REAL MORTGAGE (ART.

2124-2131) evidence ex parte, the RTC granted the petition in an Order 6 dated July 5, 2001, the
dispositive portion of which reads as follows:
Republic of the Philippines
SUPREME COURT WHEREFORE, in consideration of the foregoing premises, the instant petition is
Manila hereby GRANTED. Upon the filing of a bond in the amount of ONE HUNDRED
SECOND DIVISION THOUSAND PESOS ([₱]100,000.00), let a Writ of Possession over the properties
G.R. No. 165142               December 10, 2007 covered by Transfer Certificates of Title Nos. N-163455, N-166349 & N-166350
EDUARDO L. RAYO, Petitioner, issue in favor of the petitioner METROPOLITAN BANK & TRUST COMPANY to be
vs. implemented by the Deputy Sheriff of Branch 223, Regional Trial Court of Quezon
METROPOLITAN BANK AND TRUST COMPANY AND BRANCH 223 OF THE City by placing the petitioner in possession over the parcels of land with all its
REGIONAL TRIAL COURT OF QUEZON CITY, Respondents. improvements.

DECISION
SO ORDERED.7
QUISUMBING, J.:

On September 24, 2001, Metrobank posted the required bond. Consequently, a

Before us is a petition for review assailing the Resolutions dated June 15, 2004 1 and
writ of possession was issued on October 9, 2001. This was partially implemented
August 23, 20042 of the Court of Appeals in CA-G.R. SP No. 83895 for annulment of
as to TCT No. N-163455, as evidenced by the Turn-Over Receipt 8 dated December
judgment.
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
The pertinent facts are undisputed. Receipt9 dated December 3, 2003.

Midas Diversified Export Corp. (Midas), thru its president, Mr. Samuel U. Lee, Meanwhile, on April 3, 2002, petitioner Eduardo L. Rayo filed a
obtained six (6) loans from private respondent Metropolitan Bank and Trust complaint10 docketed as Civil Case No. Q02-46514 against Metrobank for
Company (Metrobank), amounting to ₱588,870,000 as evidenced by promissory Nullification of Real Estate Mortgage Contract(s) and Extrajudicial Foreclosure Sale,
notes. To secure the payment of an ₱8,000,000 loan, Louisville Realty & in the RTC, Branch 99, Quezon City.
Development Corporation (Louisville), thru its president, Mr. Samuel U. Lee,
executed in favor of Metrobank, a real estate mortgage over three parcels of land
On May 13, 2004, petitioner Rayo filed with the Court of Appeals a Petition 11 for
situated at No. 40 Timog Ave., Brgy. Laging Handa, Quezon City, with all the
Annulment of Judgment on the ground of "absolute lack of due process." Petitioner
buildings and improvements thereon. The properties are covered by Transfer
alleged that his predecessor, Louisville, was not notified of the proceedings and
Certificates of Title (TCT) Nos. N-163455, N-166349 and N-166350 issued by the
that Section 712 (ex parte motion or petition for the issuance of a writ of
Registry of Deeds of Quezon City.
possession) of Act No. 3135 is unconstitutional.

When the debtor-mortgagor failed to pay, Metrobank extra-judicially foreclosed

On June 15, 2004, the Court of Appeals denied the petition for lack of merit. The
the real estate mortgage in accordance with Act No. 3135, 3 as amended.
Court of Appeals ruled that petitioner is neither the registered owner nor the
Thereafter, in a public auction, Metrobank was the highest bidder. A Certificate of
successor-in-interest of the registered owner; hence, not a real party-in-interest. It
Sale4 dated December 11, 2000 was duly registered with the Registry of Deeds of
also ruled that there is no basis to challenge the constitutionality of Section 7 of Act
Quezon City on December 13, 2000. When Louisville refused to turn over the real
No. 3135, as amended as it constitutes a collateral attack against said provision.
properties, on March 17, 2001, Metrobank filed before the Regional Trial Court
Further, petitioner availed of the wrong remedy in filing Civil Case No. Q02-46514.
(RTC), Branch 223, Quezon City, an ex parte petition5 for the issuance of a writ of
Petitioner sought reconsideration, but was likewise denied.
possession docketed as LRC Case No. Q-13915(01). After presentation of
Petitioner now comes before us raising the following as primary issue: Louisville and Winston Linwy L. Chua makes him a co-assignee over the subject real
properties.
WHETHER OR NOT SECTION 7 OF ACT NO. 3135 IS CONTRARY TO THE DUE
PROCESS PROVISION OF THE PHILIPPINE CONSTITUTION CONSIDERING THAT For its part, Metrobank claims that it was not a party to the deed of assignment
SUCH SECTION 7 OF THE LAW PROVIDES OR ALLOWS, ACCORDING TO THIS among Louisville, Chua and petitioner, hence, it has no privity of contract with
HONORABLE COURT, FOR AN EX-PARTE PROCEEDING WHICH IS A "JUDICIAL petitioner Rayo. Moreover, Metrobank points out that the real properties had
PROCEEDING BROUGHT FOR THE BENEFIT OF ONE PARTY ONLY, AND WITHOUT already been extrajudicially foreclosed when petitioner and his assignors executed
NOTICE TO, OR CONSENT BY ANY PERSON ADVERSELY INTERESTED" "OR A the deed of assignment.
PROCEEDING WHEREIN RELIEF IS GRANTED WITHOUT AN OPPORTUNITY FOR THE
PERSON AGAINST WHOM THE RELIEF IS SOUGHT TO BE HEARD," AS HELD IN THE Under Section 2,15 Rule 3 of the Rules of Court, every action must be prosecuted or
CASE OF GOVERNMENT SERVICE INSURANCE SYSTEM VS. COURT OF APPEALS, 169 defended in the name of the real party-in-interest, or one "who stands to be
SCRA 244 @ 255, JANUARY 20, 1989.13 benefited or injured by the judgment in the suit." 16 A real party-in-interest is one
with "a present substantial interest" which means such interest of a party in the
He also raises the following as secondary issues: subject matter of the action as will entitle him, under the substantive law, to
recover if the evidence is sufficient, or that he has the legal title to demand. 17
I.
Now, is petitioner Rayo a real party-in-interest? Initially, we recognized herein
WHETHER OR NOT THE PETITIONER HAS THE LEGAL PERSONALITY TO petitioner as the co-assignee of the subject real properties as shown in the March
SEEK THE ANNULMENT OF JUDGMENT IN [THE] SUBJECT LRC CASE NO. Q- 25, 2002 deed of assignment. However, while petitioner would be injured by the
13915(01). judgment in this suit, we find that petitioner has no present substantial interest to
institute the annulment of judgment proceedings and nullify the order granting the
writ of possession.
II.

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

WHETHER OR NOT PRIVATE RESPONDENT VIOLATED THE RULE AGAINST
long line of cases,18 we have consistently ruled that the issuance of a writ of
FORUM-SHOPPING WHEN IT DID NOT INFORM THE HONORABLE BRANCH
possession in favor of the purchaser in a foreclosure sale of a mortgaged property
223 OF THE REGIONAL TRIAL COURT OF QUEZON CITY REGARDING THE
under Section 7 of Act No. 3135, as amended is a ministerial duty of the court. The
FILING OF CIVIL CASE NO. Q-02-46514 FOR NULLIFICATION OF REAL
purchaser of the foreclosed property, upon ex parte application and the posting of
ESTATE MORTGAGE CONTRACT AND THE EXTRA-JUDICIAL FORECLOSURE
the required bond, has the right to acquire possession of the foreclosed property
SALE OF THE SAME SUBJECT REAL PROPERTIES AND THE PENDENCY OF
during the 12-month redemption period and with more reason, after the expiration
THE SAME BEFORE THE HONORABLE BRANCH 99 OF THE SAME REGIONAL
of the redemption period.
TRIAL COURT.14

An ex parte petition for the issuance of a writ of possession under Section 7 of Act
Stated simply, the issues raised are: (1) Does petitioner have the legal personality in
No. 3135 is not, strictly speaking, a "judicial process" as contemplated in Article
the annulment of judgment proceedings? (2) Is Section 7 of Act No. 3135, as
43319 of the Civil Code. It is a judicial proceeding for the enforcement of one’s right
amended, unconstitutional? (3) Is respondent guilty of forum-shopping?
of possession as purchaser in a foreclosure sale. It is not an ordinary suit filed in
court, by which one party "sues another for the enforcement of a wrong or
Petitioner insists that contrary to the ruling of the Court of Appeals, he has the protection of a right, or the prevention or redress of a wrong." It is a non-litigious
legal personality to institute the annulment of judgment case against Metrobank, proceeding authorized in an extrajudicial foreclosure of mortgage pursuant to Act
considering that the March 25, 2002 deed of assignment he entered into with No. 3135, as amended, and is brought for the benefit of one party only, and
without notice to, or consent by any person adversely interested. It is a proceeding
where the relief is granted without requiring an opportunity for the person against amount to res judicata in another.29 The issuance of the writ of possession being a
whom the relief is sought to be heard. No notice is needed to be served upon ministerial function, and summary in nature, it cannot be said to be a judgment on
persons interested in the subject property. 20 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
Second, in the deed of assignment, petitioner also acknowledged that the subject pendentia or res judicata.30 Clearly, insofar as LRC Case No. Q-13915(01) and Civil
real properties were already sold at various extrajudicial foreclosure sales and Case No. Q02-46514 are concerned, Metrobank is not guilty of forum-shopping.
bought by Metrobank. Clearly, petitioner recognized the prior existing right of
Metrobank as the mortgagee-purchaser over the subject real properties. 21 Actual WHEREFORE, the petition is DENIED for lack of merit. The assailed Resolutions
knowledge of a prior mortgage with Metrobank is equivalent to notice of dated June 15, 2004 and August 23, 2004 of the Court of Appeals in CA-G.R. SP No.
registration22 in accordance with Article 212523 of the Civil Code. Conformably with 83895 are hereby AFFIRMED. Costs against the petitioner.
Articles 131224 and 212625 of the Civil Code, a real right or lien in favor of
Metrobank had already been established, subsisting over the properties until the SO ORDERED.
discharge of the principal obligation, 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
 SECOND DIVISION WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days after
[G.R. NO. 173171 - July 11, 2012] each draw with interest at the rate of 14% per annum.
PHILIPPINE CHARITY SWEEPSTAKES OFFICE (PCSO), Petitioner, v. NEW DAGUPAN
METRO GAS CORPORATION, PURITA E. PERALTA and PATRICIA P. x    x    x
GALANG, Respondents.
DECISION
The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED FIFTY
REYES, J.:
THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE, provided that the
said balance shall bear interest thereon at the rate of 14% per annum;
This is a Petition for Review under Rule 45 of the Rules of Court, assailing the
Decision1 dated September 29, 2005 and Resolution2 dated June 9, 2006 of the
Court of Appeals (CA) in CA-G.R. CV No. 59590. To secure the faithful compliance and as security to the obligation of the PRINCIPAL
stated in the next preceding paragraph hereof, the MORTGAGOR hereby convey
unto and in favor of the MORTGAGEE, its successor and assigns by way of its first
In the assailed Decision, the CA Affirmed the Decision 3 dated January 28, 1998 of
real estate mortgage, a parcel/s of land together with all the improvements now or
the Regional Trial Court (RTC), Branch 42 of Dagupan City in Civil Case No. 94-
hereafter existing thereon located at BOQUIG, DAGUPAN CITY, covered by TCT No.
00200-D, ordering petitioner Philippine Charity Sweepstakes Office (PCSO) to
52135, of the Register of Deeds of DAGUPAN CITY, and more particularly described
surrender the owner s duplicate of Transfer
as follows:

Certificate of Title (TCT) No. 52135 to the Register of Deeds of Dagupan City for
x    x    x
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
4 in any manner dispose of or encumber the above-mentioned property, without the
In its Resolution  dated June 9, 2006, the CA denied PCSO s motion for
prior written consent of the MORTGAGEE;
reconsideration.

x    x    x
The Factual Antecedents

15. Upon payment of the principal amount together with interest and other
Respondent Purita E. Peralta (Peralta) is the registered owner of a parcel of land
expenses legally incurred by the MORTGAGEE, the above undertaking is considered
located at Bonuan Blue Beach Subdivision, Dagupan City under TCT No. 52135. On
terminated.6ςrνll
March 8, 1989, a real estate mortgage was constituted over such property in favor
of PCSO to secure the payment of the sweepstakes tickets purchased by one of its
provincial distributors, Patricia P. Galang (Galang). The salient provisions of the On July 31, 1990, Peralta sold, under a conditional sale, the subject property to
Deed of Undertaking with First Real Estate Mortgage, 5 where Galang, PCSO and New Dagupan, the conveyance to be absolute upon the latter s full payment of the
Peralta were respectively designated as "principal", "mortgagee" and "mortgagor", price of P800,000.00. New Dagupan obliged to pay Peralta P200,000.00 upon the
are as follows:ςrαlαω execution of the corresponding deed and the balance of P600,000.00 by monthly
instalments of P70,000.00, the first instalment falling due on August 31, 1990.
Peralta showed to New Dagupan a photocopy of TCT No. 52135, which bore no
WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and
liens and encumbrances, and undertook to deliver the owner s duplicate within
unpaid account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
three (3) months from the execution of the contract. 7ςrνll
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 thereon, are hereby vested absolutely upon, and transferred to the plaintiff whom
favor. Further, New Dagupan, through its President, Julian Ong Cuña (Cuña), the defendant hereby declares and acknowledges to be the absolute owner
executed an affidavit of adverse claim, which was annotated on TCT No. 52135 on thereof, now and hereafter;
October 1, 1991 as Entry No. 14826.8ςrνll
7. This compromise agreement shall be without prejudice to whatever rights and
In view of Peralta s continued failure to deliver a deed of absolute sale and the remedies, if any, that the Philippine Charity Sweepstakes Office has against the
owner s duplicate of the title, New Dagupan filed a complaint for specific herein defendant and Patricia P. Galang under the Deed of Undertaking adverted to
performance against her with the RTC on February 28, 1992. New Dagupan s under par. 2(f) hereof.12ςrνll
complaint was raffled to Branch 43 and docketed as Civil Case No. D-10160.
chanrobles virtual law library
On May 20, 1992, during the pendency of New Dagupan s complaint against
Peralta, PCSO caused the registration of the mortgage. 9ςrνll As the RTC Branch 43 Decision dated January 21, 1994 became final and executory,
New Dagupan once again demanded Peralta s delivery of the owner s duplicate of
On February 10, 1993, PCSO filed an application for the extrajudicial foreclosure TCT No. 52135. Also, in a letter dated March 29, 1994, New Dagupan made a
sale of the subject property in view of Galang s failure to fully pay the sweepstakes similar demand from PCSO, who in response, stated that it had already foreclosed
she purchased in 1992.10 A public auction took place on June 15, 1993 where PCSO the mortgage on the subject property and it has in its name a certificate of sale for
was the highest bidder. A certificate of sale was correspondingly issued to being the highest bidder in the public auction that took place on June 15, 1993.
PCSO.11ςrνll
Thus, on June 1, 1994, New Dagupan filed with the RTC a petition against PCSO for
The certified true copy of TCT No. 52135 that New Dagupan obtained from the the annulment of TCT No. 52135 or surrender of the owner s duplicate
Register of Deeds of Dagupan City for its use in Civil Case No. D-10160 reflected thereof.13 The petition was docketed as Civil Case No. 94-00200-D and raffled to
PCSO s mortgage lien. New Dagupan, claiming that it is only then that it was Branch 43.
informed of the subject mortgage, sent a letter to PCSO on October 28, 1993,
notifying the latter of its complaint against Peralta and its claim over the subject In an Answer14 dated March 7, 1995, PCSO alleged that: (a) New Dagupan was a
property and suggesting that PCSO intervene and participate in the case. buyer in bad faith; (b) New Dagupan and Peralta colluded to deprive PCSO of its
rights under the subject mortgage; (c) New Dagupan is estopped from questioning
On January 21, 1994, the RTC Branch 43 rendered a Decision, approving the the superior right of PCSO to the subject property when it entered into the
compromise agreement between Peralta and New Dagupan. Some of the compromise agreement subject of the RTC Branch 43 Decision dated January 21,
stipulations made are as follows:ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ 1994; and (d) New Dagupan is bound by the foreclosure proceedings where PCSO
obtained title to the subject property.
3. For her failure to execute, sign and deliver a Deed of Absolute Sale to plaintiff by
way of transferring TCT No. 52135 in the name of the latter, defendant hereby In a Motion for Leave to File Third-Party Complaint 15 dated April 17, 1995, PCSO
waives and quitclaims the remaining balance of the purchase price in the amount sought the inclusion of Peralta and Galang who are allegedly indispensable parties.
of P60,000.00 in favor of the plaintiff, it being understood that the said amount In its Third-Party Complaint, 16 PCSO reiterated its allegations in its Answer dated
shall be treated as a penalty for such failure; March 7, 1995 and made the further claim that the sale of the subject property to
New Dagupan is void for being expressly prohibited under the Deed of Undertaking
x    x    x with First Real Estate Mortgage.

6. Upon the signing of this compromise agreement, possession and ownership of In their Answer to Third-Party Complaint with Counterclaims 17 dated January 2,
the above described property, together with all the improvements existing 1996, Peralta and Galang claimed that: (a) the provision in the Deed of Undertaking
with First Real Estate Mortgage prohibiting the sale of the subject property is void of the title was shown and petitioner should have verified the original as it was a
under Article 2130 of the Civil Code; (b) PCSO s failure to intervene in Civil Case No. buyer in bad faith. Defendant also alleged that the decision in Civil Case D-10160
D-10160 despite notice barred it from questioning the sale of the subject property dated January 21, 1994 would show that there was a collusion between the
to New Dagupan and the compromise agreement approved by the RTC Branch 43; petitioner and the third-party defendants.
(c) it was due to PCSO s very own neglect in registering its mortgage lien that
preference is accorded to New Dagupan s rights as a buyer of the subject property; The Court cannot go along with the reasoning of the defendant because what was
and (d) PCSO no longer has any cause of action against them following its decision shown to Mr. Cuña by the third-party defendants was Exhibit "C" which did not
to foreclose the subject mortgage. carry any encumbrance at the back of the subject title and the annotation made on
May 20, 1992 in favor of the PCSO. Mr. Cuña verified the title x x x but the
On March 6, 1996, Civil Case No. 94-00200-D was transferred to Branch 42, after encumbrance on the title was not still there at [that] time. One thing more, there
the presiding judge of Branch 43 inhibited himself. was nothing indicated in the decision in Civil Case No. D-10160 that petitioner
already knew that there was already a mortgage in favor of the PCSO. Worst,
On January 28, 1998, the RTC Branch 42 rendered a Decision 18 in New Dagupan s defendant did not even introduce any oral evidence to show that petitioner was in
favor, the dispositive portion of which states:ςrαlαω bad faith except the manifestations of counsel. Unfortunately, manifestations could
not be considered evidence.
WHEREFORE, judgment is hereby rendered in favor of the petitioner and against
the defendant, ordering PCSO to deliver the owner s duplicate copy of TCT No. x    x    x
52135 in its possession to the Registry of Deeds of Dagupan City for the purpose of
having the decision in favor of the petitioner annotated at the back thereof. Should Defendant should not be allowed to profit from its negligence of not registering the
said defendant fail to deliver the said title within 30 days from the date this Deed of Undertaking with First Real Estate Mortgage in its favor. 20ςrνll
decision becomes final and executory, the said owner s duplicate certificate of title
is hereby cancelled and the Register of Deeds can issue a new one carrying all the Also, the RTC Branch 42 ruled that the prohibition on the sale of the subject
encumbrances of the original owner s duplicate subject of this case. Further, the property is void. Specifically:ςrαlαω
defendant is ordered to pay to petitioner the sum of Ten Thousand Pesos
(P10,000.00) as attorney s fees. It is also ordered to pay costs.
Suffice it to say that there is no law prohibiting a mortgagor from encumbering or
alienating the property mortgaged. On the contrary, there is a law prohibiting an
SO ORDERED.19ςrνll agreement forbidding the owner from alienating a mortgaged property. We are
referring to Article 2130 of the New Civil Code which provides as follows:ςrαlαω
The RTC Branch 42 ruled that New Dagupan is a buyer in good faith, ratiocinating
that:ςrαlαω "A stipulation forbidding the owner from alienating the immovable mortgage shall
be void."21ςrνll
In other words, the evidence of the petitioner would show that although the Deed
of Undertaking with First Real Estate Mortgage was executed on March 8, 1989 its Moreover, the RTC Branch 42 ruled that PCSO had no right to foreclose the subject
annotation was made long after the conditional sale in favor of the petitioner was mortgage as the land in question had already been disencumbered after Galang s
executed and annotated at the back of the title in question. Because of the said full payment of all the sweepstakes tickets she purchased in 1989 and 1990.
exhibits, petitioner contended that it was a buyer in good faith and for value.
It should be recalled that Amparo Abrigo, OIC Chief of the Credit Accounts Division
Defendant, to controvert the aforementioned evidence of the plaintiff, alleged that of the PCSO, admitted not only once but twice that Patricia Galang has no more
Exhibits C, C-1 to C-1-C was contrary to the testimony of Mr. Julian Ong Cuña to liability with the PCSO for the years 1989 and 1990 x x x. Another witness, Carlos
the effect that when defendants sold the property to petitioner only the xerox copy Castillo who is the OIC of the Sales Department of the PCSO, joined Amparo Abrigo
in saying that Patricia Galang has already paid her liability with the PCSO for the A perusal of the deed of undertaking between the PCSO and Peralta would reveal
years 1989 and 1990 x x x. Thus, the undertaking was already discharged. Both of nothing but the undertaking of Peralta to guarantee the payment of the pre-
the said witnesses of the PCSO alleged that the undertaking has been re-used by existing obligation of Galang, constituting the unpaid sweepstakes tickets issued to
Patricia Galang for the years 1991 to 1992 yet there is no proof whatsoever the latter before the deed of undertaking was executed, with the PCSO in the
showing that Purita Peralta consented to the use of the undertaking by Patricia amount of P450,000.00. No words were added therein to show the intention of the
Galang for 1991 to 1992. Incidentally, it is not far-fetched to say that Purita Peralta parties to regard it as a contract of continuing guaranty. In other jurisdictions, it has
might have thought that the undertaking was already discharged which was the been held that the use of the particular words and expressions such as payment of
reason she executed the Deed of Conditional Sale x x x in favor of petitioner in "any debt", "any indebtedness", "any deficiency", or "any sum", or the guaranty of
1990. That being the case, the foreclosure sale in favor of the PCSO has no legal leg "any transaction" or money to be furnished the principal debtor "at any time", or
to stand as the Deed of Undertaking with First Real Estate Mortgage has already "on such time" that the principal debtor may require, have been construed to
been discharged before the foreclosure sale was conducted. 22ςrνll indicate a continuing guaranty. Similar phrases or words of the same import or
tenor are not extant in the deed of undertaking. The deed of undertaking
According to the RTC Branch 42, the intent to use the subject property as security states:ςrαlαω
for Galang s purchases for the years after 1989, as PCSO claimed, is not clear from
the Deed of Undertaking with First Real Estate Mortgage:ςrαlαω "WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and
unpaid account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
Was it not provided in the deed that the undertaking would be for "all draws". That THOUSAND (P450,000.00), representing the balance of his/her ticket
might be true but the terms of the Contract should be understood to mean only to accountabilities for all draws."
cover the draws relative to the current liabilities of Patricia Galang at the time of
the execution of the undertaking in 1989. It could have not been agreed upon that x    x    x
it should also cover her liability for 1991 up to 1992 because if that was the
intention of the parties, the undertaking should have so provided expressly. The Upon full payment of the principal obligation, which from the testimonies of the
term of the undertaking with respect to the period was ambiguous but any officers of the PCSO had been paid as early as 1990, the subsidiary contract of
ambiguity in the Contract should be resolved against PCSO because the form used guaranty was automatically terminated. The parties have not executed another
was a standard form of the defendant and it appeared that it was its lawyers who contract of guaranty to secure the subsequent obligations of Galang for the tickets
prepared it, therefore, it was the latter which caused the ambiguity. 23ςrνll issued thereafter. It must be noted that a contract of guaranty is not presumed; it
must be express and cannot extend to more than what is stipulated therein.
PCSO s appeal from the foregoing adverse decision was dismissed. By way of its
assailed decision, the CA did not agree with PCSO s claim that the subject mortgage x    x    x
is in the nature of a continuing guaranty, holding that Peralta s undertaking to
secure Galang s liability to PCSO is only for a period of one year and was
The arguments of PCSO fail to persuade us. The phrase "for all draws" is limited to
extinguished when Peralta completed payment on the sweepstakes tickets she
the draws covered by the original transaction. In its pleadings, the PCSO asserted
purchased in 1989.
that the contract of undertaking was renewed and the collateral was re-used by
Galang to obtain again tickets from the PCSO after she had settled her account
The instant appeal must fail. There is nothing in the Deed of Undertaking with First under the original contract. From such admission, it is thus clear that the contract is
Real Estate Mortgage, expressly or impliedly, that would indicate that Peralta not in the nature of a continuing guaranty. For a contract of continuing guaranty is
agreed to let her property be burdened as long as the contract of undertaking with not renewed as it is understood to be of a continuing nature without the necessity
real estate mortgage was not cancelled or revoked. x x x of renewing the same every time a new transaction contemplated under the
original contract is entered into. x x x 24 (Citations
x    x    x omitted) chanroblesvirtuallawlibrary
In this petition, PCSO claims that the CA erred in holding that the subject mortgage application for extra-judicial foreclosure on February 10, 1993. The subject
had been extinguished by Galang s payment of P450,000.00, representing the mortgage was intended to secure Galang s ticket purchases that were outstanding
amount of the sweepstakes tickets she purchased in 1989. According to PCSO, the at the time of the execution of the same, the amount of which has been specified
said amount is actually the credit line granted to Galang and the phrase "all draws" to be P450,000.00 and does not extend to Galang s future purchases. Thus, upon
refers to her ticket purchases for subsequent years drawn against such credit line. Galang s full payment of P450,000.00, which PCSO admits, the subject mortgage
Consequently, PCSO posits, the subject mortgage had not been extinguished by had been automatically terminated as expressly provided under Section 15 of the
Peralta s payment of her ticket purchases in 1989 and its coverage extends to her Deed of Undertaking with First Real Estate Mortgage quoted above.
purchases after 1989, which she made against the credit line that was granted to
her. That when Galang failed to pay her ticket purchases in 1992, PCSO s right to Issue
foreclose the subject mortgage arose.
The rise and fall of this recourse is dependent on the resolution of the issue who
PCSO also maintains that its rights over the subject property are superior to those between New Dagupan and PCSO has a better right to the property in question.
of New Dagupan. Considering that the contract between New Dagupan is a
conditional sale, there was no conveyance of ownership at the time of the
Our Ruling
execution thereof on July 31, 1989. It was only on January 21, 1994, or when the
RTC Branch 43 approved the compromise agreement, that a supposed transfer of
title between Peralta and New Dagupan took place. However, since PCSO had PCSO is undeterred by the denial of its appeal to the CA and now seeks to convince
earlier foreclosed the subject mortgage and obtained title to the subject property this Court that it has a superior right over the subject property. However, PCSO s
as evidenced by the certificate of sale dated June 15, 1993, Peralta had nothing to resolve fails to move this Court and the ineluctability of the denial of this petition is
cede or assign to New Dagupan. owing to the following:ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ

PCSO likewise attributes bad faith to New Dagupan, claiming that Peralta s A. At the time of PCSO s registration of its mortgage lien on May 20, 1992, the
presentation of a mere photocopy of TCT No. 52135, albeit without any annotation subject mortgage had already been discharged by Galang s full payment of
of a lien or encumbrance, sufficed to raise reasonable suspicions against Peralta s P450,000.00, the amount specified in the Deed of Undertaking with First Real
claim of a clean title and should have prompted it to conduct an investigation that Estate Mortgage;
went beyond the face of TCT No. 52135.
b. There is nothing in the Deed of Undertaking with First Real Estate Mortgage that
PCSO even assails the validity of the subject sale for being against the prohibition would indicate that it is a continuing security or that there is an intent to secure
contained in the Deed of Undertaking with First Real Estate Mortgage. Galang s future debts;

New Dagupan, in its Comment,25 avers that it was a purchaser in good faith and it c. Assuming the contrary, New Dagupan is not bound by PCSO s mortgage lien and
has a superior right to the subject property, considering that PCSO s mortgage lien was a purchaser in good faith and for value; andcralawlibrary
was annotated only on May 20, 1992 or long after the execution of the conditional
sale on July 31, 1990 and the annotation of New Dagupan s adverse claim on d. While the subject mortgage predated the sale of the subject property to New
October 1, 1991. While the subject mortgage antedated the subject sale, PCSO was Dagupan, the absence of any evidence that the latter had knowledge of PCSO s
already aware of the latter at the time of its belated registration of its mortgage mortgage lien at the time of the sale and its prior registration of an adverse claim
lien. PCSO s registration was therefore in bad faith, rendering its claim over the created a preference in its favor.
subject property defeasible by New Dagupan s adverse claim.
chanrobles virtual law library
New Dagupan also claims that the subject property had already been discharged
from the mortgage, hence, PCSO had nothing to foreclose when it filed its
I which are within the description or contemplation of the contract of guaranty, until
the expiration or termination thereof. 30ςrνll
As a general rule, a mortgage liability is usually limited to the amount mentioned in
the contract. However, the amounts named as consideration in a contract of In this case, PCSO claims the subject mortgage is a continuing guaranty. According
mortgage do not limit the amount for which the mortgage may stand as security if to PCSO, the intent was to secure Galang s ticket purchases other than those
from the four corners of the instrument the intent to secure future and other outstanding at the time of the execution of the Deed of Undertaking with First Real
indebtedness can be gathered.26ςrνll Estate Mortgage on March 8, 1989 such that it can foreclose the subject mortgage
for Galang s non-payment of her ticket purchases in 1992. PCSO does not deny and
Alternatively, while a real estate mortgage may exceptionally secure future loans or even admits that Galang had already settled the amount of P450,000.00. However,
advancements, these future debts must be specifically described in the mortgage PCSO refuses to concede that the subject mortgage had already been discharged,
contract. An obligation is not secured by a mortgage unless it comes fairly within claiming that Galang had unpaid ticket purchases in 1992 and these are likewise
the terms of the mortgage contract. 27ςrνll secured as evidenced by the following clause in the Deed of Undertaking with First
Real Estate Mortgage:ςrαlαω
The stipulation extending the coverage of a mortgage to advances or loans other
than those already obtained or specified in the contract is valid and has been WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days after
commonly referred to as a "blanket mortgage" or "dragnet" clause. In Prudential each draw with interest at the rate of 14% per annum; 31ςrνll
Bank v. Alviar,28 this Court elucidated on the nature and purpose of such a clause as
follows:ςrαlαω This Court has to disagree with PCSO in view of the principles quoted above. A
reading of the other pertinent clauses of the subject mortgage, not only of the
A "blanket mortgage clause," also known as a "dragnet clause" in American provision invoked by PCSO, does not show that the security provided in the subject
jurisprudence, is one which is specifically phrased to subsume all debts of past or mortgage is continuing in nature. That the subject mortgage shall only secure
future origins. Such clauses are "carefully scrutinized and strictly construed." Galang s liability in the amount of P450,000.00 is evident from the following:Ï‚rαlαÏ
Mortgages of this character enable the parties to provide continuous dealings, the ‰
nature or extent of which may not be known or anticipated at the time, and they
avoid the expense and inconvenience of executing a new security on each new WHEREAS, the PRINCIPAL acknowledges that he/she has an outstanding and
transaction. A "dragnet clause" operates as a convenience and accommodation to unpaid account with the MORTGAGEE in the amount of FOUR HUNDRED FIFTY
the borrowers as it makes available additional funds without their having to THOUSAND (P450,000.00), representing the balance of his/her ticket
execute additional security documents, thereby saving time, travel, loan closing accountabilities for all draws;
costs, costs of extra legal services, recording fees, et cetera. x x x. 29 (Citations
omitted) chanroblesvirtuallawlibrary x    x    x

A mortgage that provides for a dragnet clause is in the nature of a continuing The PRINCIPAL shall settle or pay his/her account of FOUR HUNDRED FIFTY
guaranty and constitutes an exception to the rule than an action to foreclose a THOUSAND PESOS (P450,000.00) PESOS with the MORTGAGEE, provided that the
mortgage must be limited to the amount mentioned in the mortgage contract. Its said balance shall bear interest thereon at the rate of 14% per annum;
validity is anchored on Article 2053 of the Civil Code and is not limited to a single
transaction, but contemplates a future course of dealing, covering a series of
To secure the faithful compliance and as security to the obligation of the PRINCIPAL
transactions, generally for an indefinite time or until revoked. It is prospective in its
stated in the next preceding paragraph hereof, the MORTGAGOR hereby convey
operation and is generally intended to provide security with respect to future
unto and in favor of the MORTGAGEE, its successor and assigns by way of its first
transactions within certain limits, and contemplates a succession of liabilities, for
real estate mortgage, a parcel/s of land together with all the improvements now or
which, as they accrue, the guarantor becomes liable. In other words, a continuing
hereafter existing thereon, located at BOQUIG, DAGUPAN CITY, covered by TCT No.
guaranty is one that covers all transactions, including those arising in the future,
52135, of the Register of Deeds of DAGUPAN CITY, and more particularly described Consequently, PCSO s registration of its non-existent mortgage lien and subsequent
as follows:32ςrνll foreclosure of a mortgage that was no longer extant cannot defeat New Dagupan s
title over the subject property.
As the CA correctly observed, the use of the terms "outstanding" and "unpaid"
militates against PCSO s claim that future ticket purchases are likewise secured. II
That there is a seeming ambiguity between the provision relied upon by PCSO
containing the phrase "after each draw" and the other provisions, which mention Sections 51 and 53 of P.D. No. 1529 provide:ςrαlαω
with particularity the amount of P450,000.00 as Galang s unpaid and outstanding
account and secured by the subject mortgage, should be construed against PCSO.
Section 51. Conveyance and other dealings by registered owner. An owner of
The subject mortgage is a contract of adhesion as it was prepared solely by PCSO
registered land may convey, mortgage, lease, charge or otherwise deal with the
and the only participation of Galang and Peralta was the act of affixing their
same in accordance with existing laws. He may use such forms of deeds,
signatures thereto.
mortgages, leases or other voluntary instrument, except a will purporting to convey
or affect registered land, but shall operate only as a contract between the parties
Considering that the debt secured had already been fully paid, the subject and as evidence of authority to the Register of Deeds to make registration.
mortgage had already been discharged and there is no necessity for any act or
document to be executed for the purpose. As provided in the Deed of Undertaking
The act of registration shall be the operative act to convey or affect the land insofar
with First Real Estate Mortgage:ςrαlαω
as third persons are concerned, and in all cases under this Decree, the registration
shall be made in the office of the Register of Deeds for the province or city where
15. Upon payment of the principal amount together with interest and other the land lies.
expenses legally incurred by the MORTGAGEE, the above-undertaking is considered
terminated.33ςrνll
Section 52. Constructive notice upon registration. Every conveyance, mortgage,
lease, lien, attachment, order, judgment, instrument or entry affecting registered
Section 6234 of Presidential Decree (P.D.) No. 1529 appears to require the execution land shall, if registered, filed or entered in the office of the Register of Deeds for
of an instrument in order for a mortgage to be cancelled or discharged. However, the province or city where the land to which it relates lies, be constructive notice to
this rule presupposes that there has been a prior registration of the mortgage lien all persons from the time of such registering, filing or entering.
prior to its discharge. In this case, the subject mortgage had already been cancelled
or terminated upon Galang s full payment before PCSO availed of registration in
On the other hand, Article 2125 of the Civil Code states:ςrαlαω
1992. As the subject mortgage was not annotated on TCT No. 52135 at the time it
was terminated, there was no need for Peralta to secure a deed of cancellation in
order for such discharge to be fully effective and duly reflected on the face of her Article 2125. In addition to the requisites stated in Article 2085, it is indispensable,
title. in order that a mortgage may be validly constituted, that the document in which it
appears be recorded in the Registry of Property. If the instrument is not recorded,
the mortgage is nevertheless binding between the parties.
Therefore, since the subject mortgage is not in the nature of a continuing guaranty
and given the automatic termination thereof, PCSO cannot claim that Galang s
ticket purchases in 1992 are also secured. From the time the amount of The persons in whose favor the law establishes a mortgage have no other right
P450,000.00 was fully settled, the subject mortgage had already been cancelled than to demand the execution and the recording of the document in which the
such that Galang s subsequent ticket purchases are unsecured. Simply put, PCSO mortgage is formalized.
had nothing to register, much less, foreclose.
Construing the foregoing conjunctively, as to third persons, a property registered
under the Torrens system is, for all legal purposes, unencumbered or remains to be
the property of the person in whose name it is registered, notwithstanding the
execution of any conveyance, mortgage, lease, lien, order or judgment unless the It is undisputed that it was only on May 20, 1992 that PCSO registered its mortgage
corresponding deed is registered. lien. By that time, New Dagupan had already purchased the subject property, albeit
under a conditional sale. In fact, PCSO s mortgage lien was yet to be registered at
The law does not require a person dealing with the owner of registered land to go the time New Dagupan filed its adverse claim on October 1, 1991 and its complaint
beyond the certificate of title as he may rely on the notices of the encumbrances against Peralta for the surrender of the owner s duplicate of TCT No. 52135 on
on the property annotated on the certificate of title or absence of any February 28, 1992. It was only during the pendency of Civil Case No. D-10160, or
annotation.35 Registration affords legal protection such that the claim of an sometime in 1993, that New Dagupan was informed of PCSO s mortgage lien. On
innocent purchaser for value is recognized as valid despite a defect in the title of the other hand, PCSO was already charged with knowledge of New Dagupan s
the vendor.36ςrνll adverse claim at the time of the annotation of the subject mortgage. PCSO s
attempt to conceal these damning facts is palpable. However, they are patent from
the records such that there is no gainsaying that New Dagupan is a purchaser in
In Cruz v. Bancom Finance Corporation, 37 the foregoing principle was applied as
good faith and for value and is not bound by PCSO s mortgage lien.
follows:ςrαlαω

A purchaser in good faith and for value is one who buys property of another,
Second, respondent was already aware that there was an adverse claim and notice
without notice that some other person has a right to, or interest in, such property,
of lis pendens annotated on the Certificate of Title when it registered the mortgage
and pays a full and fair price for the same, at the time of such purchase, or before
on March 14, 1980. Unless duly registered, a mortgage does not affect third parties
he has notice of the claim or interest of some other person in the property. 39 Good
like herein petitioners, as provided under Section 51 of PD NO. 1529, which we
faith is the opposite of fraud and of bad faith, and its non-existence must be
reproduce hereunder:
established by competent proof. 40 Sans such proof, a buyer is deemed to be in good
faith and his interest in the subject property will not be disturbed. A purchaser of a
x    x    x registered property can rely on the guarantee afforded by pertinent laws on
registration that he can take and hold it free from any and all prior liens and claims
True, registration is not the operative act for a mortgage to be binding between the except those set forth in or preserved against the certificate of title. 41ςrνll
parties. But to third persons, it is indispensible. In the present case, the adverse
claim and the notice of lis pendens were annotated on the title on October 30, This Court cannot give credence to PCSO s claim to the contrary. PCSO did not
1979 and December 10, 1979, respectively; the real estate mortgage over the present evidence, showing that New Dagupan had knowledge of the mortgage
subject property was registered by respondent only on March 14, 1980. Settled in despite its being unregistered at the time the subject sale was entered into.
this jurisdiction is the doctrine that a prior registration of a lien creates a Peralta, in the compromise agreement, even admitted that she did not inform New
preference. Even a subsequent registration of the prior mortgage will not diminish Dagupan of the subject mortgage.42 PCSO s only basis for claiming that New
this preference, which retroacts to the date of the annotation of the notice of lis Dagupan was a buyer in bad faith was the latter s reliance on a mere photocopy of
pendens and the adverse claim. Thus, respondent s failure to register the real TCT No. 52135. However, apart from the fact that the facsimile bore no annotation
estate mortgage prior to these annotations, resulted in the mortgage being binding of a lien or encumbrance, PCSO failed to refute the testimony of Cuña that his
only between it and the mortgagor, Sulit. Petitioners, being third parties to the verification of TCT No. 52135 with the Register of Deeds of Dagupan City confirmed
mortgage, were not bound by it. Contrary to respondent s claim that petitioners Peralta s claim of a clean title.
were in bad faith because they already had knowledge of the existence of the
mortgage in favor of respondent when they caused the aforesaid annotations,
Since PCSO had notice of New Dagupan s adverse claim prior to the registration of
petitioner Edilberto Cruz said that they only knew of this mortgage when
its mortgage lien, it is bound thereby and thus legally compelled to respect the
respondent intervened in the RTC proceedings. 38 (Citations
proceedings on the validity of such adverse claim. It is therefore of no moment if
omitted) chanroblesvirtuallawlibrary
PCSO s foreclosure of the subject mortgage and purchase of the subject property at
the auction sale took place prior to New Dagupan s acquisition of title as decreed in
the Decision dated January 21, 1994 of RTC Branch 43. The effects of a foreclosure
sale retroact to the date the mortgage was registered. 43 Hence, while PCSO may be absence of any other statutory provision for the registration of the claimant s
deemed to have acquired title over the subject property on May 20, 1992, such alleged right or interest in the property. That if the claimant s interest is based on a
title is rendered inferior by New Dagupan s adverse claim, the validity of which was perfected contract of sale or any voluntary instrument executed by the registered
confirmed per the Decision dated January 21, 1994 of RTC Branch 43. 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
Otherwise, if PCSO s mortgage lien is allowed to prevail by the mere expediency of duplicate certificate must be presented to the Register of Deeds for the inscription
registration over an adverse claim that was registered ahead of time, the object of of the corresponding memorandum thereon and in the entry day book. It is only
an adverse claim to apprise third persons that any transaction regarding the when the owner refuses or fails to surrender the duplicate certificate for
disputed property is subject to the outcome of the dispute would be rendered annotation that a statement setting forth an adverse claim may be filed with the
naught. A different conclusion would remove the primary motivation for the public Register of Deeds. Otherwise, the adverse claim filed will not have the effect of a
to rely on and respect the Torrens system of registration. Such would be conveyance of any right or interest on the disputed property that could prejudice
inconsistent with the well-settled, even axiomatic, rule that a person dealing with the rights that have been subsequently acquired by third persons.
registered property need not go beyond the title and is not required to explore
outside the four (4) corners thereof in search for any hidden defect or inchoate What transpired in Gabin is similar to that in Leviste. In Gabin, the basis of the
right that may turn out to be superior. 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
Worthy of extrapolation is the fact that there is no conflict between the disposition accordance with Sections 51 and 52 of P.D. No. 1529 as there was no showing of an
of this case and Garbin v. CA 44 where this Court decided the controversy between a inability to present the owner s duplicate of title.
buyer with an earlier registered adverse claim and a subsequent buyer, who is
charged with notice of such adverse claim at the time of the registration of her It is patent that the contrary appears in this case. Indeed, New Dagupan s claim
title, in favor of the latter. As to why the adverse claim cannot prevail against the over the subject property is based on a conditional sale, which is likewise a
rights of the later buyer notwithstanding its prior registration was discussed by this voluntary instrument. However, New Dagupan s use of the adverse claim to protect
Court in this wise:ςrαlαω 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.
It is undisputed that the adverse claim of private respondents was registered
pursuant to Sec. 110 of Act No. 496, the same having been accomplished by the Moreover, while the validity of the adverse claim in Gabin is not established as
filing of a sworn statement with the Register of Deeds of the province where the there was no separate proceeding instituted that would determine the existence
property was located. However, what was registered was merely the adverse claim and due execution of the deed of sale upon which it is founded, the same does not
and not the Deed of Sale, which supposedly conveyed the northern half portion of obtain in this case. The existence and due execution of the conditional sale and
the subject property. Therefore, there is still need to resolve the validity of the Peralta s absolute and complete cession of her title over the subject property to
adverse claim in separate proceedings, as there is an absence of registration of the New Dagupan are undisputed. These are matters covered by the Decision dated
actual conveyance of the portion of land herein claimed by private respondents. January 21, 1994 of RTC Branch 43, which had long become final and executory.

From the provisions of the law, it is clear that mere registration of an adverse claim At any rate, in Sajonas v. .CA, 47 this Court clarified that there is no necessity for a
does not make such claim valid, nor is it permanent in character. More importantly, prior judicial determination of the validity of an adverse claim for it to be
such registration does not confer instant title of ownership since judicial considered a flaw in the vendor s title as that would be repugnant to the very
determination on the issue of the ownership is still necessary. 45 (Citation omitted) purpose thereof.48Ï‚rνll

Apart from the foregoing, the more important consideration was the improper WHEREFORE, premises considered, the petition is DISMISSED and the Decision
resort to an adverse claim. In L.P. Leviste & Co. v. Noblejas, 46 this Court emphasized dated September 29, 2005 and Resolution dated June9, 2006 of the Court of
that the availability of the special remedy of an adverse claim is subject to the Appeals in CA-G.R. CV No. 59590 are hereby AFFIRMED.
SO ORDERED. Parañaque (now Parañaque City) covered by TCT Nos. 61062 6 and
61078,7 respectively.

Subsequently or in August 1983, MICC sold the lot8 covered by TCT No. 61078,
together with the house9 thereon, to the petitioners in the first case, the Paderes
spouses. And on January 9, 1984, MICC sold the house 10 built on the lot covered by
TCT No. 61062 to the petitioners in the second case, the Bergado spouses. Neither
sale was registered, however.11

THIRD DIVISION
On January 25, 1985, for failure of MICC to settle its obligations, Banco Filipino filed
[G.R. NO. 147074 July 15, 2005]
a verified Petition12 for the extrajudicial foreclosure of MICC's mortgage. At the
Spouses RODRIGO PADERES and SONIA PADERES, Petitioners, v. The Hon. COURT auction sale of the foreclosed properties on March 25, 1985, Banco Filipino
OF APPEALS,1 Hon. CARLOTA P. VALENZUELA, in her capacity as the Liquidator of submitted a bid of P3,092,547.82 and was declared the highest bidder. A Certificate
Banco Filipino Savings and Mortgage Bank, 2 Respondents. of Sale13 was issued in its favor which was registered with the Registry of Deeds and
annotated on the corresponding TCTs covering the mortgaged properties on July
29, 1985.
[G.R. NO. 147075]
Spouses ISABELO BERGARDO and JUANA HERMINIA
BERGARDO, Petitioners, v. The Hon. COURT OF APPEALS,1 Hon. CARLOTA P. No redemption of the foreclosed mortgage having been made within the
VALENZUELA, in her capacity as the Liquidator of Banco Filipino Savings and reglementary period, Carlota P. Valenzuela, the then Liquidator of Banco Filipino,
Mortgage Bank,2Respondents. filed on October 16, 1987 an ex parte Petition14 for the issuance of a Writ of
DECISION Possession of the foreclosed properties with the Regional Trial Court (RTC) of
CARPIO MORALES, J.: Makati. After hearing, the Petition was granted by Order dated September 8,
198815 of Branch 59 of the RTC.

By their Petition for review on certiorari under Rule 45 of the Rules of Court,

petitioners spouses Rodrigo and Sonia Paderes and spouses Isabelo and Juana On November 7, 1996, copies of the Writ of Possession dated November 5, 1996,
Bergado seek the reversal of the September 20, 2000 Decision 3 and February 16, together with a notice addressed to MICC "and/or All persons claiming rights under
2001 Resolution of the Court of Appeals, which dismissed their original Petition and them" to voluntarily vacate the premises within 7 days from receipt thereof, were
denied their Motion for Reconsideration, respectively. served on petitioners.16

On September 14, 1982, Manila International Construction Corporation (MICC) Instead of vacating the two lots, however, petitioners filed separate petitions
executed a real estate mortgage 4 over 21 registered parcels of land including the before the Court of Appeals, docketed as C.A. G.R. Numbers 42470 and 42471
improvements thereon in favor of Banco Filipino Savings and Mortgage Bank which were later consolidated, 17 assailing the validity of the Writ of Possession.
(Banco Filipino) in order to secure a loan of P1,885,000.00. The mortgage was
registered with the Registry of Deeds of Pasay City and annotated on the On September 20, 2000, the Court of Appeals promulgated its questioned
corresponding transfer certificates of title (TCTs) covering the properties Decision18 dismissing the consolidated petitions for lack of merit and upholding the
on December 17, 1982.5 validity of the Writ of Possession.

