petitioner only one-half of the non-payment of the purchase price is not a breach but simply an event
property for such partial payments. 16cräläwvirtualibräry that prevents the vendor from complying with his obligation to transfer
title to the property to the vendee. Moreover, they point out that the
The Court of Appeals ruled that private respondents are entitled to degree of breach was never raised as an issue during the pre-trial
rescission under Article 1191 of the Civil Code, but with the obligation conference nor at trial of this case.
to return to petitioner the payments the latter had made, including
expenses incurred in securing title to the property and in subdividing Private respondents also aver that petitioner cannot avail of an action
and improving it right of way. Whatever damages private respondents for specific performance since he is not an injured party as
had suffered should be deemed duly compensated by the benefits they contemplated in Article 1191 of the Civil Code.
derived from the payments made by petitioner. 17cräläwvirtualibräry
Private respondents admit having requested cash advances from
Hence, this petition, wherein petitioner assigns the following errors petitioner due to dire financial need. Such need, they point out, is the
allegedly committed by the Court of Appeals: same reason why time is of the essence in the payment of the balance
of the purchase price. They claim that petitioner offered to pay the
1. . . . HOLDING THAT: "THE APPELLANTS ARE ENTITLED TO balance only after more than three months had lapsed from the date his
RESCISSION UNDER ARTICLE 1191 OF THE CIVIL CODE. obligation to pay became due.

2. . . . IN CONFIRMING THE UNILATERAL RESCISSION OF THE Private respondents argue that their acceptance of advance payments
CONTRACT TO SELL BY THE PRIVATE RESPONDENTS. does not amount to a novation of the contract since, as provided in the
contract itself, modification of the contract would only be binding if
written and signed by the parties, which is not the case here.
3. . . . WHEN IT INTERPRETED AND APPLIED LIBERALLY IN FAVOR OF
Acceptance of advance payments is a mere act of tolerance, which
THE PRIVATE RESPONDENTS AND STRICTLY AGAINST THE HEREIN
under the contract would not be considered as a modification of the
PETITIONERS, THE PROVISIONS OF ARTICLE 1191 AND OTHER
terms and conditions thereof.
PROVISIONS OF THE CIVIL CODE. 18
The core issue in this case is whether the respondent Court of Appeals Now, admittedly, petitioner failed to comply with his obligation to pay
erred in reversing and setting aside the judgment of the trial court, by the full purchase pride within the stipulated period. Under the contract,
holding that private respondents are entitled to rescind their "contract petitioner was to pay the balance of the purchase price within 10 days
to sell" the land to petitioner. from the date of the court order for the issuance of the decree of
registration for the property. Private respondents claim, and petitioner
To begin with, petitioner is alleging that the contract entered into admits, that there was delay in the fulfillment of petitioner's obligation.
between the parties is a contract of sale, in which case rescission will The order of the court was dated December 27, 1989. By April 1990, or
not generally be allowed where the breach is only slight or casual. four months thereafter, petitioner still had not fully paid the purchase
Petitioner insists that the title "Contract to Sell" does not reflect the price, clearly in violation of the contract.
true intention of the parties, which is to enter into a contract of sale.
Petitioner's offer to pay is clearly not the payment contemplated in the
We note, however, that petitioner only made this claim as to the nature contract. While he might have tendered payment through a check, this
of the contract in his reply to the comment of private respondents to is not considered payment until the check is encashed. 21 Besides, a
his petition for review. In his complaint in the RTC and in his petition for mere tender of payment is not sufficient. Consignation is essential to
review, petitioner refers to the subject contract as a contract to sell. The extinguish petitioner's obligation to pay the purchase
nature of the contract was never in issue in the proceedings in the price.22cräläwvirtualibräry
courts below. Moreover, petitioner does not deny private respondents'
allegation that it was he and his counsel who prepared the contract. We sustain the decision of the Court of Appeals, to the effect that
Thus, the ambiguity, if any exists, must be resolved strictly against him private respondents may validly cancel the contract to sell their land to
as the one who caused the same. 19cräläwvirtualibräry petitioner. However, the reason for this is not that private respondents
have the power to rescind such contract, but because their obligation
At any rate, the contract between the parties in our view is indeed a thereunder did not arise.
contract to sell, as clearly inferrable from the following provisions
thereof: Art. 1191 of the Civil Code, on rescission, is inapplicable in the present
case. This is apparent from the text of the article itself:
xxx xxx xxx
Art. 1191. The power to rescind obligations is implied in reciprocal
That the VENDORS hereby agree and bind themselves not to allienate ones, in case one of the obligors should not comply with what is
(sic), encumber, or in any manner modify the right of title to said incumbent upon him.
property.
The injured party may choose between the fulfillment and the
xxx xxx xxx rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
That the VENDORS agree to pay real estate taxes of said subject
property until the same will have been transferred to the VENDEE.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
That on payment of the full purchase price of the above-mentioned
property the VENDORS will execute and deliver a deed conveying to
the VENDEE the title in fee simple of said property free from all lien and This is understood to be without prejudice to the rights of third persons
encumbrances . . . (Emphasis supplied.)20 who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
These provisions signify that title to the property remains in the
vendors until the vendee should have fully paid the purchase price, Art. 1191 speaks of obligations already existing, which may be
which is a typical characteristic of a contract to sell. rescinded in case one of the obligors fails to comply with what is
incumbent upon him. However, in the present case, there is still no
obligation to convey title of the land on the part of private respondents. Private respondents' acceptance of several partial payments did not
There can be no rescission of an obligation that is non-existent, modify the parties' contract as to exempt petitioner from complying
considering that the suspensive condition therefor has not yet with his obligation to pay within the stipulated period. The contract
happened.23cräläwvirtualibräry itself provided:

In Rillo v. Court of Appeals,24 we ruled: No terms and conditions shall be considered modified, changed,
altered, or waived by any verbal agreement by and between the parties
The respondent court did not err when it did not apply Articles 1191 and hereto or by an act of tolerance on the parties unless such
1592 of the Civil Code on rescission to the case at bar. The contract modification, change, alteration or waiver appears in writing duly
between the parties is not an absolute conveyance of real property but signed by the parties hereto.28
a contract to sell. In a contract to sell real property on installments, the
full payment of the purchase price is a positive suspensive condition, Acceptance of the partial payments is, at best, an act of tolerance on
the failure of which is not considered a breach, casual or serious, but the part of private respondents that could not modify the contract,
simply an event which prevented the obligation of the vendor to convey absent any written agreement to that effect signed by the parties.
title from acquiring any obligatory force. The transfer of ownership and
title would occur after full payment of the purchase price. 25 The Court of Appeals is correct in ordering the return to petitioner of
the amounts received from him by private respondents, on the principle
We reiterated this rule in Odyssey Park, Inc. v. Court of Appeals, 280 that no one may unjustly enrich himself at the expense of another.
SCRA 253 (1997). Moreover, we held in Odyssey:
WHEREFORE, the petition is DENIED, for lack of merit. Costs against
The breach contemplated in Article 1191 of the Code is the obligor's petitioner.
failure to comply with an obligation already extant, not a failure of a
condition to render binding that obligation.26 SO ORDERED.

Under the parties' contract, the property will be transferred to petition

only upon the latter's "complete compliance of his obligation provided
in [the] contract." Because of petitioner's failure to fully pay the
purchase price; the obligation of private respondents to convey title to
the property did not arise.27 Thus, private respondents are under no
obligation, and may not be compelled, to convey title to petitioner and
receive the full purchase price.

Petitioner's reliance on Article 1592 of the Civil Code is misplaced. It

provides:

Art. 1592. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed
upon the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no demand 1. PLEADING AND PRACTICE; TRIAL; FAILURE OF PARTY TO ATTEND
for rescission of the contract has been made upon him either judicially TRIAL WITHOUT CAUSE; EFFECT OF. — Where a party is duly notified of
or by a notarial act. After the demand, the court may not grant him a the trial and fails to attend it without sufficient cause, he can not thereafter
new term. claim that he was deprived of his day in court. (Siojo v. Tecson, 88 Phil., 531).

Clearly, what this provision contemplates is an absolute sale and not a 2. MORTGAGE; FORECLOSURE OF MORTGAGE; RULE ON SALE OF
contract to sell as in the present case. REAL PROPERTY CONSTITUTING OF SEVERAL LOTS. — The rule that
real property, consisting of several lots, should be sold separately, applies to vigorously opposed by plaintiff. On the day set for trial, neither defendant nor
sales in execution (Rule 39, section 19) and not to foreclosure of mortgages. counsel appeared, so the Court directed plaintiff to present his evidence.
Even assuming that the prohibition cited applies to foreclosure sales, still the After the hearing, the lower Court found that defendant had mortgaged the
sale of appellant’s properties cannot be set aside because she has failed to lots in question to plaintiff to secure a loan of P15,000, which defendant
show that a better price could have obtained if the lots were sold separately, failed to pay, and rendered judgment for the plaintiff, ordering the sale of the
or that the sale of one lot alone would bring sufficient proceeds to satisfy the mortgaged properties in case the amount of the judgment is not paid.
judgment in appellee’s favor (Herman vs La Urbana, 59 Phil., 261; Tria, Et.
Al. v. Villareal 69 Phil., 478). On November 24, 1952, the properties were sold by the sheriff at public
auction, and were awarded to the plaintiff as the only bidder. On November
3. ID.; ID.; ID.; RIGHT OF REDEMPTION AND EQUITY OF REDEMPTION 25, 1952, plaintiff moved for the confirmation of the sale; but the lower Court
TO BE EXERCISED BEFORE CONFIRMATION OF SALE; EXCEPTIONS. postponed the hearing of the motion for December 22, 1952, because the
— In foreclosure of mortgage under Rule 70, there is no right of redemption sale had not yet been registered, and also to give defendant an opportunity
after the judicial sale is confirmed (Raymundo v. Sunico, 25 Phil., 365; to show cause why the sale should not be confirmed. On December 22,
Benedicto vs Yulo, 26 Phil., 160). There is only the equity of redemption in 1952, the motion for confirmation of the sale was called for hearing; again,
favor of the mortgagor consisting in the right to redeem the mortgaged defendant or her counsel (who was personally notified) did not appear.
property within the ninety-day period from the order of foreclosure (Rule 70, Wherefore, the Court, after having been satisfied that notice of the hearing
section 2; Sun Life Assurance Co. of Canada v. Gonzales Diez, 52 Phil., 271) was mailed to and received by defendant, entered an order confirming the
or even thereafter but before the confirmation of the sale (Anderson v. foreclosure sale and directing the transfer of the title and possession of the
Reyes, 54 Phil., 944; Grimalt v. Velasquez Phil., 271); and when the lots in question to plaintiff.
foreclosure sale is validity confirmed by the Court, title vests upon the
purchaser in the foreclosure sale, and the confirmation retroacts to the date On January 13, 1953, defendant moved for an extension of time to deliver
of sale (Binalbagan Estate, Inc. v. Gastuslao, Et Al., 74 Phil., 128). Only the lands to plaintiff because she and her husband, who is insane and under
foreclosure of mortgages to banking institutions (including the Rehabilitation her custody, were still looking for a place wherein to transfer. Ten days later,
Finance Corporation) and those made extrajudicially are subject to legal defendant filed another motion, praying that the order of confirmation of the
redemption by express provision of state, and the present case does not sale be set aside upon the ground that she did not oppose the same on the
come under such exceptions. mistaken belief that she could redeem the lands within one year, and that
there were other persons who were willing to buy the lots at a price higher
than that paid by plaintiff at the public auction. Then, again, on February 10,
DECISION 1953, defendant, represented by counsel, filed a third motion asking that the
foreclosure sale be invalidated and its confirmation be set aside, on the
theory that (1) the joint sale of the two parcels was irregular and against the
REYES, J.B.L., J.: law, and (2) that defendant still had the right to redeem within one year. On
May 30, 1953, the Court below denied the motion to invalidate the sale and
to set aside its confirmation; hence, this appeal by defendant.
This is an appeal by defendant-appellant Cesaria Javier de Paderanga from
an order of the Court of First Instance of Misamis Occidental denying her Appellant complains that she was deprived of her day in court in the Court
motion to invalidate the foreclosure sale of two parcels of land mortgaged by below because judgment was rendered for plaintiff-appellee without giving
her to the plaintiff-appellee Fermin Villar, and to set aside the order of her a chance to present her evidence. The charge is unfounded; for the
confirmation of said sale. records show that the hearing of the case had been repeatedly postponed
upon motion of defendant, so that she was given every chance to be heard.
There is no dispute as to the facts of the case. After issues had been joined On the final hearing neither she nor her counsel appeared, hence trial was
by the filing of plaintiff’s complaint for foreclosure of mortgage and the had in her absence. Settled is the rule that if the defendant fails to appear at
defendant’s answer, the case was set for hearing, but the hearing was the trial, the hearing may proceed without him. And where a party is duly
postponed several times upon motion of the defendant. The case was set for notified of the trial and fails to attend it without sufficient cause, he can not
final hearing on February 22, 1952; however, a few days before the date of thereafter claim that he was deprived of his day in court. (Siojo v. Tecson, 88
the hearing, defendant again moved for postponement, which motion was Phil., 531). Besides, Defendant-Appellant never complained in the Court
below that she was not given her day in Court. The only pleading she filed Wherefore, the orders appealed from are affirmed, with costs against
after she received notice of the decision and before the sale of the defendant-appellant Cesaria Javier de Paderanga.
mortgaged properties was a motion to suspend the sale because plaintiff’s
right to have the properties sold allegedly had not yet accrued (Rec. App., pp. Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., Jugo, Bautista
7-8), which in effect is an admission of her liability on the complaint and Angelo, Labrador and Concepcion, JJ., concur.
conformity to the judgment against her.

Secondly, Defendant-Appellant charges that the trial Court erred in denying

her motion to invalidate the sale of the two mortgaged lots as irregular and
defective and in not setting aside the order of confirmation of the sale, since
said sale is subject to appellant’s right to redeem within one year, and
therefore should not have been confirmed.

The rule that real property, consisting of several lots, should be sold
separately, applied to sales in execution (Rule 39, section 19) and not to
foreclosure of mortgages. A mortgage voluntarily constituted by the debtor on
two or more parcels of land is one and indivisible (Art. 1860, old Civil Code;
2089, New); and the mortgagee has the right to have either or both parcels,
jointly or singly, sold to satisfy his claim. Even assuming, however, that the
prohibition cited applies to foreclosure sales, still the sale of appellant’s
properties cannot be set aside because she has failed to show that a better
price could have been obtained if the lots were sold separately, or that the
sale of one lot alone would bring sufficient proceeds to satisfy the judgment
in appellee’s favor (Herman v. La Urbana, 59 Phil., 621; Tria, Et. Al. v.
Villareal, 69 Phil., 478).

Appellant also argues that the lower court should not have confirmed the
foreclosure sale because she still has a right to redeem the parcels in
question within twelve months from the sale, claiming that this right of
redemption in execution sales also pertains to the debt mortgagor in
foreclosure sales. The claim is without merit. We have heretofore held that, in
foreclosure of mortgages under Rule 70, there is no right of redemption after
the judicial sale is confirmed (Raymundo v. Sunico, 25 Phil. 365; Benedicto v.
Yulo, 26 Phil., 160). There is only the equity of redemption in favor of the
mortgagor consisting in the right to redeem the mortgaged property within the
ninety-day period from the order of foreclosure (Rule 70, section 2; Sun Life
Assurance Co. of Canada v. Gonzalez Diez, 52 Phil., 271) or even thereafter
but before the confirmation of the sale (Anderson v. Reyes, 54 Phil. 944;
Grimalt v. Velasquez, 36 Phil., 271); and when the foreclosure sale is validly
confirmed by the Court, title vests upon the purchaser in the foreclosure sale,
and the confirmation retroacts to the date of the sale (Binalbagan Estate, Inc.
v. Gatuslao, Et Al., 74 Phil., 128). Only foreclosure of mortgages to banking
institutions (including the Rehabilitation Finance Corporation) and those G.R. No. 174329 October 20, 2010
made extrajudicially are subject to legal redemption, by express provision of
statute, and the present case does not come under such exceptions. DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
ENVIRONMENTAL AQUATICS, INC., LAND SERVICES AND On or before March 14, 1986, for value received, we jointly and severally,
MANAGEMENT ENTERPRISES, INC. and MARIO MATUTE Respondents. promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or at its
office at Makati, Metro Manila, Philippines, the sum of * * ONE HUNDRED
DECISION NINETY THOUSAND SEVEN HUNDRED PESOS * * (₱190,700), Philippine
Currency, with interest at the rate of fourteen per centum (14%) per annum. 10
CARPIO, J.:
On or before March 14, 1982, for value received, I/We, jointly and severally,
promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or order
The Case
at its office at Makati, Metro Manila, Philippines, the sum of * * SIX
HUNDRED EIGHTY FOUR THOUSAND SEVEN HUNDRED EIGHTY
This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. EIGHT PESOS * * (₱684,788.00), Philippine Currency, with interest at the
The petition challenges the 16 January 2006 Decision2 and 16 August 2006 rate of ________ per centum (___%) per annum.11
Resolution3 of the Court of Appeals in CA-G.R. CV No. 46207. The Court of
Appeals affirmed with modification the 7 January 1994 Decision 4 of the
EAI and LSMEI failed to pay the loan. As of 11 September 1990, the loan had
Regional Trial Court (RTC), National Capital Judicial Region, Branch 84,
increased to ₱16,384,419.90.12 On 25 October 1990, DBP applied for
Quezon City, in Civil Case No. Q-91-10563.
extrajudicial foreclosure of the real estate mortgage. In its application
letter,13 DBP stated that:
The Facts
[W]e request [the ex-officio sheriff] to take possession of the properties
On 10 September 1976, respondents Environmental Aquatics, Inc. (EAI) and described in the above-mentioned mortgages as well as those embraced in
Land Services and Management Enterprises, Inc. (LSMEI) loaned the after acquired properties clause thereof, and sell the same at public
₱1,792,600 from petitioner Development Bank of the Philippines (DBP). As auction in accordance with the provisions of Act 3135, as amended by Act
security for the loan, LSMEI mortgaged to DBP its 411-square meter parcel 4118, with respect to the real estate and Act 1508 with respect to the
of land situated in New Manila, Quezon City, and covered by Transfer chattels, as amended by Presidential Decree No. 385 aforecited. 14
Certificate of Title No. 209937.5 The mortgage contract6 stated that:
During the 19 December 1990 public auction, the ex-officio sheriff sold the
If at anytime the Mortgagor shall fail or refuse to pay any of the amortization property to DBP as the highest bidder for ₱1,507,000. 15
on the indebtedness, or the interest when due, or whatever other obligation
herein secured or to comply with any of the conditions and stipulations herein
On 15 May 1991, LSMEI transferred its right to redeem the property to
agreed, or shall initiate insolvency proceedings or be declared involuntary
respondent Mario Matute (Matute). In his 27 July 1991 letter, 16 Atty. Julian R.
insolvent (sic), or uses the proceeds of the loan for purposes other than
Vitug, Jr. (Atty. Vitug, Jr.) informed DBP that his client Matute was interested
those specified herein then all the amortizations and other obligations of the
in redeeming the property by paying the ₱1,507,000 purchase price, plus
Mortgagor of any nature, shall become due, payable and defaulted and the
other costs. In its 29 August 1991 letter,17 DBP informed Atty. Vitug, Jr. that
Mortgagee may immediately foreclose this mortgage judicially or
Matute could redeem the property by paying the remaining balance of EAI
extrajudicially under Act No. 3135 as amended, or under Republic Act No.
and LSMEI's loan. As of 31 August 1991, the loan amounted to
85, as amended and or under Act No. 1508 as amended. 7
₱19,279,106.22.18
On 31 August 1981, DBP restructured the loan. In their promissory
On 8 November 1991, EAI, LSMEI and Matute filed with the RTC a
notes,8 EAI and LSMEI stated that:
complaint19 praying that DBP be ordered "to accept x x x Matute's bonafide
offer to redeem the foreclosed property."20
On or before March 14, 1986, for value received, we jointly and severally,
promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or at its
The RTC's Ruling
office at Makati, Metro Manila, Philippines, the sum of * * ONE MILLION
NINE HUNDRED SEVENTY THREE THOUSAND ONE HUNDRED PESOS
(₱1,973,100.00), Philippine Currency, with interest at the rate of sixteen per In its 7 January 1994 Decision, the RTC allowed Matute to redeem the
centum (16%) per annum.9 property at its ₱1,507,000 purchase price. The RTC held that:
The question is whether, as the defendant DBP contends, the redemption "x x x the Mortgagee may immediately foreclose this mortgage judicially or
should be made by paying to the Bank the entire amount owed by plaintiffs- extrajudicially under Act No. 3135 as amended, or under Republic Act No.
corporations "in the amount of ₱18,301,653.11 as of the date of foreclosure 85, as amended and or under Act No. 1508 as amended. x x x x."
on December 12, 1990", invoking Sec. 16 of Executive Order No. 81
otherwise known as the 1986 Revised Charter of DBP. On the other hand, Going by the literal terms of this quoted provision of the mortgage contract,
the plaintiffs contend that this redemption may be made only by reimbursing defendant DBP stand bound by the same. When defendant DBP foreclosed
the defendant Bank what it has paid for at the auction sale made to it (sic), in the mortgage at issue, it chose Act 3135. That was an option it freely
the amount of ₱1,507,000.00, pursuant to Section 5 of Act No. 3135 and exercised without the least intervention of plaintiffs. We cannot, therefore,
Sections 26 to 30 of Rule 39 of the Revised Rules of Court. escape the conclusion that what defendant DBP agreed to in respect to (sic)
the possible foreclosure of its mortgage was to subject the same to the
Plaintiffs are correct. It is to be noted that the mortgage at issue was provisions of Act No. 3135, as amended, should the DBP opt to utilize said
executed on September 10, 1976, Exhs. "A" and "2". Republic Act No. 2081 law. Section 6 of Act No. 3135 very clearly governs the right of redemption in
entitled "An Act to Amend Republic Act Numbered Eighty-Five and Other extrajudicial foreclosures thus:
Pertinent Laws, to Provide Facilities for Intermediate and Long-Term Credit
by Converting the Rehabilitation Finance Corporation into the Development "SEC. 6. In all cases in which an extrajudicial sale is made under the special
Bank of the Philippines, Authorizing the said Bank to Aid in the Establishment power hereinbefore referred to, the debtor, his successors in interest or any
of Provincial and City Private Development Banks, and for Other Purposes" judicial creditor or judgment creditor of said debtor, or any person having a
was approved and made effective on June 14, 1958. It was therefore the law lien on the property subsequent to the mortgage or deed of trust under which
the Charter (sic) of DBP, when in 1976 the mortgage here in issue was the property is sold, may redeem the same at any time within the term of one
executed. On the other hand, Executive Order No. 81, with its Section 16 year from and after the date of the sale; and such redemption shall be
thereof (sic) reading as follows: governed by the provisions of sections four hundred and sixty-four to four
hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as
"Sec. 16. Right of Redemption. — Any mortgagor of the Bank whose real these are not inconsistent with the provisions of this Act."
property has been extrajudicially sold at public auction shall, within one (1)
year counted from the date of registration of the certificate of sale, have the Sections four hundred sixty-four to four hundred sixty-five, inclusive, of the
right to redeem the real property by paying to the Bank all of the latter's claim Code of Civil Procedure, since the promulgation of the Rules of Court of
against him, as determined by the Bank." 1940, became sections 29, 30 and 32 of Rule 39. The same sections were
reproduced in the Revised Rules of Court.
is of recent vintage. Executive Order No. 81, issued by then President
Corazon C. Aquino, was made effective on December 3, 1986. Clearly, the Having thus come to the conclusion that Act 3135 and Sections 29 to 32 of
application of Executive Order No. 81 to the mortgage herein involved would Rule 39 of the Rules of Court rather than Executive Order No. 81 are the
violate the constitutional proscription against the impairment of contracts. laws applicable to the right of redemption invoke (sic) by plaintiffs in this
Sec. 16 of Executive Order No. 81, which governs the right of redemption in case, it would appear that all that remains for this Court to do is to apply the
extrajudicial foreclosures, is not found in Rep. Act No. 2081 or even in Rep. said legal precepts. Pursuant to Section 30 of Rule 39, "the judgment debtor
Act No. 85. And so, to make the redemption subject to a subsequent law — or his successor-in-interest per Sec. 29, here plaintiff Mario Batute — may
would be obviously prejudicial to the party exercising the right to redeem. Any redeem the property from the purchaser, at any time within twelve months
change in the law governing redemption that would make it more difficult after the sale, on paying the purchaser the amount of his purchase, with one
than under the law at the time of the mortgage cannot be given retroactive per centum per month interest thereon in addition, up to the time of
effect. redemption, together with the amount of any assessments or taxes which the
purchaser may have paid thereon after the purchase, and interest on such
Under the terms of the mortgage contract, "Exh. "2", specifically paragraph 4 last-named amount at the same rate; x x x".21
thereof:
DBP appealed to the Court of Appeals.

The Court of Appeals' Ruling

In its 16 January 2006 Decision, the Court of Appeals affirmed with "Section 28. Time and manner of, and amounts payable on, successive
modification the RTC's 7 January 1994 Decision. The Court of Appeals redemptions; notice to be given and filed. — The judgment obligor, or
imposed a 16% annual interest on the remaining balance of the loan. The redemptioner, may redeem the property from the purchaser, at any time
Court of Appeals held that: 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
The dearth of merit in appellant bank's position is, however, evident from the per month interest thereon in addition, up to the time of redemption, together
fact that, as hereinbefore quoted, paragraph 4 of the September 10, with the amount of any assessments or taxes which may have been paid
1976 Deed of Real Estate Mortgage executed in its favor by thereon after purchase, and interest on such last named amount at the same
appellees EAI and LSMEI provided for three options by which the rate; and if the purchaser be also a creditor having a prior lien to that of the
extrajudicial foreclosure thereof may be effected. Thereunder given the redemptioner, other than the judgment under which such purchase (sic), the
choice of resorting to "Act No. 3135 as amended, or Republic Act No. 85 as amount of such other lien, with interest.1avvphil
amended, or Act No. 1508 as amended", appellant bank undoubtedly opted
for the first of the aforesaid laws as may be gleaned from the following prayer Written notice of any redemption must be given to the officer who made the
it interposed in the application for foreclosure of mortgage it filed with the Ex- sale and a duplicate filed with the registry of deeds of the place, and if any
Officio Sheriff of Quezon City on October 25, 1990, viz: 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
"WHEREFORE, we request you to take possession of the properties must in like manner be given to the officer and filed with the registry of
described in the above-mentioned mortgages xxx xxx xxx and sell the same deeds; if such notice be not filed, the property may be redeemed without
at public auction in accordance with the provisions of Act 3135, as amended paying such assessments, taxes or liens."
by Act 4118, with respect to the real estate xxx xxx xxx"
In order to effect the redemption of the foreclosed property, the foregoing
With appellant bank's categorical election of Act No. 3135 as the controlling provision notably requires the payment to the purchaser of the following
law for the extrajudicial foreclosure of the subject mortgage, it goes without sums only: (a) the bid price; (b) the interest on the bid price, computed at one
saying that, insofar as the redemption of the subject realty is concerned, the per centum (1%) per month; and (c) the assessments or taxes, if any, paid by
provisions of said law are deemed written into the parties' agreement and, as the purchaser, with the same rate of interest.
such, should be respected as the law between them.
When the statute is clear and explicit, the basic principle in legal
Anent the redemption of mortgaged properties extrajudicially foreclosed in hermeneutics is to the effect that there is no need for an extended court
accordance therewith, Section 6 of Act No. 3135 provides as follows: ratiocination on the law — there is no room for interpretation, vacillation or
equivocation, only application. Having been made in accordance with Act No.
3135, we find that appellee Matute's offer to redeem the subject property in
"Section 6. In all cases in which an extrajudicial sale is made under the
the amount of ₱1,672,770.00 was, therefore, unjustifiably refused by
special power hereinbefore referred to, the debtor, his successors in interests
appellant bank. Corollarily, the rule is settled that the person effecting
(sic) or any judicial creditor or judgment creditor of said debtor, or any person
redemption is not mandated to pay the whole debt since, in redemption of
having a lien on the property subsequent to the mortgage or deed of trust
properties, the amount payable is no longer the judgment debt but, rather,
under which the property is sold, may redeem the same at any time within
the purchase price thereby fetched at the auction sale.
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 sixty-six, inclusive, of the Code of Civil Procedure, in so far as As for the deficiency x x x, the consistent ruling in a cantena of Supreme
these are not inconsistent with the provisions of this Act." Court decisions is to the effect that the mortgagee has the right to recover
the same from the debtor where, in the extrajudicial foreclosure of mortgage,
the proceeds of the sale are insufficient to pay the debt. x x x
As appropriately noted by the trial court, Sections 464, 465 and 466 of
the Code of Civil Procedure are now, respectively, Sections 27, 28 and 30
of the 1997 Rules of Civil Procedure which, under said second provision, Considering, however, that the amount offered by appellee by way of
prescribes the following guidelines for redemption, viz: redemption consisted merely of the purchase price for the foreclosed
property, together with the interests thereon, we find that appellant bank
correctly takes exception to the trial court's imposition of legal interest on the The foregoing rule is embodied consistently in the charters of petitioner DBP
balance of the mortgage debt. If the obligation consists in the payment of a and its predecessor agencies. Section 31 of CA 459 creating the Agricultural
sum of money, and the debtor incurs in delay, the indemnity for damages, and Industrial Bank explicitly set the redemption price at the total
there being no stipulation to the contrary, shall be the payment of the interest indebtedness plus contractual interest as of the date of the auction sale.
agreed upon, and in the absence of stipulation, the legal interest which is six Under RA 85 the powers vested in and the duties conferred upon the
per cent per annum. In the case at bench, the interest imposable on the Agricultural and Industrial Bank by CA 459 as well as its capital, assets,
balance of the mortgage debt should, therefore, be the sixteen per cent accounts, contracts, and choses in action were transferred to the
(16%) per annum provided under the August 31, 1981 Promissory Note Rehabilitation Finance Corporation. It has been held that among the salutary
appellees EAI and LSMEI executed in favor of appellant.22 provisions of CA 459 ceded to the Rehabilitation Finance Corporation by RA
85 was Sec. 31 defining the manner of redeeming properties mortgaged with
DBP filed a motion for reconsideration. In its 16 August 2006 Resolution, the the corporation. Subsequently, by virtue of RA 2081 (1958), the powers,
Court of Appeals denied the motion. Hence, the present petition. assets, liabilities and personnel of the Rehabilitation Finance Corporation
under RA 85 and CA 459, particularly Sec. 31 thereof, were transferred to
petitioner DBP. Significantly, Sec. 31 of CA 459 has been reenacted
Issues
substantially in Sec. 16 of the present charter of the DBP, i.e., EO 81 (1986)
as amended by RA 8523 (1998).
DBP raises as issues that the lower courts erred in finding that the bank
chose Act No. 3135 as the governing law for the extrajudicial foreclosure of
xxxx
the property, including the determination of the redemption price, and in
ruling that the redemption price is equivalent to the ₱1,507,000 purchase
price. The unavoidable conclusion is that in redeeming the foreclosed property
respondent West Negros College as assignee of Bacolod Medical
Center should pay the balance of the amount owed by the latter to
The Court's Ruling
petitioner DBP with interest thereon at the rate agreed upon as of the
date of the public auction on 24 August 1989.24 (Emphasis supplied)
The petition is meritorious.
In Development Bank of the Philippines v. Mirang,25 the Court held that the
Section 16 of Executive Order (EO) No. 81 states that the redemption price redemption price for properties morgaged to and foreclosed by DBP is
for properties mortgaged to and foreclosed by DBP is equivalent to the equivalent to the remaining balance of the loan, with interest at the agreed
remaining balance of the loan. Section 16 states that, "Any mortgagor of the rate. The Court held that, "The unavoidable conclusion is that the appellant,
Bank whose property has been extrajudicially sold at public auction shall x x in redeeming the foreclosed property, should pay the entire amount he
x have the right to redeem the real property by paying to the Bank all of owed to the Bank on the date of the sale, with interest thereon at the
the latter's claims against him, as determined by the Bank." rate agreed upon."26

In Development Bank of the Philippines v. West Negros College, Inc.,23 the As early as 1960, the Court has already settled the issue. In Nepomuceno, et
Court held that the redemption price for properties mortgaged to and al. v. Rehabilitation Finance Corporation,27 the Court held that the redemption
foreclosed by DBP is equivalent to the remaining balance of the loan, with price for properties morgaged to and foreclosed by DBP is equivalent to the
interest at the agreed rate. The Court held that: remaining balance of the loan, with interest at the agreed rate. The Court
held that:
It has long been settled that where the real property is mortgaged to and
foreclosed judicially or extrajudicially by the Development Bank of the The issue posed in this appeal is: considering that the loan of ₱300,000.00
Philippines, the right of redemption may be exercised only by paying to was obtained from the Rehabilitation Finance Corporation [now DBP] by
"the Bank all the amount he owed the latter on the date of the sale, with spouses Jose Nepomuceno and Isabela Acuña and Jesus Nepomuceno
interest on the total indebtedness at the rate agreed upon in the merely acted as accomodation mortgagor, for what price may the mortgagor
obligation from said date, unless the bidder has taken material possession redeem his property after the same has been sold at public auction? Would it
of the property or unless this had been delivered to him, in which case the be for the price at which the property was sold, as contended by the
proceeds of the property shall compensate the interest." x x x
mortgagor, or for the balance of the loan obtained by the borrowers from the [W]hen herein petitioner resorted to Act 3135 in its application for
banking institution, as contended by appellant? extrajudicial foreclosure of the subject mortgaged real estate, it did so only
to find a proceeding for the extrajudicial sale. The Court of Appeals
xxxx should have noted that neither Republic Act No. 85 (the Charter of the
Rehabilitation Finance Corporation) nor Act 1508 (Chattel Mortgage Law)
prescribe a procedure for extrajudicial foreclosure of real estate mortgage as
[T]he inescapable conclusion is that the mortgagor herein or his
provided under Act 3135. Such action, therefore, cannot be construed to
assignees cannot redeem the property in dispute without paying the
mean a waiver of petitioner's right to demand the payment of respondents'
balance of the total indebtedness then outstanding on the date of the
entire obligation as the proper redemption price. There is no such waiver on
sale to the Rehabilitation Finance Corporation.28 (Emphasis supplied)
the part of the petitioner.
The lower courts ruled that the redemption price for the property is equivalent
xxxx
to the ₱1,507,000 purchase price because DBP chose Act No. 3135 as the
governing law for the extrajudicial foreclosure. The RTC and Court of
Appeals, respectively, stated that: [I]t is hereby stressed that DBP did not elect Act 3135 to the exclusion of
other laws in the extrajudicial foreclosure of the subject mortgaged real
property. Such a conclusion is definitely contrary to law and jurisprudence,
When defendant DBP foreclosed the mortgage at issue, it chose Act 3135.
which settled the rule that Act 3135 is the general law that governs the
That was an option it freely exercised without the least intervention of
procedure and requirements in extra-judicial foreclosure of real estate
plaintiffs. We cannot, therefore, escape the conclusion that what defendant
mortgage, but in determining the redemption price of the property mortgaged
DBP agreed to in respect to (sic) the possible foreclosure of its mortgage
to the Development Bank of the Philippines, the DBP Charter shall prevail.
was to subject the same to the provisions of Act No. 3135, as amended,
should the DBP opt to utilize said law.29
It is of judicial notice that Act 3135 is the only law governing the proceedings
in extrajudicial foreclosure of real estate mortgage. Act No. 1508, on the
Thereunder given the choice of resorting to "Act No. 3135 as amended, or
other hand, governs the extrajudicial foreclosure of chattel mortgage, and
Republic Act No. 85 as amended, or Act No. 1508 as amended", appellant
should not be in issue in the instant case which involves a real estate
bank undoubtedly opted for the first of the aforesaid laws as may be gleaned
mortgage.
from the following prayer it interposed in the application for foreclosure of
mortgage it filed with the Ex-Officio Sheriff of Quezon City on October 25,
1990.30 It should likewise be of judicial notice that Republic Act No. 85 is the charter
of the Rehabilitation Finance Corporation, predecessor of appellant DBP. RA
85 prescribes the redemption price, not the proceedings and requirements in
The Court disagrees. Republic Act (RA) No. 85 and Act No. 1508 do not
an extrajudicial foreclosure of real estate mortgage such as those found in
provide a procedure for extrajudicial foreclosure of real estate mortgage.
Act 3135.
When DBP stated in its letter to the ex-officio sheriff that the property be sold
"at public auction in accordance with the provisions of Act 3135," it did so
merely to find a proceeding for the sale. x x x When appellant DBP cited Act 3135 in its Deed of Real Estate
Mortgage or even in the application for foreclosure of mortgage, it was not a
matter of making an exclusive option or choice because Act 3135 governs
In Development Bank of the Philippines v. Zaragoza,31 Development Bank of
the procedure and requirements for an extrajudicial foreclosure or real estate
the Philippines v. Mirang,32 and Development Bank of the Philippines v.
mortgage. In citing said law, Appellant DBP was merely finding a proceeding
Jimenez, et al.,33 the Court held that when the bank resorted to Act No. 3135
for extra-judicial foreclosure sale x x x. And while the said Act 3135 provides
in order to sell the mortgaged property extrajudicially, it did so merely to find
for redemption, such provision will not apply in the determination of the
a proceeding for the sale.
redemption price on [sic] mortgages to DBP. In the latter case, the DBP
Charter will prevail.34
In its 10 October 2006 petition, DBP claims that when it resorted to Act No.
3135 in order to sell the mortgaged property extrajudicially, it did so merely to
Even assuming that DBP chose Act No. 3135 as the governing law for the
find a proceeding for the sale. DBP stated that:
extrajudicial foreclosure, the redemption price would still be equvalent to the
remaining balance of the loan. EO No. 81, being a special and subsequent respondent Mario Matute a grace period of 60 calendar days from notice of
law, amended Act No. 3135 insofar as the as redemption price is concerned. finality of this Decision to redeem the property, by paying petitioner
Development Bank of the Philippines the remaining balance of respondents
In Sy v. Court of Appeals,35 the Court held that RA No. 337 amended Act No. Environmental Aquatics, Inc. and Land Services and Management
3135 insofar as the redemption price is concerned. The Court held that: Enterprises, Inc.'s loan, plus expenses and interest at the agreed rate
computed from the 19 December 1990 public auction. If the bank has taken
material possession of the property, the possession of the property shall
[T]he General Banking Act partakes of the nature of an amendment to
compensate for the interest during the period of possession.
Act No. 3135 insofar as the redemption price is concerned, when the
mortgagee is a bank or banking or credit institution, Section 6 of Act No.
3135 being, in this respect, inconsistent with Section 78 of the General SO ORDERED.
Banking Act. Although foreclosure and sale of the subject property was
done by SIHI pursuant to Act. No. 3135, x x x Section 78 of the General
Banking Act, as amended provides the amount at which the subject
property is redeemable from SIHI, which is, in this case, the amount
due under the mortgage deed, or the outstanding obligation of Carlos
Coquinco, plus interest and expenses.36 (Emphasis supplied)

In Ponce de Leon v. Rehabilitation Finance Corporation,37 the Court held that

RA No. 337, being a special and subsequent law, amended Act No. 3135
insofar as the redemption price is concerned. The Court held that:

Rep. Act No. 337, otherwise known as "The General Banking Act," is entitled
"An Act Regulating Banks and Banking Institutions and for other purposes."
Section 78 thereof limits the amount of the loans that may be given by banks
and banking or credit institutions on the basis of the appraised value of the
property given as security, as well as provides that, in the event of
foreclosure of a real estate mortgage to said banks or institutions, the
property sold may be redeemed "by paying the amount fixed by the court in
the order of execution," or the amount judicially adjudicated to the creditor
bank. This provision had the effect of amending Section 6 of Act No.
3135, insofar as the redemption price is concerned, when the
mortgagee is a bank or a banking or credit institution, said Section 6 of
Act No. 3135 being, in this respect, inconsistent with the above-quoted
portion of Section 78 of Rep. Act No. 337. In short, the Parañaque
property was sold pursuant to said Act No. 3135, but the sum for which
it is redeemable shall be governed by Rep. Act No. 337, which partakes
of the nature of an amendment to Act No. 3135, insofar as mortgages to
banks or banking or credit institutions are concerned, to which class G.R. No. 157177 February 11, 2008
the RFC belongs. At any rate, the conflict between the two (2) laws must
be resolved in favor of Rep. Act No. 337, both as a special and as the BANK OF THE PHILIPPINE ISLANDS, petitioner,
subsequent legislation.38 (Emphasis supplied) vs.
JESUSA P. REYES and CONRADO B. REYES, respondents.
WHEREFORE, the Court GRANTS the petition. The Court PARTIALLY
SETS ASIDE the 16 January 2006 Decision and 16 August 2006 Resolution DECISION
of the Court of Appeals in CA-G.R. CV No. 46207. The Court gives
AUSTRIA-MARTINEZ, J.:. signature super-imposed thereto signifying the change, afterwhich the
amount of P100,000.00 in cash in two bundles containing 100 pieces
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of of P500.00 peso bill were given to Capati with her daughter Joan witnessing
Court seeking to annul the Decision1 of the Court of Appeals (CA) dated the same. Thereafter Capati prepared a deposit slip for P200,000.00 in the
October 29, 2002 as well as its Resolution2 dated February 12, 2003, which name of plaintiff Jesusa Reyes with the new account no. 0235-0767-48 and
affirmed with modification the Decision of the Regional Trial Court (RTC) of brought the same to the teller's booth.
Makati, Branch 142, in Civil Case No. 91-3453,3 requiring Bank of Philippine
Islands (petitioner) to return to spouses Jesusa P. Reyes and Conrado B. After a while, he returned and handed to the plaintiff her duplicate copy of her
Reyes (respondents) the amount of P100,000.00 plus interest and damages. deposit to account no. 0235-0767-48 reflecting the amount of P200,000.00
with receipt stamp showing December 7, as the date.
The conflicting versions of the parties are aptly summarized by the trial court,
to wit: Plaintiff and daughter then left.

On December 7, 1990 at around 2:00 p.m., plaintiff Jesusa Reyes together On December 14, 1990, Mrs. Jesusa received her express teller card
with her daughter, Joan Reyes, went to BPI Zapote Branch to open an ATM from said bank.
account, she being interested with the ongoing promotions of BPI entitling
every depositor with a deposit amounting to P2,000.00 to a ticket with a car Thereafter on December 26, 1990, plaintiff left for the United States
as its prize to be raffled every month. (Exhs. "T", "U"- "U-1") and returned to Manila on January 31, 1991
(Exhs. "V"-"V-1").
She was accommodated, in lieu of the bank manager Mr. Nicasio, by Cicero
Capati (Pats) who was an employee of the bank and in charge of the new When she went to her pawnshop, she was made aware by her
accounts and time deposits characteristically described as having statement of account sent to her by BPI bank that her ATM account
homosexual inclinations. They were entertained by Capati and were made to only contained the amount of P100,000.00 with interest.
sit at a table occupied by a certain Liza.
She then sent her daughter to inquire, however, the bank manager
Plaintiff informed Capati that they wanted to open an ATM account for the assured her that they would look into the matter.
amount of P200,000.00, P100,000.00 of which shall be withdrawn from her
exiting savings account with BPI bank which is account no. 0233-2433-88 On February 6, 1991, plaintiff instructed Efren Luna, one of her
and the other P100,000.00 will be given by her in cash. employees, to update her savings account passbook at the BPI with
the folded deposit slip for P200,000.00 stapled at the outer cover of
Capati allegedly made a mistake and prepared a withdrawal slip said passbook. After presenting the passbook to be updated and
for P200,00.00 to be withdrawn from her existing savings account with said when the same was returned, Luna noticed that the deposit slip
bank and the plaintiff Jesusa Reyes believing in good faith that Capati stapled at the cover was removed and validated at the back portion
prepared the papers with the correct amount signed the same unaware of the thereof.
mistakes in figures.
Thereafter, Luna returned with the passbook to the plaintiff and when
While she was being entertained by Capati, her daughter Joan Reyes was the latter saw the validation, she got angry.
filling up the signature cards and several other forms.
Plaintiff then asked the bank manager why the deposit slip was
Minutes later after the slips were presented to the teller, Capati returned to validated, whereupon the manager assured her that the matter will
where the plaintiff was seating and informed the latter that the withdrawable be investigated into.
balance could not accommodate P200,000.00.
When no word was heard as to the investigation made by the bank,
Plaintiff explained that she is withdrawing the amount of P100,000.00 only Mrs. Reyes sent two (2) demand letters thru her lawyer demanding
and then changed and correct the figure two (2) into one (1) with her
return of the missing P100,000.00 plus interest (Exhs. "B" and "C"). On August 12, 1994, the RTC issued a Decision5 upholding the versions of
The same was received by defendant on July 25, 1991 and October respondents, the dispositive portion of which reads:
7, 1991, respectively.
WHEREFORE, premises considered, the Court finds in favor of the
The last letter prompted reply from defendant inviting plaintiff to sit plaintiff Jesusa P. Reyes and Conrado Reyes and against defendant
down and discuss the problem. Bank of the Philippine Islands ordering the latter to:

The meeting resulted to the bank promising that Capati will be 1. Return to plaintiffs their P100,000.00 with interest at 14% per
submitted to a lie detector test. annum from December 7, 1990;

Plaintiff, however, never learned of the result of said test. Plaintiff 2. Pay plaintiffs P1,000,000.00 as moral damages;
filed this instant case.
2. Pay plaintiffs P350,000.00 as exemplary damages;
Defendant on the other hand claimed that Bank of the Philippine
Island admitted that Jesusa Reyes had effected a fund transfer in the 3. Pay plaintiffs P250,000.00 for and attorney's fees.6
amount of P100,000.00 from her ordinary savings account to the
express teller account she opened on December 7, 1990 (Exhs. "3" The RTC found that petitioner's claim that respondent Jesusa deposited
to "3-C"), however, it was the only amount she deposited and no only P100,000.00 instead of P200,000.00 was hazy; that what should control
additional cash deposit of P100,000.00 was made. That plaintiff was the deposit slip issued by the bank to respondent, for there was no
wanted to effect the transfer of P200,000.00 but the balance in her chance by which respondent could write the amount of P200,000.00 without
account was not sufficient and could not accommodate the same. petitioner's employee noticing it and making the necessary corrections; that it
Plaintiff thereafter agreed to reduce the amount to be withdrawn was deplorable to note that it was when respondent Jesusa's bankbook was
from P200,000.00 to P100,000.00 with plaintiff’s signature submitted to be updated after the lapse of several months when the alleged
superimposed on said corrections; that the original copy of the error claimed by petitioner was corrected; that Article 1962 of the New Civil
deposit slip was also altered from P200,000.00 to P100,000.00, Code provides that a deposit is constituted from the moment a person
however, instead of plaintiff signing the same, the clerk-in-charge of receives a thing belonging to another with the obligation of safely keeping it
the bank, in this case Cicero Capati, signed the alteration himself for and of returning the same; that under Article 1972, the depositary is obliged
Jesusa Reyes had already left without signing the deposit slip. The to keep the thing safely and to return it when required to the depositor or to
documents were subsequently machine validated for the amount his heirs and successors or to the person who may have been designated in
of P100,000.00 (Exhs. "2" and "4"). the contract.