The 21 mortgaged properties included two lots, one with an area of 264 square Petitioners' Motion for Reconsideration of the appellate court's decision having
meters, and the other with an area of 263, both located in the then Municipality of been denied by Resolution of February 16, 2001, they jointly come before this
Court arguing that: (1) having purchased their respective properties in good faith
from MICC, they are third parties whose right thereto are superior to that of Banco already been established, subsisting over the properties until the discharge of the
Filipino; (2) they are still entitled to redeem the properties and in fact a binding principal obligation, whoever the possessor(s) of the land might be.
agreement between them and the bank had been reached; (3) their respective
houses should not have been included in the auction sale of the mortgaged In rejecting a similar argument, this Court, in Philippine National Bank v.
properties; (4) on the contrary, as builders in good faith, they are entitled to the Mallorca,24 ratiocinated:
benefits of Article 448 of the Civil Code;
and (5) the writ of possession issued by the RTC in 1996 had already lost its validity
1. Appellant's stand is that her undivided interest consisting of 20,000 square
and efficacy.
meters of the mortgaged lot, remained unaffected by the foreclosure and
subsequent sale to PNB, and she "neither secured nor contracted a loan" with said
The petition must be denied. bank. What PNB foreclosed, she maintains, "was that portion belonging to Ruperta
Lavilles only," not the part belonging to her.
In extra-judicial foreclosures of real estate mortgages, the issuance of a writ of
possession, which is an order commanding the sheriff to place a person in Appellant's position clashes with precepts well-entrenched in law. By Article 2126
possession of the foreclosed property, 19 is governed by Section 7 of Act No. 3135 of the Civil Code, a "mortgage directly and immediately subjects the property on
(an act to regulate the sale of property under special powers inserted in or annexed which it is imposed, whoever the possessor may be, to the fulfillment of the
to real estate mortgages), as amended: obligation for whose security it was constituted." Sale or transfer cannot affect or
release the mortgage. A purchaser is necessarily bound to acknowledge and
Sec. 7. In any sale made under the provisions of this Act, the purchaser may respect the encumbrance to which is subjected the purchased thing and which is
petition the Court of First Instance of the province or place where the property or at the disposal of the creditor "in order that he, under the terms of the contract,
any part thereof is situated, to give him possession thereof during the redemption may recover the amount of his credit therefrom." For, a recorded real estate
period, furnishing bond in an amount equivalent to the use of the property for a mortgage is a right in rem, a lien on the property whoever its owner may be.
period of twelve months, to indemnify the debtor in case it be shown that the sale Because the personality of the owner is disregarded; the mortgage subsists
was made without violating the mortgage or without complying with the notwithstanding changes of ownership; the last transferee is just as much of a
requirements of this Act. Such petition shall be made under oath and filed in form debtor as the first one; and this, independent of whether the transferee knows or
of an ex parte motion in the registration or cadastral proceedings if the property is not the person of the mortgagee. So it is, that a mortgage lien is inseperable from
registered, or in special proceedings in the case of property registered under the the property mortgaged. All subsequent purchasers thereof must respect the
Mortgage Law or under section one hundred and ninety-four of the Administrative mortgage, whether the transfer to them be with or without the consent of the
Code, or of any other real property encumbered with a mortgage duly registered in mortgagee. For, the mortgage, until discharge, follows the property.25 (Emphasis
the office of any register of deeds in accordance with any existing law, and in each and underscoring supplied; italics in the original; citations
case the clerk of the court shall, upon the filing of such petition, collect the fees omitted) chanroblesvirtuallawlibrary
specified in paragraph eleven of section one hundred and fourteen of Act
Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty- And in Roxas v. Buan26 this Court held:
eight hundred and sixty-six, and the court shall, upon approval of the bond, order
that a writ of possession issue, addressed to the sheriff of the province in which the
Contending that petitioner Roxas is a party actually holding the property adversely
property is situated, who shall execute said order immediately.
to the debtor, Arcadio Valentin, petitioners argue that under the provisions of Act
No. 3135 they cannot be ordered to vacate the property. Hence, the question of
That petitioners purchased their properties from MICC in good faith is of no whether, under the circumstances, petitioner Roxas indeed is a party actually
moment. The purchases took place after MICC's mortgage to Banco Filipino had holding the property adversely to Valentin.
been registered in accordance with Article 2125 20 of the Civil Code and the
provisions of P.D. 1529 (property registry decree). 21 As such, under Articles
131222 and 212623 of the Civil Code, a real right or lien in favor of Banco Filipino had
It will be recalled that Roxas' possession of the property was premised on its [Rollo, p. 16]. Undeniably, petitioners fell under this category. 27 (Emphasis
alleged sale to him by Valentin for the amount of P100,000.00. Assuming this to supplied)Ï‚rαlαωlιbrαrÿ
be true, it is readily apparent that Roxas holds title to and possesses the property
as Valentin's transferee. Any right he has to the property is necessarily derived As transferees of mortgagor MICC, petitioners merely stepped into its shoes and
from that of Valentin. As transferee, he steps into the latter's shoes. Thus, in the are necessarily bound to acknowledge and respect the mortgage it had earlier
instant case, considering that the property had already been sold at public auction executed in favor of Banco Filipino.
pursuant to an extrajudicial foreclosure, the only interest that may be transferred
by Valentin to Roxas is the right to redeem it within the period prescribed by
As for petitioners' argument that they are still entitled to redeem the foreclosed
law. Roxas is therefore the successor-in-interest of Valentin, to whom the latter
properties, it must be rejected too.
had conveyed his interest in the property for the purpose of redemption [Rule 39,
Sec. 29 (a) of the Revised Rules of Court; Magno v. Viola, 61 Phil. 80 (1934); Rosete
v. Prov. Sheriff of Zambales, 95 Phil. 560 (1954).] Consequently, Roxas' occupancy The debtor in extra-judicial foreclosures under Act No. 3135, or his successor-in-
of the property cannot be considered adverse to Valentin. interest, has, one year from the date of registration of the Certificate of Sale with
the Registry of Deeds, a right to redeem the foreclosed mortgage, 28 hence,
petitioners, as MICC's successors-in-interest, had one year from the registration of
Thus, in Belleza v. Zandaga [98 Phil. 702 (1956)], the Court held that where the
the Certificate of Sale on July 29, 1985 or until July 29, 1986 for the purpose.
purchaser in an execution sale has already received the definitive deed of sale, he
becomes the owner of the property bought and, as absolute owner, he is entitled
to its possession and cannot be excluded therefrom by one who merely claims to Petitioners, however, failed to do so. Ownership of the subject properties was thus
be a "successor-in-interest of the judgment debtor," unless it is adjudged that the consolidated in favor of Banco Filipino, 29 and TCT Nos. 112352 (in lieu of TCT No.
alleged successor has a better right to the property than the purchaser at the 61078) and 112353 (in lieu of TCT No. 61062) were issued in its name.
execution sale. Stated differently, the purchaser's right of possession is recognized
only as against the judgment debtor and his successor-in-interest but not against As this Court held in F. David Enterprises v. Insular Bank of Asia and America:30
persons whose right of possession is adverse to the latter. The rule was reiterated
in Guevara v. Ramos [G.R. NO. L-24358, March 31, 1971, 38 SCRA 194]. It is settled that the buyer in a foreclosure sale becomes the absolute owner of
the property purchased if it is not redeemed during the period of one year after
The rule in Belleza, although relating to the possession of property sold in the registration of the sale. As such, he is entitled to the possession of the said
execution sales under what is now Sec. 35, Rule 39 of the Revised Rules of Court, is property and can demand it at any time following the consolidation of ownership
also applicable to the possession of property sold at extrajudicial foreclosure sales in his name and the issuance to him of a new transfer certificate of title.  The
pursuant to Sec. 6 of Act No. 3135 [see IFC Service Leasing and Acceptance Corp. v. buyer can in fact demand possession of the land even during the redemption
Nera, supra]. Thus, as petitioner Roxas is not a party holding the property period except that he has to post a bond in accordance with Section 7 of Act No.
adversely to Valentin, being the latter's successor-in-interest, there was no bar to 3135 as amended. No such bond is required after the redemption period if the
the respondent trial court's issuance of a writ of possession upon private property is not redeemed. Possession of the land then becomes an absolute right
respondent Buan's application. of the purchaser as confirmed owner. Upon proper application and proof of title,
the issuance of the writ of possession becomes a ministerial duty of the
It does not matter that petitioner Roxas was not specifically named in the writ of court.31 (Emphasis supplied)Ï‚rαlαωlιbrαrÿ
possession, as he merely stepped into the shoes of Valentin, being the latter's
successor-in-interest. On the other hand, petitioner de Guia was occupying the Petitioners assert, however, that a binding agreement for the repurchase of the
house as Roxas' alleged tenant [Rollo, p. 24]. Moreover, respondent court's subject properties was reached with Banco Filipino as, so they claim, reflected in
decision granting private respondent Buan's petition for the issuance of a writ of the following exchange of communications:
possession ordered the Provincial Sheriff of Zambales or any of his deputies to
remove Valentin "or any person claiming interest under him" from the property October 17, 1996
Mrs. Luz B. Dacasin Until, the spouses received a letter dated April 6, 1987 from the Board of
Asst. Vice-President Liquidators via Alberto Reyes, Deputy Liquidator, informing the spouses that the
Real Estate Dept. property they purchased from MICC was already foreclosed by the bank. The
Banco Filipino Savings and Mortgage Bank spouses answered the letter and disclaimed any knowledge of the foreclosure. In
101 Paseo De Roxas cro. [sic] Dela Rosa Sts. their answer to the said letter, they emphasized that their unpaid balance with
Makati City MICC was P188,985.60.

Dear Madam: We are addressing your goodself [sic] to inform the bank that the spouses Sonia
and Rodrigo Paderes are exercising their right of redemption as subrogees of the
I am writing to you, on behalf of spouses Sonia and Rodrigo Paderes re: TCT No. defunct MICC under special laws.
61078 formerly owned by Manila International Construction Corporation (MICC for
short) now TCT No. 112352, registered in the name of Banco Filipino Savings and From reliable information, the bank had already made appraisal of the property
Mortgage Bank in July 30, 1996 at the Register of Deeds of Parañaque, Metro and from that end, may we be informed [at] the soonest possible time the value
Manila. Incidentally, the property is denominated as Block 48, Lot 5 located at Leon of the property to enable the spouses to prepare for such eventuality. And, upon
Florentino St., BF Executive, Parañaque, Metro Manila. receipt of the said appraisal value we shall immediately inform you [of] our
position on the matter.
The background facts of TCT No. 61078 are as follows:
Thank you very much.
In August 1983, the MICC executed a Deed of Absolute Sale of that lot covered by Very truly yours,
TCT No. 61078 in favor of spouses Sonia and Rodrigo Paderes which was [SGD.]
acknowledged before a Notary Public on October 1, 1983. The value of the lot LUCIANO D. VALENCIA
was P115,720.00. In the same year, the parties executed an addendum to the said Counsel for Spouses Paderes
deed of absolute sale which covered a house valued at P242,874.45. The net JPA Subdivision, City of Muntinlupa32
package price of the house and lot was fixed at P329,405.75. From this amount, the x x x (Emphasis supplied).
spouses Sonia and Rodrigo Paderes paid MICC inclusive of equity the amount October 25, 1996
of P125,437.35 leaving a balance of P212,985.60. The spouses moved in the house Mr. Luciano D. Valencia
in November 1983. Counsel for Sps. Paderes
JPA Subdivision, Muntinlupa
Unknown to the spouses, MICC mortgaged TCT No. 61078 in favor of Banco Filipino
Savings and Mortgage Bank for P1,885.00 duly inscribed in TCT No. 112352 on Dear Sir:
December 12, 1982. It was foreclosed by the bank for P3,092,547.82 pursuant to
the certificate of sale executed by the sheriff as inscribed on TCT No. 112352 This is with regard to your letter dated October 17, 1996 concerning the property
[should be TCT No. 61078] on July 29, 1985 . . . formerly owned by Manila International Construction Corporation
(MICC)  foreclosed by the Bank.
Then came the news that Banco Filipino Savings and Mortgage Bank was under
conservatorship by the Board of Liquidators. On the other hand, MICC became Please inform Sps. Rodrigo and Sonia Paderes to come to the bank to discuss said
bankrupt and closed shop. The spouses were [sic] nowhere to go to then at the foreclosed property directly with the bank.
time to get the title of the property they purchased from MICC.
Thank you.
Very truly yours,
[SGD.] Asst. Vice-President
LUZ B. DACASIN Real Estate Department
Assistant Vice-President Banco Filipino Savings & Mortgage Bank
Real Estate Department33 Makati City
x x x (Emphasis supplied; italics in the original). Re: Lot 18, Block 48 Gamboa St.
November 4, 1996 BF Homes, Parañaque, MM (264 SQ.M.)
Mrs. Luz B. Dacasin Occupied by Sps. Isabelo Bergado &
Asst. Vice-President Juana Herminia Bergado
Real Estate Dept., Banco Filipino Lot 5, Block 48, L. Florentino St.
Makati City BF Homes, Parañaque, MM (263 SQ.M.)
Occupied by Sps. Rodrigo Paderes &
Dear Madam: Sonia Paderes

Thank you very much for your letter dated October 25, 1996, which was received Dear Madam Asst. Vice-President:
on October 31, 1996, the contents of which had been duly noted. Pursuant thereto
I advised my clients - spouses Rodrigo and Sonia Paderes to see [you]. Pursuant to our conference this morning November 8, 1996, regarding our desire
to redeem the properties above-captioned, which your good office accommodated,
With your indulgence, I also advised my other clients - spouses Isabelo and Juana and per your advi[c]e, we submit the following facts taken out and our proposals:
Herminia Bergado to go along with the spouses Paderes, who are similarly situated
with spouses Paderes property. 1. Regarding the lot, you mentioned that, the cost per square meter
was P7,500.00. To this price we are no-committal for the said price is high.
Incidentally, on October 28, 1996, I also wrote your goodself another letter at the Although, we are still to have the amount re-negotiated.
behest of spouses Isabelo and Juana Herminia Bergado whose property is equally
footed with spouses Paderes. 2. We appreciate very much your having excluded the house built in the said lot for
purposes of fixing the redemption price.
It is hoped that, out of that conference per your invitation my clients above-named
be informed formally the total amounts due the bank as a consequence of the right 3. Your advi[c]e to subject the properties (house and lot) to a real-estate
of redemption extended to them. Of course, whatever appraised value arrived at mortgage with the bank so that the amount to be loaned will be used as payment
by the bank on the properties subject of redemption the same shall not be of the properties to be redeemed is accepted, and we are committed to it.
construed as my clients' committed liability.
Thank you very much
Thank you very much. Very truly yours,
Very truly yours, [SGD.]
[SGD.] SPS. SONIA &
LUCIANO D. VALENCIA RODRIGO PADERES
Counsel for Spouses Paderes [SGD.]
JPA Subdivision, City of Muntinlupa34 SPS. ISABELO &
x x x (Emphasis supplied). JUANA HERMINIA BERGADO35
November 8, 1996 (Emphasis supplied).
Mrs. Luz B. Dacasin
Petitioners' assertion does not pass muster. The letters dated October 17, 1996 and November 4, 1996, signed by petitioners'
counsel, while ostensibly proposing to redeem the foreclosed properties and
Under Article 1318 of the Civil Code, there are three essential requisites which requesting Banco Filipino to suggest a price for their repurchase, made it clear that
must concur in order to give rise to a binding contract: (1) consent of the any proposal by the bank would be subject to further action on the part of
contracting parties; (2) object certain which is the subject matter of the contract; petitioners.
and (3) cause of the obligation which is established. "Consent" is further defined in
Article 1319 of the Code as follows: The letter dated October 25, 1996 signed by Luz Dacasin, Assistant Vice-President
of Banco Filipino, merely invited petitioners to engage in further negotiations and
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance does not contain a recognition of petitioners' claimed right of redemption or a
upon the thing and the cause which are to constitute the contract. The offer must definite offer to sell the subject properties back to them.
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer. Petitioners emphasize that in item no. 3 of their letter dated November 8, 1996
they committed to "subject the properties (house and lot) to a real-estate
Acceptance made by letter or telegram does not bind the offerer except from the mortgage with the bank so that the amount to be loaned will be used as payment
time it came to his knowledge. The contract, in such a case, is presumed to have of the properties to be redeemed." It is clear from item no. 1 of the same letter,
been entered into in the place where the offer was made. (Emphasis however, that petitioners did not accept Banco Filipino's valuation of the properties
supplied)Ï‚rαlαωlιbrαrÿ at P7,500.00 per square meter and intended to "have the amount [renegotiated]."

By "offer" is meant a unilateral proposition which one party makes to the other for Moreover, while purporting to be a memorandum of the matters taken up in the
the celebration of the contract. There is an "offer" in the context of Article 1319 conference between petitioners and Banco Filipino Vice-President Dacasin,
only if the contract can come into existence by the mere acceptance of the offeree, petitioners' letter of November 8, 1996 does not contain the concurrence of Ms.
without any further act on the part of the offeror. Hence, the "offer" must be Dacasin or any other authorized agent of Banco Filipino. Where the alleged
definite, complete and intentional.36 contract document was signed by only one party and the record shows that the
other party did not execute or sign the same, there is no perfected contract. 38
With regard to the "acceptance," a learned authority notes that:
The Court of Appeals, therefore, committed no error in concluding that "nothing
concrete came out of the meeting" between petitioners and Banco Filipino.
To produce a contract, the acceptance must not qualify the terms of the
offer. There is no acceptance sufficient to produce consent, when a condition in the
offer is removed, or a pure offer is accepted with a condition, or when a term is Respecting petitioners' claim that their houses should have been excluded from the
established, or changed, in the acceptance, or when a simple obligation is auction sale of the mortgaged properties, it does not lie. The provision of Article
converted by the acceptance into an alternative one; in other words, when 44839 of the Civil Code, cited by petitioners, which pertain to those who, in good
something is desired which is not exactly what is proposed in the offer. It is faith, mistakenly build, plant or sow on the land of another, has no application to
necessary that the acceptance be unequivocal and unconditional, and the the case at bar.
acceptance and the proposition shall be without any variation whatsoever; and
any modification or variation from the terms of the offer annuls the latter and Here, the record clearly shows that petitioners purchased their respective houses
frees the offeror.37 (Emphasis supplied)Ï‚rαlαωlιbrαrÿ from MICC, as evidenced by the Addendum to Deed of Sale dated October 1, 1983
and the Deed of Absolute Sale dated January 9, 1984.
A reading of the above-quoted correspondence reveals the absence of both a
definite offer and an absolute acceptance of any definite offer by any of the parties. Being improvements on the subject properties constructed by mortgagor MICC,
there is no question that they were also covered by MICC's real estate mortgage
following the terms of its contract with Banco Filipino and Article 2127 of the Civil Hence, petitioners argue, the writ of possession had lost its validity and efficacy
Code: and should therefore be declared null and void.

Art. 2127. The mortgage extends to the natural accessions, to the improvements, Petitioners' ultimate argument fails too. In Rodil v. Benedicto,42 this Court
growing fruits, and the rents or income not yet received when the obligation categorically held that the right of the applicant or a subsequent purchaser to
becomes due, and to the amount of the indemnity granted or owing to the request for the issuance of a writ of possession of the land never prescribes:
proprietor from the insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations, amplifications and limitations The respondents claim that the petition for the issuance of a writ of possession was
established by law, whether the estate remains in the possession of the mortgagor, filed out of time, the said petition having been filed more than five years after the
or it passes into the hands of a third person. (Underscoring supplied). issuance of the final decree of registration. In support of their contention, the
respondents cite the case of Soroñgon v. Makalintal [80 Phil. 259 (1948)], wherein
The early case of Cu Unjieng e Hijos v. Mabalacat Sugar Co. 40 is illustrative. In that the following was stated:
case, this Court held:
"It is the law and well settled doctrine in this jurisdiction that a writ of possession
. . . (1) That a mortgage constituted on a sugar central includes not only the must be issued within the same period of time in which a judgment in ordinary civil
land on which it is built but also the buildings, machinery, and accessories actions may be summarily executed (section 17, Act 496, as amended), upon the
installed at the time the mortgage was constituted as well as all the buildings, petition of the registered owner or his successors in interest and against all parties
machinery and accessories belonging to the mortgagor, installed after the who claim a right to or interest in the land registered prior to the registration
constitution thereof (Bischoff v. Pomar and Compañia General de Tabacos, 12 proceeding."
Phil. 690); (2) that the notice announcing the sale at public auction of all the
properties of a sugar central extends to the machinery and accessories acquired The better rule, however, is that enunciated in the case of Manlapas and Tolentino
and installed in its mill after the constitution of the mortgage; (3) that the court, v. Lorente [48 Phil. 298 (1925)], which has not yet been abandoned, that the right
that has ordered the placing of the mortgaged properties in the hands of a receiver of the applicant or a subsequent purchaser to ask for the issuance of a writ of
in a foreclosure suit, has jurisdiction to order the sale at public auction of the said possession of the land never prescribes. . .
mortgaged properties even before the termination of the receivership; and (4) that
the fact that the price at which the mortgaged properties were sold at public
xxx
auction is inadequate, is not in itself sufficient to justify the annulment of the
sale.41 (Emphasis supplied)Ï‚rαlαωlιbrαrÿ
In a later case [Sta. Ana v. Menla, 111 Phil. 947 (1961)], the Court also ruled
that the provision in the Rules of Court to the effect that judgment may be
Petitioners finally proffer that the issuance, on Banco Filipino's mere motion, of the
enforced within five years by motion, and after five years but within ten years by
Writ of Possession on November 5, 1996, more than 8 years since the promulgation
an action (Section 6, Rule 39) refers to civil actions and is not applicable to special
of the RTC Order granting its petition on September 8, 1988, violated Section 6,
proceedings, such as land registration cases. The Court said:
Rule 39 of the Rules of Court, viz:

"The second assignment of error is as follows:

Sec. 6. Execution by motion or by independent action. - A final and executory
judgment or order may be executed on motion within five (5) years from the date
of its entry. After the lapse of such time, and before it is barred by the statute of 'That the lower court erred in ordering that the decision rendered in this land
limitations, a judgment may be enforced by action. The revived judgment may also registration case on November 28, 1931 or twenty six years ago, has not yet
be enforced by motion within five (5) years from the date of its entry and become final and unenforceable.
thereafter by action before it is barred by the statute of limitations.
We fail to understand the arguments of the appellant in support of the above SO ORDERED.
assignment, except in so far as it supports his theory that after a decision in a land
registration case has become final, it may not be enforced after the lapse of a
period of 10 years, except by another proceeding to enforce the judgment or
decision. Authority for this theory is the provision in the Rules of Court to the effect
that judgment may be enforced within 5 years by motion, and after five years but
within 10 years, by an action (Sec. 6, Rule 39). This provision of the Rules refers to
civil actions and is not applicable to special proceedings, such as a land
registration case. This is so because a party in a civil action must immediately
enforce a judgment that is secured as against the adverse party, and his failure to
act to enforce the same within a reasonable time as provided in the Rules makes
the decision unenforceable against the losing party. In special proceedings the
purpose is to establish a status, condition or fact; in land registration
proceedings, the ownership by a person or a parcel of land is sought to be
established. After the ownership has been proved and confirmed by judicial
declaration, no further proceeding to enforce said ownership is necessary, except
when the adverse or losing party had been in possession of the land and the
winning party desires to oust him therefrom. 43 (Emphasis and underscoring
supplied)ςrαlαωlιbrαrÿ

Petitioners have not supplied any cogent reason for this Court to deviate from the
foregoing ruling.

The established doctrine that the issuance of a writ of possession is a ministerial

function whereby the issuing court exercises neither discretion nor judgment bears
reiterating. The writ issues as a matter of course upon the filing of the proper
motion and, if filed before the lapse of the redemption period, the approval of the
corresponding bond.44

Petitioners, however, are not without remedy. As reflected in the challenged Court
of Appeals decision, under Section 8 45 of Act No. 3135, as amended, petitioners, as
successors-in-interest of mortgagor MICC, have 30 days from the time Banco
Filipino is given possession of the subject properties to question the validity of the
auction sale under any of the two grounds therein stated by filing a petition to set
aside the same and cancel the writ of possession.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

 On October 10, 1994, Galas, again with Pingol as her co-maker, mortgaged the
same subject property to Pablo P. Garcia (Garcia) to secure her loan of One Million
Eight Hundred Thousand Pesos (₱1,800,000.00).7

Both mortgages were annotated at the back of TCT No. RT-67970 (253279), to wit:

REAL ESTATE MORTGAGE

Entry No. 6537/T-RT-67970(253279) MORTGAGE – In favor of Yolanda Valdez Villar

m/to Jaime Villar to guarantee a principal obligation in the sum of ₱2,200,000-
mortgagee’s consent necessary in case of subsequent encumbrance or alienation of
the property; Other conditions set forth in Doc. No. 97, Book No. VI, Page No. 20 of
the Not. Pub. of Diana P. Magpantay

Date of Instrument: 7-6-93

Republic of the Philippines
SUPREME COURT
Date of Inscription: 7-7-93
Manila
FIRST DIVISION
G.R. No. 158891               June 27, 2012 SECOND REAL ESTATE MORTGAGE
PABLO P. GARCIA, Petitioner,
vs. Entry No. 821/T-RT-67970(253279) MORTGAGE – In favor of Pablo Garcia m/to
YOLANDA VALDEZ VILLAR, Respondent. Isabela Garcia to guarantee a principal obligation in the sum of ₱1,800,000.00
DECISION mortgagee’s consent necessary in case of subsequent encumbrance or alienation of
LEONARDO-DE CASTRO, J.: the property; Other conditions set forth in Doc. No. 08, Book No. VII, Page No. 03 of
the Not. Pub. of Azucena Espejo Lozada
This is a petition for review on certiorari 1 of the February 27, 2003 Decision 2 and
July 2, 2003 Resolution3 of the Court of Appeals in CA-G.R. SP No. 72714, which Date of Instrument: 10/10/94
reversed the May 27, 2002 Decision 4 of the Regional Trial Court (RTC), Branch 92 of
Quezon City in Civil Case No. Q-99-39139. Date of Inscription: 10/11/94

Lourdes V. Galas (Galas) was the original owner of a piece of property (subject LRC Consulta No. 1698
property) located at Malindang St., Quezon City, covered by Transfer Certificate of
Title (TCT) No. RT-67970(253279).5
On November 21, 1996, Galas sold the subject property to Villar for One Million
Five Hundred Thousand Pesos (₱1,500,000.00), and declared in the Deed of
On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol (Pingol), as co-maker, Sale9 that such property was "free and clear of all liens and encumbrances of any
mortgaged the subject property to Yolanda Valdez Villar (Villar) as security for a kind whatsoever."10
loan in the amount of Two Million Two Hundred Thousand Pesos (₱2,200,000.00). 6
On December 3, 1996, the Deed of Sale was registered and, consequently, TCT No.
RT-67970(253279) was cancelled and TCT No. N-168361 11 was issued in the name of
Villar. Both Villar’s and Garcia’s mortgages were carried over and annotated at the 4. the plaintiff admits that the first mortgage was annotated at the back of the title
back of Villar’s new TCT.12 of the mortgagor Lourdes V. Galas; and
5. the plaintiff admits that by virtue of the deed of sale the title of the property was
On October 27, 1999, Garcia filed a Petition for Mandamus with Damages 13 against transferred from the previous owner in favor of defendant Yolanda Valdez Villar.
Villar before the RTC, Branch 92 of Quezon City. Garcia subsequently amended his
petition to a Complaint for Foreclosure of Real Estate Mortgage with xxxx
Damages.14 Garcia alleged that when Villar purchased the subject property, she
acted in bad faith and with malice as she knowingly and willfully disregarded the ISSUE
provisions on laws on judicial and extrajudicial foreclosure of mortgaged property.
Garcia further claimed that when Villar purchased the subject property, Galas was
Whether or not the plaintiff, at this point in time, could judicially foreclose the
relieved of her contractual obligation and the characters of creditor and debtor
property in question.
were merged in the person of Villar. Therefore, Garcia argued, he, as the second
mortgagee, was subrogated to Villar’s original status as first mortgagee, which is
the creditor with the right to foreclose. Garcia further asserted that he had On June 8, 2000, upon Garcia’s manifestation, in open court, of his intention to file
demanded payment from Villar,15 whose refusal compelled him to incur expenses in a Motion for Summary Judgment,19 the RTC issued an Order20 directing the parties
filing an action in court.16 to simultaneously file their respective memoranda within 20 days.

Villar, in her Answer, 17 claimed that the complaint stated no cause of action and On June 26, 2000, Garcia filed a Motion for Summary Judgment with Affidavit of
that the second mortgage was done in bad faith as it was without her consent and Merit21 on the grounds that there was no genuine issue as to any of the material
knowledge. Villar alleged that she only discovered the second mortgage when she facts of the case and that he was entitled to a judgment as a matter of law.
had the Deed of Sale registered. Villar blamed Garcia for the controversy as he
accepted the second mortgage without prior consent from her. She averred that On June 28, 2000, Garcia filed his Memorandum 22 in support of his Motion for
there could be no subrogation as the assignment of credit was done with neither Summary Judgment and in compliance with the RTC’s June 8, 2000 Order. Garcia
her knowledge nor prior consent. Villar added that Garcia should seek recourse alleged that his equity of redemption had not yet been claimed since Villar did not
against Galas and Pingol, with whom he had privity insofar as the second mortgage foreclose the mortgaged property to satisfy her claim.
of property is concerned.
On August 13, 2000, Villar filed an Urgent Ex-Parte Motion for Extension of Time to
On May 23, 2000, the RTC issued a Pre-Trial Order 18 wherein the parties agreed on File Her Memorandum. 23 This, however, was denied24 by the RTC in view of Garcia’s
the following facts and issue: Opposition.25

STIPULATIONS OF FACTS/ADMISSIONS On May 27, 2002, the RTC rendered its Decision, the dispositive portion of which
reads:
The following are admitted:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in
1. the defendant admits the second mortgage annotated at the back of TCT No. RT- favor of the plaintiff Pablo P. Garcia and against the defendant Yolanda V. Villar,
67970 of Lourdes V. Galas with the qualification that the existence of said who is ordered to pay to the former within a period of not less than ninety (90)
mortgage was discovered only in 1996 after the sale; days nor more than one hundred twenty (120) days from entry of judgment, the
2. the defendant admits the existence of the annotation of the second mortgage at sum of ₱1,800,000.00 plus legal interest from October 27, 1999 and upon failure of
the back of the title despite the transfer of the title in the name of the defendant; the defendant to pay the said amount within the prescribed period, the property
3. the plaintiff admits that defendant Yolanda Valdez Villar is the first mortgagee; subject matter of the 2nd Real Estate Mortgage dated October 10, 1994 shall, upon
motion of the plaintiff, be sold at public auction in the manner and under the
provisions of Rules 39 and 68 of the 1997 Revised Rules of Civil Procedure and consent was necessary in case of a subsequent encumbrance was absent in the
other regulations governing sale of real estate under execution in order to satisfy Deed of Real Estate Mortgage. In the same vein, the Court of Appeals said that the
the judgment in this case. The defendant is further ordered to pay costs. 26 sale of the subject property to Villar was valid as it found nothing in the records
that would show that Galas violated the Deed of Real Estate Mortgage prior to the
The RTC declared that the direct sale of the subject property to Villar, the first sale.34
mortgagee, could not operate to deprive Garcia of his right as a second mortgagee.
The RTC said that upon Galas’s failure to pay her obligation, Villar should have In dismissing the complaint for judicial foreclosure of real estate mortgage with
foreclosed the subject property pursuant to Act No. 3135 as amended, to provide damages, the Court of Appeals held that Garcia had no cause of action against
junior mortgagees like Garcia, the opportunity to satisfy their claims from the Villar "in the absence of evidence showing that the second mortgage executed in
residue, if any, of the foreclosure sale proceeds. This, the RTC added, would have his favor by Lourdes V. Galas [had] been violated and that he [had] made a demand
resulted in the extinguishment of the mortgages. 27 on the latter for the payment of the obligation secured by said mortgage prior to
the institution of his complaint against Villar."35
The RTC held that the second mortgage constituted in Garcia’s favor had not been
discharged, and that Villar, as the new registered owner of the subject property On March 20, 2003, Garcia filed a Motion for Reconsideration 36 on the ground that
with a subsisting mortgage, was liable for it.28 the Court of Appeals failed to resolve the main issue of the case, which was
whether or not Garcia, as the second mortgagee, could still foreclose the mortgage
Villar appealed29 this Decision to the Court of Appeals based on the arguments that after the subject property had been sold by Galas, the mortgage debtor, to Villar,
Garcia had no valid cause of action against her; that he was in bad faith when he the mortgage creditor.
entered into a contract of mortgage with Galas, in light of the restriction imposed
by the first mortgage; and that Garcia, as the one who gave the occasion for the This motion was denied for lack of merit by the Court of Appeals in its July 2, 2003
commission of fraud, should suffer. Villar further asseverated that the second Resolution.
mortgage is a void and inexistent contract considering that its cause or object is
contrary to law, moral, good customs, and public order or public policy, insofar as Garcia is now before this Court, with the same arguments he posited before the
she was concerned.30 lower courts. In his Memorandum, 37 he added that the Deed of Real Estate
Mortgage contained a stipulation, which is violative of the prohibition on pactum
Garcia, in his Memorandum, 31 reiterated his position that his equity of redemption commissorium.
remained "unforeclosed" since Villar did not institute foreclosure proceedings.
Garcia added that "the mortgage, until discharged, follows the property to Issues
whomever it may be transferred no matter how many times over it changes hands
as long as the annotation is carried over."32
The crux of the controversy before us boils down to the propriety of Garcia’s
demand upon Villar to either pay Galas’s debt of ₱1,800,000.00, or to judicially
The Court of Appeals reversed the RTC in a Decision dated February 27, 2003, to foreclose the subject property to satisfy the aforesaid debt. This Court will,
wit: however, address the following issues in seriatim:

WHEREFORE, the decision appealed from is REVERSED and another one entered 1. Whether or not the second mortgage to Garcia was valid;
DISMISSING the complaint for judicial foreclosure of real estate mortgage with 2. Whether or not the sale of the subject property to Villar was valid;
damages.33 3. Whether or not the sale of the subject property to Villar was in violation of the
prohibition on pactum commissorium;
The Court of Appeals declared that Galas was free to mortgage the subject 4. Whether or not Garcia’s action for foreclosure of mortgage on the subject
property even without Villar’s consent as the restriction that the mortgagee’s property can prosper.
Discussion The power of attorney provision in the Deed of Real Estate Mortgage reads:

Validity of second mortgage to Garcia and sale of subject property to Villar 5. Power of Attorney of MORTGAGEE. – Effective upon the breach of any condition
of this Mortgage, and in addition to the remedies herein stipulated, the
At the onset, this Court would like to address the validity of the second mortgage MORTGAGEE is likewise appointed attorney-in-fact of the MORTGAGOR with full
to Garcia and the sale of the subject property to Villar. We agree with the Court of power and authority to take actual possession of the mortgaged properties, to sell,
Appeals that both are valid under the terms and conditions of the Deed of Real lease any of the mortgaged properties, to collect rents, to execute deeds of sale,
Estate Mortgage executed by Galas and Villar. lease, or agreement that may be deemed convenient, to make repairs or
improvements on the mortgaged properties and to pay the same, and perform any
other act which the MORTGAGEE may deem convenient for the proper
While it is true that the annotation of the first mortgage to Villar on Galas’s TCT
administration of the mortgaged properties. The payment of any expenses
contained a restriction on further encumbrances without the mortgagee’s prior
advanced by the MORTGAGEE in connection with the purpose indicated herein is
consent, this restriction was nowhere to be found in the Deed of Real Estate
also secured by this Mortgage. Any amount received from the sale, disposal or
Mortgage. As this Deed became the basis for the annotation on Galas’s title, its
administration abovementioned maybe applied by assessments and other
terms and conditions take precedence over the standard, stamped annotation
incidental expenses and obligations and to the payment of original indebtedness
placed on her title. If it were the intention of the parties to impose such restriction,
including interest and penalties thereon. The power herein granted shall not be
they would have and should have stipulated such in the Deed of Real Estate
revoked during the life of this Mortgage and all acts which may be executed by the
Mortgage itself.
MORTGAGEE by virtue of said power are hereby ratified. 38

Neither did this Deed proscribe the sale or alienation of the subject property during
The following are the elements of pactum commissorium:
the life of the mortgages. Garcia’s insistence that Villar should have judicially or
extrajudicially foreclosed the mortgage to satisfy Galas’s debt is misplaced. The
Deed of Real Estate Mortgage merely provided for the options Villar may undertake (1) There should be a property mortgaged by way of security for the
in case Galas or Pingol fail to pay their loan. Nowhere was it stated in the Deed that payment of the principal obligation; and
Galas could not opt to sell the subject property to Villar, or to any other person.
Such stipulation would have been void anyway, as it is not allowed under Article (2) There should be a stipulation for automatic appropriation by the
2130 of the Civil Code, to wit: creditor of the thing mortgaged in case of non-payment of the principal
obligation within the stipulated period. 39
Art. 2130. A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void. Villar’s purchase of the subject property did not violate the prohibition on pactum
commissorium. The power of attorney provision above did not provide that the
Prohibition on pactum commissorium ownership over the subject property would automatically pass to Villar upon
Galas’s failure to pay the loan on time. What it granted was the mere appointment
of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the
Garcia claims that the stipulation appointing Villar, the mortgagee, as the
subject property, and to apply the proceeds to the payment of the loan. 40 This
mortgagor’s attorney-in-fact, to sell the property in case of default in the payment
provision is customary in mortgage contracts, and is in conformity with Article 2087
of the loan, is in violation of the prohibition on pactum commissorium, as stated
of the Civil Code, which reads:
under Article 2088 of the Civil Code, viz:

Art. 2087. It is also of the essence of these contracts that when the principal
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
obligation becomes due, the things in which the pledge or mortgage consists may
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
be alienated for the payment to the creditor.
Galas’s decision to eventually sell the subject property to Villar for an additional latter, but not without the consent of the creditor. Payment by the new debtor
₱1,500,000.00 was well within the scope of her rights as the owner of the subject gives him the rights mentioned in articles 1236 and 1237.
property. The subject property was transferred to Villar by virtue of another and
separate contract, which is the Deed of Sale. Garcia never alleged that the transfer Therefore, the obligation to pay the mortgage indebtedness remains with the
of the subject property to Villar was automatic upon Galas’s failure to discharge her original debtors Galas and Pingol. 44 The case of E.C. McCullough & Co. v. Veloso and
debt, or that the sale was simulated to cover up such automatic transfer. Serna45 is square on this point:

Propriety of Garcia’s action for foreclosure of mortgage The effects of a transfer of a mortgaged property to a third person are well
determined by the Civil Code.1âwphi1 According to article 187946 of this Code, the
The real nature of a mortgage is described in Article 2126 of the Civil Code, to wit: creditor may demand of the third person in possession of the property mortgaged
payment of such part of the debt, as is secured by the property in his possession, in
Art. 2126. The mortgage directly and immediately subjects the property upon the manner and form established by the law. The Mortgage Law in force at the
which it is imposed, whoever the possessor may be, to the fulfillment of the promulgation of the Civil Code and referred to in the latter, provided, among other
obligation for whose security it was constituted. things, that the debtor should not pay the debt upon its maturity after judicial or
notarial demand, for payment has been made by the creditor upon him. (Art. 135
of the Mortgage Law of the Philippines of 1889.) According to this, the obligation of
Simply put, a mortgage is a real right, which follows the property, even after
the new possessor to pay the debt originated only from the right of the creditor to
subsequent transfers by the mortgagor.1âwphi1 "A registered mortgage lien is
demand payment of him, it being necessary that a demand for payment should
considered inseparable from the property inasmuch as it is a right in rem." 41
have previously been made upon the debtor and the latter should have failed to
pay. And even if these requirements were complied with, still the third possessor
The sale or transfer of the mortgaged property cannot affect or release the might abandon the property mortgaged, and in that case it is considered to be in
mortgage; thus the purchaser or transferee is necessarily bound to acknowledge the possession of the debtor. (Art. 136 of the same law.) This clearly shows that the
and respect the encumbrance.42 In fact, under Article 2129 of the Civil Code, the spirit of the Civil Code is to let the obligation of the debtor to pay the debt stand
mortgage on the property may still be foreclosed despite the transfer, viz: although the property mortgaged to secure the payment of said debt may have
been transferred to a third person. While the Mortgage Law of 1893 eliminated
Art. 2129. The creditor may claim from a third person in possession of the these provisions, it contained nothing indicating any change in the spirit of the law
mortgaged property, the payment of the part of the credit secured by the property in this respect. Article 129 of this law, which provides the substitution of the debtor
which said third person possesses, in terms and with the formalities which the law by the third person in possession of the property, for the purposes of the giving of
establishes. notice, does not show this change and has reference to a case where the action is
directed only against the property burdened with the mortgage. (Art. 168 of the
While we agree with Garcia that since the second mortgage, of which he is the Regulation.)47
mortgagee, has not yet been discharged, we find that said mortgage subsists and is
still enforceable. However, Villar, in buying the subject property with notice that it This pronouncement was reiterated in Rodriguez v. Reyes 48 wherein this Court,
was mortgaged, only undertook to pay such mortgage or allow the subject even before quoting the same above portion in E.C. McCullough & Co. v. Veloso
property to be sold upon failure of the mortgage creditor to obtain payment from and Serna, held:
the principal debtor once the debt matures. Villar did not obligate herself to
replace the debtor in the principal obligation, and could not do so in law without We find the stand of petitioners-appellants to be unmeritorious and untenable. The
the creditor’s consent.43 Article 1293 of the Civil Code provides: maxim "caveat emptor" applies only to execution sales, and this was not one such.
The mere fact that the purchaser of an immovable has notice that the acquired
Art. 1293. Novation which consists in substituting a new debtor in the place of the realty is encumbered with a mortgage does not render him liable for the payment
original one, may be made even without the knowledge or against the will of the of the debt guaranteed by the mortgage, in the absence of stipulation or condition
that he is to assume payment of the mortgage debt. The reason is plain: the On 10 September 1976, respondents Environmental Aquatics, Inc. (EAI) and Land
mortgage is merely an encumbrance on the property, entitling the mortgagee to Services and Management Enterprises, Inc. (LSMEI) loaned P1,792,600 from
have the property foreclosed, i.e., sold, in case the principal obligor does not pay petitioner Development Bank of the Philippines (DBP). As security for the loan,
the mortgage debt, and apply the proceeds of the sale to the satisfaction of his LSMEI mortgaged to DBP its 411-square meter parcel of land situated in New
credit. Mortgage is merely an accessory undertaking for the convenience and Manila, Quezon City, and covered by Transfer Certificate of Title No.
security of the mortgage creditor, and exists independently of the obligation to pay 209937.5cra1aw The mortgage contract 6cra1aw stated
the debt secured by it. The mortgagee, if he is so minded, can waive the mortgage that:chanroblesvirtualawlibrary
security and proceed to collect the principal debt by personal action against the
original mortgagor. 49 If at anytime the Mortgagor shall fail or refuse to pay any of the amortization on
the indebtedness, or the interest when due, or whatever other obligation herein
In view of the foregoing, Garcia has no cause of action against Villar in the absence secured or to comply with any of the conditions and stipulations herein agreed, or
of evidence to show that the second mortgage executed in favor of Garcia has been shall initiate insolvency proceedings or be declared involuntary insolvent (sic), or
violated by his debtors, Galas and Pingol, i.e., specifically that Garcia has made a uses the proceeds of the loan for purposes other than those specified herein then
demand on said debtors for the payment of the obligation secured by the second all the amortizations and other obligations of the Mortgagor of any nature, shall
mortgage and they have failed to pay. become due, payable and defaulted and the Mortgagee may immediately foreclose
this mortgage judicially or extrajudicially under Act No. 3135 as amended, or under
WHEREFORE, this Court hereby AFFIRMS the February 27, 2003 Decision and March Republic Act No. 85, as amended and or under Act No. 1508 as
8, 2003 Resolution of the Court of Appeals in CA-G.R. SP No. 72714. amended.7chanroblesvirtuallawlibrary

SO ORDERED. On 31 August 1981, DBP restructured the loan. In their promissory

notes,8cra1aw EAI and LSMEI stated that:chanroblesvirtualawlibrary
SECOND DIVISION
G.R. No. 174329 : October 20, 2010 On or before March 14, 1986, for value received, we jointly and severally, promise
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. ENVIRONMENTAL to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or at its office at Makati,
AQUATICS, INC., LAND SERVICES AND MANAGEMENT ENTERPRISES, INC. and Metro Manila, Philippines, the sum of * * ONE MILLION NINE HUNDRED SEVENTY
MARIO MATUTE Respondents. THREE THOUSAND ONE HUNDRED PESOS (P1,973,100.00), Philippine Currency,
DECISION with interest at the rate of sixteen per centum (16%) per annum. 9
CARPIO, J.:
On or before March 14, 1986, for value received, we jointly and severally, promise
The Case to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or at its office at Makati,
Metro Manila, Philippines, the sum of * * ONE HUNDRED NINETY THOUSAND
SEVEN HUNDRED PESOS * * (P190,700), Philippine Currency, with interest at the
This is a petition1cra1aw for review on certiorari under Rule 45 of the Rules of
rate of fourteen per centum (14%) per annum.
Court. The petition challenges the 16 January 2006 Decision 2cra1aw and 16 August
2006 Resolution3cra1aw of the Court of Appeals in CA-G.R. CV No. 46207. The Court
of Appeals affirmed with modification the 7 January 1994 Decision 4cra1aw of the On or before March 14, 1982, for value received, I/We, jointly and severally,
Regional Trial Court (RTC), National Capital Judicial Region, Branch 84, Quezon City, promise to pay the DEVELOPMENT BANK OF THE PHILIPPINES, or order at its office
in Civil Case No. Q-91-10563. at Makati, Metro Manila, Philippines, the sum of * * SIX HUNDRED EIGHTY FOUR
THOUSAND SEVEN HUNDRED EIGHTY EIGHT PESOS * * (P684,788.00), Philippine
Currency, with interest at the rate of ________ per centum (___%) per annum.
The Facts
EAI and LSMEI failed to pay the loan. As of 11 September 1990, the loan had Section 5 of Act No. 3135 and Sections 26 to 30 of Rule 39 of the Revised Rules of
increased to P16,384,419.90.12cra1aw On 25 October 1990, DBP applied for Court.
extrajudicial foreclosure of the real estate mortgage. In its application
letter,13cra1aw DBP stated that: Plaintiffs are correct. It is to be noted that the mortgage at issue was executed on
September 10, 1976, Exhs. "A" and "2". Republic Act No. 2081 entitled "An Act to
[W]e request [the ex-officio sheriff] to take possession of the properties described Amend Republic Act Numbered Eighty-Five and Other Pertinent Laws, to Provide
in the above-mentioned mortgages as well as those embraced in the after acquired Facilities for Intermediate and Long-Term Credit by Converting the Rehabilitation
properties clause thereof, and sell the same at public auction in accordance with Finance Corporation into the Development Bank of the Philippines, Authorizing the
the provisions of Act 3135, as amended by Act 4118, with respect to the real estate said Bank to Aid in the Establishment of Provincial and City Private Development
and Act 1508 with respect to the chattels, as amended by Presidential Decree No. Banks, and for Other Purposes" was approved and made effective on June 14,
385 aforecited.14chanroblesvirtuallawlibrary 1958. It was therefore the law the Charter (sic) of DBP, when in 1976 the mortgage
here in issue was executed. On the other hand, Executive Order No. 81, with its
During the 19 December 1990 public auction, the ex-officio sheriff sold the Section 16 thereof (sic) reading as follows:
property to DBP as the highest bidder for P1,507,000.
"Sec. 16. Right of Redemption. Any mortgagor of the Bank whose real property has
On 15 May 1991, LSMEI transferred its right to redeem the property to respondent been extrajudicially sold at public auction shall, within one (1) year counted from
Mario Matute (Matute). In his 27 July 1991 letter, 16cra1aw Atty. Julian R. Vitug, Jr. the date of registration of the certificate of sale, have the right to redeem the real
(Atty. Vitug, Jr.) informed DBP that his client Matute was interested in redeeming property by paying to the Bank all of the latter's claim against him, as determined
the property by paying the P1,507,000 purchase price, plus other costs. In its 29 by the Bank."
August 1991 letter,17cra1aw DBP informed Atty. Vitug, Jr. that Matute could
redeem the property by paying the remaining balance of EAI and LSMEI's loan. As is of recent vintage. Executive Order No. 81, issued by then President Corazon C.
of 31 August 1991, the loan amounted Aquino, was made effective on December 3, 1986. Clearly, the application of
to P19,279,106.22.18chanroblesvirtuallawlibrary Executive Order No. 81 to the mortgage herein involved would violate the
constitutional proscription against the impairment of contracts. Sec. 16 of
On 8 November 1991, EAI, LSMEI and Matute filed with the RTC a Executive Order No. 81, which governs the right of redemption in extrajudicial
complaint19cra1aw praying that DBP be ordered "to accept x x x Matute's bonafide foreclosures, is not found in Rep. Act No. 2081 or even in Rep. Act No. 85. And so,
offer to redeem the foreclosed property." to make the redemption subject to a subsequent law would be obviously
prejudicial to the party exercising the right to redeem. Any change in the law
governing redemption that would make it more difficult than under the law at the
The RTC's Ruling
time of the mortgage cannot be given retroactive effect.

In its 7 January 1994 Decision, the RTC allowed Matute to redeem the property at
Under the terms of the mortgage contract, "Exh. "2", specifically paragraph 4
its P1,507,000 purchase price. The RTC held that:
thereof:

The question is whether, as the defendant DBP contends, the redemption should
"x x x the Mortgagee may immediately foreclose this mortgage judicially or
be made by paying to the Bank the entire amount owed by plaintiffs-corporations
extrajudicially under Act No. 3135 as amended, or under Republic Act No. 85, as
"in the amount of P18,301,653.11 as of the date of foreclosure on December 12,
amended and or under Act No. 1508 as amended. x x x x."
1990", invoking Sec. 16 of Executive Order No. 81 otherwise known as the 1986
Revised Charter of DBP. On the other hand, the plaintiffs contend that this
redemption may be made only by reimbursing the defendant Bank what it has paid Going by the literal terms of this quoted provision of the mortgage contract,
for at the auction sale made to it (sic), in the amount of P1,507,000.00, pursuant to defendant DBP stand bound by the same. When defendant DBP foreclosed the
mortgage at issue, it chose Act 3135. That was an option it freely exercised without In its 16 January 2006 Decision, the Court of Appeals affirmed with modification the
the least intervention of plaintiffs. We cannot, therefore, escape the conclusion RTC's 7 January 1994 Decision. The Court of Appeals imposed a 16% annual interest
that what defendant DBP agreed to in respect to (sic) the possible foreclosure of its on the remaining balance of the loan. The Court of Appeals held that:
mortgage was to subject the same to the provisions of Act No. 3135, as amended,
should the DBP opt to utilize said law. Section 6 of Act No. 3135 very clearly The dearth of merit in appellant bank's position is, however, evident from the fact
governs the right of redemption in extrajudicial foreclosures thus: that, as hereinbefore quoted, paragraph 4 of the September 10, 1976 Deed of Real
Estate Mortgage executed in its favor by appellees EAI  and  LSMEI  provided for
"SEC. 6. In all cases in which an extrajudicial sale is made under the special power three options by which the extrajudicial foreclosure thereof may be effected.
hereinbefore referred to, the debtor, his successors in interest or any judicial Thereunder given the choice of resorting to "Act No. 3135 as amended, or Republic
creditor or judgment creditor of said debtor, or any person having a lien on the Act No. 85 as amended, or Act No. 1508 as amended", appellant bank undoubtedly
property subsequent to the mortgage or deed of trust under which the property is opted for the first of the aforesaid laws as may be gleaned from the following
sold, may redeem the same at any time within the term of one year from and after prayer it interposed in the application for foreclosure of mortgage it filed with the
the date of the sale; and such redemption shall be governed by the provisions of Ex-Officio Sheriff of Quezon City on October 25, 1990, viz:
sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these are not inconsistent with the provisions "WHEREFORE, we request you to take possession of the properties described in the
of this Act." above-mentioned mortgages xxx xxx xxx and sell the same at public auction in
accordance with the provisions of Act 3135, as amended by Act 4118, with respect
Sections four hundred sixty-four to four hundred sixty-five, inclusive, of the Code of to the real estate xxx xxx xxx"
Civil Procedure, since the promulgation of the Rules of Court of 1940, became
sections 29, 30 and 32 of Rule 39. The same sections were reproduced in the With appellant bank's categorical election of Act No. 3135 as the controlling law for
Revised Rules of Court. the extrajudicial foreclosure of the subject mortgage, it goes without saying that,
insofar as the redemption of the subject realty is concerned, the provisions of said
Having thus come to the conclusion that Act 3135 and Sections 29 to 32 of Rule 39 law are deemed written into the parties' agreement and, as such, should be
of the Rules of Court rather than Executive Order No. 81 are the laws applicable to respected as the law between them.
the right of redemption invoke (sic) by plaintiffs in this case, it would appear that all
that remains for this Court to do is to apply the said legal precepts. Pursuant to Anent the redemption of mortgaged properties extrajudicially foreclosed in
Section 30 of Rule 39, "the judgment debtor or his successor-in-interest per Sec. 29, accordance therewith, Section 6 of Act No. 3135 provides as follows:
here plaintiff Mario Batute may redeem the property from the purchaser, at any
time within twelve months after the sale, on paying the purchaser the amount of
"Section 6. In all cases in which an extrajudicial sale is made under the special
his purchase, with one per centum per month interest thereon in addition, up to
power hereinbefore referred to, the debtor, his successors in interests (sic) or any
the time of redemption, together with the amount of any assessments or taxes
judicial creditor or judgment creditor of said debtor, or any person having a lien on
which the purchaser may have paid thereon after the purchase, and interest on
the property subsequent to the mortgage or deed of trust under which the
such last-named amount at the same rate; x x x".
property is sold, may redeem the same at any time within the term of one year
from and after the date of the sale; and such redemption shall be governed by the
DBP appealed to the Court of Appeals. provisions of sections four hundred and sixty-four to four hundred sixty-six,
inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with
The Court of Appeals' Ruling the provisions of this Act."

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, prescribes the following Considering, however, that the amount offered by appellee by way of redemption
guidelines for redemption, viz: 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
"Section 28. Time and manner of, and amounts payable on, successive trial court's imposition of legal interest on the balance of the mortgage debt. If the
redemptions; notice to be given and filed. The judgment obligor, or redemptioner, obligation consists in the payment of a sum of money, and the debtor incurs in
may redeem the property from the purchaser, at any time within one (1) year from delay, the indemnity for damages, there being no stipulation to the contrary, shall
the date of the registration of the certificate of sale, by paying the purchaser the be the payment of the interest agreed upon, and in the absence of stipulation, the
amount of his purchase, with one per centum per month interest thereon in legal interest which is six per cent per annum. In the case at bench, the interest
addition, up to the time of redemption, together with the amount of any imposable on the balance of the mortgage debt should, therefore, be the sixteen
assessments or taxes which may have been paid thereon after purchase, and per cent (16%) per annum provided under the August 31, 1981 Promissory Note
interest on such last named amount at the same rate; and if the purchaser be also appellees EAI and LSMEI executed in favor of
a creditor having a prior lien to that of the redemptioner, other than the judgment appellant.22chanroblesvirtuallawlibrary
under which such purchase (sic), the amount of such other lien, with interest.
DBP filed a motion for reconsideration. In its 16 August 2006 Resolution, the Court
Written notice of any redemption must be given to the officer who made the sale of Appeals denied the motion. Hence, the present petition.
and a duplicate filed with the registry of deeds of the place, and if any assessments
or taxes are paid by the redemptioner or if he has or acquires any lien other than Issue: DBP raises as issues that the lower courts erred in finding that the bank
that upon which the redemption was made, notice thereof must in like manner be chose Act No. 3135 as the governing law for the extrajudicial foreclosure of the
given to the officer and filed with the registry of deeds; if such notice be not filed, property, including the determination of the redemption price, and in ruling that
the property may be redeemed without paying such assessments, taxes or liens." the redemption price is equivalent to the P1,507,000 purchase price.

In order to effect the redemption of the foreclosed property, the foregoing The Court's Ruling
provision notably requires the payment to the purchaser of the following sums
only: (a) the bid price; (b) the interest on the bid price, computed at one per The petition is meritorious.
centum (1%) per month; and (c) the assessments or taxes, if any, paid by the
purchaser, with the same rate of interest.
Section 16 of Executive Order (EO) No. 81 states that the redemption price for
properties mortgaged to and foreclosed by DBP is equivalent to the remaining
When the statute is clear and explicit, the basic principle in legal hermeneutics is to balance of the loan. Section 16 states that, "Any mortgagor of the Bank whose
the effect that there is no need for an extended court ratiocination on the law property has been extrajudicially sold at public auction shall x x x have the right to
there is no room for interpretation, vacillation or equivocation, only application. redeem the real property by paying to the Bank all of the latter's claims against
Having been made in accordance with Act No. 3135, we find that appellee Matute's him, as determined by the Bank."
offer to redeem the subject property in the amount of P1,672,770.00 was,
therefore, unjustifiably refused by appellant bank. Corollarily, the rule is settled
In Development Bank of the Philippines v. West Negros College, Inc.,23cra1aw the
that the person effecting redemption is not mandated to pay the whole debt since,
Court held that the redemption price for properties mortgaged to and foreclosed
in redemption of properties, the amount payable is no longer the judgment debt
by DBP is equivalent to the remaining balance of the loan, with interest at the
but, rather, the purchase price thereby fetched at the auction sale.
agreed rate. The Court held that:

As for the deficiency x x x, the consistent ruling in a cantena of Supreme Court

It has long been settled that where the real property is mortgaged to and
decisions is to the effect that the mortgagee has the right to recover the same from
foreclosed judicially or extrajudicially by the Development Bank of the
the debtor where, in the extrajudicial foreclosure of mortgage, the proceeds of the
Philippines, the right of redemption may be exercised only by paying to "the
sale are insufficient to pay the debt. x x x
Bank all the amount he owed the latter on the date of the sale, with interest on The issue posed in this appeal is: considering that the loan of P300,000.00 was
the total indebtedness at the rate agreed upon in the obligation from said date, obtained from the Rehabilitation Finance Corporation [now DBP] by spouses Jose
unless the bidder has taken material possession of the property or unless this had Nepomuceno and Isabela Acuña and Jesus Nepomuceno merely acted as
been delivered to him, in which case the proceeds of the property shall compensate accomodation mortgagor, for what price may the mortgagor redeem his property
the interest." x x x after the same has been sold at public auction? Would it be for the price at which
the property was sold, as contended by the mortgagor, or for the balance of the
The foregoing rule is embodied consistently in the charters of petitioner DBP and loan obtained by the borrowers from the banking institution, as contended by
its predecessor agencies. Section 31 of CA 459 creating the Agricultural and appellant?
Industrial Bank explicitly set the redemption price at the total indebtedness plus
contractual interest as of the date of the auction sale. Under RA 85 the powers xxxx
vested in and the duties conferred upon the Agricultural and Industrial Bank by CA
459 as well as its capital, assets, accounts, contracts, and choses in action were [T]he inescapable conclusion is that the mortgagor herein or his assignees cannot
transferred to the Rehabilitation Finance Corporation. It has been held that among redeem the property in dispute without paying the balance of the total
the salutary provisions of CA 459 ceded to the Rehabilitation Finance Corporation indebtedness then outstanding on the date of the sale to the Rehabilitation
by RA 85 was Sec. 31 defining the manner of redeeming properties mortgaged with Finance Corporation. (Emphasis supplied)
the corporation. Subsequently, by virtue of RA 2081 (1958), the powers, assets,
liabilities and personnel of the Rehabilitation Finance Corporation under RA 85 and
The lower courts ruled that the redemption price for the property is equivalent to
CA 459, particularly Sec. 31 thereof, were transferred to petitioner DBP.
the P1,507,000 purchase price because DBP chose Act No. 3135 as the governing
Significantly, Sec. 31 of CA 459 has been reenacted substantially in Sec. 16 of the
law for the extrajudicial foreclosure. The RTC and Court of Appeals, respectively,
present charter of the DBP, i.e., EO 81 (1986) as amended by RA 8523 (1998).
stated that:

xxxx
When defendant DBP foreclosed the mortgage at issue, it chose Act 3135. That was
an option it freely exercised without the least intervention of plaintiffs. We cannot,
The unavoidable conclusion is that in redeeming the foreclosed property therefore, escape the conclusion that what defendant DBP agreed to in respect to
respondent West Negros College as assignee of Bacolod Medical Center should (sic) the possible foreclosure of its mortgage was to subject the same to the
pay the balance of the amount owed by the latter to petitioner DBP with interest provisions of Act No. 3135, as amended, should the DBP opt to utilize said law. 29
thereon at the rate agreed upon as of the date of the public auction on 24 August
1989.24cra1aw (Emphasis supplied)
Thereunder given the choice of resorting to "Act No. 3135 as amended, or Republic
Act No. 85 as amended, or Act No. 1508 as amended", appellant bank undoubtedly
In Development Bank of the Philippines v. Mirang,25cra1aw the Court held that the opted for the first of the aforesaid laws as may be gleaned from the following
redemption price for properties morgaged to and foreclosed by DBP is equivalent prayer it interposed in the application for foreclosure of mortgage it filed with the
to the remaining balance of the loan, with interest at the agreed rate. The Court Ex-Officio Sheriff of Quezon City on October 25, 1990. 30chanroblesvirtuallawlibrary
held that, "The unavoidable conclusion is that the appellant, in redeeming the
foreclosed property, should pay the entire amount he owed to the Bank on the
The Court disagrees. Republic Act (RA) No. 85 and Act No. 1508 do not provide a
date of the sale, with interest thereon at the rate agreed upon."
procedure for extrajudicial foreclosure of real estate mortgage. When DBP stated
in its letter to the ex-officio sheriff that the property be sold "at public auction in
As early as 1960, the Court has already settled the issue. In Nepomuceno, et al. v. accordance with the provisions of Act 3135," it did so merely to find a proceeding
Rehabilitation Finance Corporation,27cra1aw the Court held that the redemption for the sale.
price for properties morgaged to and foreclosed by DBP is equivalent to the
remaining balance of the loan, with interest at the agreed rate. The Court held that:
In Development Bank of the Philippines v. Zaragoza,31cra1aw Development Bank of x x x When appellant DBP cited Act 3135 in its Deed of Real Estate Mortgage or
the Philippines v. Mirang,32cra1aw and Development Bank of the Philippines v. even in the application for foreclosure of mortgage, it was not a matter of making
Jimenez, et al.,33cra1aw the Court held that when the bank resorted to Act No. an exclusive option or choice because Act 3135 governs the procedure and
3135 in order to sell the mortgaged property extrajudicially, it did so merely to find requirements for an extrajudicial foreclosure or real estate mortgage. In citing said
a proceeding for the sale. law, Appellant DBP was merely finding a proceeding for extra-judicial foreclosure
sale x x x. And while the said Act 3135 provides for redemption, such provision will
In its 10 October 2006 petition, DBP claims that when it resorted to Act No. 3135 in not apply in the determination of the redemption price on [sic] mortgages to DBP.
order to sell the mortgaged property extrajudicially, it did so merely to find a In the latter case, the DBP Charter will prevail.
proceeding for the sale. DBP stated that:
Even assuming that DBP chose Act No. 3135 as the governing law for the
[W]hen herein petitioner resorted to Act 3135 in its application for extrajudicial extrajudicial foreclosure, the redemption price would still be equivalent to the
foreclosure of the subject mortgaged real estate, it did so only to find a proceeding remaining balance of the loan. EO No. 81, being a special and subsequent law,
for the extrajudicial sale. The Court of Appeals should have noted that neither amended Act No. 3135 insofar as the as redemption price is concerned.
Republic Act No. 85 (the Charter of the Rehabilitation Finance Corporation) nor Act
1508 (Chattel Mortgage Law) prescribe a procedure for extrajudicial foreclosure of In Sy v. Court of Appeals,35cra1aw the Court held that RA No. 337 amended Act No.
real estate mortgage as provided under Act 3135. Such action, therefore, cannot be 3135 insofar as the redemption price is concerned. The Court held that:
construed to mean a waiver of petitioner's right to demand the payment of
respondents' entire obligation as the proper redemption price. There is no such [T]he General Banking Act partakes of the nature of an amendment to Act No.
waiver on the part of the petitioner. 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,
xxxx inconsistent with Section 78 of the General Banking Act. Although foreclosure
and sale of the subject property was done by SIHI pursuant to Act. No. 3135, x x
[I]t is hereby stressed that DBP did not elect Act 3135 to the exclusion of other laws x Section 78 of the General Banking Act, as amended provides the amount at
in the extrajudicial foreclosure of the subject mortgaged real property. Such a which the subject property is redeemable from SIHI, which is, in this case, the
conclusion is definitely contrary to law and jurisprudence, which settled the rule amount due under the mortgage deed, or the outstanding obligation of Carlos
that Act 3135 is the general law that governs the procedure and requirements in Coquinco, plus interest and expenses. (Emphasis supplied)
extra-judicial foreclosure of real estate mortgage, but in determining the
redemption price of the property mortgaged to the Development Bank of the In Ponce de Leon v. Rehabilitation Finance Corporation,37cra1aw the Court held that
Philippines, the DBP Charter shall prevail. RA No. 337, being a special and subsequent law, amended Act No. 3135 insofar as
the redemption price is concerned. The Court held that:
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 other hand, Rep. Act No. 337, otherwise known as "The General Banking Act," is entitled "An
governs the extrajudicial foreclosure of chattel mortgage, and should not be in Act Regulating Banks and Banking Institutions and for other purposes." Section 78
issue in the instant case which involves a real estate mortgage. 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
It should likewise be of judicial notice that Republic Act No. 85 is the charter of the security, as well as provides that, in the event of foreclosure of a real estate
Rehabilitation Finance Corporation, predecessor of appellant DBP. RA 85 prescribes mortgage to said banks or institutions, the property sold may be redeemed "by
the redemption price, not the proceedings and requirements in an extrajudicial paying the amount fixed by the court in the order of execution," or the amount
foreclosure of real estate mortgage such as those found in Act 3135. 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 LEONARDO-DE CASTRO, J.:
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 This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
governed by Rep. Act No. 337, which partakes of the nature of an amendment to Procedure of the Decision1 dated April 30, 2008 of the Court of Appeals in CA-G.R.
Act No. 3135, insofar as mortgages to banks or banking or credit institutions are CV No. 88004, entitled "Bank of the Philippine Islands, as successor-in-interest of
concerned, to which class the RFC belongs. At any rate, the conflict between the Far East Bank & Trust Company vs. Cynthia L. Reyes" which reversed the
two (2) laws must be resolved in favor of Rep. Act No. 337, both as a special and Decision2 dated November 3, 2005 of the Regional Trial Court (RTC) of Makati City,
as the subsequent legislation.38cra1aw (Emphasis supplied) Branch 148 in Civil Case No. 03-180.

WHEREFORE, the Court GRANTS the petition. The Court PARTIALLY SETS ASIDE the The background facts of this case, as summed by the trial court, follow:
16 January 2006 Decision and 16 August 2006 Resolution of the Court of Appeals in
CA-G.R. CV No. 46207. The Court gives respondent Mario Matute a grace period of
This is an action for sum of money filed [b]y [p]laintiff Bank of the Philippine
60 calendar days from notice of finality of this Decision to redeem the property, by
Islands, hereinafter referred to as BPI, as successor-in-interest of Far East Bank &
paying petitioner Development Bank of the Philippines the remaining balance of
Trust Company, referred hereto as Far East Bank, against defendant Cynthia L.
respondents Environmental Aquatics, Inc. and Land Services and Management
Reyes, hereinafter referred to as defendant Reyes.
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 compensate for As alleged in the Complaint, defendant Reyes borrowed, renewed and received
the interest during the period of possession. from Far East Bank the principal of Twenty Million Nine Hundred Thousand Pesos
[sic] (₱20,950,000.00). In support of such allegation, four promissory notes were
presented during the course of the trial of the case. As security for the obligation,
SO ORDERED.
defendant Reyes executed Real Estate Mortgage Agreements involving
twenty[-]two (22) parcels of land. When the debt became due and demandable,
the defendant failed to settle her obligation and the plaintiff was constrained to
foreclose the properties. As alleged, after due publication, the mortgaged
properties were sold at public auction on December 20, 2001 by the Office of the
Clerk of Court & Ex-Officio Sheriff of the Regional Trial Court of Malolos, Bulacan.

At the public auction, the mortgaged properties were awarded to BPI in

consideration of its highest bid price amounting to Nine Million Thirty[-]Two
Thousand Nine Hundred Sixty Pesos (₱9,032,960.00). On said date, the obligation
already reached Thirty Million Forty (sic) Hundred Twenty Thousand Forty[-]One &
Republic of the Philippines
67/100 Pesos (₱30,420,041.67), inclusive of interest but excluding attorney’s fees,
SUPREME COURT
publication and other charges. After applying the proceeds of the public auction to
Manila
the outstanding obligation, there remains to be a deficiency and defendant Reyes is
FIRST DIVISION
still indebted, as of January 20, 2003, to the plaintiff in the amount of
G.R. No. 182769               February 1, 2012
₱24,545,094.67, broken down as follows:
BANK OF THE PHILIPPINE ISLANDS, AS SUCCESSOR-IN-INTEREST OF FAR EAST
BANK & TRUST COMPANY, Petitioner,
vs. Principal ₱19,700,000.00
CYNTHIA L. REYES, Respondent.
DECISION Unsatisfied Interest 2,244,694.67
 Interest 2,383,700.00 An appeal with the Court of Appeals was filed by respondent. This resulted in a
reversal of the trial court’s judgment via an April 30, 2008 Decision by the Court of
Penalty 216,700.00 Appeals, the dispositive portion of which states:

WHEREFORE, the instant appeal is GRANTED. The assailed Decision dated

TOTAL ₱24,545,094.67 November 3, 2005 is hereby REVERSED AND SET ASIDE.7

Also included in the prayer of the plaintiff is the payment of attorney’s fees of at Aggrieved, petitioner filed the instant petition in which the following issues were
least Five Hundred Thousand Pesos and the cost of suit. put into consideration:

In the Answer, the defendant claims that based on the plaintiff’s appraisal of the A. WHETHER OR NOT THERE WAS DEFICIENCY WHEN RESPONDENT’S PROPERTY
properties mortgaged to Far East Bank, the twenty[-]two properties fetched a total WHICH SHE SUPPOSEDLY VALUED AT ₱47,536,000.00 WAS SOLD AT THE EXTRA-
appraisal value of ₱47,436,000.00 as of January 6, 1998. This appraisal value is JUDICIAL FORECLOSURE SALE AT ONLY [₱9,032,960.00] BY PETITIONER;
evidenced by the Appraisal, which is attached as Annex 1 of the Answer. B. WHETHER OR NOT RESPONDENT’S PROPERTY WAS OVERVALUED WHEN IT WAS
Considering the appraisal value and the outstanding obligation of the defendant, it MORTGAGED TO FEBTC/BPI;
appears that the mortgaged properties sold during the public auction are more C. WHETHER OR NOT RESPONDENT CAN RAISE THE ISSUE ON THE NULLITY OF THE
than enough as payment to the outstanding obligation of the defendant. 3 EXTRA-JUDICIAL FORECLOSURE SALE IN AN ACTION FILED BY THE PETITIONER
(CREDITOR-MORTGAGEE) FOR THE RECOVERY OF DEFICIENCY AND FOR THE FIRST
Subsequently, upon petitioner’s motion, the trial court issued an Order4 dated TIME ON APPEAL;
October 6, 2005 recognizing Asset Pool A (SPV-AMC), Inc. as substitute plaintiff in D. WHETHER OR NOT THE PRICE OF ₱9,032,960.00 FOR RESPONDENT’S PROPERTY
lieu of petitioner. AT THE EXTRAJUDICIAL FORECLOSURE SALE WAS UNCONCIONABLE OR SHOCKING
TO THE CONSCIENCE OR GROSSLY INADEQUATE.
E. WHETHER OR NOT THE PETITION RAISES QUESTIONS OF LAW AND THE
After due trial, the trial court rendered its Decision dated November 3, 2005, the
QUESTIONS OF FACT RAISED FALL WITHIN THE EXCEPTIONS TO THE RULE THAT
dispositive portion of which states:
ONLY QUESTIONS OF LAW MAY BE REVIEWED BY THIS HONORABLE COURT UNDER
RULE 45 OF THE RULES OF COURT.8
WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiff BANK OF THE PHILIPPINE ISLANDS, as successor-in-interest of Far East Bank
& Trust Company, and against defendant CYNTHIA L. REYES. Accordingly, the
defendant is ordered:

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

defendant’s outstanding obligation, plus interest at the rate of twelve percent On the other hand, respondent submits the following issues:
(12%) per annum, computed from January 20, 2003 until the whole amount is fully
paid; Whether or not the Court of Appeals erred in ruling that there exists no deficiency
2. To pay plaintiff the amount of Php200,000.00 as attorney’s fees; owed by mortgagor-debtor as the mortgagee-creditor bank acquired the
3. Costs of suit against the defendant. 5 mortgaged property at the foreclosure sale worth ₱47,536,000 at only ₱9,032,960;
Whether or not the Court of Appeals erred in ruling that the properties of the
Respondent filed a motion for reconsideration but the same was denied by the trial respondent were not overvalued at ₱47,536,000;
court through an Order6 dated January 9, 2006. Whether or not the Court of Appeals erred in entertaining the issue that the
foreclosure sale was null and void;
Whether or not the Court of Appeals erred in ruling that the purchase price of Absent such a provision in Act No. 3135, as amended, the creditor is not precluded
₱9,032,000 at the foreclosure sale of respondent’s mortgaged properties was from taking action to recover any unpaid balance on the principal obligation simply
unconscionable or grossly inadequate.9 because he chose to extrajudicially foreclose the real estate mortgage." 11

After consideration of the issues and arguments raised by the opposing sides, the Furthermore, we have also ruled in Suico Rattan & Buri Interiors, Inc. v. Court of
Court finds the petition meritorious. Appeals12 that, in deference to the rule that a mortgage is simply a security and
cannot be considered payment of an outstanding obligation, the creditor is not
Stripped of surplusage, the singular issue in this case is whether or not petitioner is barred from recovering the deficiency even if it bought the mortgaged property at
entitled to recover the unpaid balance or deficiency from respondent despite the the extrajudicial foreclosure sale at a lower price than its market value
fact that respondent’s property, which were appraised by petitioner’s predecessor- notwithstanding the fact that said value is more than or equal to the total amount
in-interest at ₱47,536,000.00, was sold and later bought by petitioner in an of the debtor’s obligation. We quote from the relevant portion of said decision:
extrajudicial foreclosure sale for only ₱9,032,960.00 in order to satisfy
respondent’s outstanding obligation to petitioner which, at the time of the sale, Hence, it is wrong for petitioners to conclude that when respondent bank
amounted to ₱30,420,041.67 inclusive of interest but excluding attorney’s fees, supposedly bought the foreclosed properties at a very low price, the latter
publication and other charges. effectively prevented the former from satisfying their whole obligation. Petitioners
still had the option of either redeeming the properties and, thereafter, selling the
There is no dispute with regard to the total amount of the outstanding loan same for a price which corresponds to what they claim as the properties’ actual
obligation that respondent owed to petitioner at the time of the extrajudicial market value or by simply selling their right to redeem for a price which is
foreclosure sale of the property subject of the real estate mortgage. Likewise, it is equivalent to the difference between the supposed market value of the said
uncontested that by subtracting the amount obtained at the sale of the property, a properties and the price obtained during the foreclosure sale. In either case,
loan balance still remains. Petitioner merely contends that, contrary to the ruling of petitioners will be able to recoup the loss they claim to have suffered by reason of
the Court of Appeals, it has the right to collect from the respondent the remainder the inadequate price obtained at the auction sale and, thus, enable them to settle
of her obligation after deducting the amount obtained from the extrajudicial their obligation with respondent bank. Moreover, petitioners are not justified in
foreclosure sale. On the other hand, respondent avers that since petitioner’s concluding that they should be considered as having paid their obligations in full
predecessor’s own valuation of the subject property shows that its value is more since respondent bank was the one who acquired the mortgaged properties and
than the amount of respondent’s outstanding obligation, then respondent cannot that the price it paid was very inadequate. The fact that it is respondent bank, as
be held liable for the balance especially because it was petitioner who bought the the mortgagee, which eventually acquired the mortgaged properties and that the
property at the foreclosure sale. bid price was low is not a valid reason for petitioners to refuse to pay the remaining
balance of their obligation. Settled is the rule that a mortgage is simply a security
and not a satisfaction of indebtedness. 13 (Emphases supplied.)
In the recent case of BPI Family Savings Bank, Inc. v. Avenido, 10 we reiterated the
well-entrenched rule that a creditor is not precluded from recovering any unpaid
balance on the principal obligation if the extrajudicial foreclosure sale of the We are aware of our earlier pronouncements in Cometa v. Court of Appeals 14 and in
property subject of the real estate mortgage results in a deficiency, to wit: Rosales v. Court of Appeals15 which were cited by the Court of Appeals in its
assailed April 30, 2008 Decision, wherein we declared that a sale price which is
equivalent to more or less twelve percent (12%) of the value of the property is
It is settled that if "the proceeds of the sale are insufficient to cover the debt in an
shockingly low, unconscionable and grossly inadequate, thus, warranting a
extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the
nullification of the foreclosure sale. In both cases, we declared that where the
deficiency from the debtor. While Act No. 3135, as amended, does not discuss the
inadequacy of the price is purely shocking to the conscience, such that the mind
mortgagee’s right to recover the deficiency, neither does it contain any provision
revolts at it and such that a reasonable man would neither directly nor indirectly be
expressly or impliedly prohibiting recovery. If the legislature had intended to deny
likely to consent to it, the sale shall be declared null and void. On the other hand,
the creditor the right to sue for any deficiency resulting from the foreclosure of a
we are likewise reminded of our ruling in Cortes v. Intermediate Appellate
security given to guarantee an obligation, the law would expressly so provide.
Court16 and in Ponce De Leon v. Rehabilitation Finance Corporation 17 wherein we of price, or when such inadequacy shocks one’s conscience as to justify the courts
upheld the validity of foreclosure sales in which the property subject thereof were to interfere; such does not follow when the law gives the owner the right to
sold at 11% and 17%, respectively, of their value. redeem as when a sale is made at public auction, upon the theory that the lesser
the price, the easier it is for the owner to effect redemption. When there is a right
In the case at bar, the winning bid price of ₱9,032,960.00 is nineteen percent (19%) to redeem, inadequacy of price should not be material because the judgment
of the appraised value of the property subject of the extrajudicial foreclosure sale debtor may re-acquire the property or else sell his right to redeem and thus
that is pegged at ₱47,536,000.00 which amount, notably, is only an arbitrary recover any loss he claims to have suffered by reason of the price obtained at the
valuation made by the appraising officers of petitioner’s predecessor-in-interest execution sale. Thus, respondent stood to gain rather than be harmed by the low
ostensibly for loan purposes only. Unsettled questions arise over the correctness of sale value of the auctioned properties because it possesses the right of
this valuation in light of conflicting evidence on record. redemption. x x x22 (Emphasis supplied.)1âwphi1

Notwithstanding the doubtful validity of the valuation of the property at issue, the It bears also to stress that the mode of forced sale utilized by petitioner was an
resolution of which is a question of fact that we are precluded from addressing at extrajudicial foreclosure of real estate mortgage which is governed by Act No.
this juncture of the litigation, and confronted by the divergent jurisprudential 3135, as amended. An examination of the said law reveals nothing to the effect
benchmarks which define what can be considered as shockingly or unconscionably that there should be a minimum bid price or that the winning bid should be equal
low price in a sale of property, we, nevertheless, proceed to adjudicate this case on to the appraised value of the foreclosed property or to the amount owed by the
an aspect in which it is most plain and unambiguous – that it involves a forced sale mortgage debtor. What is clearly provided, however, is that a mortgage debtor is
with a right of redemption. given the opportunity to redeem the foreclosed property "within the term of one
year from and after the date of sale." 23 In the case at bar, other than the mere
inadequacy of the bid price at the foreclosure sale, respondent did not allege any
Throughout a long line of jurisprudence, we have declared that unlike in an
irregularity in the foreclosure proceedings nor did she prove that a better price
ordinary sale, inadequacy of the price at a forced sale is immaterial and does not
could be had for her property under the circumstances.
nullify a sale since, in a forced sale, a low price is more beneficial to the mortgage
debtor for it makes redemption of the property easier.18
Thus, even if we assume that the valuation of the property at issue is correct, we
still hold that the inadequacy of the price at which it was sold at public auction
In the early case of The National Loan and Investment Board v. Meneses, 19 we also
does not invalidate the foreclosure sale.
had the occasion to state that:

Even if we are so inclined out of sympathy for respondent’s plight, neither could we
As to the inadequacy of the price of the sale, this court has repeatedly held that
temper respondent’s liability to the petitioner on the ground of equity. We are
the fact that a property is sold at public auction for a price lower than its alleged
barred by our own often repeated admonition that equity, which has been aptly
value, is not of itself sufficient to annul said sale, where there has been strict
described as "justice outside legality," is applied only in the absence of, and never
compliance with all the requisites marked out by law to obtain the highest
against, statutory law or judicial rules of procedure. 24 The law and jurisprudence on
possible price, and where there is no showing that a better price is obtainable.
the matter is clear enough to close the door on a recourse to equity.
(Government of the Philippines vs. De Asis, G. R. No. 45483, April 12, 1939;
Guerrero vs. Guerrero, 57 Phil., 442; La Urbana vs. Belando, 54 Phil., 930; Bank of
the Philippine Islands v . Green, 52 Phil., 491.)20 (Emphases supplied.) Moreover, we fail to see any unjust enrichment resulting from upholding the
validity of the foreclosure sale and of the right of the petitioner to collect any
deficiency from respondent. Unjust enrichment exists "when a person unjustly
In Hulst v. PR Builders, Inc.,21 we further elaborated on this principle:
retains a benefit to the loss of another, or when a person retains money or
property of another against the fundamental principles of justice, equity and good
[G]ross inadequacy of price does not nullify an execution sale. In an ordinary sale, governance."25 As discussed above, there is a strong legal basis for petitioner’s
for reason of equity, a transaction may be invalidated on the ground of inadequacy claim against respondent for the balance of her loan obligation.
WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed This petition for review1cЃa assails the 30 August 2005 Decision 2cЃa and 3
Decision dated April 30, 2008 of the Court of Appeals in CA-G.R. CV No. 88004 is November 2005 Resolution 3cЃa of the Court of Appeals in CA-G.R. CV No. 66672.
REVERSED and SET ASIDE. The RTC’s November 3, 2005 Decision in Civil Case No. The Court of Appeals reversed the decision of Branch 121 of the Regional Trial
03-180 is hereby REINSTATED. Court of Caloocan City, National Capital Region (trial court) by declaring void the
questioned extrajudicial foreclosure of real estate mortgage for non-compliance
SO ORDERED. with the statutory requirement of publication of the notice of sale.

The Facts

On 9 February 1995, respondents Spouses Dionisio and Caridad Geronimo

(respondents) obtained a loan from petitioner Philippine Savings Bank (petitioner)
in the amount of P3,082,000, secured by a mortgage on respondents' land situated
in Barrio Talipapa, Caloocan City and covered by Transfer Certificate of Title No. C-
50575.4cЃa Respondents defaulted on their loan, prompting petitioner to initiate
the extra-judicial foreclosure of the real estate mortgage. At the auction sale
conducted on 29 March 1996, the mortgaged property was sold to
petitioner,5cЃa being the highest bidder, for P3,000,000. Consequently, a Certificate
of Sale was issued in favor of petitioner. 6cräläwvirtualibräry

Claiming that the extrajudicial foreclosure was void for non-compliance with the
law, particularly the publication requirement, respondents filed with the trial court
a complaint for the annulment of the extrajudicial foreclosure. 7cЃa

The trial court sustained the validity of the extrajudicial foreclosure, and disposed
of the case as follows:

WHEREFORE, premises considered, the instant Complaint for Annulment of

Foreclosure of Mortgage and Damages is hereby DISMISSED for lack of merit.

Republic of the Philippines SO ORDERED.8

SUPREME COURT
Baguio City
SECOND DIVISION On appeal, the Court of Appeals held:
G.R. No. 170241 : April 19, 2010
PHILIPPINE SAVINGS BANK, Petitioner, v. SPOUSES DIONISIO GERONIMO and WHEREFORE, the assailed decision dated 26 November 1999 of the Regional Trial
CARIDAD GERONIMO, Respondents. Court of Caloocan City is REVERSED and SET ASIDE. The Extrajudicial Foreclosure of
DECISION Mortgage conducted on 29 March 1996 is declared NULL and VOID.
CARPIO, J.:
SO ORDERED.9
The Case
The Court of Appeals denied petitioner's motion for reconsideration. "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 notices or
Hence, this petition. advertisements shall be distributed personally by him for publication to qualified
newspapers or periodicals x x x, which distribution shall be done by raffle." 10
The Ruling of the Trial Court
Executive Judge Victoria Isabel A. Paredes (Executive Judge Paredes) complied with
the directive by stating that:
The trial court held that "personal notice on the mortgagor is not required under
Act No. 3135." All that is required is "the posting of the notices of sale for not less
than 20 days in at least three public places in the municipality or city where the a) Ang Pinoy newspaper is not an accredited periodical in Caloocan City. Hence, we
property is situated, and publication once a week for at least three consecutive are unable to categorically state whether it is a newspaper of general circulation at
weeks in a newspaper of general circulation in the municipality or city, if the present or for the years 1995 and 1996 (Certification marked as Annex "A")
property is worth more than four hundred pesos." b) Sec. 2, P.D. No. 1079 is being observed and complied with in that the 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 the afternoon at
The trial court further ruled there was compliance with the statutory publication
the courtroom of RTC, Branch 124 (Certification marked as Annex "B"); and
requirement. Since the affidavit of publication was excluded as petitioner's
c) We have no knowledge on whether Ang Pinoy was included in the raffles
evidence, the trial court relied instead on the positive testimony of Deputy Sheriff
conducted in 1995 and 1996, as we do not have the case record where the
Alberto Castillo, that he caused the publication of the Notice of Sale, in holding
information may be verified.11
there was publication of the notice of sale in a newspaper of general circulation. In
relation to this, the trial court cited the presumption of regularity in the
performance of official duty. The trial court found that respondents, as plaintiffs, The Court of Appeals concluded that, based on the compliance of Executive Judge
failed to discharge their burden of proving petitioner's alleged non-compliance with Paredes, Ang Pinoy is not a newspaper of general circulation in Caloocan City.
the requisite publication. The trial court stated that the testimony of respondents' Therefore, the extrajudicial foreclosure is void for non-compliance with the
witness, a newsstand owner, "that he has never sold Ang Pinoy newspaper can requirement of the publication of the notice of sale in a newspaper of general
never lead to the conclusion that such publication does not exist." circulation.

The Ruling of the Court of Appeals The Issue

The Court of Appeals reversed the ruling of the trial court. 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.
The Court of Appeals found no sufficient evidence to prove that  Ang Pinoy is a
newspaper of general circulation in Caloocan City. In a Resolution dated 2 February The Ruling of the Court
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 following facts: The petition lacks merit.

1. If Ang Pinoy newspaper is a newspaper of general circulation particularly for the Section 3 of Act No. 313512cЃa reads:
years 1995 and 1996; and
SECTION 3. Notice shall be given by posting notices of the sale for not less than
2. If there was compliance with Sec. 2 of P.D. No. 1079 which provides: 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. (Emphasis No basis.
supplied) COURT:
Objection overruled. Witness may answer.
Petitioner claims that it complied with the above provision in foreclosing A. None, sir. I do not sell Pinoy Newspaper, sir.
extrajudicially the subject real estate mortgage. To buttress its claim, petitioner ATTY. SAYA:
presented the testimony of Deputy Sheriff Alberto Castillo of the trial court, the Why do you say that you do not know Pinoy Newspaper?
pertinent portion of which states: A. From the time I sold newspapers, sir, I have not seen Pinoy Newspaper.
ATTY. SAYA:
That would be all, your Honor.
ATTY. DAVIS:
Do you remember having come across a certain property owned by spouses
Geronimo covered by TCT No. 50576 of the Register of Deeds of Caloocan City? Before resolving the principal issue, we must point out the requirement of
xxx accreditation was imposed by the Court only in 2001, through A.M. No. 01-1-07-SC
A. Yes, sir. or the Guidelines in the Accreditation of Newspapers and Periodicals Seeking to
ATTY. DAVIS: Publish Judicial and Legal Notices and Other Similar Announcements and in the
Q. In what connection? Raffle Thereof.14cЃa The present case involves an extrajudicial foreclosure
A. In connection with the extra judicial foreclosure filed by the PS Bank, sir. conducted in 1996; thus, there were no such guidelines in effect during the
xxx questioned foreclosure. At any rate, the accreditation by the Executive Judge is not
Q. When this was assigned to you what action did you take thereon? decisive of whether a newspaper is of general circulation. 15cräläwvirtualibräry
A. I prepared the notice of sale having published in the newspaper which the
executive judge awarded it. Sent notice to the said parties and posted it to the It is settled that for the purpose of extrajudicial foreclosure of mortgage, the party
three conspicuous places of Caloocan City, sir. alleging non-compliance with the requisite publication has the burden of proving
Q. You mentioned about your issuance of Notice of Sale I am referring you now to the same.16cЃa In this case, respondents presented the testimony of a newsstand
the document previously marked as Exhibit "6." What relation is this if any to the owner to prove that Ang Pinoy is not a newspaper of general circulation. However,
one you have mentioned? this particular evidence is unreliable, as the same witness testified that he sells
A. This is the Notice of Sale I have prepared, sir. newspapers in Quezon City, not in Caloocan City, and that he is unaware of Ang
Q. Now you also mentioned that you have caused the publication of this Notice of Pinoy newspaper simply because he is not selling the same and he had not heard of
Sheriff's Sale to a newspaper of general circulation, do you remember what it. His testimony states:
newspaper it was?
A. Ang Pinoy, sir. Q. Where is this place that you traditionally or usually sell newspaper?
Q. How come that this newspaper was selected for purposes of publication? A. Corner of A. Bonifacio and 6th Avenue.
A. It was the executive judge who awarded that publication, sir. Q. This is in Quezon City?
Q. How do you know particularly that this notice was published in the newspaper? A. Yes, sir.
A. That during the auction sale the mortgagee bank presented affidavit of Q. Not in Caloocan?
publication, sir.13cräläwvirtualibräry A. In Quezon City, sir.
On the other hand, respondents dispute the existence of the publication of the xxx
notice of sale. Assuming that the notice of sale was published, respondents COURT: Clarificatory question.
contend that Ang Pinoy, where it was published, is not a newspaper of general Q. You said that there is no Pinoy magazine simply because you are not selling
circulation. To bolster their claim of non-publication, respondents offered the Pinoy magazine?
testimony of Danilo Magistrado, a newsstand owner, which pertinently states: A. Yes, your Honor.
ATTY. SAYA: Q. But you are not certain that there is really no Pinoy magazine?
Do you know by chance the Pinoy Newspaper? COURT:
ATTY. DAVIS:
But have you heard about Pinoy magazine or Pinoy newspaper? admitted as part of petitioner's evidence, it would not support petitioner's case as
A. I have not heard, your Honor.17 it does not clearly prove petitioner's compliance with the publication requirement.

Notwithstanding, petitioner could have easily produced the affidavit of publication Petitioner's invocation of the presumption of regularity in the performance of
and other competent evidence (such as the published notices) to refute official duty on the part of Sheriff Castillo is misplaced. While posting the notice of
respondents' claim of lack of publication of the notice of sale. In Spouses Pulido v. sale is part of a sheriff's official functions, 23cЃa the actual publication of the notice
Court of Appeals,18cЃa the Court held: of sale cannot be considered as such, since this concerns the publisher's business.
Simply put, the sheriff is incompetent to prove that the notice of sale was actually
While it may be true that the party alleging non-compliance with the requisite published in a newspaper of general circulation.
publication has the burden of proof, still negative allegations need not be proved
even if essential to one's cause of action or defense if they constitute a denial of The Court further notes that the Notice of Extra-Judicial Sale, 24cЃa prepared and
the existence of a document the custody of which belongs to the other party. posted by Sheriff Castillo, does not indicate the newspaper where such notice
would be published. The space provided where the name of the newspaper should
In relation to the evidentiary weight of the affidavit of publication, the Court ruled be was left blank, with only the dates of publication clearly written. This omission
in China Banking Corporation v. Spouses Martir 19cЃa that the affidavit of publication raises serious doubts as to whether there was indeed publication of the notice of
executed by the account executive of the newspaper is prima facie proof that the sale.
newspaper is generally circulated in the place where the properties are
located.20cЃa Once again, the Court stresses the importance of the notice requirement, as
enunciated in Metropolitan Bank and Trust Company, Inc. v. Peñafiel,25cЃa thus:
In the present case, the Affidavit of Publication or Exhibit "8," although formally
offered by petitioner, was excluded by the trial court for being The object of a notice of sale is to inform the public of the nature and condition of
hearsay.21cЃa Petitioner never challenged the exclusion of the affidavit of the property to be sold, and of the time, place and terms of the sale. Notices are
publication. Instead, petitioner relies solely on the testimony of Deputy Sheriff given for the purpose of securing bidders and to prevent a sacrifice [sale] of the
Alberto Castillo to prove compliance with the publication requirement under property. The goal of the notice requirement is to achieve a "reasonably wide
Section 3 of Act No. 3135. However, there is nothing in such testimony to clearly publicity" of the auction sale. This is why publication in a newspaper of general
and convincingly prove that petitioner complied with the mandatory requirement circulation is required. The Court has previously taken judicial notice of the "far-
of publication. When Sheriff Castillo was asked how he knew that the notice of sale reaching effects" of publishing the notice of sale in a newspaper of general
was published, he simply replied that "during the auction sale the mortgagee bank circulation.
presented the affidavit of publication." 22cЃa Evidently, such an answer does not
suffice to establish petitioner's claim of compliance with the statutory requirement In addition, the Court reminds mortgagees of their duty to comply faithfully with
of publication. On the contrary, Sheriff Castillo's testimony reveals that he had no the statutory requirements of foreclosure. In Metropolitan Bank v. Wong,26cЃa the
personal knowledge of the actual publication of the notice of sale, much less the Court declared:
extent of the circulation of Ang Pinoy.
While the law recognizes the right of a bank to foreclose a mortgage upon the
Moreover, the Court notes that Ang Pinoy is a newspaper of general circulation mortgagor's failure to pay his obligation, it is imperative that such right be
printed and published in Manila, not in Caloocan City where the mortgaged exercised according to its clear mandate. Each and every requirement of the law
property is located, as indicated in the excluded Affidavit of Publication. This is must be complied with, lest, the valid exercise of the right would end. It must be
contrary to the requirement under Section 3 of Act No. 3135 pertaining to the remembered that the exercise of a right ends when the right disappears, and it
publication of the notice of sale in a newspaper of general circulation in the city disappears when it is abused especially to the prejudice of others.
where the property is situated. Hence, even if the Affidavit of Publication was
In sum, petitioner failed to establish its compliance with the publication SPOUSES HERMES P. OCHOA and ARACELI D. OCHOA, Petitioners,
requirement under Section 3 of Act No. 3135. Consequently, the questioned vs.
extrajudicial foreclosure of real estate mortgage and sale are void. 27cЃa CHINA BANKING CORPORATION, Respondent.
RESOLUTION
WHEREFORE, we DENY the petition. We AFFIRM the 30 August 2005 Decision and NACHURA, J.:
3 November 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 66672.
For resolution is petitioners’ motion for reconsideration 1 of our January 17, 2011
SO ORDERED. Resolution2 denying their petition for review on certiorari 3 for failing to sufficiently
show any reversible error in the assailed judgment4 of the Court of Appeals (CA).

Petitioners insist that it was error for the CA to rule that the stipulated exclusive
venue of Makati City is binding only on petitioners’ complaint for Annulment of
Foreclosure, Sale, and Damages filed before the Regional Trial Court of Parañaque
City, but not on respondent bank’s Petition for Extrajudicial Foreclosure of
Mortgage, which was filed with the same court.

We disagree.

The extrajudicial foreclosure sale of a real estate mortgage is governed by Act No.
3135, as amended by Act No. 4118, otherwise known as "An Act to Regulate the
Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate
Mortgages." Sections 1 and 2 thereof clearly state:

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 payment of money or the
fulfillment of any other obligation, the provisions of the following sections shall
govern as to the manner in which the sale and redemption shall be effected,
whether or not provision for the same is made in the power.

Sec. 2. Said sale cannot be made legally outside of the province in which the
property sold is situated; and in case the place within said province in which the
sale is to be made is the subject of stipulation, such sale shall be made in said place
or in the municipal building of the municipality in which the property or part thereof
Republic of the Philippines is situated.5
SUPREME COURT
Manila The case at bar involves petitioners’ mortgaged real property located in Parañaque
SECOND DIVISION City over which respondent bank was granted a special power to foreclose extra-
G.R. No. 192877               March 23, 2011 judicially. Thus, by express provision of Section 2, the sale can only be made in
Parañaque City.
The exclusive venue of Makati City, as stipulated by the parties 6 and sanctioned by 1. All applications for extrajudicial foreclosure of mortgage whether under the
Section 4, Rule 4 of the Rules of Court, 7 cannot be made to apply to the Petition for direction of the sheriff or a notary public, pursuant to Act 3135, as amended by Act
Extrajudicial Foreclosure filed by respondent bank because the provisions of Rule 4 4118, and Act 1508, as amended, shall be filed with the Executive Judge, through
pertain to venue of actions, which an extrajudicial foreclosure is not. the Clerk of Court who is also the Ex-Officio Sheriff.

Pertinent are the following disquisitions in Supena v. De la Rosa: 8 Verily then, with respect to the venue of extrajudicial foreclosure sales, Act No.
3135, as amended, applies, it being a special law dealing particularly with
Section 1, Rule 2 [of the Rules of Court] defines an action in this wise: extrajudicial foreclosure sales of real estate mortgages, and not the general
provisions of the Rules of Court on Venue of Actions.
"Action means an ordinary suit in a court of justice, by which one party prosecutes
another for the enforcement or protection of a right, or the prevention or redress Consequently, the stipulated exclusive venue of Makati City is relevant only to
of a wrong." actions arising from or related to the mortgage, such as petitioners’ complaint for
Annulment of Foreclosure, Sale, and Damages.
Hagans v. Wislizenus does not depart from this definition when it states that "[A]n
action is a formal demand of one's legal rights in a court of justice in the manner The other arguments raised in the motion are a mere reiteration of those already
prescribed by the court or by the law. x x x." It is clear that the determinative or raised in the petition for review. As declared in this Court’s Resolution on January
operative fact which converts a claim into an "action or suit" is the filing of the 17, 2011, the same failed to show any sufficient ground to warrant the exercise of
same with a "court of justice." Filed elsewhere, as with some other body or office our appellate jurisdiction.
not a court of justice, the claim may not be categorized under either term. Unlike
an action, an extrajudicial foreclosure of real estate mortgage is initiated by filing a WHEREFORE, premises considered, the motion for reconsideration is hereby
petition not with any court of justice but with the office of the sheriff of the DENIED.
province where the sale is to be made.1avvphi1 By no stretch of the imagination
can the office of the sheriff come under the category of a court of justice. And as SO ORDERED.
aptly observed by the complainant, if ever the executive judge comes into the
picture, it is only because he exercises administrative supervision over the sheriff.
But this administrative supervision, however, does not change the fact that
extrajudicial foreclosures are not judicial proceedings, actions or suits. 9

These pronouncements were confirmed on August 7, 2001 through A.M. No. 99-
10-05-0, entitled "Procedure in Extra-Judicial Foreclosure of Mortgage," the
significant portions of which provide:

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 administrative
area, included in which is the task of supervising directly the work of the Clerk of
Court, who is also the Ex-Office Sheriff, and his staff, and the issuance of
commissions to notaries public and enforcement of their duties under the law, the
following procedures are hereby prescribed in extra-judicial foreclosure of
mortgages:
 ROYAL SAVINGS BANK, formerly Comsavings Bank, now GSIS FAMILY
BANK, Petitioner, v. 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
SERENO, C.J.:

This is a Petition for Review 1 filed by Royal Savings Bank (petitioner), praying for the
reversal of the Orders dated 4 October 2007 2 and 25 June 2008,3 which were
rendered by Branch 222 of the RegionTrial Court of Quezon City (RTC) in LRC No. Q-
22780 (07). These Orders granted respondents' Urgent Motion to Quash the Writ
of Possession and Writ of Execution4 issued by the then presiding judge of the RTC
in petitioner's favor.

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

As a result of their failure to settle their loans, petitioner instituted an extra-judicial

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

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

FIRST DIVISION Petitioner appealed to the Court of Appeals (CA), which reversed the Decision of
G.R. NO. 183658 : April 10, 2013 the RTC. Since Salita did not appeal the CA ruling, it became final and executory.
Accordingly, the Entry of Judgment was issued on 4 June 2002.
Pursuant to Section 7 of Act 3135, petitioner filed with the RTC an Ex-Parte Petition Petitioner insists that because it is a government-owned financial institution, the
for the Issuance of a Writ of Possession. 5 The Court, through its Order dated 14 general rules on real estate mortgage found in Act 3135 do not apply to it. It prays
February 2007, required petitioner to present its evidence. Petitioner then that this Court rule that Presidential Decree (P.D.) No. 385 19 the law intended
submitted a Memorandum of Jurisprudence (In Lieu of Oral specifically to govern mortgage foreclosures initiated by government-owned
Testimony).6chanroblesvirtualawlibrary financial institutions'should be applied to this case.

In a Decision dated 28 May 2007, 7 the RTC ruled in favor of petitioner and ordered According to petitioner, when the RTC quashed the Writ of Possession, 20 the latter
the issuance of the Writ of Possession in the latter's favor. violated Section 2 of P.D. 385, which reads:chanroblesvirtualawlibrary

Respondents Fernando Asia, Mika Latag, Cornelia Maranan, Jimmy Ong, Conrado Section 2. No restraining order, temporary or permanent injunction shall be issued
Macaralaya, Rolando Saba, Tomas Gallega, Lilia Fedelimo, Milagros Hagutay and by the court against any government financial institution in any action taken by
Norma Gabatic claimed to have been in open, continuous, exclusive and notorious such institution in compliance with the mandatory foreclosure provided in Section
possession in the concept of owners 1 hereof, whether such restraining order, temporary or permanent injunction is
sought by the borrower(s) or any third party or parties, except after due hearing in
of the land in question for 40 years. 8 Allegedly, they had no knowledge and notice which it is established by the borrower and admitted by the government financial
of all proceedings involving the property until they were served a Notice to institution concerned that twenty percent (20%) of the outstanding arrearages has
Vacate9 by RTC Sheriff IV Neri Loy, on 20 July 2007. 10 They further claimed that, been paid after the filing of foreclosure proceedings.
prior to the service of the Notice to Vacate, they had no knowledge or notice of the
lower court's proceedings or the foreclosure suit of Thus, petitioner is now saying that, as a government financial institution (GFI), it
petitioner.11chanroblesvirtualawlibrary cannot be enjoined from foreclosing on its delinquent accounts in observance of
the mandate of P.D. 385.
The Notice to Vacate gave respondents three days or until 25 July 2007 to
voluntarily vacate the property. In order to prevent the execution of the notice, We are not persuaded.
they filed an Urgent Motion to Quash Writ of Possession and Writ of Execution 12 on
even date. 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
Petitioner filed their Comment13 on respondents' Motion to Quash on 14 August respondents' Urgent Motion to Quash Writ of Possession.
2007.
Indeed, while this Court had already declared in Philippine National Bank v.
In an Order dated 4 October 2007, 14 the RTC granted the Motion to Quash. Adil21 that once the property of a debtor is foreclosed and sold to a GFI, it would be
Petitioner filed a Motion for Reconsideration (MR),15 to which an Opposition was mandatory for the court to place the GFI in the possession and control of the
filed by respondents.16 Petitioner claimed that, six months after the filing of the property pursuant to Section 4 of P.D. No. 385 this rule should not be construed as
Opposition, there was still no action taken by the RTC on the MR. Thus, it filed a absolute or without exception.
Motion for Early Resolution 17 on 16 June 2008. Through an Order dated 25 June
2008,18 the RTC denied petitioner's MR. The evident purpose underlying P.D. 385 is sufficiently served by allowing
foreclosure proceedings initiated by GFIs to continue until a judgment therein
Claiming that it raises no factual issues, petitioner came straight to this Court becomes final and executory, without a restraining order, temporary or permanent
through a Petition for Review under Rule 45 of the Rules on Civil Procedure. injunction against it being issued. But if a parcel of land is occupied by a party other
than the judgment debtor, the proper procedure is for the court to order a hearing
to determine the nature of said adverse possession before it issues a writ of Under the aforequoted provision, one who claims to be the owner of a property
possession.22chanroblesvirtualawlibrary possessed by another must bring the appropriate judicial action for its physical
recovery. The term "judicial process" could mean no less than an ejectment suit or
This is because a third party, who is not privy to the debtor, is protected by the law. reivindicatory action, in which the ownership claims of the contending parties may
Such third party may be ejected from the premises only after he has been given an be properly heard and adjudicated.
opportunity to be heard, to comply with the time-honored principle of due
process.23chanroblesvirtualawlibrary We find that it was only proper for the RTC to quash the Writ of Possession until a
determination is made as to who, between petitioner and respondents, has the
In the same vein, under Section 33 of Rule 39 of the Rules on Civil Procedure, the better right to possess the property.
possession of a mortgaged property may be awarded to a purchaser in the
extrajudicial foreclosure, unless a third party is actually holding the property Lastly, petitioner alleges that the pairing judge violated the hierarchy of courts
adversely vis-à-vis the judgment debtor. 24chanroblesvirtualawlibrary when she quashed the writ of possession validly issued by the then presiding Judge
of the RTC Quezon City, a co-equal body.29chanroblesvirtualawlibrary
Respondents insist that they are actual possessors in the concept of owners and
that they have been occupying the land in the concept of owners for 40 years No court has the power to interfere by injunction in the issuance or enforcement of
already.25 Furthermore, respondents made it clear in the Motion to Quash that they a writ of possession issued by another court of concurrent jurisdiction having the
were not "claiming rights as attorney-in-fact, nor lessee, nor anything from power to issue that writ.30 However, as correctly pointed out by respondents in
Mortgagor PACENCIA SALITA."26 Thus, whatever rights Salita had over the property their Comment, it was the same trial court and "not another court or co-equal
that were acquired by petitioner when the latter purchased it, cannot be used court body that quashed the subject writ of possession." 31 The pairing judge, who
against respondents, as their claim is adverse to that of Salita. 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
In the eyes of this Court, the RTC did not err in issuing the herein assailed Orders on judge, that issued the Writ of Possession.
the basis of its initial finding that respondents are third parties who are actually
holding the property adversely vis-à-vis the judgment debtor. The RTC did not err in With respect to all the arguments raised by the parties to prove their supposed
applying the doctrine laid down in Barican v. Intermediate Appellate Court, 27 in rightful possession or ownership of the property, suffice it to say that these matters
which we ruled that the obligation of a court to issue a writ of possession in favor should be threshed out m an appropriate action filed specifically for their
of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial, once it resolution.
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. 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-
We explained in Philippine National Bank v. Austria 28 that the foregoing doctrinal 22780 (07) arc AFFIRMED.
pronouncements are not without support in substantive law, to
wit:chanroblesvirtualawlibrary SO ORDERED.