Defendant claimed that there was actually no cash involved with the Aggrieved, petitioner appealed to the CA which in a Decision dated October
transactions which happened on December 7, 1990 as contained in 29, 2002 affirmed the RTC decision with modification as follows:
the bank’s teller tape (Exhs."1" to "1-C").
Nonetheless, the award of 14% interest per annum on the
Defendant further claimed that when they subjected Cicero Capati to missing P100,000.00 can stand some modification. The interest
a lie detector test, the latter passed the same with flying colors thereon should be 12% per annum, reckoned from May 12, 1991, the
(Exhs. "5" to "5-C"), indicative of the fact that he was not lying when last day of the five day-grace period given by plaintiff-appellees'
he said that there really was no cash transaction involved when counsel under the first demand letter dated May 6, 1991 (Exhibit B),
plaintiff Jesusa Reyes went to the defendant bank on December 7, or counted from May 7, 1991, the date when defendant-appellant
1990; defendant further alleged that they even went to the extent of received said letter. Interest is demandable when the obligation
informing Jesusa Reyes that her claim would not be given credit consist in the payment of money and the debtor incurs in delay.
(Exh. "6") considering that no such transaction was really made on
December 7, 1990. 4
Also, we have to reduce the P1 million award of moral damages to a
reasonable sum of P50,000.00. Moral damages are not intended to
 enrich a plaintiff at the expense of a defendant. They are awarded discretion by resolving the issue based on a conjecture and ignoring
only to enable the injured party to obtain means, diversion, or physical evidence in favor of testimonial evidence.
amusements that will serve to alleviate the moral suffering he has
undergone, by reason of the defendant's culpable action. The award B. The Court of Appeals gravely abused its discretion, being as it is
of moral damages must be proportionate to the suffering inflicted. contrary to law, in holding BPI liable to respondents for the payment
of interest at the rate of 12% per annum.
In addition, we have to delete the award of P350,000.00 as
exemplary damages. The absence of malice and bad faith, as in this C. This Honorable Court gravely abused its discretion, being as it is
case, renders the award of exemplary damages improper. contrary to law, in holding BPI liable for moral damages and
attorney's fees at the reduced amounts of P50,000.00
Finally, we have to reduce the award of attorney's fees to a and P30,000.00, respectively. 8
reasonable sum of P30,000.00, as the prosecution of this case has
not been attended with any unusual difficulty. The main issue for resolution is whether the CA erred in sustaining the RTC's
finding that respondent Jesusa made an initial deposit of P200,000.00 in her
WHEREFORE, with the modifications thus indicated, the judgment newly opened Express Teller account on December 7, 1990.
appealed from is in all other respects AFFIRMED. Without costs. 7
The issue raises a factual question. The Court is not a trier of facts, its
In finding petitioner liable for the missing P100,000.00, the CA held that the jurisdiction being limited to reviewing only errors of law that may have been
RTC correctly gave credence to the testimonies of respondent Jesusa and committed by the lower courts.9 As a rule, the findings of fact of the trial court
Joan Reyes to the effect that aside from the fund transfer of P100,000.00 when affirmed by the CA are final and conclusive and cannot be reviewed on
from Jesusa's savings account, Jesusa also made a cash deposit appeal by this Court, as long as they are borne out by the record or are
of P100,000.00 in the afternoon of December 7, 1990; that it is unlikely for based on substantial evidence.10 Such rule however is not absolute, but is
these two to concoct a story of falsification against a banking institution of the subject to well-established exceptions, which are: 1) when the inference
stature of petitioner if their claims were not true; that the duplicate copy of the made is manifestly mistaken, absurd or impossible; 2) when there is a grave
deposit slip showed a deposit of P200,000.00; this, juxtaposed with the fact abuse of discretion; 3) when the finding is grounded entirely on speculations,
that it was not machine-validated and the original copy altered by the bank's surmises or conjectures; 4) when the judgment of the CA is based on a
clerk from P200,000.00 to P100,000.00 with the altered amount "validated," misapprehension of facts; 5) when the findings of facts are conflicting; 6)
is indicative of anomaly; that even if it was bank employee Cicero Capati who when the CA, in making its findings, went beyond the issues of the case, and
prepared the deposit slip, Jesusa stood her ground and categorically denied those findings are contrary to the admissions of both appellant and appellee;
having any knowledge of the alteration therein made; that petitioner must 7) when the findings of the CA are contrary to those of the trial court; 8) when
account for the missing P100,000.00 because it was the author of the loss; the findings of fact are conclusions without citation of specific evidence on
that banks are engaged in business imbued with public interest and are which they are based; 9) when the CA manifestly overlooked certain relevant
under strict obligation to exercise utmost fidelity in dealing with its clients, in facts not disputed by the parties and which, if properly considered, would
seeing to it that the funds therein invested or by them received are properly justify a different conclusion; and 10) when the findings of fact of the CA are
accounted for and duly posted in their ledgers. premised on the absence of evidence and are contradicted by the evidence
on record.11 We hold that this case falls under exception Nos. 1, 3, 4, and 9
Petitioner's motion for reconsideration was denied in a Resolution dated which constrain us to resolve the factual issue.
February 12, 2003.
It is a basic rule in evidence that each party to a case must prove his own
Hence, the present petition on the following grounds: affirmative allegations by the degree of evidence required by law. 12 In civil
cases, the party having the burden of proof must establish his case by
preponderance of evidence,13 or that evidence which is of greater weight or is
A. In affirming the decision of the trial court holding BPI liable for the
more convincing than that which is in opposition to it. It does not mean
amount of P100,000.00 representing an alleged additional deposit of
absolute truth; rather, it means that the testimony of one side is more
respondents, the Honorable Court of Appeals gravely abused its
believable than that of the other side, and that the probability of truth is on We find it strange that she would sign the withdrawal slip if her intention in
one side than on the other.14 the first place was to withdraw only P100,000.00 from her savings account
and deposit P100,000.00 in cash with her.
Section 1, Rule 133 of the Rules of Court provides the guidelines for
determining preponderance of evidence, thus: Moreover, respondent Jesusa's claim that she signed the withdrawal slip
without looking at the amount indicated therein fails to convince us, for
SECTION 1. Preponderance of evidence, how determined.- In civil respondent Jesusa, as a businesswoman in the regular course of business
cases, the party having the burden of proof must establish his case and taking ordinary care of her concerns,16 would make sure that she would
by a preponderance of evidence. In determining where the check the amount written on the withdrawal slip before affixing her signature.
preponderance or superior weight of evidence on the issues involved Significantly, we note that the space provided for her signature is very near
lies the court may consider all the facts and circumstances of the the space where the amount of P200,000.00 in words and figures are written;
case, the witnesses' manner of testifying, their intelligence, their thus, she could not have failed to notice that the amount of P200,000.00 was
means and opportunity of knowing the facts to which they are written instead of P100,000.00.
testifying, the nature of the facts to which they testify, the probability
or improbability of their testimony, their interest or want of interest, The fact that respondent Jesusa initially intended to transfer the amount
and also their personal credibility so far as the same legitimately of P200,000.00 from her savings account to her new Express Teller account
appear upon the trial. The court may also consider the number of was further established by the teller's tape presented as petitioner's evidence
witnesses, though the preponderance is not necessarily with the and by the testimony of Emerenciana Torneros, the teller who had attended
greater number. to respondent Jesusa's transactions.

For a better perspective on the calibration of the evidence on hand, it must The teller's tape,17 Exhibit "1" unequivocally shows the following data:
first be stressed that the judge who had heard and seen the witnesses testify
was not the same judge who penned the decision. Thus, not having heard 151159 07DEC90 1370 288A 233324299
the testimonies himself, the trial judge or the appellate court would not be in
a better position than this Court to assess the credibility of witnesses on the 151245 07DEC90 1601 288A 233243388
basis of their demeanor.
***200000.0018
Hence, to arrive at the truth, we thoroughly reviewed the transcripts of the
witnesses' testimonies and examined the pieces of evidence on record.
BIG AMOUNT
After a careful and close examination of the records and evidence presented
by the parties, we find that respondents failed to successfully prove by 151251 07DEC90 1601 288J 233243388
preponderance of evidence that respondent Jesusa made an initial deposit
of P200,000.00 in her Express Teller account. ***200000.00

Respondent Jesusa and her daughter Joan testified that at the outset, 151309 07DEC90 1601 288A 233243388
respondent Jesusa told Capati that she was opening an Express Teller
account for P200,000.00; that she was going to withdraw and ***200000.00
transfer P100,000.00 from her savings account to her new account, and that
she had an additional P100,000.00 cash. However, these assertions are not PB BALANCE ERROR
borne out by the other evidence presented. Notably, it is not refuted that
Capati prepared a withdrawal slip15 for P200,000.00. This is contrary to the
BAL. 229,257.64
claim of respondent Jesusa that she instructed Capati to make a fund
transfer of only P100,000.00 from her savings account to the Express Teller
account she was opening. Yet, respondent Jesusa signed the withdrawal slip. 151338 07DEC90 1601 288A 233243388
***200000.00 151903 07DEC90 1301 288A 233282405

BIG AMOUNT 151914 07DEC90 1690 288A 235008955

151344 07DEC90 1601 288J 233243388 ***1778.05

***200000.00 152107 07DEC90 1601 288A 3333241381

151404 07DEC90 1601 288A 233243388 ***5000.00

***200000.00 152322 07DEC90 1601 288A 233314374

TOD ***2000.00

151520 07DEC90 1601 288A 233320145 152435 07DEC90 1370 288A 235076764

***2000.00 152506 07DEC90 1790 288A 235076764

151705 07DEC90 1789 288A 233324299 ***4000.00 ***4000.00

***22917.00 152557 07DEC90 1601 288A 233069469

151727 07DEC90 1601 288A 233243388 ***2000.00

***100000.00 152736 07DEC90 1601 288A 233254584

BIG AMOUNT ***2000.00

151730 07DEC90 1601 288J 233243388 152849 07DEC90 0600 288A 231017585

***100000.00 ***3150.00 686448

151746 07DEC90 1601 288A 233243388 152941 07DEC90 1790 288A 3135052255

***100000.0019 ***2800.00 ***2800.00

151810 07DEC90 1370 288A 235076748 153252 07DEC90 1601 288A 233098264

151827 07DEC90 1790 288A 235076748 (Emphasis supplied)

***100000.00 ***100000.0020 The first column shows the exact time of the transactions; the second column
shows the date of the transactions; the third column shows the bank
transaction code; the fourth column shows the teller's code; and the fifth seconds, the amount of P100,000.00 was deposited to respondent Jesusa's
column shows the client's account number. The teller's tape reflected various new Express Teller Account No. 235076748.
transactions involving different accounts on December 7, 1990 which
included respondent Jesusa's Savings Account No. 233243388 and her new The teller's tape definitely establishes the fact of respondent Jesusa's original
Express Teller Account No. 235076748. It shows that respondent Jesusa's intention to withdraw the amount of P200,000.00, and not P100,000.00 as
initial intention to withdraw P200,000.00, not P100,000.00, from her Savings she claims, from her savings account, to be transferred as her initial deposit
Account No. 233324299 was begun at 3 o'clock, 12 minutes and 45 seconds to her new Express Teller account, the insufficiency of her balance in her
as shown in Exhibit "1-c." savings account, and finally the fund transfer of the amount of P100,000.00
from her savings account to her new Express Teller account. We give great
In explaining the entries in the teller's tape, Torneros testified that when she evidentiary weight to the teller's tape, considering that it is inserted into the
was processing respondent Jesusa's withdrawal in the amount bank's computer terminal, which records the teller's daily transactions in the
of P200,000.00, her computer rejected the transaction because there was a ordinary course of business, and there is no showing that the same had been
discrepancy;21 thus, the word "BIG AMOUNT" appeared on the tape. "Big purposely manipulated to prove petitioner's claim.
amount" means that the amount was so big for her to approve, 22 so she
keyed in the amount again and overrode the transaction to be able to Respondent Jesusa's bare claim, although corroborated by her daughter, that
process the withdrawal using an officer's override with the latter's the former deposited P100,000.00 cash in addition to the fund transfer
approval.23 The letter "J" appears after Figure 288 in the fourth column to of P100,000.00, is not established by physical evidence. While the duplicate
show that she overrode the transaction. She then keyed again the amount copy of the deposit slip30 was in the amount of P200,000.00 and bore the
of P200,000.00 at 3 o'clock 13 minutes and 9 seconds; however, her stamp mark of teller Torneros, such duplicate copy failed to show that there
computer rejected the transaction, because the balance she keyed in based was a cash deposit of P100,000.00. An examination of the deposit slip shows
on respondent Jesusa's passbook was wrong;24 thus appeared the phrase that it did not contain any entry in the breakdown portion for the specific
"balance error" on the tape, and the computer produced the balance denominations of the cash deposit. This demolishes the testimonies of
of P229,257.64, and so she keyed in the withdrawal of P200,000.00.25 Since respondent Jesusa and her daughter Joan.
it was a big amount, she again had to override it, so she could process the
amount. However, the withdrawal was again rejected for the reason "TOD, Furthermore, teller Torneros's explanation of why the duplicate copy of the
overdraft,"26 which meant that the amount to be withdrawn was more than the deposit slip in the amount of P200,000.00 bore the teller's stamp mark is
balance, considering that there was a debited amount of P30,935.16 convincing and consistent with logic and the ordinary course of business.
reflected in respondent Jesusa's passbook, reducing the available balance to She testified that Capati went to her cage bringing with him a withdrawal slip
only P198,322.48.27 for P200,000.00 signed by respondent Jesusa, two copies of the deposit slip
for P200,000.00 in respondent Jesusa's name for her new Express Teller
Torneros then called Capati to her cage and told him of the insufficiency of account, and the latter's savings passbook reflecting a balance
respondent Jesusa's balance.28 Capati then motioned respondent Jesusa to of P249,657.6431 as of November 19, 1990.32 Thus, at first glance, these
the teller's cage; and when she was already in front of the teller's cage, appeared to Torneros to be sufficient for the withdrawal of P200,000.00 by
Torneros told her that she could not withdraw P200,000.00 because of fund transfer. Capati then got her teller's stamp mark, stamped it on the
overdraft; thus, respondent Jesusa decided to just withdraw P100,000.00.29 duplicate copy of the deposit slip, and gave the duplicate to respondent
Jesusa, while the original copy33 of the deposit slip was left in her
This explains the alteration in the withdrawal slip with the superimposition of cage.34 However, as Torneros started processing the transaction, it turned out
the figure "1" on the figure "2" and the change of the word "two" to "one" to that respondent Jesusa's balance was insufficient to accommodate
show that the withdrawn amount from respondent Jesusa's savings account the P200,000.00 fund transfer as narrated earlier.
was only P100,000.00, and that respondent Jesusa herself signed the
alterations. Since respondent Jesusa had signed the alteration in the withdrawal slip and
had already left the teller's counter thereafter and Capati was still inside the
The teller's tape showed that the withdrawal of the amount of P100,000.00 by teller's cage, Torneros asked Capati about the original deposit slip and the
fund transfer was resumed at 3 o'clock 17 minutes and 27 seconds; but since latter told her, "Ok naman iyan,"35 and Capati superimposed the figures "1"
it was a big amount, there was a need to override it again, and the on "2" on the deposit slip36 to reflect the initial deposit of P100,000.00 for
withdrawal/fund transfer was completed. At 3 o'clock 18 minutes and 27 respondent Jesusa's new Express Teller account and signed the alteration.
Torneros then machine-validated the deposit slip. Thus, the duplicate copy of
the deposit slip, which bore Torneros’s stamp mark and which was given to
respondent Jesusa prior to the processing of her transaction, was not
machine-validated unlike the original copy of the deposit slip.

While the fact that the alteration in the original deposit slip was signed by
Capati and not by respondent Jesusa herself was a violation of the bank's
policy requiring the depositor to sign the correction,37 nevertheless, we find
that respondents failed to satisfactorily establish by preponderance of
evidence that indeed there was an additional cash of P100,000.00 deposited
to the new Express Teller account.

Physical evidence is a mute but eloquent manifestation of truth, and it ranks

high in our hierarchy of trustworthy evidence.38 We have, on many occasions,
relied principally upon physical evidence in ascertaining the truth. Where the
physical evidence on record runs counter to the testimonial evidence of the
prosecution witnesses, we consistently rule that the physical evidence should
prevail.39

In addition, to uphold the declaration of the CA that it is unlikely for

respondent Jesusa and her daughter to concoct a false story against a
banking institution is to give weight to conjectures and surmises, which we
cannot countenance.

In fine, respondents failed to establish their claim by preponderance of

evidence.

Considering the foregoing, we find no need to tackle the other issues raised
by petitioner.

WHEREFORE, the petition is GRANTED. The decision of the Court of

Appeals dated October 29, 2002 as well as its Resolution dated February 12,
2003 are hereby REVERSED and SET ASIDE. The complaint filed by
respondents, together with the counterclaim of petitioner, is DISMISSED.

No costs. G.R. No. 170241 : April 19, 2010

PHILIPPINE SAVINGS BANK, Petitioner, v. SPOUSES DIONISIO

GERONIMO and CARIDAD GERONIMO, Respondents.

DECISION

CARPIO, J.:
 The Case The Court of Appeals denied petitioner's motion for reconsideration.

This petition for review1cЃa assails the 30 August 2005 Decision2cЃa and 3 Hence, this petition.
November 2005 Resolution3cЃa of the Court of Appeals in CA-G.R. CV No.
66672. The Court of Appeals reversed the decision of Branch 121 of the The Ruling of the Trial Court
Regional Trial Court of Caloocan City, National Capital Region (trial court) by
declaring void the questioned extrajudicial foreclosure of real estate The trial court held that "personal notice on the mortgagor is not required
mortgage for non-compliance with the statutory requirement of publication of under Act No. 3135." All that is required is "the posting of the notices of sale
the notice of sale. for not less than 20 days in at least three public places in the municipality or
city where the property is situated, and publication once a week for at least
The Facts three consecutive weeks in a newspaper of general circulation in the
municipality or city, if the property is worth more than four hundred pesos."
On 9 February 1995, respondents Spouses Dionisio and Caridad Geronimo
(respondents) obtained a loan from petitioner Philippine Savings Bank The trial court further ruled there was compliance with the statutory
(petitioner) in the amount of P3,082,000, secured by a mortgage on publication requirement. Since the affidavit of publication was excluded as
respondents' land situated in Barrio Talipapa, Caloocan City and covered by petitioner's evidence, the trial court relied instead on the positive testimony of
Transfer Certificate of Title No. C-50575.4cЃa Respondents defaulted on their Deputy Sheriff Alberto Castillo, that he caused the publication of the Notice of
loan, prompting petitioner to initiate the extra-judicial foreclosure of the real Sale, in holding there was publication of the notice of sale in a newspaper of
estate mortgage. At the auction sale conducted on 29 March 1996, the general circulation. In relation to this, the trial court cited the presumption of
mortgaged property was sold to petitioner, 5cЃa being the highest bidder, regularity in the performance of official duty. The trial court found that
for P3,000,000. Consequently, a Certificate of Sale was issued in favor of respondents, as plaintiffs, failed to discharge their burden of proving
petitioner.6cräläwvirtualibräry petitioner's alleged non-compliance with the requisite publication. The trial
court stated that the testimony of respondents' witness, a newsstand owner,
Claiming that the extrajudicial foreclosure was void for non-compliance with "that he has never sold Ang Pinoy newspaper can never lead to the
the law, particularly the publication requirement, respondents filed with the conclusion that such publication does not exist."
trial court a complaint for the annulment of the extrajudicial foreclosure. 7cЃa
The Ruling of the Court of Appeals
The trial court sustained the validity of the extrajudicial foreclosure, and
disposed of the case as follows: The Court of Appeals reversed the ruling of the trial court.

WHEREFORE, premises considered, the instant Complaint for Annulment of The Court of Appeals found no sufficient evidence to prove that Ang Pinoy is
Foreclosure of Mortgage and Damages is hereby DISMISSED for lack of a newspaper of general circulation in Caloocan City. In a Resolution dated 2
merit. February 2005, the Court of Appeals required the then Executive Judge of
the Regional Trial Court of Caloocan City to inform the appellate court of the
SO ORDERED.8 following facts:

On appeal, the Court of Appeals held: 1. If Ang Pinoy newspaper is a newspaper of general circulation particularly
for the years 1995 and 1996; and
WHEREFORE, the assailed decision dated 26 November 1999 of the
Regional Trial Court of Caloocan City is REVERSED and SET ASIDE. The 2. If there was compliance with Sec. 2 of P.D. No. 1079 which provides:
Extrajudicial Foreclosure of Mortgage conducted on 29 March 1996 is
declared NULL and VOID. "The executive judge of the court of first instance shall designate a regular
working day and a definite time each week during which the said judicial
SO ORDERED.9 notices or advertisements shall be distributed personally by him for
publication to qualified newspapers or periodicals x x x, which distribution Petitioner claims that it complied with the above provision in foreclosing
shall be done by raffle."10 extrajudicially the subject real estate mortgage. To buttress its claim,
petitioner presented the testimony of Deputy Sheriff Alberto Castillo of the
Executive Judge Victoria Isabel A. Paredes (Executive Judge Paredes) trial court, the pertinent portion of which states:
complied with the directive by stating that:
ATTY. DAVIS:
a) Ang Pinoy newspaper is not an accredited periodical in Caloocan City.
Hence, we are unable to categorically state whether it is a newspaper of Do you remember having come across a certain property owned by spouses
general circulation at present or for the years 1995 and 1996 (Certification Geronimo covered by TCT No. 50576 of the Register of Deeds of Caloocan
marked as Annex "A") City?

b) Sec. 2, P.D. No. 1079 is being observed and complied with in that the xxx
raffle of judicial notices for publication, is a permanent agenda item in the
regular raffle with the RTC, Caloocan City, holds every Monday at 2 o'clock in A. Yes, sir.
the afternoon at the courtroom of RTC, Branch 124 (Certification marked as
Annex "B"); and ATTY. DAVIS:

c) We have no knowledge on whether Ang Pinoy was included in the raffles Q. In what connection?
conducted in 1995 and 1996, as we do not have the case record where the
information may be verified.11
A. In connection with the extra judicial foreclosure filed by the PS Bank, sir.
The Court of Appeals concluded that, based on the compliance of Executive
Judge Paredes, Ang Pinoy is not a newspaper of general circulation in xxx
Caloocan City. Therefore, the extrajudicial foreclosure is void for non-
compliance with the requirement of the publication of the notice of sale in a Q. When this was assigned to you what action did you take thereon?
newspaper of general circulation.
A. I prepared the notice of sale having published in the newspaper which the
The Issue executive judge awarded it. Sent notice to the said parties and posted it to
the three conspicuous places of Caloocan City, sir.
Basically, the issue in this case is whether the extra-judicial foreclosure is
void for non-compliance with the publication requirement under Act No. 3135. Q. You mentioned about your issuance of Notice of Sale I am referring you
now to the document previously marked as Exhibit "6." What relation is this if
The Ruling of the Court any to the one you have mentioned?

The petition lacks merit. A. This is the Notice of Sale I have prepared, sir.

Section 3 of Act No. 313512cЃa reads: Q. Now you also mentioned that you have caused the publication of this
Notice of Sheriff's Sale to a newspaper of general circulation, do you
remember what newspaper it was?
SECTION 3. Notice shall be given by posting notices of the sale for not less
than twenty days in at least three public places of the municipality or city
where the property is situated, and if such property is worth more than four A. Ang Pinoy, sir.
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 Q. How come that this newspaper was selected for purposes of publication?
municipality or city. (Emphasis supplied)
A. It was the executive judge who awarded that publication, sir. Announcements and in the Raffle Thereof.14cЃa The present case involves
an extrajudicial foreclosure conducted in 1996; thus, there were no such
Q. How do you know particularly that this notice was published in the guidelines in effect during the questioned foreclosure. At any rate, the
newspaper? accreditation by the Executive Judge is not decisive of whether a newspaper
is of general circulation.15cräläwvirtualibräry
A. That during the auction sale the mortgagee bank presented affidavit of
publication, sir.13cräläwvirtualibräry It is settled that for the purpose of extrajudicial foreclosure of mortgage, the
party alleging non-compliance with the requisite publication has the burden of
proving the same.16cЃa In this case, respondents presented the testimony of
On the other hand, respondents dispute the existence of the publication of
a newsstand owner to prove that Ang Pinoy is not a newspaper of general
the notice of sale. Assuming that the notice of sale was published,
circulation. However, this particular evidence is unreliable, as the same
respondents contend that Ang Pinoy, where it was published, is not a
witness testified that he sells newspapers in Quezon City, not in Caloocan
newspaper of general circulation. To bolster their claim of non-publication,
City, and that he is unaware of Ang Pinoy newspaper simply because he is
respondents offered the testimony of Danilo Magistrado, a newsstand owner,
not selling the same and he had not heard of it. His testimony states:
which pertinently states:

Q. Where is this place that you traditionally or usually sell newspaper?

ATTY. SAYA:

A. Corner of A. Bonifacio and 6th Avenue.

Do you know by chance the Pinoy Newspaper?

Q. This is in Quezon City?

ATTY. DAVIS:

A. Yes, sir.
No basis.

Q. Not in Caloocan?
COURT:

A. In Quezon City, sir.

Objection overruled. Witness may answer.

xxx
A. None, sir. I do not sell Pinoy Newspaper, sir.

COURT: Clarificatory question.

ATTY. SAYA:

Q. You said that there is no Pinoy magazine simply because you are not
Why do you say that you do not know Pinoy Newspaper?
selling Pinoy magazine?
A. From the time I sold newspapers, sir, I have not seen Pinoy Newspaper.
A. Yes, your Honor.
ATTY. SAYA:
Q. But you are not certain that there is really no Pinoy magazine?
That would be all, your Honor.
COURT:
Before resolving the principal issue, we must point out the requirement of
But have you heard about Pinoy magazine or Pinoy newspaper?
accreditation was imposed by the Court only in 2001, through A.M. No. 01-1-
07-SC or the Guidelines in the Accreditation of Newspapers and Periodicals
Seeking to Publish Judicial and Legal Notices and Other Similar A. I have not heard, your Honor.17
Notwithstanding, petitioner could have easily produced the affidavit of notice of sale is part of a sheriff's official functions, 23cЃa the actual publication
publication and other competent evidence (such as the published notices) to of the notice of sale cannot be considered as such, since this concerns the
refute respondents' claim of lack of publication of the notice of sale. publisher's business. Simply put, the sheriff is incompetent to prove that the
In Spouses Pulido v. Court of Appeals,18cЃa the Court held: notice of sale was actually published in a newspaper of general circulation.

While it may be true that the party alleging non-compliance with the requisite The Court further notes that the Notice of Extra-Judicial Sale, 24cЃa prepared
publication has the burden of proof, still negative allegations need not be and posted by Sheriff Castillo, does not indicate the newspaper where such
proved even if essential to one's cause of action or defense if they constitute notice would be published. The space provided where the name of the
a denial of the existence of a document the custody of which belongs to the newspaper should be was left blank, with only the dates of publication clearly
other party. written. This omission raises serious doubts as to whether there was indeed
publication of the notice of sale.
In relation to the evidentiary weight of the affidavit of publication, the Court
ruled in China Banking Corporation v. Spouses Martir19cЃa that the affidavit Once again, the Court stresses the importance of the notice requirement, as
of publication executed by the account executive of the newspaper is prima enunciated in Metropolitan Bank and Trust Company, Inc. v.
facie proof that the newspaper is generally circulated in the place where the Peñafiel,25cЃa thus:
properties are located.20cЃa
The object of a notice of sale is to inform the public of the nature and
In the present case, the Affidavit of Publication or Exhibit "8," although condition of the property to be sold, and of the time, place and terms of the
formally offered by petitioner, was excluded by the trial court for being sale. Notices are given for the purpose of securing bidders and to prevent a
hearsay.21cЃa Petitioner never challenged the exclusion of the affidavit of sacrifice [sale] of the property. The goal of the notice requirement is to
publication. Instead, petitioner relies solely on the testimony of Deputy Sheriff achieve a "reasonably wide publicity" of the auction sale. This is why
Alberto Castillo to prove compliance with the publication requirement under publication in a newspaper of general circulation is required. The Court has
Section 3 of Act No. 3135. However, there is nothing in such testimony to previously taken judicial notice of the "far-reaching effects" of publishing the
clearly and convincingly prove that petitioner complied with the mandatory notice of sale in a newspaper of general circulation.
requirement of publication. When Sheriff Castillo was asked how he knew
that the notice of sale was published, he simply replied that "during the In addition, the Court reminds mortgagees of their duty to comply faithfully
auction sale the mortgagee bank presented the affidavit of with the statutory requirements of foreclosure. In Metropolitan Bank v.
publication."22cЃa Evidently, such an answer does not suffice to establish Wong,26cЃa the Court declared:
petitioner's claim of compliance with the statutory requirement of publication.
On the contrary, Sheriff Castillo's testimony reveals that he had no personal While the law recognizes the right of a bank to foreclose a mortgage upon
knowledge of the actual publication of the notice of sale, much less the the mortgagor's failure to pay his obligation, it is imperative that such right be
extent of the circulation of Ang Pinoy. exercised according to its clear mandate. Each and every requirement of the
law must be complied with, lest, the valid exercise of the right would end. It
Moreover, the Court notes that Ang Pinoy is a newspaper of general must be remembered that the exercise of a right ends when the right
circulation printed and published in Manila, not in Caloocan City where the disappears, and it disappears when it is abused especially to the prejudice of
mortgaged property is located, as indicated in the excluded Affidavit of others.
Publication. This is contrary to the requirement under Section 3 of Act No.
3135 pertaining to the publication of the notice of sale in a newspaper of In sum, petitioner failed to establish its compliance with the publication
general circulation in the city where the property is situated. Hence, even if requirement under Section 3 of Act No. 3135. Consequently, the questioned
the Affidavit of Publication was admitted as part of petitioner's evidence, it extrajudicial foreclosure of real estate mortgage and sale are void. 27cЃa
would not support petitioner's case as it does not clearly prove petitioner's
compliance with the publication requirement.
WHEREFORE, we DENY the petition. We AFFIRM the 30 August 2005
Decision and 3 November 2005 Resolution of the Court of Appeals in CA-
Petitioner's invocation of the presumption of regularity in the performance of G.R. CV No. 66672.
official duty on the part of Sheriff Castillo is misplaced. While posting the
SO ORDERED.

. No. 192877 March 23, 2011

SPOUSES HERMES P. OCHOA and ARACELI D. OCHOA, Petitioners,

vs.
CHINA BANKING CORPORATION, Respondent.

RESOLUTION
NACHURA, J.: Section 1, Rule 2 [of the Rules of Court] defines an action in this wise:

For resolution is petitioners’ motion for reconsideration 1 of our January 17, "Action means an ordinary suit in a court of justice, by which one party
2011 Resolution2 denying their petition for review on certiorari3 for failing to prosecutes another for the enforcement or protection of a right, or the
sufficiently show any reversible error in the assailed judgment4 of the Court of prevention or redress of a wrong."
Appeals (CA).
Hagans v. Wislizenus does not depart from this definition when it states that
Petitioners insist that it was error for the CA to rule that the stipulated "[A]n action is a formal demand of one's legal rights in a court of justice in the
exclusive venue of Makati City is binding only on petitioners’ complaint for manner prescribed by the court or by the law. x x x." It is clear that the
Annulment of Foreclosure, Sale, and Damages filed before the Regional Trial determinative or operative fact which converts a claim into an "action or suit"
Court of Parañaque City, but not on respondent bank’s Petition for is the filing of the same with a "court of justice." Filed elsewhere, as with
Extrajudicial Foreclosure of Mortgage, which was filed with the same court. some other body or office not a court of justice, the claim may not be
categorized under either term. Unlike an action, an extrajudicial foreclosure
We disagree. of real estate mortgage is initiated by filing a petition not with any court of
justice but with the office of the sheriff of the province where the sale is to be
made.1avvphi1 By no stretch of the imagination can the office of the sheriff
The extrajudicial foreclosure sale of a real estate mortgage is governed by
come under the category of a court of justice. And as aptly observed by the
Act No. 3135, as amended by Act No. 4118, otherwise known as "An Act to
complainant, if ever the executive judge comes into the picture, it is only
Regulate the Sale of Property Under Special Powers Inserted In or Annexed
because he exercises administrative supervision over the sheriff. But this
to Real-Estate Mortgages." Sections 1 and 2 thereof clearly state:
administrative supervision, however, does not change the fact that
extrajudicial foreclosures are not judicial proceedings, actions or suits. 9
Section 1. When a sale is made under a special power inserted in or
attached to any real-estate mortgage hereafter made as security for the
These pronouncements were confirmed on August 7, 2001 through A.M. No.
payment of money or the fulfillment of any other obligation, the provisions of
99-10-05-0, entitled "Procedure in Extra-Judicial Foreclosure of Mortgage,"
the following sections shall govern as to the manner in which the sale and
the significant portions of which provide:
redemption shall be effected, whether or not provision for the same is made
in the power.
In line with the responsibility of an Executive Judge under Administrative
Order No. 6, date[d] June 30, 1975, for the management of courts within his
Sec. 2. Said sale cannot be made legally outside of the province in which the
administrative area, included in which is the task of supervising directly the
property sold is situated; and in case the place within said province in which
work of the Clerk of Court, who is also the Ex-Office Sheriff, and his staff, and
the sale is to be made is the subject of stipulation, such sale shall be made
the issuance of commissions to notaries public and enforcement of their
in said place or in the municipal building of the municipality in which the
duties under the law, the following procedures are hereby prescribed in extra-
property or part thereof is situated.5
judicial foreclosure of mortgages:
The case at bar involves petitioners’ mortgaged real property located in
1. All applications for extrajudicial foreclosure of mortgage whether under the
Parañaque City over which respondent bank was granted a special power to
direction of the sheriff or a notary public, pursuant to Act 3135, as amended
foreclose extra-judicially. Thus, by express provision of Section 2, the sale
by Act 4118, and Act 1508, as amended, shall be filed with the Executive
can only be made in Parañaque City.
Judge, through the Clerk of Court who is also the Ex-Officio Sheriff.
The exclusive venue of Makati City, as stipulated by the parties 6 and
Verily then, with respect to the venue of extrajudicial foreclosure sales, Act
sanctioned by Section 4, Rule 4 of the Rules of Court, 7 cannot be made to
No. 3135, as amended, applies, it being a special law dealing particularly
apply to the Petition for Extrajudicial Foreclosure filed by respondent bank
with extrajudicial foreclosure sales of real estate mortgages, and not the
because the provisions of Rule 4 pertain to venue of actions, which an
general provisions of the Rules of Court on Venue of Actions.
extrajudicial foreclosure is not.

Pertinent are the following disquisitions in Supena v. De la Rosa: 8

Consequently, the stipulated exclusive venue of Makati City is relevant only
to actions arising from or related to the mortgage, such as petitioners’
complaint for Annulment of Foreclosure, Sale, and Damages.

The other arguments raised in the motion are a mere reiteration of those
already raised in the petition for review. As declared in this Court’s Resolution
on January 17, 2011, the same failed to show any sufficient ground to
warrant the exercise of our appellate jurisdiction.

WHEREFORE, premises considered, the motion for reconsideration is

hereby DENIED.

SO ORDERED.

G.R. No. 183658 April 10, 2013

ROYAL SAVINGS BANK, formerly Comsavings Bank, now GSIS FAMILY

BANK, Petitioner,
vs.
FERNANDO ASIA, MIKE LATAG, CORNELIA MARANAN, JIMMY ONG,
CONRADO MACARALAYA, ROLANDO SABA, TOMAS GALLEGA, LILIA
FEDELIMO, MILAGROS HAGUTAY and NORMA GABATIC (Collectively
referred to as respondents Asia, et al.) represented by their counsel on
record, ATTY. ROGELIO U. CONCEPCION., Respondent.
 DECISION In a Decision dated 28 May 2007,7 the RTC ruled in favor of petitioner and
ordered the issuance of the Writ of Possession in the latter’s favor.
SERENO, CJ.:
Respondents Fernando Asia, Mika Latag, Cornelia Maranan, Jimmy Ong,
1
This is a Petition for Review filed by Royal Savings Bank (petitioner), Conrado Macaralaya, Rolando Saba, Tomas Gallega, Lilia Fedelimo,
praying for the reversal of the Orders dated 4 October 20072 and 25 June Milagros Hagutay and Norma Gabatic claimed to have been in open,
2008,3 which were rendered by Branch 222 of the RegionTrial Court of continuous, exclusive and notorious possession in the concept of owners
Quezon City (RTC) in LRC No. Q-22780 (07). These Orders granted
respondents' Urgent Motion to Quash the Writ of Possession and Writ of of the land in question for 40 years.8 Allegedly, they had no knowledge and
Execution4 issued by the then presiding judge of the RTC in petitioner's favor. notice of all proceedings involving the property until they were served a
Notice to Vacate9 by RTC Sheriff IV Neri Loy, on 20 July 2007.10 They further
Sometime in January 1974, Paciencia Salita (Salita) and her nephew, Franco claimed that, prior to the service of the Notice to Vacate, they had no
Valenderia (Valenderia), borrowed the amount of ₱25,000 from petitioner. knowledge or notice of the lower court’s proceedings or the foreclosure suit
The latter loaned to them an additional ₱20,000 in May 1975. To secure the of petitioner.11
payment of the aforementioned amounts loaned, Salita executed a Real
Estate Mortgage over her property, which was covered by Transfer The Notice to Vacate gave respondents three days or until 25 July 2007 to
Certificate of Title (TCT) No. 103538. Notwithstanding demands, neither voluntarily vacate the property. In order to prevent the execution of the
Salita nor Valenderia were able to pay off their debts. notice, they filed an Urgent Motion to Quash Writ of Possession and Writ of
Execution12 on even date.
As a result of their failure to settle their loans, petitioner instituted an extra-
judicial foreclosure proceeding against the Real Estate Mortgage. Pursuant Petitioner filed their Comment13 on respondents’ Motion to Quash on 14
to Act No. 3135, the mortgaged property was sold at a public auction held on August 2007.
16 October 1979, at which petitioner was the highest bidder. On 23 April
1983, the redemption period expired. Both Salita and Valenderia failed to In an Order dated 4 October 2007,14 the RTC granted the Motion to Quash.
redeem the foreclosed property. Thus, TCT No. 103538 was cancelled and a Petitioner filed a Motion for Reconsideration (MR), 15 to which an Opposition
new title covering the same property, TCT No. 299440, was issued in was filed by respondents.16 Petitioner claimed that, six months after the filing
petitioner’s name. of the Opposition, there was still no action taken by the RTC on the MR.
Thus, it filed a Motion for Early Resolution17 on 16 June 2008. Through an
Thereafter, on 13 August 1984, Salita filed with the RTC a case for Order dated 25 June 2008,18 the RTC denied petitioner’s MR.
Reconveyance, Annulment of Title and Damages against petitioner. She
prayed for the nullification of foreclosure proceedings and the reconveyance Claiming that it raises no factual issues, petitioner came straight to this Court
of the property now covered by TCT No. 299440. The RTC granted her through a Petition for Review under Rule 45 of the Rules on Civil Procedure.
prayer.
Petitioner insists that because it is a government-owned financial institution,
Petitioner appealed to the Court of Appeals (CA), which reversed the the general rules on real estate mortgage found in Act 3135 do not apply to it.
Decision of the RTC. Since Salita did not appeal the CA ruling, it became It prays that this Court rule that Presidential Decree (P.D.) No. 385 19—the law
final and executory. Accordingly, the Entry of Judgment was issued on 4 June intended specifically to govern mortgage foreclosures initiated by
2002. government-owned financial institutions—should be applied to this case.

Pursuant to Section 7 of Act 3135, petitioner filed with the RTC an Ex-Parte According to petitioner, when the RTC quashed the Writ of Possession, 20 the
Petition for the Issuance of a Writ of Possession.5 The Court, through its latter violated Section 2 of P.D. 385, which reads:
Order dated 14 February 2007, required petitioner to present its evidence.
Petitioner then submitted a Memorandum of Jurisprudence (In Lieu of Oral Section 2. No restraining order, temporary or permanent injunction shall be
Testimony).6 issued by the court against any government financial institution in any action
taken by such institution in compliance with the mandatory foreclosure
provided in Section 1 hereof, whether such restraining order, temporary or anything from Mortgagor PACENCIA SALITA."26 Thus, whatever rights Salita
permanent injunction is sought by the borrower(s) or any third party or had over the property that were acquired by petitioner when the latter
parties, except after due hearing in which it is established by the borrower purchased it, cannot be used against respondents, as their claim is adverse
and admitted by the government financial institution concerned that twenty to that of Salita.
percent (20%) of the outstanding arrearages has been paid after the filing of
foreclosure proceedings. In the eyes of this Court, the RTC did not err in issuing the herein assailed
Orders on the basis of its initial finding that respondents are third parties who
Thus, petitioner is now saying that, as a government financial institution are actually holding the property adversely vis-à-vis the judgment debtor. The
(GFI), it cannot be enjoined from foreclosing on its delinquent accounts in RTC did not err in applying the doctrine laid down in Barican v. Intermediate
observance of the mandate of P.D. 385. Appellate Court,27 in which we ruled that the obligation of a court to issue a
writ of possession in favor of the purchaser in an extrajudicial foreclosure
We are not persuaded. sale ceases to be ministerial, once it appears that there is a third party who is
in possession of the property and is claiming a right adverse to that of the
debtor/mortgagor.
Assuming that petitioner is, as it claims, a GFI protected under P.D. 385, this
Court is still of the opinion and thus rules that the RTC committed no error in
granting respondents’ Urgent Motion to Quash Writ of Possession. We explained in Philippine National Bank v. Austria 28 that the foregoing
doctrinal pronouncements are not without support in substantive law, to wit:
Indeed, while this Court had already declared in Philippine National Bank v.
Adil21 that once the property of a debtor is foreclosed and sold to a GFI, it x x x. Notably, the Civil Code protects the actual possessor of a property, to
would be mandatory for the court to place the GFI in the possession and wit:
control of the property—pursuant to Section 4 of P.D. No. 385—this rule
should not be construed as absolute or without exception. Art. 433.Actual possession under claim of ownership raises a disputable
presumption of ownership. The true owner must resort to judicial process for
The evident purpose underlying P.D. 385 is sufficiently served by allowing the recovery of the property.
foreclosure proceedings initiated by GFIs to continue until a judgment therein
becomes final and executory, without a restraining order, temporary or Under the aforequoted provision, one who claims to be the owner of a
permanent injunction against it being issued. But if a parcel of land is property possessed by another must bring the appropriate judicial action for
occupied by a party other than the judgment debtor, the proper procedure is its physical recovery. The term "judicial process" could mean no less than an
for the court to order a hearing to determine the nature of said adverse ejectment suit or reivindicatory action, in which the ownership claims of the
possession before it issues a writ of possession.22 contending parties may be properly heard and adjudicated.