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

wit:chanroblesvirtualawlibrary

Art. 433.Actual possession under claim of ownership raises a disputable

presumption of ownership. The true owner must resort to judicial process for the
recovery of the property.
 SECOND DIVISION

[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.

D E C I S I O N SERENO, J.:

The present Petition for Review[1] assails the Court of Appeals (CA)

Decision[2] promulgated on 30 August 2007 and Resolution [3] dated 26 November
2007 in CA-G.R. CV No. 80778. The antecedent facts follow.cralaw

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

Centro Development Corporation (Centro), its president Go Eng Uy was authorized
to mortgage its properties and assets to secure the medium-term loan of P84
million of Lucky Two Corporation and Lucky Two Repacking. The properties and
assets consisted of a parcel of land with a building and improvements located at
Salcedo St., Legaspi Village, Makati City, and covered by Transfer Certificate of Title
(TCT) Nos. 139880 and 139881. This authorization was subsequently approved on
the same day by the stockholders. [4] Maria Jacinta V. Go, the corporate secretary,
issued a Secretary’s Certificate stating:

I, MARIA JACINTA V. GO, Filipino citizen, of legal age, married and with office
address at Second Floor, CENTRO building, 180 Salcedo Street, Legaspi Village,
Makati, Metro Manila, after being first duly sworn, depose and say:

xxx     xxx     xxx

2) That at a special meeting of the Board of Directors of the aforesaid corporation

duly called and held on March 20, 1990 and wherein a quorum was present, the
following resolution was unanimously approved pursuant to the Minutes of the
Special Meeting of the Stockholders of Centro Development Corporation dated
March 16, 1990;

RESOLUTION:

“RESOLVED, as it is hereby resolved, that the President, GO ENG UY, of Centro

Development Corporation, be as he is hereby authorized to mortgage and use as
collateral the real estate property of the Corporation identified as a parcel of land
with building and improvements located at Salcedo St., Legaspi Village, Makati,
Metro Manila covered by Transfer Certificate of Title Nos. 139880 and 139881 to Thereafter, on 27 September 1994,[11] petitioner and respondent Centro executed
secure the medium-term loan of LUCKY TWO CORPORATION, a corporation duly the assailed MTI,[12] amending the previous agreements by appointing the former as
organized and existing under the Philippine laws, and LUCKY TWO REPACKING, a the successor-trustee of BPI. It is worth noting that this MTI did not amend the
single proprietorship with principal office at Concepcion, Tarlac, with the Bank of amount of the total obligations covered by the previous MTIs.
the Philippine Islands for EIGHTY FOUR (84) MILLION PESOS, Philippine Currency
(P84,000,000.00); It was only sometime in 1998 that respondents herein, Chongking Kehyeng, Manuel
Co Kehyeng and Quirino Kehyeng, allegedly discovered that the properties of
“RESOLVED FURTHER, that said GO ENG UY, be as he is hereby authorized to sign respondent Centro had been mortgaged, and that the MTI that had been executed
all papers and documents needed and necessary to carry into effect the aforesaid appointing petitioner as trustee. Notably, respondent Chongking Kehyeng had been
purpose or undertaking for the benefit and to the credit of Lucky Two Corporation a member of the board of directors of Centro since 1989, while the two other
and Lucky Two Repacking.” respondents, Manuel Co Kehyeng and Quirino Keyheng, had been stockholders
since 1987. Respondents Kehyeng were minority stockholders who owned thirty
percent (30%) of the outstanding capital stock of respondent Centro.
Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy, executed a
Mortgage Trust Indenture (MTI) with the Bank of the Philippines Islands (BPI).
[5] On different dates, 4 September 1998, 9 September 1998 and 2 October 1998, the
 Under the MTI, respondent Centro, together with its affiliates Lucky Two
Kehyengs allegedly questioned the mortgage of the properties through letters
Corporation and Lucky Two Repacking or Go Eng Uy, expressed its desire to obtain
addressed to Go Eng Uy and Jacinta Go. [13] They alleged that they were not aware
from time to time loans and other credit accommodations from certain creditors
of any board or stockholders’ meeting held on 12 August 1994, when petitioner
for corporate and other business purposes. [6] To secure these obligations from
was appointed as successor-trustee of BPI in the MTI. Respondents demanded a
different creditors, respondent Centro constituted a continuing mortgage on all or
copy of the minutes of the meeting held on that date, but received no response.
substantially all of its properties and assets enumerated above unto and in favor of
BPI, the trustee.  Should respondent Centro or any of its affiliates fail to pay their
Thereafter, on 14 October 1998 and 19 November 1998, the Kehyengs allegedly
obligations when due, the trustee shall cause the foreclosure of the mortgaged
wrote to petitioner, informing it that they were not aware of the   12 August 1994
property.
board of directors meeting. Petitioner did not respond to the letters. [14]
Thereafter, the mortgage was duly recorded with the Registry of Deeds of Makati
Meanwhile, during the period April 1998 to December 1998, San Carlos obtained
City.[7]
loans in the total principal amount of ?812,793,513.23 from petitioner Metrobank.
[15]
On 31 March 1993, Centro and BPI amended the MTI to allow an additional loan of 
P36 million and to include San Carlos Milling Company, Inc. (San Carlos) as a
San Carlos failed to pay these outstanding obligations despite demand. Thus,
borrower in addition to Centro, Lucky Two Corp. and Lucky Two Repacking. [8] Then,
petitioner, as trustee of the MTI, enforced the conditions thereof and initiated
on 28 July 1994, Centro and BPI again amended the MTI for another loan of P24
foreclosure proceedings, denominated as Foreclosure No. S-04-11, on the
million, bringing the total obligation to P144 million. [9]
mortgaged properties. On 22 June 2000, petitioner Metrobank filed a Petition for
Extrajudicial Foreclosure of Mortgage with the executive judge of the Regional Trial
Meanwhile, respondent Centro, represented by Go Eng Uy, approached petitioner
Court (RTC) of Makati City. Petitioner alleged that the total amount of the
Metropolitan Bank and Trust Company (Metrobank) sometime in 1994 and
Promissory Notes that San Carlos executed in favor of the former amounted to
proposed that the latter assume the role of successor-trustee of the existing MTI.
P812,793,513.23.  As of 30 April 2000, the total outstanding obligation, inclusive of
After petitioner Metrobank agreed to the proposal, the board of directors of
interests and penalties, was P1,178,961,181.45.[16]
respondent Centro allegedly resolved on 12 August 1994 to constitute petitioner as
successor-trustee of BPI.[10]
We note that there are no documents in the records evidencing the amendment of
the MTI to accommodate these additional obligations. As of 27 September 1994,
the date of the last amendment as borne out by the records, the total outstanding
obligation reflected in the MTI amounted to only P144 million. The latest MTI petitioner, the clerk of court, the ex-officio sheriff of the RTC, and their agents from
merely referred to the amendments made on 31 March 1993 and 28 July 1994. 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
Before the scheduled foreclosure date, on 3 August 2000, respondents herein filed the CA effective for a period of sixty (60) days, unless earlier set aside by a
a Complaint for the annulment of the 27 September 1994 MTI with a prayer for a resolution.[18]
temporary restraining order (TRO) and preliminary injunction at Branch 138 of the
RTC of Makati City.  Docketed as Civil Case No. 00-942, the Complaint was against On 19 May 2004, the CA issued a Resolution [19] in CA-G.R. CV No. 80778 denying the
petitioner, Go Eng Uy, Alexander V. Go, Ramon V. Go, Maria Jacinta Go and application for the issuance of a writ of preliminary injunction.
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 mortgaged Complaint docketed as Civil Case No. 04-612 at Branch 56 of the RTC of Makati City.
properties constituted all or substantially all of the corporate assets, the They prayed for the nullification of the foreclosure proceedings and prayed for the
amendment of the MTI failed to meet the requirements of Section 40 of the issuance of a TRO/injunction. Centro and San Carlos alleged that the total
Corporation Code on notice and voting requirements. Under this provision, in order obligation due was only P657,000,000 and not P812,793,513.23; that the sale of
for a corporation to mortgage all or substantially all of its properties and assets, it the San Carlos properties found in Negros Occidental fully satisfied their
should be authorized by the vote of its stockholders representing at least 2/3 of the outstanding obligations; and that the action to foreclose the Makati properties was
outstanding capital stock in a meeting held for that purpose. Furthermore, there illegal and void.[20]
must be a written notice of the proposed action and of the time and place of the
meeting. Thus, respondents alleged, the representation of Go Eng Uy that he was While Civil Case No. 04-612 was pending, the clerk of court and the  ex-
authorized by the board of directors and/or stockholders of Centro was false. officio sheriff of the RTC of Makati City held an auction sale of the disputed
property, during which petitioner was adjudged as the highest bidder for
On 15 December 2003, after trial on the merits, the RTC dismissed the Complaint. P344,700,000. A Certificate of Sale was accordingly issued on 3 June 2004, which
[17]
  It held that the evidence presented by respondents was insufficient to support states:[21]
their claim that there were no meetings held authorizing the mortgage of Centro’s
properties. It noted that the stocks of respondents Kehyeng constituted only 30% On June 2, 2004, a public auction sale was conducted and METROPOLITAN BANK &
of the outstanding capital stock, while the Go family owned the majority 70%, TRUST CO. submitted a bid for the sale to him/it of the mortgaged property in the
which represented more than the 2/3 vote required by Section 40 of the amount of P344,700,000 xxx, which was the highest bid hence declared as the
Corporation Code. The trial court ruled that respondents Kehyeng, particularly winning bidder and being the creditor he/it did not delivery or pay cash/monies to
Chongking Kehyeng, who sat in the board of directors, should have done periodic the Clerk of Court and Ex-Officio Sheriff the bid price of P344,700,000 xxx and the
inquiries and verifications of documents pertaining to corporate properties. The selling price was credited as partial/full satisfaction of indebtedness secured by the
RTC also held that laches had attached, considering that eight (8) years had lapsed mortgage.
before respondents questioned the mortgage executed in 1990.
In consideration thereof, the Certificate of Sale was issued in favor of
The trial court also noted the absence of evidence showing the steps respondents METROPOLITAN BANK& TRUST CO. of Metrobank Plaza, Sen. Gil Puyat Ave.,
had taken to seek redress for the alleged misrepresentations of Go Eng Uy and Makati.
Maria Jacinta Go. On the other hand, the court found that no neglect could be
imputed to petitioner for relying on the Secretary’s Certificate, which apparently This sale is subject to redemption in the manner provided by law.
established Go Eng Uy’s authority to mortgage Centro’s properties and assets.
Because of this development, the Complaint in Civil Case No. 04-612 was amended,
Respondents subsequently filed an appeal with the CA docketed as CA-G.R. CV No.
and Centro and San Carlos prayed for the issuance of a writ of injunction to prevent
80778. On 26 February 2004, they filed an Urgent Motion for the Issuance of a
the registration of the Certificate of Sale and the subsequent transfer to petitioner
Temporary Restraining Order and Writ of Preliminary Injunction seeking to restrain
of the title to the properties. However, Branch 56 of the RTC of Makati City properties are declared of no force and effect. The certificates of title issued in the
subsequently denied the application. name of Metropolitan Bank and Trust Company are CANCELLED.
Conformably with the foregoing discussion, the appellants’ prayer for damages is
Respondent Centro thereafter filed before the CA a Petition for Certiorari docketed hereby DENIED. SO ORDERED.
as CA-G.R. SP No. 84447. The Petition assailed the Order of the RTC in Civil Case No.
04-612.
On 14 September 2007, a different Division of the CA rendered a
During this time, CA-G.R. CV No. 80778, which involved the legality of the MTI, was Decision[23] denying the Petition in CA-G.R. SP No. 84447. That Petition had
still pending. questioned the Decision of Branch 56 of the RTC of Makati City denying a Petition
to enjoin the foreclosure of the mortgaged properties on the ground that
On 30 August 2007, the CA promulgated the assailed Decision in CA-G.R. CV No. respondents Centro and San Carlos had failed to show any clear right of the RTC to
80778. The appellate court first determined whether the requirements of Section issue an injunctive writ. The CA further ruled that the foreclosure of the property
40 of the Corporation Code on the sale of all or substantially all of the corporation’s became a matter of right on the part of petitioner because of respondents’ failure
property were complied with.  Based on the 18 August 1994 Secretary’s Certificate, to pay the loans due.
the CA found that only a quorum was present during the stockholders’ meeting on
12 August 1994. The appellate court thus held that the 2/3 vote required by On 26 November 2007, the CA in CA-G.R. CV No. 80778 rendered the assailed
Section 40 was not met. It ruled that the minority stockholders were deprived of Resolution denying petitioner’s Motion for Reconsideration.
their right to dissent  from or to approve the proposed mortgage, considering that
they had not been notified in writing of the meeting in which the corporate action Hence, this Petition. Petitioner contends that the stockholders’ Resolution No. 005,
was to be discussed. s. 1994 did not constitute a new mortgage in favor of petitioner. Instead, the
stockholders merely amended the existing MTI by appointing petitioner as the new
The CA also considered the testimony of Perla Saballe, an officer of petitioner trustee for the MTI, which was already existing and held by BPI. Thus, there was no
Metrobank, who opined that the term “quorum” meant only the majority of the need to secure a 2/3 vote from the stockholders.  Petitioner posits that the
stockholders. authority to mortgage the properties was granted in 1990, upon the execution of
the first MTI between respondent Centro and BPI.
Furthermore, the appellate court held that petitioner was duty-bound to ensure
that respondent Centro submitted proof that the proposed corporate action had Further, petitioner alleges that respondents do not deny or question the previous
been duly approved by a vote of the stockholders representing 2/3 of the MTI and its subsequent amendments. It further alleges that the constituted
outstanding capital stock. mortgage under the MTI was duly annotated with the Registry of Deeds of Makati
City.
Regarding the issue of whether laches had already attached, the CA ruled that the
MTI could not be ratified, considering that the requirements of the Corporation Petitioner also maintains that the CA erred in interpreting the phrase “at which
Code were not complied with. meeting a quorum was present” contained in the Secretary’s Certificate dated 18
August 1994. The bank points out that the phrase indicates that at least  a quorum
Thus, the dispositive portion of the CA Decision in CA-G.R. CV No. 80778 reads: [22] was present, rather than that only a quorum was present. Thus, the Secretary’s
Certificate did not in any way limit the number of those actually present.
WHEREFORE, the Appeal is PARTIALLY GRANTED. The  Judgment dated 15
December 2003 of the Regional Trial Court of Makati City, Branch 138, Additionally, petitioner argues that Perla Saballe, whose testimony was considered
is REVERSED and SET ASIDE insofar as the dismissal of the Complaint for by the CA, was not a competent witness to interpret the directors’ Resolution.
Annulment of Trust Indenture Agreement is concerned. The Trust Indenture Allegedly, she was never present during the meetings of Centro regarding the
executed on 27 September 1994 is hereby declared NULL and VOID. Accordingly, present issue, and she was not in a position to answer the questions propounded
the foreclosure of the mortgage and the sale at public auction involving the subject to her in relation to the requirements of Section 40 of the Corporation Code.
 to assert a right within a reasonable time, warranting a presumption that the party
Moreover, petitioner cites the CA Decision in CA-G.R. SP No. 84447, which upheld entitled to assert it either has abandoned it or declined to assert it. [24]
the validity of the foreclosure of the mortgage. It also challenges the CA ruling that
the former failed to exercise due diligence in transacting with respondent Centro.  In the case at bar, the RTC in Civil Case No. 00-942 held that laches attached when
Finally, petitioner insists that laches attached when respondents failed to question respondents allowed eight (8) years to pass before questioning the mortgage,
the MTI and the stockholders’ Resolution at the earliest possible time. which was constituted in 1990.  Thus, the trial court said:

On the other hand, respondents contend that, based on the Pre-Trial Brief and the As it appears now, the mortgage on the land and building of Centro was first
Amended Pre-Trial Order, petitioner admitted that the subject properties were constituted in 1990 in favor of [the] Bank of the Philippine Islands. Individual
mortgaged under the MTI of 27 September 1994, and not under that of 21 March plaintiffs stated that discovery of the mortgage was “sometime in 1998”, (par. 6,
1990. Affidavit of Chongking Kehyeng). He was in the Board of Directors of Centro and he
holds office at the fourth floor of the building on the mortgaged property. There is
Second, on the issue of whether the 2/3 voting requirement was met, respondents evidence that the holding of meetings of the Board of Directors was irregular and
claim that petitioner cannot impugn the testimony of its own officer and witness, purely “reportorial”.
Perla Saballe, on the interpretation of the term “quorum” as referred to in the
Secretary’s Certificate dated 18 August 1994. Considering that as shown by planitiffs’ evidence, conduct of business in Centro
was informal, vigilance over its property was required from all individual plaintiffs,
Respondents also allege that petitioner failed to controvert the testimony of particularly plaintiff Chongking Kehyeng who sits in the Board of Directors. Periodic
Chongking Kehyeng, a member and vice-chairperson of the board of directors, that inquiries and verification of documents pertaining to corporate properties should
he was unaware of any stockholders’ meeting ever being held, and that he and the have been done and the existence of the mortgage was verifiable. A simple inquiry
other Kehyengs were not informed of that meeting. Respondents further insist that about the status of the title, information on the title number and actual verification
petitioner was negligent when it merely relied on the Secretary’s Certificate, with the Register of Deeds – a task which can be accomplished in an hour or two –
instead of exercising due diligence to ensure that all legal requirements had been will provide information about the existence of the mortgage. None of the
complied with under the MTI.  On the issue of laches, respondents contend that it individual plaintiffs did this.
was not raised before the trial court, and is thus improperly invoked in the present
Petition. Nevertheless, they allegedly undertook a number of measures to question
the transactions between petitioner and CENTRO. Moreover, they argue that the The inaction of the plaintiffs for which no explanation was submitted resulted in
MTI, being null and void, cannot be given effect through laches. 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
The Court’s Ruling bar.[25]

In summary, this Court is tasked to resolve the following issues: A perusal of the TCTs[26] of the subject properties would reveal that only the values
of the mortgage securing the loans totalling ?144 million were annotated, based on
1. Whether the requirements of Section 40 of the Corporation Code was the MTIs executed on 21 March 1990, 31 March 1993 and 28 July 1994. As for the
complied with in the execution of the MTI; last annotation, it only stated that petitioner was the successor-trustee to all
2. Whether petitioner was negligent or failed to exercise due diligence; obligations due to the creditors. Respondents, in their Complaint, did not question
3. Whether laches has already attached, such that respondents can no these mortgages constituted by the MTIs executed on 21 March 1990, 31 March
longer question the MTI. 1993 and 28 July 1994, respectively. What they questioned was the additional loans
granted to San Carlos after the execution of the 27 September 1994 MTI and the
We shall first discuss the issue of laches. Laches is defined as the failure or neglect foreclosure of the mortgage resulting from the nonpayment of San Carlos’
for an unreasonable and unexplained length of time to do that which, by exercising obligations. Thus, contrary to the finding of the trial court, only four years had
due diligence, could or should have been done earlier; it is negligence or omission
lapsed from the execution of the 27 September 1994 MTI when respondents authorized and empowered to sign the Real Estate Mortgage and all
questioned the mortgage allegedly constituted to cover these loans. documents/instruments with the said bank, for and in behalf of the Company
which are necessary and pertinent thereto;
Furthermore, as mentioned earlier, the TCTs were not accordingly annotated to RESOLVED FINALLY, that any resolution or resolutions heretofore adopted by this
cover these additional loans. Also, the mortgage of the property securing all the Board, inconsistent with the provisions hereof be, as they hereby are amended
loans were not disclosed in Centro’s financial statements for the years 1991 to and/or revoked accordingly.”
1998.[27] Thus, absent any proof that the individual respondents were notified of
the stockholders’ meeting on 12 August 1994 or that they were present during the That at the meeting of the Stockholders of said corporation held on August 12,
meeting, these respondents could not have been informed of the alleged additional 1994 at 4:00 p.m., at which meeting a quorum was present and acting throughout,
loans and the corresponding mortgage constituted over the properties. the following resolution was unanimously approved:
STOCKHOLDERS’ RESOLUTION
It cannot therefore be said that laches had attached and that respondents were
already barred from assailing the MTI in 1998. We now proceed to discuss the RESOLVED, that the stockholders approve, ratify and confirm, as they have hereby
validity of the challenged MTI. approved, ratified and confirmed, the board resolution dated August 12, 1994
appointing Metrobank Trust Banking Group as the new trustee, presently held by
The 18 August 1994 Secretary’s Certificate issued by Maria Jacinta V. Go reads as the Bank of the Philippine Islands, for the existing MTI of real estate property
follows:[28] covered by Transfer Certificate of Title Nos. 139880 and 139881 situated at 180
Salcedo St., Legaspi Village, Makati, Metro Manila with an area of 1,608 square
I, JACINTA V. GO, Corporate Secretary of CENTRO DEVELOPMENT CORPORATION, a meters, and that the President, Mr. Go Eng Uy[,] to sign the Real Estate Mortgage
corporation duly organized and existing under our laws with principal office located and all documents/ instruments with the said bank, for and in behalf of the
at the 2nd Floor Centro Buidling, 180 Salcedo St., Legaspi Village, Makati, Metro Company which are necessary and pertinent thereto; xxx.
Manila, do hereby certify that during a special meeting of the board of Directors of
the Corporation held at its main office in Makati, Metro Manila on August 12, 1994,
Reading carefully the Secretary’s Certificate, it is clear that the main purpose of the
at 3:00 p.m., at which meeting a quorum was present, the following resolution was
directors’ Resolution was to appoint petitioner as the new trustee of the previously
approved and adopted:
executed and amended MTI. Going through the original and the revised MTI, we
find no substantial amendments to the provisions of the contract. We agree with
“Resolution No. 005, s. 1994
petitioner that the act of appointing a new trustee of the MTI was a regular
business transaction. The appointment necessitated only a decision of at least a
majority of the directors present at the meeting in which there was a quorum,
APPOINTING METROBANK TRUST BANKING GROUP AS THE NEW TRUSTEE FOR
pursuant to Section 25 of the Corporation Code.
THE EXISTING MTI OF CDC REAL ESTATE PROPERTY
The second paragraph of the directors’ Resolution No. 005, s. 1994, which
RESOLVED, AS IT IS HEREBY RESOLVED, that in connection with the existing
empowered Go Eng Uy “to sign the Real Estate Mortgage and all
Mortgage Trust Indenture of real estate property covered by Transfer Certificate of
documents/instruments with the said bank, for and in behalf of the Company
Title Nos. 139880 and 139881 situated at 180 Salcedo St., Legaspi Village, Makati,
which are necessary and pertinent thereto,” must be construed to mean that such
Metro Manila, with an area of 1,608 square meters more or less, the Corporation
power was limited by the conditions of the existing mortgage, and not that a new
be [sic], as it is hereby authorized, to appoint Metrobank Trust Banking Group
mortgage was thereby constituted.
(“Metrobank”) as the new trustee for the existing mortgage trust indenture
presently held by the Bank of the Philippines Islands;
Moreover, it is worthy to note that respondents do not assail the previous MTI
executed with BPI. They do not question the validity of the mortgage constituted
RESOLVED FURTHER, that the President, Mr. Go Eng Uy be, as he is hereby, over all or substantially all of respondent Centro’s assets pursuant to the 21 March
1994 MTI in the amount of P84 million. Nor do they question the additional loans submit, among others, all amendments to the MTI and all the MPCs issued.
increasing the value of the mortgage to P144 million; or the use of Centro’s Petitioner failed to comply with this directive. For one reason or another, instead of
properties as collateral for the loans of San Carlos, Lucky Two Corporation, and submitting MPCs evidencing its interest in the MTI, it submitted to this Court
Lucky Two Repacking. documents referring to different instruments altogether. [32]   Petitioner should have
been more careful in complying with this Court’s Orders.
Thus, Section 40[29] of the Corporation Code finds no application in the present
case, as there was no new mortgage to speak of under the assailed directors’ More glaring is the fact that the assailed MTI is not even referred to in the
Resolution. Promissory Notes executed by petitioner in favor of San Carlos, evidencing the
loans extended by the latter to the former. This omission violated Section 1.13 of
Nevertheless, while we uphold the validity of the stockholders’ Resolution the MTI, which requires that a promissory note must be covered by an outstanding
appointing Metrobank as successor-trustee, this is not to say that we uphold the MPC and secured by the lien of the MTI. The Promissory Notes reveal the following:
[33]
validity of the extrajudicial foreclosure of the mortgage.

After a careful review of the records of this case, we find that petitioner failed to Promissory Note No. Date Amount Collateral
establish its right to be entitled to the proceeds of the MTI. 111333.69288.00.99 20 April 1998 P328,000,000 “Others” – Not
9 specified
There is no evidence that petitioner, as creditor or as trustee, had a cause of action 111333.70316.00.99 19 October 1998 P97,859,472.03 Unsecured
to move for the extrajudicial foreclosure of the subject properties mortgaged under 9
the MTI.
111333.70359.00.99 30 October 1998 P82,849,981.44 “Others” – Not
9 specified
The conditions of the MTI are very clear. Section 3.3 of the MTI provides: [30]
111333.70464.000.9 17 November 1998 P98,114,959.13 “Others” – Not
9 specified
It is the intent of the COMPANY that the BORROWERS will obtain additional loans
111333.70502.000.9 25 November 1998 P40,150,059.85 “Others” – Not
or credit accommodations from certain other banking or financial institutions in
9 specified
accordance with arrangements made by the BORROWERS with the CREDITORS.
111333.70618.000.9 9 December 1998 P39,673,569.58 “Others” – Not
ALL OBLIGATIONS covered by this INDENTURE shall be evidenced by a Mortgage 9 specified
Participation Certificate in the form of Schedule II hereof, the issuance of which 111333.70642.000.9 17 December 1998 P126,145,471.20 “Others” – Not
by the TRUSTEE to the participating CREDITOR/S shall be in accordance with 9 specified
Section 7 of this INDENTURE, provided the aggregate LOAN VALUES of the
COLLATERAL, based on the latest appraisal thereof, are not exceeded. (Emphasis Petitioner thus miserably failed to prove that it was entitled to the benefits of the
supplied.) MTI.

Even if we assume that petitioner was indeed a creditor protected by the MTI, we
Section 1.11 of the MTI defines a Mortgage Participation Certificate (MPC) as a
find that, as trustee and as creditor, it failed to comply with the MTI’s conditions
certificate issued by the trustee to a creditor pursuant to the MTI, representing an
for granting additional loans to San Carlos – additions that brought the total loan
aliquot interest in the mortgage created by the MTI. The face amount of the MPC is
amount to P1,178,961,181.45 – when it did not amend the MTI to accommodate
the value in money of its holder’s participation or interest in the mortgaged
the additional loans in excess of P144 million.
property.

To address the gaps in the facts as presented by the parties and by the lower In its application for an extrajudicial foreclosure of Centro’s properties, petitioner
courts, we issued a Resolution [31] on 5 September 2011. We required petitioner to states:[34]
We have the honor to request your good Office to conduct/undertake extrajudicial Disposition of proceeds of sale - The amount realized from the foreclosure sale of
foreclosure sale proceedings under Act No. 3135, as amended, and other applicable the mortgaged property shall, after deducting the costs of the sale, be paid to the
laws, on the properties covered by the Mortgage Trust Indenture, dated March 21, person foreclosing the mortgage, and when there shall be any balance or residue,
1990, as amended on March 31, 1993 and further amended on July 28, 1994 after paying off the mortgage debt due, the same shall be paid to junior
executed by the Mortgagor, CENTRO DEVELOPMENT CORPORATION, in favor of encumbrancers in the order of their priority, to be ascertained by the court, or if
the Former Trustee, BANK OF THE PHILIPPINE ISLANDS and Trust Indenture, dated there be no such encumbrancers or there be a balance or residue after payment to
September 27, 1994, also executed by the Mortgagor, CENTRO DEVELOPMENT them, then to the mortgagor or his duly authorized agent, or to the person entitled
CORPORATION, in favor of the Mortgagee/Trustee, METROPOLITAN BANK AND to it.
TRUST COMPANY-TRUST BANKING GROUP, to secure among others, several
obligations of SAN CARLOS MILLING CO., INC. under various Promissory Notes, with
While it is true that some of the documents required by this Court to be submitted
a total principal amount of EIGHT HUNDRED TWELVE MILLION SEVEN HUNDRED
by the parties were not presented at the trial stage, when the legal issues raised
NINETY-THREE THOUSAND FIVE HUNDRED THIRTEEN PESOS AND TWENTY-THREE
begs the reception of that evidence – especially considering that a case, like the
CENTAVOS (P812,793,513.23), for breach of the terms and conditions of the said
present one  has been pending for more than a decade – then the Court may
Trust Indenture. (Emphasis in the original.)
require the parties to submit such evidence in the interest of justice.  This is clearly
provided under Rule 45, Section 7 of the Rules of Court. [38]
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,
The written consent of the COMPANY, the TRUSTEE and all the CREDITORS shall be recognizes the vital role of banks in providing an environment conducive to the
required for any amendment of the terms and conditions of this INDENTURE. sustained development of the national economy and the fiduciary nature of
Additional loans which will be covered by the INDENTURE shall require the banking; thus, the law requires banks to have high standards of integrity and
written consent of the MAJORITY CREDITORS and shall be within the loan value performance. The fiduciary nature of banking requires banks to assume a degree of
stipulated in Section 1.8[36] of this INDENTURE. (Emphasis supplied.) 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
The fact that the foreclosure of the mortgaged property was undertaken pursuant
trustee of the MTI. It was not able to protect the interests of the parties and was
to the 27 September 1994 MTI is an indication that the parties had failed to amend
even instrumental in violating the terms of the MTI, to the detriment of the parties
it accordingly.
thereto. Thus, petitioner has only itself to blame for being left with insufficient
recourse against petitioner under the assailed MTI.
Because the 27 September 1994 MTI was not amended to secure the loan granted
to the debtors, petitioner could not have applied for an extrajudicial foreclosure on WHEREFORE, in view of the foregoing, the Petition is hereby PARTLY GRANTED.
the basis of all the Promissory Notes granted to San Carlos. Instead, petitioner The Mortgage Trust Indenture is declared VALID. Nonetheless, for reasons stated
could have only applied for the foreclosure of the property corresponding to P144 herein, the Decision of the Court of Appeals in CA-G.R. CV No. 80778, declaring the
million, which was the maximum amount embodied in the 27 September 1994 MTI. foreclosure proceedings in Foreclosure No. S-04-011 over TCT Nos. 139880 and
In other words, as an accommodation debtor, Centro’s properties may not be liable 139881 of no force and effect, is AFFIRMED.  Likewise, the cancellation of the
for San Carlos’ debts beyond this maximum amount, pursuant to the MTI executed Certificates of Title in the name of petitioner Metropolitan Bank and Trust
with petitioner. In Caltex Philippines v. Intermediate Appellate Court, [37] we likewise Company and the denial of the payment of damages are also AFFIRMED.
held that the value of the mortgage should be limited only to the amount provided
by the contract between the parties. SO ORDERED.

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

 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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 Certiorari 1 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. 98-069 3 and denied the issuance
of a writ of possession for Cadastral Lot Nos. 964, 958 and 959 of the Ajuy, ·Iloilo
Cadastre (subject lots) in petitioner's favor.

The Facts

Spouses Gregorio and Rosario Centeno (Sps. Centeno) were the previous owners of
the subject lots. During that time, they mortgaged the foregoing 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, prompting petitioner to cause the
extrajudicial foreclosure of the said mortgage. Consequently, the subject lots were
sold to petitioner being the highest bidder at the auction sale. On October 10,
1969, it obtained a Certificate of Sale at Public Auction 4 which was later registered
with the Register of Deeds of Iloilo City on December 13, 1971. 5
Sps. Centeno failed to redeem the subject lots within the one (1) year redemption The sole issue in this case is whether or not petitioner is entitled to a writ of
period pursuant to Section 66 of Act No. 3135.7 Nonetheless, they still continued possession over the subject lots.
with the possession and cultivation of the aforesaid properties. Sometime in 1983,
respondent Gerry Centeno, son of Sps. Centeno, took over the cultivation of the The Court’s Ruling
same. On March 14, 1988, he purchased the said lots from his parents. Accordingly,
Rosario Centeno paid the capital gains taxes on the sale transaction and tax
The petition is meritorious.
declarations were eventually issued in the name of respondent. 8 While the latter
was in possession of the subject lots, petitioner secured on November 25, 1997 a
Final Deed of Sale thereof and in 1998, was able to obtain the corresponding tax It is well-established that after consolidation of title in the purchaser’s name for
declarations in its name.9 failure of the mortgagor to redeem the property, the purchaser’s right to
possession ripens into the absolute right of a confirmed owner. At that point, the
issuance of a writ of possession, upon proper application and proof of title, to a
On March 19, 1998, petitioner filed a petition for the issuance of a writ of
purchaser in an extrajudicial foreclosure sale becomes merely a ministerial
possession before the RTC, claiming entitlement to the said writ by virtue of the
function, 17 unless it appears that the property is in possession of a third party
Final Deed of Sale covering the subject lots. 10 Respondent opposed the petition,
claiming a right adverse to that of the mortgagor. 18 The foregoing rule is contained
asserting that he purchased and has, in fact, been in actual, open and exclusive
in Section 33, Rule 39 of the Rules of Court which partly provides:
possession of the same properties for at least fifteen (15) 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 petitioner’s rights over the Sec. 33. Deed and possession to be given at expiration of redemption period; by
subject lots had already prescribed. 12 whom executed or given. —

Ruling of the RTC xxxx

On October 8, 2002, the RTC rendered its Decision 13 in Cadastral Case No. 98-069, Upon the expiration of the right of redemption, the purchaser or redemptioner
finding petitioner to be the lawful owner of the subject lots whose rights became shall be substituted to and acquire all the rights, title, interest and claim of the
absolute due to respondent’s failure to redeem the same. Consequently, it found judgment obligor to the property as of the time of the levy. The possession of the
the issuance of a writ of possession ministerial on its part. 14 Dissatisfied, property shall be given to the purchaser or last redemptioner by the same officer
respondent appealed to the CA. unless a third party is actually holding the property adversely to the judgment
obligor. (Emphasis and underscoring supplied)
Ruling of the CA
In China Banking Corporation v. Lozada, 19 the Court held that the phrase "a third
party who is actually holding the property adversely to the judgment obligor"
The CA, through its January 31, 2012 Decision, 15 reversed the RTC and ruled against
contemplates a situation in which a third party holds the property by adverse title
the issuance of a writ of possession. It considered respondent as a third party who
or right, such as that of a co-owner, tenant or usufructuary. The co-owner,
is actually holding the property adverse to the judgment obligor and as such, has
agricultural tenant, and usufructuary possess the property in their own right, and
the right to ventilate his claims in a proper judicial proceeding i.e., an ejectment
they are not merely the successor or transferee of the right of possession of
suit or reinvindicatory action.16
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
Aggrieved, petitioner filed the instant petition. judgment obligor.21

Issue before The Court 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, Republic of the Philippines
arbitrariness or capriciousness committed by the lower court, its findings of facts SUPREME COURT
are binding and conclusive upon the Court,23 as in this case.1âwphi1 Manila
SECOND DIVISION
Finally, anent the issue of laches, it must be maintained that the instant case only G.R. No. 177050               July 01, 2013
revolves around the issuance of a writ of possession which is merely ministerial on CARLOS LIM, CONSOLACION LIM, EDMUNDO LIM,* CARLITO LIM, SHIRLEY
the RTC's part as above-explained. As such, all defenses which respondent may LEODADIA DIZON,** AND ARLEEN LIM FERNANDEZ, PETITIONERS,
raise including that of laches should be ventilated through a proper proceeding. vs.
DEVELOPMENT BANK OF THE PHILIPPINES, RESPONDENT.
DECISION
WHEREFORE, the petition is GRANTED. The January 31, 2012 Decision of the Cebu
DEL CASTILLO, J.:
City Court of Appeals in CA-G.R. CV No. 78398 is REVERSED and 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 hereby REINSTATED. "While the law recognizes the right of a bank to foreclose a mortgage upon 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 law
SO ORDERED.
must be complied with, lest, the valid exercise of the right would end." 1

This Petition for Review on Certiorari 2 under Rule 45 of the Rules of Court assails
the February 22, 2007 Decision3 of the Court of Appeals (CA) in CA-G.R. CV No.
59275.

Factual Antecedents

On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all surnamed
Lim, obtained a loan of ₱40,000.00 (Lim Account) from respondent Development
Bank of the Philippines (DBP) to finance their cattle raising business. 4 On the same
day, they executed a Promissory Note 5 undertaking to pay the annual amortization
with an interest rate of 9% per annum and penalty charge of 11% per annum.
On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and Edmundo, all
surnamed Lim; Shirley Leodadia Dizon, Arleen Lim Fernandez, Juan S. Chua, 6 and Diamond L Ranch Account:
Trinidad D. Chua7 obtained another loan from DBP 8 in the amount of ₱960,000.00
(Diamond L Ranch Account). 9 They also executed a Promissory Note, 10 promising to
Matured [Obligation]:
pay the loan annually from 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. Principal P 939,973.33

To secure the loans, petitioners executed a Mortgage 11 in favor of DBP over real
Regular Interest 561,037.14
properties covered by the following titles registered in the Registry of Deeds for the
Province of South Cotabato:
Advances 34,589.45
(a) TCT No. T-6005 x x x in the name of Edmundo Lim;
(b) TCT No. T-6182 x x x in the name of Carlos Lim;
Additional Interest 2,590,786.26
(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;
(e) TCT No. T-7014 x x x in the name of Edmundo Lim; Penalty Charges 1,068,147.19
(f) TCT No. T-7016 x x x in the name of Carlito Lim;
(g) TCT No. T-28922 x x x in the name of Consolacion Lim; Total claims as of January 31, 1989 P 5,194,533.37 18

(h) TCT No. T-29480 x x x in the name of Shirley Leodadia Dizon;

(i) TCT No. T-24654 x x x in the name of Trinidad D. Chua; and Lim Account:
(j) TCT No. T-25018 x x x in the name of Trinidad D. Chua’s deceased husband Juan
Matured [Obligation]:
Chua.12
Principal P 40,000.00
Due to violent confrontations between government troops and Muslim rebels in
Mindanao from 1972 to 1977, petitioners were forced to abandon their cattle Regular Interest 5,046.97
ranch.13 As a result, their business collapsed and they failed to pay the loan Additional Interest 92,113.56
amortizations.14
Penalty Charges 39,915.46
In 1978, petitioners made a partial payment in the amount of 19
Total claims as of January 31, 1989 P 177,075.99
₱902,800.00,15 leaving an outstanding loan balance of ₱610,498.30, inclusive of
charges and unpaid interest, as of September 30, 1978. 16
Claiming to have already paid ₱902,800.00, Edmundo requested for an amended
In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested from DBP statement of account. 20
Statements of Account for the "Lim Account" and the "Diamond L Ranch
Account."17 Quoted below are the computations in the Statements of Account, as On May 4, 1990, Edmundo made a follow-up on the request for recomputation of
of January 31, 1989 which were stamped with the words "Errors & Omissions the two accounts. 21 On May 17, 1990, DBP’s General Santos Branch informed
Excepted/Subject to Audit:" Edmundo that the Diamond L Ranch Account amounted to ₱2,542,285.60 as of
May 31, 199022 and that the mortgaged properties located at San Isidro, Lagao,
1âwphi1 General Santos City, had been subjected to Operation Land Transfer under the
Comprehensive Agrarian Reform Program (CARP) of the government. 23 Edmundo
was also advised to discuss with the Department of Agrarian Reform (DAR) and the Thereafter, Tamayo informed Edmundo of the bank’s new guidelines for the
Main Office of DBP24 the matter of the expropriated properties. settlement of outstanding loan accounts under Board Resolution No. 0290-
92.42 Based on these guidelines, petitioners’ outstanding loan obligation was
Edmundo asked DBP how the mortgaged properties were ceded by DAR to other computed at ₱3,500,000.00 plus. 43 Tamayo then proposed that petitioners pay 10%
persons without their knowledge. 25 No reply was made.26 downpayment and the remaining balance in 36 monthly installments. 44 He also
informed Edmundo that the bank would immediately prepare the Restructuring
Agreement upon receipt of the downpayment and that the conditions for the
On April 30, 1991, Edmundo again signified petitioners’ intention to settle the
settlement have been "pre-cleared" with the bank’s Regional Credit
Diamond L Ranch Account.27 Again, no reply was made.28
Committee.45 Thus, Edmundo wrote a letter46 on October 30, 1992 manifesting
petitioners’ assent to the proposal.
On February 21, 1992, Edmundo received a Notice of Foreclosure scheduled the
following day.29 To stop the foreclosure, he was advised by the bank’s Chief Legal
On November 20, 1992, Tamayo informed Edmundo that the proposal was
Counsel to pay an interest covering a 60-days period or the amount of ₱60,000.00
accepted with some minor adjustments and that an initial payment should be
to postpone the foreclosure for 60 days.30 He was also advised to submit a written
made by November 27, 1992.47
proposal for the settlement of the loan accounts. 31

On December 15, 1992, Edmundo paid the downpayment of ₱362,271.75 48 and was
In a letter32 dated March 20, 1992, Edmundo proposed the settlement of the
asked to wait for the draft Restructuring Agreement.49
accounts through dacion en pago, with the balance to be paid in equal quarterly
payments over five years.
However, on March 16, 1993, Edmundo received a letter 50 from Tamayo informing
him that the Regional Credit Committee rejected the proposed Restructuring
In a reply-letter33 dated May 29, 1992, DBP rejected the proposal and informed
Agreement; that it required downpayment of 50% of the total obligation; that the
Edmundo that unless the accounts are fully settled as soon as possible, the bank
remaining balance should be paid within one year; that the interest rate should be
will pursue foreclosure proceedings.
non prime or 18.5%, whichever is higher; and that the proposal is effective only for
90 days from March 5, 1993 to June 2, 1993.51
DBP then sent Edmundo the Statements of Account 34 as of June 15, 1992 which
were stamped with the words "Errors & Omissions Excepted/Subject to Audit"
Edmundo, in a letter52 dated May 28, 1993, asked for the restoration of their
indicating the following amounts: (1) Diamond L Ranch: ₱7,210,990.27 and (2) Lim
previous agreement.53 On June 5, 1993, the bank replied,54 viz:
Account: ₱187,494.40.

This has reference to your letter dated May 28, 1993, which has connection to your
On June 11, 1992, Edmundo proposed to pay the principal and the regular interest
desire to restructure the Diamond L Ranch/Carlos Lim Accounts.
of the loans in 36 equal monthly installments. 35

We wish to clarify that what have been agreed between you and the Branch are
On July 3, 1992, DBP advised Edmundo to coordinate with Branch Head Bonifacio
not final until [the] same has been approved by higher authorities of the Bank. We
Tamayo, Jr. (Tamayo).36 Tamayo promised to review the accounts. 37
did [tell] you during our discussion that we will be recommending the restructuring
of your accounts with the terms and conditions as agreed. Unfortunately, our
On September 21, 1992, Edmundo received another Notice from the Sheriff that Regional Credit Committee did not agree to the terms and conditions as
the mortgaged properties would be auctioned on November 22, 1992. 38 Edmundo recommended, hence, the subject of our letter to you on March 15, 1993.
again paid ₱30,000.00 as additional interest to postpone the auction. 39 But despite
payment of ₱30,000.00, the mortgaged properties were still auctioned with DBP
emerging as the highest bidder in the amount of ₱1,086,867.26. 40 The auction sale,
however, was later withdrawn by DBP for lack of jurisdiction. 41
Please be informed further, that the Branch cannot do otherwise but to comply 1) This will be the last and final extension to be granted your accounts; and
with the conditions imposed by the Regional Credit Committee. More so, the time 2) That all amortizations due from March 1993 to November 1993 shall be paid
frame given had already lapsed on June 2, 1993. 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 Bank." 55 xxxx

On July 28, 1993, Edmundo wrote a letter 56 of appeal to the Regional Credit Failure on your part to comply with these conditions, the Bank will undertake
Committee. appropriate legal measures to protect its interest.

In a letter57 dated August 16, 1993, Tamayo informed Edmundo that the previous Please give this matter your preferential attention. 61
Restructuring Agreement was reconsidered and approved by the Regional Credit
Committee subject to the following additional conditions, to wit: On November 8, 1993, Edmundo sent Tamayo a telegram, which reads:

1) Submission of Board Resolution and Secretary’s Certificate designating Acknowledge receipt of your Sept. 27 letter. I would like to finalize documentation
you as authorized representative in behalf of Diamond L Ranch; of restructuring Diamond L Ranch and Carlos Lim Accounts. However, we would
need clarification on amortizations due on NTFI means [sic]. I will call x x x your
2) Payment of March 15 and June 15, 1993 amortizations within 30 days Legal Department at DBP Head Office by Nov. 11. Pls. advise who[m] I should
from date hereof; and contact. Thank you.62

3) Submission of SEC registration. Receiving no response, Edmundo scheduled a meeting with Tamayo in
Manila.63 During their meeting, Tamayo told Edmundo that he would send the draft
In this connection, please call immediately x x x our Legal Division to guide you for of the Restructuring Agreement by courier on November 15, 1993 to the Main
the early documentation of your approved restructuring. Office of DBP in Makati, and that Diamond L Ranch need not submit the Board
Resolution, the Secretary’s Certificate, and the SEC Registration since it is a single
proprietorship.64
Likewise, please be reminded that upon failure on your part to sign and perfect the
documents and comply [with] other conditions within (30) days from date of
receipt, your approved recommendation shall be deemed CANCELLED and your On November 24, 1993 and December 3, 1993, Edmundo sent telegrams to
deposit of ₱362,271.75 shall be applied to your account. Tamayo asking for the draft of the Restructuring Agreement. 65

No compliance was made by Edmundo. 58 On November 29, 1993, the documents were forwarded to the Legal Services
Department of DBP in Makati for the parties’ signatures. At the same time,
Edmundo was required to pay the amount of ₱1,300,672.75, plus a daily interest of
On September 21, 1993, Edmundo received Notice that the mortgaged properties
₱632.15 starting November 16, 1993 up to the date of actual payment of the said
were scheduled to be auctioned on that day. 59 To stop the auction sale, Edmundo
amount.66
asked for an extension until November 15, 1993 60 which was approved subject to
additional conditions:
On December 19, 1993, Edmundo received the draft of the Restructuring
Agreement.67
Your request for extension is hereby granted with the conditions that:
In a letter68 dated January 6, 1994, Tamayo informed Edmundo that the bank your letter of January 18, 1994. However, he gave us the instruction to answer your
cancelled the Restructuring Agreement due to his failure to comply with the letter on direct to the point basis as follows:
conditions within a reasonable time.
- Yes to Items No. 1 and 2,
On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking that he pay
the outstanding amount of ₱6,404,412.92, as of November 16, 1993, exclusive of - No longer needed on Item No. 3
interest and penalty charges.69
AVP Tamayo would like us also to convey to you to hurry up with your move to
Edmundo, in a letter 70 dated January 18, 1994, explained that his lawyer was not settle the obligation, while the foreclosure action is still pending with the legal
able to review the agreement due to the Christmas holidays. He also said that his division. He is afraid you might miss your last chance to settle the account of your
lawyer was requesting clarification on the following points: parents.74

Can the existing obligations of the Mortgagors, if any, be specified in the Edmundo then asked about the status of the Restructuring Agreement as well as
Restructuring Agreement already? the computation of the accrued interest and advances 75 but the bank could not
provide any definite answer.76
Is there a statement showing all the accrued interest and advances that shall first
be paid before the restructuring shall be implemented? On June 8, 1994, the Office of the Clerk of Court and Ex-Officio Provincial Sheriff of
the RTC of General Santos City issued a Notice 77 resetting the public auction sale of
Should Mr. Jun Sarenas Chua and his wife Mrs. Trinidad Chua be required to sign as the mortgaged properties on July 11, 1994. Said Notice was published for three
Mortgagors considering that Mr. Chua is deceased and the pasture lease which he consecutive weeks in a newspaper of general circulation in General Santos City. 78
used to hold has already expired?71
On July 11, 1994, the Ex-Officio Sheriff conducted a public auction sale of the
Edmundo also indicated that he was prepared to pay the first quarterly mortgaged properties for the satisfaction of petitioners’ total obligations in the
amortization on March 15, 1994 based on the total obligations of ₱3,260,445.71, as amount of ₱5,902,476.34. DBP was the highest bidder in the amount of
of December 15, 1992, plus interest.72 ₱3,310,176.55.79

On January 28, 1994, Edmundo received from the bank a telegram 73 which reads: On July 13, 1994, the Ex-Officio Sheriff issued the Sheriff’s Certificate of Extra-
Judicial Sale in favor of DBP covering 11 parcels of land. 80
We refer to your cattle ranch loan carried at our DBP General Santos City Branch.
In a letter81 dated September 16, 1994, DBP informed Edmundo that their right of
Please coordinate immediately with our Branch Head not later than 29 January redemption over the foreclosed properties would expire on July 28, 1995, to wit:
1994, to forestall the impending foreclosure action on your account.
This is to inform you that your right of redemption over your former property/ies
Please give the matter your utmost attention. acquired by the Bank on July 13, 1994, thru Extra-Judicial Foreclosure under Act
3135 will lapse on July 28, 1995.
The bank also answered Edmundo’s queries, viz:
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 urging you to
In view of the extended leave of absence of AVP Bonifacio A. Tamayo, Jr. due to the
untimely demise of his father, we regret [that] he cannot personally respond to
exercise your right within six (6) months from the date of auction sale on or before (1) Declaring that the [petitioners] have fully extinguished and discharged their
January 12, 1995. obligation to the [respondent] Bank;
(2) Declaring the foreclosure of [petitioners’] mortgaged properties, the sale of the
Further, failure on your part to exercise your redemption right by July 28, 1995 will properties under the foreclosure proceedings and the resultant certificate of sale
constrain us to offer your former property/ies in a public bidding. issued by the foreclosing Sheriff by reason of the foreclosure NULL and VOID;
(3) Ordering the return of the [properties] to [petitioners] free from mortgage liens;
(4) Ordering [respondent] bank to pay [petitioners], actual and compensatory
Please give this matter your preferential attention. Thank you.82
damages of ₱170,325.80;
(5) Temperate damages of ₱50,000.00;
On July 28, 1995, petitioners filed before the RTC of General Santos City, a (c) Moral damages of ₱500,000.00;
Complaint83 against DBP for Annulment of Foreclosure and Damages with Prayer (d) Exemplary damages of ₱500,000.00;
for Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining (e) Attorney’s fees in the amount of ₱100,000.00; and
Order. Petitioners alleged that DBP’s acts and omissions prevented them from (f) Expenses of litigation in the amount of ₱20,000.00.
fulfilling their obligation; thus, they prayed that they be discharged from their [Respondent] Bank’s counterclaims are hereby DISMISSED.
obligation and that the foreclosure of the mortgaged properties be declared void. [Respondent] Bank is likewise ordered to pay the costs of suit.
They likewise prayed for actual damages for loss of business opportunities, moral
and exemplary damages, attorney’s fees, and expenses of litigation. 84
SO ORDERED.96

On same date, the RTC issued a Temporary Restraining Order 85 directing DBP to
Ruling of the Court of Appeals
cease and desist from consolidating the titles over petitioners’ foreclosed
properties and from disposing the same.
On appeal, the CA reversed and set aside the RTC Decision. Thus:
86
In an Order  dated August 18, 1995, the RTC granted the Writ of Preliminary
Injunction and directed petitioners to post a bond in the amount of ₱3,000,000.00. WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED. The
assailed Decision dated 10 December 1996 is hereby REVERSED and SET ASIDE. A
new judgment is hereby rendered. It shall now read as follows:
DBP filed its Answer,87 arguing that petitioners have no cause of action; 88 that
petitioners failed to pay their loan obligation; 89 that as mandated by Presidential
Decree No. 385, initial foreclosure proceedings were undertaken in 1977 but were WHEREFORE, premises considered, judgment is hereby rendered:
aborted because petitioners were able to obtain a restraining order; 90 that on
December 18, 1990, DBP revived its application for foreclosure but it was again Ordering the dismissal of the Complaint in Civil Case No. 5608;
held in abeyance upon petitioners’ request; 91 that DBP gave petitioners written and
verbal demands as well as sufficient time to settle their obligations; 92 and that Declaring the extrajudicial foreclosure of [petitioners’] mortgaged properties as
under Act 3135,93 DBP has the right to foreclose the properties. 94 valid;

Ruling of the Regional Trial Court Ordering [petitioners] to pay the [respondent] the amount of Two Million Five
Hundred Ninety Two Thousand Two Hundred Ninety Nine [Pesos] and Seventy-Nine
On December 10, 1996, the RTC rendered a Decision, 95 the dispositive portion of Centavos (₱2,592,299.79) plus interest and penalties as stipulated in the
which reads: Promissory Note computed from 11 July 1994 until full payment; and

WHEREFORE, in light of the foregoing, judgment is hereby rendered: Ordering [petitioners] to pay the costs.
SO ORDERED. Relying on the Principle of Constructive Fulfillment, petitioners insist that their
obligation should be deemed fulfilled since DBP prevented them from performing
SO ORDERED.97 their obligation by charging excessive interest and penalties not stipulated in the
Promissory Notes, by failing to promptly provide them with the correct Statements
of Account, and by cancelling the Restructuring Agreement even if they already
Issues
paid ₱362,271.75 as downpayment. 99 They likewise deny any fault or delay on their
part in finalizing the Restructuring 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
1. Whether x x x respondent’s own wanton, reckless and oppressive acts notice101 and the inadequacy of the bid price.102 They contend that at the time of
and omissions in discharging its reciprocal obligations to petitioners the foreclosure, petitioners’ obligation was not yet due and demandable, 103 and
effectively prevented the petitioners from paying their loan obligations in that the restructuring agreement novated and extinguished petitioners’ loan
a proper and suitable manner; obligation.104

2. Whether x x x as a result of respondent’s said acts and omissions, Finally, petitioners claim that DBP acted in bad faith or in a wanton, reckless, or
petitioners’ obligations should be deemed fully complied with and oppressive manner; hence, they are entitled to actual, temperate, moral and
extinguished in accordance with the principle of constructive fulfillment; exemplary damages, attorney’s fees, and expenses of litigation. 105

3. Whether x x x the return by the trial Court of the mortgaged properties Respondent’s Arguments
to petitioners free from mortgage liens constitutes unjust enrichment;
DBP, on the other hand, denies acting in bad faith or in a wanton, reckless, or
4. Whether x x x the low bid price made by the respondent for oppressive manner106 and in charging excessive interest and penalties.107 According
petitioners’ mortgaged properties during the foreclosure sale is so gross, to it, the amounts in the Statements of Account vary because the computations
shocking to the conscience and inherently iniquitous as to constitute were based on different cut-off dates and different incentive schemes. 108
sufficient ground for setting aside the foreclosure sale;
DBP further argues that the foreclosure sale is valid because gross inadequacy of
5. Whether x x x the restructuring agreement reached and perfected the bid price as a ground for the annulment of the sale applies only to judicial
between the petitioners and the respondent novated and extinguished foreclosure.109 It likewise maintains that the Promissory Notes and the Mortgage
petitioners’ loan obligations to respondent under the Promissory Notes were not novated by the proposed Restructuring Agreement. 110
sued upon; and
As to petitioners’ claim for damages, DBP contends it is without basis because it did
6. Whether x x x the respondent should be held liable to pay petitioners not act in bad faith or in a wanton, reckless, or oppressive manner. 111
actual and compensatory damages, temperate damages, moral damages,
exemplary damages, attorney’s fees and expenses of litigation. 98
Our Ruling

Petitioners’ Arguments
The Petition is partly meritorious. The obligation was not extinguished or
discharged.
Petitioners seek the reinstatement of the RTC Decision which declared their
obligation fully extinguished and the foreclosure proceedings of their mortgaged
The Promissory Notes subject of the instant case became due and demandable as
properties void.
early as 1972 and 1976. The only reason the mortgaged properties were not
foreclosed in 1977 was because of the restraining order from the court. In 1978, perfected Restructuring Agreement, there was no impediment for DBP to exercise
petitioners made a partial payment of ₱902,800.00. No subsequent payments were its right to foreclose the mortgaged properties. 115
made. It was only in 1989 that petitioners tried to negotiate the settlement of their
loan obligations. And although DBP could have foreclosed the mortgaged The foreclosure sale is not valid.
properties, it instead agreed to restructure the loan. In fact, from 1989 to 1994,
DBP gave several extensions for petitioners to settle their loans, but they never did,
But while DBP had a right to foreclose the mortgage, we are constrained to nullify
thus, prompting DBP to cancel the Restructuring Agreement.
the foreclosure sale due to the bank’s failure to send a notice of foreclosure to
petitioners.
Petitioners, however, insist that DBP’s cancellation of the Restructuring Agreement
justifies the extinguishment of their loan obligation under the Principle of
We have consistently held that unless the parties stipulate, "personal notice to the
Constructive Fulfillment found in Article 1186 of the Civil Code.
mortgagor in extrajudicial foreclosure proceedings is not necessary" 116 because
Section 3117 of Act 3135 only requires the posting of the notice of sale in three
We do not agree. public places and the publication of that notice in a newspaper of general
circulation.
As aptly pointed out by the CA, Article 1186 of the Civil Code, which states that "the
condition shall be deemed fulfilled when the obligor voluntarily prevents its In this case, the parties stipulated in paragraph 11 of the Mortgage that:
fulfillment," does not apply in this case,112 viz:
11. All correspondence relative to this mortgage, including demand letters,
Article 1186 enunciates the doctrine of constructive fulfillment of suspensive summons, subpoenas, or notification of any judicial or extra-judicial action shall be
conditions, which applies when the following three (3) requisites concur, viz: (1) sent to the Mortgagor at xxx or at the address that may hereafter be given in
The condition is suspensive; (2) The obligor actually prevents the fulfillment of the writing by the Mortgagor or the Mortgagee;118
condition; and (3) He acts voluntarily. Suspensive condition is one the happening of
which gives rise to the obligation. It will be irrational for any Bank to provide a
However, no notice of the extrajudicial foreclosure was sent by DBP to petitioners
suspensive condition in the Promissory Note or the Restructuring Agreement that
about the foreclosure sale scheduled on July 11, 1994. The letters dated January
will allow the debtor-promissor to be freed from the duty to pay the loan without
28, 1994 and March 11, 1994 advising petitioners to immediately pay their
paying it.113
obligation to avoid the impending foreclosure of their mortgaged properties are
not the notices required in paragraph 11 of the Mortgage. The failure of DBP to
Besides, petitioners have no one to blame but themselves for the cancellation of comply with their contractual agreement with petitioners, i.e., to send notice, is a
the Restructuring Agreement. It is significant to point out that when the Regional breach sufficient to invalidate the foreclosure sale.
Credit Committee reconsidered petitioners’ proposal to restructure the loan, it
imposed additional conditions. In fact, when DBP’s General Santos Branch
In Metropolitan Bank and Trust Company v. Wong, 119 we explained that:
forwarded the Restructuring Agreement to the Legal Services Department of DBP in
Makati, petitioners were 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 actual payment x x x a contract is the law between the parties and, that absent any showing that its
of the said amount.114 This, petitioners failed to do. DBP therefore had reason to provisions are wholly or in part contrary to law, morals, good customs, public
cancel the Restructuring Agreement. order, or public policy, it shall be enforced to the letter by the courts. Section 3, Act
No. 3135 reads:
Moreover, since the Restructuring Agreement was cancelled, it could not have
novated or extinguished petitioners’ loan obligation. And in the absence of a 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 In the Promissory Note, Exhibit "A," for the principal amount of ₱960,000.00, only
newspaper of general circulation in the municipality and city. the following interest and penalty charges were stipulated:

The Act only requires (1) the posting of notices of sale in three public places, and (1) interest at the rate of twelve percent (12%) per annum;
(2) the publication of the same in a newspaper of general circulation. Personal (2) penalty charge of one-third percent (1/3%) per month on overdue amortization;
notice to the mortgagor is not necessary. Nevertheless, the parties to the mortgage (3) attorney’s fees equivalent to ten percent (10%) of the total indebtedness then
contract are not precluded from exacting additional requirements. In this case, unpaid; and
petitioner and respondent in entering into a contract of real estate mortgage, (4) advances and interest thereon at one percent (1%) per month.
agreed inter alia:
[Respondent] bank, however, charged [petitioners] the following items as shown in
all correspondence relative to this mortgage, including demand letters, its Statement of Account for the period as of 31 January 1989, Exhibit "D:"
summonses, subpoenas, or notifications of any judicial or extra-judicial action shall
be sent to the MORTGAGOR at 40-42 Aldeguer St. Iloilo City, or at the address that (1) regular interest in the amount of ₱561,037.14;
may hereafter be given in writing by the MORTGAGOR to the MORTGAGEE. (2) advances in the amount of ₱34,589.45;
(3) additional interest in the amount of ₱2,590,786.26; and
Precisely, the purpose of the foregoing stipulation is to apprise respondent of any (4) penalty charges in the amount of ₱1,068,147.19.
action which petitioner might take on the subject property, thus according him the
opportunity to safeguard his rights. When petitioner failed to send the notice of The Court finds no basis under the Promissory Note, Exhibit "A," for charging the
foreclosure sale to respondent, he committed a contractual breach sufficient to additional interest in the amount of ₱2,590,786.26. Moreover, it is
render the foreclosure sale on November 23, 1981 null and void. 120 (Emphasis incomprehensible how the penalty charge of 1/3% per month on the overdue
supplied) 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 ₱561,037.14 or
In view of foregoing, the CA erred in finding the foreclosure sale valid. about half of the amount allegedly due as penalties.

Penalties and interest rates should be expressly stipulated in writing. In Exhibit "N," which is the statement of account x x x as of 15 June 1992,
[respondent] bank charged plaintiffs the following items:
As to the imposition of additional interest and penalties not stipulated in the
Promissory Notes, this should not be allowed. Article 1956 of the Civil Code (1) regular interest in the amount of ₱561,037.14;
specifically states that "no interest shall be due unless it has been expressly (2) advances in the amount of ₱106,893.93;
stipulated in writing." Thus, the payment of interest and penalties in loans is (3) additional interest on principal in the amount of ₱1,233,893.79;
allowed only if the parties agreed to it and reduced their agreement in writing. 121 (4) additional interest on regular interest in the amount of ₱859,966.83;
(5) additional interest on advances in the amount of ₱27,206.45;
In this case, petitioners never agreed to pay additional interest and penalties. (6) penalty charges on principal in the amount of ₱1,639,331.15;
Hence, we agree with the RTC that these are illegal, and thus, void. Quoted below (7) penalty charges on regular interest in the amount of ₱1,146,622.55;
are the findings of the RTC on the matter, to wit: (8) penalty charges on advances in the amount of ₱40,520.53.

Moreover, in its various statements of account, [respondent] Bank charged Again, the Court finds no basis in the Promissory Note, Exhibit "A," for the
[petitioners] for additional interests and penalties which were not stipulated in the imposition of additional interest on principal in the amount of ₱1,233,893.79,
promissory notes. additional interest on regular interest in the amount of ₱859,966.83, penalty
charges on regular interest in the amount of ₱1,146,622.55 and penalty charges on [Respondent] bank failed to show the basis for charging additional interest on
advances in the amount of ₱40,520.53. principal, additional interest on regular interest and penalty charges on principal
and penalty charges on regular interest under items (2), (3), (4) and (5) above.
In the Promissory Note, Exhibit "C," for the principal amount of ₱40,000.00, only
the following charges were stipulated: Moreover, [respondent] bank charged [petitioners] twice under the same
provisions in the promissory notes. It categorically admitted that the additional
(1) interest at the rate of nine percent (9%) per annum; interests and penalty charges separately being charged [petitioners] referred to the
(2) all unpaid amortization[s] shall bear interest at the rate of eleven percent (11%) same provision of the Promissory Notes, Exhibits "A" and "C." Thus, for the Lim
per annum; and, Account in the amount of ₱40,000.00, [respondent’s] Mr. Ancheta stated:
(3) attorney’s fees equivalent to ten percent (10%) of the total indebtedness then
unpaid. Q: 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 regular
In its statement of account x x x as of 31 January 1989, Exhibit "E," [respondent] interest of ₱7,544.58, can you tell us looking [at] the mortgage contract and
bank charged [petitioners] with the following items: promissory note what is your basis for charging that additional interest?

(1) regular interest in the amount of ₱5,046.97 A: The same as that when I answered Exhibit No. 3, which shall cover amortization
(2) additional interest in the amount of ₱92,113.56; and on the principal and interest at the above-mentioned rate. All unpaid
(3) penalty charges in the amount of ₱39,915.46. amortization[s] shall bear interest at the rate of eleven per centum (11%) per
annum.
There was nothing in the Promissory Note, Exhibit "C," which authorized the
imposition of additional interest. Again, this Court notes that the additional interest Q: You also imposed penalty which is on the principal in the amount of ₱40,000.00
in the amount of ₱92,113.56 is even larger than the regular interest in the amount in the amount of ₱47,493.33 in addition to regular interest of ₱5,486.96. Can you
of ₱5,046.97. Moreover, based on the Promissory Note, Exhibit "C," if the 11% point what portion of Exhibit 3 gives DBP the right to impose such penalty?
interest on unpaid amortization is considered an "additional interest," then there is
no basis for [respondent] bank to add penalty charges as there is no other A: The same paragraph as stated.
provision providing for this charge. If, on the other hand, the 11% interest on
unpaid amortization is considered the penalty charge, then there is no basis to Q: Can you please read the portion referring to penalty?
separately charge plaintiffs additional interest. The same provision cannot be used
to charge plaintiffs both interest and penalties.
A: All unpaid amortization shall bear interest at the rate of 11% per annum.

In Exhibit "O," which is the statement of account x x x as of 15 June 1992,

Q: The additional interest is based on 11% per annum and the penalty is likewise
[respondent] charged [petitioners] with the following:
based on the same rate?

(1) regular interest in the amount of ₱4,621.25;

A: Yes, it is combined (TSN, 28 May 1996, pp. 39-40.)
(2) additional interest on principal in the amount of ₱65,303.33;
(3) additional interest on regular interest in the amount of ₱7,544.58;
(4) penalty charges on principal in the amount of ₱47,493.33; With respect to the Diamond L. Ranch account in the amount of ₱960,000.00, Mr.
(5) penalty charges on regular interest in the amount of ₱5,486.97; Ancheta testified as follows:
(6) penalty charges on advances in the amount of ₱40,520.53.
Q: Going back to Exhibit 14 Statement of Accounts. Out of the principal of Consequently, this case should be remanded to the RTC for the proper
₱939,973.33 you imposed an additional interest of ₱1,233,893.79 plus ₱859,966.83 determination of petitioners’ total loan obligation based on the interest and
plus ₱27,206.45. Can you tell us what is the basis of the imposition? penalties stipulated in the Promissory Notes.

A: As earlier stated, it is only the Promissory Note as well as the Mortgage Contract. DBP did not act in bad faith or in a wanton, reckless, or oppressive manner.

Q: Please point to us where in the Promissory Note is the specific portion? Finally, as to petitioners’ claim for damages, we find the same devoid of merit.

A: In Exhibit 1: "in case of failure to pay in full any amortization when due, a penalty DBP did not act in bad faith or in a wanton, reckless, or oppressive manner in
charge of 1/3% per month on the overdue amortization shall be paid." cancelling the Restructuring Agreement. As we have said, DBP had reason to cancel
the Restructuring Agreement because petitioners failed to pay the amount
Q: What is the rate? required by it when it reconsidered petitioners’ request to restructure the loan.

A: 1/3% per month. 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,
Q: So, the imposition of the additional interest and the penalty charge is based on
reckless, or oppressive manner.1âwphi1
the same provision?

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

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

Moral damages are not recoverable simply because a contract has been breached.
A perusal of the promissory notes, however, failed to justify [respondent] bank’s
They are recoverable only if the defendant acted fraudulently or in bad faith or in
computation of both interest and penalty under the same provision in each of the
wanton disregard of his contractual obligations. The breach must be wanton,
promissory notes.
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
[Respondent] bank also admitted that the additional interests and penalties being wanton, fraudulent, reckless, oppressive or malevolent manner.
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
We are not sufficiently convinced that PNB acted fraudulently, in bad faith, or in
March 1996, pp. 23-24.) This banking policy, however, has been declared null and
wanton disregard of its contractual obligations, simply because it increased the
void in Philippine National Bank vs. CA, 196 SCRA 536 (1991). The act of
interest rates and delayed the foreclosure of the mortgages. Bad faith cannot be
[respondent] bank in unilaterally changing the stipulated interest rate is violative of
imputed simply because the defendant acted with bad judgment or with attendant
the principle of mutuality of contracts under 1308 of the Civil Code and
negligence. Bad faith is more than these; it pertains to a dishonest purpose, to
contravenes 1956 of the Civil Code. [Respondent] bank completely ignored
some moral obliquity, or to the conscious doing of a wrong, a breach of a known
[petitioners’] "right to assent to an important modification in their agreement and
duty attributable to a motive, interest or ill will that partakes of the nature of fraud.
(negated) the element of mutuality in contracts." (Philippine National Bank vs. CA,
Proof of actions of this character is undisputably lacking in this case. Consequently,
G.R. No. 109563, 9 July 1996; Philippine National Bank vs. CA, 238 SCRA 20 1994).
we do not find the spouses Rocamora entitled to an award of moral and exemplary
As in the PNB cases, [petitioners] herein never agreed in writing to pay the
damages. Under these circumstances, neither should they recover attorney’s fees
additional interest, or the penalties, as fixed by [respondent] bank; hence
and litigation expense. These awards are accordingly deleted. 124 (Emphasis
[respondent] bank’s imposition of additional interest and penalties is null and
supplied)
void.122 (Emphasis supplied)
WHEREFORE, the Petition is PARTLY GRANTED. The assailed February 22, 2007
Decision of the Court of Appeals in CA-G.R. CV No. 59275 is hereby MODIFIED in
accordance with this Decision. The case is hereby REMANDED to the Regional Trial
Court of General Santos City, Branch 22, for the proper determination of
petitioners’ total loan obligations based on the 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 comply with paragraph 11 of the Mortgage, without
prejudice to the conduct of another foreclosure sale based on the recomputed
amount of the loan obligations, if necessary.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 174581               February 4, 2015
ATTY. LEO N. CAUBANG, Petitioner,
vs.
JESUS G. CRISOLOGO and NANETTE B. CRISOLOGO, Respondents.
DECISION
PERALTA, J.:
For the Court's resolution is a Petition for Review under Rule 45 of the Rules of On June 8, 1998, petitioner Leo Caubang, as Notary Public, prepared the Notices of
Court which petitioner Atty. Leo N. Caubang filed, questioning the Decision 1 of the Sale, announcing the foreclosure of the real estate mortgage and the sale of the
Court of Appeals (CA), dated May 22, 2006, and its Resolution 2 dated August 16, mortgaged property at public auction on July 15, 1998. He caused the posting of
2006 in CA-G.R. CV. No. 68365. The CA affirmed the Decision 3 of the Regional Trial said notices in three (3) public places: the Barangay Hall of Matina, City Hall of
Court (RTC) of Davao City, Branch 12, dated August 1, 2000, with modifications, in Davao,and Bangkerohan Public Market. Publication was, likewise, made in the
Civil Case No. 27168-99. Oriental Daily Examiner, one of the local newspapers in Davao City.

The facts, as gathered from the records, are as follows: 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 ₱1,331,460.00,
On December 17, 1993, respondents spouses Jesus and Nannette Crisologo (the leaving a deficiencyof ₱2,207,349.97. Thereafter, a Certificate of Sale in favor of the
Spouses Crisologo) obtained an Express Loan in the amount of ₱200,000.00 from bank was issued.
PDCP Development Bank Inc. (PDCP Bank). On January 26, 1994, the Spouses
Crisologo acquired another loan from the same bank, this time a Term Loan of Later, the Spouses Crisologo were surprised to learn that their mortgaged property
₱1,500,000.00 covered by a Loan Agreement. As security for both loans,the had already been soldto the bank. Thus, they filed a Complaint for Nullity of
spouses mortgaged their property covered by Transfer Certificate of Title (TCT) No. Extrajudicial Foreclosure and Auction Sale and Damages against PDCP Bank and
T-181103. Upon release of the Term Loan, they were given two (2) promissory Caubang.
notes, for the amount of ₱500,000.00 on February 9, 1994 and ₱1,000,000.00 on
February 21, 1994. On August 1, 2000, the Davao RTC rendered a Decision nullifying the extrajudicial
foreclosure of the real estate mortgage for failure to comply with the publication
Under the promissory notes, the Spouses Crisologo agreed to pay the principal requirement, the dispositive portion of which reads:
amount of the loan over a periodof three (3) years in twelve (12) equal quarterly
amortizations. Although they were able to pay the Express Loan, starting August WHEREFORE, judgment is hereby rendered:
22, 1994, however, or after payment of the first few installments on the other
loans, the spouses defaulted in the amortizations. Despite several demands made
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs’ property, covered by
by the bank,the spouses still failed to pay.
TCT No. T-181103, null and void.
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. 113255
On May 31, 1996, the spouses received a detailed breakdown of their outstanding on TCT No. T-181103, the entry relative to the Certificate of Sale executed by Atty.
obligation. Finding the charges to be excessive, they wrote a letter to the bank Leo Caubang on August 5, 1998, and if a new title has been issued to defendant
proposing to pay their loan in full with a request that the interest and penalty PDCP, to cancel the same, and to reinstate TCT No. T-181103 in the name of
charges be waived. The manager of PDCP Bank, Davao Branch, advised them to Nannette B. Crisologo, of legal age, Filipino, married to Jesus Crisologo, and a
deposit their ₱1,500,000.00 obligation as manifestation of their intent to pay the resident of Davao City, Philippines.
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
All the other claims of the parties are disallowed.
property. The bank did not reply 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 October 20, 1997, the debt had ballooned to ₱3,041,287.00. No pronouncement as to costs.
For failure to settle the account, the Davao branch of the bank recommended the
foreclosure of the mortgage to its head office. On March 20, 1998, PDCP Bank filed SO ORDERED.4
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 exemplary damages, attorney’s
fees, and costs of suit were concerned. On May 22, 2006, the appellate court Clerk of Court. It also has no paying subscribers and it would only publish whenever
modified the decretal portion to read: WHEREFORE, judgment is hereby rendered: there are customers. Since there was no proper publication of the notice of sale,
the Spouses Crisologo, as well as the rest of the general public, were never
1. Declaring the Extra-Judicial Foreclosure sale of plaintiffs’ property, covered by informed thatthe mortgaged property was about to be foreclosed and auctioned.
TCT # T-181103, null and void. As a result,PDCP Bank became the sole bidder. This allowed the bank to bid for a
2. Ordering the Register of Deeds for the City of Davao to cancel Entry No. T- very low price (₱1,331,460.00) and go after the spouses for a bigger amount as
181103, the entry relative to the Certificate of Sale executed by Atty. Leo Caubang deficiency.1âwphi1
on August 5, 1998, and if a new title has been issued to defendant PDCP, to cancel
the same, and to reinstate TCT No. T-181103 in the name of Nannette B. Crisologo, The principal object of a notice of sale in a foreclosure of mortgage is not so much
of legal age, Filipino, married to Jesus Crisologo, and a resident of Davao City, to notify the mortgagor as to inform the public generally of the nature and
Philippines; and condition of the property to be sold, and of the time, place, and terms of the sale.
3. Atty. Caubang is ordered to pay appellants the sum of ₱41,500.00 as attorney’s Notices are given to secure bidders and prevent a sacrifice of the property.
fees and ₱30,248.50 as litigation expenses. Therefore, statutory provisions governing publication of notice of mortgage
foreclosure sales must be strictly complied with and slight deviations therefrom will
All other claims of the parties are disallowed. invalidate the notice and render the sale, at the very least, voidable. Certainly, the
statutory requirements of posting and publication are mandated and imbued with
public policy considerations. Failure to advertise a mortgage foreclosure sale in
SO ORDERED.5
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
Caubang filed a Motion for Reconsideration, but the same was denied. Hence, he consequently vitiate the sale.8
filed the present petition.
Since it was Caubang who caused the improper publication of the notices which, in
Caubang mainly assails the CA’s ruling on the publication of the notices in the turn, compelled the Spouses Crisologo to litigate and incur expenses involving the
Oriental Daily Examiner. He firmly contends that the CA’s finding was based on declaration of nullity of the auction sale for the protection of their interest on the
assumptions and speculations. property, the CA aptly held that Caubang shall be the one liable for the spouses'
claim for litigation expenses and attorney's fees.
The petition lacks merit.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, dated
Under Section 3 of Act No. 3135:6 May 22, 2006, and its Resolution dated August 16, 2006, in CA-G.R. CV. No. 68365,
are hereby AFFIRMED. 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 FIRST DIVISION
places ofthe municipality or city where the property is situated, and if such [G.R. NO. 171169 : August 24, 2009]
property is worth more than four hundred pesos, such notices shall also be GC DALTON INDUSTRIES, INC., Petitioner, v. EQUITABLE PCI BANK, Respondent.
published once a week for at least three consecutive weeksin a newspaper of
general circulation in the municipality or city.7 DECISION
CORONA, J.:
Caubang never made an effort toinquire as to whether the Oriental Daily
Examinerwas indeed a newspaper of general circulation, as required by law. It was In 1999, respondent Equitable PCI Bank extended a P30-million credit line to
shown that the Oriental Daily Examineris not even on the list of newspapers Camden Industries, Inc. (CII) allowing the latter to avail of several loans (covered by
accredited to publish legal notices, as recorded in the Davao RTC’s Office of the promissory notes) and to purchase trust receipts. To facilitate collection, CII
executed a "hold-out" agreement in favor of respondent authorizing it to deduct Respondent filed a notice of appeal. CII, on the other hand, moved for the
from its savings account any amounts due. To guarantee payment, petitioner GC immediate entry and execution of the abovementioned decision.
Dalton Industries, Inc. executed a third-party mortgage of its real properties in
Quezon City1 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 fees. It likewise found
CII did not pay its obligations despite respondent's demands. By 2003, its respondent guilty of forum-shopping for filing the petition for the issuance of a writ
outstanding consolidated promissory notes and unpaid trust receipts had reached a of possession in the Bulacan RTC. Thus, the Pasig RTC ordered the immediate entry
staggering P68,149,132.40.4 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 on May respondent's ex parte motion for the issuance of a writ of possession in the Bulacan
7, 2004.5 On August 3, 2004, the mortgaged properties were sold at a public RTC. It claimed that respondent was guilty of fraud and forum-shopping, and that it
auction where respondent was declared the highest bidder. Consequently, a was not informed of the foreclosure. Furthermore, respondent fraudulently
certificate of sale6 was issued in respondent's favor on August 3, 2004. foreclosed on the properties since the Pasig RTC had not yet determined whether
CII indeed failed to pay its obligations.
On September 13, 2004, respondent filed the certificate of sale and an affidavit of
consolidation of ownership 7 in the Register of Deeds of Bulacan pursuant to Section In an order dated December 10, 2005, the Bulacan RTC granted the motion and a
47 of the General Banking Law. 8 Hence, petitioner's TCTs covering the Bulacan writ of possession was issued in respondent's favor on December 19, 2005.
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
In view of the foregoing, respondent filed an ex parte motion for the issuance of a via a petition for certiorari in the Court of Appeals (CA). It claimed that the order
writ of possession10 in the RTC Bulacan, Branch 10 on January 10, 2005. 11 violated Section 14, Article VIII of the Constitution 17 which requires that every
decision must clearly and distinctly state its factual and legal bases. In a resolution
Previously, however, on August 4, 2004, CII had filed an action for specific dated January 13, 2006,18 the CA dismissed the petition for lack of merit on the
performance and damages12 in the RTC of Pasig, Branch 71 (Pasig RTC), asserting ground that an order involving the issuance of a writ of possession is not a
that it had allegedly paid its obligation in full to respondent. 13 CII sought to compel judgment on the merits, hence, not covered by the requirement of Section 14,
respondent to render an accounting in order to prove that the bank fraudulently Article VIII of the Constitution.
foreclosed on petitioner's mortgaged properties.
Petitioner elevated the matter to this Court, assailing the January 13, 2006
Because respondent allegedly failed to appear during the trial, the Pasig RTC resolution of the CA. It insists that the December 10, 2005 order of the Bulacan RTC
rendered a decision on March 30, 2005 14 based on the evidence presented by CII. It was void as it was bereft of factual and legal bases.
found that, while CII's past due obligation amounted only to P14,426,485.66 as of
November 30, 2002, respondent had deducted a total of P108,563,388.06 from Petitioner likewise cites the conflict between the December 10, 2005 order of the
CII's savings account. Thus, the Pasig RTC ordered respondent: (1) to return to CII Bulacan RTC and the December 7, 2005 order of the Pasig RTC. Petitioner claims
the "overpayment" with legal interest of 12% per annum amounting that, since the Pasig RTC already ordered the entry of its March 30, 2005 decision
to P94,136,902.40; (2) to compensate it for lost profits amounting to P2,000,000 (in turn ordering respondent to return TCT No. 351231 and all such other owner's
per month starting August 2004 with legal interest of 12% per annum until full documents of title as may have been placed in its possession by virtue of the
payment and (3) to return the TCTs covering the mortgaged properties to subject trust receipt and loan transactions), the same was already final and
petitioner. It likewise awarded CII P2,000,000 and P300,000, respectively, as moral executory. Thus, inasmuch as CII had supposedly paid respondent in full, it was
and exemplary damages and P500,000 as attorney's fees.
erroneous for the Bulacan RTC to order the issuance of a writ of possession to annul the August 3, 2004 auction sale and to cancel the December 19, 2005 writ of
respondent. possession,26 within 30 days after respondent was given possession. 27 But it did not.
Thus, inasmuch as the 30-day period to avail of the said remedy had already lapsed,
Respondent, on the other hand, asserts that petitioner is raising a question of fact petitioner could no longer assail the validity of the August 3, 2004 sale.
as it essentially assails the propriety of the issuance of the writ of possession. It
likewise points out that petitioner did not truthfully disclose the status of the Any question regarding the validity of the mortgage or its foreclosure cannot be a
March 30, 2005 decision of the Pasig RTC because, in an order dated April 4, 2006, legal ground for the refusal to issue a writ of possession. Regardless of whether or
the Pasig RTC partially reconsidered its December 7, 2005 order and gave due not there is a pending suit for the annulment of the mortgage or the foreclosure
course to respondent's notice of appeal. (The propriety of the said April 4, 2006 itself, the purchaser is entitled to a writ of possession, without prejudice, of course,
order is still pending review in the CA.) to the eventual outcome of the pending annulment case. 28

We deny the petition. Needless to say, petitioner committed a misstep by completely relying and pinning
all its hopes for relief on its complaint for specific performance and damages in the
The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is Pasig RTC,29 instead of resorting to the remedy of annulment (of the auction sale
summary and ministerial in nature as such proceeding is merely an incident in the and writ of possession) under Section 8 of Act 3135 in the Bulacan RTC.
transfer of title.19 The trial court does not exercise discretion in the issuance
thereof.20 For this reason, an order for the issuance of a writ of possession is not WHEREFORE, the petition is hereby DENIED.
the judgment on the merits contemplated by Section 14, Article VIII of the
Constitution. Hence, the CA correctly upheld the December 10, 2005 order of the Costs against petitioner.
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 Republic of the Philippines
period,23 respondent became the owner of the foreclosed properties. 24 Therefore, SUPREME COURT
when petitioner opposed the ex parte  motion for the issuance of the writ of Manila
possession on January 10, 2005 in the Bulacan RTC, it no longer had any legal FIRST DIVISION
interest in the Bulacan properties. G.R. No. 187987               November 26, 2014
VICENTE TORRES, JR., CARLOS VELEZ, AND THE HEIRS OF MARIANO VELEZ,
Nevertheless, even if the ownership of the Bulacan properties had already been NAMELY: ANITA CHIONG VELEZ, ROBERT OSCAR CHIONG VELEZ, SARAH JEAN
consolidated in the name of respondent, petitioner still had, and could have availed CHIONG VELEZ AND TED CHIONG VELEZ, Petitioners,
of, the remedy provided in Section 8 of Act 3135. 25 It could have filed a petition to
 vs. Answering the allegations, Jesus admitted that there was a partition case between
LORENZO LAPINID AND JESUS VELEZ, Respondents. him and the petitioners filed in 1993 involvingseveral parcels of land including the
DECISION contested Lot No. 4389. However, he insisted that as early as 6 November 1997, a
PEREZ, J.: 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
This is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court filed Jesus and the other lots be divided to the other co-owners belonging to the group
by the petitioners assailing the 30 January 2009 Decision 2 and 14 May 2009 of Torres. Jesus further alleged that even prior to the partition and motion, several
Resolution3 of the Twentieth Division of the Corni of Appeals in CA-G.R. CV No. coowners in his group had already sold their shares to him in various dates of 1985,
02390, affirming the 15 October 2007 Decision 4 of the Regional Trial Court of Cebu 1990 and 2004.9 Thus, when the motion was filed and signed by the parties on 6
City (RTC Cebu City) which dismissed the complaint for the declaration of nullity of November 1997, his rights asa majority co-owner (73%) of Lot No. 4389 became
deed of sale against respondent Lorenzo Lapinid (Lapinid). consolidated. Jesus averred that it was unnecessary to give notice of the sale as the
lot was already adjudicated in his favor. He clarified that he only agreed with the
2001 Compromise Agreement believing that it only pertained to the remaining
The facts as reviewed are the following:
parcels of land excluding Lot No. 4389.10

On 4 February 2006, Vicente V. Torres, Jr. (Vicente), Mariano Velez (Mariano) 5 and
On his part, Lapinid admitted that a deed of sale was entered into between him
Carlos Velez (petitioners) filed a Complaint 6 before RTC Cebu City praying for the
and Jesus pertaining to a parcel of land with an area of 3000 square meters.
nullification of the sale of real property by respondent Jesus Velez (Jesus) in favor
However, he insistedon the validity of sale since Jesus showed him several deeds of
of Lapinid; the recovery of possession and ownership of the property; and the
sale making him a majority owner of Lot No. 4389. He further denied that he
payment of damages.
acquired a specific and definite portion of the questioned property, citing as
evidence the deed of sale which does not mention any boundaries or specific
Petitioners alleged in their complaint that they, including Jesus, are co-owners of portion. He explained that Jesus permitted him to occupy a portion notexceeding
several parcels of land including the disputed Lot. No. 4389 7 located at Cogon, 3000 square meters conditioned on the result of the partition of the co-owners. 11
Carcar, Cebu. Sometime in 1993, Jesus filed an action for partition of the parcels of
land against the petitioners and other co-owners before Branch 21 of RTC Cebu
Regarding the forcible entry case, Jesus and Lapinid admitted that such case was
City. On 13 August 2001, a judgment was rendered based on a compromise
filed but the same was already dismissed by the Municipal Trial Court of Carcar,
agreement signed by the parties wherein they agreed that Jesus, Mariano and
Cebu. In that decision, it was ruled that the buyers, including Lapinid, were buyers
Vicente were jointly authorized to sell the said properties and receive the proceeds
in good faith since a proof of ownership was shown to them by Jesus before buying
thereof and distribute them to all the co-owners. However, the agreement was
the property.12
later amended to exclude Jesus as an authorized seller. Pursuant totheir mandate,
the petitioners inspected the property and discovered that Lapinid was occupying a
specific portion of the 3000 square meters of Lot No. 4389 by virtue of a deed of On 15 October 2007, the trial court dismissed the complaint of petitioners in this
sale executed by Jesus in favor of Lapinid. It was pointed out by petitioner that as a wise: Therefore, the Court DISMISSES the Complaint. At the same time, the Court
consequence of what they discovered, a forcible entry case was filed against NULLIFIES the site assignment made by Jesus Velez in the Deed of Sale, dated
Lapinid. November 9, 1997, of Lorenzo Lapinid’s portion, the exact location of which still
has to be determined either by agreement of the co-owners or by the Court in
proper proceedings.13
The petitioners prayed that the deed of sale be declared null and void arguing that
the sale of a definite portion of a co-owned property without notice to the other
co-owners is without force and effect. Further, the complainants prayed for Aggrieved, petitioners filed their partial motion for reconsideration which was
payment of rental fees amounting to ₱1,000.00 per month from January 2004 or denied through a 26 November 2007 Order of the court. 14 Thereafter, they filed a
from the time of deprivation of property in addition to attorney’s fees and litigation notice of appeal on 10 December 2007.15
expenses.
On 30 January 2009, the Court of Appeals affirmed 16 the decision of the trial court. In this case, Jesus can validly alienate his co-owned property in favor of Lapinid,
It validated the sale and ruled that the compromise agreement did not affect the free from any opposition from the co-owners. Lapinid, as a transferee, validly
validity of the sale previously executed by Jesus and Lapinid. It likewise dismissed obtained the same rights of Jesus from the date of the execution of a valid sale.
the claim for rental payments, attorney’s fees and litigation expenses of the Absent any proof that the sale was not perfected, the validity of sale subsists. In
petitioners. essence, Lapinid steps into the shoes of Jesus as co-owner of an ideal and
proportionate share in the property held in common. 20 Thus, from the perfection of
Upon appeal before this Court, the petitioners echo the same arguments posited contract on 9 November 1997, Lapinid eventually became a co-owner of the
before the lower courts. They argue that Lapinid, as the successor-in-interest of property.
Jesus, is also bound by the 2001 judgment based on compromise stating that the
parcels of land must be sold jointly by Jesus, Mariano and Vicente and the proceeds Even assuming that the petitioners are correct in their allegation that the
of the sale be divided among the coowners. To further strengthen their contention, disposition in favor of Lapinid before partition was a concrete or definite portion,
they advance the argument that since the portion sold was a definite and specific the validity of sale still prevails.
portion of a co-owned property, the entire deed of sale must be declared null and
void. In a catena of decisions,21 the Supreme Court had repeatedly held that no individual
can claim title to a definite or concrete portion before partition of co-owned
We deny the petition. property. Each co-owner only possesses a right to sell or alienate his ideal share
after partition. However, in case he disposes his share before partition, such
Admittedly, Jesus sold an area ofland to Lapinid on 9 November 1997. To simplify, disposition does not make the sale or alienation null and void. What will be
the question now iswhether Jesus, as a co-owner, can validly sell a portion of the affected on the sale is only his proportionate share, subject to the results of the
property heco-owns in favor of another person. We answer in the affirmative. partition. The co-owners who did not give their consent to the sale stand to be
unaffected by the alienation.22
A co-owner has an absolute ownership of his undivided and proindiviso share in the
co-owned property.17 He has the right to alienate, assign and mortgage it, even to As explained in Spouses Del Campo v. Court of Appeals:23
the extent of substituting a third person in its enjoyment provided that no personal
rightswill be affected. This is evident from the provision of the Civil Code: We are not unaware of the principle that a co-owner cannot rightfully dispose of a
particular portion of a co-owned property prior to partition among all the co-
Art. 493. Each co-owner shall have the full ownership of his part and of the fruits owners. However, this should not signify that the vendee does not acquire anything
and benefits pertaining thereto, and he may therefore alienate, assign or mortgage atall in case a physically segregated area of the co-owned lot is in fact sold to him.
it, and even substitute another person in its enjoyment, except when personal Since the coowner/vendor’s undivided interest could properly be the object of the
rights are involved. But the effect of the alienation or the mortgage, with respect to contract of sale between the parties, what the vendee obtains by virtue of such a
the co-owners, shall be limited to the portion which may be allotted to him in the sale are the same rights as the vendor had asco-owner, in an ideal share equivalent
division upon the termination of the co-ownership. to the consideration given under their transaction. In other words, the vendee
steps into the shoes of the vendor as co-owner and acquires a proportionate
abstract share in the property held in common. 24
A co-owner is an owner of the whole and over the whole he exercises the right of
dominion, but he is at the same time the owner of a portion which is truly
abstract.18 Hence, his co-owners have no right to enjoin a coowner who intends to Also worth noting is the pronouncement in Lopez v. Vda. De Cuaycong: 25
alienate or substitute his abstract portion or substitute a third person in its
enjoyment.19 x x x The fact that the agreement in question purported to sell a concrete portionof
the hacienda does not render the sale void, for it is a wellestablished principle that
the binding force of a contract must be recognized as far as it is legally possible to
do so. "Quando res non valet ut ago, valeat quantumvalere potest." (When a thing We find unacceptable the argument that Lapinid must pay rental payments to the
is of no force as I do it, it shall have as much force as it can have). 26 (Italics theirs). other co-owners.1âwphi1

Consequently, whether the disposition involves an abstract or concrete portion of As previously discussed, Lapinid,from the execution of sale, became a co-owner
the co-owned property, the sale remains validly executed. vested with rights to enjoy the property held in common.

The validity of sale being settled,it follows that the subsequent compromise Clearly specified in the Civil Code are the following rights:
agreement between the other co-owners did not affect the rights of Lapinid as a
co-owner. Art. 486. Each co-owner may use the thing owned in common, provided he does so
in accordance with the purpose for which it is intended and in such a way as not to
Records show that on 13 August 2001, a judgment based on compromise injure the interest of the co-ownership or prevent the other co-owners from using
agreement was rendered with regard to the previous partition case involving the it according to their rights. The purpose of the co-ownership may be changed by
same parties pertaining to several parcels of land, including the disputed lot. The agreement, express or implied.
words of the compromise state that: COME NOW[,] the parties and to this
Honorable Court, most respectfully state that instead of partitioning the properties, Art. 493. Each co-owner shall havethe full ownership of his part and of the fruits
subject matter of litigation, that they will just sell the properties covered by TCT and benefits pertaining thereto, and he may therefore alienate, assign or mortgage
Nos. 25796, 25797 and 25798 of the Register of Deeds of the Province of Cebu and it and even substitute another person in its enjoyment, except when personal
divide the proceeds among themselves. rightsare involved. But the effect of the alienation or mortgage, with respect to the
co-owners, shall be limited to the portion which may be allotted to him in the
That Jesus Velez, Mariano Velez and Vicente Torres, Jr. are currently authorized to division upon the termination of the co-ownership.
sell said properties, receive the proceeds thereof and distribute them to the
parties.27 Affirming these rights, the Court held in Aguilar v. Court of Appeals that: 30

Be that as it may, the compromise agreement failed to defeat the already accrued x x x Each co-owner of property heldpro indivisoexercises his rights over the whole
right of ownership of Lapinid over the share sold by Jesus. As early as 9 November property and may use and enjoy the same with no other limitation than that he
1997, Lapinid already became a co-owner of the property and thus, vested with all shall not injure the interests of his co-owners, the reason being that until a division
the rights enjoyed by the other co-owners. The judgment based on the is made, the respective share of each cannot be determined and every co-
compromise agreement, which is to have the covered properties sold, is valid and ownerexercises, together with his coparticipants joint ownership over the pro
effectual provided as it does not affect the proportionate share of the non- indiviso property, in addition to his use and enjoyment of the same. 31 From the
consenting party. Accordingly, when the compromise agreement was executed foregoing, it is absurd to rule that Lapinid, who is already a co-owner, be ordered to
without Lapinid’s consent, said agreement could not have affected his ideal and pay rental payments to his other co-owners. Lapinid’s right of enjoyment over the
undivided share. Petitioners cannot sell Lapinid’s share absent his consent. Nemo property owned in common must be respected despite opposition and may notbe
dat quod non habet – "no one can give what he does not have."28 limited as long he uses the property to the purpose for which it isintended and he
does not injure the interest of the co-ownership.
This Court has ruled in many cases that even if a co-owner sells the whole property
as his, the sale will affect only his own share but not those of the other co-owners Finally, we find no error on denial of attorney’s fees and litigation expenses.
who did not consent tothe sale. This is because the sale or other disposition of a co-
owner affects only his undivided share and the transferee gets only what would
Pursuant to Article 2208 of the New Civil Code, attorney’s fees and expenses of
correspond to his grantor in the partition of the thing owned in common. 29
litigation, in the absence of stipulation, are awarded only in the following instances:
xxxx 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
1. When exemplary damages are awarded; AFFIRMED.

2. When the defendant’s act or omission has compelled the plaintiff to SO ORDERED.
litigate with third persons or to incur expenses to protect his interests;

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. SECOND DIVISION
 [G.R. NO. 153802. March 11, 2005] In the meantime, Marcelino Dailo, Jr. died on December 20, 1995. In one of her
HOMEOWNERS SAVINGS & LOAN BANK, Petitioner, v. MIGUELA C. visits to the subject property, respondent learned that petitioner had already
DAILO, Respondents. employed a certain Roldan Brion to clean its premises and that her car, a Ford
DECISION sedan, was razed because Brion allowed a boy to play with fire within the premises.
TINGA, J.:
Claiming that she had no knowledge of the mortgage constituted on the subject
This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of property, which was conjugal in nature, respondent instituted with the Regional
Court, assailing the Decision1 of the Court of Appeals in CA-G.R. CV No. 59986 Trial Court, Branch 29, San Pablo City, Civil Case No. SP-2222 (97) for Nullity of Real
rendered on June 3, 2002, which affirmed with modification the October 18, Estate Mortgage and Certificate of Sale, Affidavit of Consolidation of Ownership,
1997 Decision2 of the Regional Trial Court, Branch 29, San Pablo City, Laguna in Civil Deed of Sale, Reconveyance with Prayer for Preliminary Injunction and
Case No. SP-4748 (97). Damages against petitioner. In the latter's Answer with Counterclaim, petitioner
prayed for the dismissal of the complaint on the ground that the property in
The following factual antecedents are undisputed. question was the exclusive property of the late Marcelino Dailo, Jr.

Respondent Miguela C. Dailo and Marcelino Dailo, Jr. were married on August 8, After trial on the merits, the trial court rendered a Decision on October 18, 1997.
1967. During their marriage, the spouses purchased a house and lot situated at The dispositive portion thereof reads as follows:
Barangay San Francisco, San Pablo City from a certain Sandra Dalida. The subject
property was declared for tax assessment purposes under Assessment of Real WHEREFORE, the plaintiff having proved by the preponderance of evidence the
Property No. 94-051-2802. The Deed of Absolute Sale, however, was executed only allegations of the Complaint, the Court finds for the plaintiff and hereby orders:
in favor of the late Marcelino Dailo, Jr. as vendee thereof to the exclusion of his
wife.3
ON THE FIRST CAUSE OF ACTION:

On December 1, 1993, Marcelino Dailo, Jr. executed a Special Power of Attorney

1. The declaration of the following documents as null and void:
(SPA) in favor of one Lilibeth Gesmundo, authorizing the latter to obtain a loan
from petitioner Homeowners Savings and Loan Bank to be secured by the spouses
Dailo's house and lot in San Pablo City. Pursuant to the SPA, Gesmundo obtained a (a) The Deed of Real Estate Mortgage dated December 1, 1993 executed before
loan in the amount of P300,000.00 from petitioner. As security therefor, Gesmundo Notary Public Romulo Urrea and his notarial register entered as Doc. No. 212; Page
executed on the same day a Real Estate Mortgage constituted on the subject No. 44, Book No. XXI, Series of 1993.
property in favor of petitioner. The abovementioned transactions, including the
execution of the SPA in favor of Gesmundo, took place without the knowledge and (b) The Certificate of Sale executed by Notary Public Reynaldo Alcantara on April
consent of respondent. 4 20, 1995.