This is because a third party, who is not privy to the debtor, is protected by We find that it was only proper for the RTC to quash the Writ of Possession
the law. Such third party may be ejected from the premises only after he has until a determination is made as to who, between petitioner and respondents,
been given an opportunity to be heard, to comply with the time-honored has the better right to possess the property.
principle of due process.23
Lastly, petitioner alleges that the pairing judge violated the hierarchy of courts
In the same vein, under Section 33 of Rule 39 of the Rules on Civil when she quashed the writ of possession validly issued by the then presiding
Procedure, the possession of a mortgaged property may be awarded to a Judge of the RTC Quezon City, a co-equal body.29
purchaser in the extrajudicial foreclosure, unless a third party is actually
holding the property adversely vis-à-vis the judgment debtor. 24 No court has the power to interfere by injunction in the issuance or
enforcement of a writ of possession issued by another court of concurrent
Respondents insist that they are actual possessors in the concept of owners jurisdiction having the power to issue that writ. 30 However, as correctly
and that they have been occupying the land in the concept of owners for 40 pointed out by respondents in their Comment, it was the same trial court and
years already.25 Furthermore, respondents made it clear in the Motion to "not another court or co-equal court body that quashed the subject writ of
Quash that they were not "claiming rights as attorney-in-fact, nor lessee, nor possession."31 The pairing judge, who issued the Order quashing the Writ of
Possession, issued it in her capacity as the judge of Branch 222 of Quezon
City-the same branch, albeit then under a different judge, that issued the Writ
of Possession.1âwphi1

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

WIHEREFORE, the instant Petition is DENIED. The 4 October 2007 and 25

June 2008 Orders issued by Branch 222 of Regional Trial Court of Quezon
City in LRC No. Q-22780 (07) arc AFFIRMED.

SO ORDERED.

G.R. No. 180974 June 13, 2012

METROPOLITAN BANK and TRUST COMPANY, Petitioner,

vs.
CENTRO DEVELOPMENT CORPORATION, CHONGKING KEHYENG,
MANUEL CO KEHYENG and Quirino Kehyeng, Respondents.

DECISION

SERENO, J.:

The present Petition for Review1 assails the Court of Appeals (CA)
Decision2 promulgated on 30 August 2007 and Resolution3 dated 26
November 2007 in CA-G.R. CV No. 80778. The antecedent facts follow.
On 20 March 1990, in a special meeting of the board of directors of Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy,
respondent Centro Development Corporation (Centro), its president Go Eng executed a Mortgage Trust Indenture (MTI) with the Bank of the Philippines
Uy was authorized to mortgage its properties and assets to secure the Islands (BPI).5 Under the MTI, respondent Centro, together with its affiliates
medium-term loan of ₱ 84 million of Lucky Two Corporation and Lucky Two Lucky Two Corporation and Lucky Two Repacking or Go Eng Uy, expressed
Repacking. The properties and assets consisted of a parcel of land with a its desire to obtain from time to time loans and other credit accommodations
building and improvements located at Salcedo St., Legaspi Village, Makati from certain creditors for corporate and other business purposes. 6 To secure
City, and covered by Transfer Certificate of Title (TCT) Nos. 139880 and these obligations from different creditors, respondent Centro constituted a
139881. This authorization was subsequently approved on the same day by continuing mortgage on all or substantially all of its properties and assets
the stockholders.4 Maria Jacinta V. Go, the corporate secretary, issued a enumerated above unto and in favor of BPI, the trustee. Should respondent
Secretary’s Certificate stating: Centro or any of its affiliates fail to pay their obligations when due, the trustee
shall cause the foreclosure of the mortgaged property.
I, MARIA JACINTA V. GO, Filipino citizen, of legal age,
married and with office address at Second Floor, CENTRO Thereafter, the mortgage was duly recorded with the Registry of Deeds of
building, 180 Salcedo Street, Legaspi Village, Makati, Metro Makati City.7
Manila, after being first duly sworn, depose and say:
On 31 March 1993, Centro and BPI amended the MTI to allow an additional
xxx xxx xxx loan of ₱ 36 million and to include San Carlos Milling Company, Inc. (San
Carlos) as a borrower in addition to Centro, Lucky Two Corp. and Lucky Two
2) That at a special meeting of the Board of Directors of the Repacking.8 Then, on 28 July 1994, Centro and BPI again amended the MTI
aforesaid corporation duly called and held on March 20, for another loan of ₱ 24 million, bringing the total obligation to ₱ 144 million. 9
1990 and wherein a quorum was present, the following
resolution was unanimously approved pursuant to the Meanwhile, respondent Centro, represented by Go Eng Uy, approached
Minutes of the Special Meeting of the Stockholders of Centro petitioner Metropolitan Bank and Trust Company (Metrobank) sometime in
Development Corporation dated March 16, 1990; 1994 and proposed that the latter assume the role of successor-trustee of the
existing MTI. After petitioner Metrobank agreed to the proposal, the board of
R E S O L U T I O N: directors of respondent Centro allegedly resolved on 12 August 1994 to
constitute petitioner as successor-trustee of BPI.10
"RESOLVED, as it is hereby resolved, that the President, GO ENG UY, of
Centro Development Corporation, be as he is hereby authorized to mortgage Thereafter, on 27 September 1994,11 petitioner and respondent Centro
and use as collateral the real estate property of the Corporation identified as executed the assailed MTI,12 amending the previous agreements by
a parcel of land with building and improvements located at Salcedo St., appointing the former as the successor-trustee of BPI. It is worth noting that
Legaspi Village, Makati, Metro Manila covered by Transfer Certificate of Title this MTI did not amend the amount of the total obligations covered by the
Nos. 139880 and 139881 to secure the medium-term loan of LUCKY TWO previous MTIs.
CORPORATION, a corporation duly organized and existing under the
Philippine laws, and LUCKY TWO REPACKING, a single proprietorship with It was only sometime in 1998 that respondents herein, Chongking Kehyeng,
principal office at Concepcion, Tarlac, with the Bank of the Philippine Islands Manuel Co Kehyeng and Quirino Kehyeng, allegedly discovered that the
for EIGHTY FOUR (84) MILLION PESOS, Philippine Currency (₱ properties of respondent Centro had been mortgaged, and that the MTI that
84,000,000.00); had been executed appointing petitioner as trustee. Notably, respondent
Chongking Kehyeng had been a member of the board of directors of Centro
"RESOLVED FURTHER, that said GO ENG UY, be as he is hereby since 1989, while the two other respondents, Manuel Co Kehyeng and
authorized to sign all papers and documents needed and necessary to carry Quirino Keyheng, had been stockholders since 1987. Respondents Kehyeng
into effect the aforesaid purpose or undertaking for the benefit and to the were minority stockholders who owned thirty percent (30%) of the
credit of Lucky Two Corporation and Lucky Two Repacking." outstanding capital stock of respondent Centro.
On different dates, 4 September 1998, 9 September 1998 and 2 October 40 of the Corporation Code on notice and voting requirements. Under this
1998, the Kehyengs allegedly questioned the mortgage of the properties provision, in order for a corporation to mortgage all or substantially all of its
through letters addressed to Go Eng Uy and Jacinta Go. 13 They alleged that properties and assets, it should be authorized by the vote of its stockholders
they were not aware of any board or stockholders’ meeting held on 12 August representing at least 2/3 of the outstanding capital stock in a meeting held for
1994, when petitioner was appointed as successor-trustee of BPI in the MTI. that purpose. Furthermore, there must be a written notice of the proposed
Respondents demanded a copy of the minutes of the meeting held on that action and of the time and place of the meeting. Thus, respondents alleged,
date, but received no response. the representation of Go Eng Uy that he was authorized by the board of
directors and/or stockholders of Centro was false.
Thereafter, on 14 October 1998 and 19 November 1998, the Kehyengs
allegedly wrote to petitioner, informing it that they were not aware of the 12 On 15 December 2003, after trial on the merits, the RTC dismissed the
August 1994 board of directors meeting. Petitioner did not respond to the Complaint.17 It held that the evidence presented by respondents was
letters.14 insufficient to support their claim that there were no meetings held
authorizing the mortgage of Centro’s properties. It noted that the stocks of
Meanwhile, during the period April 1998 to December 1998, San Carlos respondents Kehyeng constituted only 30% of the outstanding capital stock,
obtained loans in the total principal amount of ₱ 812,793,513.23 from while the Go family owned the majority 70%, which represented more than
petitioner Metrobank.15 the 2/3 vote required by Section 40 of the Corporation Code. The trial court
ruled that respondents Kehyeng, particularly Chongking Kehyeng, who sat in
the board of directors, should have done periodic inquiries and verifications
San Carlos failed to pay these outstanding obligations despite demand.
of documents pertaining to corporate properties. The RTC also held that
Thus, petitioner, as trustee of the MTI, enforced the conditions thereof and
laches had attached, considering that eight (8) years had lapsed before
initiated foreclosure proceedings, denominated as Foreclosure No. S-04-11,
respondents questioned the mortgage executed in 1990.
on the mortgaged properties. On 22 June 2000, petitioner Metrobank filed a
Petition for Extrajudicial Foreclosure of Mortgage with the executive judge of
the Regional Trial Court (RTC) of Makati City. Petitioner alleged that the total The trial court also noted the absence of evidence showing the steps
amount of the Promissory Notes that San Carlos executed in favor of the respondents had taken to seek redress for the alleged misrepresentations of
former amounted to ₱ 812,793,513.23. As of 30 April 2000, the total Go Eng Uy and Maria Jacinta Go. On the other hand, the court found that no
outstanding obligation, inclusive of interests and penalties, was ₱ neglect could be imputed to petitioner for relying on the Secretary’s
1,178,961,181.45.16 Certificate, which apparently established Go Eng Uy’s authority to mortgage
Centro’s properties and assets.
We note that there are no documents in the records evidencing the
amendment of the MTI to accommodate these additional obligations. As of Respondents subsequently filed an appeal with the CA docketed as CA-G.R.
27 September 1994, the date of the last amendment as borne out by the CV No. 80778. On 26 February 2004, they filed an Urgent Motion for the
records, the total outstanding obligation reflected in the MTI amounted to Issuance of a Temporary Restraining Order and Writ of Preliminary Injunction
only ₱ 144 million. The latest MTI merely referred to the amendments made seeking to restrain petitioner, the clerk of court, the ex-officio sheriff of the
on 31 March 1993 and 28 July 1994. RTC, and their agents from foreclosing and selling at public auction on 4 and
22 March 2004 the mortgaged properties subject of Civil Case No. 00-942.
On 3 March 2004, a TRO was issued by the CA effective for a period of sixty
Before the scheduled foreclosure date, on 3 August 2000, respondents
(60) days, unless earlier set aside by a resolution.18
herein filed a Complaint for the annulment of the 27 September 1994 MTI
with a prayer for a temporary restraining order (TRO) and preliminary
injunction at Branch 138 of the RTC of Makati City. Docketed as Civil Case On 19 May 2004, the CA issued a Resolution19 in CA-G.R. CV No. 80778
No. 00-942, the Complaint was against petitioner, Go Eng Uy, Alexander V. denying the application for the issuance of a writ of preliminary injunction.
Go, Ramon V. Go, Maria Jacinta Go and Enriqueto Magpantay.
Not giving up, on 27 May 2004, respondents Centro and San Carlos filed a
The bone of contention in Civil Case No. 00-942 was that since the Complaint docketed as Civil Case No. 04-612 at Branch 56 of the RTC of
mortgaged properties constituted all or substantially all of the corporate Makati City. They prayed for the nullification of the foreclosure proceedings
assets, the amendment of the MTI failed to meet the requirements of Section and prayed for the issuance of a TRO/injunction. Centro and San Carlos
alleged that the total obligation due was only ₱ 657,000,000 and not ₱ stockholders were deprived of their right to dissent from or to approve the
812,793,513.23; that the sale of the San Carlos properties found in Negros proposed mortgage, considering that they had not been notified in writing of
Occidental fully satisfied their outstanding obligations; and that the action to the meeting in which the corporate action was to be discussed.
foreclose the Makati properties was illegal and void. 20
The CA also considered the testimony of Perla Saballe, an officer of
While Civil Case No. 04-612 was pending, the clerk of court and the ex- petitioner Metrobank, who opined that the term "quorum" meant only the
officio sheriff of the RTC of Makati City held an auction sale of the disputed majority of the stockholders.
property, during which petitioner was adjudged as the highest bidder for ₱
344,700,000. A Certificate of Sale was accordingly issued on 3 June 2004, Furthermore, the appellate court held that petitioner was duty-bound to
which states:21 ensure that respondent Centro submitted proof that the proposed corporate
action had been duly approved by a vote of the stockholders representing 2/3
On June 2, 2004, a public auction sale was conducted and METROPOLITAN of the outstanding capital stock.
BANK & TRUST CO. submitted a bid for the sale to him/it of the mortgaged
property in the amount of ₱ 344,700,000 xxx, which was the highest bid Regarding the issue of whether laches had already attached, the CA ruled
hence declared as the winning bidder and being the creditor he/it did not that the MTI could not be ratified, considering that the requirements of the
delivery or pay cash/monies to the Clerk of Court and Ex-Officio Sheriff the Corporation Code were not complied with.
bid price of ₱ 344,700,000 xxx and the selling price was credited as
partial/full satisfaction of indebtedness secured by the mortgage. Thus, the dispositive portion of the CA Decision in CA-G.R. CV No. 80778
reads:22
In consideration thereof, the Certificate of Sale was issued in favor of
METROPOLITAN BANK& TRUST CO. of Metrobank Plaza, Sen. Gil Puyat WHEREFORE, the Appeal is PARTIALLY GRANTED. The Judgment dated
Ave., Makati. 15 December 2003 of the Regional Trial Court of Makati City, Branch 138, is
REVERSED and SET ASIDE insofar as the dismissal of the Complaint for
This sale is subject to redemption in the manner provided by law. Annulment of Trust Indenture Agreement is concerned. The Trust Indenture
executed on 27 September 1994 is hereby declared NULL and VOID.
Because of this development, the Complaint in Civil Case No. 04-612 was Accordingly, the foreclosure of the mortgage and the sale at public auction
amended, and Centro and San Carlos prayed for the issuance of a writ of involving the subject properties are declared of no force and effect. The
injunction to prevent the registration of the Certificate of Sale and the certificates of title issued in the name of Metropolitan Bank and Trust
subsequent transfer to petitioner of the title to the properties. However, Company are CANCELLED.
Branch 56 of the RTC of Makati City subsequently denied the application.
Conformably with the foregoing discussion, the appellants’ prayer for
Respondent Centro thereafter filed before the CA a Petition for Certiorari damages is hereby DENIED.
docketed as CA-G.R. SP No. 84447. The Petition assailed the Order of the
RTC in Civil Case No. 04-612. SO ORDERED.

During this time, CA-G.R. CV No. 80778, which involved the legality of the On 14 September 2007, a different Division of the CA rendered a
MTI, was still pending. Decision23 denying the Petition in CA-G.R. SP No. 84447. That Petition had
questioned the Decision of Branch 56 of the RTC of Makati City denying a
On 30 August 2007, the CA promulgated the assailed Decision in CA-G.R. Petition to enjoin the foreclosure of the mortgaged properties on the ground
CV No. 80778. The appellate court first determined whether the requirements that respondents Centro and San Carlos had failed to show any clear right of
of Section 40 of the Corporation Code on the sale of all or substantially all of the RTC to issue an injunctive writ. The CA further ruled that the foreclosure
the corporation’s property were complied with. Based on the 18 August 1994 of the property became a matter of right on the part of petitioner because of
Secretary’s Certificate, the CA found that only a quorum was present during respondents’ failure to pay the loans due.
the stockholders’ meeting on 12 August 1994. The appellate court thus held
that the 2/3 vote required by Section 40 was not met. It ruled that the minority
On 26 November 2007, the CA in CA-G.R. CV No. 80778 rendered the Second, on the issue of whether the 2/3 voting requirement was met,
assailed Resolution denying petitioner’s Motion for Reconsideration. respondents claim that petitioner cannot impugn the testimony of its own
officer and witness, Perla Saballe, on the interpretation of the term "quorum"
Hence, this Petition. as referred to in the Secretary’s Certificate dated 18 August 1994.

Petitioner contends that the stockholders’ Resolution No. 005, s. 1994 did not Respondents also allege that petitioner failed to controvert the testimony of
constitute a new mortgage in favor of petitioner. Instead, the stockholders Chongking Kehyeng, a member and vice-chairperson of the board of
merely amended the existing MTI by appointing petitioner as the new trustee directors, that he was unaware of any stockholders’ meeting ever being held,
for the MTI, which was already existing and held by BPI. Thus, there was no and that he and the other Kehyengs were not informed of that meeting.
need to secure a 2/3 vote from the stockholders. Petitioner posits that the Respondents further insist that petitioner was negligent when it merely relied
authority to mortgage the properties was granted in 1990, upon the execution on the Secretary’s Certificate, instead of exercising due diligence to ensure
of the first MTI between respondent Centro and BPI. that all legal requirements had been complied with under the MTI. On the
issue of laches, respondents contend that it was not raised before the trial
court, and is thus improperly invoked in the present Petition. Nevertheless,
Further, petitioner alleges that respondents do not deny or question the
they allegedly undertook a number of measures to question the transactions
previous MTI and its subsequent amendments. It further alleges that the
between petitioner and CENTRO. Moreover, they argue that the MTI, being
constituted mortgage under the MTI was duly annotated with the Registry of
null and void, cannot be given effect through laches.
Deeds of Makati City.

The Court’s Ruling

Petitioner also maintains that the CA erred in interpreting the phrase "at
which meeting a quorum was present" contained in the Secretary’s
Certificate dated 18 August 1994. The bank points out that the phrase In summary, this Court is tasked to resolve the following issues:
indicates that at least a quorum was present, rather than that only a quorum
was present. Thus, the Secretary’s Certificate did not in any way limit the 1. Whether the requirements of Section 40 of the Corporation Code
number of those actually present. was complied with in the execution of the MTI;

Additionally, petitioner argues that Perla Saballe, whose testimony was 2. Whether petitioner was negligent or failed to exercise due
considered by the CA, was not a competent witness to interpret the directors’ diligence;
Resolution. Allegedly, she was never present during the meetings of Centro
regarding the present issue, and she was not in a position to answer the 3. Whether laches has already attached, such that respondents can
questions propounded to her in relation to the requirements of Section 40 of no longer question the MTI.
the Corporation Code.
We shall first discuss the issue of laches.
Moreover, petitioner cites the CA Decision in CA-G.R. SP No. 84447, which
upheld the validity of the foreclosure of the mortgage. It also challenges the Laches is defined as the failure or neglect for an unreasonable and
CA ruling that the former failed to exercise due diligence in transacting with unexplained length of time to do that which, by exercising due diligence,
respondent Centro. Finally, petitioner insists that laches attached when could or should have been done earlier; it is negligence or omission to assert
respondents failed to question the MTI and the stockholders’ Resolution at a right within a reasonable time, warranting a presumption that the party
the earliest possible time. entitled to assert it either has abandoned it or declined to assert it. 24

On the other hand, respondents contend that, based on the Pre-Trial Brief In the case at bar, the RTC in Civil Case No. 00-942 held that laches
and the Amended Pre-Trial Order, petitioner admitted that the subject attached when respondents allowed eight (8) years to pass before
properties were mortgaged under the MTI of 27 September 1994, and not questioning the mortgage, which was constituted in 1990. Thus, the trial
under that of 21 March 1990. court said:
As it appears now, the mortgage on the land and building of Centro was first It cannot therefore be said that laches had attached and that respondents
constituted in 1990 in favor of [the] Bank of the Philippine Islands. Individual were already barred from assailing the MTI in 1998. We now proceed to
plaintiffs stated that discovery of the mortgage was "sometime in 1998", (par. discuss the validity of the challenged MTI.
6, Affidavit of Chongking Kehyeng). He was in the Board of Directors of
Centro and he holds office at the fourth floor of the building on the mortgaged The 18 August 1994 Secretary’s Certificate issued by Maria Jacinta V. Go
property. There is evidence that the holding of meetings of the Board of reads as follows:28
Directors was irregular and purely "reportorial".
I, JACINTA V. GO, Corporate Secretary of CENTRO DEVELOPMENT
Considering that as shown by planitiffs’ evidence, conduct of business in CORPORATION, a corporation duly organized and existing under our laws
Centro was informal, vigilance over its property was required from all with principal office located at the 2nd Floor Centro Buidling, 180 Salcedo
individual plaintiffs, particularly plaintiff Chongking Kehyeng who sits in the St., Legaspi Village, Makati, Metro Manila, do hereby certify that during a
Board of Directors. Periodic inquiries and verification of documents pertaining special meeting of the board of Directors of the Corporation held at its main
to corporate properties should have been done and the existence of the office in Makati, Metro Manila on August 12, 1994, at 3:00 p.m., at which
mortgage was verifiable. A simple inquiry about the status of the title, meeting a quorum was present, the following resolution was approved and
information on the title number and actual verification with the Register of adopted:
Deeds – a task which can be accomplished in an hour or two –will provide
information about the existence of the mortgage. None of the individual "Resolution No. 005, s. 1994
plaintiffs did this.
APPOINTING METROBANK TRUST BANKING GROUP AS THE NEW
The inaction of the plaintiffs for which no explanation was submitted resulted TRUSTEE FOR THE EXISTING MTI OF CDC REAL ESTATE PROPERTY
in the acquisition of rights by the defendant Bank adverse to them. Such
neglect, taken in conjunction with the lapse of time of about eight (8) years
operates as a bar.25 RESOLVED, AS IT IS HEREBY RESOLVED, that in connection with the
existing Mortgage Trust Indenture of real estate property covered by Transfer
Certificate of Title Nos. 139880 and 139881 situated at 180 Salcedo St.,
A perusal of the TCTs26 of the subject properties would reveal that only the Legaspi Village, Makati, Metro Manila, with an area of 1,608 square meters
values of the mortgage securing the loans totalling ₱ 144 million were more or less, the Corporation be [sic], as it is hereby authorized, to appoint
annotated, based on the MTIs executed on 21 March 1990, 31 March 1993 Metrobank Trust Banking Group ("Metrobank") as the new trustee for the
and 28 July 1994. As for the last annotation, it only stated that petitioner was existing mortgage trust indenture presently held by the Bank of the
the successor-trustee to all obligations due to the creditors. Respondents, in Philippines Islands;
their Complaint, did not question these mortgages constituted by the MTIs
executed on 21 March 1990, 31 March 1993 and 28 July 1994, respectively.
What they questioned was the additional loans granted to San Carlos after RESOLVED FURTHER, that the President, Mr. Go Eng Uy be, as he is
the execution of the 27 September 1994 MTI and the foreclosure of the hereby, authorized and empowered to sign the Real Estate Mortgage and all
mortgage resulting from the nonpayment of San Carlos’ obligations. Thus, documents/instruments with the said bank, for and in behalf of the Company
contrary to the finding of the trial court, only four years had lapsed from the which are necessary and pertinent thereto;
execution of the 27 September 1994 MTI when respondents questioned the
mortgage allegedly constituted to cover these loans. RESOLVED FINALLY, that any resolution or resolutions heretofore adopted
by this Board, inconsistent with the provisions hereof be, as they hereby are
Furthermore, as mentioned earlier, the TCTs were not accordingly annotated amended and/or revoked accordingly."
to cover these additional loans. Also, the mortgage of the property securing
all the loans were not disclosed in Centro’s financial statements for the years That at the meeting of the Stockholders of said corporation held on August
1991 to 1998.27 Thus, absent any proof that the individual respondents were 12, 1994 at 4:00 p.m., at which meeting a quorum was present and acting
notified of the stockholders’ meeting on 12 August 1994 or that they were throughout, the following resolution was unanimously approved:
present during the meeting, these respondents could not have been informed
of the alleged additional loans and the corresponding mortgage constituted STOCKHOLDERS’ RESOLUTION
over the properties.
RESOLVED, that the stockholders approve, ratify and confirm, as they have There is no evidence that petitioner, as creditor or as trustee, had a cause of
hereby approved, ratified and confirmed, the board resolution dated August action to move for the extrajudicial foreclosure of the subject properties
12, 1994 appointing Metrobank Trust Banking Group as the new trustee, mortgaged under the MTI.
presently held by the Bank of the Philippine Islands, for the existing MTI of
real estate property covered by Transfer Certificate of Title Nos. 139880 and The conditions of the MTI are very clear. Section 3.3 of the MTI provides: 30

139881 situated at 180 Salcedo St., Legaspi Village, Makati, Metro Manila
with an area of 1,608 square meters, and that the President, Mr. Go Eng It is the intent of the COMPANY that the BORROWERS will obtain additional
Uy[,] to sign the Real Estate Mortgage and all documents/ instruments with loans or credit accommodations from certain other banking or financial
the said bank, for and in behalf of the Company which are necessary and institutions in accordance with arrangements made by the BORROWERS
pertinent thereto; xxx. with the CREDITORS.

Reading carefully the Secretary’s Certificate, it is clear that the main purpose ALL OBLIGATIONS covered by this INDENTURE shall be evidenced by a
of the directors’ Resolution was to appoint petitioner as the new trustee of the Mortgage Participation Certificate in the form of Schedule II hereof, the
previously executed and amended MTI. Going through the original and the issuance of which by the TRUSTEE to the participating CREDITOR/S shall
revised MTI, we find no substantial amendments to the provisions of the be in accordance with Section 7 of this INDENTURE, provided the aggregate
contract. We agree with petitioner that the act of appointing a new trustee of LOAN VALUES of the COLLATERAL, based on the latest appraisal thereof,
the MTI was a regular business transaction. The appointment necessitated are not exceeded. (Emphasis supplied.)
only a decision of at least a majority of the directors present at the meeting in
which there was a quorum, pursuant to Section 25 of the Corporation Code.
Section 1.11 of the MTI defines a Mortgage Participation Certificate (MPC) as
a certificate issued by the trustee to a creditor pursuant to the MTI,
The second paragraph of the directors’ Resolution No. 005, s. 1994, which representing an aliquot interest in the mortgage created by the MTI. The face
empowered Go Eng Uy "to sign the Real Estate Mortgage and all amount of the MPC is the value in money of its holder’s participation or
documents/instruments with the said bank, for and in behalf of the Company interest in the mortgaged property.
which are necessary and pertinent thereto," must be construed to mean that
such power was limited by the conditions of the existing mortgage, and not
that a new mortgage was thereby constituted. To address the gaps in the facts as presented by the parties and by the lower
courts, we issued a Resolution31 on 5 September 2011. We required
petitioner to submit, among others, all amendments to the MTI and all the
Moreover, it is worthy to note that respondents do not assail the previous MTI MPCs issued. Petitioner failed to comply with this directive. For one reason
executed with BPI. They do not question the validity of the mortgage or another, instead of submitting MPCs evidencing its interest in the MTI, it
constituted over all or substantially all of respondent Centro’s assets submitted to this Court documents referring to different instruments
pursuant to the 21 March 1994 MTI in the amount of ₱ 84 million. Nor do altogether.32 Petitioner should have been more careful in complying with this
they question the additional loans increasing the value of the mortgage to ₱ Court’s Orders.
144 million; or the use of Centro’s properties as collateral for the loans of San
Carlos, Lucky Two Corporation, and Lucky Two Repacking.
More glaring is the fact that the assailed MTI is not even referred to in the
Promissory Notes executed by petitioner in favor of San Carlos, evidencing
Thus, Section 4029 of the Corporation Code finds no application in the present the loans extended by the latter to the former. This omission violated Section
case, as there was no new mortgage to speak of under the assailed 1.13 of the MTI, which requires that a promissory note must be covered by
directors’ Resolution. an outstanding MPC and secured by the lien of the MTI. The Promissory
Notes reveal the following:33
Nevertheless, while we uphold the validity of the stockholders’ Resolution
appointing Metrobank as successor-trustee, this is not to say that we uphold
the validity of the extrajudicial foreclosure of the mortgage. Promissory Note No. Date Amount Collateral
111333.69288.00.999 20 April 1998 ₱ 328,000,000 "Others" – Not specified
After a careful review of the records of this case, we find that petitioner failed
to establish its right to be entitled to the proceeds of the MTI. 111333.70316.00.999 19 October 1998 ₱ 97,859,472.03 Unsecured
 36
1333.70359.00.999 30 October 1998 ₱ 82,849,981.44 "Others" – Not specified CREDITORS and shall be within the loan value stipulated in Section 1.8 of
this INDENTURE. (Emphasis supplied.)
1333.70464.000.99 17 November 1998 ₱ 98,114,959.13 "Others" – Not specified
1333.70502.000.99 25 November 1998 ₱ 40,150,059.85 "Others" – Not specified The fact that the foreclosure of the mortgaged property was undertaken
pursuant to the 27 September 1994 MTI is an indication that the parties had
1333.70618.000.99 9 December 1998 ₱ 39,673,569.58 "Others" – Not specified failed to amend it accordingly.
1333.70642.000.99 17 December 1998 ₱ 126,145,471.20 "Others" – Not specified
Because the 27 September 1994 MTI was not amended to secure the loan
granted to the debtors, petitioner could not have applied for an extrajudicial
Petitioner thus miserably failed to prove that it was entitled to the benefits of foreclosure on the basis of all the Promissory Notes granted to San Carlos.
the MTI. Instead, petitioner could have only applied for the foreclosure of the property
corresponding to ₱ 144 million, which was the maximum amount embodied
Even if we assume that petitioner was indeed a creditor protected by the in the 27 September 1994 MTI. In other words, as an accommodation debtor,
MTI, we find that, as trustee and as creditor, it failed to comply with the MTI’s Centro’s properties may not be liable for San Carlos’ debts beyond this
conditions for granting additional loans to San Carlos – additions that brought maximum amount, pursuant to the MTI executed with petitioner. In Caltex
the total loan amount to ₱ 1,178,961,181.45 – when it did not amend the MTI Philippines v. Intermediate Appellate Court,37 we likewise held that the value
to accommodate the additional loans in excess of ₱ 144 million. of the mortgage should be limited only to the amount provided by the
contract between the parties.
In its application for an extrajudicial foreclosure of Centro’s properties,
petitioner states:34 Section 4 of Rule 68 of the Rules of Court provides:

We have the honor to request your good Office to conduct/undertake Disposition of proceeds of sale - The amount realized from the foreclosure
extrajudicial foreclosure sale proceedings under Act No. 3135, as amended, sale of the mortgaged property shall, after deducting the costs of the sale, be
and other applicable laws, on the properties covered by the Mortgage Trust paid to the person foreclosing the mortgage, and when there shall be any
Indenture, dated March 21, 1990, as amended on March 31, 1993 and balance or residue, after paying off the mortgage debt due, the same shall be
further amended on July 28, 1994 executed by the Mortgagor, CENTRO paid to junior encumbrancers in the order of their priority, to be ascertained
DEVELOPMENT CORPORATION, in favor of the Former Trustee, BANK OF by the court, or if there be no such encumbrancers or there be a balance or
THE PHILIPPINE ISLANDS and Trust Indenture, dated September 27, 1994, residue after payment to them, then to the mortgagor or his duly authorized
also executed by the Mortgagor, CENTRO DEVELOPMENT agent, or to the person entitled to it.
CORPORATION, in favor of the Mortgagee/Trustee, METROPOLITAN BANK
AND TRUST COMPANY-TRUST BANKING GROUP, to secure among While it is true that some of the documents required by this Court to be
others, several obligations of SAN CARLOS MILLING CO., INC. under submitted by the parties were not presented at the trial stage, when the legal
various Promissory Notes, with a total principal amount of EIGHT HUNDRED issues raised begs the reception of that evidence – especially considering
TWELVE MILLION SEVEN HUNDRED NINETY-THREE THOUSAND FIVE that a case, like the present one has been pending for more than a decade –
HUNDRED THIRTEEN PESOS AND TWENTY-THREE CENTAVOS (₱ then the Court may require the parties to submit such evidence in the interest
812,793,513.23), for breach of the terms and conditions of the said Trust of justice. This is clearly provided under Rule 45, Section 7 of the Rules of
Indenture. (Emphasis in the original.) Court.38

However, Section 9.4 of the 27 September 1994 MTI clearly states: 35 On a final note, Republic Act No. 8971, or the General Banking Law of 2000,
recognizes the vital role of banks in providing an environment conducive to
The written consent of the COMPANY, the TRUSTEE and all the the sustained development of the national economy and the fiduciary nature
CREDITORS shall be required for any amendment of the terms and of banking; thus, the law requires banks to have high standards of integrity
conditions of this INDENTURE. Additional loans which will be covered by the and performance. The fiduciary nature of banking requires banks to assume
INDENTURE shall require the written consent of the MAJORITY a degree of diligence higher than that of a good father of a family. 39 In the
case at bar, petitioner itself was negligent in the conduct of its business when
it extended unsecured loans to the debtors. Worse, it was in serious breach
of its duty as the trustee of the MTI. It was not able to protect the interests of
the parties and was even instrumental in violating the terms of the MTI, to the
detriment of the parties thereto. Thus, petitioner has only itself to blame for
being left with insufficient recourse against petitioner under the assailed MTI.

WHEREFORE, in view of the foregoing, the Petition is hereby PARTLY

GRANTED. The Mortgage Trust Indenture is declared
VALID.1âwphi1 Nonetheless, for reasons stated herein, the Decision of the
Court of Appeals in CA-G.R. CV No. 80778, declaring the foreclosure
proceedings in Foreclosure No. S-04-011 over TCT Nos. 139880 and 139881
of no force and effect, is AFFIRMED. Likewise, the cancellation of the
Certificates of Title in the name of petitioner Metropolitan Bank and Trust
Company and the denial of the payment of damages are also AFFIRMED.

SO ORDERED.

G.R. No. 200667 March 11, 2013

RURAL BANK OF STA. BARBARA (ILOILO), INC., Petitioner,

vs.
GERRY CENTENO, Respondent.

RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this Petition for Review on Certiorari1 is the January 31, 2012
Decision2 of the Cebu City Court of Appeals (CA) in CA-G.R. CV No. 78398
which set aside the October 8, 2002 Decision of the Regional Trial Court of
Barotac Viejo, Iloilo City, Branch -66 (RTC} in Cadastral Case No. 98-
0693 and denied the issuance of a writ of possession for Cadastral Lot Nos. Ruling of the CA
964, 958 and 959 of the Ajuy, ·Iloilo Cadastre (subject lots) in
The CA, through its January 31, 2012 Decision,15 reversed the RTC and
petitioner's favor. ruled against the issuance of a writ of possession. It considered respondent
as a third party who is actually holding the property adverse to the judgment
The Facts obligor and as such, has the right to ventilate his claims in a proper judicial
proceeding i.e., an ejectment suit or reinvindicatory action. 16
Spouses Gregorio and Rosario Centeno (Sps. Centeno) were the previous
owners of the subject lots. During that time, they mortgaged the foregoing Aggrieved, petitioner filed the instant petition.
properties in favor of petitioner Rural Bank of Sta. Barbara (Iloilo), Inc. as
security for a ₱1,753.65 loan. Sps. Centeno, however, defaulted on the loan, Issue Before The Court
prompting petitioner to cause the extrajudicial foreclosure of the said
mortgage. Consequently, the subject lots were sold to petitioner being the The sole issue in this case is whether or not petitioner is entitled to a writ of
highest bidder at the auction sale. On October 10, 1969, it obtained a possession over the subject lots.
Certificate of Sale at Public Auction4 which was later registered with the
Register of Deeds of Iloilo City on December 13, 1971. 5 The Court’s Ruling

Sps. Centeno failed to redeem the subject lots within the one (1) year The petition is meritorious.
redemption period pursuant to Section 66 of Act No. 3135.7 Nonetheless, they
still continued with the possession and cultivation of the aforesaid properties.
Sometime in 1983, respondent Gerry Centeno, son of Sps. Centeno, took It is well-established that after consolidation of title in the purchaser’s name
over the cultivation of the same. On March 14, 1988, he purchased the said for failure of the mortgagor to redeem the property, the purchaser’s right to
lots from his parents. Accordingly, Rosario Centeno paid the capital gains possession ripens into the absolute right of a confirmed owner. At that point,
taxes on the sale transaction and tax declarations were eventually issued in the issuance of a writ of possession, upon proper application and proof of
the name of respondent.8 While the latter was in possession of the subject title, to a purchaser in an extrajudicial foreclosure sale becomes merely a
lots, petitioner secured on November 25, 1997 a Final Deed of Sale thereof ministerial function, 17 unless it appears that the property is in possession of a
and in 1998, was able to obtain the corresponding tax declarations in its third party claiming a right adverse to that of the mortgagor. 18 The foregoing
name.9 rule is contained in Section 33, Rule 39 of the Rules of Court which partly
provides:
On March 19, 1998, petitioner filed a petition for the issuance of a writ of
possession before the RTC, claiming entitlement to the said writ by virtue of Sec. 33. Deed and possession to be given at expiration of redemption period;
the Final Deed of Sale covering the subject lots. 10 Respondent opposed the by whom executed or given. —
petition, asserting that he purchased and has, in fact, been in actual, open
and exclusive possession of the same properties for at least fifteen (15) xxxx
years.11 He further averred that the foreclosure sale was null and void owing
to the forged signatures in the real estate mortgage. Moreover, he claims that Upon the expiration of the right of redemption, the purchaser or redemptioner
petitioner’s rights over the subject lots had already prescribed. 12 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
Ruling of the RTC 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
On October 8, 2002, the RTC rendered its Decision13 in Cadastral Case No. judgment obligor. (Emphasis and underscoring supplied)
98-069, finding petitioner to be the lawful owner of the subject lots whose
rights became absolute due to respondent’s failure to redeem the same. In China Banking Corporation v. Lozada,19 the Court held that the phrase "a
Consequently, it found the issuance of a writ of possession ministerial on its third party who is actually holding the property adversely to the judgment
part.14 Dissatisfied, respondent appealed to the CA. obligor" contemplates a situation in which a third party holds the property by
adverse title or right, such as that of a co-owner, tenant or usufructuary. The
co-owner, agricultural tenant, and usufructuary possess the property in their
own right, and they are not merely the successor or transferee of the right of
possession of another co-owner or the owner of the property. 20 Notably, the
property should not only be possessed by a third party, but also held by the
third party adversely to the judgment obligor.21

In this case, respondent acquired the subject lots from his parents, Sps.
Centeno, on March 14, 1988 after they were purchased by petitioner and its
Certificate of Sale at Public Auction was registered with the Register of
Deeds of Iloilo City in 1971. It cannot therefore be disputed that respondent
is a mere successor-in-interest of Sps. Centeno. Consequently, he cannot be
deemed as a "third party who is actually holding the property adversely to the
judgment obligor" under legal contemplation. Hence, the RTC had the
ministerial duty to issue – as it did issue – the said writ in petitioner’s favor.

On the issue regarding the identity of the lots as raised by respondent in his
Comment,22 records show that the RTC had already passed upon petitioner’s
title over the subject lots during the course of the proceedings. Accordingly,
the identity of the said lots had already been established for the purpose of
issuing a writ of possession. It is hornbook principle that absent any clear
showing of abuse, arbitrariness or capriciousness committed by the lower
court, its findings of facts are binding and conclusive upon the Court, 23 as in
this case.1âwphi1

Finally, anent the issue of laches, it must be maintained that the instant case
only revolves around the issuance of a writ of possession which is merely
ministerial on the RTC's part as above-explained. As such, all defenses
which respondent may raise including that of laches should be ventilated
through a proper proceeding.

WHEREFORE, the petition is GRANTED. The January 31, 2012 Decision of

the Cebu City Court of Appeals in CA-G.R. CV No. 78398 is REVERSED and G.R. No. 177050 July 01, 2013
SET ASIDE. Accordingly, the October 8, 2002 Decision of the Regional Trial
Court of Barotac Viejo, Iloilo City, Branch 66 in Cadastral Case No. 98-069 is CARLOS LIM, CONSOLACION LIM, EDMUNDO LIM,* CARLITO LIM,
hereby REINSTATED. SHIRLEY LEODADIA DIZON,** AND ARLEEN LIM
FERNANDEZ, PETITIONERS,
SO ORDERED. vs.
DEVELOPMENT BANK OF THE PHILIPPINES, RESPONDENT.

DECISION

DEL CASTILLO, J.:

"While the law recognizes the right of a bank to foreclose a mortgage upon (h) TCT No. T-29480 x x x in the name of Shirley Leodadia Dizon;
the mortgagor’s failure to pay his obligation, it is imperative that such right be
exercised according to its clear mandate. Each and every requirement of the (i) TCT No. T-24654 x x x in the name of Trinidad D. Chua; and
law must be complied with, lest, the valid exercise of the right would end." 1
(j) TCT No. T-25018 x x x in the name of Trinidad D. Chua’s
This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court deceased husband Juan Chua.12
assails the February 22, 2007 Decision3 of the Court of Appeals (CA) in CA-
G.R. CV No. 59275. Due to violent confrontations between government troops and Muslim rebels
in Mindanao from 1972 to 1977, petitioners were forced to abandon their
Factual Antecedents cattle ranch.13 As a result, their business collapsed and they failed to pay the
loan amortizations.14
On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all
surnamed Lim, obtained a loan of ₱40,000.00 (Lim Account) from respondent In 1978, petitioners made a partial payment in the amount of
Development Bank of the Philippines (DBP) to finance their cattle raising ₱902,800.00,15 leaving an outstanding loan balance of ₱610,498.30,
business.4 On the same day, they executed a Promissory Note5 undertaking inclusive of charges and unpaid interest, as of September 30, 1978. 16
to pay the annual amortization with an interest rate of 9% per annum and
penalty charge of 11% per annum. In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested
from DBP Statements of Account for the "Lim Account" and the "Diamond L
On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and Ranch Account."17 Quoted below are the computations in the Statements of
Edmundo, all surnamed Lim; Shirley Leodadia Dizon, Arleen Lim Fernandez, Account, as of January 31, 1989 which were stamped with the words "Errors
Juan S. Chua,6 and Trinidad D. Chua7 obtained another loan from DBP8 in & Omissions Excepted/Subject to Audit:"
the amount of ₱960,000.00 (Diamond L Ranch Account). 9 They also
executed a Promissory Note,10 promising to pay the loan annually from 1âwphi1
August 22, 1973 until August 22, 1982 with an interest rate of 12% per
annum and a penalty charge of 1/3% per month on the overdue amortization. Diamond L Ranch Account:

To secure the loans, petitioners executed a Mortgage 11 in favor of DBP over

Matured [Obligation]:
real properties covered by the following titles registered in the Registry of
Deeds for the Province of South Cotabato:
Principal P 939,973.33
(a) TCT No. T-6005 x x x in the name of Edmundo Lim;
Regular Interest 561,037.14
(b) TCT No. T-6182 x x x in the name of Carlos Lim;
Advances 34,589.45
(c) TCT No. T-7013 x x x in the name of Carlos Lim;

(d) TCT No. T-7012 x x x in the name of Carlos Lim; Additional Interest 2,590,786.26

(e) TCT No. T-7014 x x x in the name of Edmundo Lim; Penalty Charges 1,068,147.19

18
(f) TCT No. T-7016 x x x in the name of Carlito Lim; Total claims as of January 31, 1989 P 5,194,533.37
Lim Account:
(g) TCT No. T-28922 x x x in the name of Consolacion Lim;
Matured [Obligation]:
 Principal P 40,000.00 Audit" indicating the following amounts: (1) Diamond L Ranch: ₱7,210,990.27
and (2) Lim Account: ₱187,494.40.
Regular Interest 5,046.97
Additional Interest 92,113.56 On June 11, 1992, Edmundo proposed to pay the principal and the regular
interest of the loans in 36 equal monthly installments. 35
Penalty Charges 39,915.46
19 On July 3, 1992, DBP advised Edmundo to coordinate with Branch Head
Total claims as of January 31, 1989 P 177,075.99
Bonifacio Tamayo, Jr. (Tamayo).36 Tamayo promised to review the accounts.37

Claiming to have already paid ₱902,800.00, Edmundo requested for an On September 21, 1992, Edmundo received another Notice from the Sheriff
amended statement of account.20 that the mortgaged properties would be auctioned on November 22,
1992.38 Edmundo again paid ₱30,000.00 as additional interest to postpone
On May 4, 1990, Edmundo made a follow-up on the request for the auction.39 But despite payment of ₱30,000.00, the mortgaged properties
recomputation of the two accounts.21 On May 17, 1990, DBP’s General were still auctioned with DBP emerging as the highest bidder in the amount
Santos Branch informed Edmundo that the Diamond L Ranch Account of ₱1,086,867.26.40 The auction sale, however, was later withdrawn by DBP
amounted to ₱2,542,285.60 as of May 31, 199022 and that the mortgaged for lack of jurisdiction.41
properties located at San Isidro, Lagao, General Santos City, had been
subjected to Operation Land Transfer under the Comprehensive Agrarian Thereafter, Tamayo informed Edmundo of the bank’s new guidelines for the
Reform Program (CARP) of the government.23 Edmundo was also advised to settlement of outstanding loan accounts under Board Resolution No. 0290-
discuss with the Department of Agrarian Reform (DAR) and the Main Office 92.42 Based on these guidelines, petitioners’ outstanding loan obligation was
of DBP24 the matter of the expropriated properties. computed at ₱3,500,000.00 plus.43 Tamayo then proposed that petitioners
pay 10% downpayment and the remaining balance in 36 monthly
Edmundo asked DBP how the mortgaged properties were ceded by DAR to installments.44 He also informed Edmundo that the bank would immediately
other persons without their knowledge.25 No reply was made.26 prepare the Restructuring Agreement upon receipt of the downpayment and
that the conditions for the settlement have been "pre-cleared" with the bank’s
On April 30, 1991, Edmundo again signified petitioners’ intention to settle the Regional Credit Committee.45 Thus, Edmundo wrote a letter46 on October 30,
Diamond L Ranch Account.27 Again, no reply was made.28 1992 manifesting petitioners’ assent to the proposal.