Upon maturity, the loan remained outstanding. As a result, petitioner instituted (c) The Affidavit of Consolidation of Ownership executed by the defendant
extrajudicial foreclosure proceedings on the mortgaged property. After the
extrajudicial sale thereof, a Certificate of Sale was issued in favor of petitioner as (c) The Affidavit of Consolidation of Ownership executed by the defendant over the
the highest bidder. After the lapse of one year without the property being residential lot located at Brgy. San Francisco, San Pablo City, covered by ARP No.
redeemed, petitioner, through its vice-president, consolidated the ownership 95-091-1236 entered as Doc. No. 406; Page No. 83, Book No. III, Series of 1996 of
thereof by executing on June 6, 1996 an Affidavit of Consolidation of Ownership Notary Public Octavio M. Zayas.
and a Deed of Absolute Sale.5
(d) The assessment of real property No. 95-051-1236.
2. The defendant is ordered to reconvey the property subject of this complaint to 2. WHETHER OR NOT THE CONJUGAL PARTNERSHIP IS LIABLE FOR THE PAYMENT
the plaintiff. OF THE LOAN OBTAINED BY THE LATE MARCELINO DAILO, JR. THE SAME HAVING
REDOUNDED TO THE BENEFIT OF THE FAMILY.11
ON THE SECOND CAUSE OF ACTION
First, petitioner takes issue with the legal provision applicable to the factual milieu
1. The defendant to pay the plaintiff the sum of P40,000.00 representing the value of this case. It contends that Article 124 of the Family Code should be construed in
of the car which was burned. 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 fruits
and benefits pertaining thereto, and he may therefore alienate, assign or mortgage
it, and even substitute another person in its enjoyment, except when personal
1. The defendant to pay the plaintiff the sum of P25,000.00 as attorney's fees;
rights are involved. But the effect of the alienation or the mortgage, with respect to
2. The defendant to pay plaintiff P25,000.00 as moral damages;
the co-owners, shall be limited to the portion which may be allotted to him in the
3. The defendant to pay the plaintiff the sum of P10,000.00 as exemplary damages;
division upon the termination of the co-ownership.
4. To pay the cost of the suit.

Article 124 of the Family Code provides in part:

The counterclaim is dismissed.

ART. 124. The administration and enjoyment of the conjugal partnership property
SO ORDERED.6
shall belong to both spouses jointly. . . .

Upon elevation of the case to the Court of Appeals, the appellate court affirmed
In the event that one spouse is incapacitated or otherwise unable to participate in
the trial court's finding that the subject property was conjugal in nature, in the
the administration of the conjugal properties, the other spouse may assume sole
absence of clear and convincing evidence to rebut the presumption that the
powers of administration. These powers do not include the powers of disposition
subject property acquired during the marriage of spouses Dailo belongs to their
or encumbrance which must have the authority of the court or the written consent
conjugal partnership.7 The appellate court declared as void the mortgage on the
of the other spouse. In the absence of such authority or consent, the disposition or
subject property because it was constituted without the knowledge and consent of
encumbrance shall be void. . . .
respondent, in accordance with Article 124 of the Family Code. Thus, it upheld the
trial court's order to reconvey the subject property to respondent. 8 With respect to
the damage to respondent's car, the appellate court found petitioner to be liable Petitioner argues that although Article 124 of the Family Code requires the consent
therefor because it is responsible for the consequences of the acts or omissions of of the other spouse to the mortgage of conjugal properties, the framers of the law
the person it hired to accomplish the assigned task. 9 All told, the appellate court could not have intended to curtail the right of a spouse from exercising full
affirmed the trial court's Decision, but deleted the award for damages and ownership over the portion of the conjugal property pertaining to him under the
attorney's fees for lack of basis.10 concept of co-ownership. 12 Thus, petitioner would have this Court uphold the
validity of the mortgage to the extent of the late Marcelino Dailo, Jr.'s share in the
conjugal partnership.
Hence, this petition, raising the following issues for this Court's consideration:

In Guiang v. Court of Appeals,13 it was held that the sale of a conjugal property
1. WHETHER OR NOT THE MORTGAGE CONSTITUTED BY THE LATE MARCELINO
requires the consent of both the husband and wife. 14 In applying Article 124 of the
DAILO, JR. ON THE SUBJECT PROPERTY AS CO-OWNER THEREOF IS VALID AS TO HIS
Family Code, this Court declared that the absence of the consent of one renders
UNDIVIDED SHARE.
the entire sale null and void, including the portion of the conjugal property
pertaining to the husband who contracted the sale. The same principle
in Guiang squarely applies to the instant case. As shall be discussed next, there is Second, petitioner imposes the liability for the payment of the principal obligation
no legal basis to construe Article 493 of the Civil Code as an exception to Article obtained by the late Marcelino Dailo, Jr. on the conjugal partnership to the extent
124 of the Family Code. that it redounded to the benefit of the family.21

Respondent and the late Marcelino Dailo, Jr. were married on August 8, 1967. In Under Article 121 of the Family Code, "[T]he conjugal partnership shall be liable for:
the absence of a marriage settlement, the system of relative community or . . . (3) Debts and obligations contracted by either spouse without the consent of
conjugal partnership of gains governed the property relations between respondent the other to the extent that the family may have been benefited; . . . ." For the
and her late husband.15 With the effectivity of the Family Code on August 3, 1988, subject property to be held liable, the obligation contracted by the late Marcelino
Chapter 4 on Conjugal Partnership of Gains in the Family Code was made applicable Dailo, Jr. must have redounded to the benefit of the conjugal partnership. There
to conjugal partnership of gains already established before its effectivity unless must be the requisite showing then of some advantage which clearly accrued to
vested rights have already been acquired under the Civil Code or other laws. 16 the welfare of the spouses. Certainly, to make a conjugal partnership respond for a
liability that should appertain to the husband alone is to defeat and frustrate the
The rules on co-ownership do not even apply to the property relations of avowed objective of the new Civil Code to show the utmost concern for the
respondent and the late Marcelino Dailo, Jr. even in a suppletory manner. The solidarity and well-being of the family as a unit.22
regime of conjugal partnership of gains is a special type of partnership, where the
husband and wife place in a common fund the proceeds, products, fruits and The burden of proof that the debt was contracted for the benefit of the conjugal
income from their separate properties and those acquired by either or both partnership of gains lies with the creditor-party litigant claiming as such. 23 Ei
spouses through their efforts or by chance. 17 Unlike the absolute community of incumbit probatio qui dicit, non qui negat (he who asserts, not he who denies, must
property wherein the rules on co-ownership apply in a suppletory manner, 18 the prove).24 Petitioner's sweeping conclusion that the loan obtained by the late
conjugal partnership shall be governed by the rules on contract of partnership in all Marcelino Dailo, Jr. to finance the construction of housing units without a doubt
that is not in conflict with what is expressly determined in the chapter (on conjugal redounded to the benefit of his family, without adducing adequate proof, does not
partnership of gains) or by the spouses in their marriage settlements. 19 Thus, the persuade this Court. Other than petitioner's bare allegation, there is nothing from
property relations of respondent and her late husband shall be governed, the records of the case to compel a finding that, indeed, the loan obtained by the
foremost, by Chapter 4 on Conjugal Partnership of Gains of the Family Code and, late Marcelino Dailo, Jr. redounded to the benefit of the family. Consequently, the
suppletorily, by the rules on partnership under the Civil Code. In case of conflict, conjugal partnership cannot be held liable for the payment of the principal
the former prevails because the Civil Code provisions on partnership apply only obligation.
when the Family Code is silent on the matter.
In addition, a perusal of the records of the case reveals that during the trial,
The basic and established fact is that during his lifetime, without the knowledge petitioner vigorously asserted that the subject property was the exclusive property
and consent of his wife, Marcelino Dailo, Jr. constituted a real estate mortgage on of the late Marcelino Dailo, Jr. Nowhere in the answer filed with the trial court was
the subject property, which formed part of their conjugal partnership. By express it alleged that the proceeds of the loan redounded to the benefit of the family.
provision of Article 124 of the Family Code, in the absence of (court) authority or Even on appeal, petitioner never claimed that the family benefited from the
written consent of the other spouse, any disposition or encumbrance of the proceeds of the loan. When a party adopts a certain theory in the court below, he
conjugal property shall be void. will not be permitted to change his theory on appeal, for to permit him to do so
would not only be unfair to the other party but it would also be offensive to the
The aforequoted provision does not qualify with respect to the share of the spouse basic rules of fair play, justice and due process. 25 A party may change his legal
who makes the disposition or encumbrance in the same manner that the rule on theory on appeal only when the factual bases thereof would not require
co-ownership under Article 493 of the Civil Code does. Where the law does not presentation of any further evidence by the adverse party in order to enable it to
distinguish, courts should not distinguish. 20 Thus, both the trial court and the properly meet the issue raised in the new theory. 26 WHEREFORE, the petition is
appellate court are correct in declaring the nullity of the real estate mortgage on DENIED. Costs against petitioner. SO ORDERED.
the subject property for lack of respondent's consent.
 SECOND DIVISION enforcement of all claims against La Savoie. The entirety of this Order
G.R. No. 168616, January 28, 2015 reads:chanroblesvirtuallawlibrary
HOME GUARANTY CORPORATION, Petitioner, v. LA SAVOIE DEVELOPMENT
CORPORATION, Respondent. ORDER
DECISION
LEONEN, J.: 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
This is a Petition for Review on Certiorari praying that the assailed Decision 1 dated court action or otherwise, against petitioner La Savoie Development Corporation,
June 21, 2005 of the Court of Appeals in CA G.R. CV No. 80241 be reversed and set its guarantors and sureties not solidarily liable with it, is stayed.
aside. In the alternative, it prays that certain properties supposedly conveyed by
respondent La Savoie Development Corporation to petitioner Home Guaranty As a consequence of the stay order, petitioner is prohibited from selling,
Corporation2 be excluded from the rehabilitation plan of La Savoie Development encumbering, transferring, or disposing in any manner any of its properties except
Corporation, should its Petition for Corporate Rehabilitation be given due course. in the ordinary course of business. It is further prohibited from making any
payment of its liabilities outstanding as of the date of the filing of the petition on
The assailed Decision of the Court of Appeals reversed and set aside the April 25, 2003. Its suppliers of goods or services are likewise prohibited from
Order3 dated October 1, 2003 of the Regional Trial Court, Makati City, reinstated withholding supply of goods and services in the ordinary course of business for as
the Stay Order issued by the Regional Trial Court on June 4, 2003, gave due course long as it makes payments for the services and goods supplied after the issuance of
to La Savoie's Petition for Corporate Rehabilitation, and remanded the case to the the stay order.
Regional Trial Court for further proceedings. 4 The Regional Trial Court's June 4,
2003 Stay Order stayed the enforcement of all claims, monetary or otherwise, and Petitioner is directed to pay in full all administrative expenses incurred after the
whether in court or otherwise, against La Savoie Development Corporation. issuance of the stay order.

La Savoie Development Corporation (La Savoie) is a domestic corporation The initial hearing on the petition is set on July 22, 2003 at 8:30 o'clock in the
incorporated on April 2, 1990. It is engaged in the business of "real estate morning at the 3rd Floor, Gusali ng Katarungan, F. Zobel St., Makati City.
development, subdivision and brokering." 5
All creditors and interested parties including the Securities and Exchange
Commission are directed to file and serve on petitioner a verified comment on or
With the onset of the Asian financial crisis in 1997, the devaluation of the
opposition to the petition with supporting affidavits and documents, not later than
Philippine peso and due to other factors such as lack of working capital; high
ten (10) days before the date of the initial hearing. Failure to do so will bar them
interest rates, penalties, and charges; low demand for real estate properties; and
from participating in the proceedings. Copies of the petition and its annexes may
poor peace and order situations in some of its project sites, La Savoie found itself
be secured from the court within such time as to enable them to file their comment
unable to pay its obligations to its creditors. Thus, on April 25, 2003, La Savoie filed
on or opposition to the petition and to prepare for its initial hearing.
before the Regional Trial Court, Makati City 6 a "petition for the declaration of state
of suspension of payments with approval of proposed rehabilitation plan" 7 under
Petitioner is directed to publish this Order in a newspaper of general circulation in
the Interim Rules of Procedure on Corporate Rehabilitation 8 (Interim Rules).
the Philippines once'a week for two (2) consecutive weeks and to file to this Court
within five (5) days before the initial hearing the publisher's affidavit shewing
The proceedings before the Regional Trial Court were initially held in abeyance as
compliance with the publication requirements.
La Savoie failed to attach to its Petition some of the requirements under Rule 4,
Section 2 of the Interim Rules.9 With La Savoie's compliance and finding its
"petition to be sufficient in form and substance," 10 then Regional Trial Court Judge Mr. Rito C. Manzana with address at 26B One Lafayette Condominium cor. Leviste
Estela Perlas-Bernabe issued the Stay Order dated June 4, 2003 staying the and Cedeno Manor St., Salcedo Village, Makati City is appointed Rehabilitation
Receiver of Petitioner. He may discharge his duties and functions as such after
taking his oath to perform his duties and functions faithfully and posting a bond in
the amount of P100,000.00 to guarantee the faithful discharge of his duties and extended by Home Guaranty Corporation through a "Contract of
obedience to the orders of the court. Guaranty"20 entered into by Home Guaranty Corporation with La Savoie and
Planters Development Bank.
Petitioner is directed to immediately serve a copy of this Order to Mr. Manzana
who is directed to manifest his acceptance or non-acceptance of his appointment
not later than ten (10) days from receipt of this order. Section 17 of the Contract of Guaranty designates Home Guaranty Corporation to
"undertake financial controllerships of the Projects." 21 Thus, in its Opposition,
SO ORDERED. Home Guaranty Corporation noted that it was "charged with the duty of ensuring
that all funds due to the Asset Pool are collected, and that funds are disbursed for
Given this 4th day of June, 2003 at Makati City. the purposes they were intended for." 22

ESTELA PERLAS-BERNABE Home Guaranty Corporation added that in the course of its business, La Savoie
[sgd.] collected a total amount of P60,569,134.30 from the buyers of some of the
Judge11 properties covered by the Asset Pool. This amount, however, was not remitted by
La Savoie to the trust. With La Savoie's failure to complete some of its projects and
Following the issuance of the June 4, 2003 Stay Order, La Savoie's creditors — failure to remit sales collections, the Asset Pool defaulted in redeeming and paying
Planters Development Bank, Philippine Veterans Bank, and Robinsons Savings Bank interest on the LSDC certificates. Thus, La Savoie's investors placed a call on the
— filed their Comments and/or Oppositions. 12 guaranty.23 With La Savoie's failure to remit collections, however, Home Guaranty
Corporation held in abeyance the settlement of the investors' call. This settlement
Home Guaranty Corporation filed an Opposition 13 even though "it [was] not a was then overtaken by the filing of La Savoie's Petition for Rehabilitation. 24
creditor of Petitioner." 14 It asserted that it had a "material and beneficial interest in
the . . . Petition, in relation to the interest of Philippine Veterans Bank (PVB),
Planters Development Bank (PDB), and Land Bank of the Philippines (LBP), which Home Guaranty Corporation argued that it and the investors on the LSDC
are listed as creditors of Petitioner vis-a-vis certain properties or assets that might certificates had "preferential rights" 25 over the properties making up the Asset Pool
have been taken cognizance of, and placed under the custody of the [Regional as these "were conveyed as security or collaterals for the redemption of the [LSDC
Trial] Court and[/]or the appointed Rehabilitation Receiver." 15 certificates]."26 Thus, they should be excluded from the coverage of La Savoie's
Petition for Rehabilitation.

Home Guaranty Corporation noted that through the "La Savoie Asset Pool On September 1, 2003, La Savoie filed a Consolidated Answer 27 to the
Formation and Trust Agreement"16 (Trust Agreement), La Savoie obtained financing Comments/Oppositions. It argued that the assignment of assets to the Asset Pool
for some of its projects through a securitization process in which Planters was not absolute and subject to certain conditions. Specifically, it asserted that for
Development Bank as nominal issuer issued PI50 million in asset participation the assignment to take effect, Home Guaranty Corporation had to first pay the
certificates dubbed as the "La Savoie Development Certificates" 17 (LSDC holders of the LSDC certificates. Thus, La Savoie claimed that the properties
certificates) to be sold to investors. The projects financed by these certificates comprising the Asset Pool remained to be its assets. 28
consisted of the development of real properties in General Trias, Cavite; Sto.
Tomas, Batangas; Los Banos, Laguna; and Quezon City. The same properties were In the interim, a Verification Report on Accuracy of Petition was filed by the
conveyed in trust by La Savoie, as trustor, to Planters Development Bank, as Rehabilitation Receiver.29
trustee, and constituted into the La Savoie Asset Pool (Asset Pool). 18
On October 1, 2003, the Regional Trial Court issued an Order 30 denying due course
The redemption of the LSDC certificates upon maturity and the interest payments to La Savoie's Petition for Rehabilitation and lifting the June 4, 2003 Stay Order. The
on them were "backed/collateralized by the assets that were conveyed by [La trial court reasoned that the "findings of sufficiency in the form and substance of
Savoie] to the Trust." 19 Moreover, the LSDC certificates were covered by a guaranty the petition for which a stay order was issued has been flawed" 31 and that "[i]t
cannot countenance a situation such as this where the petitioner files a petition on "convincingly showed that it could undertake to market its projects through [the]
the basis of inaccurate or unverifiable allegations and false representations." 32 It Pag-Ibig Overseas Program, sell the existing inventories of unsold subdivision lots
noted that per the Rehabilitation Receiver's Report, there were "various and use the un-remitted collections due to HGC which will be converted as
inaccuracies in the material allegations of the petition and its annexes." 33 Several additional loan to fund its on-going projects." 45 Regarding Home Guaranty
documents "to verify other material statements made therein" were also Corporation's payment of the guaranty call, the Court of Appeals noted that it was
lacking.34 It added that La Savoie "has not presented any concrete and feasible plan made after the Petition for Rehabilitation had been brought by La Savoie and after
on how it will be able to secure additional funds to continue with the development the issuance of the Stay Order; thus, Home Guaranty Corporation had no right to
of its raw land and on-going joint-venture projects."35 make such payment.

On August 12, 2005, Home Guaranty Corporation filed before this court the present
Aggrieved, La Savoie filed an Appeal before the Court of Appeals. It filed its Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Appellant's Brief on May 5, 2004.36 Procedure.46

In the meantime, Home Guaranty Corporation approved and processed the call on Home Guaranty Corporation asserts 'that the properties comprising the Asset Pool
the guaranty for the redemption of the LSDC certificates. Thus, Home Guaranty should be excluded from the rehabilitation proceedings as these have now been
Corporation, through Planters Development Bank, paid a total of P128.5 million as "removed from the oominion"47 of La Savoie and have been conveyed and assigned
redemption value to certificate holders. Acting on this, Planters Development Bank to it. It underscores that the transfer made to it by Planters Development Bank was
executed a "Deed of Assignment and Conveyance" 37 in favor of Home Guaranty made after the Stay Order had been lifted, per the Regional Trial Court's October 1,
Corporation through which, in the words of Home Guaranty Corporation, Planters 2003 Order.
Development Bank "absolutely conveyed and assigned to [Home Guaranty
Corporation] the ownership and possession of the entire assets that formed part of On October 28, 2005, La Savoie filed its Comment. 48 It claimed that the supposed
the La Savoie Asset Pool."38 Home Guaranty Corporation claims, in addition, that, assignment and conveyance to Home Guaranty Corporation was ineffectual
through the same Deed, Planters Development Bank "absolutely conveyed and considering that "at the time of the guaranty call, the Stay Order dated 04 June
assigned to [Home Guaranty Corporation] the right to collect from [La Savoie] cash 2003 was admittedly in effect."49 La Savoie faulted Home Guaranty Corporation for
receivables . . . representing the amount collected by [La Savoie] from sales in the supposedly not adducing proof of the transfer effected to it by Planters
course of the development of the projects which it failed to remit to the Trust." 39 Development Bank on the strength of its payment on the guaranty. It added that,
even assuming there was full payment and that the Deed of Assignment and
On August 18, 2004, Home Guaranty Corporation filed its Appellee's Brief. 40 It Conveyance was executed, "the Subject Properties remained within the jurisdiction
argued that all of the properties comprising the Asset Pool should be excluded of the [Regional Trial Court] even after the lifting of the Stay Order dated 04 June
from the rehabilitation proceedings in view of the Deed of Assignment and 2003"50 and that, as a result, "any contract or document affecting title to the
Conveyance executed in its favor by Planters Development Bank. 41 Attached to this Subject Properties is also subject to the rehabilitation proceedings pending with
Brief was a copy of the Deed of Assignment and Conveyance. 42 the [trial court]."51 It also asserted that by paying the guaranty, Home Guaranty
Corporation effectively became its creditor. Excluding the properties comprising
the Asset Pool from the rehabilitation proceedings would then be tantamount to
In the Decision43 dated June 21, 2005, the Court of Appeals Special Twelfth Division giving preference to one creditor, something which is prohibited in rehabilitation
reversed and set aside the Regional Trial Court's October 1, 2003 Order, reinstated proceedings.
the Stay Order, gave due course to the Petition for Rehabilitation, and remanded
the case to the trial court for further proceedings.
Apart from these, La Savoie ascribes procedural infirmities against Home Guaranty
The Court of Appeals characterized the inaccuracies noted by the trial court as Corporation's Petition. First, it claimed that Atty. Danilo C. Javier, the officer who
"minor" and "trivial,"44 as well as insufficient to render as "false" the allegations signed the Petition's verification and certification of non-forum shopping was not
made by La Savoie in its Petition for Rehabilitation. It added that La Savoie
authorized to do so. Second, it claimed that Home Guaranty Corporation engaged
in forum shopping. Atty. Danilo C. Javier was authorized to sign the verification and certificate of non-
forum shopping on behalf of Home Guaranty Corporation.
On February 6, 2006, Home Guaranty Corporation filed its Reply to La Savoie's
Comment.52 In response to La Savoie's allegation that there was no proof of its As pointed out by Home Guaranty Corporation, its board of directors issued Board
payment of the redemption value of the LSDC certificates and the resultant transfer Resolution No. 30, Series of 2001, "specifically authorizing the President of
to it of the Asset Pool, Home Guaranty Corporation noted that the following petitioner to designate the officer to institute the appropriate legal actions[.]" 53 It
documents were already attached to its Appellee's Brief and were re-attached to its was pursuant to this resolution that Atty. Danilo C. Javier, Home Guaranty
Reply: the Deed of Assignment and Conveyance; the Trust Agreement; the Contract Corporation's then Officer-in-Charge and Vice President for Legal, was made
of Guaranty; and certificates of title covering each of the properties comprising the signatory to the present Petition's verification and Certification of non-forum
Asset Pool. shopping.

For resolution is the central issue of whether the properties comprising the Asset The relevant portion of this Resolution reads:
Pool should be excluded from the proceedings on La Savoie Development
Corporation's Petition for Rehabilitation. The resolution of this issue hinges on The request for authority for the HGC President, Executive Vice-President and Vice
whether the conveyance to Home Guaranty Corporation of the properties Presidents as the President may designate or authorize, to institute appropriate
comprising the Asset Pool was valid and effectual. The resolution of this is, in turn, legal actions as the President may deem proper or necessary to protect the interest
contingent on the following: of the corporation be, as it is hereby approved.

First, whether following the issuance of the Regional Trial Court's October 1, 2003 Resolved Further That, the said authority shall include but not be limited to, the
Order and pending La Savoie's Appeal, Home Guaranty Corporation was barred verification of Complaints, Petitions, Answer, Reply and other initiatory or
from making payment on the guaranty call, and Planters Development Bank, responsive pleadings as the circumstances may warrant. . . .54cralawlawlibrary
concomitantly barred from conveying the properties comprising the Asset Pool to II
Home Guaranty Corporation; and
La Savoie pointed out that (as of the time of the filing of its Comment) another case
Second, whether the payment by Home Guaranty Corporation and the conveyance between Home Guaranty Corporation and La Savoie, docketed as Civil Case No.
of the properties by Planters Development Bank made Home Guaranty Corporation 05314, was pending before the Makati City Regional Trial Court. 55
a creditor of La Savoie and whether recognizing the validity of the transfer made to
Home Guaranty Corporation was tantamount to giving it inordinate preference as a In its reply, Home Guaranty Corporation acknowledged the pendency of Civil Case
creditor. No. 05314. It, however, pointed out that it could not have been guilty of forum
shopping as the present case is an offshoot of a Petition for Corporate
Apart from these are the procedural errors ascribed by La Savoie to Home Rehabilitation while Civil Case No. 05314 is an action for injunction, mandamus,
Guaranty Corporation and thus the following issues: specific performance, and sum of money with application for temporary restraining
order and/or preliminary prohibitory and mandatory injunction. 56 Home Guaranty
First, whether Atty. Danilo C. Javier was authorized to sign the verification and Corporation claimed that it had to file Civil Case No. 05314 to compel La Savoie to
certificate of non-forum shopping of Home Guaranty Corporation's Petition; and remit to. it payments collected from the buyers of La Savoie's real estate
development projects and which La Savoie was supposedly wrongly withholding
Second, whether Home Guaranty Corporation engaged in forum shopping. from it considering that Home Guaranty Corporation was now the owner of the
properties comprising the Asset Pool.
I
Aboitiz Equity Ventures v. Chiongbian57 discussed forum shopping
The concept of and rationale against forum shopping were explained by this court It is not disputed that there is identity of parties in the present Petition and in Civil
in Top Rate Construction & General Services, Inc. v. Paxton Development Case No. 05314. Home Guaranty Corporation, however, argues that it could not
Corporation:58ChanRoblesVirtualawlibrary 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 funds collected by La
Savoie) is different from the relief it is seeking in the present Appeal from the Court
FORUM SHOPPING is committed by a party who institutes two or more suits in
of Appeals' Decision giving due course to La Savoie's Petition for Corporate
different courts, either simultaneously or successively, in order to ask the courts to
Rehabilitation.
rule on the same or related causes or to grant the same or substantially the same
reliefs, on the supposition that one or the other court would make a favorable
The divergence in specific reliefs sought notwithstanding, Home Guaranty
disposition or increase a party's chances of obtaining a favorable decision or action.
Corporation's bases for these reliefs are the same. In Civil Case No. 05314, Home
It is an act of malpractice for it trifles with the courts, abuses their processes,
Guaranty Corporation asked that La Savoie cease collecting payments and that
degrades the administration of justice and adds to the already congested court
collected payments be remitted to it because it supposedly now owns the real
dockets. What is critical is the vexation brought upon the courts and the litigants by
estate development projects of La Savoie that form part of the Asset Pool. In the
a party who asks different courts to rule on the same or related causes an.d grant
present Appeal, Home Guaranty Corporation asks that the properties forming part
the same or substantially the same reliefs and in the process creates the possibility
of the Asset Pool be excluded from corporate rehabilitation proceedings because
of conflicting decisions being rendered by the different fora upon the same issues,
it, and no longer La Savoie, is the owner of these properties.
regardless of whether the court in which one of the suits was brought has no
jurisdiction over the action.59cralawlawlibrary
Thus, in both cases, Home Guaranty Corporation is invoking the same right and is
Equally settled is the test for determining forum shopping. As this court explained proceeding from the same cause of action, i.e., its supposed ownership. True, there
in Yap v. Chua:60ChanRoblesVirtualawlibrary is divergence in the details of the specific reliefs it is seeking, but Home Guaranty
To determine whether a party violated the rule against forum shopping, the most Corporation is seeking the same basic relief, i.e., the recognition of its alleged
important factor to ask is whether the elements of litis pendentia are present, or ownership. The exclusion of the properties from corporate rehabilitation
whether a final judgment in one case will amount to res judicata in another; proceedings and the remittance to it of payments are mere incidents of this basic
otherwise stated, the test for determining forum shopping is whether in the two relief. Accordingly, in simultaneously pursuing the present case and Civil Case No.
(or more) cases pending, there is identity of parties, rights or causes of action, and 05314, Home Guaranty Corporation engaged in forum shopping.
reliefs sought.61cralawlawlibrary
Litis pendentia "refers to that situation wherein another action is pending between It is worth emphasizing that the present Petition or Appeal, being a mere offshoot
the same parties for the same cause of action, such that the second action of La Savoie's original Petition for Rehabilitation, is not the act constitutive of forum
becomes unnecessary and vexatious." 62 It requires the concurrence of three (3) shopping. Forum shopping was committed not through the filing of this Appeal but
requisites; "(1) the identity of parties, or at least such as representing the same through the filing of Civil Case No. 05314 before the Regional Trial Court. In any
interests in both actions; (2) the identity of rights asserted and relief prayed for, the case, apart from this procedural lapse, we find the transfer of the Asset Pool to
relief being founded on the same facts; and (3) the identity of the two cases such Home Guaranty Corporation, without going through foreclosure proceedings, to be
that judgment in one, regardless of which party is successful, would amount to res in violation of the rule against pactum commissorium. It is ineffectual and does not
judicata in the other."63 divest La Savoie of ownership. Thus, even if valid payment was made by Home
Guaranty Corporation on its guaranty, ownership of the properties comprising the
In turn, prior judgment or res judicata bars a subsequent case when the following Asset Pool was not vested in it. Accordingly, Home Guaranty Corporation must
requisites concur: "(1) the former judgment is final; (2) it is rendered by a court await the disposition of La Savoie's Petition for Rehabilitation in order that a
having jurisdiction over the subject matter and the parties; (3) it is a judgment or an resolution may be had on how La Savoie's obligations to it shall be settled.
order on the merits; (4) there is — between the first and the second actions —
identity of parties, of subject matter, and of causes of action." 64cralawlawlibrary III

A necessary step in resolving this Petition is a consideration of the parties and the
rights and obligations they have as against each other, as borne by the agreements real estate properties ... to the TRUSTEE for the present and future holders of
they entered into and which now bind them. LSDCs." The third preambular clause and Section 3.1 of the Trust Agreement read:

The Trust Agreement65 stated that La Savoie, as "landowner/developer," had WHEREAS, the LANDOWNER/DEVELOPER has agreed to convey the real estate
subdivision and housing projects in several areas that were collectively referred to properties of the PROJECT to a TRUSTEE to form the La Savoie Project (LSP) Asset
as the "La Savoie Project" or simply as the "Project." Its first preambular clause Pool which shall be held by the TRUSTEE for the pro rata and pro indiviso benefit of
reads: the holders of the LSDCs to the extent defined in this Agreement and, residually for
the benefit of the LANDOWNER/DEVELOPER;70
WHEREAS, the LANDOWNER/DEVELOPER, has subdivision and housing projects
located in San Rafael, Bulacan; Banlat, Quezon City; Gen. Trias, Cavite[;] Sto. Section 3.1. Establishment of Starting Asset Pool. The LANDOWNER/ DEVELOPER
Tomas, Batangas; and Los Bailos, Laguna, totalling 37 hectares, more or less, hereby establishes a trust, for purposes of this securitization and formation of the
collectively called the La Savoie Project (the PROJECT)[.] 66cralawlawlibrary corresponding Asset pool, out of the properties pertaining to the PROJECT
development and operation, and accordingly does hereby convey, assign and
On how the project was to be financed, the Trust Agreement added that "the
deliver all its rights and interests in the real estate properties identified and
development and implementation of the PROJECT [was to be] funded through the
described through their respective transfer certificates of title (TCTs) listed in
issuance and sale of asset participation certificates known as La Savoie
Annex B through B-1covering properties for Las Palmas Village in Sto. Tomas,
Development Certificates." Planters Development Bank was specified to be the
Batangas[;] Buenavista Park in San Rafael, Bulacan; Gen. Trias Homes in Gen. Trias,
"nominal issuer" of these certificates. The Trust Agreement's second and fourth
Cavite; and La Chesa Heights in Tandang Sora, Q.C.; Annex C through C-2 covering
preambular clauses as well as its Section 4.5 read:
properties for La Chesa Valley Estate owned by MHC Realty under a Joint-Venture
Agreement with [La Savoie Development Corporation]; Annex D covering
WHEREAS, the development and implementation of the PROJECT will be funded properties owned by Lenard Lopez under a Joint Venture Agreement with [La
through the issuance and sale of asset participation certificates known as La Savoie Savoie Development Corporation]; together with Annexes E and F the Joint Venture
Development Certificates (the LSDCs) backed by the asset pool consisting of said Agreements with MHC Realty Corporation and Lenard Lopez together with the
real estate properties and the products and results of their planned development; 67 Supplemental Agreements, attached as integral parts hereof, together with all
present and future improvements thereon and the corresponding muniments of
WHEREAS, the LANDOWNER/DEVELOPER has appointed the Planters Development ownership of the properties, subject to the reservations concerning the interests of
Bank as TRUSTEE and nominal issuer and Planters Development Bank through its joint-venturers defined hereunder, to the TRUSTEE for the benefit of the present
Trust Department has agreed to perform the functions and responsibilities of a and future holders of the LSDCs, in accordance with the terms and conditions
TRUSTEE as defined hereunder;68 provided herein. The reservations above-stated refer to the interests of the joint-
Section 4.5. Nominal Issuer. The TRUSTEE shall act as nominal issuer only of all venturers of the LANDOWNER/DEVELOPER as follows:.... 71cralawlawlibrary
LSDCs. In no case shall the TRUSTEE be liable for the payment of any amount due to Per the Trust Agreement's fourth preambular clause, Planters Development Bank
the holder of the LSDC. The TRUSTEE shall be free from any liability in the event was named trustee of the Asset Pool. The same clause specified that it held the
that the Asset Pool is not sufficient for the redemption of all the LSDCs. In the event Asset Pool "for the pro rata and pro indiviso benefit of the holders of the LSDCs . . .
of the nonpayment of the LSDC, the LSDC holder's exclusive recourse shall be to and, residually for the benefit of the [landowner/developer, i.e., La Savoie]."
claim against the HIGC guarantee. The TRUSTEE shall not be responsible for the Moreover, in Section 3.2 of the Trust Agreement:
failure of HIGC to pay any amount due to any holder of the LSDC. 69cralawlawlibrary
Section 3.2. Acceptance by the TRUSTEE. The TRUSTEE hereby acknowledges and
These LSDC certificates were "backed" or secured by "real estate properties and accepts the documents delivered by the LANDOWNER/DEVELOPER and signed for
the products and results of their planned development." More specifically, Section by the TRUSTEE and the property interests and rights conveyed in Section 3.1, as
3.1 of the Trust Agreement provides for the establishment of the Asset Pool in well as those which may from time to time be conveyed and intended to form part
which La Savoie "convey[ed], assign[ed], delivered] all its rights and interests in the of the Asset Pool, and declares that the said TRUSTEE holds and will hold the said
documents and assets, including properties and values yet to be received by it as
TRUSTEE under this Agreement, for the benefit of all present and future holders of guaranty for unredeemed LSDCs and in order to effect the redemption of the same
the LSDCs, as well as the ultimate owner(s) of the residual assets and values of the by the latter, to make the absolute conveyance to HIGC of the entire Asset Pool,
Asset Pool, all in accordance with the terms and conditions of this Trust subject to the reservations regarding joint-venturers [sic] interests as defined in
Agreement.72cralawlawlibrary Section 3.1, a and b above and subject further to the provision of the
aforementioned Contract of Guaranty. 75cralawlawlibrary
Apart from the Asset Pool, the LSDC certificates were also secured by a guaranty.
The guaranty was referenced in the Trust Agreement in the following This conveyance shall be on the strength of the special power of attorney executed
provisions:chanroblesvirtuallawlibrary by La Savoie in favor of Planters Development Bank, in accordance with Section
2.1.6 of the Trust Agreement:chanroblesvirtuallawlibrary
ARTICLE I Section 2.1. - The LANDOWNER/DEVELOPER shall:
DEFINITION OF TERMS 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 the full power
The following words and phrases used in this Agreement shall have the respective and authority to make the absolute conveyance of the entire LSP Asset Pool in
meanings hereunder indicated unless the contrary clearly appears from the favor of the HIGC in the event of call upon the HIGC guaranty for unredeemed
context:chanroblesvirtuallawlibrary LSDCs and in order to effect the redemption of the same by the HIGC in accordance
.... with the provisions of the Contract of Guaranty. 76cralawlawlibrary
In sum, these contractual provisions evince the following relations
4. Contract of Guaranty - shall refer to the Contract of Guaranty executed by and
among the TRUSTEE, HIGC and the LANDOWNER/DEVELOPER dated, a copy of
which is hereto attached as Annex A including any amendment/revision and 1. A trust relation, with respect to the Asset Pool, in which La
modification, thereof. Savoie is the trustor, Planters Development Bank is the trustee,
and the holders of the LSDC certificates are the beneficiaries;
....
2. A credit relation, with respect to the LSDC certificates, in which
6. Guarantor - shall refer to the Home Insurance and Guaranty Corporation La Savoie is the debtor (Planters Development Bank being a
(HIGC).73cralawlawlibrary mere nominal issuer), the holders of the LSDC certificates are
the creditors, and Home Guaranty Corporation is the guarantor.
.... (It will be recalled that Home Guaranty Corporation itself
acknowledged, in the Opposition it filed before the Regional
Section 2.4. The Home Insurance and Guaranty Corporation. The roles and Trial Court, that it was not a creditor of La Savoie.); and
responsibilities of the HIGC shall be as follows:chanroblesvirtuallawlibrary
2.4. Provide guaranty coverage for the LSDCs in accordance with its policies and as
3. An agency relation, with respect to the transfer of the real
1 provided for in its Contract of Guaranty executed by the parties.
properties in the Asset Pool should the guarantor pay for the
2.4. Act as the Financial Controller in the implementation of the PROJECTS
LSDC certificates, in which La Savoie is the principal and
2 involved in accordance with the Operations and Accounting Manual as
Planters Development Bank is the agent. In this event, Home
approved by the Governing Board.
Guaranty Corporation is the transferee.
2.4. Designate its representative in the Governing Board who shall act as the
3 Chairman thereof.74
Section 3.4 of the Trust Agreement provides that in the event that a call is made on On Home Guaranty Corporation's guaranty, Section 12 of the Contract of Guaranty
Home Guaranty Corporation for its guaranty, Planters Development Bank shall entered into by Home Guaranty Corporation, La Savoie and Planters Development
convey to the former the Asset Pool:chanroblesvirtuallawlibrary Bank provide for the events in which Home Guaranty Corporation may be called to
Section 3.4. Conveyance to HIGC. Express authority is hereby granted by the pay for the LSDC certificates:chanroblesvirtuallawlibrary
LANDOWNER/DEVELOPER to the TRUSTEE that in the event of call upon the HIGC 12. Events guaranteed against - For the purpose of enforcing the benefit of
 guaranty herein provided[,] any of the following events must occur: and established by the parties' contractual relations, defined the competencies of
12.1 Failure to pay the interest due on the LSDCs on their payment dates from the the parties and determined the validity of their actions.
. Asset Pool; or
12.2 Failure to redeem or pay all or some of the LSDCs upon maturity from the It is not disputed that La Savoie defaulted in the redemption and in the payment of
Asset Pool; or interest on the LSDC certificates. It is also settled that a call was made on Home
12.3 Declaration of an off-mark liquidation of the Asset Pool. An off-mark Guaranty Corporation to pay for the LSDC certificates, pursuant to the provisions of
liquidation shall be declared by the Trustee upon written advice of HIGC that the Trust Agreement and the Contract of Guaranty. However, as acknowledged by
there is: Home Guaranty Corporation, any payment that it could have made was
(a) a twenty-five percent (25%) slippage on each of the following: "overtaken"79 by the filing of La Savoie's Petition for Rehabilitation.
1. construction time table/cost/quality;
2. marketing m terms of units sold; Thereafter, the Regional Trial Court issued its June 4, 2003 Stay Order staying "the
3. cash inflows of equity payments and/or buyers' take-outs; or enforcement of all claims, whether for money or otherwise, and whether such
(b) if the slippage items above reach a total of fifty percent (50%) whichever enforcement is by court action or otherwise, against [La Savoie], its guarantors and
comes first.77 sureties not solidarity liable with it." 80 It also "prohibited [La Savoie] from making
Section 13 of the Contract of Guaranty provides for how guaranty claims are to be any payment of its liabilities outstanding as of the date of the filing of the petition
processed and paid by Home Guaranty Corporation. Likewise, it echoes Section 3.4 on April 25, 2003."81
of the Trust Agreement in providing for transfer of the Asset Pool in the event of a
call on the guaranty:chanroblesvirtuallawlibrary The issuance of the June 4, 2003 Stay Order was in accordance with Rule 4, Section
13. Payment of Guaranty Claim - Should any of the events mentioned in Sec. 12 6 of this court's November 21, 2000 Resolution in A.M. No. 00-8-10-SC, otherwise
hereof occur, the Trustee, on behalf of the Certificate holders, shall file its known as the Interim Rules of Procedure on Corporate Rehabilitation (Interim
guaranty claim with HIGC within sixty (60) working days from the occurrence Rules). Though subsequently replaced in 2013 by the Financial Rehabilitation Rules
of the event. of Procedure,82 the Interim Rules was in effect at the time of the incidents relevant
13.1. Upon receipt of the guaranty claim filed by the Trustee, HIGC shall have thirty to this case and which then governed "petitions for rehabilitation filed by
(30) working days to evaluate the guaranty claim. Within such period, HIGC corporations, partnerships, and associations pursuant to Presidential Decree No.
shall acknowledge the guaranty claim and require from the Trustee 902-A, as.amended."
submission of the required documents, as follows:
a. Deed of Assignment and Conveyance to HIGC of the entire Asset Pool Rule 4, Section 6 of the Interim Rules reads:chanroblesvirtuallawlibrary
pursuant to the Trust Agreement; 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 title substance, it shall, not later than five (5) days from the filing of the petition, issue
and official receipts of payments of real estate taxes covering properties an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b)  staying
comprising the Asset Pool; and, enforcement of all claims, whether for money or otherwise and whether such
c. All other documents and papers in the Asset Pool, as defined in the Trust enforcement is by court action or otherwise, against the debtor, its guarantors and
Agreement. sureties not solidarity liable with the debtor, (c) prohibiting the debtor from selling,
13.2 Upon receipt of the acknowledgment by HIGC of the guaranty claim, the encumbering, transferring, or disposing in any manner any of its properties except
Trustee shall submit the documents and make a prompt assignment and in the ordinary course of business; (d) prohibiting the debtor.from making any
conveyance to- HIGC of all the corresponding properties in the Asset Pool payment of its liabilities outstanding as at the date of filing of the petition; (e)
pursuant to the Trust Agreement. prohibiting the debtor's suppliers of goods or services from withholding supply of
13. Within fifteen (15) calendar days from receipt of the conveyance of the entire goods and services in the ordinary course of business for as long as the debtor
[3] Asset Pool from the Trustee, HIGC shall release on behalf of the Certificate makes payments for the services and goods supplied after the issuance of the stay
Holders the payment of the guaranty claim.78 order; (f) directing the payment in full of all administrative expenses incurred- after
As against these contractual delimitations were the contingencies that arose in the the issuance of the stay order; (g) fixing the initial hearing on the petition not
course of the rehabilitation proceedings. These, along with the bounds set by law earlier than forty five (45) days but not later than sixty (60) days from the filing
thereof; (h) directing the petitioner to publish the Order in a newspaper of general Home Guaranty Corporation asserts that the execution of this Deed effectively
circulation in the Philippines once a week for two (2) consecutive weeks; (i) removed the properties comprising the Asset Pool from the dominion of La Savoie
directing all creditors and all interested parties (including the Securities and and, thus, beyond the reach of La Savoie's rehabilitation proceedings. La Savoie
Exchange Commission) to file and serve on the debtor a verified comment on or contends that this transfer was ineffectual as the Stay Order was in effect at the
opposition to the petition, with supporting affidavits and documents, not later than time of the execution of the Deed and as affirming Home Guaranty Corporation's
ten (10) days before the date of the initial hearing and putting them on notice that ownership is supposedly tantamount to giving it undue preference as a creditor.
their failure to do so will bar them from participating in the proceedings; and (j)
directing the creditors and interested parties to secure from the court copies of the Rule 3, Section 5 of the Interim Rules governs the effectivity of orders issued in
petition and its annexes within such time as to enable themselves to file their proceedings relating to the rehabilitation of corporations, partnerships, and
comment on or opposition to the petition and to prepare for the initial hearing of associations under Presidential Decree No. 902-A, as amended.
the petition. (Emphasis supplied) Sec. 5. Executory Nature of Orders. - Any order issued by the court under these
Rules is  immediately executory. A petition for review or an appeal therefrom shall
With the issuance of this Stay Order, the claims of La Savoie's creditors, including,
not stay the execution of the order unless restrained or enjoined by the appellate
those of the holders of the LSDC certificates, were barred from being enforced.
court. The review of any order or decision of the court or an appeal therefrom shall
From the point of view of La Savoie and "its guarantors and sureties not solidarity
be in accordance with the Rules of Court: Provided, however, that the reliefs
liable with it,"83 no payment could have been made by them. Thus, for as long as
ordered by the trial or appellate courts shall take into account the need for
the Stay Order was in effect, certificate holders were barred from insisting on and
resolution of proceedings in a just, equitable, and speedy manner. (Emphasis
receiving payment, whether from the principal debtor, La Savoie, or from the
supplied)
guarantor, Home Guaranty Corporation. Conversely, La Savoie and Home Guaranty
Corporation were barred from paying certificate holders for as long as the Stay Rule 3, Section 5 is definite and unambiguous: Any order issued by the trial court in
Order was in effect. rehabilitation proceedings is immediately executory. Rule 3, Section 5 makes no
distinction as to the kinds of orders (e.g., final or interlocutory and stay orders) that
On October 1, 2003, the Regional Trial Court issued another Order denying due may be issued by a trial court. Nowhere from its text can it be gleaned that it does
course to La Savoie's Petition for Rehabilitation and lifting the June 4, 2003 Stay not cover orders such as those issued by the trial court on October 1, 2003. If at all,
Order. Aggrieved, La Savoie filed a Notice of Appeal and thereafter filed before the its second sentence, which explicitly makes reference to orders on appeal, affirms
Court of Appeals its Appellant's Brief on May 5, 2004. Home Guaranty Corporation that it is equally applicable to final orders. We entertain no doubt that Rule 3,
filed its Appellee's Brief on August 18, 2004. On June 21, 2005, the Court of Appeals Section 5 of the Interim Rules covered the trial court's October 1, 2003 Order
rendered a Decision reversing and setting aside the Regional Trial Court's October dismissing the Petition for Rehabilitation and lifting the Stay Order The same Order
1, 2003 Order and reinstating the June 4, 2003 Stay Order. was thus immediately executory.