On February 21, 1992, Edmundo received a Notice of Foreclosure scheduled On November 20, 1992, Tamayo informed Edmundo that the proposal was
the following day.29 To stop the foreclosure, he was advised by the bank’s accepted with some minor adjustments and that an initial payment should be
Chief Legal Counsel to pay an interest covering a 60-days period or the made by November 27, 1992.47
amount of ₱60,000.00 to postpone the foreclosure for 60 days. 30 He was also
advised to submit a written proposal for the settlement of the loan accounts. 31 On December 15, 1992, Edmundo paid the downpayment of
₱362,271.7548 and was asked to wait for the draft Restructuring Agreement. 49
In a letter32 dated March 20, 1992, Edmundo proposed the settlement of the
accounts through dacion en pago, with the balance to be paid in equal However, on March 16, 1993, Edmundo received a letter 50 from Tamayo
quarterly payments over five years. informing him that the Regional Credit Committee rejected the proposed
Restructuring Agreement; that it required downpayment of 50% of the total
In a reply-letter33 dated May 29, 1992, DBP rejected the proposal and obligation; that the remaining balance should be paid within one year; that
informed Edmundo that unless the accounts are fully settled as soon as the interest rate should be non prime or 18.5%, whichever is higher; and that
possible, the bank will pursue foreclosure proceedings. the proposal is effective only for 90 days from March 5, 1993 to June 2,
1993.51
DBP then sent Edmundo the Statements of Account34 as of June 15, 1992
which were stamped with the words "Errors & Omissions Excepted/Subject to Edmundo, in a letter52 dated May 28, 1993, asked for the restoration of their
previous agreement.53 On June 5, 1993, the bank replied,54 viz:
This has reference to your letter dated May 28, 1993, which has connection No compliance was made by Edmundo.58
to your desire to restructure the Diamond L Ranch/Carlos Lim Accounts.
On September 21, 1993, Edmundo received Notice that the mortgaged
We wish to clarify that what have been agreed between you and the Branch properties were scheduled to be auctioned on that day. 59 To stop the auction
are not final until [the] same has been approved by higher authorities of the sale, Edmundo asked for an extension until November 15, 1993 60 which was
Bank. We did [tell] you during our discussion that we will be recommending approved subject to additional conditions:
the restructuring of your accounts with the terms and conditions as agreed.
Unfortunately, our Regional Credit Committee did not agree to the terms and Your request for extension is hereby granted with the conditions that:
conditions as recommended, hence, the subject of our letter to you on March
15, 1993. 1) This will be the last and final extension to be granted your
accounts; and
Please be informed further, that the Branch cannot do otherwise but to
comply with the conditions imposed by the Regional Credit Committee. More 2) That all amortizations due from March 1993 to November 1993
so, the time frame given had already lapsed on June 2, 1993. shall be paid including the additional interest computed at straight
18.5% from date of your receipt of notice of approval, viz:
Unless we will receive a favorable action on your part soonest, the Branch
will be constrained to do appropriate action to protect the interest of the xxxx
Bank."55
Failure on your part to comply with these conditions, the Bank will undertake
On July 28, 1993, Edmundo wrote a letter56 of appeal to the Regional Credit appropriate legal measures to protect its interest.
Committee.
Please give this matter your preferential attention. 61
In a letter57 dated August 16, 1993, Tamayo informed Edmundo that the
previous Restructuring Agreement was reconsidered and approved by the
Regional Credit Committee subject to the following additional conditions, to On November 8, 1993, Edmundo sent Tamayo a telegram, which reads:
wit:
Acknowledge receipt of your Sept. 27 letter. I would like to finalize
1) Submission of Board Resolution and Secretary’s Certificate documentation of restructuring Diamond L Ranch and Carlos Lim Accounts.
designating you as authorized representative in behalf of Diamond L However, we would need clarification on amortizations due on NTFI means
Ranch; [sic]. I will call x x x your Legal Department at DBP Head Office by Nov. 11.
Pls. advise who[m] I should contact. Thank you.62
2) Payment of March 15 and June 15, 1993 amortizations within 30
days from date hereof; and Receiving no response, Edmundo scheduled a meeting with Tamayo in
Manila.63 During their meeting, Tamayo told Edmundo that he would send the
draft of the Restructuring Agreement by courier on November 15, 1993 to the
3) Submission of SEC registration. Main Office of DBP in Makati, and that Diamond L Ranch need not submit
the Board Resolution, the Secretary’s Certificate, and the SEC Registration
In this connection, please call immediately x x x our Legal Division to guide since it is a single proprietorship.64
you for the early documentation of your approved restructuring.
On November 24, 1993 and December 3, 1993, Edmundo sent telegrams to
Likewise, please be reminded that upon failure on your part to sign and Tamayo asking for the draft of the Restructuring Agreement. 65
perfect the documents and comply [with] other conditions within (30) days
from date of receipt, your approved recommendation shall be deemed On November 29, 1993, the documents were forwarded to the Legal
CANCELLED and your deposit of ₱362,271.75 shall be applied to your Services Department of DBP in Makati for the parties’ signatures. At the
account. same time, Edmundo was required to pay the amount of ₱1,300,672.75, plus
a daily interest of ₱632.15 starting November 16, 1993 up to the date of In view of the extended leave of absence of AVP Bonifacio A. Tamayo, Jr.
actual payment of the said amount.66 due to the untimely demise of his father, we regret [that] he cannot personally
respond to your letter of January 18, 1994. However, he gave us the
On December 19, 1993, Edmundo received the draft of the Restructuring instruction to answer your letter on direct to the point basis as follows:
Agreement.67
- Yes to Items No. 1 and 2,
In a letter68 dated January 6, 1994, Tamayo informed Edmundo that the bank
cancelled the Restructuring Agreement due to his failure to comply with the - No longer needed on Item No. 3
conditions within a reasonable time.
AVP Tamayo would like us also to convey to you to hurry up with your move
On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking that to settle the obligation, while the foreclosure action is still pending with the
he pay the outstanding amount of ₱6,404,412.92, as of November 16, 1993, legal division. He is afraid you might miss your last chance to settle the
exclusive of interest and penalty charges.69 account of your parents.74

Edmundo, in a letter70 dated January 18, 1994, explained that his lawyer was Edmundo then asked about the status of the Restructuring Agreement as
not able to review the agreement due to the Christmas holidays. He also said well as the computation of the accrued interest and advances 75 but the bank
that his lawyer was requesting clarification on the following points: could not provide any definite answer. 76

Can the existing obligations of the Mortgagors, if any, be specified in the On June 8, 1994, the Office of the Clerk of Court and Ex-Officio Provincial
Restructuring Agreement already? Sheriff of the RTC of General Santos City issued a Notice 77 resetting the
public auction sale of the mortgaged properties on July 11, 1994. Said Notice
Is there a statement showing all the accrued interest and advances that shall was published for three consecutive weeks in a newspaper of general
first be paid before the restructuring shall be implemented? circulation in General Santos City.78

Should Mr. Jun Sarenas Chua and his wife Mrs. Trinidad Chua be required to On July 11, 1994, the Ex-Officio Sheriff conducted a public auction sale of the
sign as Mortgagors considering that Mr. Chua is deceased and the pasture mortgaged properties for the satisfaction of petitioners’ total obligations in the
lease which he used to hold has already expired?71 amount of ₱5,902,476.34. DBP was the highest bidder in the amount of
₱3,310,176.55.79
Edmundo also indicated that he was prepared to pay the first quarterly
amortization on March 15, 1994 based on the total obligations of On July 13, 1994, the Ex-Officio Sheriff issued the Sheriff’s Certificate of
₱3,260,445.71, as of December 15, 1992, plus interest. 72 Extra-Judicial Sale in favor of DBP covering 11 parcels of land. 80

On January 28, 1994, Edmundo received from the bank a telegram 73 which In a letter81 dated September 16, 1994, DBP informed Edmundo that their
reads: right of redemption over the foreclosed properties would expire on July 28,
1995, to wit:
We refer to your cattle ranch loan carried at our DBP General Santos City
Branch. This is to inform you that your right of redemption over your former
property/ies acquired by the Bank on July 13, 1994, thru Extra-Judicial
Foreclosure under Act 3135 will lapse on July 28, 1995.
Please coordinate immediately with our Branch Head not later than 29
January 1994, to forestall the impending foreclosure action on your account.
In view thereof, to entitle you of the maximum condonable amount (Penal
Clause, AI on Interest, PC/Default Charges) allowed by the Bank, we are
Please give the matter your utmost attention.
urging you to exercise your right within six (6) months from the date of
auction sale on or before January 12, 1995.
The bank also answered Edmundo’s queries, viz:
Further, failure on your part to exercise your redemption right by July 28, (2) Declaring the foreclosure of [petitioners’] mortgaged properties,
1995 will constrain us to offer your former property/ies in a public bidding. the sale of the properties under the foreclosure proceedings and the
resultant certificate of sale issued by the foreclosing Sheriff by
Please give this matter your preferential attention. Thank you. 82 reason of the foreclosure NULL and VOID;

On July 28, 1995, petitioners filed before the RTC of General Santos City, a (3) Ordering the return of the [properties] to [petitioners] free from
Complaint83 against DBP for Annulment of Foreclosure and Damages with mortgage liens;
Prayer for Issuance of a Writ of Preliminary Injunction and/or Temporary
Restraining Order. Petitioners alleged that DBP’s acts and omissions (4) Ordering [respondent] bank to pay [petitioners], actual and
prevented them from fulfilling their obligation; thus, they prayed that they be compensatory damages of ₱170,325.80;
discharged from their obligation and that the foreclosure of the mortgaged
properties be declared void. They likewise prayed for actual damages for (5) Temperate damages of ₱50,000.00;
loss of business opportunities, moral and exemplary damages, attorney’s
fees, and expenses of litigation.84 (c) Moral damages of ₱500,000.00;

On same date, the RTC issued a Temporary Restraining Order85 directing (d) Exemplary damages of ₱500,000.00;
DBP to cease and desist from consolidating the titles over petitioners’
foreclosed properties and from disposing the same.
(e) Attorney’s fees in the amount of ₱100,000.00; and
In an Order86 dated August 18, 1995, the RTC granted the Writ of Preliminary
Injunction and directed petitioners to post a bond in the amount of (f) Expenses of litigation in the amount of ₱20,000.00.
₱3,000,000.00.
[Respondent] Bank’s counterclaims are hereby DISMISSED.
87 88
DBP filed its Answer, arguing that petitioners have no cause of action; that
petitioners failed to pay their loan obligation;89 that as mandated by [Respondent] Bank is likewise ordered to pay the costs of suit.
Presidential Decree No. 385, initial foreclosure proceedings were undertaken
in 1977 but were aborted because petitioners were able to obtain a SO ORDERED.96
restraining order;90 that on December 18, 1990, DBP revived its application
for foreclosure but it was again held in abeyance upon petitioners’ Ruling of the Court of Appeals
request;91 that DBP gave petitioners written and verbal demands as well as
sufficient time to settle their obligations;92 and that under Act 3135,93 DBP has
On appeal, the CA reversed and set aside the RTC Decision. Thus:
the right to foreclose the properties.94

WHEREFORE, in view of the foregoing, the instant appeal is hereby

Ruling of the Regional Trial Court
GRANTED. The assailed Decision dated 10 December 1996 is hereby
REVERSED and SET ASIDE. A new judgment is hereby rendered. It shall
On December 10, 1996, the RTC rendered a Decision,95 the dispositive now read as follows:
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
WHEREFORE, in light of the foregoing, judgment is hereby rendered:
Ordering the dismissal of the Complaint in Civil Case No. 5608;
(1) Declaring that the [petitioners] have fully extinguished and
discharged their obligation to the [respondent] Bank;
Declaring the extrajudicial foreclosure of [petitioners’] mortgaged properties
as valid;
Ordering [petitioners] to pay the [respondent] the amount of Two Million Five Petitioners’ Arguments
Hundred Ninety Two Thousand Two Hundred Ninety Nine [Pesos] and
Seventy-Nine Centavos (₱2,592,299.79) plus interest and penalties as Petitioners seek the reinstatement of the RTC Decision which declared their
stipulated in the Promissory Note computed from 11 July 1994 until full obligation fully extinguished and the foreclosure proceedings of their
payment; and mortgaged properties void.

Ordering [petitioners] to pay the costs. Relying on the Principle of Constructive Fulfillment, petitioners insist that their
obligation should be deemed fulfilled since DBP prevented them from
SO ORDERED. performing their obligation by charging excessive interest and penalties not
stipulated in the Promissory Notes, by failing to promptly provide them with
SO ORDERED.97 the correct Statements of Account, and by cancelling the Restructuring
Agreement even if they already paid ₱362,271.75 as downpayment. 99 They
likewise deny any fault or delay on their part in finalizing the Restructuring
Issues
Agreement.100
Hence, the instant recourse by petitioners raising the following issues:
In addition, petitioners insist that the foreclosure sale is void for lack of
personal notice101 and the inadequacy of the bid price.102 They contend that
1. Whether x x x respondent’s own wanton, reckless and oppressive at the time of the foreclosure, petitioners’ obligation was not yet due and
acts and omissions in discharging its reciprocal obligations to demandable,103 and that the restructuring agreement novated and
petitioners effectively prevented the petitioners from paying their loan extinguished petitioners’ loan obligation.104
obligations in a proper and suitable manner;
Finally, petitioners claim that DBP acted in bad faith or in a wanton, reckless,
2. Whether x x x as a result of respondent’s said acts and omissions, or oppressive manner; hence, they are entitled to actual, temperate, moral
petitioners’ obligations should be deemed fully complied with and and exemplary damages, attorney’s fees, and expenses of litigation. 105
extinguished in accordance with the principle of constructive
fulfillment;
Respondent’s Arguments
3. Whether x x x the return by the trial Court of the mortgaged
DBP, on the other hand, denies acting in bad faith or in a wanton, reckless, or
properties to petitioners free from mortgage liens constitutes unjust
oppressive manner106 and in charging excessive interest and
enrichment;
penalties.107 According to it, the amounts in the Statements of Account vary
because the computations were based on different cut-off dates and different
4. Whether x x x the low bid price made by the respondent for incentive schemes.108
petitioners’ mortgaged properties during the foreclosure sale is so
gross, shocking to the conscience and inherently iniquitous as to
DBP further argues that the foreclosure sale is valid because gross
constitute sufficient ground for setting aside the foreclosure sale;
inadequacy of the bid price as a ground for the annulment of the sale applies
only to judicial foreclosure.109 It likewise maintains that the Promissory Notes
5. Whether x x x the restructuring agreement reached and perfected and the Mortgage were not novated by the proposed Restructuring
between the petitioners and the respondent novated and Agreement.110
extinguished petitioners’ loan obligations to respondent under the
Promissory Notes sued upon; and
As to petitioners’ claim for damages, DBP contends it is without basis
because it did not act in bad faith or in a wanton, reckless, or oppressive
6. Whether x x x the respondent should be held liable to pay manner.111
petitioners actual and compensatory damages, temperate damages,
moral damages, exemplary damages, attorney’s fees and expenses
Our Ruling
of litigation.98
The Petition is partly meritorious. Moreover, since the Restructuring Agreement was cancelled, it could not
have novated or extinguished petitioners’ loan obligation. And in the absence
The obligation was not extinguished of a perfected Restructuring Agreement, there was no impediment for DBP to
or discharged. exercise its right to foreclose the mortgaged properties. 115

The Promissory Notes subject of the instant case became due and The foreclosure sale is not valid.
demandable as early as 1972 and 1976. The only reason the mortgaged
properties were not foreclosed in 1977 was because of the restraining order But while DBP had a right to foreclose the mortgage, we are constrained to
from the court. In 1978, petitioners made a partial payment of ₱902,800.00. nullify the foreclosure sale due to the bank’s failure to send a notice of
No subsequent payments were made. It was only in 1989 that petitioners foreclosure to petitioners.
tried to negotiate the settlement of their loan obligations. And although DBP
could have foreclosed the mortgaged properties, it instead agreed to We have consistently held that unless the parties stipulate, "personal notice
restructure the loan. In fact, from 1989 to 1994, DBP gave several extensions to the mortgagor in extrajudicial foreclosure proceedings is not
for petitioners to settle their loans, but they never did, thus, prompting DBP to necessary"116 because Section 3117 of Act 3135 only requires the posting of
cancel the Restructuring Agreement. the notice of sale in three public places and the publication of that notice in a
newspaper of general circulation.
Petitioners, however, insist that DBP’s cancellation of the Restructuring
Agreement justifies the extinguishment of their loan obligation under the In this case, the parties stipulated in paragraph 11 of the Mortgage that:
Principle of Constructive Fulfillment found in Article 1186 of the Civil Code.
11. All correspondence relative to this mortgage, including demand letters,
We do not agree. summons, subpoenas, or notification of any judicial or extra-judicial action
shall be sent to the Mortgagor at xxx or at the address that may hereafter be
As aptly pointed out by the CA, Article 1186 of the Civil Code, which states given in writing by the Mortgagor or the Mortgagee; 118
that "the condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment," does not apply in this case,112 viz: However, no notice of the extrajudicial foreclosure was sent by DBP to
petitioners about the foreclosure sale scheduled on July 11, 1994. The letters
Article 1186 enunciates the doctrine of constructive fulfillment of suspensive dated January 28, 1994 and March 11, 1994 advising petitioners to
conditions, which applies when the following three (3) requisites concur, viz: immediately pay their obligation to avoid the impending foreclosure of their
(1) The condition is suspensive; (2) The obligor actually prevents the mortgaged properties are not the notices required in paragraph 11 of the
fulfillment of the condition; and (3) He acts voluntarily. Suspensive condition Mortgage. The failure of DBP to comply with their contractual agreement with
is one the happening of which gives rise to the obligation. It will be irrational petitioners, i.e., to send notice, is a breach sufficient to invalidate the
for any Bank to provide a suspensive condition in the Promissory Note or the foreclosure sale.
Restructuring Agreement that will allow the debtor-promissor to be freed from
the duty to pay the loan without paying it.113 In Metropolitan Bank and Trust Company v. Wong,119 we explained that:

Besides, petitioners have no one to blame but themselves for the x x x a contract is the law between the parties and, that absent any showing
cancellation of the Restructuring Agreement. It is significant to point out that that its provisions are wholly or in part contrary to law, morals, good customs,
when the Regional Credit Committee reconsidered petitioners’ proposal to public order, or public policy, it shall be enforced to the letter by the courts.
restructure the loan, it imposed additional conditions. In fact, when DBP’s Section 3, Act No. 3135 reads:
General Santos Branch forwarded the Restructuring Agreement to the Legal
Services Department of DBP in Makati, petitioners were required to pay the Sec. 3. Notice shall be given by posting notices of the sale for not less than
amount of ₱1,300,672.75, plus a daily interest of ₱632.15 starting November twenty days in at least three public places of the municipality or city where
16, 1993 up to the date of actual payment of the said amount. 114 This, the property is situated, and if such property is worth more than four hundred
petitioners failed to do. DBP therefore had reason to cancel the Restructuring pesos, such notice shall also be published once a week for at least three
Agreement.
consecutive weeks in a newspaper of general circulation in the municipality (1) interest at the rate of twelve percent (12%) per annum;
and city.
(2) penalty charge of one-third percent (1/3%) per month on overdue
The Act only requires (1) the posting of notices of sale in three public places, amortization;
and (2) the publication of the same in a newspaper of general circulation.
Personal notice to the mortgagor is not necessary. Nevertheless, the parties (3) attorney’s fees equivalent to ten percent (10%) of the total
to the mortgage contract are not precluded from exacting additional indebtedness then unpaid; and
requirements. In this case, petitioner and respondent in entering into a
contract of real estate mortgage, agreed inter alia: (4) advances and interest thereon at one percent (1%) per month.

all correspondence relative to this mortgage, including demand letters, [Respondent] bank, however, charged [petitioners] the following items as
summonses, subpoenas, or notifications of any judicial or extra-judicial action shown in its Statement of Account for the period as of 31 January 1989,
shall be sent to the MORTGAGOR at 40-42 Aldeguer St. Iloilo City, or at the Exhibit "D:"
address that may hereafter be given in writing by the MORTGAGOR to the
MORTGAGEE.
(1) regular interest in the amount of ₱561,037.14;
Precisely, the purpose of the foregoing stipulation is to apprise respondent of
any action which petitioner might take on the subject property, thus according (2) advances in the amount of ₱34,589.45;
him the opportunity to safeguard his rights. When petitioner failed to send the
notice of foreclosure sale to respondent, he committed a contractual breach (3) additional interest in the amount of ₱2,590,786.26; and
sufficient to render the foreclosure sale on November 23, 1981 null and
void.120 (Emphasis supplied) (4) penalty charges in the amount of ₱1,068,147.19.

In view of foregoing, the CA erred in finding the foreclosure sale valid. The Court finds no basis under the Promissory Note, Exhibit "A," for charging
the additional interest in the amount of ₱2,590,786.26. Moreover, it is
Penalties and interest rates should incomprehensible how the penalty charge of 1/3% per month on the overdue
be expressly stipulated in writing. amortization could amount to ₱1,086,147.19 while the regular interest, which
was stipulated at the higher rate of 12% per annum, amounted to only
As to the imposition of additional interest and penalties not stipulated in the ₱561,037.14 or about half of the amount allegedly due as penalties.
Promissory Notes, this should not be allowed. Article 1956 of the Civil Code
specifically states that "no interest shall be due unless it has been expressly In Exhibit "N," which is the statement of account x x x as of 15 June 1992,
stipulated in writing." Thus, the payment of interest and penalties in loans is [respondent] bank charged plaintiffs the following items:
allowed only if the parties agreed to it and reduced their agreement in
writing.121 (1) regular interest in the amount of ₱561,037.14;

In this case, petitioners never agreed to pay additional interest and penalties. (2) advances in the amount of ₱106,893.93;
Hence, we agree with the RTC that these are illegal, and thus, void. Quoted
below are the findings of the RTC on the matter, to wit: (3) additional interest on principal in the amount of ₱1,233,893.79;

Moreover, in its various statements of account, [respondent] Bank charged (4) additional interest on regular interest in the amount of ₱859,966.83;
[petitioners] for additional interests and penalties which were not stipulated in
the promissory notes.
(5) additional interest on advances in the amount of ₱27,206.45;
In the Promissory Note, Exhibit "A," for the principal amount of ₱960,000.00,
(6) penalty charges on principal in the amount of ₱1,639,331.15;
only the following interest and penalty charges were stipulated:
(7) penalty charges on regular interest in the amount of ₱1,146,622.55; (1) regular interest in the amount of ₱4,621.25;

(8) penalty charges on advances in the amount of ₱40,520.53. (2) additional interest on principal in the amount of ₱65,303.33;

Again, the Court finds no basis in the Promissory Note, Exhibit "A," for the (3) additional interest on regular interest in the amount of ₱7,544.58;
imposition of additional interest on principal in the amount of ₱1,233,893.79,
additional interest on regular interest in the amount of ₱859,966.83, penalty (4) penalty charges on principal in the amount of ₱47,493.33;
charges on regular interest in the amount of ₱1,146,622.55 and penalty
charges on advances in the amount of ₱40,520.53. (5) penalty charges on regular interest in the amount of ₱5,486.97;

In the Promissory Note, Exhibit "C," for the principal amount of ₱40,000.00, (6) penalty charges on advances in the amount of ₱40,520.53.
only the following charges were stipulated:
[Respondent] bank failed to show the basis for charging additional interest on
(1) interest at the rate of nine percent (9%) per annum; principal, additional interest on regular interest and penalty charges on
principal and penalty charges on regular interest under items (2), (3), (4) and
(2) all unpaid amortization[s] shall bear interest at the rate of eleven (5) above.
percent (11%) per annum; and,
Moreover, [respondent] bank charged [petitioners] twice under the same
(3) attorney’s fees equivalent to ten percent (10%) of the total provisions in the promissory notes. It categorically admitted that the
indebtedness then unpaid. additional interests and penalty charges separately being charged
[petitioners] referred to the same provision of the Promissory Notes, Exhibits
In its statement of account x x x as of 31 January 1989, Exhibit "E," "A" and "C." Thus, for the Lim Account in the amount of ₱40,000.00,
[respondent] bank charged [petitioners] with the following items: [respondent’s] Mr. Ancheta stated:

(1) regular interest in the amount of ₱5,046.97 Q:

(2) additional interest in the amount of ₱92,113.56; and In Exhibit 14, it is stated that for a principal amount of ₱40,000.00 you
imposed an additional interest in the amount of ₱65,303.33 in addition to the
(3) penalty charges in the amount of ₱39,915.46. regular interest of ₱7,544.58, can you tell us looking [at] the mortgage
contract and promissory note what is your basis for charging that additional
interest?
There was nothing in the Promissory Note, Exhibit "C," which authorized the
imposition of additional interest. Again, this Court notes that the additional
interest in the amount of ₱92,113.56 is even larger than the regular interest A:
in the amount of ₱5,046.97. Moreover, based on the Promissory Note,
Exhibit "C," if the 11% interest on unpaid amortization is considered an The same as that when I answered Exhibit No. 3, which shall cover
"additional interest," then there is no basis for [respondent] bank to add amortization on the principal and interest at the above-mentioned rate. All
penalty charges as there is no other provision providing for this charge. If, on unpaid amortization[s] shall bear interest at the rate of eleven per centum
the other hand, the 11% interest on unpaid amortization is considered the (11%) per annum.
penalty charge, then there is no basis to separately charge plaintiffs
additional interest. The same provision cannot be used to charge plaintiffs Q:
both interest and penalties.
You also imposed penalty which is on the principal in the amount of
In Exhibit "O," which is the statement of account x x x as of 15 June 1992, ₱40,000.00 in the amount of ₱47,493.33 in addition to regular interest of
[respondent] charged [petitioners] with the following:
₱5,486.96. Can you point what portion of Exhibit 3 gives DBP the right to A:
impose such penalty?
In Exhibit 1: "in case of failure to pay in full any amortization when due, a
A: penalty charge of 1/3% per month on the overdue amortization shall be paid."

The same paragraph as stated. Q:

Q: What is the rate?

Can you please read the portion referring to penalty? A:

A: 1/3% per month.

All unpaid amortization shall bear interest at the rate of 11% per annum. Q:

Q: So, the imposition of the additional interest and the penalty charge is based
on the same provision?
The additional interest is based on 11% per annum and the penalty is
likewise based on the same rate? A:

A: Yes (TSN, 28 May 1996, pp. 41-42.)

Yes, it is combined (TSN, 28 May 1996, pp. 39-40.) A perusal of the promissory notes, however, failed to justify [respondent]
bank’s computation of both interest and penalty under the same provision in
With respect to the Diamond L. Ranch account in the amount of each of the promissory notes.
₱960,000.00, Mr. Ancheta testified as follows:
[Respondent] bank also admitted that the additional interests and penalties
Q: being charged [petitioners] were not based on the stipulations in the
Promissory Notes but were imposed unilaterally as a matter of its internal
banking policies. (TSN, 19 March 1996, pp. 23-24.) This banking policy,
Going back to Exhibit 14 Statement of Accounts. Out of the principal of
however, has been declared null and void in Philippine National Bank vs. CA,
₱939,973.33 you imposed an additional interest of ₱1,233,893.79 plus
196 SCRA 536 (1991). The act of [respondent] bank in unilaterally changing
₱859,966.83 plus ₱27,206.45. Can you tell us what is the basis of the
the stipulated interest rate is violative of the principle of mutuality of contracts
imposition?
under 1308 of the Civil Code and contravenes 1956 of the Civil Code.
[Respondent] bank completely ignored [petitioners’] "right to assent to an
A: important modification in their agreement and (negated) the element of
mutuality in contracts." (Philippine National Bank vs. CA, G.R. No. 109563, 9
As earlier stated, it is only the Promissory Note as well as the Mortgage July 1996; Philippine National Bank vs. CA, 238 SCRA 20 1994). As in the
Contract. PNB cases, [petitioners] herein never agreed in writing to pay the additional
interest, or the penalties, as fixed by [respondent] bank; hence [respondent]
Q: bank’s imposition of additional interest and penalties is null and
void.122 (Emphasis supplied)
Please point to us where in the Promissory Note is the specific portion?
Consequently, this case should be remanded to the RTC for the proper WHEREFORE, the Petition is PARTLY GRANTED. The assailed February
determination of petitioners’ total loan obligation based on the interest and 22, 2007 Decision of the Court of Appeals in CA-G.R. CV No. 59275 is
penalties stipulated in the Promissory Notes. hereby MODIFIED in accordance with this Decision. The case is hereby
REMANDED to the Regional Trial Court of General Santos City, Branch 22,
DBP did not act in bad faith or in a for the proper determination of petitioners’ total loan obligations based on the
wanton, reckless, or oppressive manner. interest and penalties stipulated in the Promissory Notes dated November
24, 1969 and December 30, 1970. The foreclosure sale of the mortgaged
properties held on July 11, 1994 is DECLARED void ab initio for failure to
Finally, as to petitioners’ claim for damages, we find the same devoid of
comply with paragraph 11 of the Mortgage, without prejudice to the conduct
merit.
of another foreclosure sale based on the recomputed amount of the loan
obligations, if necessary.
DBP did not act in bad faith or in a wanton, reckless, or oppressive manner in
cancelling the Restructuring Agreement. As we have said, DBP had reason
SO ORDERED.
to cancel the Restructuring Agreement because petitioners failed to pay the
amount required by it when it reconsidered petitioners’ request to restructure
the loan.

Likewise, DBP’s failure to send a notice of the foreclosure sale to petitioners

and its imposition of additional interest and penalties do not constitute bad
faith. There is no showing that these contractual breaches were done in bad
faith or in a wanton, reckless, or oppressive manner.1âwphi1

In Philippine National Bank v. Spouses Rocamora,123 we said that:

Moral damages are not recoverable simply because a contract has been
breached. They are recoverable only if the defendant acted fraudulently or in
bad faith or in wanton disregard of his contractual obligations. The breach
must be wanton, reckless, malicious or in bad faith, and oppressive or
abusive. Likewise, a breach of contract may give rise to exemplary damages
only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.

We are not sufficiently convinced that PNB acted fraudulently, in bad faith, or G.R. No. 174581 February 4, 2015
in wanton disregard of its contractual obligations, simply because it increased
the interest rates and delayed the foreclosure of the mortgages. Bad faith
cannot be imputed simply because the defendant acted with bad judgment or ATTY. LEO N. CAUBANG, Petitioner,
with attendant negligence. Bad faith is more than these; it pertains to a vs.
dishonest purpose, to some moral obliquity, or to the conscious doing of a JESUS G. CRISOLOGO and NANETTE B. CRISOLOGO, Respondents.
wrong, a breach of a known duty attributable to a motive, interest or ill will
that partakes of the nature of fraud. Proof of actions of this character is DECISION
undisputably lacking in this case. Consequently, we do not find the spouses
Rocamora entitled to an award of moral and exemplary damages. Under PERALTA, J.:
these circumstances, neither should they recover attorney’s fees and
litigation expense. These awards are accordingly deleted. 124 (Emphasis For the Court's resolution is a Petition for Review under Rule 45 of the Rules
supplied) of Court which petitioner Atty. Leo N. Caubang filed, questioning the
Decision1 of the Court of Appeals (CA), dated May 22, 2006, and its
Resolution2 dated August 16, 2006 in CA-G.R. CV. No. 68365. The CA Publication was, likewise, made in the Oriental Daily Examiner, one of the
affirmed the Decision3 of the Regional Trial Court (RTC) of Davao City, local newspapers in Davao City.
Branch 12, dated August 1, 2000, with modifications, in Civil Case No.
27168-99. On July 15, 1998, Caubang conducted the auction sale of the mortgaged
property, with the bank as the only bidder.1âwphi1 The bank bidded for
The facts, as gathered from the records, are as follows: ₱1,331,460.00, leaving a deficiencyof ₱2,207,349.97. Thereafter, a
Certificate of Sale in favor of the bank was issued.
On December 17, 1993, respondents spouses Jesus and Nannette Crisologo
(the Spouses Crisologo) obtained an Express Loan in the amount of Later, the Spouses Crisologo were surprised to learn that their mortgaged
₱200,000.00 from PDCP Development Bank Inc. (PDCP Bank). On January property had already been soldto the bank. Thus, they filed a Complaint for
26, 1994, the Spouses Crisologo acquired another loan from the same bank, Nullity of Extrajudicial Foreclosure and Auction Sale and Damages against
this time a Term Loan of ₱1,500,000.00 covered by a Loan Agreement. As PDCP Bank and Caubang.
security for both loans,the spouses mortgaged their property covered by
Transfer Certificate of Title (TCT) No. T-181103. Upon release of the Term On August 1, 2000, the Davao RTC rendered a Decision nullifying the
Loan, they were given two (2) promissory notes, for the amount of extrajudicial foreclosure of the real estate mortgage for failure to comply with
₱500,000.00 on February 9, 1994 and ₱1,000,000.00 on February 21, 1994. the publication requirement, the dispositive portion of which reads:

Under the promissory notes, the Spouses Crisologo agreed to pay the WHEREFORE, judgment is hereby rendered:
principal amount of the loan over a periodof three (3) years in twelve (12)
equal quarterly amortizations. Although they were able to pay the Express 1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs’ property,
Loan, starting August 22, 1994, however, or after payment of the first few covered by TCT No. T-181103, null and void.
installments on the other loans, the spouses defaulted in the amortizations.
Despite several demands made by the bank,the spouses still failed to pay.
2. Ordering the Register of Deeds for the City of Davao to cancel
Entry No. 113255 on TCT No. T-181103, the entry relative to the
On May 31, 1996, the spouses received a detailed breakdown of their Certificate of Sale executed by Atty. Leo Caubang on August 5, 1998,
outstanding obligation. Finding the charges to be excessive, they wrote a and if a new title has been issued to defendant PDCP, to cancel the
letter to the bank proposing to pay their loan in full with a request that the same, and to reinstate TCT No. T-181103 in the name of Nannette B.
interest and penalty charges be waived. The manager of PDCP Bank, Davao Crisologo, of legal age, Filipino, married to Jesus Crisologo, and a
Branch, advised them to deposit their ₱1,500,000.00 obligation as resident of Davao City, Philippines.
manifestation of their intent to pay the loan. As a counter-offer, the spouses
agreed to deposit the amount but on the condition that the bank should first
return to them the title over the mortgaged property. The bank did not reply All the other claims of the parties are disallowed.
until July 7, 1997, where they senta letter denying the spouses’ counteroffer
and demanding payment of the loan already amounting to ₱2,822,469.90. By No pronouncement as to costs.
October 20, 1997, the debt had ballooned to ₱3,041,287.00. For failure to
settle the account, the Davao branch of the bank recommended the SO ORDERED.4
foreclosure of the mortgage to its head office. On March 20, 1998, PDCP
Bank filed a Petition for the Extrajudicial Foreclosure of the Mortgage. The Spouses Crisologo appealed before the CA, seeking a partial
modification of the RTC Decision, insofar as their claims for moral and
On June 8, 1998, petitioner Leo Caubang, as Notary Public, prepared the exemplary damages, attorney’s fees, and costs of suit were concerned. On
Notices of Sale, announcing the foreclosure of the real estate mortgage and May 22, 2006, the appellate court modified the decretal portion to read:
the sale of the mortgaged property at public auction on July 15, 1998. He WHEREFORE, judgment is hereby rendered:
caused the posting of said notices in three (3) public places: the Barangay
Hall of Matina, City Hall of Davao,and Bangkerohan Public Market. 1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs’ property,
covered by TCT # T-181103, null and void.
 2. Ordering the Register of Deeds for the City of Davao to cancel The principal object of a notice of sale in a foreclosure of mortgage is not so
Entry No. T-181103, the entry relative to the Certificate of Sale much to notify the mortgagor as to inform the public generally of the nature
executed by Atty. Leo Caubang on August 5, 1998, and if a new title and condition of the property to be sold, and of the time, place, and terms of
has been issued to defendant PDCP, to cancel the same, and to the sale. Notices are given to secure bidders and prevent a sacrifice of the
reinstate TCT No. T-181103 in the name of Nannette B. Crisologo, of property. Therefore, statutory provisions governing publication of notice of
legal age, Filipino, married to Jesus Crisologo, and a resident of mortgage foreclosure sales must be strictly complied with and slight
Davao City, Philippines; and deviations therefrom will invalidate the notice and render the sale, at the very
least, voidable. Certainly, the statutory requirements of posting and
3. Atty. Caubang is ordered to pay appellants the sum of ₱41,500.00 publication are mandated and imbued with public policy considerations.
as attorney’s fees and ₱30,248.50 as litigation expenses. Failure to advertise a mortgage foreclosure sale in compliance with the
statutory requirements constitutes a jurisdictional defect, and any substantial
error in a notice of sale will render the notice insufficient and will
All other claims of the parties are disallowed.
consequently vitiate the sale.8
SO ORDERED.5
Since it was Caubang who caused the improper publication of the notices
which, in turn, compelled the Spouses Crisologo to litigate and incur
Caubang filed a Motion for Reconsideration, but the same was denied. expenses involving the declaration of nullity of the auction sale for the
Hence, he filed the present petition. protection of their interest on the property, the CA aptly held that Caubang
shall be the one liable for the spouses' claim for litigation expenses and
Caubang mainly assails the CA’s ruling on the publication of the notices in attorney's fees.
the Oriental Daily Examiner. He firmly contends that the CA’s finding was
based on assumptions and speculations. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals,
dated May 22, 2006, and its Resolution dated August 16, 2006, in CA-G.R.
The petition lacks merit. CV. No. 68365, are hereby AFFIRMED.

Under Section 3 of Act No. 3135:6 SO ORDERED.

Section 3. Notice of sale; posting; when publication required.– Notice shall be

given by posting notices ofthe sale for not less than twenty days in at least
three public places ofthe municipality or city where the property is situated,
and if such property is worth more than four hundred pesos, such notices
shall also be published once a week for at least three consecutive weeksin a
newspaper of general circulation in the municipality or city. 7
G.R. No. 157177 February 11, 2008
Caubang never made an effort toinquire as to whether the Oriental Daily
Examinerwas indeed a newspaper of general circulation, as required by law.
BANK OF THE PHILIPPINE ISLANDS, petitioner,
It was shown that the Oriental Daily Examineris not even on the list of
vs.
newspapers accredited to publish legal notices, as recorded in the Davao
JESUSA P. REYES and CONRADO B. REYES, respondents.
RTC’s Office of the Clerk of Court. It also has no paying subscribers and it
would only publish whenever there are customers. Since there was no proper
publication of the notice of sale, the Spouses Crisologo, as well as the rest of DECISION
the general public, were never informed thatthe mortgaged property was
about to be foreclosed and auctioned. As a result,PDCP Bank became the AUSTRIA-MARTINEZ, J.:.
sole bidder. This allowed the bank to bid for a very low price (₱1,331,460.00)
and go after the spouses for a bigger amount as deficiency.1âwphi1
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of of P500.00 peso bill were given to Capati with her daughter Joan witnessing
Court seeking to annul the Decision1 of the Court of Appeals (CA) dated the same. Thereafter Capati prepared a deposit slip for P200,000.00 in the
October 29, 2002 as well as its Resolution2 dated February 12, 2003, which name of plaintiff Jesusa Reyes with the new account no. 0235-0767-48 and
affirmed with modification the Decision of the Regional Trial Court (RTC) of brought the same to the teller's booth.
Makati, Branch 142, in Civil Case No. 91-3453,3 requiring Bank of Philippine
Islands (petitioner) to return to spouses Jesusa P. Reyes and Conrado B. After a while, he returned and handed to the plaintiff her duplicate copy of her
Reyes (respondents) the amount of P100,000.00 plus interest and damages. deposit to account no. 0235-0767-48 reflecting the amount of P200,000.00
with receipt stamp showing December 7, as the date.
The conflicting versions of the parties are aptly summarized by the trial court,
to wit: Plaintiff and daughter then left.