What is notable, however, is what transpired in the interim. Sometime between La The filing of La Savoie's Appeal did not restrain the effectivity of the October 1,
Savoie's filing of its Appellant's Brief and Home Guaranty Corporation's filing of its 2003 Order. It is true thai generally, an appeal stays the judgment or final order
Appellee's Brief, Home Guaranty Corporation approved and processed the call that appealed from.86 Rehabilitation proceedings, however, are not bound by
was made, prior to the commencement of rehabilitation proceedings, on its procedural rules spelled out in the Rules of Court. The Interim Rules, not the Rules
guaranty and proceeded to pay the holders of LSDC certificates a total amount of of Court, was the procedural law, which (at the time of the pivotal incidents in this
P128.5 million as redemption value. In consideration of this and pursuant to case) governed rehabilitation proceedings. In Rule 3, Section 5, the Interim Rules
Section 13.2 of the Contract of Guaranty, Planters Development Bank executed in explicitly carved an exception to the general principle that an appeal stays the
favor of Home Guaranty Corporation a Deed of Assignment and Conveyance 84 in judgment or final order appealed from. It explicitly requires the issuance by the
which Planters Development Bank "absolutely assign[ed], transferred[ed], appellate court of an order enjoining or restraining the order appealed from.
convey[ed] and deliver[ed] to the HGC, its successor and assigns the possession and
ownership over the entire Asset Pool Project." 85 Per the records, the Court of Appeals did not issue an injunctive writ or a
temporary restraining order. Neither did La Savoie specifically pray for its issuance
in the Appellant's Brief it filed before the Court of Appeals. The prayer of this Brief
reads:chanroblesvirtuallawlibrary In support of its contentions, La Savoie cites the following portion of this court's
WHEREFORE, Petitioner-Appellant most respectfully pray [sic] that the Order dated discussion in Araneta v. Court of Appeals:
October 1, 2003, dismissing the Petition BE SET ASIDE and after due consideration a
judgment be rendered giving due course to the Petition for rehabilitation and This Court in Alemar's Sibal & Sons, Inc. vs. Elbinias explained the rationale behind a
declaring the herein petitioner-appellant in a state of suspension of payments, and SEC order for suspension of payments and of placing a corporation under
reinstating the Stay Order and finally, approving the Proposed Rehabilitation Plan. receivership thus:
It must be stressed that the SEC had earlier ordered the suspension of all actions
Other relief and remedies are deemed just and equitable under the premises are for claims against Alemar's in order that all the assets of said petitioner could be
likewise prayed for. RESPECTFULLY SUBMITTED.87cralawlawlibrary inventoried and kept intact for the purpose of ascertaining an equitable scheme of
distribution among its creditors.
Thus, the October 1, 2003 Order, lifting the restrictions on the payment of claims
against La Savoie, remained in effect. La Savoie's creditors were then free to During rehabilitation receivership, the assets are held in trust for the equal benefit
enforce their claims. Conversely, La Savoie and "its guarantors and sureties not of all creditors to preclude one from obtaining an advantage or preference over
solidarity liable with it"88 were no longer restrained from effecting payment. another by the expediency of an attachment, execution or otherwise. For what
would prevent an alert creditor, upon learning of the receivership, from rushing
Specifically, Home Guaranty Corporation as guarantor was capacitated, in posthaste to the courts to secure judgments for the satisfaction of its claims to the
accordance with Sections 12 and 13 of the Contract of Guaranty to effect payment prejudice of the less alert creditors.
to the holders of the LSDC certificates.
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. 735)." When a
Per Sections 13.1 and 13.2 of the Contract of Guaranty, the consequence of this
corporation threatened by bankruptcy is taken over by a receiver, all the creditors
payment was the execution by Planters Development Bank, as trustee of the Asset
should stand on an equal footing. Not anyone of them should be given any
Pool, of a Deed of Conveyance in favor of Home Guaranty Corporation. Ostensibly,
preference by paying one or some of them ahead of the others. This is precisely the
all formal and substantive requisites for the execution of this Deed, as per the Trust
reason for the suspension of all pending claims against the corporation under
Agreement and the Contract of Guaranty, were fulfilled. Notably, La Savoie failed
receivership. Instead of creditors vexing the courts with suits against the distressed
to intimate that any such condition or requisite was not satisfied. It assails the
firm, they are directed to file their claims with the receiver who is a duly appointed
conveyance on only these points: first, the supposed continuing effectivity of the
officer of the SEC.93cralawlawlibrary
June 4, 2003 Stay Order; second, that the Asset Pool remained under the
jurisdiction of the Makati City Regional Trial Court; and third, the supposed It is true, as La Savoie asserts, that the suspension of the enforcement of claims
violation of the rule against preference among creditors. against corporations under receivership is intended "to prevent a creditor from
obtaining an advantage or preference over another." 94 This is "intended to give
Having established that the Stay Order was lifted and that this lifting remained in enough breathing space for the management committee or rehabilitation receiver
force and was not restrained, we turn to La Savoie's contention that the to make the business viable again, without having to divert attention and resources
conveyance to Home Guaranty Corporation of the Asset Pool is in violation of the to litigations in various fora." 95 In Spouses Sobrejuanite v. ASB Development
rule against preference of creditors. Corporation:

La Savoie cites Article 206789 of the Civil Code and argues that with Home Guaranty The suspension would enable the management committee or rehabilitation
Corporation's payment of the LSDC certificates' redemption value, Home Guaranty receiver to effectively exercise its/his powers free from any judicial or extra-judicial
Corporation was subrogated into the rights of La Savoie's creditors (i.e., the interference that might unduly hinder or prevent the "rescue" of the debtor
certificate holders). It asserts that "effectively, petitioner HGC is already the company. To allow such other action to continue would only add to the burden of
creditor of respondent La Savoie"90 and that as creditor, it cannot be given a the management committee or rehabilitation receiver, whose time, effort and
preference over the assets of La Savoie, something that is "prohibited, in
rehabilitation proceedings."91
resources would be wasted in defending claims against the corporation instead of of creditors. However, we find that the transfer made to Home Guaranty
being directed toward its restructuring and rehabilitation. 97cralawlawlibrary Corporation was ineffectual.
As is evident from these discussions, however, the intention of "prevent[ing] a
Viewed solely through the lens of the Trust Agreement and the Contract of
creditor from obtaining an advantage" is applicable in the context of
Guaranty, the transfer made to Home Guaranty Corporation on the strength of the
an ongoing receivership. The prevention of a creditor's obtaining an advantage is
Deed of Conveyance appears valid and binding. However, we find that its execution
not an end in itself but further serves the purpose of "giv[ing] enough breathing
is in violation of a fundamental principle in the law governing credit transactions.
space for the ... rehabilitation receiver." Thus, it applies only to
We find the execution of a Deed of Conveyance without resorting to foreclosure to
corporations under receivership. Plainly, it does not apply to corporations who
be indicative of pactum commissorium. Hence, it is void and ineffectual and does
have sought to put themselves under receivership but, for lack of judicial sanction,
not serve to vest ownership in Home Guaranty Corporation.
have not been put under or are no longer under receivership.
Articles 2088 and 2137 of the Civil Code provide:
The trial court's October 1, 2003 Order denied due course to and dismissed La
Savoie's Petition for Rehabilitation. It superseded the trial court's June 4, 2003 Stay
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
Order appointing Rito C. Manzana as rehabilitation receiver and thereby relieving
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
him of his duties and removing La Savoie from receivership.
Art. 2137. The creditor does not acquire the ownership of the real estate for non-
Apart from these, the trial court's October 1, 2003 Order lifted the June 4, 2003
payment of the debt within the period agreed upon.
Stay Order. This was significant not only with respect to the freedom it afforded to
La Savoie's creditors to (in the meantime that the lifting of the Stay Order was not
Every stipulation to the contrary shall be void. But the creditor may petition the
restrained) enforce their claims but similarly because it established a context that
court for the payment of the debt or the sale of the real property. In this case, the
removed this case from the strict applicability of the rule being cited by La Savoie.
Rules of Court on the foreclosure of mortgages shall apply.
In Garcia v. Villar,99 this court discussed the elements of pactum commissorium:
The portions cited by La Savoie in Araneta and Alemar's Sibal & Sons referred to a
specific context
The following are the elements of pactum commissorium:
 
It must be stressed that the SEC had earlier ordered the suspension of all
(1) There should be a property mortgaged by way of security for the payment of
actions for claims against Alemar's in order that all the assets of said petitioner
the principal obligation; and
could be inventoried and kept intact for the purpose of ascertaining an equitable
(2) There should be a stipulation for automatic appropriation by the creditor of the
scheme of distribution among its creditors. 98 (Emphasis supplied)
thing mortgaged in case of non-payment of the principal obligation within the
stipulated period.100
The pronouncements in Araneta and Alemar's Sibal & Sons thus pertained to
instances in which there was an outstanding order suspending the enforcement of
Nakpil v. Intermediate Appellate Court 101 discussed a similar situation where there
creditors' claims. Here, the Stay Order was lifted, and its lifting was not enjoined or
was automatic appropriation on account of failure to pay:
otherwise restrained. There was thus no Stay Order to speak of in those critical
intervening moments when Home Guaranty Corporation acted pursuant to the
The arrangement entered into between the parties, whereby Pulong Maulap was
guaranty call and paid the holders of the LSDC certificates.
to be considered sold to him (respondent) ... in case petitioner fails to reimburse
Valdes, must then be construed as tantamount to a pactum commissorium which is
If, following this payment and while La Savoie remained to be not under
expressly prohibited by Art. 2088 of the Civil Code. For, there was to be automatic
receivership, a valid transfer of the properties comprising the Asset Pool was made
appropriation of the property by Valdes in the event of failure of petitioner to pay
in favor of Home Guaranty Corporation, the properties would then no longer be
the value of the advances. Thus, contrary to respondent's manifestations, all the
under the dominion of La Savoie. They would thus be beyond the reach of
elements of a pactum commissorium were present: there was a creditor-debtor
rehabilitation proceedings and no longer susceptible to the rule against preference
relationship between the parties; the property was used as security for the loan; circumstances of the consideration involved in a transaction whereby one person
and, there was automatic appropriation by respondent of Pulong Maulap in case of thereby becomes invested with legal title but is obligated in equity to hold his legal
default of petitioner.102cralawlawlibrary title for the benefit of another. On the other hand, constructive trusts are created
by the construction of equity in order to satisfy the demands of justice and prevent
In this case, Sections 13.1 and 13.2 of the Contract of Guaranty call for the "prompt
unjust enrichment. They arise contrary to intention against one who, by fraud,
assignment and conveyance to [Home Guaranty Corporation] of all the
duress or abuse of confidence, obtains or holds the legal right to property which he
corresponding properties in the Asset Pool" that are held as security in favor of the
ought not, in equity and good conscience, to hold.104 (Emphasis supplied)
guarantor. Moreover, Sections 13.1 and 13.2 dispense with the need of conducting
Articles 1450, 1454, 1455, and 1456 of the Civil Code provide examples of
foreclosure proceedings, judicial or otherwise. Albeit requiring the intervention of
constructive trusts:chanroblesvirtuallawlibrary
the trustee of the Asset Pool, Sections 13.1 and 13.2 spell out what is, for all intents
Art. 1450. If the price of a sale of property is loaned or paid by one person for the
and purposes, the automatic appropriation by the paying guarantor of the
benefit of another and the conveyance is made to the lender or payor to secure the
properties held as security. This is thus a clear case of pactum commissorium. It is
payment of the debt, a trust arises by operation of law in favor of the person to
null and void. Accordingly, whatever conveyance was made by Planters
whom the money is loaned or for whom it is paid. The latter may redeem the
Development Bank to Home Guaranty Corporation in view of this illicit stipulation
property and compel a conveyance thereof to him.
is ineffectual. It did not vest ownership in Home Guaranty Corporation.
Art. 1454. If an absolute conveyance of property is made in order to secure the
Air that this transfer engendered is a constructive trust in which the properties
performance of an obligation of the grantor toward the grantee, a trust by virtue of
comprising the Asset Pool are held in trust by Home Guaranty Corporation, as
law is established. If the fulfillment of the obligation is offered by the grantor when
trustee, for the trustor, La Savoie.
it becomes due, he may demand the reconveyance of the property to him.
Buan Vda. De Esconde v. Court of Appeals103 exhaustively discussed the concept of a
Art. 1455. When any trustee, guardian or other person holding a fiduciary
trust and its classification into express and implied trusts, as well as resulting and
relationship uses trust funds for the purchase of property and causes the
constructive trusts:
conveyance to be made to him or to a third person, a trust is established by
operation Of law in favor of the person to whom the funds belong.
Trust is the legal relationship between one person having an equitable ownership
in property and another person owning the legal title to such property, the
Art. 1456. If property is acquired through mistake or fraud, the person obtaining it
equitable ownership of the former entitling him to the performance of certain
is, by force of law, considered a trustee of an implied trust for the benefit of the
duties and the exercise of certain powers by the latter. Trusts are either express or
person from whom the property comes.
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 evidencing an intention to create a trust. In Rodrigo v. Arcilla,105 this court held that a constructive trust was created when
No particular words are required for the creation of an express trust, it being petitioners' predecessor-in-interest, Vicente Sauza, got respondent's parents,
sufficient that a trust is clearly intended. Ramon Daomilas and Lucia Nagac, "to sign a document which he represented to
them as a deed 'evidencing their status as adjoining landowners' but was actually a
On the other hand, implied trusts are those which, without being expressed, are document disclaiming their ownership over [the subject lot] and transferring the
deducible from the nature of the transaction as matters of intent or which are same to [Sauza]."106
superinduced on the transaction by operation of law as matters of equity,
independently of the particular.intention of the parties. In turn, implied trusts are In Lopez v. Court of Appeals,107 properties intended to be for the benefit of "a trust
either resulting or constructive trusts. These two are differentiated from each other fund for [the testatrix's] paraphernal properties, denominated as Fideicomiso de
as follows: Juliana Lopez Manzano (Fideicomiso),"108 were mistakenly adjudicated by a probate
court in favor of respondents' predecessor-in-interest, Jose Lopez Manzano. These
Resulting trusts are based on the equitable doctrine that valuable consideration properties were then registered by him, and transfer certificates of title were
and not legal title determines the equitable title or interest and are presumed issued in his name. This court held that "[t]he apparent mistake in the adjudication
always to have been contemplated by the parties. They arise from the nature or
of the disputed properties to Jose created a mere implied trust of the constructive
variety in favor of the beneficiaries of the Fideicomiso."109 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
In Lopez, this court held that the factual milieu of that case placed it within the shall be resolved. As a paying guarantor, Home Guaranty Corporation was
contemplation of Article 1456 of the Civil Code: 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 provision on implied trust governing the factual milieu of this case is provided the void conveyance made to it by Planters Development Bank failed to terminate
in Article 1456 of the Civil Code, which states: in the creditor-debtor relationship with La Savoie.
ART. 1456. If property is acquired through mistake or fraud, the person obtaining it WHEREFORE, the Petition is DENIED. The Regional. Trial Court, Branch 142, Makati
is, by force of law, considered a trustee of an implied trust for the benefit of the City is directed to proceed with dispatch in resolving the Petition for Rehabilitation
person from whom the property comes. filed by respondent La Savoie Development Corporation.SO ORDERED.

The disputed properties were excluded from the Fideicomiso at the outset. Jose
registered the disputed properties in his name partly as his conjugal share and
partly as his inheritance from his wife Juliana, which is the complete reverse of the
claim of the petitioner, as the new trustee, that the properties are intended for the
beneficiaries of the Fideicomiso. Furthermore, the exclusion of the disputed
properties from the Fideicomiso was approved by the probate court and,
subsequently, by the trial court having jurisdiction over the Fideicomiso. The
registration of the disputed properties in the name of Jose was actually pursuant to
a court order. The apparent mistake in the 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

So, too, this case falls squarely under Article 1456 of the Civil Code. Home Guaranty
Corporation acquired the properties comprising the Asset Pool by mistake or
through the ineffectual transfer (i.e., for being pactum commissorium) made by the
original trustee, Planters Development Bank.

Two key points are established from the preceding discussions. First, the Court of
Appeals' June 21, 2005 Decision restored La Savoie's status as a corporation under
receivership. Second, with all but a constructive trust created between Home
Guaranty Corporation and La Savoie, the properties comprising the Asset Pool
remain within the dominion of La Savoie.

On the first point, the restoration of La Savoie's status as a corporation under

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.
 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 circulation on
FIRST DIVISION November 15, 22, and 29, 1999. 8cra1aw The published Notice of Sale
G.R. No. 176212 : October 20, 2010 stated:chanroblesvirtualawlibrary
CENTURY SAVINGS BANK, Petitioner, v. SPOUSES DANILO T. SAMONTE and
ROSALINDA M. SAMONTE, Respondents.cralaw NOTICE OF SALE
DECISION
LEONARDO-DE CASTRO, J.:
Upon extrajudicial petition for sale under Act 3135, as amended by Act 4118, filed
by CENTURY SAVINGS BANK, mortgagee, against SPOUSES DANILO T. SAMONTE
This is a Petition for Review on Certiorari of the Decision 1cra1aw dated July 7, 2006 AND ROSALINDA N. SAMONTE, mortgagors, with residence and postal address at
and the Resolution2cra1aw dated January 10, 2007 of the Court of Appeals in CA- No. 7142 M. Ocampo St., Pio del Pilar, Makati City, to satisfy the mortgaged
G.R. CV No. 85730. The Court of Appeals reversed and set aside the indebtedness, which, as [of] October 15, 1999, amounts to FOUR MILLION FIVE
Decision3cra1aw dated May 30, 2005 of the Regional Trial Court, National Capital HUNDRED EIGHTY THOUSAND FIVE HUNDRED NINETY FOUR PESOS AND 62/100
Judicial Region, City of Makati, Branch 58 (Makati RTC-Branch 58), in Civil Case No. (P4,580,594.62) excluding penalties, interest, and charges accruing from October
01-1564, which dismissed for lack of merit the Complaint 4cra1aw for the 15, 1999 and attorneys fees, legal fees and expenses for the foreclosure and sale,
annulment of an extrajudicial foreclosure filed by herein respondent spouses the undersigned Notary Public for Makati City will sell at PUBLIC AUCTION to the
Danilo T. Samonte and Rosalinda M. Samonte against herein petitioner Century highest bidder FOR CASH and in Philippine Currency, on December 9, 1999 at 10:00
Savings Bank. oclock in the morning, or soon thereafter, at the main entrance of the City Hall of
Makati, the following described real estate properties, together with all the
The present controversy stemmed from the two loans, in the aggregate amount of improvement existing thereon to wit:chanroblesvirtualawlibrary
Three Million Five Hundred Thousand Pesos (P3,500,000.00), extended by
petitioner to respondents. Each loan was secured by a promissory note 5cra1aw and TRANSFER CERTIFICATE OF TITLE
deed of real estate mortgage6cra1aw executed by respondents in favor of
petitioner. The real estate mortgages were constituted on parcels of land, covered
NO. 201334
by Transfer Certificate of Title (TCT) Nos. 201334 and 205596, in respondents
names. When respondents defaulted in the payment of their loans by the latter
part of 1999, petitioner initiated before the notary public extrajudicial foreclosure REGISTRY OF DEEDS FOR
proceedings over the mortgaged properties, pursuant to Act No. 3135, also known CITY OF MAKATI
as "An Act to Regulate the Sale of Property under Special Powers Inserted in or
Annexed to Real Estate Mortgages," as amended. xxxx

Section 3 of Act No. 3135 provides for the following pre-requisites for an TRANSFER CERTIFICATE OF TITLE
extrajudicial sale:chanroblesvirtualawlibrary
NO. 205596
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 REGISTRY OF DEEDS FOR
situated, and if such property is worth more than four hundred pesos, such notice CITY OF MAKATI9chanroblesvirtuallawlibrary
shall also be published once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city.
Notary Public Magpantay also attested in a Certificate of Posting 10cra1aw dated Branch 58. Among respondents contentions was that the extrajudicial foreclosure
December 9, 1999, as follows:chanroblesvirtualawlibrary proceedings initiated by petitioner failed to comply with the posting requirements
under Section 3 of Act No. 3135, as amended. On the other hand, petitioner
CERTIFICATE OF POSTING insisted that the extrajudicial foreclosure sale was duly conducted in accordance
with law.
I HEREBY CERTIFY, that on the 15st day of November 1999, I have caused the
posting of three (3) copies of Notice of Sale over the real estate properties covered The Makati RTC-Branch 58, after trial, rendered a Decision on May 30, 2005
by Transfer Certificates of Title Nos. 201334 and 205596 of the Registry of Deeds dismissing respondents Complaint in Civil Case No. 01-1564. The trial court found
for the City of Makati in three (3) conspicuous places in Makati City, as required by that "the Notice of Sale appears to have been posted for twenty days before the
law. scheduled public auction, as stated in the Notary Publics Certificate of
Posting";16cra1aw and that even if the posting requirement was not complied with,
the publication of the Notice of Sale in a newspaper of general circulation already
Makati City, December 9, 1999.11chanroblesvirtuallawlibrary
satisfied the notice requirement under Act No. 3135, as amended. The trial court
added that under the equitable principle of estoppel, respondents were precluded
The public auction sale took place as scheduled on December 9, 1999, with from impugning the validity of the extrajudicial foreclosure proceedings as they
petitioner as the winning and highest bidder. Notary Public Magpantay already acknowledged the same in their 2001 Contract of Lease with petitioner.
subsequently issued on January 6, 2000 a Certificate of Sale, 12cra1aw covering the The Makati RTC-Branch 58 decreed in the end, "WHEREFORE, premises considered,
subject properties, in favor of petitioner. This Certificate of Sale mentioned, among judgment is hereby rendered dismissing [herein respondents] Complaint for lack of
other things, that the extrajudicial foreclosure sale of the mortgaged properties merit."17chanroblesvirtuallawlibrary
was only a partial satisfaction of respondents total outstanding financial obligations
to petitioner. Consequently, on March 15, 2000, petitioner filed a complaint against
Respondents appeal before the Court of Appeals of the aforementioned judgment
respondents for the collection of the deficiency of their loans, which was docketed
of the Makati RTC-Branch 58 was docketed as CA-G.R. CV No. 85730. In its Decision
as Civil Case No. 67842 before the RTC-Branch 263 of the City of
dated July 7, 2006, the Court of Appeals adjudged that the extrajudicial foreclosure
Pasig.13chanroblesvirtuallawlibrary
proceedings were fatally defective because the "Certificate of Posting failed to
state that the Notice of Sale was posted for twenty (20) days before the sale in at
Sometime in 2001, the parties executed a Contract of Lease 14cra1aw whereby least three (3) public places of the city where the properties sought to be
petitioner leased one of the foreclosed properties to respondents for a period of foreclosed [were] situated";18cra1aw and that petitioner failed to satisfactorily
one year, from January 16, 2001 to January 16, 2002. It was acknowledged in said refute respondents contention that there was no faithful compliance with the
contract that petitioner acquired the real property subject of the lease as the mandate of the law on the posting of the Notice of Sale. The appellate court also
highest and winning bidder in an extrajudicial foreclosure sale, conducted pursuant held that the presumption of regularity in the performance of the notary publics
to Act No. 3135, as amended; that petitioner was in the process of consolidating its duties did not apply because petitioner did not present Notary Public Magpantay to
title over the said real property as the redemption period expired without testify on the circumstances involving the posting of the Notice of Sale. The
respondents having exercised their right of redemption; and that respondents had appellate court lastly ruled that the principle of estoppel could not validate an act
recognized the valid and legal right of petitioner as the absolute owner of the prohibited by law, and so the Contract of Lease between petitioner and
leased real property. Petitioner eventually consolidated its titles to the foreclosed respondents did not ratify a null and void extrajudicial foreclosure sale. The Court
properties. As a result, new certificates of title, TCT Nos. 21780 and of Appeals disposed thus:chanroblesvirtualawlibrary
21781,15cra1aw were issued in the name of petitioner.
WHEREFORE, the instant appeal is GRANTED. The assailed Decision dated May 30,
A few months later, respondents filed a Complaint dated October 22, 2001, seeking 2005 is SET ASIDE and a new one is entered annulling the extra-judicial foreclosure
the annulment of the extrajudicial foreclosure sale of their real properties. The sale of [herein respondents] properties covered by Transfer Certificates of Title
Complaint was docketed as Civil Case No. 01-1564 and raffled to the Makati RTC-
(TCT) Nos. 201334 and 205596 of the Registry of Deeds of Makati as said certificate failed to state the duration of the posting prior to the public
City.19chanroblesvirtuallawlibrary auction. Also, the Notice of Sale referred to "conspicuous places," which are not
the same as the "public places" required by law. Respondents maintain that the law
Petitioner comes before this Court via the present Petition for Review on Certiorari requires both posting and publication of the notice of sale, and that the question of
asserting that notices of the extrajudicial foreclosure sale of respondents whether there had been actual compliance with the legal requirements for a valid
mortgaged properties were duly posted, in compliance with Section 3 of Act No. foreclosure sale is a question of fact not proper for determination at this stage of
3135, as amended. Although Notary Public Magpantays Certificate of Posting did the case.
not exactly state that the notices of sale were "posted for not less than twenty
days" and in "at least three public places where the properties sought to be The Court finds the instant Petition meritorious.
foreclosed were situated[,]" the said certificate, nonetheless, affirmed that copies
of the Notice of Sale were posted on November 15, 1999 "in three (3) conspicuous In Microsoft Corporation v. Maxicorp, Inc., 20cra1aw the Court elucidated on the
places in Makati City." Since the public auction of the mortgaged properties was distinction between questions of law and fact:chanroblesvirtualawlibrary
held on December 9, 1999, the copies of the Notice of Sale had been posted in
three public places for 24 days, even more than the 20 days required by law. The
The distinction between questions of law and questions of fact is settled. A
Certificate of Posting prima facie proved compliance with the required posting of
question of law exists when the doubt or difference centers on what the law is on a
the notices of sale, thus, the testimony of the notary public who issued the
certain state of facts. A question of fact exists if the doubt centers on the truth or
certificate was not necessary in the absence of proof that irregularities attended
falsity of the alleged facts. Though this delineation seems simple, determining the
the performance of his duties.
true nature and extent of the distinction is sometimes problematic. For example, it
is incorrect to presume that all cases where the facts are not in dispute
Petitioner argues in the alternative that the publication of the notice of sale already automatically involve purely questions of law.
constitutes sufficient compliance with the notice requirements of Act No. 3135, as
amended. The absence of actual posting of the notice of sale, or the lack of or
There is a question of law if the issue raised is capable of being resolved without
defect in the certificate of posting, should not invalidate a public auction when the
need of reviewing the probative value of the evidence. The resolution of the issue
same notice of sale had been published. In this case, it is undisputed that the
must rest solely on what the law provides on the given set of circumstances. Once
Notice of Sale was duly published in the Challenger News.
it is clear that the issue invites a review of the evidence presented, the question
posed is one of fact. If the query requires a re-evaluation of the credibility of
Petitioner also posits that the facts of the case are undisputed. There is no question witnesses, or the existence or relevance of surrounding circumstances and their
that Notary Public Magpantay conducted the foreclosure proceedings involving relation to each other, the issue in that query is factual. Our ruling in Paterno v.
respondents properties, and that the extrajudicial foreclosure sale took place. Such Paterno [G.R. No. 63680, 23 March 1990, 183 SCRA 630]  is illustrative on this
proceedings enjoy the presumption of regularity. The chief issue involved in the point:chanroblesvirtualawlibrary
case at bar is a question of law arising from the foregoing undisputed facts,
specifically, "[s]hould the extrajudicial foreclosure sale be declared invalid because
Such questions as whether certain items of evidence should be accorded probative
the Certificate of Posting merely states that the Notice of Sale was posted on 15
value or weight, or rejected as feeble or spurious, or whether or not the proofs on
November 1999 in three conspicuous places in Makati City." Petitioner submits that
one side or the other are clear and convincing and adequate to establish a
since it was respondents who instituted the action for annulment of foreclosure,
proposition in issue, are without doubt questions of fact. Whether or not the body
the burden of proof is upon them to prove the invalidity of the foreclosure
of proofs presented by a party, weighed and analyzed in relation to contrary
proceedings for non-compliance with the law.
evidence submitted by adverse party, may be said to be strong, clear and
convincing; whether or not certain documents presented by one side should be
Respondents conclude that the extrajudicial foreclosure proceeding was correctly accorded full faith and credit in the face of protests as to their spurious character
nullified by the appellate court. Respondents counter that per Notary Public by the other side; whether or not inconsistencies in the body of proofs of a party
Magpantays Certificate of Posting, the Notice of Sale was posted for only one day
are of such gravity as to justify refusing to give said proofs weight all these are is valid unless controverted by evidence. The presumption has not been rebutted
issues of fact. by any convincing and substantial evidence by the appellee who has the onus to
present evidence that appellant has not complied with the posting requirement of
It is true that Maxicorp did not contest the facts alleged by petitioners. But this the law. In the absence therefore of any proof to the contrary, the presumption
situation does not automatically transform all issues raised in the petition into that official duty has been regularly performed stays." 25cra1aw (Emphases
questions of law. The issues must meet the tests outlined supplied.)
in Paterno.21chanroblesvirtuallawlibrary
In this case, it was respondents who instituted Civil Case No. 01-1564 seeking the
The main issue in the case at bar is whether the extrajudicial foreclosure sale of annulment of the extrajudicial foreclosure of their mortgaged properties on the
respondents mortgaged properties was valid. The resolution of said issue, however, ground of non-compliance with the requirements of the law on the posting of the
is dependent on the answer to the question of whether the legal requirements on notices of sale. Thus, the burden falls upon respondents to prove the fact of non-
the notice of sale were complied with. Necessarily, the Court must review the compliance; but respondents miserably failed in this regard. Respondents did not
evidence on record, most especially, Notary Public Magpantays Certificate of present any evidence at all to establish that the notices of sale were not posted as
Posting, to determine the weight and probative value to accord the same. Non- required under Section 3 of Act No. 3135, as amended. Instead, respondents
compliance with the requirements of notice and publication in an extrajudicial merely focused on how Notary Public Magpantays Certificate of Posting was
foreclosure sale is a factual issue. The resolution thereof by the lower courts is worded, and emphasized on technicalities and semantics.
binding and conclusive upon this Court. However, this rule is subject to exceptions,
as when the findings of the trial court and the Court of Appeals are in conflict. Also, Respondents insist that the phrase "on the 15st day of November 1999, I have
it must be noted that non-compliance with the statutory requisites could constitute caused the posting of three (3) copies of Notice of Sale" in the Certificate of Posting
a jurisdictional defect that would invalidate the sale.22chanroblesvirtuallawlibrary meant that Notary Public Magpantay posted the notices for only one day, i.e., on
November 15, 1999. This is a rather specious interpretation of the aforequoted
After a review of the evidence on record, the Court declares that the extrajudicial phrase. It is more logical and reasonable to understand the same phrase as to
foreclosure sale of respondents properties is valid, having complied with the legal mean that the notices were posted beginning November 15, 1999 until the
requirements for the same. issuance of the certificate on December 9, 1999. There is also no basis to require
the notary publics certificate to exactly state that the notices of sale were posted at
"public places." Notary Public Magpantays use of the words "conspicuous places" in
It is an elementary rule that the "burden of proof is the duty of a party to present
his certificate already satisfactorily complies with the legal requirement for posting.
evidence on the facts in issue necessary to establish his claim or defense by the
The adjective "public" may refer to that which is "exposed to general view," and
amount of evidence required by law."23cra1aw In Cristobal v. Court of
"conspicuous" is a synonym thereof. 26chanroblesvirtuallawlibrary
Appeals,24cra1aw the Court explicitly ruled that foreclosure proceedings enjoy the
presumption of regularity and that the mortgagor who alleges absence of a
requisite has the burden of proving such fact, to wit:chanroblesvirtualawlibrary Moreover, it bears to stress that the Certificate of Posting is actually evidence
presented by the petitioner to establish that copies of the Notice of Sale were
indeed posted as required by Act No. 3135, as amended. Without presenting their
Further, as respondent bank asserts, a mortgagor who alleges absence of a
own evidence of the alleged lack of posting, respondents contented themselves
requisite has the burden of establishing that fact. Petitioners failed in this regard.
with challenging the contents of said certificate. As plaintiffs in Civil Case No. 01-
Foreclosure proceedings have in their favor the presumption of regularity and the
1564, respondents must rely on the strength of their own evidence and not upon
burden of evidence to rebut the same is on the petitioners. As well said by the
the weakness of the petitioners. 27chanroblesvirtuallawlibrary
respondent appellate court:chanroblesvirtualawlibrary

In addition, despite any defect in the posting of the Notice of Sale, the Court
". . . Under the circumstances, there is a basis for presuming that official duty has
reiterates its ruling in previous jurisprudence that the publication of the same
been regularly performed by the sheriff. Being a disputable presumption, the same
notice in a newspaper of general circulation is already sufficient compliance with sale of the mortgaged properties for a price far below their value as to insinuate
the requirement of the law. bad faith; or collusion between Notary Public Magpantay, who conducted the sale,
and petitioner. Hence, the alleged non-compliance with the posting requirement,
In Olizon v. Court of Appeals, 28cra1aw the Court expounded on the purpose for even if true, shall not justify the setting aside of the foreclosure sale.
giving notice of the foreclosure sale; and if such purpose could be attained by
publication alone, then the absence of actual posting should not nullify the sale. Finally, the Court agrees with the RTC that respondents are already estopped from
Thus:chanroblesvirtualawlibrary 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
We take judicial notice of the fact that newspaper publications have more far- landlord is a conclusive presumption as against the tenant or lessee. According to
reaching effects than posting on bulletin boards in public places. There is a greater Section 2(b), Rule 131 of the Rules of Court, "[t]he tenant is not permitted to deny
probability that an announcement or notice published in a newspaper of general the title of his landlord at the time of the commencement of the relation of
circulation, which is distributed nationwide, shall have a readership of more people landlord and tenant between them." The juridical relationship between petitioner
than that posted in a public bulletin board, no matter how strategic its location may as lessor and respondents as lessees carries with it a recognition of the lessors title.
be, which caters only to a limited few. Hence, the publication of the notice of sale As lessees, then respondents are estopped to deny their landlord's title, or to
in the newspaper of general circulation alone is more than sufficient compliance assert a better title not only in themselves, but also in some third person while they
with the notice-posting requirement of the law. By such publication, a reasonably remain in possession of the leased premises and until they surrender possession to
wide publicity had been effected such that those interested might attend the public the landlord. This estoppel applies even though the lessor had no title at the time
sale, and the purpose of the law had been thereby subserved. the relation of lessor and lessee was created, and may be asserted not 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 sale. Notices are
given for the purpose of securing bidders and to prevent a sacrifice of the property. The Court quotes with approval the following findings of the
If these objects are attained, immaterial errors and mistakes will not affect the RTC:chanroblesvirtualawlibrary
sufficiency of the notice; but if mistakes or omissions occur in the notices of sale,
which are calculated to deter or mislead bidders, to depreciate the value of the Further, this Court upholds the validity of the extrajudicial foreclosure proceeding
property, or to prevent it from bringing a fair price, such mistakes or omissions will under the equitable principle of estoppel. [Herein respondents] admitted execution
be fatal to the validity of the notice, and also to the sale made pursuant thereto. of the Contract of Lease alone establishes that they do not have any cause of action
or are estopped from impugning the validity of the subject extrajudicial foreclosure
In the instant case, the aforesaid objective was attained since there was sufficient proceedings. In the Contract of Lease, [respondents] clearly acknowledge that the
publicity of the sale through the newspaper publication. There is completely no subject extrajudicial foreclosure sale was conducted in accordance with Act No.
showing that the property was sold for a price far below its value as to insinuate 3135, as amended; that they failed to redeem the foreclosed properties within the
any bad faith, nor was there any showing or even an intimation of collusion redemption period; and that [petitioner] has valid and legal right and title as
between the sheriff who conducted the sale and respondent bank. This being so, absolute owner of the foreclosed properties. [Respondents] failed to mention or
the alleged non-compliance with the posting requirement, even if true, will not question the validity of the Contract of Lease in their Complaint. There being no
justify the setting aside of the sale.29cra1aw (Emphases supplied.) evidence presented that [respondents] executed the Contract of Lease by mistake
or through violence, intimidation, undue influence, or fraud, [respondents] are
bound by the stipulations therein and to the consequences
Olizon squarely applies in this case. It is not disputed that the Notice of Sale was
thereof.31chanroblesvirtuallawlibrary
duly published in a newspaper of general circulation once a week for three
consecutive weeks. Respondents did not allege, much less prove, any mistake or
omission in the published Notice of Sale calculated to deter or mislead bidders, WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED. The
depreciate the value of the property, or to prevent it from bringing a fair price; or Decision dated July 7, 2006 and the Resolution dated January 10, 2007 of the Court
of Appeals in CA-G.R. CV No. 85730 are SET ASIDE and the Decision dated May 30, property and were made to sign a document. Defendant Cipriano assured plaintiffs-
2005 of the Regional Trial Court, National Capital Judicial Region, City of Makati, appellees that it will be a mere formality and will never be notarized.
Branch 58, in Civil Case No. 01-1564, is REINSTATED. No costs.
Subsequently, plaintiffs-appellees informed defendant-appellant Coca-Cola of their
SO ORDERED. 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.

FIRST DIVISION Furthermore, plaintiffs-appellees claimed that they merely signed a document in
G.R. No. 211232, April 11, 2018 Tuguegarao. They never signed any document in Ilagan, lsabela nor did they appear
COCA-COLA BOTTLERS PHILS., INC., Petitioner, v. SPOUSES EFREN AND LOLITA before a certain Atty. Reymundo Ilagan on 06 January 2000 for the notarization of
SORIANO, Respondents. the said mortgage document.
DECISION
TIJAM, J.: On their part, defendant-appellant alleged that plaintiffs-appellees are indebted to
them. Plaintiffs-appellees' admission that they signed the real estate mortgage
This petition for review on certiorari1 under Rule 45 of the Rules of Court seeks to document in Tuguegarao, Cagayan indicates that the mortgage agreement was
reverse and set aside the Decision 2 dated June 18, 2013 and Resolution 3 dated duly executed. The failure of the parties to appear before the notary public for the
February 4, 2014 of the Court of Appeals (CA) in CA G.R. CV No. 97687, affirming execution ofthe document does not render the same null and void or
the Decision4 dated February 9, 2011 of the Regional Trial Court (RTC), Branch 01, unenforceable.5
Tuguegarao, Cagayan, in Case No. 6821.
Ruling of the RTC
The Antecedents
On February 9, 2011, the RTC rendered its decision nullifying the real estate
The CA summarized the antecedents as follows: mortgage and the foreclosure proceedings. The dispositive portion of the decision
reads:
Plaintiffs-appellees spouses Efren and Lolita Soriano are engaged in the business of
selling defendant-appellant Coca-Cola products in Tuguegarao City, Cagayan. WHEREFORE, premises considered, the court hereby renders judgment in favor of
Sometime in 1999, defendant-appellant thru Cipriano informed plaintiffs-appellees the plaintiffs and against the defendants as follows:
that the former required security for the continuation of their business. Plaintiffs-
appellees were convinced to hand over two (2) certificates of titles over their 1. Declaring the real estate mortgage (Exhibit "A") to be null and void:
2. Declaring the Sheriff’s Certificate of Sale (Exhibit "B") to be null and void;
3. Declaring the claim of the defendants that the land of the plaintiffs had been Hence, the instant petition before Us. In its Petition and Reply, 7 petitioner argues
mortgaged to defendant corporation to be unlawful; that the defect in the notarization of the REM deed does not in any way affect its
4. Declaring the cloud over the title and interest of the plaintiffs be removed; validity. Section 112 of Presidential Decree No. 1529 (P.D. 1529) only provides for
5. Ordering the defendants to surrender and deliver TCT No. T-86200 and TCT No. the formal requirements for registrability and not validity. Assuming that the
T-84673 to the plaintiffs; and mortgage contract cannot be registrable due to lack of certain requirements, its
6. Ordering the defendants in solidum to pay to plaintiffs the sum of P50,000.00 as only effect is that it does not bind third parties but the mortgage remains valid as
moral damages and P20,000.00 as attorney's fees. between the parties.8 Finally, petitioner alleges that there was no forgery
considering that respondents admitted the due execution of the REM deed in their
No pronouncement as to cost. SO DECIDED. complaint. On the other hand, respondents, in their Comment 9, reiterated the
findings of the courts a quo and asseverated that petitioner failed to show any
reversible error in the 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
On June 18, 2013, the CA rendered the assailed decision affirming the RTC
was: (1) admittedly signed by the mortgagors, albeit in a place other than that
decision in toto. The CA ruled that the Real Estate Mortgage deed (REM deed)
stated in the document, on the belief that the same would not be notarized; and
failed to comply substantially with the required form. Thus, it made the following
(2) notarized without authority and compliance with the prescribed form under
findings:
Section 112 of P.D. 1529. Corollary to the validity of 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 spouses
signed the real estate mortgage deed, they never acknowledged the same before
Our Ruling
the Clerk of Court during the notarization. Likewise, only one witness has signed
the document, instead of the required presence of two (2) witnesses as provided
by law. The petition is impressed with merit.

In the acknowledgment portion, only defendant Cipriano and defendant-appellant At the outset, We stress that the registration of a REM deed is not essential to its
Coca Cola has appeared and acknowledged the real estate mortgage deed before validity. The law is clear on the requisites for the validity of a mortgage, to wit:
the Clerk of Court. Nowhere did the plaintiffs-appellees acknowledge before the
Clerk of Court the said deed as their free and voluntary act. Contrary to defendant- Art. 2085. The following requisites are essential to the contracts of pledge and
appellant's contention, this acknowledgment is not a mere superfluity because it is mortgage:
expressly required by law. Even granting arguendo that the document should be
considered properly notarized, the aforementioned real estate mortgage deed still (1) That they be constituted to secure the fulfillment of a principal obligation;
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 (3) That the persons constituting the pledge or mortgage have the free disposal of
plaintiffs-appellees' land cannot be bound by the real estate mortgage. We uphold their property, and in the absence thereof, that they be legally authorized for the
the court  a quo in finding both the real estate mortgage constituted over plaintiffs- purpose.
appellees' property and the subsequent extrajudicial foreclosure invalid. 6
Third persons who are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property.
In relation thereto, Article 2125 provides: of Spouses Adelina S. Cuyco and Feliciano U Cuyco, v. Spouses Renaoa Cuyco and
Filipina Cuyco: 13
Article 2125. In addition to the requisites stated in Article 2085, it is indispensable,
in order that a mortgage may be validly constituted, that the document in which it In order to constitute a legal mortgage, it must be executed in a public document,
appears be recorded in the Registry of Property. If the instrument is not recorded, besides being recorded. A provision in a private document, although denominating
the mortgage is nevertheless binding between the parties. (Emphasis supplied) the agreement as one of mortgage, cannot be considered as it is not susceptible of
inscription in the property registry. A mortgage in legal form is not constituted by a
Thus, as between the parties to a mortgage, the non-registration of a REM deed is private document, even if such mortgage be accompanied with delivery of
immaterial to its validity. In the case of Paradigm Development Corporation of the possession of the mortgage property. Besides, by express provisions of Section
Philippines, v. Bank of the Philippine Islands,10 the mortgagee allegedly represented 127 of Act No. 496, a mortgage affecting land, whether registered under said Act
that it will not register one of the REMs signed by the mortgagor. In upholding the or not registered at all, is not deemed to be sufficient in law nor may it be
validity of the questioned REM between the said parties, the Court ruled that "with effective to encumber or bind the land unless made substantially in the form
or without the registration of the REMs, as between the parties thereto, the same therein prescribed. It is required, among other things, that the document be signed
is valid and [the mortgagor] is bound thereby." The Court, thus, cited its ruling in by the mortgagor executing the same, in the presence of two witnesses, and
the case of Mobil Oil Philippines, Inc., v. Ruth R. Diocares, et al.11 a portion of which acknowledged as his free act and deed before a notary public. A mortgage
reads: constituted by means of a private document obviously does not comply with such
legal requirements.14 (Citations omitted; emphasis ours)
Xxx. The codal provision is clear and explicit. Even if the instrument were not
recorded, "the mortgage is nevertheless binding between the parties." The law The aforecited pronouncements by this Court, however, relate to the issue on
cannot be any clearer. Effect must be given to it as written. The mortgage subsists; whether the subject realty of the REM was bound by the additional loans executed
the parties are bound. As between them, the mere fact that there is as yet no between the parties. The validity of the said REM was not put into question in the
compliance with the requirement that it be recorded cannot be a bar to said case. Thus, in the present case, the CA erred in relying on the said
foreclosure. pronouncements.

xxxx 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 in this case.
Moreover to rule as the lower court did would be to show less than fealty to the
purpose that animated the legislators in giving expression to their will that the
failure of the instrument to be recorded does not result in the mortgage being any Here, although the REM deed was registered and annotated on the back of the
the less "binding between the parties." In the language of the Report of the Code title, the petitioner failed to comply with the provisions under Section 112 of P.D.
Commission: "In Article [2125] an additional provision is made that if the 1529, viz:
instrument of mortgage is not recorded, the mortgage, is nevertheless binding
between the parties." We are not free to adopt then an interpretation, even xxxx
assuming that the codal provision lacks the forthrightness and clarity that this
particular norm does and therefore requires construction, that would frustrate or Deeds, conveyances, encumbrances, discharges, powers of attorney and other
nullify such legislative objective.12 (Citation omitted; emphasis ours) voluntary instruments, whether affecting registered or unregistered land, executed
in accordance with law in the form of public instruments shall be registerable:
Based on the foregoing, the CA, in the case at bar, clearly erred in ruling that the Provided, that, every such instrument shall be signed by the person or persons
parties in the instant case cannot be bound by the REM deed. In arriving at such executing the same in the presence of at least two witnesses who shall likewise
ruling, the CA relied on the following pronouncements of this Court in the case sign thereon, and shall acknowledged to be the free act and deed of the person or
persons executing the same before a notary public or other public officer Section 20. Proof of private document. - Before any private document offered as
authorized by law to take acknowledgment. Where the instrument so authentic is received in evidence its due execution and authenticity must be proved
acknowledged consists of two or more pages including the page whereon 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, each page of a) By anyone who saw the document executed or written; or
the copy to be kept by the notary public, except the page where the signatures b) By evidence of the genuineness of the signature or handwriting of the maker.
already appear at the foot of the instrument, shall be signed on the left margin
thereof by the person or persons executing the instrument and their witnesses, and
Any other private document need only be identified as that which it is claimed to
all the pages sealed with the notarial seal, and this fact as well as the number of
be. (Emphasis supplied)
pages shall be stated in the acknowledgment. Where the instrument acknowledged
relates to a sale, transfer, mortgage or encumbrance of two or more parcels of
land, the number thereof shall likewise be set forth in said acknowledgment. Moreover, the party invoking the validity of the private document has the burden
(Emphasis ours) of proving its due execution and authenticity. 19 Here, the respondents claim that
their signature was a forgery because they signed the REM deed in Tuguegarao and
not in Isabela, as stated therein. Further, they alleged that they were assured by
Respondents thus argue that the REM agreement is not a public document because
petitioner that the same will not be notarized and is a mere formality.
it was notarized by a Clerk of Court of the RTC of Ilagan who is not allowed by law
to notarize private documents not related to their functions as clerk of court.
Although the burden was on the petitioner to prove the REM deed's due execution
and authenticity, respondents' allegations and admissions should be weighed
We find merit in the said argument.
against their favor.

Jurisprudence is replete with cases declaring that the notarization of documents

In the case of Gloria and Teresita Tan Ocampo v. Land Bank of the Philippines
that have no relation to the performance of official functions of the clerk of courts
Urdaneta, Pangasinan Branch and Ex Officio Provincial Sheriff of Pangasinan,20 the
is now considered to be beyond the scope of their authority as notaries public ex
mortgagors sought the nullity of the REM on the ground of forgery. The Court ruled
officio.15
that forgery is present when any writing is counterfeited by the signing of another's
name with intent to defraud. However, the Court affirmed the CA in finding no
Nonetheless, the defective notarization of the REM agreement merely strips it of reason to discuss forgery in light of the admission by the mortgagor that she had
its public character and reduces it to a private document.16 Although Article 1358 affixed her signature to the subject Deed of REM.21
of the New Civil Code requires that the form of a contract transmitting or
extinguishing real rights over immovable property should be in a public document,
Likewise, in this case, it is undisputed that the respondents signed the REM deed.
the failure to observe such required form does not render the transaction
They merely invoke the nullity of the same on the grounds that it was not signed in
invalid.17 The necessity of a public document for the said contracts is only for
the place stated therein and that they were made to believe that it will not be
convenience; it is not essential for its validity or enforceability. Consequently, when
notarized. Thus, in their Amended Complaint22, respondents alleged:
there is a defect in the notarization of a document, the clear and convincing
evidentiary standard originally attached to a duly-notarized document is dispensed
with, and the measure to test the validity of such document is preponderance of That defendants through the machinations and manipulations of defendant
evidence.18 Reynaldo C. Cipriano as the General Manager, convinced the plaintiffs to 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
Thus, in order to determine the validity of the REM in this case, the REM
time after their accounts are fully settled; as the plaintiffs were in good faith,
agreement shall be subject to the requirement of proof under Section 20, Rule
handed the titles of their lands described in paragraph 4, of this complaint to
132, viz:
defendant Reynaldo C. Cipriano (why) who assured plaintiffs that is only a
formality, and there is nothing to worry; plaintiffs signed the said document in mortgage only amounted to dolo incidente which is not the kind of fraud that
Tuguegarao City and not in Hagan, lsabela and defendant Reynaldo C. Cipriano avoids a contract. (Emphasis supplied)
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
Clearly, the respondents did not specifically deny the due execution and respondents herein also signed the REM deed and surrendered the titles of the
genuineness of the REM deed. The early case of Lamberto Songco, v. George C. properties to the petitioner. Thus, We find that a claim of fraud in favor of the
Sellner23 is instructive on how to deny the genuineness and due execution of an respondents does not persuade.
actionable document, to wit:
Moreover, in the case of Ocampo,25 the mortgagor maintained that when she
X x x. This means that the defendant must declare under oath that he did not sign signed the questioned REM deed in blank form, she was led to believe by the
the document or that it is otherwise false or fabricated. Neither does the mortgagee that such would only be used to process her loan application. The Court,
statement of the answer to the effect that the instrument was procured by likewise, was not persuaded by such claim of fraud, thus:
fraudulent representation raise any issue as to its genuineness or due execution.
On the contrary such a plea is an admission both of the genuineness and due Unfortunately, Ocampo was unable to establish clearly and precisely how the Land
execution thereof, since it seeks to avoid the instrument upon a ground not Bank committed the alleged fraud. She failed to convince Us that she was deceived,
affecting either. x x x (Emphasis ours) through misrepresentations and/or insidious actions, into signing a blank form for
use as security to her previous loan. Quite the contrary, circumstances indicate the
In light of the foregoing, We find merit in petitioner's argument that the due weakness of her submissions. The Court 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 pleadings Granting, for the sake of argument, that appellant bank did not apprise the
filed by the respondents reveal that their arguments are anchored on the supposed appellees of the real nature of the real estate mortgage, such stratagem, deceit or
fraud employed by the petitioner that led to their acts of surrendering the titles misrepresentations employed by defendant bank are facts constitutive of fraud
and signing the REM deed. Thus, respondents essentially seeks the annulment of which is defined in Article 1338 of the Civil Code as that insidious words or
the REM on the ground of fraud. machinations of one of the contracting parties, by which the other is induced to
enter into a contract which without them, he would not have agreed to. When
Under Article 1344 of the Civil Code, fraud, as a ground for annulment of a fraud is employed to obtain the consent of the other party to enter into a contract,
contract, should be serious and should not have been employed by both the resulting contract is merely a voidable contract, that is a valid and subsisting
contracting parties. Article 1338 of the same Code further provides that there is contract until annulled or set aside by a competent court. x x x
fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he With the foregoing, We find that the preponderance of evidence tilts in favor of the
would not have agreed to. In PDCP24, this Court refused to annul the REMs on the petitioner. The due execution and genuineness of the REM deed was proven by the
ground of fraud consisting of the mortgagee's assurances that the REMs already admission of the respondents that they signed the same. This is bolstered by the
signed by the mortgagor would not be registered, thus: fact that the titles were surrendered to the petitioner. Other than bare allegations,
respondents' claim of fraud is not supported by preponderance of evidence.
In the present case, even if FEBTC represented that it will not register one of the Further, the courts a quo, in declaring the REM deed null and void, erred in ruling
REMs, PDCP cannot disown the REMs it executed after FEBTC reneged on its that registration and compliance with the prescribed form are essential in the
alleged promise. As earlier stated, with or without the registration of the REMs, as validity of a REM. In fine, We rule that the REM between the parties herein is valid.
between the parties thereto, the same is valid and PDCP is already bound
thereby. The signature of PDCP's President coupled with its act of surrendering As to the issue on the validity of the foreclosure proceedings, We find no cogent
the titles to the four properties to FEBTC is proof that no fraud existed in the reason to nullify the same. Basic is the rule that unless the parties stipulate,
execution of the contract. Arguably at most, FEBTC's act of registering the
personal notice to the mortgagor in extrajudicial foreclosure proceedings is not notes. To secure the loan, Gotesco was required to execute a Mortgage Trust
necessary because Section 3 of Act No. 3135 only requires the posting of the notice Indenture (Indenture) naming Solidbank-Trust Division as Trustee. 4
of sale in three public places and the publication of that notice in a newspaper of
general circulation.26 Moreover, the same was not put into issue in this case. The The Indenture, dated August 9, 1995, obliged Gotesco to mortgage several parcels
foreclosure proceedings were nullified by the courts a quo merely as a of land in favor of Solidbank. 5 One (1) of the lots mortgaged and used as a collateral
consequence of the nullification of the REM deed. Consequently, We find that the was a property located in San Fernando, Pampanga, which was covered by Transfer
foreclosure proceedings are likewise valid. Certificate of Title (TCT) No. 387371-R. 6 A stipulation in the Indenture also
irrevocably appointed Solidbank-Trust Division as Gotesco's attorney-in-
WHEREFORE, premises considered, the petition is GRANTED. The Decisions of the fact.7 Under the Indenture, Gotesco also agreed to "at all times maintain the Sound
Regional Trial Court dated February 9, 2011 and the Court of Appeals dated June Value of the Collateral."8
18, 2013 are REVERSED and SET ASIDE. The complaint filed by the respondents
Spouses Efren and Lolita Soriano is hereby DISMISSED for lack of merit. When the loan was about to mature, Gotesco found it difficult to meet its
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
SO ORDERED.
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 appraisal
report submitted to Solidbank, the sound value of the mortgaged properties at that
SECOND DIVISION time was at P381,245,840.00.13 Since the necessary collateral to loan ratio was
G.R. No. 209452, July 26, 2017 200%, Solidbank held that there was a deficiency in the collateral, which Gotesco
GOTESCO PROPERTIES, INC., Petitioner, v. SOLIDBANK CORPORATION (NOW had to address. Solidbank required Gotesco to replace or add to the mortgaged
METROPOLITAN BANK AND TRUST COMPANY), Respondent. properties.14
DECISION
LEONEN, J.: Gotesco construed the February 9, 2000 letter as Solidbank's implied agreement to
the loan restructuring proposal. 15 However, Gotesco found it unnecessary to
address the alleged deficiency in the collateral. It insisted that the aggregate sound
The requirement for publication of a Notice of Sale in an extrajudicial foreclosure is value of the mortgaged properties had not changed and was still at
complied with when the publication is circulated at least in the city where the P1,076,905,000.00.16
property is located.
Solidbank sent a demand letter dated June 7, 2000 to Gotesco as the loan became
This is a Petition for Review on Certiorari 1 assailing the May 31, 2013 Decision 2 and due.17 Despite having received this demand letter, Gotesco failed to pay the
October 7, 2013 Resolution 3 of the Court of Appeals in CA-G.R. CV No. 97748. The outstanding obligation.18
Court of Appeals affirmed the Decision of the Regional Trial Court, which dismissed
the complaint filed by petitioner Gotesco Properties, Inc. (Gotesco) for the
annulment of the foreclosure proceeding. The Court of Appeals also upheld the Solidbank then filed a Petition for the Extrajudicial Foreclosure of the lot covered
issuance of a writ of possession for respondent Solidbank Corporation (Solidbank), by TCT No. 387371-R through Atty. Wilfrido Mangiliman (Atty. Mangiliman), a
now Metropolitan Bank and Trust Company (Metrobank). notary public.19

In 1995, Gotesco obtained from Solidbank a term loan of P300 million through its In the Notice of Sale20 dated July 24, 2000, the public auction of the land located in
President, Mr. Jose Go (Mr. Go). This loan was covered by three (3) promissory Pampanga, covered by TCT No. 387371-R, was announced to be 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 indicated that if the minimum requirement publication and posting requirements laid down by Act No. 3135. It also asserted
of two (2) bidders was not met, the sale was to be postponed and rescheduled on that Gotesco's complaint was insufficient because it failed to state a cause of
August 31, 2000.22 action.29

The public auction was held on August 31, 200023 and Solidbank was declared the On October 31, 2001, Solidbank filed an Ex-Parte Petition for the Issuance of a Writ
winning bidder.24 of Possession30 before Branch 48, Regional Trial Court, San Fernando, Pampanga. 31

On February 5, 2001, Gotesco filed a complaint before Branch 42, Regional Trial
The two (2) cases were consolidated before Branch 42, Regional Trial Court, San
Court, San Fernando, Pampanga for Annulment of Foreclosure Proceedings,
Fernando, Pampanga. 32 However, the presiding judge of Branch 42 recused himself
Specific Performance, and Damages against Solidbank, Atty. Mangiliman, and the
after disclosing that he was a depositor in Metrobank, previously Solidbank. The
Register of Deeds of San Fernando, Pampanga. 25
case was re-raffled to Branch 47.33

Gotesco assailed the validity of the foreclosure proceeding claiming that it was In its May 4, 2011 Decision, 34 Branch 47, Regional Trial Court, San Fernando,
premature and without legal basis. 26 According to Gotesco, the jurisdictional Pampanga dismissed Gotesco's complaint for the annulment of the foreclosure
requirements prescribed under Act No. 3135 were not complied with. First, proceeding and granted the Writ of Possession in Solidbank's
Solidbank did not furnish Gotesco copies of the petition for extrajudicial favor:chanRoblesvirtualLawlibrary
foreclosure, notice of sale, and certificate of sale. Second, the filing fees were not WHEREFORE, premises considered, the plaintiff's Complaint in Civil Case No. 12212
paid. Lastly, even assuming the original period for loan payment was not extended, is hereby DISMISSED for lack of merit.
the prerequisites for the foreclosure proceeding provided in the Indenture were
not met.27 On the other hand, the Ex-Parte Petition in LRC No. 762 is hereby GRANTED.
Accordingly, let a writ of possession over the property covered by Transfer
Section 5.02 of the Indenture provided: Certificate of Title No. 387371-R be issued against Gotesco Properties, Inc., and all
persons claiming rights under it.