On December 7, 1990 at around 2:00 p.m., plaintiff Jesusa Reyes together On December 14, 1990, Mrs. Jesusa received her express teller card
with her daughter, Joan Reyes, went to BPI Zapote Branch to open an ATM from said bank.
account, she being interested with the ongoing promotions of BPI entitling
every depositor with a deposit amounting to P2,000.00 to a ticket with a car Thereafter on December 26, 1990, plaintiff left for the United States
as its prize to be raffled every month. (Exhs. "T", "U"- "U-1") and returned to Manila on January 31, 1991
(Exhs. "V"-"V-1").
She was accommodated, in lieu of the bank manager Mr. Nicasio, by Cicero
Capati (Pats) who was an employee of the bank and in charge of the new When she went to her pawnshop, she was made aware by her
accounts and time deposits characteristically described as having statement of account sent to her by BPI bank that her ATM account
homosexual inclinations. They were entertained by Capati and were made to only contained the amount of P100,000.00 with interest.
sit at a table occupied by a certain Liza.
She then sent her daughter to inquire, however, the bank manager
Plaintiff informed Capati that they wanted to open an ATM account for the assured her that they would look into the matter.
amount of P200,000.00, P100,000.00 of which shall be withdrawn from her
exiting savings account with BPI bank which is account no. 0233-2433-88
and the other P100,000.00 will be given by her in cash. On February 6, 1991, plaintiff instructed Efren Luna, one of her
employees, to update her savings account passbook at the BPI with
the folded deposit slip for P200,000.00 stapled at the outer cover of
Capati allegedly made a mistake and prepared a withdrawal slip said passbook. After presenting the passbook to be updated and
for P200,00.00 to be withdrawn from her existing savings account with said when the same was returned, Luna noticed that the deposit slip
bank and the plaintiff Jesusa Reyes believing in good faith that Capati stapled at the cover was removed and validated at the back portion
prepared the papers with the correct amount signed the same unaware of the thereof.
mistakes in figures.
Thereafter, Luna returned with the passbook to the plaintiff and when
While she was being entertained by Capati, her daughter Joan Reyes was the latter saw the validation, she got angry.
filling up the signature cards and several other forms.
Plaintiff then asked the bank manager why the deposit slip was
Minutes later after the slips were presented to the teller, Capati returned to validated, whereupon the manager assured her that the matter will
where the plaintiff was seating and informed the latter that the withdrawable be investigated into.
balance could not accommodate P200,000.00.
When no word was heard as to the investigation made by the bank,
Plaintiff explained that she is withdrawing the amount of P100,000.00 only Mrs. Reyes sent two (2) demand letters thru her lawyer demanding
and then changed and correct the figure two (2) into one (1) with her return of the missing P100,000.00 plus interest (Exhs. "B" and "C").
signature super-imposed thereto signifying the change, afterwhich the
amount of P100,000.00 in cash in two bundles containing 100 pieces
The same was received by defendant on July 25, 1991 and October On August 12, 1994, the RTC issued a Decision5 upholding the versions of
7, 1991, respectively. respondents, the dispositive portion of which reads:

The last letter prompted reply from defendant inviting plaintiff to sit WHEREFORE, premises considered, the Court finds in favor of the
down and discuss the problem. plaintiff Jesusa P. Reyes and Conrado Reyes and against defendant
Bank of the Philippine Islands ordering the latter to:
The meeting resulted to the bank promising that Capati will be
submitted to a lie detector test. 1. Return to plaintiffs their P100,000.00 with interest at 14% per
annum from December 7, 1990;
Plaintiff, however, never learned of the result of said test. Plaintiff
filed this instant case. 2. Pay plaintiffs P1,000,000.00 as moral damages;

Defendant on the other hand claimed that Bank of the Philippine 2. Pay plaintiffs P350,000.00 as exemplary damages;
Island admitted that Jesusa Reyes had effected a fund transfer in the
amount of P100,000.00 from her ordinary savings account to the 3. Pay plaintiffs P250,000.00 for and attorney's fees.6
express teller account she opened on December 7, 1990 (Exhs. "3"
to "3-C"), however, it was the only amount she deposited and no The RTC found that petitioner's claim that respondent Jesusa deposited
additional cash deposit of P100,000.00 was made. That plaintiff only P100,000.00 instead of P200,000.00 was hazy; that what should control
wanted to effect the transfer of P200,000.00 but the balance in her was the deposit slip issued by the bank to respondent, for there was no
account was not sufficient and could not accommodate the same. chance by which respondent could write the amount of P200,000.00 without
Plaintiff thereafter agreed to reduce the amount to be withdrawn petitioner's employee noticing it and making the necessary corrections; that it
from P200,000.00 to P100,000.00 with plaintiff’s signature was deplorable to note that it was when respondent Jesusa's bankbook was
superimposed on said corrections; that the original copy of the submitted to be updated after the lapse of several months when the alleged
deposit slip was also altered from P200,000.00 to P100,000.00, error claimed by petitioner was corrected; that Article 1962 of the New Civil
however, instead of plaintiff signing the same, the clerk-in-charge of Code provides that a deposit is constituted from the moment a person
the bank, in this case Cicero Capati, signed the alteration himself for receives a thing belonging to another with the obligation of safely keeping it
Jesusa Reyes had already left without signing the deposit slip. The and of returning the same; that under Article 1972, the depositary is obliged
documents were subsequently machine validated for the amount to keep the thing safely and to return it when required to the depositor or to
of P100,000.00 (Exhs. "2" and "4"). his heirs and successors or to the person who may have been designated in
the contract.
Defendant claimed that there was actually no cash involved with the
transactions which happened on December 7, 1990 as contained in Aggrieved, petitioner appealed to the CA which in a Decision dated October
the bank’s teller tape (Exhs."1" to "1-C"). 29, 2002 affirmed the RTC decision with modification as follows:

Defendant further claimed that when they subjected Cicero Capati to Nonetheless, the award of 14% interest per annum on the
a lie detector test, the latter passed the same with flying colors missing P100,000.00 can stand some modification. The interest
(Exhs. "5" to "5-C"), indicative of the fact that he was not lying when thereon should be 12% per annum, reckoned from May 12, 1991, the
he said that there really was no cash transaction involved when last day of the five day-grace period given by plaintiff-appellees'
plaintiff Jesusa Reyes went to the defendant bank on December 7, counsel under the first demand letter dated May 6, 1991 (Exhibit B),
1990; defendant further alleged that they even went to the extent of or counted from May 7, 1991, the date when defendant-appellant
informing Jesusa Reyes that her claim would not be given credit received said letter. Interest is demandable when the obligation
(Exh. "6") considering that no such transaction was really made on consist in the payment of money and the debtor incurs in delay.
December 7, 1990. 4
Also, we have to reduce the P1 million award of moral damages to a
reasonable sum of P50,000.00. Moral damages are not intended to
 enrich a plaintiff at the expense of a defendant. They are awarded discretion by resolving the issue based on a conjecture and ignoring
only to enable the injured party to obtain means, diversion, or physical evidence in favor of testimonial evidence.
amusements that will serve to alleviate the moral suffering he has
undergone, by reason of the defendant's culpable action. The award B. The Court of Appeals gravely abused its discretion, being as it is
of moral damages must be proportionate to the suffering inflicted. contrary to law, in holding BPI liable to respondents for the payment
of interest at the rate of 12% per annum.
In addition, we have to delete the award of P350,000.00 as
exemplary damages. The absence of malice and bad faith, as in this C. This Honorable Court gravely abused its discretion, being as it is
case, renders the award of exemplary damages improper. contrary to law, in holding BPI liable for moral damages and
attorney's fees at the reduced amounts of P50,000.00
Finally, we have to reduce the award of attorney's fees to a and P30,000.00, respectively. 8
reasonable sum of P30,000.00, as the prosecution of this case has
not been attended with any unusual difficulty. The main issue for resolution is whether the CA erred in sustaining the RTC's
finding that respondent Jesusa made an initial deposit of P200,000.00 in her
WHEREFORE, with the modifications thus indicated, the judgment newly opened Express Teller account on December 7, 1990.
appealed from is in all other respects AFFIRMED. Without costs. 7
The issue raises a factual question. The Court is not a trier of facts, its
In finding petitioner liable for the missing P100,000.00, the CA held that the jurisdiction being limited to reviewing only errors of law that may have been
RTC correctly gave credence to the testimonies of respondent Jesusa and committed by the lower courts.9 As a rule, the findings of fact of the trial court
Joan Reyes to the effect that aside from the fund transfer of P100,000.00 when affirmed by the CA are final and conclusive and cannot be reviewed on
from Jesusa's savings account, Jesusa also made a cash deposit appeal by this Court, as long as they are borne out by the record or are
of P100,000.00 in the afternoon of December 7, 1990; that it is unlikely for based on substantial evidence.10 Such rule however is not absolute, but is
these two to concoct a story of falsification against a banking institution of the subject to well-established exceptions, which are: 1) when the inference
stature of petitioner if their claims were not true; that the duplicate copy of the made is manifestly mistaken, absurd or impossible; 2) when there is a grave
deposit slip showed a deposit of P200,000.00; this, juxtaposed with the fact abuse of discretion; 3) when the finding is grounded entirely on speculations,
that it was not machine-validated and the original copy altered by the bank's surmises or conjectures; 4) when the judgment of the CA is based on a
clerk from P200,000.00 to P100,000.00 with the altered amount "validated," misapprehension of facts; 5) when the findings of facts are conflicting; 6)
is indicative of anomaly; that even if it was bank employee Cicero Capati who when the CA, in making its findings, went beyond the issues of the case, and
prepared the deposit slip, Jesusa stood her ground and categorically denied those findings are contrary to the admissions of both appellant and appellee;
having any knowledge of the alteration therein made; that petitioner must 7) when the findings of the CA are contrary to those of the trial court; 8) when
account for the missing P100,000.00 because it was the author of the loss; the findings of fact are conclusions without citation of specific evidence on
that banks are engaged in business imbued with public interest and are which they are based; 9) when the CA manifestly overlooked certain relevant
under strict obligation to exercise utmost fidelity in dealing with its clients, in facts not disputed by the parties and which, if properly considered, would
seeing to it that the funds therein invested or by them received are properly justify a different conclusion; and 10) when the findings of fact of the CA are
accounted for and duly posted in their ledgers. premised on the absence of evidence and are contradicted by the evidence
on record.11 We hold that this case falls under exception Nos. 1, 3, 4, and 9
Petitioner's motion for reconsideration was denied in a Resolution dated which constrain us to resolve the factual issue.
February 12, 2003.
It is a basic rule in evidence that each party to a case must prove his own
Hence, the present petition on the following grounds: affirmative allegations by the degree of evidence required by law. 12 In civil
cases, the party having the burden of proof must establish his case by
preponderance of evidence,13 or that evidence which is of greater weight or is
A. In affirming the decision of the trial court holding BPI liable for the
more convincing than that which is in opposition to it. It does not mean
amount of P100,000.00 representing an alleged additional deposit of
absolute truth; rather, it means that the testimony of one side is more
respondents, the Honorable Court of Appeals gravely abused its
believable than that of the other side, and that the probability of truth is on We find it strange that she would sign the withdrawal slip if her intention in
one side than on the other.14 the first place was to withdraw only P100,000.00 from her savings account
and deposit P100,000.00 in cash with her.
Section 1, Rule 133 of the Rules of Court provides the guidelines for
determining preponderance of evidence, thus: Moreover, respondent Jesusa's claim that she signed the withdrawal slip
without looking at the amount indicated therein fails to convince us, for
SECTION 1. Preponderance of evidence, how determined.- In civil respondent Jesusa, as a businesswoman in the regular course of business
cases, the party having the burden of proof must establish his case and taking ordinary care of her concerns,16 would make sure that she would
by a preponderance of evidence. In determining where the check the amount written on the withdrawal slip before affixing her signature.
preponderance or superior weight of evidence on the issues involved Significantly, we note that the space provided for her signature is very near
lies the court may consider all the facts and circumstances of the the space where the amount of P200,000.00 in words and figures are written;
case, the witnesses' manner of testifying, their intelligence, their thus, she could not have failed to notice that the amount of P200,000.00 was
means and opportunity of knowing the facts to which they are written instead of P100,000.00.
testifying, the nature of the facts to which they testify, the probability
or improbability of their testimony, their interest or want of interest, The fact that respondent Jesusa initially intended to transfer the amount
and also their personal credibility so far as the same legitimately of P200,000.00 from her savings account to her new Express Teller account
appear upon the trial. The court may also consider the number of was further established by the teller's tape presented as petitioner's evidence
witnesses, though the preponderance is not necessarily with the and by the testimony of Emerenciana Torneros, the teller who had attended
greater number. to respondent Jesusa's transactions.

For a better perspective on the calibration of the evidence on hand, it must The teller's tape,17 Exhibit "1" unequivocally shows the following data:
first be stressed that the judge who had heard and seen the witnesses testify
was not the same judge who penned the decision. Thus, not having heard 151159 07DEC90 1370 288A 233324299
the testimonies himself, the trial judge or the appellate court would not be in
a better position than this Court to assess the credibility of witnesses on the 151245 07DEC90 1601 288A 233243388
basis of their demeanor.
***200000.0018
Hence, to arrive at the truth, we thoroughly reviewed the transcripts of the
witnesses' testimonies and examined the pieces of evidence on record.
BIG AMOUNT
After a careful and close examination of the records and evidence presented
by the parties, we find that respondents failed to successfully prove by 151251 07DEC90 1601 288J 233243388
preponderance of evidence that respondent Jesusa made an initial deposit
of P200,000.00 in her Express Teller account. ***200000.00

Respondent Jesusa and her daughter Joan testified that at the outset, 151309 07DEC90 1601 288A 233243388
respondent Jesusa told Capati that she was opening an Express Teller
account for P200,000.00; that she was going to withdraw and ***200000.00
transfer P100,000.00 from her savings account to her new account, and that
she had an additional P100,000.00 cash. However, these assertions are not PB BALANCE ERROR
borne out by the other evidence presented. Notably, it is not refuted that
Capati prepared a withdrawal slip15 for P200,000.00. This is contrary to the
BAL. 229,257.64
claim of respondent Jesusa that she instructed Capati to make a fund
transfer of only P100,000.00 from her savings account to the Express Teller
account she was opening. Yet, respondent Jesusa signed the withdrawal slip. 151338 07DEC90 1601 288A 233243388
***200000.00 151903 07DEC90 1301 288A 233282405

BIG AMOUNT 151914 07DEC90 1690 288A 235008955

151344 07DEC90 1601 288J 233243388 ***1778.05

***200000.00 152107 07DEC90 1601 288A 3333241381

151404 07DEC90 1601 288A 233243388 ***5000.00

***200000.00 152322 07DEC90 1601 288A 233314374

TOD ***2000.00

151520 07DEC90 1601 288A 233320145 152435 07DEC90 1370 288A 235076764

***2000.00 152506 07DEC90 1790 288A 235076764

151705 07DEC90 1789 288A 233324299 ***4000.00 ***4000.00

***22917.00 152557 07DEC90 1601 288A 233069469

151727 07DEC90 1601 288A 233243388 ***2000.00

***100000.00 152736 07DEC90 1601 288A 233254584

BIG AMOUNT ***2000.00

151730 07DEC90 1601 288J 233243388 152849 07DEC90 0600 288A 231017585

***100000.00 ***3150.00 686448

151746 07DEC90 1601 288A 233243388 152941 07DEC90 1790 288A 3135052255

***100000.0019 ***2800.00 ***2800.00

151810 07DEC90 1370 288A 235076748 153252 07DEC90 1601 288A 233098264

151827 07DEC90 1790 288A 235076748 (Emphasis supplied)

***100000.00 ***100000.0020 The first column shows the exact time of the transactions; the second column
shows the date of the transactions; the third column shows the bank
transaction code; the fourth column shows the teller's code; and the fifth seconds, the amount of P100,000.00 was deposited to respondent Jesusa's
column shows the client's account number. The teller's tape reflected various new Express Teller Account No. 235076748.
transactions involving different accounts on December 7, 1990 which
included respondent Jesusa's Savings Account No. 233243388 and her new The teller's tape definitely establishes the fact of respondent Jesusa's original
Express Teller Account No. 235076748. It shows that respondent Jesusa's intention to withdraw the amount of P200,000.00, and not P100,000.00 as
initial intention to withdraw P200,000.00, not P100,000.00, from her Savings she claims, from her savings account, to be transferred as her initial deposit
Account No. 233324299 was begun at 3 o'clock, 12 minutes and 45 seconds to her new Express Teller account, the insufficiency of her balance in her
as shown in Exhibit "1-c." savings account, and finally the fund transfer of the amount of P100,000.00
from her savings account to her new Express Teller account. We give great
In explaining the entries in the teller's tape, Torneros testified that when she evidentiary weight to the teller's tape, considering that it is inserted into the
was processing respondent Jesusa's withdrawal in the amount bank's computer terminal, which records the teller's daily transactions in the
of P200,000.00, her computer rejected the transaction because there was a ordinary course of business, and there is no showing that the same had been
discrepancy;21 thus, the word "BIG AMOUNT" appeared on the tape. "Big purposely manipulated to prove petitioner's claim.
amount" means that the amount was so big for her to approve, 22 so she
keyed in the amount again and overrode the transaction to be able to Respondent Jesusa's bare claim, although corroborated by her daughter, that
process the withdrawal using an officer's override with the latter's the former deposited P100,000.00 cash in addition to the fund transfer
approval.23 The letter "J" appears after Figure 288 in the fourth column to of P100,000.00, is not established by physical evidence. While the duplicate
show that she overrode the transaction. She then keyed again the amount copy of the deposit slip30 was in the amount of P200,000.00 and bore the
of P200,000.00 at 3 o'clock 13 minutes and 9 seconds; however, her stamp mark of teller Torneros, such duplicate copy failed to show that there
computer rejected the transaction, because the balance she keyed in based was a cash deposit of P100,000.00. An examination of the deposit slip shows
on respondent Jesusa's passbook was wrong;24 thus appeared the phrase that it did not contain any entry in the breakdown portion for the specific
"balance error" on the tape, and the computer produced the balance denominations of the cash deposit. This demolishes the testimonies of
of P229,257.64, and so she keyed in the withdrawal of P200,000.00.25 Since respondent Jesusa and her daughter Joan.
it was a big amount, she again had to override it, so she could process the
amount. However, the withdrawal was again rejected for the reason "TOD, Furthermore, teller Torneros's explanation of why the duplicate copy of the
overdraft,"26 which meant that the amount to be withdrawn was more than the deposit slip in the amount of P200,000.00 bore the teller's stamp mark is
balance, considering that there was a debited amount of P30,935.16 convincing and consistent with logic and the ordinary course of business.
reflected in respondent Jesusa's passbook, reducing the available balance to She testified that Capati went to her cage bringing with him a withdrawal slip
only P198,322.48.27 for P200,000.00 signed by respondent Jesusa, two copies of the deposit slip
for P200,000.00 in respondent Jesusa's name for her new Express Teller
Torneros then called Capati to her cage and told him of the insufficiency of account, and the latter's savings passbook reflecting a balance
respondent Jesusa's balance.28 Capati then motioned respondent Jesusa to of P249,657.6431 as of November 19, 1990.32 Thus, at first glance, these
the teller's cage; and when she was already in front of the teller's cage, appeared to Torneros to be sufficient for the withdrawal of P200,000.00 by
Torneros told her that she could not withdraw P200,000.00 because of fund transfer. Capati then got her teller's stamp mark, stamped it on the
overdraft; thus, respondent Jesusa decided to just withdraw P100,000.00.29 duplicate copy of the deposit slip, and gave the duplicate to respondent
Jesusa, while the original copy33 of the deposit slip was left in her
This explains the alteration in the withdrawal slip with the superimposition of cage.34 However, as Torneros started processing the transaction, it turned out
the figure "1" on the figure "2" and the change of the word "two" to "one" to that respondent Jesusa's balance was insufficient to accommodate
show that the withdrawn amount from respondent Jesusa's savings account the P200,000.00 fund transfer as narrated earlier.
was only P100,000.00, and that respondent Jesusa herself signed the
alterations. Since respondent Jesusa had signed the alteration in the withdrawal slip and
had already left the teller's counter thereafter and Capati was still inside the
The teller's tape showed that the withdrawal of the amount of P100,000.00 by teller's cage, Torneros asked Capati about the original deposit slip and the
fund transfer was resumed at 3 o'clock 17 minutes and 27 seconds; but since latter told her, "Ok naman iyan,"35 and Capati superimposed the figures "1"
it was a big amount, there was a need to override it again, and the on "2" on the deposit slip36 to reflect the initial deposit of P100,000.00 for
withdrawal/fund transfer was completed. At 3 o'clock 18 minutes and 27 respondent Jesusa's new Express Teller account and signed the alteration.
Torneros then machine-validated the deposit slip. Thus, the duplicate copy of
the deposit slip, which bore Torneros’s stamp mark and which was given to
respondent Jesusa prior to the processing of her transaction, was not
machine-validated unlike the original copy of the deposit slip.

While the fact that the alteration in the original deposit slip was signed by
Capati and not by respondent Jesusa herself was a violation of the bank's
policy requiring the depositor to sign the correction,37 nevertheless, we find
that respondents failed to satisfactorily establish by preponderance of
evidence that indeed there was an additional cash of P100,000.00 deposited
to the new Express Teller account.

Physical evidence is a mute but eloquent manifestation of truth, and it ranks

high in our hierarchy of trustworthy evidence.38 We have, on many occasions,
relied principally upon physical evidence in ascertaining the truth. Where the
physical evidence on record runs counter to the testimonial evidence of the
prosecution witnesses, we consistently rule that the physical evidence should
prevail.39

In addition, to uphold the declaration of the CA that it is unlikely for

respondent Jesusa and her daughter to concoct a false story against a
banking institution is to give weight to conjectures and surmises, which we
cannot countenance.

In fine, respondents failed to establish their claim by preponderance of

evidence.

Considering the foregoing, we find no need to tackle the other issues raised
by petitioner.

WHEREFORE, the petition is GRANTED. The decision of the Court of

Appeals dated October 29, 2002 as well as its Resolution dated February 12,
2003 are hereby REVERSED and SET ASIDE. The complaint filed by
respondents, together with the counterclaim of petitioner, is DISMISSED.

No costs.

SO ORDERED. FIRST DIVISION

[G.R. NO. 171169 : August 24, 2009]

GC DALTON INDUSTRIES, INC., Petitioner, v. EQUITABLE PCI

BANK, Respondent.
 DECISION ordered respondent: (1) to return to CII the "overpayment" with legal interest
of 12% per annum amounting to P94,136,902.40; (2) to compensate it for
CORONA, J.: lost profits amounting to P2,000,000 per month starting August 2004 with
legal interest of 12% per annum until full payment and (3) to return the TCTs
covering the mortgaged properties to petitioner. It likewise awarded
In 1999, respondent Equitable PCI Bank extended a P30-million credit line to
CII P2,000,000 and P300,000, respectively, as moral and exemplary
Camden Industries, Inc. (CII) allowing the latter to avail of several loans
damages and P500,000 as attorney's fees.
(covered by promissory notes) and to purchase trust receipts. To facilitate
collection, CII executed a "hold-out" agreement in favor of respondent
authorizing it to deduct from its savings account any amounts due. To Respondent filed a notice of appeal. CII, on the other hand, moved for the
guarantee payment, petitioner GC Dalton Industries, Inc. executed a third- immediate entry and execution of the abovementioned decision.
party mortgage of its real properties in Quezon City 1 and Malolos,
Bulacan2 as security for CII's loans.3 In an order dated December 7, 2005,15 the Pasig RTC dismissed
respondent's notice of appeal due to its failure to pay the appellate docket
CII did not pay its obligations despite respondent's demands. By 2003, its fees. It likewise found respondent guilty of forum-shopping for filing the
outstanding consolidated promissory notes and unpaid trust receipts had petition for the issuance of a writ of possession in the Bulacan RTC. Thus,
reached a staggering P68,149,132.40.4 the Pasig RTC ordered the immediate entry of its March 30, 2005 decision. 16

Consequently, respondent filed a petition for extrajudicial foreclosure of Meanwhile, in view of the pending case in the Pasig RTC, petitioner opposed
petitioner's Bulacan properties in the Regional Trial Court (RTC) of Bulacan respondent's ex parte motion for the issuance of a writ of possession in the
on May 7, 2004.5 On August 3, 2004, the mortgaged properties were sold at Bulacan RTC. It claimed that respondent was guilty of fraud and forum-
a public auction where respondent was declared the highest bidder. shopping, and that it was not informed of the foreclosure. Furthermore,
Consequently, a certificate of sale6 was issued in respondent's favor on respondent fraudulently foreclosed on the properties since the Pasig RTC
August 3, 2004. had not yet determined whether CII indeed failed to pay its obligations.

On September 13, 2004, respondent filed the certificate of sale and an In an order dated December 10, 2005, the Bulacan RTC granted the motion
affidavit of consolidation of ownership7 in the Register of Deeds of Bulacan and a writ of possession was issued in respondent's favor on December 19,
pursuant to Section 47 of the General Banking Law. 8 Hence, petitioner's 2005.
TCTs covering the Bulacan properties were cancelled and new ones were
issued in the name of respondent.9 Petitioner immediately assailed the December 10, 2005 order of the Bulacan
RTC via a petition for certiorari in the Court of Appeals (CA). It claimed that
In view of the foregoing, respondent filed an ex parte motion for the issuance the order violated Section 14, Article VIII of the Constitution 17 which requires
of a writ of possession10 in the RTC Bulacan, Branch 10 on January 10, that every decision must clearly and distinctly state its factual and legal
2005.11 bases. In a resolution dated January 13, 2006,18 the CA dismissed the
petition for lack of merit on the ground that an order involving the issuance of
a writ of possession is not a judgment on the merits, hence, not covered by
Previously, however, on August 4, 2004, CII had filed an action for specific
the requirement of Section 14, Article VIII of the Constitution.
performance and damages12 in the RTC of Pasig, Branch 71 (Pasig RTC),
asserting that it had allegedly paid its obligation in full to respondent. 13 CII
sought to compel respondent to render an accounting in order to prove that Petitioner elevated the matter to this Court, assailing the January 13, 2006
the bank fraudulently foreclosed on petitioner's mortgaged properties. resolution of the CA. It insists that the December 10, 2005 order of the
Bulacan RTC was void as it was bereft of factual and legal
bases.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Because respondent allegedly failed to appear during the trial, the Pasig
RTC rendered a decision on March 30, 200514 based on the evidence
presented by CII. It found that, while CII's past due obligation amounted only Petitioner likewise cites the conflict between the December 10, 2005 order of
to P14,426,485.66 as of November 30, 2002, respondent had deducted a the Bulacan RTC and the December 7, 2005 order of the Pasig RTC.
total of P108,563,388.06 from CII's savings account. Thus, the Pasig RTC Petitioner claims that, since the Pasig RTC already ordered the entry of its
March 30, 2005 decision (in turn ordering respondent to return TCT No. filed a petition to annul the August 3, 2004 auction sale and to cancel the
351231 and all such other owner's documents of title as may have been December 19, 2005 writ of possession,26 within 30 days after respondent was
placed in its possession by virtue of the subject trust receipt and loan given possession.27 But it did not. Thus, inasmuch as the 30-day period to
transactions), the same was already final and executory. Thus, inasmuch as avail of the said remedy had already lapsed, petitioner could no longer assail
CII had supposedly paid respondent in full, it was erroneous for the Bulacan the validity of the August 3, 2004 sale.
RTC to order the issuance of a writ of possession to respondent.
Any question regarding the validity of the mortgage or its foreclosure cannot
Respondent, on the other hand, asserts that petitioner is raising a question of be a legal ground for the refusal to issue a writ of possession. Regardless of
fact as it essentially assails the propriety of the issuance of the writ of whether or not there is a pending suit for the annulment of the mortgage or
possession. It likewise points out that petitioner did not truthfully disclose the the foreclosure itself, the purchaser is entitled to a writ of possession, without
status of the March 30, 2005 decision of the Pasig RTC because, in an order prejudice, of course, to the eventual outcome of the pending annulment
dated April 4, 2006, the Pasig RTC partially reconsidered its December 7, case.28
2005 order and gave due course to respondent's notice of appeal. (The
propriety of the said April 4, 2006 order is still pending review in the CA.) Needless to say, petitioner committed a misstep by completely relying and
pinning all its hopes for relief on its complaint for specific performance and
We deny the petition. damages in the Pasig RTC,29 instead of resorting to the remedy of annulment
(of the auction sale and writ of possession) under Section 8 of Act 3135 in
The issuance of a writ of possession to a purchaser in an extrajudicial the Bulacan RTC.
foreclosure is summary and ministerial in nature as such proceeding is
merely an incident in the transfer of title.19 The trial court does not exercise WHEREFORE, the petition is hereby DENIED.
discretion in the issuance thereof.20 For this reason, an order for the issuance
of a writ of possession is not the judgment on the merits contemplated by Costs against petitioner.
Section 14, Article VIII of the Constitution. Hence, the CA correctly upheld the
December 10, 2005 order of the Bulacan RTC. SO ORDERED.

Furthermore, the mortgagor loses all legal interest over the foreclosed
property after the expiration of the redemption period. 21 Under Section 47 of
the General Banking Law,22 if the mortgagor is a juridical person, it can
exercise the right to redeem the foreclosed property until, but not after, the
registration of the certificate of foreclosure sale within three months after
foreclosure, whichever is earlier. Thereafter, such mortgagor loses its right of
redemption.

Respondent filed the certificate of sale and affidavit of consolidation with the
Register of Deeds of Bulacan on September 13, 2004. This terminated the
redemption period granted by Section 47 of the General Banking Law.
Because consolidation of title becomes a right upon the expiration of the
redemption period,23 respondent became the owner of the foreclosed
properties.24 Therefore, when petitioner opposed the ex parte motion for the G.R. No. 187987 November 26, 2014
issuance of the writ of possession on January 10, 2005 in the Bulacan RTC,
it no longer had any legal interest in the Bulacan properties. VICENTE TORRES, JR., CARLOS VELEZ, AND THE HEIRS OF MARIANO
VELEZ, NAMELY: ANITA CHIONG VELEZ, ROBERT OSCAR CHIONG
Nevertheless, even if the ownership of the Bulacan properties had already VELEZ, SARAH JEAN CHIONG VELEZ AND TED CHIONG
been consolidated in the name of respondent, petitioner still had, and could VELEZ, Petitioners,
have availed of, the remedy provided in Section 8 of Act 3135. 25 It could have
vs. Answering the allegations, Jesus admitted that there was a partition case
LORENZO LAPINID AND JESUS VELEZ, Respondents. between him and the petitioners filed in 1993 involvingseveral parcels of land
including the contested Lot No. 4389. However, he insisted that as early as 6
DECISION November 1997, a motion 8 was signed by the co-owners (including the
petitioners) wherein Lot No. 4389 was agreed to be adjudicated to the co-
owners belonging to the group of Jesus and the other lots be divided to the
PEREZ, J.:
other co-owners belonging to the group of Torres. Jesus further alleged that
even prior to the partition and motion, several coowners in his group had
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of already sold their shares to him in various dates of 1985, 1990 and
Court filed by the petitioners assailing the 30 January 2009 Decision 2 and 14 2004.9 Thus, when the motion was filed and signed by the parties on 6
May 2009 Resolution3 of the Twentieth Division of the Corni of Appeals in November 1997, his rights asa majority co-owner (73%) of Lot No. 4389
CA-G.R. CV No. 02390, affirming the 15 October 2007 Decision 4 of the became consolidated. Jesus averred that it was unnecessary to give notice
Regional Trial Court of Cebu City (RTC Cebu City) which dismissed the of the sale as the lot was already adjudicated in his favor. He clarified that he
complaint for the declaration of nullity of deed of sale against respondent only agreed with the 2001 Compromise Agreement believing that it only
Lorenzo Lapinid (Lapinid). pertained to the remaining parcels of land excluding Lot No. 4389. 10

The facts as reviewed are the following: On his part, Lapinid admitted that a deed of sale was entered into between
him and Jesus pertaining to a parcel of land with an area of 3000 square
On 4 February 2006, Vicente V. Torres, Jr. (Vicente), Mariano Velez meters. However, he insistedon the validity of sale since Jesus showed him
(Mariano)5 and Carlos Velez (petitioners) filed a Complaint6 before RTC Cebu several deeds of sale making him a majority owner of Lot No. 4389. He
City praying for the nullification of the sale of real property by respondent further denied that he acquired a specific and definite portion of the
Jesus Velez (Jesus) in favor of Lapinid; the recovery of possession and questioned property, citing as evidence the deed of sale which does not
ownership of the property; and the payment of damages. mention any boundaries or specific portion. He explained that Jesus
permitted him to occupy a portion notexceeding 3000 square meters
Petitioners alleged in their complaint that they, including Jesus, are co- conditioned on the result of the partition of the co-owners. 11
owners of several parcels of land including the disputed Lot. No.
43897 located at Cogon, Carcar, Cebu. Sometime in 1993, Jesus filed an Regarding the forcible entry case, Jesus and Lapinid admitted that such case
action for partition of the parcels of land against the petitioners and other co- was filed but the same was already dismissed by the Municipal Trial Court of
owners before Branch 21 of RTC Cebu City. On 13 August 2001, a judgment Carcar, Cebu. In that decision, it was ruled that the buyers, including Lapinid,
was rendered based on a compromise agreement signed by the parties were buyers in good faith since a proof of ownership was shown to them by
wherein they agreed that Jesus, Mariano and Vicente were jointly authorized Jesus before buying the property.12
to sell the said properties and receive the proceeds thereof and distribute
them to all the co-owners. However, the agreement was later amended to On 15 October 2007, the trial court dismissed the complaint of petitioners in
exclude Jesus as an authorized seller. Pursuant totheir mandate, the this wise: Therefore, the Court DISMISSES the Complaint. At the same time,
petitioners inspected the property and discovered that Lapinid was occupying the Court NULLIFIES the site assignment made by Jesus Velez in the Deed
a specific portion of the 3000 square meters of Lot No. 4389 by virtue of a of Sale, dated November 9, 1997, of Lorenzo Lapinid’s portion, the exact
deed of sale executed by Jesus in favor of Lapinid. It was pointed out by location of which still has to be determined either by agreement of the co-
petitioner that as a consequence of what they discovered, a forcible entry owners or by the Court in proper proceedings.13
case was filed against Lapinid.
Aggrieved, petitioners filed their partial motion for reconsideration which was
The petitioners prayed that the deed of sale be declared null and void denied through a 26 November 2007 Order of the court. 14 Thereafter, they
arguing that the sale of a definite portion of a co-owned property without filed a notice of appeal on 10 December 2007.15
notice to the other co-owners is without force and effect. Further, the
complainants prayed for payment of rental fees amounting to ₱1,000.00 per
On 30 January 2009, the Court of Appeals affirmed16 the decision of the trial
month from January 2004 or from the time of deprivation of property in
court. It validated the sale and ruled that the compromise agreement did not
addition to attorney’s fees and litigation expenses.
affect the validity of the sale previously executed by Jesus and Lapinid. It as co-owner of an ideal and proportionate share in the property held in
likewise dismissed the claim for rental payments, attorney’s fees and common.20 Thus, from the perfection of contract on 9 November 1997,
litigation expenses of the petitioners. Lapinid eventually became a co-owner of the property.

Upon appeal before this Court, the petitioners echo the same arguments Even assuming that the petitioners are correct in their allegation that the
posited before the lower courts. They argue that Lapinid, as the successor- disposition in favor of Lapinid before partition was a concrete or definite
in-interest of Jesus, is also bound by the 2001 judgment based on portion, the validity of sale still prevails.
compromise stating that the parcels of land must be sold jointly by Jesus,
Mariano and Vicente and the proceeds of the sale be divided among the In a catena of decisions,21 the Supreme Court had repeatedly held that no
coowners. To further strengthen their contention, they advance the argument individual can claim title to a definite or concrete portion before partition of
that since the portion sold was a definite and specific portion of a co-owned co-owned property. Each co-owner only possesses a right to sell or alienate
property, the entire deed of sale must be declared null and void. his ideal share after partition. However, in case he disposes his share before
partition, such disposition does not make the sale or alienation null and void.
We deny the petition. What will be affected on the sale is only his proportionate share, subject to
the results of the partition. The co-owners who did not give their consent to
Admittedly, Jesus sold an area ofland to Lapinid on 9 November 1997. To the sale stand to be unaffected by the alienation. 22
simplify, the question now iswhether Jesus, as a co-owner, can validly sell a
portion of the property heco-owns in favor of another person. We answer in As explained in Spouses Del Campo v. Court of Appeals: 23
the affirmative.
We are not unaware of the principle that a co-owner cannot rightfully dispose
A co-owner has an absolute ownership of his undivided and proindiviso share of a particular portion of a co-owned property prior to partition among all the
in the co-owned property.17 He has the right to alienate, assign and mortgage co-owners. However, this should not signify that the vendee does not acquire
it, even to the extent of substituting a third person in its enjoyment provided anything atall in case a physically segregated area of the co-owned lot is in
that no personal rightswill be affected. This is evident from the provision of fact sold to him. Since the coowner/vendor’s undivided interest could
the Civil Code: properly be the object of the contract of sale between the parties, what the
vendee obtains by virtue of such a sale are the same rights as the vendor
Art. 493. Each co-owner shall have the full ownership of his part and of the had asco-owner, in an ideal share equivalent to the consideration given
fruits and benefits pertaining thereto, and he may therefore alienate, assign under their transaction. In other words, the vendee steps into the shoes of
or mortgage it, and even substitute another person in its enjoyment, except the vendor as co-owner and acquires a proportionate abstract share in the
when personal rights are involved. But the effect of the alienation or the property held in common.24
mortgage, with respect to the co-owners, shall be limited to the portion which
may be allotted to him in the division upon the termination of the co- Also worth noting is the pronouncement in Lopez v. Vda. De Cuaycong: 25
ownership.
x x x The fact that the agreement in question purported to sell a concrete
A co-owner is an owner of the whole and over the whole he exercises the portionof the hacienda does not render the sale void, for it is a
right of dominion, but he is at the same time the owner of a portion which is wellestablished principle that the binding force of a contract must be
truly abstract.18 Hence, his co-owners have no right to enjoin a coowner who recognized as far as it is legally possible to do so. "Quando res non valet ut
intends to alienate or substitute his abstract portion or substitute a third ago, valeat quantumvalere potest." (When a thing is of no force as I do it, it
person in its enjoyment.19 shall have as much force as it can have).26 (Italics theirs).

In this case, Jesus can validly alienate his co-owned property in favor of Consequently, whether the disposition involves an abstract or concrete
Lapinid, free from any opposition from the co-owners. Lapinid, as a portion of the co-owned property, the sale remains validly executed.
transferee, validly obtained the same rights of Jesus from the date of the
execution of a valid sale. Absent any proof that the sale was not perfected,
the validity of sale subsists. In essence, Lapinid steps into the shoes of Jesus
The validity of sale being settled,it follows that the subsequent compromise Art. 486. Each co-owner may use the thing owned in common, provided he
agreement between the other co-owners did not affect the rights of Lapinid does so in accordance with the purpose for which it is intended and in such a
as a co-owner. way as not to injure the interest of the co-ownership or prevent the other co-
owners from using it according to their rights. The purpose of the co-
Records show that on 13 August 2001, a judgment based on compromise ownership may be changed by agreement, express or implied.
agreement was rendered with regard to the previous partition case involving
the same parties pertaining to several parcels of land, including the disputed Art. 493. Each co-owner shall havethe full ownership of his part and of the
lot. The words of the compromise state that: COME NOW[,] the parties and fruits and benefits pertaining thereto, and he may therefore alienate, assign
to this Honorable Court, most respectfully state that instead of partitioning the or mortgage it and even substitute another person in its enjoyment, except
properties, subject matter of litigation, that they will just sell the properties when personal rightsare involved. But the effect of the alienation or
covered by TCT Nos. 25796, 25797 and 25798 of the Register of Deeds of mortgage, with respect to the co-owners, shall be limited to the portion which
the Province of Cebu and divide the proceeds among themselves. may be allotted to him in the division upon the termination of the co-
ownership.
That Jesus Velez, Mariano Velez and Vicente Torres, Jr. are currently
authorized to sell said properties, receive the proceeds thereof and distribute Affirming these rights, the Court held in Aguilar v. Court of Appeals that: 30
them to the parties.27
x x x Each co-owner of property heldpro indivisoexercises his rights over the
Be that as it may, the compromise agreement failed to defeat the already whole property and may use and enjoy the same with no other limitation than
accrued right of ownership of Lapinid over the share sold by Jesus. As early that he shall not injure the interests of his co-owners, the reason being that
as 9 November 1997, Lapinid already became a co-owner of the property until a division is made, the respective share of each cannot be determined
and thus, vested with all the rights enjoyed by the other co-owners. The and every co-ownerexercises, together with his coparticipants joint
judgment based on the compromise agreement, which is to have the covered ownership over the pro indiviso property, in addition to his use and enjoyment
properties sold, is valid and effectual provided as it does not affect the of the same.31 From the foregoing, it is absurd to rule that Lapinid, who is
proportionate share of the non-consenting party. Accordingly, when the already a co-owner, be ordered to pay rental payments to his other co-
compromise agreement was executed without Lapinid’s consent, said owners. Lapinid’s right of enjoyment over the property owned in common
agreement could not have affected his ideal and undivided share. Petitioners must be respected despite opposition and may notbe limited as long he uses
cannot sell Lapinid’s share absent his consent. Nemo dat quod non habet – the property to the purpose for which it isintended and he does not injure the
"no one can give what he does not have."28 interest of the co-ownership.

This Court has ruled in many cases that even if a co-owner sells the whole Finally, we find no error on denial of attorney’s fees and litigation expenses.
property as his, the sale will affect only his own share but not those of the
other co-owners who did not consent tothe sale. This is because the sale or Pursuant to Article 2208 of the New Civil Code, attorney’s fees and expenses
other disposition of a co-owner affects only his undivided share and the of litigation, in the absence of stipulation, are awarded only in the following
transferee gets only what would correspond to his grantor in the partition of instances:
the thing owned in common.29
xxxx
We find unacceptable the argument that Lapinid must pay rental payments to
the other co-owners.1âwphi1 1. When exemplary damages are awarded;

As previously discussed, Lapinid,from the execution of sale, became a co- 2. When the defendant’s act or omission has compelled the plaintiff
owner vested with rights to enjoy the property held in common. to litigate with third persons or to incur expenses to protect his
interests;
Clearly specified in the Civil Code are the following rights:
3. In criminal cases of malicious prosecution against the plaintiff;
 4. In case of a clearly unfounded civil action or proceeding against
the plaintiff;

5. Where the defendant acted in gross and evident bad faith in

refusing to satisfy the plaintiff’s plainly valid and demandable claim;

6. In actions for legal support;

7. In actions for the recovery of wages of household helpers,

laborers and skilled workers;

8. In actions for indemnity under workmen's compensation and

employer's liability laws;

9. In a separate civil action to recover civil liability arising from a

cnme;

10. When at least double judicial costs arc awarded;

11. In any other case where the court deems it just and equitable that
attorney's fees and expenses oflitigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be

reasonable.

Petitioners cite Jesus' act of selling a definite portion to Lapinid as the reason
which forced them to litigate and file their complaint. However, though the
Court may not fault the complainants when they filed a complaint based on
their perceived cause of action, they should have also considered thoroughly
that it is well within the rights of a co-owner to validly sell his ideal share
pursuant to law and jurisprudence.

WHEREFORE, the petition is DENIED. Accordingly, the Decision and

Resolution of the Court of Appeals dated 30 January 2009 and 14 May 2009
are hereby AFFIRMED.

SO ORDERED.

[G.R. NO. 153802. March 11, 2005]

 HOMEOWNERS SAVINGS & LOAN BANK, Petitioner, v. MIGUELA C. car, a Ford sedan, was razed because Brion allowed a boy to play with fire
DAILO, Respondents. within the premises.

DECISION Claiming that she had no knowledge of the mortgage constituted on the
subject property, which was conjugal in nature, respondent instituted with the
TINGA, J.: Regional Trial Court, Branch 29, San Pablo City, Civil Case No. SP-2222 (97)
for Nullity of Real Estate Mortgage and Certificate of Sale, Affidavit of
Consolidation of Ownership, Deed of Sale, Reconveyance with Prayer for
This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules
Preliminary Injunction and Damages against petitioner. In the latter's Answer
of Court, assailing the Decision1 of the Court of Appeals in CA-G.R. CV No.
with Counterclaim, petitioner prayed for the dismissal of the complaint on the
59986 rendered on June 3, 2002, which affirmed with modification the
ground that the property in question was the exclusive property of the late
October 18, 1997 Decision2 of the Regional Trial Court, Branch 29, San
Marcelino Dailo, Jr.
Pablo City, Laguna in Civil Case No. SP-4748 (97).

After trial on the merits, the trial court rendered a Decision on October 18,
The following factual antecedents are undisputed.
1997. The dispositive portion thereof reads as follows:
Respondent Miguela C. Dailo and Marcelino Dailo, Jr. were married on
WHEREFORE, the plaintiff having proved by the preponderance of evidence
August 8, 1967. During their marriage, the spouses purchased a house and
the allegations of the Complaint, the Court finds for the plaintiff and hereby
lot situated at Barangay San Francisco, San Pablo City from a certain
orders:
Sandra Dalida. The subject property was declared for tax assessment
purposes under Assessment of Real Property No. 94-051-2802. The Deed of
Absolute Sale, however, was executed only in favor of the late Marcelino ON THE FIRST CAUSE OF ACTION:
Dailo, Jr. as vendee thereof to the exclusion of his wife. 3
1. The declaration of the following documents as null and void:
On December 1, 1993, Marcelino Dailo, Jr. executed a Special Power of
Attorney (SPA) in favor of one Lilibeth Gesmundo, authorizing the latter to (a) The Deed of Real Estate Mortgage dated December 1, 1993 executed
obtain a loan from petitioner Homeowners Savings and Loan Bank to be before Notary Public Romulo Urrea and his notarial register entered as Doc.
secured by the spouses Dailo's house and lot in San Pablo City. Pursuant to No. 212; Page No. 44, Book No. XXI, Series of 1993.
the SPA, Gesmundo obtained a loan in the amount of P300,000.00 from
petitioner. As security therefor, Gesmundo executed on the same day a Real (b) The Certificate of Sale executed by Notary Public Reynaldo Alcantara on
Estate Mortgage constituted on the subject property in favor of petitioner. The April 20, 1995.
abovementioned transactions, including the execution of the SPA in favor of
Gesmundo, took place without the knowledge and consent of respondent. 4 (c) The Affidavit of Consolidation of Ownership executed by the defendant

Upon maturity, the loan remained outstanding. As a result, petitioner (c) The Affidavit of Consolidation of Ownership executed by the defendant
instituted extrajudicial foreclosure proceedings on the mortgaged property. over the residential lot located at Brgy. San Francisco, San Pablo City,
After the extrajudicial sale thereof, a Certificate of Sale was issued in favor of covered by ARP No. 95-091-1236 entered as Doc. No. 406; Page No. 83,
petitioner as the highest bidder. After the lapse of one year without the Book No. III, Series of 1996 of Notary Public Octavio M. Zayas.
property being redeemed, petitioner, through its vice-president, consolidated
the ownership thereof by executing on June 6, 1996 an Affidavit of
Consolidation of Ownership and a Deed of Absolute Sale. 5 (d) The assessment of real property No. 95-051-1236.

In the meantime, Marcelino Dailo, Jr. died on December 20, 1995. In one of 2. The defendant is ordered to reconvey the property subject of this
her visits to the subject property, respondent learned that petitioner had complaint to the plaintiff.
already employed a certain Roldan Brion to clean its premises and that her
ON THE SECOND CAUSE OF ACTION
1. The defendant to pay the plaintiff the sum of P40,000.00 representing the First, petitioner takes issue with the legal provision applicable to the factual
value of the car which was burned. milieu of this case. It contends that Article 124 of the Family Code should be
construed in relation to Article 493 of the Civil Code, which states:
ON BOTH CAUSES OF ACTION
ART. 493. Each co-owner shall have the full ownership of his part and of the
1. The defendant to pay the plaintiff the sum of P25,000.00 as attorney's fruits and benefits pertaining thereto, and he may therefore alienate, assign
fees; or mortgage it, and even substitute another person in its enjoyment, except
when personal rights are involved. But the effect of the alienation or the
mortgage, with respect to the co-owners, shall be limited to the portion which
2. The defendant to pay plaintiff P25,000.00 as moral damages;
may be allotted to him in the division upon the termination of the co-
ownership.
3. The defendant to pay the plaintiff the sum of P10,000.00 as exemplary
damages;
Article 124 of the Family Code provides in part:
4. To pay the cost of the suit.
ART. 124. The administration and enjoyment of the conjugal partnership
property shall belong to both spouses jointly. . . .
The counterclaim is dismissed.
In the event that one spouse is incapacitated or otherwise unable to
SO ORDERED.6 participate in the administration of the conjugal properties, the other spouse
may assume sole powers of administration. These powers do not include the
Upon elevation of the case to the Court of Appeals, the appellate court powers of disposition or encumbrance which must have the authority of the
affirmed the trial court's finding that the subject property was conjugal in court or the written consent of the other spouse. In the absence of such
nature, in the absence of clear and convincing evidence to rebut the authority or consent, the disposition or encumbrance shall be void. . . .
presumption that the subject property acquired during the marriage of
spouses Dailo belongs to their conjugal partnership.7 The appellate court Petitioner argues that although Article 124 of the Family Code requires the
declared as void the mortgage on the subject property because it was consent of the other spouse to the mortgage of conjugal properties, the
constituted without the knowledge and consent of respondent, in accordance framers of the law could not have intended to curtail the right of a spouse
with Article 124 of the Family Code. Thus, it upheld the trial court's order to from exercising full ownership over the portion of the conjugal property
reconvey the subject property to respondent.8 With respect to the damage to pertaining to him under the concept of co-ownership. 12 Thus, petitioner would
respondent's car, the appellate court found petitioner to be liable therefor have this Court uphold the validity of the mortgage to the extent of the late
because it is responsible for the consequences of the acts or omissions of Marcelino Dailo, Jr.'s share in the conjugal partnership.
the person it hired to accomplish the assigned task.9 All told, the appellate
court affirmed the trial court's Decision, but deleted the award for damages
In Guiang v. Court of Appeals,13 it was held that the sale of a conjugal
and attorney's fees for lack of basis.10
property requires the consent of both the husband and wife. 14 In applying
Article 124 of the Family Code, this Court declared that the absence of the
Hence, this petition, raising the following issues for this Court's consideration: consent of one renders the entire sale null and void, including the portion of
the conjugal property pertaining to the husband who contracted the sale. The
1. WHETHER OR NOT THE MORTGAGE CONSTITUTED BY THE LATE same principle in Guiang squarely applies to the instant case. As shall be
MARCELINO DAILO, JR. ON THE SUBJECT PROPERTY AS CO-OWNER discussed next, there is no legal basis to construe Article 493 of the Civil
THEREOF IS VALID AS TO HIS UNDIVIDED SHARE. Code as an exception to Article 124 of the Family Code.

2. WHETHER OR NOT THE CONJUGAL PARTNERSHIP IS LIABLE FOR Respondent and the late Marcelino Dailo, Jr. were married on August 8,
THE PAYMENT OF THE LOAN OBTAINED BY THE LATE MARCELINO 1967. In the absence of a marriage settlement, the system of relative
DAILO, JR. THE SAME HAVING REDOUNDED TO THE BENEFIT OF THE community or conjugal partnership of gains governed the property relations
FAMILY.11 between respondent and her late husband.15 With the effectivity of the Family
Code on August 3, 1988, Chapter 4 on Conjugal Partnership of Gains in the benefit of the conjugal partnership. There must be the requisite showing then
Family Code was made applicable to conjugal partnership of gains already of some advantage which clearly accrued to the welfare of the spouses.
established before its effectivity unless vested rights have already been Certainly, to make a conjugal partnership respond for a liability that should
acquired under the Civil Code or other laws.16 appertain to the husband alone is to defeat and frustrate the avowed
objective of the new Civil Code to show the utmost concern for the solidarity
The rules on co-ownership do not even apply to the property relations of and well-being of the family as a unit.22
respondent and the late Marcelino Dailo, Jr. even in a suppletory manner.
The regime of conjugal partnership of gains is a special type of partnership, The burden of proof that the debt was contracted for the benefit of the
where the husband and wife place in a common fund the proceeds, products, conjugal partnership of gains lies with the creditor-party litigant claiming as
fruits and income from their separate properties and those acquired by either such.23 Ei incumbit probatio qui dicit, non qui negat (he who asserts, not he
or both spouses through their efforts or by chance.17 Unlike the absolute who denies, must prove).24 Petitioner's sweeping conclusion that the loan
community of property wherein the rules on co-ownership apply in a obtained by the late Marcelino Dailo, Jr. to finance the construction of
suppletory manner,18 the conjugal partnership shall be governed by the rules housing units without a doubt redounded to the benefit of his family, without
on contract of partnership in all that is not in conflict with what is expressly adducing adequate proof, does not persuade this Court. Other than
determined in the chapter (on conjugal partnership of gains) or by the petitioner's bare allegation, there is nothing from the records of the case to
spouses in their marriage settlements.19 Thus, the property relations of compel a finding that, indeed, the loan obtained by the late Marcelino Dailo,
respondent and her late husband shall be governed, foremost, by Chapter 4 Jr. redounded to the benefit of the family. Consequently, the conjugal
on Conjugal Partnership of Gains of the Family Code and, suppletorily, by the partnership cannot be held liable for the payment of the principal obligation.
rules on partnership under the Civil Code. In case of conflict, the former
prevails because the Civil Code provisions on partnership apply only when In addition, a perusal of the records of the case reveals that during the trial,
the Family Code is silent on the matter. petitioner vigorously asserted that the subject property was the exclusive
property of the late Marcelino Dailo, Jr. Nowhere in the answer filed with the
The basic and established fact is that during his lifetime, without the trial court was it alleged that the proceeds of the loan redounded to the
knowledge and consent of his wife, Marcelino Dailo, Jr. constituted a real benefit of the family. Even on appeal, petitioner never claimed that the family
estate mortgage on the subject property, which formed part of their conjugal benefited from the proceeds of the loan. When a party adopts a certain
partnership. By express provision of Article 124 of the Family Code, in the theory in the court below, he will not be permitted to change his theory on
absence of (court) authority or written consent of the other spouse, any appeal, for to permit him to do so would not only be unfair to the other party
disposition or encumbrance of the conjugal property shall be void. but it would also be offensive to the basic rules of fair play, justice and due
process.25 A party may change his legal theory on appeal only when the
The aforequoted provision does not qualify with respect to the share of the factual bases thereof would not require presentation of any further evidence
spouse who makes the disposition or encumbrance in the same manner that by the adverse party in order to enable it to properly meet the issue raised in
the rule on co-ownership under Article 493 of the Civil Code does. Where the the new theory.26
law does not distinguish, courts should not distinguish.20 Thus, both the trial
court and the appellate court are correct in declaring the nullity of the real WHEREFORE, the petition is DENIED. Costs against petitioner.
estate mortgage on the subject property for lack of respondent's consent.
SO ORDERED.
Second, petitioner imposes the liability for the payment of the principal
obligation obtained by the late Marcelino Dailo, Jr. on the conjugal
partnership to the extent that it redounded to the benefit of the family. 21

Under Article 121 of the Family Code, "[T]he conjugal partnership shall be
liable for: . . . (3) Debts and obligations contracted by either spouse without
the consent of the other to the extent that the family may have been
benefited; . . . ." For the subject property to be held liable, the obligation
contracted by the late Marcelino Dailo, Jr. must have redounded to the SECOND DIVISION
 G.R. No. 168616, January 28, 2015 against La Savoie. The entirety of this Order
reads:chanroblesvirtuallawlibrary
HOME GUARANTY CORPORATION, Petitioner, v. LA SAVOIE
DEVELOPMENT CORPORATION, Respondent. ORDER

DECISION Finding the petition to be sufficient in form and substance, the enforcement of
all claims, whether for money or otherwise, and whether such enforcement is
by court action or otherwise, against petitioner La Savoie Development
LEONEN, J.:
Corporation, its guarantors and sureties not solidarily liable with it, is stayed.
This is a Petition for Review on Certiorari praying that the assailed As a consequence of the stay order, petitioner is prohibited from selling,
Decision1 dated June 21, 2005 of the Court of Appeals in CA G.R. CV No. encumbering, transferring, or disposing in any manner any of its properties
80241 be reversed and set aside. In the alternative, it prays that certain except in the ordinary course of business. It is further prohibited from making
properties supposedly conveyed by respondent La Savoie Development any payment of its liabilities outstanding as of the date of the filing of the
Corporation to petitioner Home Guaranty Corporation 2 be excluded from the petition on April 25, 2003. Its suppliers of goods or services are likewise
rehabilitation plan of La Savoie Development Corporation, should its Petition prohibited from withholding supply of goods and services in the ordinary
for Corporate Rehabilitation be given due course. course of business for as long as it makes payments for the services and
goods supplied after the issuance of the stay order.
The assailed Decision of the Court of Appeals reversed and set aside the
Order3 dated October 1, 2003 of the Regional Trial Court, Makati City, Petitioner is directed to pay in full all administrative expenses incurred after
reinstated the Stay Order issued by the Regional Trial Court on June 4, 2003, the issuance of the stay order.
gave due course to La Savoie's Petition for Corporate Rehabilitation, and
remanded the case to the Regional Trial Court for further proceedings. 4 The The initial hearing on the petition is set on July 22, 2003 at 8:30 o'clock in the
Regional Trial Court's June 4, 2003 Stay Order stayed the enforcement of all morning at the 3rd Floor, Gusali ng Katarungan, F. Zobel St., Makati City.
claims, monetary or otherwise, and whether in court or otherwise, against La
Savoie Development Corporation. All creditors and interested parties including the Securities and Exchange
Commission are directed to file and serve on petitioner a verified comment
La Savoie Development Corporation (La Savoie) is a domestic corporation on or opposition to the petition with supporting affidavits and documents, not
incorporated on April 2, 1990. It is engaged in the business of "real estate later than ten (10) days before the date of the initial hearing. Failure to do so
development, subdivision and brokering."5 will bar them from participating in the proceedings. Copies of the petition and
its annexes may be secured from the court within such time as to enable
With the onset of the Asian financial crisis in 1997, the devaluation of the them to file their comment on or opposition to the petition and to prepare for
Philippine peso and due to other factors such as lack of working capital; high its initial hearing.
interest rates, penalties, and charges; low demand for real estate properties;
and poor peace and order situations in some of its project sites, La Savoie Petitioner is directed to publish this Order in a newspaper of general
found itself unable to pay its obligations to its creditors. Thus, on April 25, circulation in the Philippines once'a week for two (2) consecutive weeks and
2003, La Savoie filed before the Regional Trial Court, Makati City 6 a "petition to file to this Court within five (5) days before the initial hearing the
for the declaration of state of suspension of payments with approval of publisher's affidavit shewing compliance with the publication requirements.
proposed rehabilitation plan"7 under the Interim Rules of Procedure on
Corporate Rehabilitation8 (Interim Rules). Mr. Rito C. Manzana with address at 26B One Lafayette Condominium cor.
Leviste and Cedeno Manor St., Salcedo Village, Makati City is appointed
The proceedings before the Regional Trial Court were initially held in Rehabilitation Receiver of Petitioner. He may discharge his duties and
abeyance as La Savoie failed to attach to its Petition some of the functions as such after taking his oath to perform his duties and functions
requirements under Rule 4, Section 2 of the Interim Rules. 9 With La Savoie's faithfully and posting a bond in the amount of P100,000.00 to guarantee the
compliance and finding its "petition to be sufficient in form and faithful discharge of his duties and obedience to the orders of the court.
substance,"10 then Regional Trial Court Judge Estela Perlas-Bernabe issued
the Stay Order dated June 4, 2003 staying the enforcement of all claims
Petitioner is directed to immediately serve a copy of this Order to Mr. the duty of ensuring that all funds due to the Asset Pool are collected, and
Manzana who is directed to manifest his acceptance or non-acceptance of that funds are disbursed for the purposes they were intended for." 22
his appointment not later than ten (10) days from receipt of this order.
Home Guaranty Corporation added that in the course of its business, La
SO ORDERED. Savoie collected a total amount of P60,569,134.30 from the buyers of some
of the properties covered by the Asset Pool. This amount, however, was not
Given this 4th day of June, 2003 at Makati City. remitted by La Savoie to the trust. With La Savoie's failure to complete some
of its projects and failure to remit sales collections, the Asset Pool defaulted
ESTELA PERLAS-BERNABE in redeeming and paying interest on the LSDC certificates. Thus, La Savoie's
[sgd.] investors placed a call on the guaranty.23 With La Savoie's failure to remit
Judge11 collections, however, Home Guaranty Corporation held in abeyance the
settlement of the investors' call. This settlement was then overtaken by the
Following the issuance of the June 4, 2003 Stay Order, La Savoie's creditors
filing of La Savoie's Petition for Rehabilitation.24
— Planters Development Bank, Philippine Veterans Bank, and Robinsons
Savings Bank — filed their Comments and/or Oppositions. 12
Home Guaranty Corporation argued that it and the investors on the LSDC
13 certificates had "preferential rights"25 over the properties making up the Asset
Home Guaranty Corporation filed an Opposition even though "it [was] not a
Pool as these "were conveyed as security or collaterals for the redemption of
creditor of Petitioner."14 It asserted that it had a "material and beneficial
the [LSDC certificates]."26 Thus, they should be excluded from the coverage
interest in the . . . Petition, in relation to the interest of Philippine Veterans
of La Savoie's Petition for Rehabilitation.
Bank (PVB), Planters Development Bank (PDB), and Land Bank of the
Philippines (LBP), which are listed as creditors of Petitioner vis-a-vis certain
On September 1, 2003, La Savoie filed a Consolidated Answer27 to the
properties or assets that might have been taken cognizance of, and placed
Comments/Oppositions. It argued that the assignment of assets to the Asset
under the custody of the [Regional Trial] Court and[/]or the appointed
Pool was not absolute and subject to certain conditions. Specifically, it
Rehabilitation Receiver."15
asserted that for the assignment to take effect, Home Guaranty Corporation
had to first pay the holders of the LSDC certificates. Thus, La Savoie claimed
Home Guaranty Corporation noted that through the "La Savoie Asset Pool
that the properties comprising the Asset Pool remained to be its assets. 28
Formation and Trust Agreement"16 (Trust Agreement), La Savoie obtained
financing for some of its projects through a securitization process in which
In the interim, a Verification Report on Accuracy of Petition was filed by the
Planters Development Bank as nominal issuer issued PI50 million in asset
Rehabilitation Receiver.29
participation certificates dubbed as the "La Savoie Development
Certificates"17 (LSDC certificates) to be sold to investors. The projects
On October 1, 2003, the Regional Trial Court issued an Order 30 denying due
financed by these certificates consisted of the development of real properties
course to La Savoie's Petition for Rehabilitation and lifting the June 4, 2003
in General Trias, Cavite; Sto. Tomas, Batangas; Los Banos, Laguna; and
Stay Order. The trial court reasoned that the "findings of sufficiency in the
Quezon City. The same properties were conveyed in trust by La Savoie, as
form and substance of the petition for which a stay order was issued has
trustor, to Planters Development Bank, as trustee, and constituted into the La
been flawed"31 and that "[i]t cannot countenance a situation such as this
Savoie Asset Pool (Asset Pool).18
where the petitioner files a petition on the basis of inaccurate or unverifiable
allegations and false representations."32 It noted that per the Rehabilitation
The redemption of the LSDC certificates upon maturity and the interest
Receiver's Report, there were "various inaccuracies in the material
payments on them were "backed/collateralized by the assets that were
allegations of the petition and its annexes."33 Several documents "to verify
conveyed by [La Savoie] to the Trust."19 Moreover, the LSDC certificates
other material statements made therein" were also lacking. 34 It added that La
were covered by a guaranty extended by Home Guaranty Corporation
Savoie "has not presented any concrete and feasible plan on how it will be
through a "Contract of Guaranty"20 entered into by Home Guaranty
able to secure additional funds to continue with the development of its raw
Corporation with La Savoie and Planters Development Bank.
land and on-going joint-venture projects."35
Section 17 of the Contract of Guaranty designates Home Guaranty
Aggrieved, La Savoie filed an Appeal before the Court of Appeals. It filed its
Corporation to "undertake financial controllerships of the Projects." 21 Thus, in
Appellant's Brief on May 5, 2004.36
its Opposition, Home Guaranty Corporation noted that it was "charged with
In the meantime, Home Guaranty Corporation approved and processed the Home Guaranty Corporation asserts 'that the properties comprising the Asset
call on the guaranty for the redemption of the LSDC certificates. Thus, Home Pool should be excluded from the rehabilitation proceedings as these have
Guaranty Corporation, through Planters Development Bank, paid a total of now been "removed from the oominion"47 of La Savoie and have been
P128.5 million as redemption value to certificate holders. Acting on this, conveyed and assigned to it. It underscores that the transfer made to it by
Planters Development Bank executed a "Deed of Assignment and Planters Development Bank was made after the Stay Order had been lifted,
Conveyance"37 in favor of Home Guaranty Corporation through which, in the per the Regional Trial Court's October 1, 2003 Order.
words of Home Guaranty Corporation, Planters Development Bank
"absolutely conveyed and assigned to [Home Guaranty Corporation] the On October 28, 2005, La Savoie filed its Comment. 48 It claimed that the
ownership and possession of the entire assets that formed part of the La supposed assignment and conveyance to Home Guaranty Corporation was
Savoie Asset Pool."38 Home Guaranty Corporation claims, in addition, that, ineffectual considering that "at the time of the guaranty call, the Stay Order
through the same Deed, Planters Development Bank "absolutely conveyed dated 04 June 2003 was admittedly in effect." 49 La Savoie faulted Home
and assigned to [Home Guaranty Corporation] the right to collect from [La Guaranty Corporation for supposedly not adducing proof of the transfer
Savoie] cash receivables . . . representing the amount collected by [La effected to it by Planters Development Bank on the strength of its payment
Savoie] from sales in the course of the development of the projects which it on the guaranty. It added that, even assuming there was full payment and
failed to remit to the Trust."39 that the Deed of Assignment and Conveyance was executed, "the Subject
Properties remained within the jurisdiction of the [Regional Trial Court] even
On August 18, 2004, Home Guaranty Corporation filed its Appellee's after the lifting of the Stay Order dated 04 June 2003" 50 and that, as a result,
Brief.40 It argued that all of the properties comprising the Asset Pool should "any contract or document affecting title to the Subject Properties is also
be excluded from the rehabilitation proceedings in view of the Deed of subject to the rehabilitation proceedings pending with the [trial court]." 51 It
Assignment and Conveyance executed in its favor by Planters Development also asserted that by paying the guaranty, Home Guaranty Corporation
Bank.41 Attached to this Brief was a copy of the Deed of Assignment and effectively became its creditor. Excluding the properties comprising the Asset
Conveyance.42 Pool from the rehabilitation proceedings would then be tantamount to giving
preference to one creditor, something which is prohibited in rehabilitation
In the Decision43 dated June 21, 2005, the Court of Appeals Special Twelfth proceedings.
Division reversed and set aside the Regional Trial Court's October 1, 2003
Order, reinstated the Stay Order, gave due course to the Petition for Apart from these, La Savoie ascribes procedural infirmities against Home
Rehabilitation, and remanded the case to the trial court for further Guaranty Corporation's Petition. First, it claimed that Atty. Danilo C. Javier,
proceedings. the officer who signed the Petition's verification and certification of non-forum
shopping was not authorized to do so. Second, it claimed that Home
The Court of Appeals characterized the inaccuracies noted by the trial court Guaranty Corporation engaged in forum shopping.
as "minor" and "trivial,"44 as well as insufficient to render as "false" the
allegations made by La Savoie in its Petition for Rehabilitation. It added that On February 6, 2006, Home Guaranty Corporation filed its Reply to La
La Savoie "convincingly showed that it could undertake to market its projects Savoie's Comment.52 In response to La Savoie's allegation that there was no
through [the] Pag-Ibig Overseas Program, sell the existing inventories of proof of its payment of the redemption value of the LSDC certificates and the
unsold subdivision lots and use the un-remitted collections due to HGC which resultant transfer to it of the Asset Pool, Home Guaranty Corporation noted
will be converted as additional loan to fund its on-going that the following documents were already attached to its Appellee's Brief
projects."45 Regarding Home Guaranty Corporation's payment of the and were re-attached to its Reply: the Deed of Assignment and Conveyance;
guaranty call, the Court of Appeals noted that it was made after the Petition the Trust Agreement; the Contract of Guaranty; and certificates of title
for Rehabilitation had been brought by La Savoie and after the issuance of covering each of the properties comprising the Asset Pool.
the Stay Order; thus, Home Guaranty Corporation had no right to make such
payment. For resolution is the central issue of whether the properties comprising the
Asset Pool should be excluded from the proceedings on La Savoie
On August 12, 2005, Home Guaranty Corporation filed before this court the Development Corporation's Petition for Rehabilitation. The resolution of this
present Petition for Review on Certiorari under Rule 45 of the 1997 Rules of issue hinges on whether the conveyance to Home Guaranty Corporation of
Civil Procedure.46 the properties comprising the Asset Pool was valid and effectual. The
resolution of this is, in turn, contingent on the following: responsive pleadings as the circumstances may warrant. . . .
54
cralawlawlibrary
First, whether following the issuance of the Regional Trial Court's October 1, II
2003 Order and pending La Savoie's Appeal, Home Guaranty Corporation
was barred from making payment on the guaranty call, and Planters La Savoie pointed out that (as of the time of the filing of its Comment)
Development Bank, concomitantly barred from conveying the properties another case between Home Guaranty Corporation and La Savoie, docketed
comprising the Asset Pool to Home Guaranty Corporation; and as Civil Case No. 05314, was pending before the Makati City Regional Trial
Court.55
Second, whether the payment by Home Guaranty Corporation and the
conveyance of the properties by Planters Development Bank made Home In its reply, Home Guaranty Corporation acknowledged the pendency of Civil
Guaranty Corporation a creditor of La Savoie and whether recognizing the Case No. 05314. It, however, pointed out that it could not have been guilty of
validity of the transfer made to Home Guaranty Corporation was tantamount forum shopping as the present case is an offshoot of a Petition for Corporate
to giving it inordinate preference as a creditor. Rehabilitation while Civil Case No. 05314 is an action for injunction,
mandamus, specific performance, and sum of money with application for
Apart from these are the procedural errors ascribed by La Savoie to Home temporary restraining order and/or preliminary prohibitory and mandatory
Guaranty Corporation and thus the following issues: injunction.56 Home Guaranty Corporation claimed that it had to file Civil Case
No. 05314 to compel La Savoie to remit to. it payments collected from the
First, whether Atty. Danilo C. Javier was authorized to sign the verification buyers of La Savoie's real estate development projects and which La Savoie
and certificate of non-forum shopping of Home Guaranty Corporation's was supposedly wrongly withholding from it considering that Home Guaranty
Petition; and Corporation was now the owner of the properties comprising the Asset Pool.

Second, whether Home Guaranty Corporation engaged in forum Aboitiz Equity Ventures v. Chiongbian57 discussed forum
shopping.chanRoblesvirtualLawlibrary shopping:chanroblesvirtuallawlibrary
The concept of and rationale against forum shopping were explained by this
I court in Top Rate Construction & General Services, Inc. v. Paxton
Development Corporation:58ChanRoblesVirtualawlibrary
Atty. Danilo C. Javier was authorized to sign the verification and certificate of FORUM SHOPPING is committed by a party who institutes two or more suits
non-forum shopping on behalf of Home Guaranty Corporation. in different courts, either simultaneously or successively, in order to ask the
courts to rule on the same or related causes or to grant the same or
As pointed out by Home Guaranty Corporation, its board of directors issued substantially the same reliefs, on the supposition that one or the other court
Board Resolution No. 30, Series of 2001, "specifically authorizing the would make a favorable disposition or increase a party's chances of
President of petitioner to designate the officer to institute the appropriate obtaining a favorable decision or action. It is an act of malpractice for it trifles
legal actions[.]"53 It was pursuant to this resolution that Atty. Danilo C. Javier, with the courts, abuses their processes, degrades the administration of
Home Guaranty Corporation's then Officer-in-Charge and Vice President for justice and adds to the already congested court dockets. What is critical is
Legal, was made signatory to the present Petition's verification and the vexation brought upon the courts and the litigants by a party who asks
Certification of non-forum shopping. different courts to rule on the same or related causes an.d grant the same or
substantially the same reliefs and in the process creates the possibility of
The relevant portion of this Resolution reads:chanroblesvirtuallawlibrary conflicting decisions being rendered by the different fora upon the same
The request for authority for the HGC President, Executive Vice-President issues, regardless of whether the court in which one of the suits was brought
and Vice Presidents as the President may designate or authorize, to institute has no jurisdiction over the action.59cralawlawlibrary
appropriate legal actions as the President may deem proper or necessary to Equally settled is the test for determining forum shopping. As this court
protect the interest of the corporation be, as it is hereby approved. explained in Yap v. Chua:60ChanRoblesVirtualawlibrary
To determine whether a party violated the rule against forum shopping, the
Resolved Further That, the said authority shall include but not be limited to, most important factor to ask is whether the elements of litis pendentia are
the verification of Complaints, Petitions, Answer, Reply and other initiatory or present, or whether a final judgment in one case will amount to res judicata in
another; otherwise stated, the test for determining forum shopping is whether
in the two (or more) cases pending, there is identity of parties, rights or offshoot of La Savoie's original Petition for Rehabilitation, is not the act
causes of action, and reliefs sought.61cralawlawlibrary constitutive of forum shopping. Forum shopping was committed not through
Litis pendentia "refers to that situation wherein another action is pending the filing of this Appeal but through the filing of Civil Case No. 05314 before
between the same parties for the same cause of action, such that the second the Regional Trial Court. In any case, apart from this procedural lapse, we
action becomes unnecessary and vexatious."62 It requires the concurrence of find the transfer of the Asset Pool to Home Guaranty Corporation, without
three (3) requisites; "(1) the identity of parties, or at least such as going through foreclosure proceedings, to be in violation of the rule
representing the same interests in both actions; (2) the identity of rights against pactum commissorium. It is ineffectual and does not divest La Savoie
asserted and relief prayed for, the relief being founded on the same facts; of ownership. Thus, even if valid payment was made by Home Guaranty
and (3) the identity of the two cases such that judgment in one, regardless of Corporation on its guaranty, ownership of the properties comprising the Asset
which party is successful, would amount to res judicata in the other."63 Pool was not vested in it. Accordingly, Home Guaranty Corporation must
await the disposition of La Savoie's Petition for Rehabilitation in order that a
In turn, prior judgment or res judicata bars a subsequent case when the resolution may be had on how La Savoie's obligations to it shall be
following requisites concur: "(1) the former judgment is final; (2) it is rendered settled.chanRoblesvirtualLawlibrary
by a court having jurisdiction over the subject matter and the parties; (3) it is
a judgment or an order on the merits; (4) there is — between the first and the III
second actions — identity of parties, of subject matter, and of causes of
action."64cralawlawlibrary A necessary step in resolving this Petition is a consideration of the parties
It is not disputed that there is identity of parties in the present Petition and in and the rights and obligations they have as against each other, as borne by
Civil Case No. 05314. Home Guaranty Corporation, however, argues that it the agreements they entered into and which now bind them.
could not have been guilty of forum shopping as the relief it sought via Civil
Case No. 05314 (i.e., the restraining of collections and remission to it of The Trust Agreement65 stated that La Savoie, as "landowner/developer," had
funds collected by La Savoie) is different from the relief it is seeking in the subdivision and housing projects in several areas that were collectively
present Appeal from the Court of Appeals' Decision giving due course to La referred to as the "La Savoie Project" or simply as the "Project." Its first
Savoie's Petition for Corporate Rehabilitation. preambular clause reads:chanroblesvirtuallawlibrary
WHEREAS, the LANDOWNER/DEVELOPER, has subdivision and housing
The divergence in specific reliefs sought notwithstanding, Home Guaranty projects located in San Rafael, Bulacan; Banlat, Quezon City; Gen. Trias,
Corporation's bases for these reliefs are the same. In Civil Case No. 05314, Cavite[;] Sto. Tomas, Batangas; and Los Bailos, Laguna, totalling 37
Home Guaranty Corporation asked that La Savoie cease collecting payments hectares, more or less, collectively called the La Savoie Project (the
and that collected payments be remitted to it because it supposedly now PROJECT)[.]66cralawlawlibrary
owns the real estate development projects of La Savoie that form part of the On how the project was to be financed, the Trust Agreement added that "the
Asset Pool. In the present Appeal, Home Guaranty Corporation asks that the development and implementation of the PROJECT [was to be] funded
properties forming part of the Asset Pool be excluded from corporate through the issuance and sale of asset participation certificates known as La
rehabilitation proceedings because it, and no longer La Savoie, is the owner Savoie Development Certificates." Planters Development Bank was specified
of these properties. to be the "nominal issuer" of these certificates. The Trust Agreement's
second and fourth preambular clauses as well as its Section 4.5
Thus, in both cases, Home Guaranty Corporation is invoking the same right read:chanroblesvirtuallawlibrary
and is proceeding from the same cause of action, i.e., its supposed WHEREAS, the development and implementation of the PROJECT will be
ownership. True, there is divergence in the details of the specific reliefs it is funded through the issuance and sale of asset participation certificates
seeking, but Home Guaranty Corporation is seeking the known as La Savoie Development Certificates (the LSDCs) backed by the
same basic relief, i.e., the recognition of its alleged ownership. The exclusion asset pool consisting of said real estate properties and the products and
of the properties from corporate rehabilitation proceedings and the results of their planned development;67
remittance to it of payments are mere incidents of this basic relief.
Accordingly, in simultaneously pursuing the present case and Civil Case No. ....
05314, Home Guaranty Corporation engaged in forum shopping.
WHEREAS, the LANDOWNER/DEVELOPER has appointed the Planters
It is worth emphasizing that the present Petition or Appeal, being a mere Development Bank as TRUSTEE and nominal issuer and Planters
Development Bank through its Trust Department has agreed to perform the hereof, together with all present and future improvements thereon and the
functions and responsibilities of a TRUSTEE as defined hereunder; 68 corresponding muniments of ownership of the properties, subject to the
reservations concerning the interests of joint-venturers defined hereunder, to
.... the TRUSTEE for the benefit of the present and future holders of the LSDCs,
in accordance with the terms and conditions provided herein. The
Section 4.5. Nominal Issuer. The TRUSTEE shall act as nominal issuer only reservations above-stated refer to the interests of the joint-venturers of the
of all LSDCs. In no case shall the TRUSTEE be liable for the payment of any LANDOWNER/DEVELOPER as follows:....71cralawlawlibrary
amount due to the holder of the LSDC. The TRUSTEE shall be free from any Per the Trust Agreement's fourth preambular clause, Planters Development
liability in the event that the Asset Pool is not sufficient for the redemption of Bank was named trustee of the Asset Pool. The same clause specified that it
all the LSDCs. In the event of the nonpayment of the LSDC, the LSDC held the Asset Pool "for the pro rata and pro indiviso benefit of the holders of
holder's exclusive recourse shall be to claim against the HIGC guarantee. the LSDCs . . . and, residually for the benefit of the
The TRUSTEE shall not be responsible for the failure of HIGC to pay any [landowner/developer, i.e., La Savoie]." Moreover, in Section 3.2 of the Trust
amount due to any holder of the LSDC.69cralawlawlibrary Agreement:chanroblesvirtuallawlibrary
These LSDC certificates were "backed" or secured by "real estate properties Section 3.2. Acceptance by the TRUSTEE. The TRUSTEE hereby
and the products and results of their planned development." More acknowledges and accepts the documents delivered by the
specifically, Section 3.1 of the Trust Agreement provides for the LANDOWNER/DEVELOPER and signed for by the TRUSTEE and the
establishment of the Asset Pool in which La Savoie "convey[ed], assign[ed], property interests and rights conveyed in Section 3.1, as well as those which
delivered] all its rights and interests in the real estate properties ... to the may from time to time be conveyed and intended to form part of the Asset
TRUSTEE for the present and future holders of LSDCs." The third Pool, and declares that the said TRUSTEE holds and will hold the said
preambular clause and Section 3.1 of the Trust Agreement documents and assets, including properties and values yet to be received by
read:chanroblesvirtuallawlibrary it as TRUSTEE under this Agreement, for the benefit of all present and future
WHEREAS, the LANDOWNER/DEVELOPER has agreed to convey the real holders of the LSDCs, as well as the ultimate owner(s) of the residual assets
estate properties of the PROJECT to a TRUSTEE to form the La Savoie and values of the Asset Pool, all in accordance with the terms and conditions
Project (LSP) Asset Pool which shall be held by the TRUSTEE for the pro of this Trust Agreement.72cralawlawlibrary
rata and pro indiviso benefit of the holders of the LSDCs to the extent defined Apart from the Asset Pool, the LSDC certificates were also secured by a
in this Agreement and, residually for the benefit of the guaranty. The guaranty was referenced in the Trust Agreement in the
LANDOWNER/DEVELOPER;70 following provisions:chanroblesvirtuallawlibrary
ARTICLE I
.... DEFINITION OF TERMS