5.02. Foreclosure. If any event of default shall have occurred and be continuing, SO ORDERED.35 (Emphasis in the original)
the Trustee [Solidbank-Trust Division], on written instruction by the Majority
Creditors [Solidbank], shall within three (3) Banking Days from receipt of such Gotesco filed a Motion for Reconsideration, which was denied on September 6,
notice, give written notice to the Company [appellant], copy furnished all 2011.36
Creditors, declaring all obligations secured by this Indenture due and payable and  
foreclosing the Collateral. Upon such declaration, the [appellant] shall pay to the Gotesco appealed the rulings before the Court of Appeals. It argued that contrary
[Solidbank-Trust Division], within ten (10) days from receipt of such notice, the to the trial court's finding, the restructuring agreement was perfected. The
amount sufficient to cover costs and expenses of collection, including foreclosure was premature because Gotesco was not in default. Solidbank also
compensation for the [Solidbank-Trust Division], its agents and attorneys. failed to adhere to the stipulation which required that in the event of default, a
notice shall be given to Gotesco. Moreover, Mr. Go allegedly was not authorized to
In default of such payment, the [Solidbank-Trust Division] may proceed to appoint Solidbank as an attorney-in-fact. 37
foreclose this Indenture, judicially or extra-judicially under Act No. 3135, as
amended. Thereupon, on demand of the [Solidbank-Trust Division], the appellant
shall immediately turn over possession of the Collateral to any party designated as In its May 31, 2013 Decision, 38 the Court of Appeals affirmed the decision of the
the duly authorized representative of the [Solidbank-Trust Division], free of all Regional Trial Court. It ruled that there was no perfected restructuring agreement
charges. (Emphasis supplied.)28 between the parties.39 It cited Article 1319 of the Civil Code,40 which requires
In their Answer with Counterclaim, Solidbank alleged that it never entered into a absolute acceptance of the offer before it can be considered a binding contract. 41 It
restructuring agreement with Gotesco. Solidbank claimed that it complied with the found that Gotesco failed to prove that Solidbank clearly and unequivocally
accepted the proposal for loan restructuring. 42

The Court of Appeals also declared that Gotesco was in default. 43 It quoted Section The Court of Appeals also determined that Mr. Go had the authority to agree to the
4.03 of the Indenture, which provided:chanRoblesvirtualLawlibrary conditions related to securing the loan. 53 It examined the Secretary's Certificate
The Company [Gotesco/appellant] shall at all times maintain the Sound Value of which quoted verbatim the Board Resolution authorizing Mr. Go to enter into the
the Collateral at a level equal to that provided for under Sec. 2.01 of this Indenture loan agreement:54
and, for such purpose, shall make such substitutions, replacements, and additions Resolution No. 95-015
for or to the Collateral.
RESOLVED, AS IT HEREBY RESOLVED, that the Corporation [appellant] be as it is
If at any time, in the opinion of the Trustee [ Solidbank-Trust Division] and the hereby authorized, to enter into a Mortgage Trust Indenture (MTI) arrangement
Majority Creditors [Solidbank/appellee], the Sound Value of the Collateral is with Solidbank Corporation-Trust Division.
impaired, or there is substantial and imminent danger of such impairment, the
[appellant] shall, upon demand of [Solidbank-Trust Division], effect the substitution RESOLVED FURTHER, that the [appellant], be as it is hereby authorized to secure a
of the Collateral or part thereof with another or others and/or execute additional loan in the amount of THREE HUNDRED MILLION only (P300,000,000.00) PESOS
mortgages on other properties and/or deposit cash with the [Solidbank-Trust from Solidbank Corporation [appellant] under said Mortgage Trust Indenture on
Division] satisfactory to the [Solidbank-Trust Division] and [Solidbank].44 (Emphasis such items, conditions, and stipulations that the [appellant] may think fit for the
in the original) purpose of the loan and to mortgage the [appellant]'s assets as security and/or
collateral for the loan and other credit facilities.
Under the Indenture, Gotesco agreed to provide additional collateral "[i]f at any
time, in the opinion of the Trustee and the Majority Creditors, the Sound Value of
RESOLVED FURTHER, that JOSE C. GO, be, as he is hereby authorized, to negotiate
the Collateral is impaired."45 Gotesco should have provided the additional security
and accept the terms and conditions and to sign, execute and deliver any and all
demanded by Solidbank after learning that the value of the properties used as
promissory notes, bonds, mortgages and all other documents necessary in the
collateral had been reduced significantly. When Gotesco "chose to rely on its
execution of the aforesaid resolutions with the said banks, for and in behalf of the
opinion, over and above and contrary to the opinion of the Trustee and the
[appellant].55
Creditor," it defaulted on its obligation. 46 Thus, the Court of Appeals ruled that
Gotesco's refusal to address the inadequacy of the collateral was sufficient reason Lastly, since there was no third party with adverse interest that occupied the
for Solidbank to foreclose the property. property, the issuance of the Writ of Possession was ministerial. 56

The Court of Appeals found that the requisites under Section 3 of Act No. 3135 The dispositive portion of the Court of Appeals May 31, 2013 Decision
were satisfied.47 The Notice of Sale was physically posted in the Office of the Clerk provided:chanRoblesvirtualLawlibrary
of Court, the Registry of Deeds, and the Capitol Grounds. 48 Alongside the posting, WHEREFORE, premises considered, the appeal is hereby DISMISSED. The Decision
the Notice of Sale was published in Remate in its issues dated July 29, 2000, August dated May 4, 2011, and the Order dated September 6, 2011, of the Regional Trial
5, 2000, and August 12, 2000.49 The Court of Appeals rejected Gotesco's allegation Court, Branch 47, San Fernando, Pampanga in the consolidated cases docketed as
that the publication was invalid for being published in a newspaper not printed in Civil Case No. 12212 and LRC No. 726, are hereby AFFIRMED. Costs against
the city where the property was located. According to the Court of Appeals, the appellant Gotesco Properties Incorporated. SO ORDERED.57 (Emphasis in the
fact that Remate was published in Metro Manila, not in Pampanga, did not mean original)
that it was not a newspaper of general circulation. 50 It was still a newspaper of
Gotesco filed a Motion for Reconsideration but it was denied in the
general circulation; thus, the publication was valid. The Court of Appeals ruled,
Resolution58 promulgated on October 7, 2013.
"[t]he Notice of Sale, Affidavit of Publication, and Affidavit of Posting sufficiently
prove that the jurisdictional requirements regarding publication of the Notice were
Hence, this Petition for Review on Certiorari was filed on November 28,2013. 59
complied with."51 There was also documentary evidence proving that contrary to
Gotesco's claim, it received a demand letter from Solidbank. 52
In this Petition, petitioner Gotesco maintains that the foreclosure proceeding is null to petitioner.
and void. It insists that respondent Solidbank agreed to restructure its loan,
granting a "payment period of seven (7) years with two (2) years grace period." 60 It Thereafter, respondent filed a Comment 70 and a Supplemental Comment71 to the
continues to argue that respondent impliedly accepted petitioner's proposal when Petition. Respondent denies that it agreed to restructure petitioner's loan. It
it asked for an increase in the collateral. 61 Respondent reneged on the restructuring emphasized that petitioner has not shown any concrete proof that respondent
agreement when it caused the foreclosure of the property prematurely. accepted the proposal. Moreover, the alleged restructuring agreement was not
offered in evidence and cannot be considered by this Court. 72
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 In its Comment, respondent explains that it is of no moment that the mortgage
failure to pay within 10 days after receipt of the notice of default. Allegedly, agreement was executed before the promissory notes. Jurisprudence has
respondent did not send any notice. Respondent's failure to prove that it sent a recognized that a mortgage can secure present and future obligations. 73 In any
demand letter means the obligation is not yet due and demandable. 62 case, since petitioner is arguing that the obligation was restructured, it is now
estopped from questioning the validity of the Indenture. 74
Petitioner avers that the mortgage is void because the principal obligation it
secured was still inexistent when the Indenture was signed. The mortgage was
executed on August 9, 1995. The promissory notes representing the loans were Respondent argues that petitioner cannot claim that it was not notified of the
dated August 14, 1995, August 21, 1995, and August 28, 1995. Since the mortgage default. Respondent submitted a return card which indicated that the demand
was only an accessory contract, "it cannot stand alone absent a principal obligation letter dated June 7, 2000 informing Gotesco of its default was received by
to secure."63 petitioner.75 There is also a provision in the promissory note, which states that
  failure to pay the amounts due makes the obligation immediately due, without
Petitioner alleges that Mr. Go was not sanctioned by Gotesco's Board of Directors need for notice or demand.76
"to appoint the bank as the attorney-in-fact to conduct an extra-judicial
foreclosure."64 Thus, the subsequent proceedings are void. Respondent took the position that Mr. Go was clearly authorized by the Board of
Directors to sign the Indenture. Since the appointment of Solidbank-Trust Division
as an attorney-in-fact was an integral part of the agreement, petitioner was bound
Moreover, petitioner insists that Section 3 of Act No. 3135 was violated. The law by Mr. Go's assent. In any case, this contention was not alleged in the Complaint;
requires that the Notice of Sale be posted for not less than 20 days before the day hence, it is immaterial.77
of the auction sale. According to the Affidavit of Posting by Janet Torres, Atty.
Mangiliman's law clerk,65 the Notice of Sale was posted on August 15, 2000. 66 Since According to respondent, Section 3 of Act No. 3135 was complied with. Remate is a
the auction sale was conducted on August 31, 2000, the 20-day period was not newspaper of general circulation. It is among the newspapers accredited by the
followed.67 Regional Trial Court where a notice of sale can be published. 78 Petitioner also
cannot raise for the first time on appeal the allegation that the Notice of Sale was
Petitioner further contends that the publication of the Notice of Sale defective for being posted less than 20 days before the auction sale. 79
in Remate was defective. Petitioner is of the opinion that the Notice of Sale should
have been published in newspapers published, edited and circulated" in the same Respondent holds that the Writ of Possession was validly issued because its
city or province where the foreclosed property was located. 68 Since the land being issuance was ministerial.
sold was situated at San Fernando, Pampanga and Remate was printed and
published in Manila, petitioner suggests that the publication requirement was A Reply80 was filed by petitioner on May 20, 2014 in compliance with this Court's
violated.69 March 17, 2014 Resolution.

Consequently, since the foreclosure proceeding was void, there was no basis for
the issuance of the Writ of Possession. Possession of the property must revert back 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. (c) any representation or warranty or statement made or furnished to this Trustee
Leonen, former Dean of the College of Law of the University of the Philippines, for by or on behalf of the Company in connection with this Indenture shall prove to
his ties with Metrobank Foundation. 82 The ponente allegedly had a working have been false in any material respect when made or furnished or deemed made;
relationship with respondent.83 First, he was an awardee of the professorial chair of
the Metrobank Foundation. 84 Second, he was chosen as a speaker in the (d) the Company shall default in the due performance or observance of any
Metrobank Professorial Chair and Metrobank's Country's Outstanding Police provision contained herein and such default continues unremedied for thirty (30)
Officers in Service.85 Respondent opposed the Motion for Voluntary Inhibition as days after notice to the Company by the Trustee; or
"none of the grounds for mandatory inhibition exist[s] in the present instance." 86
(e) the lien created by this Indenture shall be lost or impaired or shall cease to be
In this Court's January 25, 2016 Resolution, 87 the Motion for Inhibition was denied a first and preferred lien upon the Collateral.93 (Emphasis supplied)
for lack of merit. The Internal Rules of the Supreme Court 88 provide several grounds
Petitioner defaulted in its obligation twice. First, when it failed to pay the loan
for inhibition in addition to those stated under Rule 137, Section 1 89 of the Rules of
according to the terms of the promissory note. Second, when it failed to provide
Court. There was no need for the ponente to inhibit since none of the enumerated
the additional collateral demanded by respondent.
circumstances was attendant in this case. Justices are not given unfettered
discretion to desist from hearing a case. 90 Mere imputation of bias or partiality is
Petitioner never refuted that it defaulted in its payment of the loan. In its
not enough; there must be a just and valid cause for inhibition to prosper. 91
Stipulation of Facts/Admissions and Proposed Marking of Exhibits, petitioner
admitted to proposing the loan restructuring because of its inability to meet the
On March 20, 2017, respondent filed a Motion for Resolution claiming the case is
loan payments.94 The loan restructuring agreement would have given Petitioner an
ripe for resolution.92
additional "payment period of seven (7) years with two (2) years grace period on
principal payment."95
There are three (3) issues to be resolved before this Court: First, whether the
foreclosure was premature;
However, as the Court of Appeals correctly held, that there was no perfected
restructuring agreement between the parties. The Civil Code requires absolute
Second, whether the requirements under Section 3 of Act No. 3135 were complied
acceptance of the offer before it can be considered a binding
with; and
contract:chanRoblesvirtualLawlibrary
Article 1319. Consent is manifested by the meeting of the offer and the acceptance
Finally, whether the Writ of Possession was properly issued.
upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
I.A counter-offer.

Petitioner defaulted in its obligation. Thus, respondent was within its rights to Acceptance made by letter or telegram does not bind the offerer except from the
foreclose the property. time it came to his knowledge. The contract, in such a case, is presumed to have
been entered into in the place where the offer was made.
Section 5 of the Indenture provided:chanRoblesvirtualLawlibrary
5.01 Events of Default. Each of the following shall constitute an Event of Default Mendoza v. Court of Appeals 96 tells us that "[o]nly an absolute and unqualified
under this Indenture: acceptance of a definite offer manifests the consent necessary to perfect a
contract."97
(a) the Company shall fail to pay at stated maturity, by acceleration or otherwise
to any Creditor any amount due and owing under a Secured Principal Document; For a proposal to bind a party, there must be proof that it consented to all the
terms on offer.98 To prove that the original period of payment was extended,
(b) any event of default under the Secured Principal Documents shall occur; petitioner must show that respondent unequivocally accepted the offer. In this
case, petitioner did not present any shred of evidence which would prove that
respondent agreed to restructure the loan. At best, petitioner only alleged that it The Company [Gotesco/appellant] shall at all times maintain the Sound Value of
sent a letter to respondent to ask for a debt restructuring. However, sending a the Collateral at a level equal to that provided for under Sec. 2.01 of this Indenture
proposal is not enough. There must be proof that respondent expressly accepted and, for such purpose, shall make such substitutions, replacements, and additions
the offer. Without an absolute acceptance, there is no concurrence of for or to the Collateral.
minds.99 Thus, this Court cannot bind respondent to stipulations it never consented
to. If at any time, in the opinion of the Trustee [Solidbank-Trust Division] and the
Majority Creditors [Solidbank/appeilec], the Sound Value of the Collateral is
Petitioner points to respondent's February 9, 2000 letter claiming that if impaired, or there is substantial and imminent danger of such impairment,
respondent had not agreed to the proposal, it would not have asked for additional [appellant] shall, upon demand of [Solidbank-Trust Division], effect the substitution
collateral.100 of the Collateral or part thereof with another or others and/or execute additional
mortgages on other properties and/or deposit cash with the [Solidbank-Trust
However, respondent's February 9, 2000 letter showed no indication that it Division] satisfactory to the [Solidbank-Trust Division] and [Solidbank]. 106 (Emphasis
extended the loan's payment period. It did not even mention any restructuring supplied)
proposal. The demand to address the deficiency in the loan's security cannot be
interpreted as an implied agreement to restructure the loan. On February 9, 2000, respondent wrote to petitioner claiming that the appraised
value of the mortgaged properties decreased. 107 Respondent then asked petitioner
Notably, petitioner did not offer the alleged restructuring agreement in evidence. to "address the deficiency in the required collateral." 108 The letter, in part,
As respondent points out, the theory that the loan was restructured is hinged on provided:
the January 24, 2000 letter from petitioner. 101 However, this letter which allegedly
proposed the restructuring of petitioner's obligation was not offered in At present, the outstanding secured obligations covered by the [Mortgage Trust
evidence.102 Under the rules, this Court cannot consider any evidence not formally Indenture are] P300 Million, which MPC is held solely by Solidbank Corporation.
offered.103 In Spouses Ong v. Court of Appeals,104 this Court exonerated a common The reduction in the collateral values of the properties shall therefore impair the
carrier from liability because the police report finding it liable was not formally required collateral to loan ratio of 200%.
offered in evidence. This Court explained:chanRoblesvirtualLawlibrary
In this regard, we urge you to address the deficiency in the required collateral
A formal offer is necessary, since judges are required to base their findings of fact
cover soonest and make the necessary substitution, replacements and/or additions
and their judgment solely and strictly upon the evidence offered by the parties at
on the mortgaged properties. Section 4.03 of the [Mortgage Trust Indenture]
the trial. To allow parties to attach any document to their pleadings and then
requires that [Gotesco Properties, Inc.] shall maintain at all times the Sound Value
expect the court to consider it as evidence, even without formal offer and
of the mortgaged property at a level at least equal to the required collateral
admission, may draw unwarranted consequences. Opposing parties will be
cover.109
deprived of their chance to examine the document and to object to its
admissibility. On the other hand, the appellate court will have difficulty reviewing Petitioner chose not to heed this demand and insisted that the aggregate sound
documents not previously scrutinized by the court below. 105 (Citation omitted) value of the mortgaged properties was still at P1,076,905,000.00. 110 It added:
Since the loan restructuring which Gotesco proposed was not accepted, there is no
42. And even assuming arguendo that the value of the mortgaged properties has
question that petitioner defaulted on the payment of its loan.
vent down, the fact remains that being a real estate property, it could not go down
more than 50% of the value thereof. Thus, at best the least valuation of these
Petitioner's failure to provide the additional collateral demanded by respondent
mortgaged properties would be no less than P600 million, which is more than
constituted another Event of Default under the Indenture.
enough to cover the balance of the loan obligations. 111
The determination of whether the collateral is impaired lies on respondent. As the
Under the Indenture, petitioner agreed to maintain the value of the collateral at a
Court of Appeals aptly put, petitioner ignored respondent's demand "to its
level at least equal to the required collateral cover. Section 4.03 of the Indenture
ruination."112
provided:
Under the Civil Code,113 there is default when a party obliged to deliver something substantial evidence, this Court sees no reason to disturb the findings of the Court
fails to do so. In Social Security System v. Moonwalk Development & Housing of Appeals.122
Corp.,114 this Court enumerated the elements of default:
I.C
In order that the debtor may be in default it is necessary that the following
requisites be present: (1) that the obligation be demandable and already The contention that Mr. Go did not have the authority to appoint Solidbank-Trust
liquidated; (2) that the debtor delays performance; and (3) that the creditor Division as an attorney-in-fact for the purpose of selling the mortgaged property is
requires the performance judicially and extrajudicially. Default generally begins untenable. As the Court of Appeals correctly pointed out:
from the moment the creditor demands the performance of the
obligation.115 (Citations omitted) Since Mr. Go was authorized to sign the Indenture, and the provision of
When respondent asked to have the mortgaged properties replaced, it was appointment of the [respondent] as attorney-in-fact in the event of foreclosure is
requiring petitioner to comply with its obligation to sustain the loan's security at an an integral portion of the terms and conditions of the Indenture, Mr. Go was,
appropriate level. Clearly, petitioner defaulted when it refused to heed therefore, authorized and invested with the power to appoint an attorney-in-
respondent's demand for additional collateral, as expressed in the February 9, 2000 fact.123
letter. This gave respondent enough reason to foreclose the property. In any case, petitioner is not allowed to bring a new issue on appeal. Since the
question regarding Mr. Go's authority was only presented before the Court of
I.B Appeals, it deserves scant consideration.

Petitioner argues that the foreclosure should not have been initiated because it Canada v. All Commodities Marketing Corporation 124 explained that raising a new
was not notified that an event of default occurred. It claims that under the argument on appeal violates due process:
Indenture, it should have been notified that it was in default and that the obligation As a rule, no question will be entertained on appeal unless it has been raised in the
was due and demandable. After such notice, it should have been given 10 days to court below. Points of law, theories, issues and arguments not brought to the
settle the debt. Petitioner avers that the foreclosure proceeding could only be attention of the lower court ordinarily will not be considered by a reviewing court
initiated upon failure to pay after the lapse of the 10-day period. 116 because they cannot be raised for the first time at that late stage. Basic
considerations of due process underlie this rule. It would be unfair to the adverse
Petitioner claims it did not receive any demand letter. Gotesco's first witness, party who would have no opportunity to present evidence in contra to the new
Arturo M. Garcia, testified that Gotesco did not receive any written demand. 117 On theory, which it could have done had it been aware of it at the time of the hearing
the other hand, respondent avers that it sent a demand letter dated June 7, 2000 before the trial court. To permit petitioner at this stage to change his theory would
to petitioner.118 As proof, respondent submitted a return card which indicated that thus be unfair to respondent, and offend the basic rules of fair play, justice and due
the letter was accepted by the addressee. process.125 (Citations omitted)
II.A
This Court rules for respondent.
As to the validity of the foreclosure proceeding, this Court rules in the affirmative.
Documentary evidence will generally prevail over testimonial evidence. 119 As the
Court of Appeals noted, the return card submitted by respondent proves that the Section 3 of Act No. 3135 provides:chanRoblesvirtualLawlibrary
demand letter was received by petitioner. 120 This Court is inclined to give more Section 3. Notice shall be given by posting notices of the sale for not less than
evidentiary weight to documentary evidence as opposed to a testimony which can twenty days in at least three public places of the municipality or city where the
be easily fabricated.121 In any case, the question of whether the letter was received property is situated, and if such property is worth more than four hundred pesos,
is a factual matter better left to the lower courts. Since the factual findings of such notice shall also be published once a week for at least three consecutive
appellate courts are conclusive and binding upon this Court when supported by weeks in a newspaper of general circulation in the municipality or city.
Section 3 of Act No. 3135 requires that the Notice of Sale be a) physically posted in what the law requires is the publication of the Notice of Sale in a "newspaper of
three (3) public places and b) be published once a week for at least three (3) general circulation," which is defined as:
consecutive weeks in a newspaper of general circulation in the city where the To be a newspaper of general circulation, it is enough that "it is published for the
property is situated. dissemination of local news and general information; that it has a bona fide
subscription list of paying subscribers; that it is published at regular intervals" . . .
Petitioner claims that since the foreclosed property was located in Pampanga, the The newspaper need not have the largest circulation so long as it is of general
publication of the Notice of Sale in Remate was not valid. Petitioner suggests that circulation.132
the Notice of Sale could only be published in a newspaper printed in the city where
Verily, there is clear emphasis on the audience reached by the paper; the place of
the property was located. It posits that because Remate was printed and published
printing is not even considered.
in Manila, not in San Fernando, Pampanga, the publication was defective. 126
The Court of Appeals pointed out that Remate is an accredited publication by the
Petitioner is mistaken. Fortune Motors (Phils.), Inc. v. Metropolitan Bank and Trust
Regional Trial Court of Pampanga. 133 As argued by respondent:
Co.127 already considered this argument and ruled that this interpretation is too
restricting:
94. It merits judicial notice that the newspaper where the Notice of Sale was
published is chosen by raffle among newspaper publications accredited by the
Were the interpretation of the trial court (sic) to be followed, even the leading
Regional Trial Court with territorial jurisdiction over the real property to be
dailies in the country like the 'Manila Bulletin,' the 'Philippine Daily Inquirer,' or
foreclosed. It can be safely presumed that the RTC in this regard imposed standards
'The Philippine Star' which all enjoy a wide circulation throughout the country,
and criteria for these newspapers to qualify for the raffle, among the criteria being
cannot publish legal notices that would be honored outside the place of their
that they [are] newspapers of general circulation in the locality. More so in this
publication. But this is not the interpretation given by the courts. For what is
instance, when it merits judicial notice that the Remate, is one of the most widely
important is that a paper should be in general circulation in the place where the
circulated tabloids in the country. 134
properties to be foreclosed are located in order that publication may serve the
purpose for which it was intended.128 II.B
If notices are only published in newspapers printed in the city where the property is
As to the alleged defect with the posting requirement, petitioner argues that the
located, even newspapers that are circulated nationwide will be disqualified from
Notice of Sale was posted less than the required 20 days. Respondent points out
announcing auction sales outside their city of publication. 129 This runs contrary to
that this issue was alleged for the first time before this Court and should not be
the spirit of the law which is to attain wide enough publicity so all parties
considered.
interested in acquiring the property can be informed of the upcoming sale. 130 This
Court ruled:
This Court rules for respondent.
We take judicial notice of the fact that newspaper publications have more far-
Records show that petitioner only raised this argument in the Petition for Review
reaching effects than posting on bulletin boards in public places. There is a greater
submitted before this Court. The alleged defect was not raised before the lower
probability that an announcement or notice published in a newspaper of general
courts. Notably, this is not the first time petitioner raised a new issue on appeal. As
circulation, which is distributed nationwide, shall have a readership of more people
previously discussed, it raised Mr. Go's alleged lack of authority for the first time
than that posted in a public bulletin board, no matter how strategic its location may
before the Court of Appeals. This Court reiterates that this practice cannot stand
be, which caters only to a limited few. Hence, the publication of the notice of sale
because raising new issues on appeal violates due process. 135
in the newspaper of general circulation alone is more than sufficient compliance
with the notice-posting requirement of the law. By such publication, a reasonably
In any case, the alleged defect in the posting is superficial. The Notice of Sale was
wide publicity had been effected such that those interested might attend the public
posted on August 15, 2000,136 while the auction sale took place on August 31,
sale, and the purpose of the law had been thereby subserved. 131
2000.137 The Notice of Sale was posted for 16 days, only four (4) days less than what
The crucial factor is not where the newspaper is printed but whether the the law requires.
newspaper is being circulated in the city where the property is located. Markedly,
The object of a Notice of Sale in an extrajudicial foreclosure proceeding is to inform The last sentence of Rule 39, Section 33 of the Rules of Court is instructive:
the public of the nature and condition of the property to be sold and the time,
place, and terms of the auction sale. Mistakes or omissions that do not impede this Section 33. Deed and possession to be given at expiration of redemption period; by
objective will not invalidate the Notice of Sale. 138Olizon v. Court of whom executed or given. — If no redemption be made within one (1) year from the
Appeals139 explained: date of the registration of the certificate of sale, the purchaser is entitled to a
conveyance and possession of the property; or, if so redeemed whenever sixty (60)
The object of a notice of sale is to inform the public of the nature and condition of days have elapsed and no other redemption has been made, and notice thereof
the property to be sold, and of the time, place and terms of the sale. Notices are given, and the time for redemption has expired, the last redemptioner is entitled to
given for the purpose of securing bidders and to prevent a sacrifice of the property. the conveyance and possession; but in all cases the judgment obligor shall have the
If these objects are attained, immaterial errors and mistakes will not affect the entire period of one (1) year from the date of the registration of the sale to redeem
sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, the property. The deed shall be executed by the officer making the sale or by his
which are calculated to deter or mislead bidders, to depreciate the value of the successor in office, and in the latter case shall have the same validity as though the
property, or to prevent it from bringing a fair price, such mistakes or omissions will officer making the sale had continued in office and executed it.
be fatal to the validity of the notice, and also to the sale made pursuant
thereto.140 (Citation omitted) 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
III
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
Generally, the purchaser in a public auction sale of a foreclosed property is entitled
unless a third party is actually holding the property adversely to the judgment
to a writ of possession during the redemption period. Section 7 of Act No. 3135, as
obligor. (Emphasis supplied.)
amended by Act No. 4118, provides:
This is in line with this Court's pronouncement in Saavedra v. Siari Valley Estates,
Section 7. In any sale made under the provisions of this Act, the purchaser may Inc.143 that:chanRoblesvirtualLawlibrary
petition the Court of First Instance of the province or place where the property or Where a parcel levied upon on execution is occupied by a party other than a
any part thereof is situated, to give him possession thereof during the redemption judgment debtor, the procedure is for the court to order a hearing to determine
period, furnishing bond in an amount equivalent to the use of the property for a the nature of said adverse possession. 144
period of twelve months, to indemnify the debtor in case it be shown that the sale
This Court in China Banking Corp. v. Spouses Lozada 145 discussed that when the
was made without violating the mortgage or without complying with the
foreclosed property is in the possession of a third party, the issuance of a writ of
requirements of this Act. Such petition shall be made under oath and filed in form
possession in favor of the purchaser ceases to be ministerial and may no longer be
of an ex parte motion in the registration or cadastral proceedings if the property is
done ex parte.146 However, for this exception to apply, the property must be held
registered, or in special proceedings in the case of property registered under the
by the third party adversely to the mortgagor. 147 The Court of Appeals correctly
Mortgage Law or under section one hundred and ninety-four of the Administrative
held that this case does not fall under the exception. 148 Since it is the petitioner,
Code, or of any other real property encumbered with a mortgage duly registered in
and not a third party, who is occupying the property, the issuance of the Writ of
the office of any register of deeds in accordance with any existing law, and in each
Possession is ministerial.
case the clerk of the court shall, upon the filing of such petition, collect the fees
specified in paragraph eleven of section one hundred and fourteen of Act
There is also no merit to petitioner's argument that the Writ of Possession should
Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-
not be issued while the complaint for the annulment of the foreclosure proceeding
eight hundred and sixty-six, and the court shall, upon approval of the bond, order
is still pending. Fernandez v. Spouses Espinoza149 already ruled that a pending case
that a writ of possession issue, addressed to the sheriff of the province in which the
assailing the validity of the foreclosure proceeding is immaterial
property is situated, who shall execute said order immediately.
It is ministerial upon the trial court to issue such writ upon an ex parte petition of
Any question regarding the validity of the mortgage or its foreclosure cannot be a
the purchaser.141 However, this rule admits an exception. 142
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 This resolves a Petition for Review on Certiorari 2 directly filed before this Court,
itself, the purchaser is entitled to a writ of possession, without prejudice, of course, assailing the Judgment on the Pleadings 3 dated April 13, 2010 and Order 4 dated
to the eventual outcome of the pending annulment case. 150 (Citation omitted) September 2, 2010 rendered by Branch 20 of the Regional Trial Court of Cebu City
in Civil Case No. CEB-33639. The trial court dismissed the Complaint filed by
As the winning bidder, respondent is entitled to the Writ of Possession.
Makilito B. Mahinay (Mahinay), declaring that he already lost his right to redeem a
parcel of land sold in an extrajudicial foreclosure sale. 5
WHEREFORE, the Petition for Review on Certiorari is hereby DENIED. The assailed
Decision of the Court of Appeals dated May 31, 2013 and Resolution dated October
7, 2013 in CA-G.R. CV No. 97748 are AFFIRMED. SO ORDERED. The parcel of land, with an area of 3,616 square meters and located in Barrio Kiot,
Cebu City, was covered by Transfer Certificate of Title (TCT) No. 111078 under the
name of A&A Swiss International Commercial, Inc. (A&A Swiss). 6 The property was
mortgaged to Dura Tire and Rubber Industries, Inc. (Dura Tire), a corporation
engaged in the supply of raw materials for tire processing and recapping, as
security for credit purchases to be made by Move Overland Venture and Exploring,
Inc. (Move Overland).7 Under the mortgage agreement, Dura Tire was given the
express authority to extrajudicially foreclose the property should Move Overland
fail to pay its credit purchases.8

On June 5, 1992, A&A Swiss sold the property to Mahinay for the sum of
P540,000.00.9 In the Deed of Absolute Sale, 10 Mahinay acknowledged that the
property had been previously mortgaged by A&A Swiss to Dura Tire, holding
himself liable for any claims that Dura Tire may have against Move Overland. 11

On August 21, 1994, Mahinay wrote Dura Tire, requesting a statement of account
of Move Overland's credit purchases. Mahinay sought to pay Move Overland's
obligation to release the property from the mortgage. 12 Dura Tire, however,
ignored Mahinay's request.13

For Move Overland's failure to pay its credit purchases, Dura Tire applied for
extrajudicial foreclosure of the property on January 6, 1995. 14 Mahinay protested
the impending sale and filed a third-party claim before the Office of the Provincial
SECOND DIVISION Sheriff of Cebu.15
G.R. No. 194152, June 05, 2017
MAKILITO B. MAHINAY, Petitioner, v. DURA TIRE & RUBBER INDUSTRIES,
INC., Respondent. Despite the protest, Sheriff Romeo Laurel (Sheriff Laurel) proceeded with the sale
DECISION and issued a Certificate of Sale in favor of Dura Tire, the highest bidder at the
LEONEN, J.: sale.16 The property was purchased at P950,000.00, and the Certificate of Sale was
registered on February 20, 1995.17

The period to redeem a property sold in an extrajudicial foreclosure sale is not

extendible. A pending action to annul the foreclosure sale does not toll the running On March 23, 1995, Mahinay filed a Complaint 18 for specific performance and
of the one (1)-year period of redemption under Act No. 3135. 1 annulment of auction sale before the Regional Trial Court of Cebu City. According
to Mahinay, there was no proof that Dura Tire supplied raw materials to Move
Overland after the property was mortgaged. 19 Mahinay added that Dura Tire
allegedly deprived him of the opportunity to release the property from the foreclosure,"38 Mahinay argued that he "must have possessed and still continues to
mortgage by failing to furnish him with Move Overland's statement of possess the absolute right to redeem the [property]." 39
account.20 Dura Tire, therefore, had no right to foreclose the mortgage and the
foreclosure sale was void. Dura Tire answered40 the Complaint, raising the affirmative defense of res judicata.
Dura Tire argued that the Complaint for judicial declaration of right to redeem had
In its Answer,21 Dura Tire mainly argued that Mahinay had no cause of action to file identical parties, subject matter, and causes of action with that of the Complaint
the Complaint to annul the foreclosure sale since he was not privy to the mortgage for annulment of foreclosure sale. 41 Furthermore, the period of Mahinay's right of
agreement.22 redemption had already lapsed. Therefore, Mahinay could not be allowed to
belatedly redeem the property. 42
Acting on Dura Tire's affirmative defense, Branch 15 of the Regional Trial Court of
Cebu City initially dismissed the Complaint. 23 However, on mandamus and
During the hearing on October 27, 2008, Mahinay and Dura Tire jointly moved for a
certiorari, the Court of Appeals set aside the order of the trial court and remanded
judgment on the pleadings. The trial court granted the motion and deemed the
the case for further proceedings. 24 The case was then re-raffled to Branch 12 of the
case submitted for decision after the filing of memoranda. 43
Regional Trial Court of Cebu City.25

Mahinay having acquired the property from A&A Swiss before Dura Tire foreclosed
After pre-trial proceedings, the trial court again ordered the dismissal of the
the property, the trial court ruled that Mahinay became a "successor-in-interest" to
Complaint due to Mahinay's failure to prosecute the case. However, upon
the property even before the foreclosure sale. Therefore, by operation of law,
Mahinay's Motion for Reconsideration, the case was reinstated. 26
Mahinay was legally entitled to redeem the property. 44 However, considering that
one (1) year period of redemption had already lapsed, Mahinay could no longer
The case was again re-raffled, this time to Branch 58. 27 After due proceedings, the exercise his right of redemption. 45
trial court ultimately dismissed Mahinay's Complaint in the Decision 28 dated July 29,
2004. The trial court held that Dura Tire was entitled to foreclose the property
Despite Dura Tire's refusal to accept his offer to pay Move Overland's unpaid credit
because of Move Overland's unpaid credit purchases. 29
purchases, the trial court said that "there was nothing to stop [Mahinay] from
redeeming the property as soon as he became aware of the foreclosure sale.
Mahinay's appeal was dismissed by the Court of Appeals in the Decision 30 dated [Mahinay] could have . . . filed an action to compel [Dura Tire] to accept payment
June 16, 2006. The Court of Appeals held that Mahinay had no right to question the by way of redemption." 46
foreclosure of the property. 31 Mahinay, as "substitute mortgagor," 32 was fully
aware that the property he purchased from A&A Swiss was previously mortgaged
Hence, in the Judgment on the Pleadings 47 dated April 13, 2010, Branch 20 of the
to Dura Tire to answer for Move Overland's obligation. Considering that Move
Regional Trial Court of Cebu City dismissed Mahinay's Complaint for judicial
Overland failed to pay for its credit purchases, Dura Tire had every right to
declaration of right to redeem. The dispositive portion of the Judgment read:
foreclose the property.33

Mahinay filed a Petition for Review on Certiorari 34 before this Court. In G.R. No. Upon the foregoing considerations, the court finds no factual and legal basis to
173117, this Court denied Mahinay's Petition as well as his Motion for grant the plaintiffs plea to be allowed to redeem the foreclosed property subject of
Reconsideration. 35 The June 16, 2006 Decision of the Court of Appeals thus became this case.
final and executory on August 8, 2007, 15 days after Mahinay received a copy of
the Resolution denying his Motion for Reconsideration filed before this Court. 36 IN CONSEQUENCE, Judgment is hereby rendered DISMISSING the plaintiffs
Complaint. SO ORDERED.48 (Emphasis in the original)
Relying on the Court of Appeals' finding that he was a "substitute mortgagor," Mahinay filed a Motion for Reconsideration, which the trial court denied in the
Mahinay filed a Complaint37 for judicial declaration of right to redeem on August Order49 dated September 2, 2010.
24, 2007. "As the admitted owner of the [property] at the time of the
On a pure question of law, Mahinay directly filed a Petition for Review on time within the term of one year from and after the date of the sale." Section 6 of
Certiorari50 before this Court. Dura Tire filed its Comment, 51 to which Mahinay filed Act No. 313559 provides:
a Reply.52
Section 6. In all cases in which an extrajudicial sale is made under the special power
Mahinay maintains that he should be allowed to redeem the property he bought hereinbefore referred to, the debtor, his successors in interest or any judicial
from A&A Swiss despite the lapse of one (1) year from the registration of the creditor or judgment creditor of said debtor, or any person having a lien on the
Certificate of Sale on February 20, 1995. Mahinay primarily argues that the one (1)- property subsequent to the mortgage or deed of trust under which the property is
year period of redemption was tolled when he filed the Complaint for annulment of sold, may redeem the same at any time within the term of one year from and after
foreclosure sale on March 23, 1995 and resumed when the June 16, 2006 Decision the date of the sale; and such redemption shall be governed by the provisions of
of the Court of Appeals became final and executory on August 8, 2007. 53 As basis, sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the
Mahinay cites Consolidated Bank & Trust Corp. v. Intermediate Appellate Court.54 Code of Civil Procedure, in so far as these are not inconsistent with the provisions
of this Act.
In the alternative, Mahinay contends that the one (1)-year period of redemption
The "date of the sale" referred to in Section 6 is the date the certificate of sale is
should be counted from the time the June 16, 2006 Decision of the Court of
registered with the Register of Deeds. This is because the sale of registered land
Appeals became final and executory on August 8, 2007. Mahinay theorizes that his
does not "'take effect as a conveyance, or bind the land' until it is registered." 60
right of redemption only arose when he was judicially declared "entitled to redeem
the property" in this decision. 55
The right of redemption being statutory, 61 the mortgagor may compel the
purchaser to sell back the property within the one (1)-year period under Act No.
Since he filed his Complaint for judicial declaration of right to redeem on August 24,
3135. If the purchaser refuses to sell back the property, the mortgagor may tender
2007, only 16 days after August 8, 2007, Mahinay claims that he exercised his right
payment to the Sheriff who conducted the foreclosure sale. 62 Here, Mahinay should
of redemption within the one (1)-year period under Act No. 3135. 56
have tendered payment to Sheriff Laurel instead of insisting on directly paying
Move Overland's unpaid credit purchases to Dura Tire.
Dura Tire counters that nothing prevented Mahinay from exercising his right of
redemption within one (1) year from the registration of the Certificate of
Sale.57 Dura Tire argues that Mahinay's filing of an action for annulment of
As early as 1956, this Court held in Mateo v. Court of Appeals63 that "the right of
foreclosure sale did not toll the running of the redemption period because the law
redemption . . . must . . . be exercised in the mode prescribed by the statute." 64 The
does not allow its extension. 58 Since the one (1)-year period of redemption already
one (1)-year period of redemption is fixed, hence, non-extendible, to "avoid
lapsed, Dura Tire maintains that Mahinay can no longer redeem the property at the
prolonged economic uncertainty over the ownership of the thing sold." 65
bid price paid by the purchaser.
Since the period of redemption is fixed, it cannot be tolled or interrupted by the
The sole issue for this Court's resolution is whether the one (1)-year period of
filing of cases to annul the foreclosure sale or to enforce the right of redemption.
redemption was tolled when Mahinay filed his Complaint for annulment of
"To rule otherwise . . . would constitute a dangerous precedent. A likely offshoot of
foreclosure sale.
such a ruling is the institution of frivolous suits for annulment of mortgage
This Petition must be denied.
intended merely to give the mortgagor more time to redeem the mortgaged
property."66
Contrary to Mahinay's claim, his right to redeem the mortgaged property did not
arise from the Court of Appeals' "judicial declaration" that he was a "substitute
In CMS Stock Brokerage, Inc. v. Court of Appeals,67 Rosario Sandejas (Sandejas)
mortgagor" of A&A Swiss. By force of law, specifically, Section 6 of Act No. 3135,
mortgaged two (2) parcels of land in favor of the Bank of the Philippine Islands. She
Mahinay's right to redeem arose when the mortgaged property was extrajudicially
subsequently mortgaged the same parcels of land to CMS Stock Brokerage, Inc. In
foreclosed and sold at public auction. There is no dispute that Mahinay had a lien
1971, CMS Stock Brokerage, Inc. extrajudicially foreclosed the properties, which
on the property subsequent to the mortgage. Consequently, he had the right to
were sold at a public auction. The certificate of sale was registered on May 19,
buy it back from the purchaser at the sale, Dura Tire in this case, "from and at any
1971.68
More than a year after the registration of the Certificate of Sale, or on November On December 29, 1998, Metrobank wrote the Spouses Pahang to remind them of
15, 1972, Sandejas wrote the president of the CMS Stock Brokerage, Inc., the expiration of their right of redemption on January 27, 1999, 82 Ignoring
requesting for three (3) years within which to redeem the properties she Metrobank's note, the Spouses Pahang instead filed an action for annulment of
mortgaged to it.69 The president allegedly agreed, even giving her five (5) more extrajudicial sale, contending that Metrobank charged them excessive interests and
years to redeem the properties.70 other fees. They likewise prayed in their Complaint that they be allowed to redeem
their mortgaged property.83

However, on February 2, 1973, first mortgagee Bank of the Philippine Islands The right of redemption of the Spouses Pahang thus expired on January 27, 1999.
extrajudicially foreclosed the properties. 71 Despite the third-party claim and action Metrobank consolidated its ownership over the properties, and a transfer
for quieting of title filed by Sandejas, the Sheriff proceeded with the public auction certificate of title was issued in its name. It subsequently filed a petition for
with Carolina Industries, Inc. emerging as the highest bidder. 72 The certificate of issuance of a writ of possession.84
sale was issued to Carolina Industries, Inc. and was registered on December 16,
1983.73 The Spouses Pahang opposed the petition, arguing that their pending action for
annulment of extrajudicial sale tolled the running of the one (1)-year period of
The action for quieting of title was ultimately resolved in favor of CMS Stock redemption.85
Brokerage, Inc. In G.R. No. 101351, this Court held that CMS Stock Brokerage, Inc.
was "the real owner" of the properties, not Sandejas. 74 Rejecting the argument of the Spouses Pahang, this Court held that the "filing of an
action by the redemptioner to enforce his right to redeem does not suspend the
Nine (9) years after the registration of the Certificate of Sale in favor of Carolina running of the statutory period to redeem the property." 86 This Court added that
Industries, or on December 15, 1992, CMS Stock Brokerage, Inc. tendered upon the lapse of the one (1)-year period of redemption, it is the trial court's
P2,341,166.48 as redemption money with the Clerk of Court. It then filed with the ministerial duty to issue a writ of possession to the purchaser at the foreclosure
trial court a motion to require the Sheriff to execute a certificate of sale.87
redemption.75 The trial court, however, denied the motion, reasoning the right of
redemption of CMS Stock Brokerage, Inc. had already lapsed. 76 Here, the Certificate of Sale in favor of Dura Tire was registered on February 20,
1995. Mahinay, as the successor-in-interest of previous owner A&A Swiss, had one
This Court affirmed the trial court's decision. On whether the quieting of title action (1) year from February 20, 1995, or on February 20, 1996, 88 to exercise his right of
filed by Sandejas tolled the running of the one (1)-year period of redemption, this redemption and buy back the property from Dura Tire at the bid price of
Court ruled in the negative. According to this Court, "the issue of ownership insofar P950,000.00.
as [CMS Stock Brokerage, Inc.'s] right of redemption as judgment debtor is
concerned, has no bearing whatsoever, so as have the effect of tolling or With Mahinay failing to redeem the property within the one (1)-year period of
interrupting the running of the 12-month redemption period." 77 This Court noted redemption, his right to redeem had already lapsed. As discussed, the pendency of
that the decision on the quieting of title case would only affect Sandejas' title to the an action to annul the foreclosure sale or to enforce the right to redeem does not
property. toll the running of the period of redemption. The trial court correctly dismissed the
Complaint for judicial declaration of right to redeem.
In Spouses Pahang v. Judge Vestil,78 where spouses Antonio and Lolita Pahang (the
Spouses Pahang) were represented by Mahinay's law firm, 79 the Spouses Pahang Mahinay nevertheless cites Consolidated Bank & Trust Corp. v. Intermediate
loaned P1,500,000.00 from Metrobank and mortgaged a parcel of land as security Appellate Court89 in arguing that the one (1)-year period of redemption was tolled
for the mortgage.80 When the Spouses Pahang failed to pay their loan, Metrobank when he filed the Complaint for annulment of foreclosure sale. In Consolidated
extrajudicially foreclosed the property. At the public sale, Metrobank emerged as Bank, Nicos Industrial Corporation mortgaged parcels of land to Consolidated Bank
the highest bidder and a corresponding certificate of sale was issued to it. The to secure loans totalling P4,076,518.64. When the corporation failed to pay,
Certificate of Sale was registered on January 27, 1998. 81 Consolidated Bank applied for the extrajudicial foreclosure of the properties. 90
 Bank was a victim of fraud. 102 No such fraud exists in the present case.
Writs of attachment were issued in favor of Consolidated Bank and Notices of Levy
were annotated on the transfer certificates of title covering the mortgaged Moreover, the previously discussed cases of CMS Stock Brokerage103 and Spouses
properties. However, a year later, the properties were subsequently foreclosed by Pahang104 were promulgated later than Consolidated Bank.105 That the pendency of
first mortgagee United Coconut Planters Bank, and a certificate of sale was issued an action questioning the legality of the foreclosure sale or enforcing the right of
to the latter on September 6, 1983. A month later, the United Coconut Planters redemption does not toll the running of the period of redemption must be the
Bank sold the properties to Manuel Go, who, in turn, sold the properties to Golden controlling doctrine.
Star Industrial Corporation. Nicos then executed a Waiver of Right of Redemption
in favor of Golden Star.91 All told, the trial court correctly dismissed Mahinay's Complaint for judicial
declaration of right to redeem. To grant the Complaint would have extended the
Golden Star then filed a petition for issuance of a writ of possession over the period of redemption for Mahinay, in contravention of the fixed one (1)-year
properties. The writ of possession was issued, allowing Golden Star to seize the period provided in Act No. 3135.
properties under the custody of the Sheriff of Manila.92
WHEREFORE, the Petition for Review on Certiorari is DENIED. The Judgment on the
Consolidated Bank then filed a motion to annul the writ of possession on Pleadings dated April 13, 2010 and Order dated September 2, 2010 rendered by
November 21, 1983. On a petition for review on certiorari before this Court, Golden Branch 20 of the Regional Trial Court of Cebu City in Civil Case No. CEB-33639
Star argued, among others, that Consolidated Bank had no right to possess the are AFFIRMED. SO ORDERED.
properties. At that time, one (1) year from the registration of the certificate of sale
had already lapsed.93

This Court held that Consolidated Bank's filing of the motion to annul the writ of
possession tolled the running of the one (1)-year period of redemption. 94 This Court
found that Nicos and Golden Star "conspired to defeat [Consolidated Bank's] lien
on the attached properties and to deny the latter its right of
redemption."95 Considering that Consolidated Bank filed its motion to annul the
writ of possession on November 21, 1983, just two (2) months after the certificate
of sale was registered on September 6, 1983, this Court held that Consolidated
Bank may still redeem the properties from Golden Star. 96

Consolidated Bank is not precedent for the present case.

Consolidated Bank cited Ong Chua v. Carr,97 an inapplicable case, as basis for ruling

that "the pendency of an action tolls the term of the right of redemption." 98Ong
Chua involved a sale with right to repurchase, 99 and the period of the "right of
redemption" referred to in that case was governed by the provisions of the Civil
Code on conventional redemption, specifically, Articles 1601 and 1606. 100 On the
other hand, the present case involves the redemption of an extrajudicially
foreclosed property. The right of redemption involved in this case is governed by
Section 6 of Act No. 3135.

The respondents in Consolidated Bank actively denied the petitioner its right of

redemption.101 This Court, therefore, held that the petitioner in Consolidated