Section 3.1. Establishment of Starting Asset Pool. The LANDOWNER/ The following words and phrases used in this Agreement shall have the
DEVELOPER hereby establishes a trust, for purposes of this securitization respective meanings hereunder indicated unless the contrary clearly appears
and formation of the corresponding Asset pool, out of the properties from the context:chanroblesvirtuallawlibrary
pertaining to the PROJECT development and operation, and accordingly ....
does hereby convey, assign and deliver all its rights and interests in the real
estate properties identified and described through their respective transfer 4. Contract of Guaranty - shall refer to the Contract of Guaranty executed by
certificates of title (TCTs) listed in Annex B through B-1covering properties for and among the TRUSTEE, HIGC and the LANDOWNER/DEVELOPER
Las Palmas Village in Sto. Tomas, Batangas[;] Buenavista Park in San dated, a copy of which is hereto attached as Annex A including any
Rafael, Bulacan; Gen. Trias Homes in Gen. Trias, Cavite; and La Chesa amendment/revision and modification, thereof.
Heights in Tandang Sora, Q.C.; Annex C through C-2 covering properties for
La Chesa Valley Estate owned by MHC Realty under a Joint-Venture ....
Agreement with [La Savoie Development Corporation]; Annex D covering
properties owned by Lenard Lopez under a Joint Venture Agreement with [La 6. Guarantor - shall refer to the Home Insurance and Guaranty Corporation
Savoie Development Corporation]; together with Annexes E and F the Joint (HIGC).73cralawlawlibrary
Venture Agreements with MHC Realty Corporation and Lenard Lopez ....
together with the Supplemental Agreements, attached as integral parts
 Opposition it filed before the Regional Trial Court, that it was not a
Section 2.4. The Home Insurance and Guaranty Corporation. The roles and creditor of La Savoie.); and
responsibilities of the HIGC shall be as follows:chanroblesvirtuallawlibrary
2.4.1Provide guaranty coverage for the LSDCs in accordance with its policies 3. An agency relation, with respect to the transfer of the real properties
and as provided for in its Contract of Guaranty executed by the parties. in the Asset Pool should the guarantor pay for the LSDC certificates,
in which La Savoie is the principal and Planters Development Bank
2.4.2Act as the Financial Controller in the implementation of the PROJECTS is the agent. In this event, Home Guaranty Corporation is the
involved in accordance with the Operations and Accounting Manual as transferee.
approved by the Governing Board.
On Home Guaranty Corporation's guaranty, Section 12 of the Contract of
2.4.3Designate its representative in the Governing Board who shall act as Guaranty entered into by Home Guaranty Corporation, La Savoie and
the Chairman thereof.74 Planters Development Bank provide for the events in which Home Guaranty
Section 3.4 of the Trust Agreement provides that in the event that a call is Corporation may be called to pay for the LSDC
made on Home Guaranty Corporation for its guaranty, Planters Development certificates:chanroblesvirtuallawlibrary
Bank shall convey to the former the Asset Pool:chanroblesvirtuallawlibrary 12. Events guaranteed against - For the purpose of enforcing the benefit of
Section 3.4. Conveyance to HIGC. Express authority is hereby granted by guaranty herein provided[,] any of the following events must occur:
the LANDOWNER/DEVELOPER to the TRUSTEE that in the event of call
upon the HIGC guaranty for unredeemed LSDCs and in order to effect the 12.1.Failure to pay the interest due on the LSDCs on their payment dates
redemption of the same by the latter, to make the absolute conveyance to from the Asset Pool; or
HIGC of the entire Asset Pool, subject to the reservations regarding joint-
venturers [sic] interests as defined in Section 3.1, a and b above and subject 12.2 Failure to redeem or pay all or some of the LSDCs upon maturity from
further to the provision of the aforementioned Contract of the Asset Pool; or
Guaranty.75cralawlawlibrary
This conveyance shall be on the strength of the special power of attorney 12.3 Declaration of an off-mark liquidation of the Asset Pool. An off-mark
executed by La Savoie in favor of Planters Development Bank, in liquidation shall be declared by the Trustee upon written advice of HIGC
accordance with Section 2.1.6 of the Trust that there is:
Agreement:chanroblesvirtuallawlibrary
Section 2.1. - The LANDOWNER/DEVELOPER shall: (a) a twenty-five percent (25%) slippage on each of the following:
2.1.6 Execute and deliver to the TRUSTEE an irrevocable Special Power of
Attorney a Secretary's Certificate per enclosed Annex G giving the TRUSTEE 1. construction time table/cost/quality;
the full power and authority to make the absolute conveyance of the entire
LSP Asset Pool in favor of the HIGC in the event of call upon the HIGC 2. marketing m terms of units sold;
guaranty for unredeemed LSDCs and in order to effect the redemption of the
same by the HIGC in accordance with the provisions of the Contract of 3. cash inflows of equity payments and/or buyers' take-outs; or
Guaranty.76cralawlawlibrary
In sum, these contractual provisions evince the following relations (b) if the slippage items above reach a total of fifty percent (50%)
whichever comes first.77
1. A trust relation, with respect to the Asset Pool, in which La Savoie is Section 13 of the Contract of Guaranty provides for how guaranty claims are
the trustor, Planters Development Bank is the trustee, and the to be processed and paid by Home Guaranty Corporation. Likewise, it
holders of the LSDC certificates are the beneficiaries; echoes Section 3.4 of the Trust Agreement in providing for transfer of the
Asset Pool in the event of a call on the guaranty:chanroblesvirtuallawlibrary
2. A credit relation, with respect to the LSDC certificates, in which La 13. Payment of Guaranty Claim - Should any of the events mentioned in
Savoie is the debtor (Planters Development Bank being a mere Sec. 12 hereof occur, the Trustee, on behalf of the Certificate holders,
nominal issuer), the holders of the LSDC certificates are the shall file its guaranty claim with HIGC within sixty (60) working days
creditors, and Home Guaranty Corporation is the guarantor. (It will be from the occurrence of the event.
recalled that Home Guaranty Corporation itself acknowledged, in the
13.1. Upon receipt of the guaranty claim filed by the Trustee, HIGC shall Rehabilitation (Interim Rules). Though subsequently replaced in 2013 by the
have thirty (30) working days to evaluate the guaranty claim. Within Financial Rehabilitation Rules of Procedure,82 the Interim Rules was in effect
such period, HIGC shall acknowledge the guaranty claim and require at the time of the incidents relevant to this case and which then governed
from the Trustee submission of the required documents, as follows: "petitions for rehabilitation filed by corporations, partnerships, and
associations pursuant to Presidential Decree No. 902-A, as.amended."
a. Deed of Assignment and Conveyance to HIGC of the entire Asset
Pool pursuant to the Trust Agreement; Rule 4, Section 6 of the Interim Rules reads:chanroblesvirtuallawlibrary
Sec. 6. Stay Order. - If the court finds the petition to be sufficient in form and
b. All tax declarations, transfer certificates of title, original certificates of substance, it shall, not later than five (5) days from the filing of the petition,
title and official receipts of payments of real estate taxes covering issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond;
properties comprising the Asset Pool; and, (b) staying enforcement of all claims, whether for money or otherwise and
whether such enforcement is by court action or otherwise, against the debtor,
c. All other documents and papers in the Asset Pool, as defined in the its guarantors and sureties not solidarity liable with the debtor, (c) prohibiting
Trust Agreement. the debtor from selling, encumbering, transferring, or disposing in any
manner any of its properties except in the ordinary course of business;
13.2 Upon receipt of the acknowledgment by HIGC of the guaranty claim, (d) prohibiting the debtor.from making any payment of its liabilities
the Trustee shall submit the documents and make a prompt assignment outstanding as at the date of filing of the petition; (e) prohibiting the debtor's
and conveyance to- HIGC of all the corresponding properties in the suppliers of goods or services from withholding supply of goods and services
Asset Pool pursuant to the Trust Agreement. in the ordinary course of business for as long as the debtor makes payments
for the services and goods supplied after the issuance of the stay order; (f)
13.[3]Within fifteen (15) calendar days from receipt of the conveyance of the directing the payment in full of all administrative expenses incurred- after the
entire Asset Pool from the Trustee, HIGC shall release on behalf of the issuance of the stay order; (g) fixing the initial hearing on the petition not
Certificate Holders the payment of the guaranty claim. 78 earlier than forty five (45) days but not later than sixty (60) days from the
As against these contractual delimitations were the contingencies that arose filing thereof; (h) directing the petitioner to publish the Order in a newspaper
in the course of the rehabilitation proceedings. These, along with the bounds of general circulation in the Philippines once a week for two (2) consecutive
set by law and established by the parties' contractual relations, defined the weeks; (i) directing all creditors and all interested parties (including the
competencies of the parties and determined the validity of their actions. Securities and Exchange Commission) to file and serve on the debtor a
verified comment on or opposition to the petition, with supporting affidavits
It is not disputed that La Savoie defaulted in the redemption and in the and documents, not later than ten (10) days before the date of the initial
payment of interest on the LSDC certificates. It is also settled that a call was hearing and putting them on notice that their failure to do so will bar them
made on Home Guaranty Corporation to pay for the LSDC certificates, from participating in the proceedings; and (j) directing the creditors and
pursuant to the provisions of the Trust Agreement and the Contract of interested parties to secure from the court copies of the petition and its
Guaranty. However, as acknowledged by Home Guaranty Corporation, any annexes within such time as to enable themselves to file their comment on or
payment that it could have made was "overtaken" 79 by the filing of La opposition to the petition and to prepare for the initial hearing of the petition.
Savoie's Petition for Rehabilitation. (Emphasis supplied)
With the issuance of this Stay Order, the claims of La Savoie's creditors,
Thereafter, the Regional Trial Court issued its June 4, 2003 Stay Order including, those of the holders of the LSDC certificates, were barred from
staying "the enforcement of all claims, whether for money or otherwise, and being enforced. From the point of view of La Savoie and "its guarantors and
whether such enforcement is by court action or otherwise, against [La sureties not solidarity liable with it,"83 no payment could have been made by
Savoie], its guarantors and sureties not solidarity liable with it." 80 It also them. Thus, for as long as the Stay Order was in effect, certificate holders
"prohibited [La Savoie] from making any payment of its liabilities outstanding were barred from insisting on and receiving payment, whether from the
as of the date of the filing of the petition on April 25, 2003." 81 principal debtor, La Savoie, or from the guarantor, Home Guaranty
Corporation. Conversely, La Savoie and Home Guaranty Corporation were
The issuance of the June 4, 2003 Stay Order was in accordance with Rule 4, barred from paying certificate holders for as long as the Stay Order was in
Section 6 of this court's November 21, 2000 Resolution in A.M. No. 00-8-10- effect.
SC, otherwise known as the Interim Rules of Procedure on Corporate
On October 1, 2003, the Regional Trial Court issued another Order denying trial court on October 1, 2003. If at all, its second sentence, which explicitly
due course to La Savoie's Petition for Rehabilitation and lifting the June 4, makes reference to orders on appeal, affirms that it is equally applicable to
2003 Stay Order. Aggrieved, La Savoie filed a Notice of Appeal and final orders. We entertain no doubt that Rule 3, Section 5 of the Interim Rules
thereafter filed before the Court of Appeals its Appellant's Brief on May 5, covered the trial court's October 1, 2003 Order dismissing the Petition for
2004. Home Guaranty Corporation filed its Appellee's Brief on August 18, Rehabilitation and lifting the Stay Order The same Order was thus
2004. On June 21, 2005, the Court of Appeals rendered a Decision reversing immediately executory.
and setting aside the Regional Trial Court's October 1, 2003 Order and
reinstating the June 4, 2003 Stay Order. The filing of La Savoie's Appeal did not restrain the effectivity of the October
1, 2003 Order. It is true thai generally, an appeal stays the judgment or final
What is notable, however, is what transpired in the interim. Sometime order appealed from.86 Rehabilitation proceedings, however, are not bound
between La Savoie's filing of its Appellant's Brief and Home Guaranty by procedural rules spelled out in the Rules of Court. The Interim Rules, not
Corporation's filing of its Appellee's Brief, Home Guaranty Corporation the Rules of Court, was the procedural law, which (at the time of the pivotal
approved and processed the call that was made, prior to the commencement incidents in this case) governed rehabilitation proceedings. In Rule 3, Section
of rehabilitation proceedings, on its guaranty and proceeded to pay the 5, the Interim Rules explicitly carved an exception to the general principle
holders of LSDC certificates a total amount of P128.5 million as redemption that an appeal stays the judgment or final order appealed from. It explicitly
value. In consideration of this and pursuant to Section 13.2 of the Contract of requires the issuance by the appellate court of an order enjoining or
Guaranty, Planters Development Bank executed in favor of Home Guaranty restraining the order appealed from.
Corporation a Deed of Assignment and Conveyance84 in which Planters
Development Bank "absolutely assign[ed], transferred[ed], convey[ed] and Per the records, the Court of Appeals did not issue an injunctive writ or a
deliver[ed] to the HGC, its successor and assigns the possession and temporary restraining order. Neither did La Savoie specifically pray for its
ownership over the entire Asset Pool Project."85 issuance in the Appellant's Brief it filed before the Court of Appeals. The
prayer of this Brief reads:chanroblesvirtuallawlibrary
Home Guaranty Corporation asserts that the execution of this Deed WHEREFORE, Petitioner-Appellant most respectfully pray [sic] that the
effectively removed the properties comprising the Asset Pool from the Order dated October 1, 2003, dismissing the Petition BE SET ASIDE and
dominion of La Savoie and, thus, beyond the reach of La Savoie's after due consideration a judgment be rendered giving due course to the
rehabilitation proceedings. La Savoie contends that this transfer was Petition for rehabilitation and declaring the herein petitioner-appellant in a
ineffectual as the Stay Order was in effect at the time of the execution of the state of suspension of payments, and reinstating the Stay Order and finally,
Deed and as affirming Home Guaranty Corporation's ownership is approving the Proposed Rehabilitation Plan.
supposedly tantamount to giving it undue preference as a creditor.
Other relief and remedies are deemed just and equitable under the premises
Rule 3, Section 5 of the Interim Rules governs the effectivity of orders issued are likewise prayed for.
in proceedings relating to the rehabilitation of corporations, partnerships, and
associations under Presidential Decree No. 902-A, as amended. RESPECTFULLY SUBMITTED.87cralawlawlibrary
Sec. 5. Executory Nature of Orders. - Any order issued by the court under Thus, the October 1, 2003 Order, lifting the restrictions on the payment of
these Rules is immediately executory. A petition for review or an appeal claims against La Savoie, remained in effect. La Savoie's creditors were then
therefrom shall not stay the execution of the order unless restrained or free to enforce their claims. Conversely, La Savoie and "its guarantors and
enjoined by the appellate court. The review of any order or decision of the sureties not solidarity liable with it"88 were no longer restrained from effecting
court or an appeal therefrom shall be in accordance with the Rules of Court: payment.
Provided, however, that the reliefs ordered by the trial or appellate courts
shall take into account the need for resolution of proceedings in a just, Specifically, Home Guaranty Corporation as guarantor was capacitated, in
equitable, and speedy manner. (Emphasis supplied) accordance with Sections 12 and 13 of the Contract of Guaranty to effect
Rule 3, Section 5 is definite and unambiguous: Any order issued by the trial payment to the holders of the LSDC certificates.
court in rehabilitation proceedings is immediately executory. Rule 3, Section
5 makes no distinction as to the kinds of orders (e.g., final or interlocutory Per Sections 13.1 and 13.2 of the Contract of Guaranty, the consequence of
and stay orders) that may be issued by a trial court. Nowhere from its text this payment was the execution by Planters Development Bank, as trustee of
can it be gleaned that it does not cover orders such as those issued by the the Asset Pool, of a Deed of Conveyance in favor of Home Guaranty
Corporation. Ostensibly, all formal and substantive requisites for the claims against the corporation under receivership. Instead of creditors vexing
execution of this Deed, as per the Trust Agreement and the Contract of the courts with suits against the distressed firm, they are directed to file their
Guaranty, were fulfilled. Notably, La Savoie failed to intimate that any such claims with the receiver who is a duly appointed officer of the
condition or requisite was not satisfied. It assails the conveyance on only SEC.93cralawlawlibrary
these points: first, the supposed continuing effectivity of the June 4, 2003 It is true, as La Savoie asserts, that the suspension of the enforcement of
Stay Order; second, that the Asset Pool remained under the jurisdiction of claims against corporations under receivership is intended "to prevent a
the Makati City Regional Trial Court; and third, the supposed violation of the creditor from obtaining an advantage or preference over another." 94 This is
rule against preference among creditors. "intended to give enough breathing space for the management committee or
rehabilitation receiver to make the business viable again, without having to
Having established that the Stay Order was lifted and that this lifting divert attention and resources to litigations in various fora." 95 In Spouses
remained in force and was not restrained, we turn to La Savoie's contention Sobrejuanite v. ASB Development Corporation:96ChanRoblesVirtualawlibrary
that the conveyance to Home Guaranty Corporation of the Asset Pool is in The suspension would enable the management committee or rehabilitation
violation of the rule against preference of creditors. receiver to effectively exercise its/his powers free from any judicial or extra-
judicial interference that might unduly hinder or prevent the "rescue" of the
La Savoie cites Article 206789 of the Civil Code and argues that with Home debtor company. To allow such other action to continue would only add to the
Guaranty Corporation's payment of the LSDC certificates' redemption value, burden of the management committee or rehabilitation receiver, whose time,
Home Guaranty Corporation was subrogated into the rights of La Savoie's effort and resources would be wasted in defending claims against the
creditors (i.e., the certificate holders). It asserts that "effectively, petitioner corporation instead of being directed toward its restructuring and
HGC is already the creditor of respondent La Savoie" 90 and that as creditor, it rehabilitation.97cralawlawlibrary
cannot be given a preference over the assets of La Savoie, something that is As is evident from these discussions, however, the intention of "prevent[ing] a
"prohibited, in rehabilitation proceedings."91 creditor from obtaining an advantage" is applicable in the context of
an ongoing receivership. The prevention of a creditor's obtaining an
In support of its contentions, La Savoie cites the following portion of this advantage is not an end in itself but further serves the purpose of "giv[ing]
court's discussion in Araneta v. Court of enough breathing space for the ... rehabilitation receiver." Thus, it applies
Appeals:92ChanRoblesVirtualawlibrary only to corporations under receivership. Plainly, it does not apply to
This Court in Alemar's Sibal & Sons, Inc. vs. Elbinias explained the rationale corporations who have sought to put themselves under receivership but, for
behind a SEC order for suspension of payments and of placing a corporation lack of judicial sanction, have not been put under or are no longer under
under receivership thus:chanroblesvirtuallawlibrary receivership.
It must be stressed that the SEC had earlier ordered the suspension of all
actions for claims against Alemar's in order that all the assets of said The trial court's October 1, 2003 Order denied due course to and dismissed
petitioner could be inventoried and kept intact for the purpose of ascertaining La Savoie's Petition for Rehabilitation. It superseded the trial court's June 4,
an equitable scheme of distribution among its creditors. 2003 Stay Order appointing Rito C. Manzana as rehabilitation receiver and
thereby relieving him of his duties and removing La Savoie from receivership.
During rehabilitation receivership, the assets are held in trust for the equal
benefit of all creditors to preclude one from obtaining an advantage or Apart from these, the trial court's October 1, 2003 Order lifted the June 4,
preference over another by the expediency of an attachment, execution or 2003 Stay Order. This was significant not only with respect to the freedom it
otherwise. For what would prevent an alert creditor, upon learning of the afforded to La Savoie's creditors to (in the meantime that the lifting of the
receivership, from rushing posthaste to the courts to secure judgments for Stay Order was not restrained) enforce their claims but similarly because it
the satisfaction of its claims to the prejudice of the less alert creditors. established a context that removed this case from the strict applicability of
the rule being cited by La Savoie.
As between creditors, the key phrase is "equality is equity (Central Bank vs.
Morfe, 63 SCRA 114, citing Ramisch vs. Fulton, 41 Ohio App. 443, 180 N.E. The portions cited by La Savoie in Araneta and Alemar's Sibal &
735)." When a corporation threatened by bankruptcy is taken over by a Sons referred to a specific context:chanroblesvirtuallawlibrary
receiver, all the creditors should stand on an equal footing. Not anyone of It must be stressed that the SEC had earlier ordered the suspension of all
them should be given any preference by paying one or some of them ahead actions for claims against Alemar's in order that all the assets of said
of the others. This is precisely the reason for the suspension of all pending petitioner could be inventoried and kept intact for the purpose of ascertaining
an equitable scheme of distribution among its creditors. 98 (Emphasis of the thing mortgaged in case of non-payment of the principal obligation
supplied) within the stipulated period.100
The pronouncements in Araneta and Alemar's Sibal & Sons thus pertained to Nakpil v. Intermediate Appellate Court101 discussed a similar situation where
instances in which there was an outstanding order suspending the there was automatic appropriation on account of failure to
enforcement of creditors' claims. Here, the Stay Order was lifted, and its pay:chanroblesvirtuallawlibrary
lifting was not enjoined or otherwise restrained. There was thus no Stay The arrangement entered into between the parties, whereby Pulong Maulap
Order to speak of in those critical intervening moments when Home Guaranty was to be considered sold to him (respondent) ... in case petitioner fails to
Corporation acted pursuant to the guaranty call and paid the holders of the reimburse Valdes, must then be construed as tantamount to a pactum
LSDC certificates. commissorium which is expressly prohibited by Art. 2088 of the Civil Code.
For, there was to be automatic appropriation of the property by Valdes in the
If, following this payment and while La Savoie remained to be not under event of failure of petitioner to pay the value of the advances. Thus, contrary
receivership, a valid transfer of the properties comprising the Asset Pool was to respondent's manifestations, all the elements of a pactum commissorium
made in favor of Home Guaranty Corporation, the properties would then no were present: there was a creditor-debtor relationship between the parties;
longer be under the dominion of La Savoie. They would thus be beyond the the property was used as security for the loan; and, there was automatic
reach of rehabilitation proceedings and no longer susceptible to the rule appropriation by respondent of Pulong Maulap in case of default of
against preference of creditors. However, we find that the transfer made to petitioner.102cralawlawlibrary
Home Guaranty Corporation was ineffectual. In this case, Sections 13.1 and 13.2 of the Contract of Guaranty call for the
"prompt assignment and conveyance to [Home Guaranty Corporation] of all
Viewed solely through the lens of the Trust Agreement and the Contract of the corresponding properties in the Asset Pool" that are held as security in
Guaranty, the transfer made to Home Guaranty Corporation on the strength favor of the guarantor. Moreover, Sections 13.1 and 13.2 dispense with the
of the Deed of Conveyance appears valid and binding. However, we find that need of conducting foreclosure proceedings, judicial or otherwise. Albeit
its execution is in violation of a fundamental principle in the law governing requiring the intervention of the trustee of the Asset Pool, Sections 13.1 and
credit transactions. We find the execution of a Deed of Conveyance without 13.2 spell out what is, for all intents and purposes, the automatic
resorting to foreclosure to be indicative of pactum commissorium. Hence, it is appropriation by the paying guarantor of the properties held as security. This
void and ineffectual and does not serve to vest ownership in Home Guaranty is thus a clear case of pactum commissorium. It is null and void. Accordingly,
Corporation. whatever conveyance was made by Planters Development Bank to Home
Guaranty Corporation in view of this illicit stipulation is ineffectual. It did not
Articles 2088 and 2137 of the Civil Code provide:chanroblesvirtuallawlibrary vest ownership in Home Guaranty Corporation.
Art. 2088. The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and Air that this transfer engendered is a constructive trust in which the
void. properties comprising the Asset Pool are held in trust by Home Guaranty
Corporation, as trustee, for the trustor, La Savoie.
Art. 2137. The creditor does not acquire the ownership of the real estate for
non-payment of the debt within the period agreed upon. Buan Vda. De Esconde v. Court of Appeals103 exhaustively discussed the
concept of a trust and its classification into express and implied trusts, as
Every stipulation to the contrary shall be void. But the creditor may petition well as resulting and constructive trusts:chanroblesvirtuallawlibrary
the court for the payment of the debt or the sale of the real property. In this Trust is the legal relationship between one person having an equitable
case, the Rules of Court on the foreclosure of mortgages shall apply. ownership in property and another person owning the legal title to such
In Garcia v. Villar,99 this court discussed the elements of pactum property, the equitable ownership of the former entitling him to the
commissorium:chanroblesvirtuallawlibrary performance of certain duties and the exercise of certain powers by the latter.
The following are the elements of pactum commissorium: Trusts are either express or implied. An express trust is created by the direct
and positive acts of the parties, by some writing or deed or will or by words
(1) There should be a property mortgaged by way of security for the evidencing an intention to create a trust. No particular words are required for
payment of the principal obligation; and the creation of an express trust, it being sufficient that a trust is clearly
intended.
(2) There should be a stipulation for automatic appropriation by the creditor
On the other hand, implied trusts are those which, without being expressed, In Lopez v. Court of Appeals,107 properties intended to be for the benefit of "a
are deducible from the nature of the transaction as matters of intent or which trust fund for [the testatrix's] paraphernal properties, denominated
are superinduced on the transaction by operation of law as matters of equity, as Fideicomiso de Juliana Lopez Manzano (Fideicomiso),"108 were
independently of the particular.intention of the parties. In turn, implied trusts mistakenly adjudicated by a probate court in favor of respondents'
are either resulting or constructive trusts. These two are differentiated from predecessor-in-interest, Jose Lopez Manzano. These properties were then
each other as follows:chanroblesvirtuallawlibrary registered by him, and transfer certificates of title were issued in his name.
Resulting trusts are based on the equitable doctrine that valuable This court held that "[t]he apparent mistake in the adjudication of the disputed
consideration and not legal title determines the equitable title or interest and properties to Jose created a mere implied trust of the constructive variety in
are presumed always to have been contemplated by the parties. They arise favor of the beneficiaries of the Fideicomiso."109
from the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title but In Lopez, this court held that the factual milieu of that case placed it within
is obligated in equity to hold his legal title for the benefit of another. On the the contemplation of Article 1456 of the Civil Code:
other hand, constructive trusts are created by the construction of equity in
order to satisfy the demands of justice and prevent unjust enrichment. They The provision on implied trust governing the factual milieu of this case is
arise contrary to intention against one who, by fraud, duress or abuse of provided in Article 1456 of the Civil Code, which states:
confidence, obtains or holds the legal right to property which he ought not, in
equity and good conscience, to hold.104 (Emphasis supplied) ART. 1456. If property is acquired through mistake or fraud, the person
Articles 1450, 1454, 1455, and 1456 of the Civil Code provide examples of obtaining it is, by force of law, considered a trustee of an implied trust for the
constructive trusts:chanroblesvirtuallawlibrary benefit of the person from whom the property comes.
Art. 1450. If the price of a sale of property is loaned or paid by one person for
the benefit of another and the conveyance is made to the lender or payor to The disputed properties were excluded from the Fideicomiso at the outset.
secure the payment of the debt, a trust arises by operation of law in favor of Jose registered the disputed properties in his name partly as his conjugal
the person to whom the money is loaned or for whom it is paid. The latter share and partly as his inheritance from his wife Juliana, which is the
may redeem the property and compel a conveyance thereof to him. complete reverse of the claim of the petitioner, as the new trustee, that the
properties are intended for the beneficiaries of the Fideicomiso. Furthermore,
Art. 1454. If an absolute conveyance of property is made in order to secure the exclusion of the disputed properties from the Fideicomiso was approved
the performance of an obligation of the grantor toward the grantee, a trust by by the probate court and, subsequently, by the trial court having jurisdiction
virtue of law is established. If the fulfillment of the obligation is offered by the over the Fideicomiso. The registration of the disputed properties in the name
grantor when it becomes due, he may demand the reconveyance of the of Jose was actually pursuant to a court order. The apparent mistake in the
property to him. adjudication of the disputed properties to Jose created a mere implied trust
of. the constructive variety in favor of the beneficiaries of the Fideicomiso.110
Art. 1455. When any trustee, guardian or other person holding a fiduciary
relationship uses trust funds for the purchase of property and causes the So, too, this case falls squarely under Article 1456 of the Civil Code. Home
conveyance to be made to him or to a third person, a trust is established by Guaranty Corporation acquired the properties comprising the Asset Pool by
operation Of law in favor of the person to whom the funds belong. mistake or through the ineffectual transfer (i.e., for being pactum
commissorium) made by the original trustee, Planters Development Bank.
Art. 1456. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for the Two key points are established from the preceding discussions. First, the
benefit of the person from whom the property comes. Court of Appeals' June 21, 2005 Decision restored La Savoie's status as a
In Rodrigo v. Arcilla,105 this court held that a constructive trust was created corporation under receivership. Second, with all but a constructive trust
when petitioners' predecessor-in-interest, Vicente Sauza, got respondent's created between Home Guaranty Corporation and La Savoie, the properties
parents, Ramon Daomilas and Lucia Nagac, "to sign a document which he comprising the Asset Pool remain within the dominion of La Savoie.
represented to them as a deed 'evidencing their status as adjoining
landowners' but was actually a document disclaiming their ownership over On the first point, the restoration of La Savoie's status as a corporation under
[the subject lot] and transferring the same to [Sauza]." 106 receivership brings into operation the rule against preference of creditors. On
the second point, La Savoie's continuing ownership entails the continuing
competence of the court having jurisdiction over the rehabilitation
proceedings to rule on how the properties comprising the Asset Pool shall be
disposed, managed, or administered in order to satisfy La Savoie's
obligations and/or effect its rehabilitation.

The cumulative effect of these is that Home Guaranty Corporation must

submit itself, like La Savoie's other creditors, to how La Savoie's Petition for
Rehabilitation shall be resolved. As a paying guarantor, Home Guaranty
Corporation was subrogated into the rights of La Savoie's creditors and now
stands as the latter's own creditor. It remains so pending the satisfaction of
La Savoie's obligation and as the void conveyance made to it by Planters
Development Bank failed to terminate in the creditor-debtor relationship with
La Savoie.cralawred

WHEREFORE, the Petition is DENIED. The Regional. Trial Court, Branch

142, Makati City is directed to proceed with dispatch in resolving the Petition
for Rehabilitation filed by respondent La Savoie Development Corporation.

SO ORDERED.chanroblesvirtuallawlibrary
 Section 3 of Act No. 3135 provides for the following pre-requisites for an
extrajudicial sale:chanroblesvirtualawlibrary

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
or city.

Hence, petitioner caused the publication of a Notice of Sale 7cra1aw dated

November 12, 1999, prepared by Notary Public Enriqueto I. Magpantay
(Magpantay), in the Challenger News a weekly newspaper of general
G.R. No. 176212 : October 20, 2010 circulation on November 15, 22, and 29, 1999.8cra1aw The published Notice
of Sale stated:chanroblesvirtualawlibrary
CENTURY SAVINGS BANK, Petitioner, v. SPOUSES DANILO T.
SAMONTE and ROSALINDA M. SAMONTE, Respondents.cralaw NOTICE OF SALE

DECISION Upon extrajudicial petition for sale under Act 3135, as amended by Act 4118,
filed by CENTURY SAVINGS BANK, mortgagee, against SPOUSES DANILO
LEONARDO-DE CASTRO, J.: T. SAMONTE AND ROSALINDA N. SAMONTE, mortgagors, with residence
and postal address at No. 7142 M. Ocampo St., Pio del Pilar, Makati City, to
This is a Petition for Review on Certiorari of the Decision 1cra1aw dated July satisfy the mortgaged indebtedness, which, as [of] October 15, 1999,
7, 2006 and the Resolution2cra1aw dated January 10, 2007 of the Court of amounts to FOUR MILLION FIVE HUNDRED EIGHTY THOUSAND FIVE
Appeals in CA-G.R. CV No. 85730. The Court of Appeals reversed and set HUNDRED NINETY FOUR PESOS AND 62/100 (P4,580,594.62) excluding
aside the Decision3cra1aw dated May 30, 2005 of the Regional Trial Court, penalties, interest, and charges accruing from October 15, 1999 and
National Capital Judicial Region, City of Makati, Branch 58 (Makati RTC- attorneys fees, legal fees and expenses for the foreclosure and sale, the
Branch 58), in Civil Case No. 01-1564, which dismissed for lack of merit the undersigned Notary Public for Makati City will sell at PUBLIC AUCTION to
Complaint4cra1aw for the annulment of an extrajudicial foreclosure filed by the highest bidder FOR CASH and in Philippine Currency, on December 9,
herein respondent spouses Danilo T. Samonte and Rosalinda M. Samonte 1999 at 10:00 oclock in the morning, or soon thereafter, at the main entrance
against herein petitioner Century Savings Bank. of the City Hall of Makati, the following described real estate properties,
together with all the improvement existing thereon to
wit:chanroblesvirtualawlibrary
The present controversy stemmed from the two loans, in the aggregate
amount of Three Million Five Hundred Thousand Pesos (P3,500,000.00),
extended by petitioner to respondents. Each loan was secured by a TRANSFER CERTIFICATE OF TITLE
promissory note5cra1aw and deed of real estate mortgage6cra1aw executed
by respondents in favor of petitioner. The real estate mortgages were NO. 201334
constituted on parcels of land, covered by Transfer Certificate of Title (TCT)
Nos. 201334 and 205596, in respondents names. When respondents REGISTRY OF DEEDS FOR
defaulted in the payment of their loans by the latter part of 1999, petitioner CITY OF MAKATI
initiated before the notary public extrajudicial foreclosure proceedings over
the mortgaged properties, pursuant to Act No. 3135, also known as "An Act xxxx
to Regulate the Sale of Property under Special Powers Inserted in or
Annexed to Real Estate Mortgages," as amended.
TRANSFER CERTIFICATE OF TITLE
 NO. 205596 A few months later, respondents filed a Complaint dated October 22, 2001,
seeking the annulment of the extrajudicial foreclosure sale of their real
REGISTRY OF DEEDS FOR properties. The Complaint was docketed as Civil Case No. 01-1564 and
CITY OF MAKATI9chanroblesvirtuallawlibrary raffled to the Makati RTC-Branch 58. Among respondents contentions was
that the extrajudicial foreclosure proceedings initiated by petitioner failed to
comply with the posting requirements under Section 3 of Act No. 3135, as
Notary Public Magpantay also attested in a Certificate of
amended. On the other hand, petitioner insisted that the extrajudicial
Posting10cra1aw dated December 9, 1999, as
foreclosure sale was duly conducted in accordance with law.
follows:chanroblesvirtualawlibrary

The Makati RTC-Branch 58, after trial, rendered a Decision on May 30, 2005
CERTIFICATE OF POSTING
dismissing respondents Complaint in Civil Case No. 01-1564. The trial court
found that "the Notice of Sale appears to have been posted for twenty days
I HEREBY CERTIFY, that on the 15st day of November 1999, I have caused before the scheduled public auction, as stated in the Notary Publics
the posting of three (3) copies of Notice of Sale over the real estate Certificate of Posting";16cra1aw and that even if the posting requirement was
properties covered by Transfer Certificates of Title Nos. 201334 and 205596 not complied with, the publication of the Notice of Sale in a newspaper of
of the Registry of Deeds for the City of Makati in three (3) conspicuous general circulation already satisfied the notice requirement under Act No.
places in Makati City, as required by law. 3135, as amended. The trial court added that under the equitable principle of
estoppel, respondents were precluded from impugning the validity of the
Makati City, December 9, 1999.11chanroblesvirtuallawlibrary extrajudicial foreclosure proceedings as they already acknowledged the
same in their 2001 Contract of Lease with petitioner. The Makati RTC-Branch
The public auction sale took place as scheduled on December 9, 1999, with 58 decreed in the end, "WHEREFORE, premises considered, judgment is
petitioner as the winning and highest bidder. Notary Public Magpantay hereby rendered dismissing [herein respondents] Complaint for lack of
subsequently issued on January 6, 2000 a Certificate of merit."17chanroblesvirtuallawlibrary
Sale,12cra1aw covering the subject properties, in favor of petitioner. This
Certificate of Sale mentioned, among other things, that the extrajudicial Respondents appeal before the Court of Appeals of the aforementioned
foreclosure sale of the mortgaged properties was only a partial satisfaction of judgment of the Makati RTC-Branch 58 was docketed as CA-G.R. CV No.
respondents total outstanding financial obligations to petitioner. 85730. In its Decision dated July 7, 2006, the Court of Appeals adjudged that
Consequently, on March 15, 2000, petitioner filed a complaint against the extrajudicial foreclosure proceedings were fatally defective because the
respondents for the collection of the deficiency of their loans, which was "Certificate of Posting failed to state that the Notice of Sale was posted for
docketed as Civil Case No. 67842 before the RTC-Branch 263 of the City of twenty (20) days before the sale in at least three (3) public places of the city
Pasig.13chanroblesvirtuallawlibrary where the properties sought to be foreclosed [were] situated"; 18cra1aw and
that petitioner failed to satisfactorily refute respondents contention that there
Sometime in 2001, the parties executed a Contract of was no faithful compliance with the mandate of the law on the posting of the
Lease14cra1aw whereby petitioner leased one of the foreclosed properties to Notice of Sale. The appellate court also held that the presumption of
respondents for a period of one year, from January 16, 2001 to January 16, regularity in the performance of the notary publics duties did not apply
2002. It was acknowledged in said contract that petitioner acquired the real because petitioner did not present Notary Public Magpantay to testify on the
property subject of the lease as the highest and winning bidder in an circumstances involving the posting of the Notice of Sale. The appellate court
extrajudicial foreclosure sale, conducted pursuant to Act No. 3135, as lastly ruled that the principle of estoppel could not validate an act prohibited
amended; that petitioner was in the process of consolidating its title over the by law, and so the Contract of Lease between petitioner and respondents did
said real property as the redemption period expired without respondents not ratify a null and void extrajudicial foreclosure sale. The Court of Appeals
having exercised their right of redemption; and that respondents had disposed thus:chanroblesvirtualawlibrary
recognized the valid and legal right of petitioner as the absolute owner of the
leased real property. Petitioner eventually consolidated its titles to the WHEREFORE, the instant appeal is GRANTED. The assailed Decision
foreclosed properties. As a result, new certificates of title, TCT Nos. 21780 dated May 30, 2005 is SET ASIDE and a new one is entered annulling the
and 21781,15cra1aw were issued in the name of petitioner. extra-judicial foreclosure sale of [herein respondents] properties covered by
Transfer Certificates of Title (TCT) Nos. 201334 and 205596 of the Registry "conspicuous places," which are not the same as the "public places" required
of Deeds of Makati City.19chanroblesvirtuallawlibrary by law. Respondents maintain that the law requires both posting and
publication of the notice of sale, and that the question of whether there had
Petitioner comes before this Court via the present Petition for Review on been actual compliance with the legal requirements for a valid foreclosure
Certiorari asserting that notices of the extrajudicial foreclosure sale of sale is a question of fact not proper for determination at this stage of the
respondents mortgaged properties were duly posted, in compliance with case.
Section 3 of Act No. 3135, as amended. Although Notary Public Magpantays
Certificate of Posting did not exactly state that the notices of sale were The Court finds the instant Petition meritorious.
"posted for not less than twenty days" and in "at least three public places
where the properties sought to be foreclosed were situated[,]" the said In Microsoft Corporation v. Maxicorp, Inc.,20cra1aw the Court elucidated on
certificate, nonetheless, affirmed that copies of the Notice of Sale were the distinction between questions of law and fact:chanroblesvirtualawlibrary
posted on November 15, 1999 "in three (3) conspicuous places in Makati
City." Since the public auction of the mortgaged properties was held on The distinction between questions of law and questions of fact is settled. A
December 9, 1999, the copies of the Notice of Sale had been posted in three question of law exists when the doubt or difference centers on what the law
public places for 24 days, even more than the 20 days required by law. The is on a certain state of facts. A question of fact exists if the doubt centers on
Certificate of Posting prima facie proved compliance with the required the truth or falsity of the alleged facts. Though this delineation seems simple,
posting of the notices of sale, thus, the testimony of the notary public who determining the true nature and extent of the distinction is sometimes
issued the certificate was not necessary in the absence of proof that problematic. For example, it is incorrect to presume that all cases where the
irregularities attended the performance of his duties. facts are not in dispute automatically involve purely questions of law.

Petitioner argues in the alternative that the publication of the notice of sale There is a question of law if the issue raised is capable of being resolved
already constitutes sufficient compliance with the notice requirements of Act without need of reviewing the probative value of the evidence. The resolution
No. 3135, as amended. The absence of actual posting of the notice of sale, of the issue must rest solely on what the law provides on the given set of
or the lack of or defect in the certificate of posting, should not invalidate a circumstances. Once it is clear that the issue invites a review of the evidence
public auction when the same notice of sale had been published. In this presented, the question posed is one of fact. If the query requires a re-
case, it is undisputed that the Notice of Sale was duly published in the evaluation of the credibility of witnesses, or the existence or relevance of
Challenger News. surrounding circumstances and their relation to each other, the issue in that
query is factual. Our ruling in Paterno v. Paterno [G.R. No. 63680, 23 March
Petitioner also posits that the facts of the case are undisputed. There is no 1990, 183 SCRA 630] is illustrative on this point:chanroblesvirtualawlibrary
question that Notary Public Magpantay conducted the foreclosure
proceedings involving respondents properties, and that the extrajudicial Such questions as whether certain items of evidence should be accorded
foreclosure sale took place. Such proceedings enjoy the presumption of probative value or weight, or rejected as feeble or spurious, or whether or not
regularity. The chief issue involved in the case at bar is a question of law the proofs on one side or the other are clear and convincing and adequate to
arising from the foregoing undisputed facts, specifically, "[s]hould the establish a proposition in issue, are without doubt questions of fact. Whether
extrajudicial foreclosure sale be declared invalid because the Certificate of or not the body of proofs presented by a party, weighed and analyzed in
Posting merely states that the Notice of Sale was posted on 15 November relation to contrary evidence submitted by adverse party, may be said to be
1999 in three conspicuous places in Makati City." Petitioner submits that strong, clear and convincing; whether or not certain documents presented by
since it was respondents who instituted the action for annulment of one side should be accorded full faith and credit in the face of protests as to
foreclosure, the burden of proof is upon them to prove the invalidity of the their spurious character by the other side; whether or not inconsistencies in
foreclosure proceedings for non-compliance with the law. the body of proofs of a party are of such gravity as to justify refusing to give
said proofs weight all these are issues of fact.
Respondents conclude that the extrajudicial foreclosure proceeding was
correctly nullified by the appellate court. Respondents counter that per It is true that Maxicorp did not contest the facts alleged by petitioners. But
Notary Public Magpantays Certificate of Posting, the Notice of Sale was this situation does not automatically transform all issues raised in the petition
posted for only one day as said certificate failed to state the duration of the
posting prior to the public auction. Also, the Notice of Sale referred to
into questions of law. The issues must meet the tests outlined In this case, it was respondents who instituted Civil Case No. 01-1564
in Paterno.21chanroblesvirtuallawlibrary seeking the annulment of the extrajudicial foreclosure of their mortgaged
properties on the ground of non-compliance with the requirements of the law
The main issue in the case at bar is whether the extrajudicial foreclosure sale on the posting of the notices of sale. Thus, the burden falls upon respondents
of respondents mortgaged properties was valid. The resolution of said issue, to prove the fact of non-compliance; but respondents miserably failed in this
however, is dependent on the answer to the question of whether the legal regard. Respondents did not present any evidence at all to establish that the
requirements on the notice of sale were complied with. Necessarily, the Court notices of sale were not posted as required under Section 3 of Act No. 3135,
must review the evidence on record, most especially, Notary Public as amended. Instead, respondents merely focused on how Notary Public
Magpantays Certificate of Posting, to determine the weight and probative Magpantays Certificate of Posting was worded, and emphasized on
value to accord the same. Non-compliance with the requirements of notice technicalities and semantics.
and publication in an extrajudicial foreclosure sale is a factual issue. The
resolution thereof by the lower courts is binding and conclusive upon this Respondents insist that the phrase "on the 15st day of November 1999, I
Court. However, this rule is subject to exceptions, as when the findings of the have caused the posting of three (3) copies of Notice of Sale" in the
trial court and the Court of Appeals are in conflict. Also, it must be noted that Certificate of Posting meant that Notary Public Magpantay posted the notices
non-compliance with the statutory requisites could constitute a jurisdictional for only one day, i.e., on November 15, 1999. This is a rather specious
defect that would invalidate the sale.22chanroblesvirtuallawlibrary interpretation of the aforequoted phrase. It is more logical and reasonable to
understand the same phrase as to mean that the notices were posted
After a review of the evidence on record, the Court declares that the beginning November 15, 1999 until the issuance of the certificate on
extrajudicial foreclosure sale of respondents properties is valid, having December 9, 1999. There is also no basis to require the notary publics
complied with the legal requirements for the same. certificate to exactly state that the notices of sale were posted at "public
places." Notary Public Magpantays use of the words "conspicuous places" in
his certificate already satisfactorily complies with the legal requirement for
It is an elementary rule that the "burden of proof is the duty of a party to
posting. The adjective "public" may refer to that which is "exposed to general
present evidence on the facts in issue necessary to establish his claim or
view," and "conspicuous" is a synonym thereof.26chanroblesvirtuallawlibrary
defense by the amount of evidence required by law." 23cra1aw In Cristobal v.
Court of Appeals,24cra1aw the Court explicitly ruled that foreclosure
proceedings enjoy the presumption of regularity and that the mortgagor who Moreover, it bears to stress that the Certificate of Posting is actually evidence
alleges absence of a requisite has the burden of proving such fact, to presented by the petitioner to establish that copies of the Notice of Sale were
wit:chanroblesvirtualawlibrary indeed posted as required by Act No. 3135, as amended. Without presenting
their own evidence of the alleged lack of posting, respondents contented
themselves with challenging the contents of said certificate. As plaintiffs in
Further, as respondent bank asserts, a mortgagor who alleges absence of a
Civil Case No. 01-1564, respondents must rely on the strength of their own
requisite has the burden of establishing that fact. Petitioners failed in this
evidence and not upon the weakness of the
regard. Foreclosure proceedings have in their favor the presumption of
petitioners.27chanroblesvirtuallawlibrary
regularity and the burden of evidence to rebut the same is on the petitioners.
As well said by the respondent appellate court:chanroblesvirtualawlibrary
In addition, despite any defect in the posting of the Notice of Sale, the Court
reiterates its ruling in previous jurisprudence that the publication of the same
". . . Under the circumstances, there is a basis for presuming that official duty
notice in a newspaper of general circulation is already sufficient compliance
has been regularly performed by the sheriff. Being a disputable presumption,
with the requirement of the law.
the same is valid unless controverted by evidence. The presumption has not
been rebutted by any convincing and substantial evidence by the appellee
who has the onus to present evidence that appellant has not complied with In Olizon v. Court of Appeals,28cra1aw the Court expounded on the purpose
the posting requirement of the law. In the absence therefore of any proof to for giving notice of the foreclosure sale; and if such purpose could be
the contrary, the presumption that official duty has been regularly performed attained by publication alone, then the absence of actual posting should not
stays."25cra1aw (Emphases supplied.) nullify the sale. Thus:chanroblesvirtualawlibrary
We take judicial notice of the fact that newspaper publications have more far- lessee. According to Section 2(b), Rule 131 of the Rules of Court, "[t]he
reaching effects than posting on bulletin boards in public places. There is a tenant is not permitted to deny the title of his landlord at the time of the
greater probability that an announcement or notice published in a newspaper commencement of the relation of landlord and tenant between them." The
of general circulation, which is distributed nationwide, shall have a readership juridical relationship between petitioner as lessor and respondents as
of more people than that posted in a public bulletin board, no matter how lessees carries with it a recognition of the lessors title. As lessees, then
strategic its location may be, which caters only to a limited few. Hence, the respondents are estopped to deny their landlord's title, or to assert a better
publication of the notice of sale in the newspaper of general circulation alone title not only in themselves, but also in some third person while they remain
is more than sufficient compliance with the notice-posting requirement of the in possession of the leased premises and until they surrender possession to
law. By such publication, a reasonably wide publicity had been effected such the landlord. This estoppel applies even though the lessor had no title at the
that those interested might attend the public sale, and the purpose of the law time the relation of lessor and lessee was created, and may be asserted not
had been thereby subserved. only by the original lessor, but also by those who succeed to his
title.30chanroblesvirtuallawlibrary
The object of a notice of sale is to inform the public of the nature and
condition of the property to be sold, and of the time, place and terms of the The Court quotes with approval the following findings of the
sale. Notices are given for the purpose of securing bidders and to prevent a RTC:chanroblesvirtualawlibrary
sacrifice of the property. If these objects are attained, immaterial errors and
mistakes will not affect the sufficiency of the notice; but if mistakes or Further, this Court upholds the validity of the extrajudicial foreclosure
omissions occur in the notices of sale, which are calculated to deter or proceeding under the equitable principle of estoppel. [Herein respondents]
mislead bidders, to depreciate the value of the property, or to prevent it from admitted execution of the Contract of Lease alone establishes that they do
bringing a fair price, such mistakes or omissions will be fatal to the validity of not have any cause of action or are estopped from impugning the validity of
the notice, and also to the sale made pursuant thereto. the subject extrajudicial foreclosure proceedings. In the Contract of Lease,
[respondents] clearly acknowledge that the subject extrajudicial foreclosure
In the instant case, the aforesaid objective was attained since there was sale was conducted in accordance with Act No. 3135, as amended; that they
sufficient publicity of the sale through the newspaper publication. There is failed to redeem the foreclosed properties within the redemption period; and
completely no showing that the property was sold for a price far below its that [petitioner] has valid and legal right and title as absolute owner of the
value as to insinuate any bad faith, nor was there any showing or even an foreclosed properties. [Respondents] failed to mention or question the validity
intimation of collusion between the sheriff who conducted the sale and of the Contract of Lease in their Complaint. There being no evidence
respondent bank. This being so, the alleged non-compliance with the posting presented that [respondents] executed the Contract of Lease by mistake or
requirement, even if true, will not justify the setting aside of the through violence, intimidation, undue influence, or fraud, [respondents] are
sale.29cra1aw (Emphases supplied.) bound by the stipulations therein and to the consequences
thereof.31chanroblesvirtuallawlibrary
Olizon squarely applies in this case. It is not disputed that the Notice of Sale
was duly published in a newspaper of general circulation once a week for WHEREFORE, in view of the foregoing, the instant petition is hereby
three consecutive weeks. Respondents did not allege, much less prove, any GRANTED. The Decision dated July 7, 2006 and the Resolution dated
mistake or omission in the published Notice of Sale calculated to deter or January 10, 2007 of the Court of Appeals in CA-G.R. CV No. 85730 are SET
mislead bidders, depreciate the value of the property, or to prevent it from ASIDE and the Decision dated May 30, 2005 of the Regional Trial Court,
bringing a fair price; or sale of the mortgaged properties for a price far below National Capital Judicial Region, City of Makati, Branch 58, in Civil Case No.
their value as to insinuate bad faith; or collusion between Notary Public 01-1564, is REINSTATED. No costs.
Magpantay, who conducted the sale, and petitioner. Hence, the alleged non-
compliance with the posting requirement, even if true, shall not justify the SO ORDERED.
setting aside of the foreclosure sale.

Finally, the Court agrees with the RTC that respondents are already
estopped from challenging the validity of the foreclosure sale, after entering
into a Contract of Lease with petitioner over one of the foreclosed properties.
The title of the landlord is a conclusive presumption as against the tenant or
 document. Defendant Cipriano assured plaintiffs-appellees that it will be a
mere formality and will never be notarized.

Subsequently, plaintiffs-appellees informed defendant-appellant Coca-Cola of

their intention to stop selling Coca-Cola products due to their advanced age.
Thus, plaintiffs-appellees verbally demanded from defendant-appellant the
return of their certificates of titles. However, the titles were not given back to
them.

When plaintiffs-appellees were contemplating on filing a petition for the

issuance of new titles, they discovered for the first time that their land was
mortgaged in favor of defendant-appellant Coca-Cola. Worse, the mortgage
land was already foreclosed. Hence, plaintiffs-appellees filed a complaint for
annulment of sheriffs foreclosure sale. They alleged that they never signed a
mortgaged document and that they were never notified of the foreclosure
sale. In addition, plaintiffs-appellees aver that they never had monetary
obligations or debts with defendant-appellant. They always paid their product
deliveries in cash.
G.R. No. 211232, April 11, 2018
Furthermore, plaintiffs-appellees claimed that they merely signed a document
COCA-COLA BOTTLERS PHILS., INC., Petitioner, v. SPOUSES EFREN in Tuguegarao. They never signed any document in Ilagan, lsabela nor did
AND LOLITA SORIANO, Respondents. they appear before a certain Atty. Reymundo Ilagan on 06 January 2000 for
the notarization of the said mortgage document.
DECISION
On their part, defendant-appellant alleged that plaintiffs-appellees are
TIJAM, J.: indebted to them. Plaintiffs-appellees' admission that they signed the real
estate mortgage document in Tuguegarao, Cagayan indicates that the
mortgage agreement was duly executed. The failure of the parties to appear
This petition for review on certiorari1 under Rule 45 of the Rules of Court
before the notary public for the execution ofthe document does not render
seeks to reverse and set aside the Decision2 dated June 18, 2013 and
the same null and void or unenforceable.5
Resolution3 dated February 4, 2014 of the Court of Appeals (CA) in CA G.R.
CV No. 97687, affirming the Decision4 dated February 9, 2011 of the
Regional Trial Court (RTC), Branch 01, Tuguegarao, Cagayan, in Case No. Ruling of the RTC
6821.
On February 9, 2011, the RTC rendered its decision nullifying the real estate
The Antecedents mortgage and the foreclosure proceedings. The dispositive portion of the
decision reads:
The CA summarized the antecedents as follows:
WHEREFORE, premises considered, the court hereby renders judgment in
favor of the plaintiffs and against the defendants as follows:
Plaintiffs-appellees spouses Efren and Lolita Soriano are engaged in the
business of selling defendant-appellant Coca-Cola products in Tuguegarao
City, Cagayan. Sometime in 1999, defendant-appellant thru Cipriano 1. Declaring the real estate mortgage (Exhibit "A") to be null and void:
informed plaintiffs-appellees that the former required security for the
continuation of their business. Plaintiffs-appellees were convinced to hand 2. Declaring the Sheriff’s Certificate of Sale (Exhibit "B") to be null and void;
over two (2) certificates of titles over their property and were made to sign a
3. Declaring the claim of the defendants that the land of the plaintiffs had constituted over plaintiffs-appellees' property and the subsequent
been mortgaged to defendant corporation to be unlawful; extrajudicial foreclosure invalid.6

4. Declaring the cloud over the title and interest of the plaintiffs be removed; Hence, the instant petition before Us. In its Petition and Reply, 7 petitioner
argues that the defect in the notarization of the REM deed does not in any
5. Ordering the defendants to surrender and deliver TCT No. T-86200 and way affect its validity. Section 112 of Presidential Decree No. 1529 (P.D.
TCT No. T-84673 to the plaintiffs; and 1529) only provides for the formal requirements for registrability and not
validity. Assuming that the mortgage contract cannot be registrable due to
lack of certain requirements, its only effect is that it does not bind third parties
6. Ordering the defendants in solidum to pay to plaintiffs the sum of
but the mortgage remains valid as between the parties. 8 Finally, petitioner
P50,000.00 as moral damages and P20,000.00 as attorney's fees.
alleges that there was no forgery considering that respondents admitted the
due execution of the REM deed in their complaint. On the other hand,
No pronouncement as to cost. respondents, in their Comment9, reiterated the findings of the courts a
quo and asseverated that petitioner failed to show any reversible error in the
SO DECIDED. CA decision.

Aggrieved, petitioner appealed to the CA. The Issue

Ruling of the CA Ultimately, the question posed before Us is the validity of a REM, the deed of
which was: (1) admittedly signed by the mortgagors, albeit in a place other
On June 18, 2013, the CA rendered the assailed decision affirming the RTC than that stated in the document, on the belief that the same would not be
decision in toto. The CA ruled that the Real Estate Mortgage deed (REM notarized; and (2) notarized without authority and compliance with the
deed) failed to comply substantially with the required form. Thus, it made the prescribed form under Section 112 of P.D. 1529. Corollary to the validity of
following findings: the said mortgage is the validity of the foreclosure sale pursuant to it.

A careful perusal of the mortgage deed has revealed that although the Our Ruling
spouses signed the real estate mortgage deed, they never acknowledged the
same before the Clerk of Court during the notarization. Likewise, only one The petition is impressed with merit.
witness has signed the document, instead of the required presence of two (2)
witnesses as provided by law. At the outset, We stress that the registration of a REM deed is not essential
to its validity. The law is clear on the requisites for the validity of a mortgage,
In the acknowledgment portion, only defendant Cipriano and defendant- to wit:
appellant Coca Cola has appeared and acknowledged the real estate
mortgage deed before the Clerk of Court. Nowhere did the plaintiffs- Art. 2085. The following requisites are essential to the contracts of pledge
appellees acknowledge before the Clerk of Court the said deed as their free and mortgage:
and voluntary act. Contrary to defendant-appellant's contention, this
acknowledgment is not a mere superfluity because it is expressly required by
(1) That they be constituted to secure the fulfillment of a principal obligation;
law. Even granting arguendo that the document should be considered
properly notarized, the aforementioned real estate mortgage deed still fell
short of the legal requirements under Section 112 of P.D. 1529. (2) That the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged;
Therefore, for failure to comply substantially with the required form, We find
that plaintiffs-appellees' land cannot be bound by the real estate mortgage. (3) That the persons constituting the pledge or mortgage have the free
We uphold the court a quo in finding both the real estate mortgage disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the at such ruling, the CA relied on the following pronouncements of this Court in
latter by pledging or mortgaging their own property. the case of Spouses Adelina S. Cuyco and Feliciano U Cuyco, v. Spouses
Renaoa Cuyco and Filipina Cuyco: 13
In relation thereto, Article 2125 provides:
In order to constitute a legal mortgage, it must be executed in a public
Article 2125. In addition to the requisites stated in Article 2085, it is document, besides being recorded. A provision in a private document,
indispensable, in order that a mortgage may be validly constituted, that the although denominating the agreement as one of mortgage, cannot be
document in which it appears be recorded in the Registry of Property. If the considered as it is not susceptible of inscription in the property registry. A
instrument is not recorded, the mortgage is nevertheless binding mortgage in legal form is not constituted by a private document, even if such
between the parties. (Emphasis supplied) mortgage be accompanied with delivery of possession of the mortgage
property. Besides, by express provisions of Section 127 of Act No. 496, a
mortgage affecting land, whether registered under said Act or not
Thus, as between the parties to a mortgage, the non-registration of a REM
registered at all, is not deemed to be sufficient in law nor may it be
deed is immaterial to its validity. In the case of Paradigm Development
effective to encumber or bind the land unless made substantially in the
Corporation of the Philippines, v. Bank of the Philippine Islands,10 the
form therein prescribed. It is required, among other things, that the
mortgagee allegedly represented that it will not register one of the REMs
document be signed by the mortgagor executing the same, in the presence
signed by the mortgagor. In upholding the validity of the questioned REM
of two witnesses, and acknowledged as his free act and deed before a notary
between the said parties, the Court ruled that "with or without the registration
public. A mortgage constituted by means of a private document obviously
of the REMs, as between the parties thereto, the same is valid and [the
does not comply with such legal requirements.14 (Citations omitted; emphasis
mortgagor] is bound thereby." The Court, thus, cited its ruling in the case
ours)
of Mobil Oil Philippines, Inc., v. Ruth R. Diocares, et al.11 a portion of which
reads:
The aforecited pronouncements by this Court, however, relate to the issue on
whether the subject realty of the REM was bound by the additional loans
Xxx. The codal provision is clear and explicit. Even if the instrument were not
executed between the parties. The validity of the said REM was not put into
recorded, "the mortgage is nevertheless binding between the parties." The
question in the said case. Thus, in the present case, the CA erred in relying
law cannot be any clearer. Effect must be given to it as written. The mortgage
on the said pronouncements.
subsists; the parties are bound. As between them, the mere fact that there
is as yet no compliance with the requirement that it be recorded cannot
be a bar to foreclosure. To reiterate, the law is clear and explicit as to the validity of an unregistered
REM between the parties. Indeed, if an unregistered REM is binding between
the parties thereto, all the more is a registered REM, such as the REM deed
xxxx
in this case.
Moreover to rule as the lower court did would be to show less than fealty to
Here, although the REM deed was registered and annotated on the back of
the purpose that animated the legislators in giving expression to their will that
the title, the petitioner failed to comply with the provisions under Section 112
the failure of the instrument to be recorded does not result in the mortgage
of P.D. 1529, viz:
being any the less "binding between the parties." In the language of the
Report of the Code Commission: "In Article [2125] an additional provision is
made that if the instrument of mortgage is not recorded, the mortgage, is xxxx
nevertheless binding between the parties." We are not free to adopt then an
interpretation, even assuming that the codal provision lacks the Deeds, conveyances, encumbrances, discharges, powers of attorney and
forthrightness and clarity that this particular norm does and therefore requires other voluntary instruments, whether affecting registered or unregistered
construction, that would frustrate or nullify such legislative land, executed in accordance with law in the form of public
objective.12 (Citation omitted; emphasis ours) instruments shall be registerable: Provided, that, every such instrument
shall be signed by the person or persons executing the same in the presence
Based on the foregoing, the CA, in the case at bar, clearly erred in ruling that of at least two witnesses who shall likewise sign thereon, and
the parties in the instant case cannot be bound by the REM deed. In arriving shall acknowledged to be the free act and deed of the person or
persons executing the same before a notary public or other public Section 20. Proof of private document. - Before any private document offered
officer authorized by law to take acknowledgment. Where the instrument as authentic is received in evidence its due execution and authenticity must
so acknowledged consists of two or more pages including the page whereon be proved either:
acknowledgment is written, each page of the copy which is to be registered
in the office of the Register of Deeds, or if registration is not contemplated, a) By anyone who saw the document executed or written; or
each page of the copy to be kept by the notary public, except the page where
the signatures already appear at the foot of the instrument, shall be signed b) By evidence of the genuineness of the signature or handwriting of
on the left margin thereof by the person or persons executing the instrument the maker.
and their witnesses, and all the pages sealed with the notarial seal, and this
fact as well as the number of pages shall be stated in the acknowledgment.
Where the instrument acknowledged relates to a sale, transfer, mortgage or Any other private document need only be identified as that which it is claimed
encumbrance of two or more parcels of land, the number thereof shall to be. (Emphasis supplied)
likewise be set forth in said acknowledgment. (Emphasis ours)
Moreover, the party invoking the validity of the private document has the
Respondents thus argue that the REM agreement is not a public document burden of proving its due execution and authenticity. 19 Here, the respondents
because it was notarized by a Clerk of Court of the RTC of Ilagan who is not claim that their signature was a forgery because they signed the REM deed
allowed by law to notarize private documents not related to their functions as in Tuguegarao and not in Isabela, as stated therein. Further, they alleged that
clerk of court. they were assured by petitioner that the same will not be notarized and is a
mere formality.
We find merit in the said argument.
Although the burden was on the petitioner to prove the REM deed's due
execution and authenticity, respondents' allegations and admissions should
Jurisprudence is replete with cases declaring that the notarization of be weighed against their favor.
documents that have no relation to the performance of official functions of the
clerk of courts is now considered to be beyond the scope of their authority as
notaries public ex officio.15 In the case of Gloria and Teresita Tan Ocampo v. Land Bank of the
Philippines Urdaneta, Pangasinan Branch and Ex Officio Provincial Sheriff of
Pangasinan,20 the mortgagors sought the nullity of the REM on the ground of
Nonetheless, the defective notarization of the REM agreement merely forgery. The Court ruled that forgery is present when any writing is
strips it of its public character and reduces it to a private counterfeited by the signing of another's name with intent to defraud.
document.16 Although Article 1358 of the New Civil Code requires that the However, the Court affirmed the CA in finding no reason to discuss forgery in
form of a contract transmitting or extinguishing real rights over immovable light of the admission by the mortgagor that she had affixed her signature to
property should be in a public document, the failure to observe such required the subject Deed of REM.21
form does not render the transaction invalid.17 The necessity of a public
document for the said contracts is only for convenience; it is not essential for
its validity or enforceability. Consequently, when there is a defect in the Likewise, in this case, it is undisputed that the respondents signed the REM
notarization of a document, the clear and convincing evidentiary standard deed. They merely invoke the nullity of the same on the grounds that it was
originally attached to a duly-notarized document is dispensed with, and the not signed in the place stated therein and that they were made to believe that
measure to test the validity of such document is preponderance of it will not be notarized. Thus, in their Amended Complaint 22, respondents
evidence.18 alleged:

Thus, in order to determine the validity of the REM in this case, the REM That defendants through the machinations and manipulations of defendant
agreement shall be subject to the requirement of proof under Section 20, Reynaldo C. Cipriano as the General Manager, convinced the plaintiffs to
Rule 132, viz: give them titles of whatever lands as guaranty for the subsequent deliveries
of coca-cola products and there is nothing to worry because the titles shall be
returned any time after their accounts are fully settled; as the plaintiffs were
in good faith, handed the titles of their lands described in paragraph 4, of this
complaint to defendant Reynaldo C. Cipriano (why) who assured plaintiffs
that is only a formality, and there is nothing to worry; plaintiffs signed the incidente which is not the kind of fraud that avoids a
said document in Tuguegarao City and not in Hagan, lsabela and contract. (Emphasis supplied)
defendant Reynaldo C. Cipriano assured the plaintiffs that the
document will not be notarized. (Emphasis ours) The foregoing factual circumstances in PDCP are attendant in the present
case. The respondents herein also signed the REM deed and surrendered
Clearly, the respondents did not specifically deny the due execution and the titles of the properties to the petitioner. Thus, We find that a claim of fraud
genuineness of the REM deed. The early case of Lamberto Songco, v. in favor of the respondents does not persuade.
George C. Sellner23 is instructive on how to deny the genuineness and due
execution of an actionable document, to wit: Moreover, in the case of Ocampo,25 the mortgagor maintained that when she
signed the questioned REM deed in blank form, she was led to believe by the
X x x. This means that the defendant must declare under oath that he did not mortgagee that such would only be used to process her loan application. The
sign the document or that it is otherwise false or fabricated. Neither does the Court, likewise, was not persuaded by such claim of fraud, thus:
statement of the answer to the effect that the instrument was procured by
fraudulent representation raise any issue as to its genuineness or due Unfortunately, Ocampo was unable to establish clearly and precisely how the
execution. On the contrary such a plea is an admission both of the Land Bank committed the alleged fraud. She failed to convince Us that she
genuineness and due execution thereof, since it seeks to avoid the was deceived, through misrepresentations and/or insidious actions, into
instrument upon a ground not affecting either. x x x (Emphasis ours) signing a blank form for use as security to her previous loan. Quite the
contrary, circumstances indicate the weakness of her submissions. The Court
In light of the foregoing, We find merit in petitioner's argument that the due of Appeals aptly held that:
execution and genuineness of the REM deed was impliedly admitted by the
respondents when they admitted signing the same. A perusal of all the Granting, for the sake of argument, that appellant bank did not apprise the
pleadings filed by the respondents reveal that their arguments are anchored appellees of the real nature of the real estate mortgage, such stratagem,
on the supposed fraud employed by the petitioner that led to their acts of deceit or misrepresentations employed by defendant bank are facts
surrendering the titles and signing the REM deed. Thus, respondents constitutive of fraud which is defined in Article 1338 of the Civil Code as that
essentially seeks the annulment of the REM on the ground of fraud. insidious words or machinations of one of the contracting parties, by which
the other is induced to enter into a contract which without them, he would not
Under Article 1344 of the Civil Code, fraud, as a ground for annulment of a have agreed to. When fraud is employed to obtain the consent of the other
contract, should be serious and should not have been employed by both party to enter into a contract, the resulting contract is merely a voidable
contracting parties. Article 1338 of the same Code further provides that there contract, that is a valid and subsisting contract until annulled or set aside by
is fraud when, through insidious words or machinations of one of the a competent court. x x x
contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to. In PDCP24, this Court refused to With the foregoing, We find that the preponderance of evidence tilts in favor
annul the REMs on the ground of fraud consisting of the mortgagee's of the petitioner. The due execution and genuineness of the REM deed was
assurances that the REMs already signed by the mortgagor would not be proven by the admission of the respondents that they signed the same. This
registered, thus: is bolstered by the fact that the titles were surrendered to the petitioner.
Other than bare allegations, respondents' claim of fraud is not supported by
In the present case, even if FEBTC represented that it will not register one of preponderance of evidence. Further, the courts a quo, in declaring the REM
the REMs, PDCP cannot disown the REMs it executed after FEBTC reneged deed null and void, erred in ruling that registration and compliance with the
on its alleged promise. As earlier stated, with or without the registration of the prescribed form are essential in the validity of a REM. In fine, We rule that
REMs, as between the parties thereto, the same is valid and PDCP is the REM between the parties herein is valid.
already bound thereby. The signature of PDCP's President coupled with
its act of surrendering the titles to the four properties to FEBTC is proof As to the issue on the validity of the foreclosure proceedings, We find no
that no fraud existed in the execution of the contract. Arguably at most, cogent reason to nullify the same. Basic is the rule that unless the parties
FEBTC's act of registering the mortgage only amounted to dolo 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 through its President, Mr. Jose Go (Mr. Go). This loan was covered by three
publication of that notice in a newspaper of general circulation. 26 Moreover, (3) promissory notes. To secure the loan, Gotesco was required to execute a
the same was not put into issue in this case. The foreclosure proceedings Mortgage Trust Indenture (Indenture) naming Solidbank-Trust Division as
were nullified by the courts a quo merely as a consequence of the Trustee.4
nullification of the REM deed. Consequently, We find that the foreclosure
proceedings are likewise valid. The Indenture, dated August 9, 1995, obliged Gotesco to mortgage several
parcels of land in favor of Solidbank.5 One (1) of the lots mortgaged and used
WHEREFORE, premises considered, the petition is GRANTED. The as a collateral was a property located in San Fernando, Pampanga, which
Decisions of the Regional Trial Court dated February 9, 2011 and the Court was covered by Transfer Certificate of Title (TCT) No. 387371-R. 6 A
of Appeals dated June 18, 2013 are REVERSED and SET ASIDE. The stipulation in the Indenture also irrevocably appointed Solidbank-Trust
complaint filed by the respondents Spouses Efren and Lolita Soriano is Division as Gotesco's attorney-in-fact.7 Under the Indenture, Gotesco also
hereby DISMISSED for lack of merit. agreed to "at all times maintain the Sound Value of the Collateral." 8

When the loan was about to mature, Gotesco found it difficult to meet its
SO ORDERED.
obligation because of the 1997 Asian Financial Crisis. 9 On January 24, 2000,
Gotesco sent a letter to Solidbank proposing to restructure the loan
obligation.10 The loan restructuring agreement proposed to extend the
payment period to seven (7) years. The suggested period included a two (2)-
year grace period.11

In its February 9, 2000 letter,12 Solidbank informed Gotesco of a substantial

reduction in the appraised value of its mortgaged properties. Based on an
G.R. No. 209452, July 26, 2017 appraisal report submitted to Solidbank, the sound value of the mortgaged
properties at that time was at P381,245,840.00. 13 Since the necessary
GOTESCO PROPERTIES, INC., Petitioner, v. SOLIDBANK collateral to loan ratio was 200%, Solidbank held that there was a deficiency
CORPORATION (NOW METROPOLITAN BANK AND TRUST in the collateral, which Gotesco had to address. Solidbank required Gotesco
COMPANY), Respondent. to replace or add to the mortgaged properties. 14

Gotesco construed the February 9, 2000 letter as Solidbank's implied

DECISION
agreement to the loan restructuring proposal.15 However, Gotesco found it
unnecessary to address the alleged deficiency in the collateral. It insisted
LEONEN, J.: that the aggregate sound value of the mortgaged properties had not changed
and was still at P1,076,905,000.00.16
The requirement for publication of a Notice of Sale in an extrajudicial
foreclosure is complied with when the publication is circulated at least in the Solidbank sent a demand letter dated June 7, 2000 to Gotesco as the loan
city where the property is located. became due.17 Despite having received this demand letter, Gotesco failed to
pay the outstanding obligation.18
This is a Petition for Review on Certiorari1 assailing the May 31, 2013
Decision2 and October 7, 2013 Resolution3 of the Court of Appeals in CA- Solidbank then filed a Petition for the Extrajudicial Foreclosure of the lot
G.R. CV No. 97748. The Court of Appeals affirmed the Decision of the covered by TCT No. 387371-R through Atty. Wilfrido Mangiliman (Atty.
Regional Trial Court, which dismissed the complaint filed by petitioner Mangiliman), a notary public.19
Gotesco Properties, Inc. (Gotesco) for the annulment of the foreclosure
proceeding. The Court of Appeals also upheld the issuance of a writ of In the Notice of Sale20 dated July 24, 2000, the public auction of the land
possession for respondent Solidbank Corporation (Solidbank), now located in Pampanga, covered by TCT No. 387371-R, was announced to be
Metropolitan Bank and Trust Company (Metrobank). held on August 24, 2000 at 10:00 a.m. However, pursuant to paragraph 5 of
A.M. No. 99-10-05-0 dated December 14, 1999,21 the Notice of Sale
In 1995, Gotesco obtained from Solidbank a term loan of P300 million
indicated that if the minimum requirement of two (2) bidders was not met, the On October 31, 2001, Solidbank filed an Ex-Parte Petition for the Issuance of
sale was to be postponed and rescheduled on August 31, 2000. 22 a Writ of Possession30 before Branch 48, Regional Trial Court, San
Fernando, Pampanga.31
The public auction was held on August 31, 200023 and Solidbank was
declared the winning bidder.24 The two (2) cases were consolidated before Branch 42, Regional Trial Court,
San Fernando, Pampanga.32 However, the presiding judge of Branch 42
On February 5, 2001, Gotesco filed a complaint before Branch 42, Regional recused himself after disclosing that he was a depositor in Metrobank,
Trial Court, San Fernando, Pampanga for Annulment of Foreclosure previously Solidbank. The case was re-raffled to Branch 47. 33
Proceedings, Specific Performance, and Damages against Solidbank, Atty.
Mangiliman, and the Register of Deeds of San Fernando, Pampanga. 25 In its May 4, 2011 Decision,34 Branch 47, Regional Trial Court, San
Fernando, Pampanga dismissed Gotesco's complaint for the annulment of
Gotesco assailed the validity of the foreclosure proceeding claiming that it the foreclosure proceeding and granted the Writ of Possession in Solidbank's
was premature and without legal basis.26 According to Gotesco, the favor:chanRoblesvirtualLawlibrary
jurisdictional requirements prescribed under Act No. 3135 were not complied WHEREFORE, premises considered, the plaintiff's Complaint in Civil Case
with. First, Solidbank did not furnish Gotesco copies of the petition for No. 12212 is hereby DISMISSED for lack of merit.
extrajudicial foreclosure, notice of sale, and certificate of sale. Second, the
filing fees were not paid. Lastly, even assuming the original period for loan On the other hand, the Ex-Parte Petition in LRC No. 762 is
payment was not extended, the prerequisites for the foreclosure proceeding hereby GRANTED. Accordingly, let a writ of possession over the property
provided in the Indenture were not met.27 covered by Transfer Certificate of Title No. 387371-R be issued against
Gotesco Properties, Inc., and all persons claiming rights under it.
Section 5.02 of the Indenture provided:
SO ORDERED.35 (Emphasis in the original)
5.02. Foreclosure. If any event of default shall have occurred and be Gotesco filed a Motion for Reconsideration, which was denied on September
continuing, the Trustee [Solidbank-Trust Division], on written 6, 2011.36
instruction by the Majority Creditors [Solidbank], shall within three (3)
Banking Days from receipt of such notice, give written notice to the Gotesco appealed the rulings before the Court of Appeals. It argued that
Company [appellant], copy furnished all Creditors, declaring all contrary to the trial court's finding, the restructuring agreement was
obligations secured by this Indenture due and payable and foreclosing perfected. The foreclosure was premature because Gotesco was not in
the Collateral. Upon such declaration, the [appellant] shall pay to the default. Solidbank also failed to adhere to the stipulation which required that
[Solidbank-Trust Division], within ten (10) days from receipt of such in the event of default, a notice shall be given to Gotesco. Moreover, Mr. Go
notice, the amount sufficient to cover costs and expenses of collection, allegedly was not authorized to appoint Solidbank as an attorney-in-fact. 37
including compensation for the [Solidbank-Trust Division], its agents and
attorneys. In its May 31, 2013 Decision,38 the Court of Appeals affirmed the decision of
the Regional Trial Court. It ruled that there was no perfected restructuring
In default of such payment, the [Solidbank-Trust Division] may proceed agreement between the parties.39 It cited Article 1319 of the Civil
to foreclose this Indenture, judicially or extra-judicially under Act No. Code,40 which requires absolute acceptance of the offer before it can be
3135, as amended. Thereupon, on demand of the [Solidbank-Trust Division], considered a binding contract.41 It found that Gotesco failed to prove that
the appellant shall immediately turn over possession of the Collateral to any Solidbank clearly and unequivocally accepted the proposal for loan
party designated as the duly authorized representative of the [Solidbank- restructuring.42
Trust Division], free of all charges. (Emphasis supplied.)28
The Court of Appeals also declared that Gotesco was in default. 43 It quoted
In their Answer with Counterclaim, Solidbank alleged that it never entered Section 4.03 of the Indenture, which provided:chanRoblesvirtualLawlibrary
into a restructuring agreement with Gotesco. Solidbank claimed that it The Company [Gotesco/appellant] shall at all times maintain the Sound
complied with the publication and posting requirements laid down by Act No. Value of the Collateral at a level equal to that provided for under Sec. 2.01 of
3135. It also asserted that Gotesco's complaint was insufficient because it this Indenture and, for such purpose, shall make such substitutions,
failed to state a cause of action.29 replacements, and additions for or to the Collateral.
 RESOLVED FURTHER, that the [appellant], be as it is hereby authorized to
If at any time, in the opinion of the Trustee [ Solidbank-Trust Division] and the secure a loan in the amount of THREE HUNDRED MILLION only
Majority Creditors [Solidbank/appellee], the Sound Value of the Collateral is (P300,000,000.00) PESOS from Solidbank Corporation [appellant] under
impaired, or there is substantial and imminent danger of such impairment, said Mortgage Trust Indenture on such items, conditions, and stipulations
the [appellant] shall, upon demand of [Solidbank-Trust Division], effect the that the [appellant] may think fit for the purpose of the loan and to mortgage
substitution of the Collateral or part thereof with another or others and/or the [appellant]'s assets as security and/or collateral for the loan and other
execute additional mortgages on other properties and/or deposit cash with credit facilities.
the [Solidbank-Trust Division] satisfactory to the [Solidbank-Trust Division]
and [Solidbank].44 (Emphasis in the original) RESOLVED FURTHER, that JOSE C. GO, be, as he is hereby authorized, to
Under the Indenture, Gotesco agreed to provide additional collateral "[i]f at negotiate and accept the terms and conditions and to sign, execute and
any time, in the opinion of the Trustee and the Majority Creditors, the Sound deliver any and all promissory notes, bonds, mortgages and all other
Value of the Collateral is impaired."45 Gotesco should have provided the documents necessary in the execution of the aforesaid resolutions with the
additional security demanded by Solidbank after learning that the value of the said banks, for and in behalf of the [appellant]. 55
properties used as collateral had been reduced significantly. When Gotesco Lastly, since there was no third party with adverse interest that occupied the
"chose to rely on its opinion, over and above and contrary to the opinion of property, the issuance of the Writ of Possession was ministerial. 56
the Trustee and the Creditor," it defaulted on its obligation. 46 Thus, the Court
of Appeals ruled that Gotesco's refusal to address the inadequacy of the The dispositive portion of the Court of Appeals May 31, 2013 Decision
collateral was sufficient reason for Solidbank to foreclose the property. provided:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the appeal is hereby DISMISSED. The
The Court of Appeals found that the requisites under Section 3 of Act No. Decision dated May 4, 2011, and the Order dated September 6, 2011, of the
3135 were satisfied.47 The Notice of Sale was physically posted in the Office Regional Trial Court, Branch 47, San Fernando, Pampanga in the
of the Clerk of Court, the Registry of Deeds, and the Capitol consolidated cases docketed as Civil Case No. 12212 and LRC No. 726, are
Grounds.48 Alongside the posting, the Notice of Sale was published hereby AFFIRMED. Costs against appellant Gotesco Properties
in Remate in its issues dated July 29, 2000, August 5, 2000, and August 12, Incorporated.
2000.49 The Court of Appeals rejected Gotesco's allegation that the
publication was invalid for being published in a newspaper not printed in the SO ORDERED.57 (Emphasis in the original)
city where the property was located. According to the Court of Appeals, the Gotesco filed a Motion for Reconsideration but it was denied in the
fact that Remate was published in Metro Manila, not in Pampanga, did not Resolution58 promulgated on October 7, 2013.
mean that it was not a newspaper of general circulation. 50 It was still a
newspaper of general circulation; thus, the publication was valid. The Court Hence, this Petition for Review on Certiorari was filed on November
of Appeals ruled, "[t]he Notice of Sale, Affidavit of Publication, and Affidavit of 28,2013.59
Posting sufficiently prove that the jurisdictional requirements regarding
publication of the Notice were complied with."51 There was also documentary In this Petition, petitioner Gotesco maintains that the foreclosure proceeding
evidence proving that contrary to Gotesco's claim, it received a demand letter is null and void. It insists that respondent Solidbank agreed to restructure its
from Solidbank.52 loan, granting a "payment period of seven (7) years with two (2) years grace
period."60 It continues to argue that respondent impliedly accepted petitioner's
The Court of Appeals also determined that Mr. Go had the authority to agree proposal when it asked for an increase in the collateral. 61 Respondent
to the conditions related to securing the loan.53 It examined the Secretary's reneged on the restructuring agreement when it caused the foreclosure of
Certificate which quoted verbatim the Board Resolution authorizing Mr. Go to the property prematurely.
enter into the loan agreement:54
Resolution No. 95-015 Petitioner claims that it was not notified that it was in default. Under the
Indenture, the foreclosure proceeding can only be initiated upon petitioner's
RESOLVED, AS IT HEREBY RESOLVED, that the Corporation [appellant] be failure to pay within 10 days after receipt of the notice of default. Allegedly,
as it is hereby authorized, to enter into a Mortgage Trust Indenture (MTI) respondent did not send any notice. Respondent's failure to prove that it sent
arrangement with Solidbank Corporation-Trust Division. a demand letter means the obligation is not yet due and demandable. 62
Petitioner avers that the mortgage is void because the principal obligation it letter dated June 7, 2000 informing Gotesco of its default was received by
secured was still inexistent when the Indenture was signed. The mortgage petitioner.75 There is also a provision in the promissory note, which states
was executed on August 9, 1995. The promissory notes representing the that failure to pay the amounts due makes the obligation immediately due,
loans were dated August 14, 1995, August 21, 1995, and August 28, 1995. without need for notice or demand.76
Since the mortgage was only an accessory contract, "it cannot stand alone
absent a principal obligation to secure."63 Respondent took the position that Mr. Go was clearly authorized by the
Board of Directors to sign the Indenture. Since the appointment of Solidbank-
Petitioner alleges that Mr. Go was not sanctioned by Gotesco's Board of Trust Division as an attorney-in-fact was an integral part of the agreement,
Directors "to appoint the bank as the attorney-in-fact to conduct an extra- petitioner was bound by Mr. Go's assent. In any case, this contention was not
judicial foreclosure."64 Thus, the subsequent proceedings are void. alleged in the Complaint; hence, it is immaterial.77

Moreover, petitioner insists that Section 3 of Act No. 3135 was violated. The According to respondent, Section 3 of Act No. 3135 was complied
law requires that the Notice of Sale be posted for not less than 20 days with. Remate is a newspaper of general circulation. It is among the
before the day of the auction sale. According to the Affidavit of Posting by newspapers accredited by the Regional Trial Court where a notice of sale
Janet Torres, Atty. Mangiliman's law clerk, 65 the Notice of Sale was posted on can be published.78 Petitioner also cannot raise for the first time on appeal
August 15, 2000.66 Since the auction sale was conducted on August 31, the allegation that the Notice of Sale was defective for being posted less than
2000, the 20-day period was not followed.67 20 days before the auction sale.79

Petitioner further contends that the publication of the Notice of Sale Respondent holds that the Writ of Possession was validly issued because its
in Remate was defective. Petitioner is of the opinion that the Notice of Sale issuance was ministerial.
should have been published in newspapers published, edited and circulated"
in the same city or province where the foreclosed property was A Reply80 was filed by petitioner on May 20, 2014 in compliance with this
located.68 Since the land being sold was situated at San Fernando, Court's March 17, 2014 Resolution.
Pampanga and Remate was printed and published in Manila, petitioner
suggests that the publication requirement was violated. 69 On August 28, 2015, petitioner filed a Motion for Voluntary Inhibition 81 of the
ponente. Petitioner sought the inhibition of Associate Justice Marvic M.V.F.
Consequently, since the foreclosure proceeding was void, there was no basis Leonen, former Dean of the College of Law of the University of the
for the issuance of the Writ of Possession. Possession of the property must Philippines, for his ties with Metrobank Foundation.82 The ponente allegedly
revert back to petitioner. had a working relationship with respondent.83 First, he was an awardee of the
professorial chair of the Metrobank Foundation.84 Second, he was chosen as
Thereafter, respondent filed a Comment70 and a Supplemental Comment71 to a speaker in the Metrobank Professorial Chair and Metrobank's Country's
the Petition. Respondent denies that it agreed to restructure petitioner's loan. Outstanding Police Officers in Service.85 Respondent opposed the Motion for
It emphasized that petitioner has not shown any concrete proof that Voluntary Inhibition as "none of the grounds for mandatory inhibition exist[s]
respondent accepted the proposal. Moreover, the alleged restructuring in the present instance."86
agreement was not offered in evidence and cannot be considered by this
Court.72 In this Court's January 25, 2016 Resolution,87 the Motion for Inhibition was
denied for lack of merit. The Internal Rules of the Supreme Court 88 provide
In its Comment, respondent explains that it is of no moment that the several grounds for inhibition in addition to those stated under Rule 137,
mortgage agreement was executed before the promissory notes. Section 189 of the Rules of Court. There was no need for the ponente to
Jurisprudence has recognized that a mortgage can secure present and future inhibit since none of the enumerated circumstances was attendant in this
obligations.73 In any case, since petitioner is arguing that the obligation was case. Justices are not given unfettered discretion to desist from hearing a
restructured, it is now estopped from questioning the validity of the case.90 Mere imputation of bias or partiality is not enough; there must be a
Indenture.74 just and valid cause for inhibition to prosper.91

Respondent argues that petitioner cannot claim that it was not notified of the On March 20, 2017, respondent filed a Motion for Resolution claiming the
default. Respondent submitted a return card which indicated that the demand case is ripe for resolution.92
There are three (3) issues to be resolved before this Court: First, whether the However, as the Court of Appeals correctly held, that there was no perfected
foreclosure was premature; restructuring agreement between the parties. The Civil Code requires
absolute acceptance of the offer before it can be considered a binding
Second, whether the requirements under Section 3 of Act No. 3135 were contract:chanRoblesvirtualLawlibrary
complied with; and Article 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
Finally, whether the Writ of Possession was properly issued. contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
I.A
Acceptance made by letter or telegram does not bind the offerer except from
Petitioner defaulted in its obligation. Thus, respondent was within its rights to the time it came to his knowledge. The contract, in such a case, is presumed
foreclose the property. to have been entered into in the place where the offer was made.
Mendoza v. Court of Appeals96 tells us that "[o]nly an absolute and
Section 5 of the Indenture provided:chanRoblesvirtualLawlibrary unqualified acceptance of a definite offer manifests the consent necessary to
5.01 Events of Default. Each of the following shall constitute an Event of perfect a contract."97
Default under this Indenture:
For a proposal to bind a party, there must be proof that it consented to all the
(a) the Company shall fail to pay at stated maturity, by acceleration or terms on offer.98 To prove that the original period of payment was extended,
otherwise to any Creditor any amount due and owing under a Secured petitioner must show that respondent unequivocally accepted the offer. In this
Principal Document; case, petitioner did not present any shred of evidence which would prove that
respondent agreed to restructure the loan. At best, petitioner only alleged
(b) any event of default under the Secured Principal Documents shall occur; that it sent a letter to respondent to ask for a debt restructuring. However,
sending a proposal is not enough. There must be proof that respondent
(c) any representation or warranty or statement made or furnished to this expressly accepted the offer. Without an absolute acceptance, there is no
Trustee by or on behalf of the Company in connection with this Indenture concurrence of minds.99 Thus, this Court cannot bind respondent to
shall prove to have been false in any material respect when made or stipulations it never consented to.
furnished or deemed made;
Petitioner points to respondent's February 9, 2000 letter claiming that if
(d) the Company shall default in the due performance or observance of any respondent had not agreed to the proposal, it would not have asked for
provision contained herein and such default continues unremedied for thirty additional collateral.100
(30) days after notice to the Company by the Trustee; or
However, respondent's February 9, 2000 letter showed no indication that it
(e) the lien created by this Indenture shall be lost or impaired or shall extended the loan's payment period. It did not even mention any restructuring
cease to be a first and preferred lien upon the Collateral. 93 (Emphasis proposal. The demand to address the deficiency in the loan's security cannot
supplied) be interpreted as an implied agreement to restructure the loan.
Petitioner defaulted in its obligation twice. First, when it failed to pay the loan
according to the terms of the promissory note. Second, when it failed to Notably, petitioner did not offer the alleged restructuring agreement in
provide the additional collateral demanded by respondent. evidence. As respondent points out, the theory that the loan was restructured
is hinged on the January 24, 2000 letter from petitioner. 101 However, this
Petitioner never refuted that it defaulted in its payment of the loan. In its letter which allegedly proposed the restructuring of petitioner's obligation was
Stipulation of Facts/Admissions and Proposed Marking of Exhibits, petitioner not offered in evidence.102 Under the rules, this Court cannot consider any
admitted to proposing the loan restructuring because of its inability to meet evidence not formally offered.103 In Spouses Ong v. Court of Appeals,104 this
the loan payments.94 The loan restructuring agreement would have given Court exonerated a common carrier from liability because the police report
Petitioner an additional "payment period of seven (7) years with two (2) years finding it liable was not formally offered in evidence. This Court
grace period on principal payment."95 explained:chanRoblesvirtualLawlibrary
A formal offer is necessary, since judges are required to base their findings of Petitioner chose not to heed this demand and insisted that the aggregate
fact and their judgment solely and strictly upon the evidence offered by the sound value of the mortgaged properties was still at P1,076,905,000.00. 110 It
parties at the trial. To allow parties to attach any document to their pleadings added:chanRoblesvirtualLawlibrary
and then expect the court to consider it as evidence, even without formal 42. And even assuming arguendo that the value of the mortgaged properties
offer and admission, may draw unwarranted consequences. Opposing has vent down, the fact remains that being a real estate property, it could not
parties will be deprived of their chance to examine the document and to go down more than 50% of the value thereof. Thus, at best the least
object to its admissibility. On the other hand, the appellate court will have valuation of these mortgaged properties would be no less than P600 million,
difficulty reviewing documents not previously scrutinized by the court which is more than enough to cover the balance of the loan obligations. 111
below.105 (Citation omitted) The determination of whether the collateral is impaired lies on respondent. As
Since the loan restructuring which Gotesco proposed was not accepted, the Court of Appeals aptly put, petitioner ignored respondent's demand "to its
there is no question that petitioner defaulted on the payment of its loan. ruination."112

Petitioner's failure to provide the additional collateral demanded by Under the Civil Code,113 there is default when a party obliged to deliver
respondent constituted another Event of Default under the Indenture. something fails to do so. In Social Security System v. Moonwalk
Development & Housing Corp.,114 this Court enumerated the elements of
Under the Indenture, petitioner agreed to maintain the value of the collateral default:chanRoblesvirtualLawlibrary
at a level at least equal to the required collateral cover. Section 4.03 of the In order that the debtor may be in default it is necessary that the following
Indenture provided:chanRoblesvirtualLawlibrary requisites be present: (1) that the obligation be demandable and already
The Company [Gotesco/appellant] shall at all times maintain the Sound liquidated; (2) that the debtor delays performance; and (3) that the creditor
Value of the Collateral at a level equal to that provided for under Sec. 2.01 of requires the performance judicially and extrajudicially. Default generally
this Indenture and, for such purpose, shall make such substitutions, begins from the moment the creditor demands the performance of the
replacements, and additions for or to the Collateral. obligation.115 (Citations omitted)
When respondent asked to have the mortgaged properties replaced, it was
If at any time, in the opinion of the Trustee [Solidbank-Trust Division] and the requiring petitioner to comply with its obligation to sustain the loan's security
Majority Creditors [Solidbank/appeilec], the Sound Value of the Collateral is at an appropriate level. Clearly, petitioner defaulted when it refused to heed
impaired, or there is substantial and imminent danger of such impairment, respondent's demand for additional collateral, as expressed in the February
[appellant] shall, upon demand of [Solidbank-Trust Division], effect the 9, 2000 letter. This gave respondent enough reason to foreclose the property.
substitution of the Collateral or part thereof with another or others and/or
execute additional mortgages on other properties and/or deposit cash with I.B
the [Solidbank-Trust Division] satisfactory to the [Solidbank-Trust Division]
and [Solidbank].106 (Emphasis supplied) Petitioner argues that the foreclosure should not have been initiated because
On February 9, 2000, respondent wrote to petitioner claiming that the it was not notified that an event of default occurred. It claims that under the
appraised value of the mortgaged properties decreased.107 Respondent then Indenture, it should have been notified that it was in default and that the
asked petitioner to "address the deficiency in the required collateral." 108 The obligation was due and demandable. After such notice, it should have been
letter, in part, provided:chanRoblesvirtualLawlibrary given 10 days to settle the debt. Petitioner avers that the foreclosure
At present, the outstanding secured obligations covered by the [Mortgage proceeding could only be initiated upon failure to pay after the lapse of the
Trust Indenture are] P300 Million, which MPC is held solely by Solidbank 10-day period.116
Corporation. The reduction in the collateral values of the properties shall
therefore impair the required collateral to loan ratio of 200%. Petitioner claims it did not receive any demand letter. Gotesco's first witness,
Arturo M. Garcia, testified that Gotesco did not receive any written
In this regard, we urge you to address the deficiency in the required collateral demand.117 On the other hand, respondent avers that it sent a demand letter
cover soonest and make the necessary substitution, replacements and/or dated June 7, 2000 to petitioner.118 As proof, respondent submitted a return
additions on the mortgaged properties. Section 4.03 of the [Mortgage Trust card which indicated that the letter was accepted by the addressee.
Indenture] requires that [Gotesco Properties, Inc.] shall maintain at all times
the Sound Value of the mortgaged property at a level at least equal to the This Court rules for respondent.
required collateral cover.109
Documentary evidence will generally prevail over testimonial evidence. 119 As where the property is situated, and if such property is worth more than four
the Court of Appeals noted, the return card submitted by respondent proves hundred pesos, such notice shall also be published once a week for at least
that the demand letter was received by petitioner. 120 This Court is inclined to three consecutive weeks in a newspaper of general circulation in the
give more evidentiary weight to documentary evidence as opposed to a municipality or city.
testimony which can be easily fabricated.121 In any case, the question of Section 3 of Act No. 3135 requires that the Notice of Sale be a) physically
whether the letter was received is a factual matter better left to the lower posted in three (3) public places and b) be published once a week for at least
courts. Since the factual findings of appellate courts are conclusive and three (3) consecutive weeks in a newspaper of general circulation in the city
binding upon this Court when supported by substantial evidence, this Court where the property is situated.
sees no reason to disturb the findings of the Court of Appeals. 122
Petitioner claims that since the foreclosed property was located in
I.C Pampanga, the publication of the Notice of Sale in Remate was not valid.
Petitioner suggests that the Notice of Sale could only be published in a
The contention that Mr. Go did not have the authority to appoint Solidbank- newspaper printed in the city where the property was located. It posits that
Trust Division as an attorney-in-fact for the purpose of selling the mortgaged because Remate was printed and published in Manila, not in San Fernando,
property is untenable. As the Court of Appeals correctly pointed Pampanga, the publication was defective.126
out:chanRoblesvirtualLawlibrary
Since Mr. Go was authorized to sign the Indenture, and the provision of Petitioner is mistaken.
appointment of the [respondent] as attorney-in-fact in the event of foreclosure
is an integral portion of the terms and conditions of the Indenture, Mr. Go Fortune Motors (Phils.), Inc. v. Metropolitan Bank and Trust Co.127 already
was, therefore, authorized and invested with the power to appoint an considered this argument and ruled that this interpretation is too
attorney-in-fact.123 restricting:chanRoblesvirtualLawlibrary
In any case, petitioner is not allowed to bring a new issue on appeal. Since Were the interpretation of the trial court (sic) to be followed, even the leading
the question regarding Mr. Go's authority was only presented before the dailies in the country like the 'Manila Bulletin,' the 'Philippine Daily Inquirer,'
Court of Appeals, it deserves scant consideration. or 'The Philippine Star' which all enjoy a wide circulation throughout the
country, cannot publish legal notices that would be honored outside the place
Canada v. All Commodities Marketing Corporation124 explained that raising a of their publication. But this is not the interpretation given by the courts. For
new argument on appeal violates due process:chanRoblesvirtualLawlibrary what is important is that a paper should be in general circulation in the place
As a rule, no question will be entertained on appeal unless it has been raised where the properties to be foreclosed are located in order that publication
in the court below. Points of law, theories, issues and arguments not brought may serve the purpose for which it was intended.128
to the attention of the lower court ordinarily will not be considered by a If notices are only published in newspapers printed in the city where the
reviewing court because they cannot be raised for the first time at that late property is located, even newspapers that are circulated nationwide will be
stage. Basic considerations of due process underlie this rule. It would be disqualified from announcing auction sales outside their city of
unfair to the adverse party who would have no opportunity to present publication.129 This runs contrary to the spirit of the law which is to attain wide
evidence in contra to the new theory, which it could have done had it been enough publicity so all parties interested in acquiring the property can be
aware of it at the time of the hearing before the trial court. To permit petitioner informed of the upcoming sale.130 This Court
at this stage to change his theory would thus be unfair to respondent, and ruled:chanRoblesvirtualLawlibrary
offend the basic rules of fair play, justice and due process. 125 (Citations We take judicial notice of the fact that newspaper publications have more far-
omitted) reaching effects than posting on bulletin boards in public places. There is a
II.A greater probability that an announcement or notice published in a newspaper
of general circulation, which is distributed nationwide, shall have a readership
As to the validity of the foreclosure proceeding, this Court rules in the of more people than that posted in a public bulletin board, no matter how
affirmative. strategic its location may be, which caters only to a limited few. Hence, the
publication of the notice of sale in the newspaper of general circulation alone
Section 3 of Act No. 3135 provides:chanRoblesvirtualLawlibrary is more than sufficient compliance with the notice-posting requirement of the
Section 3. Notice shall be given by posting notices of the sale for not less law. By such publication, a reasonably wide publicity had been effected such
than twenty days in at least three public places of the municipality or city
that those interested might attend the public sale, and the purpose of the law days less than what the law requires.
had been thereby subserved.131
The crucial factor is not where the newspaper is printed but whether the The object of a Notice of Sale in an extrajudicial foreclosure proceeding is to
newspaper is being circulated in the city where the property is located. inform the public of the nature and condition of the property to be sold and
Markedly, what the law requires is the publication of the Notice of Sale in a the time, place, and terms of the auction sale. Mistakes or omissions that do
"newspaper of general circulation," which is defined not impede this objective will not invalidate the Notice of Sale. 138Olizon v.
as:chanRoblesvirtualLawlibrary Court of Appeals139 explained:chanRoblesvirtualLawlibrary
To be a newspaper of general circulation, it is enough that "it is published for The object of a notice of sale is to inform the public of the nature and
the dissemination of local news and general information; that it has a bona condition of the property to be sold, and of the time, place and terms of the
fide subscription list of paying subscribers; that it is published at regular sale. Notices are given for the purpose of securing bidders and to prevent a
intervals" . . . The newspaper need not have the largest circulation so long as sacrifice of the property. If these objects are attained, immaterial errors and
it is of general circulation.132 mistakes will not affect the sufficiency of the notice; but if mistakes or
Verily, there is clear emphasis on the audience reached by the paper; the omissions occur in the notices of sale, which are calculated to deter or
place of printing is not even considered. mislead bidders, to depreciate the value of the property, or to prevent it from
bringing a fair price, such mistakes or omissions will be fatal to the validity of
The Court of Appeals pointed out that Remate is an accredited publication by the notice, and also to the sale made pursuant thereto. 140 (Citation omitted)
the Regional Trial Court of Pampanga.133 As argued by III
respondent:chanRoblesvirtualLawlibrary
94. It merits judicial notice that the newspaper where the Notice of Sale was Generally, the purchaser in a public auction sale of a foreclosed property is
published is chosen by raffle among newspaper publications accredited by entitled to a writ of possession during the redemption period. Section 7 of Act
the Regional Trial Court with territorial jurisdiction over the real property to be No. 3135, as amended by Act No. 4118,
foreclosed. It can be safely presumed that the RTC in this regard imposed provides:chanRoblesvirtualLawlibrary
standards and criteria for these newspapers to qualify for the raffle, among Section 7. In any sale made under the provisions of this Act, the purchaser
the criteria being that they [are] newspapers of general circulation in the may petition the Court of First Instance of the province or place where the
locality. More so in this instance, when it merits judicial notice that property or any part thereof is situated, to give him possession thereof during
the Remate, is one of the most widely circulated tabloids in the country. 134 the redemption period, furnishing bond in an amount equivalent to the use of
II.B 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
As to the alleged defect with the posting requirement, petitioner argues that complying with the requirements of this Act. Such petition shall be made
the Notice of Sale was posted less than the required 20 days. Respondent under oath and filed in form of an ex parte motion in the registration or
points out that this issue was alleged for the first time before this Court and cadastral proceedings if the property is registered, or in special proceedings
should not be considered. 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
This Court rules for respondent. 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
Records show that petitioner only raised this argument in the Petition for clerk of the court shall, upon the filing of such petition, collect the fees
Review submitted before this Court. The alleged defect was not raised before specified in paragraph eleven of section one hundred and fourteen of Act
the lower courts. Notably, this is not the first time petitioner raised a new Numbered Four hundred and ninety-six, as amended by Act Numbered
issue on appeal. As previously discussed, it raised Mr. Go's alleged lack of Twenty-eight hundred and sixty-six, and the court shall, upon approval of the
authority for the first time before the Court of Appeals. This Court reiterates bond, order that a writ of possession issue, addressed to the sheriff of the
that this practice cannot stand because raising new issues on appeal violates province in which the property is situated, who shall execute said order
due process.135 immediately.
It is ministerial upon the trial court to issue such writ upon an ex parte petition
In any case, the alleged defect in the posting is superficial. The Notice of of the purchaser.141 However, this rule admits an exception.142
Sale was posted on August 15, 2000,136 while the auction sale took place on
August 31, 2000.137 The Notice of Sale was posted for 16 days, only four (4)
The last sentence of Rule 39, Section 33 of the Rules of Court is As the winning bidder, respondent is entitled to the Writ of Possession.
instructive:chanRoblesvirtualLawlibrary
Section 33. Deed and possession to be given at expiration of redemption WHEREFORE, the Petition for Review on Certiorari is hereby DENIED. The
period; by whom executed or given. — If no redemption be made within one assailed Decision of the Court of Appeals dated May 31, 2013 and
(1) year from the date of the registration of the certificate of sale, the Resolution dated October 7, 2013 in CA-G.R. CV No. 97748 are AFFIRMED.
purchaser is entitled to a conveyance and possession of the property; or, if
so redeemed whenever sixty (60) days have elapsed and no other SO ORDERED.
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. (Emphasis supplied.)
This is in line with this Court's pronouncement in Saavedra v. Siari Valley
Estates, Inc.143 that: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.144
This Court in China Banking Corp. v. Spouses Lozada145 discussed that when
the foreclosed property is in the possession of a third party, the issuance of a
writ of possession in favor of the purchaser ceases to be ministerial and may
no longer be done ex parte.146 However, for this exception to apply, the
property must be held by the third party adversely to the mortgagor. 147 The
Court of Appeals correctly held that this case does not fall under the
exception.148 Since it is the petitioner, and not a third party, who is occupying
the property, the issuance of the Writ of Possession is ministerial.

There is also no merit to petitioner's argument that the Writ of Possession

should not be issued while the complaint for the annulment of the foreclosure
proceeding is still pending. Fernandez v. Spouses Espinoza149 already ruled
that a pending case assailing the validity of the foreclosure proceeding is
immaterial:chanRoblesvirtualLawlibrary
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.150 (Citation omitted)